Former US Securities and Exchange Commission (SEC) official John Reed Stark urged US financial regulators to ban crypto companies from offering Tether USDT, describing the company as a “gigantic house of cards”.
In a lengthy May 9 Twitter post, Stark discussed several issues Tether was facing to get his point across. According to him, his experience and study of markets and financial statements over the past few years lead him to believe that the stablecoin issuer could be the next domino to fall.
Tether operates in a regulatory vacuum
Stark noted that Tether has operated without regulatory constraint as it has no legal framework governing its US operations. He added that there are no “U.S. requirements on how reserves should be invested, nor any audit or reporting requirements.”
“The fundamentals of Tether, the essence of everything Tether does, are tied exclusively to Tether’s financial reserves. Yet those reserves remain unverified, unconfirmed and therefore dubious,” he added.
According to him, this is a red flag, as Tether users are left to the “condescending and ineffective public relations blather, hype and gaffe”.
Questions about Tether’s statement
Stark criticized Tether’s attestation, saying it cannot replace an audit. According to him, audits are designed to look for possible risks, while certificates only examine whether the data presented is correct at the time.
stark said:
“An attestation is not the same as an audit under any circumstances – and this kind of ‘unverified snapshot’ would never pass the regulation.”
In addition, the stablecoin issuer was no longer legally required to submit its reserve certificates. This means the company may not provide further attestations, raising more questions about its reserves.
Meanwhile, Tether released its latest attestation report earlier today, reporting net profit of $1.5 billion in the first quarter of the year.
“If Tether’s internal controls are so flawed that an instant accounting of its financial reserves – down to the penny – can’t be done at the click of a mouse, that speaks volumes about Tether’s reliability and credibility.”
Stark further questioned why Tether’s Chief Technology Officer Paolo Ardonio was constantly discussing the company’s financial condition and not the Chief Financial Officer.
Calls for prohibition
Strong noted that Ontario, Canada, has banned crypto platforms from offering Tether USDT and urged the US to do the same.
Earlier this year, Crypto.com scrapped USDT for Canadians, citing compliance with regulatory requirements.
Meanwhile, this isn’t the first time Tether has faced questions about its reserves and operations. The stablecoin issuer has consistently maintained that its business was properly managed and had no exposure to struggling crypto companies.
Despite these issues, Tether’s USDT token remains the largest stablecoin. It has a market cap of $82.53 billion and a 24-hour volume of $24.18 billion.