The controversial “stablecoin” known as Tether has certainly had an interesting past few months. Company founders say the token is backed by physical USD at a 1-to-1 ratio, which has sparked immense discussion and debate inside of the cryptocurrency community.
Some see Tether as a systemic risk to the entire virtual currency world. Others see the startup behind it as an innovative company. Despite immense criticism, Tether became the 10th-largest cryptocurrency by market cap in late June.
However, many have been very skeptical about Tether’s claims that all tokens are backed by reserve U.S. Dollars.
Regulators subpoenaed Tether and the Bitfinex exchange back in Dec. 2017, prompting Tether to hire a law firm called Freeh, Sporkin & Sullivan (FSS) to carry out an investigation relating to compliance and transparency.
Releasing a Transparency Update
In late June, Tether released a “transparency update” that was compiled by FSS after they were granted full access to bank accounts, statements, and spoke with some employees at banks holding Tether assets.
In the report, FSS said they were:
“Confident that Tether’s unencumbered assets exceed the balance of fully-backed USD Tethers in circulation as of June 1st, 2018.”
However, the firm was careful to note that they are not an accounting company and their investigation did not constitute an official “audit.”
As a result, some decried the work by FSS. Others questioned the relationship the firm had with Tether, since FSS partner Judge Eugene Sullivan sits on the advisory board of one of Tether’s banks.
Louis Freeh Discusses Tether
In a recent interview with Yahoo Finance, former FBI Director Louis Freeh (of FSS) answered questions about the Tether investigation and the public’s reactions to the firm’s work.
Freeh was careful to note how FSS wanted to be sure they could conduct the investigation while giving valuable and credible service to Tether.
Even though the work was the firm’s first in the cryptocurrency realm, Freeh said a number of company resources have experience when it comes to virtual currency, like Walter Donaldson, formerly Bank of America’s director of investigations, and Mike Welch, who ran the FBI’s cyber programs.
When asked about the skepticism surrounding the report, Freeh characterized it as “one of the occupational hazards of this type of practice.” He said FSS is very protective of their reputation and does not want to be in a position where it looks like they are promoting an image that is different than the facts.
Freeh also pointed out that Judge Eugene Sullivan was not a part of the report’s drafting process and did not conduct any interviews with Tether’s banking partners.
Overall, Freeh said the bulk of the investigative work was the same type of compliance engagement they would do with any client and primarily focused on looking at key documents and interviewing people.
Freeh said FSS’s plans for the future could involve taking on more crypto-related investigations.
The former FBI chief said the firm was now comfortable with the process, and discussions have opened up at meetings about possibly creating a specific virtual currency sub-group inside of the company.
He said the cryptocurrency space was filled with innovation, excitement, and disruption but noted that the basic ingredients of transparency are still going to be required, overall predicting that the government will “get much more active there in terms of regulation and rule making.”
Featured image from Wikimedia Commons