The questions about Tether have been around for at least several months. People see 20 million Tether printed in a day and naturally question whether they really have the 1 to 1 backing they say they do.
Personally, I don't use Tether and I don't have a dog in this fight.
So Tether put out a statement:
https://tether.to/fss-report-transparency-update/
Basically it says that they hired a law firm (FSS) to look at its bank accounts and write a report.
The report is here:
https://tether.to/wp-content/uploads/2018/06/FSS1JUN18-Account-Snapshot-Statement-final-15JUN18.pdf
And the law firm says Tether has 2,545,067,236.82 USD in its two accounts as of June 1 2018. And that pretty much matches the circulating supply of tokens.
So case closed, right?
Well, not really.
There are a number of issues with this release that don't really satisfy a financial guy like myself.
The two fundamental questions this report leaves is: are they telling the truth and do they know what they are talking about?
A lot of people will look at this relationship and question whether the law firm is actually telling an independent story or is representing its client's interests. I'm assuming that the law firm didn't do this work for free, so did that impact their impartiality. On this one, I'm willing to at least believe the firm is being straightforward with what it said in the report.
The question of whether they know what they are talking about is much more important to me. In the report they state:
(1) FSS is not an accounting firm and did not perform the above review and confirmations using Generally Accepted Accounting Principles.
(2) The above confirmation of bank and tether balances should not be construed as the results of an audit and were not conducted in accordance with Generally Accepted Au
diting Standards.
(3) FSS makes no representation regarding the sufficiency of the information provided to FSS and all inquiries made by FSS have been directed to the Client and/or third party personnel responsible for maintaining such information, and the data has been obtained from the Client and/or third party personnel responsible for maintaining such information.
(4) FSS procedures performed are not for the purpose of providing assurance and are limited to the findings listed above as of June 1st, 2018, Close of Business. FSS has not performed any procedures or made any conclusions for activity prior to or subsequent to June 1st , 2018, Close of Business.
(5) FSS did not, as part of the Engagement, arrive at any conclusions as to Tether’s compliance with applicable laws and regulations in any jurisdiction.
(6) FSS has assumed, without further inquiry, that the bank personnel providing the confirmations were duly authorized to provide such confirmations, and that the confirmations were correct.
If you're not into finances, this basically says "we looked at the account statements and they added up to this much." But how much cash you have on hand does not equal how much money you have.
This is what audits are for. In an audit, the auditor takes all the information available and reconstructs the financial position of the entity under audit. So maybe you have that much cash on hand. But maybe it's borrowed and you owe 15% interest on it with certain terms. To arrive at the net present value you have discount that payment stream from the future into the present, which reduces the actual amount of money you have available. I'm not saying that this is actually the case, my point is just that these kinds of things are possible and certainly not answered by this report.
Tether also says that the Big 4 accounting firms refuse to deal with any crypto firms because of the level of risk involved, so they can't actually get an audit. That's plausible. But they could at least publish their internal accounting statements. Public companies are required to do this as well as private ones above a certain size, but Tether is not one of those. They could if they wanted to though.
Bottom line, I don't think this report is going to satisfy Tether's critics.