Former U.S. Securities and Exchange Commission (SEC) official John Reed Stark urged U.S. financial regulators to ban crypto firms from offering Tether USDT, describing the firm as a “mammoth house of cards.”
In a May 9 long-form Twitter post, Stark touched on different issues plaguing Tether to drive home his point. According to him, his experience and study of markets and financial statements over the past years make him 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 a regulatory constraint as it has no legal framework guiding its operations in the U.S. He added that there are no “U.S. requirements on how reserves must be invested, nor any requirements for audits or reporting.”
“Tether’s fundamental business, the essence of everything Tether does, is tied exclusively to Tether’s financial reserves. Yet those reserves remain unaudited, unconfirmed and therefore dubious,” he added.
According to him, this is a red flag as Tether users are left to deal with its “condescending and ineffective public relations blather, hype and bluster.”
Questions about Tether’s attestation
Stark criticized Tether’s attestation, saying it cannot replace an audit. According to him, audits are designed to look for potential risks, while attestations only examine if the presented data is accurate as of that moment.
“Under any circumstance, an attestation is not the same thing as an audit — and this kind of ‘unverified snapshot’ would never pass any sort of regulatory muster.”
Besides that, the stablecoin issuer was no longer legally required to submit its reserves attestations. This means the company might not present any further attestations, leaving more questions about its reserves.
Meanwhile, Tether released its latest attestation report earlier today, showing a net profit of $1.5 billion during the first quarter of the year.
“If Tether’s internal controls are so lacking that an immediate accounting of its financial reserves – to the penny – cannot be done with the click of a mouse, that speaks volumes as to Tether’s reliability and credibility.”
Stark further wondered why Tether’s Chief Technology Officer Paolo Ardonio constantly discussed the company’s financial conditions and not its Chief Financial Officer.
Calls for ban
Stark noted that Ontario, Canada, has banned crypto platforms from offering Tether USDT and urged the U.S. to do the same.
Earlier this year, Crypto.com delisted USDT for Canadians, citing compliance with regulatory demands.
Meanwhile, this is not the first time that Tether would be facing questions about its reserves and operations. The stablecoin issuer has consistently maintained that its business was managed correctly and had no exposure to any struggling crypto firms.
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.