Why Tether’s latest statement about its auditor is complete BS

I don’t mean to to be an alarmist, but this week my concerns about Tether have reached critical mass.

Before I get into it, I’d like to point out that what follows is a somewhat informed rant. I’m no stranger to cryptocurrency, or accounting. I’ve done some writing and speaking on the topics, and also founded a Bitcoin payment service called Bylls back in 2014. In the accounting world, I served as the first Treasurer of the Blockchain Association of Canada, and have worked on audits of public and private businesses for nearly 5 years at a public accounting firm.

I think Bitcoin and many other crypto projects are fascinating. Decentralized technology is at the intersection of economics, politics, finance, technology and society, making it difficult to ignore. As with any multidisciplinary field, the learning curve may be steep, but luckily there are many helpful resources to get you started.
This brings us back to Tether.

In theory, there is nothing wrong with a cryptocurrency backed by the US dollar. It could act as a tool to reduce your exposure to volatility, and make transferring funds between exchanges much easier (hooray for arbitrage!). There’s clearly demand for such a concept, and Tether isn’t the only “stablecoin” in the game (see: TrueUSD and Maker).

My issues are directly related to the execution of this concept by Tether’s management team. Their public statements and operating style make for an interesting yet troubling read, as detailed in posts by the anonymous blogger Bitfinex’ed.
Case in point: over the weekend, CoinDesk’s Marc Hochstein finally shed some light into Tether’s relationship with its supposed auditor. According to Marc’s article, a Tether spokesman had this to say about the company’s relationship with the accounting firm Friedman LLP:

“We confirm that the relationship with Friedman is dissolved. Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”
Now, I believe in due process and the presumption of innocence, so I’m not here to say definitively whether Tether has all the money that it claims to, or whether its management team is competent and has been acting in good faith.

I’m also not going to make conjectures based on circumstantial evidence.

#1: Auditing cash balances is not complicated or time consuming
#2: Tether is not the first cryptocurrency company to go through the audit process
#3: Tether’s arrogance is painful
#4: There’s no good way to spin “the inability to complete an audit in a reasonable time frame”