Tether (USDT) Account Snapshot Statement [pdf] | Hacker News Reader

Tether (USDT) Account Snapshot Statement [pdf]

tether.to

63 pointsRygu59 comments

eeeeeh I dunno

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 Auditing 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.

7) FSS did not actually verify the liabilities:

> In conjunction with receiving the above balance information, FSS requested the Chief Financial Officer and the General Counsel of Tether to certify, by sworn statement, the amount of fully-backed USD Tethers that were in circulation as of the close of business on June 1st, 2018.

Based on the numerous downvotes, it seems many people didn't actually read the PDF in question. The quote is directly from the report and at no point does FSS claim they verified the USDT half of the claims, only that bank accounts on a particular day held a specified dollar amount.

You didn't counter the point. An Audit isn't some pinky swear. It requires an external accountant to review not only the account balance but how it got there.

Plus "who else might have claims on this".

And... where did it come from...

... that was a quote directly from the PDF. All FSS actually reviewed was the bank balances. The USDT side was based on a sworn statement from Tether, which calls the whole analysis into question.

"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 Auditing Standards."

There was no audit.

7) Who’s to say that the folks at Tether haven’t pledged all that cash as collateral against enormous loans?

Or borrowed it from Bitfinex's customers' holdings before engaging a consulting firm to check their balances.

Oooh even better

While I am not ruling out any shenanigans (and would only really trust an audit from a big 4 firm, if that), the report says that their cash is unencumbered. From investopedia [1], "Creditors do not have any claims to assets that are unencumbered, as there are no associated debts relating specifically to the assets."

[1]: https://www.investopedia.com/terms/u/unencumbered.asp

From the memo:

> 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.

In other words, "unencumbered" here means "Tether told us they're unencumbered".

I work for a big 4 although not as an auditor. Do not trust audits by big 4 firms.

"Borrowed" might be strong.

We don't know how strong the relationship between these companies is. One possibility is that Bitfinex wants to allow customers to immediately withdraw any USD deposits to other exchanges that accept Tether-USD. If that is the case, then effectively all deposits into Bitfinex are immediately "sold" to Tether in exchange for Tether-USD. That would mean that Bitfinex does not have any USD at all. Therefore the balance of USD in Tether's bank accounts would include all Bitfinex deposits.

Except for the opacity involved, nothing here would actually be misleading or obviously unethical; whether it is illegal is another question.

This is a positive sign. I had previously been doubtful that Tether/Bitfinex even had $2.5 billion. This shows they did.

What this document is not, however, is a statement from an auditor. Given (a) Tether's previous auditors resigned and (b) Tether continues to claim, on its website, that it is audited, that remains a red flag.

(In the history of funny money being issued by banks or exchanges, the traditional switcheroo involved presenting customers' deposits as the bank's own funds. Given the totality of this situation, that is what I assume is going on.)

One of the first lessons I learned about investing was, nothing is done until someone puts their signature on a document.

Looking at what's posted I don't see anyone of these 3 former judges or FBI director putting their signature on this.

That's pretty telling in of itself.

Phew, it took a few years to find someone willing to count all that money.

Well all is good, nothing to see, go about your business as usual. Don’t mind the man behind the curtain.

"The above confirmation of bank and tether balances should not be construed as the results of an audit."

Hey, look, another memo misleadingly posted as if it were an actual audit. Completed audit count: still ZERO, despite fraudulent claims on the website claiming "frequent professional audits".

One of the issues the previous Friedman LLP memo (also misleadingly posted as if it were an audit, which many fell for) raised was that Tether might not actually control the funds in their bank accounts - i.e. that Bitfinex might be parking customer deposits in Tether's account to make it look legit. Looks like that is still unresolved here.

Bitfinex would never! They are totally legit and have a healthy but separate relation to Tether, in no way shape or form colluding with each other.

Mixed emotions here - on the one hand - its not an accounting firm and they are very clear that it wasn't done in accordance with Generally Accepted Auditing Standards and so that gives the firm FSS a cop out should anything go wrong. On the other hand - a reputed firm has staked its reputation to do this - and being wrong would destroy their credibility.

I am sure such concerns can be hedged with a fee decent enough. Decent enough to pay some scapegoat or other, should push come to shove.

But what did they actually put their name to? Seems low risk to me with all the conditions.

There's a law firm in Toronto that specializes in tax issues, and in their advertisements on the radio, the reason why they tell you to hire them over an accountant/accounting firm is that they have the benefit of attorney client privilege, whereas an accountant can be compelled to talk to the federal tax agency, etc.

So maybe that's why FSS was hired as opposed to an accounting firm?

> a reputed firm has staked its reputation to do this -

Not really. The six numbered statements in "Furthered Details" are pretty much disavowing the entire report. This is one bunch of auditors signalling to other auditors, "We don't stand by this at all, we were just collecting the fees." The other auditors, and actually competent potential clients, will pick up that signal when they read these statements, and know that FSS was just collecting a check to be part of Bitfinex's dog-and-pony show, so it "won't count" as a black mark once Bitfinex implodes.

So they have a larger operating single account than a lot of countries have for revenue.

If they were a country, they'd be #140, with just one account. #133 for their total according to the report.

I find it very hard to believe that a company that has that amount, would be anywhere close to US borders, since... there has been no audit of any sort, by anyone; including governments.

In some ways this is a positive news in that Bitfinex/Tether managed to have 2.5Billion in bank on June 01st, 2018.

That seems rather plausible unless FSS completely messed up verifying bank sources(ie someone impersonated a respectable bank, or a micro bank official lied).

So that is all that this statement says: on June1st,2018, Tether accounts had 2.5Billion USD in bank.

This is interesting for sure. It answers at least one question, and certainly makes the idea that they are solvent somewhat more plausible.

That's all it does though, given that there's absolutely no effort made to determine liabilities. For all we know those accounts could have been funded with a $2bn loan, or better yet customer deposits (ie via Bitfinex) which this analysis is completely silent on.

With that said, it's interesting.

So Tether is keeping 2 billion dollars in two bank accounts, way-way-way-way-way above the FDIC protection limit?

Ignoring anything else, that seems astoundingly stupid.

If they were a bank with bank accounts, yes.

They are not a bank.

The whole premise of Tether was that it was backed by USD one-to-one.

No I mean, Tether, as a company, has two bank accounts, and in just two plain-jane bank accounts, has 2 billion USD. The FDIC limit is 250k.

Tomorrow if there is a crises, Tether goes from a 2 billion dollar company to a 500k company.

No company would do that. They would either spread across as many banks as possible to stretch out FDIC as much as they can, or they would keep their cash invested in some kind of relatively stable asset.

I find it hard to believe any company with significant cash reserves is "spreading it across as many banks as possible." The FDIC limit is $250k. Storing $2bn in chunks of $250k would require 8,000 bank accounts. That sounds like a logistical, and possibly legal, nightmare.

I'm no CFO, but I assume the standard practice is to either setup an investment office to manage cash reserves (ala Apple), and/or to invest cash in stable assets, hopefully with returns greater than inflation.

Actually, how do funds, investment vehicles, etc store these amounts of money?

Treasury bills.

Investing short-term customer demand deposits in longer-term investments like Treasury bills basically makes you a bank, as I understand it, probably with all the legal hassles and risks that come with that. I can see why they might not want to do that.

"In a diversified portfolio of assets"

Fundamentally, having $2.5bn in a bank account is almost always a silly idea due to opportunity cost: the alternative is that it could be invested in a mix of things that give a reliable and reasonable rate of return.

But haven't tether explicitly promised to keep the USD reserves as cash?

> But haven't tether explicitly promised to keep the USD reserves as cash?

Just as we think of bank deposits as cash, most accounting procedures (reasonably) treat Treasuries as cash.

I can imagine why central-bank-hating Austrians might not put money in treasury bonds.

Yes - sorry for being unclear , that was the 'almost' in my comment. I was explaining why this situation is unheard of and there isn't a standard practice, and why someone like Apple doesn't face this problem.

Actually this is exactly what major investment managers do with cash. There are services provided by major banks (e.g. State Street) to the IM industry that do automated sweeps into multiple bank accounts (hundreds or thousands of accounts in some cases), repos etc. Keep in mind that typically mutual funds, CITs, etc. are structured as separate corporate entities with separate cash books, so even though (name your major fund company e.g. Vanguard, Fidelity etc) may have trillions in assets, each individual fund may have a much smaller amount under its name.

While I can't speak about Tether, hypothetically speaking if you had a single legal entity with $2B in cash, I would expect it to be well diversified in very safe and managed pools, either bank accounts (up to FDIC limit), repos, CDs, or other safe short-term instruments.

Source: investment management industry knowledge and personal experience with the same.

I misunderstood / was too anxious to post...

Businesses don't operate the same way that you manage your personal finances and offshore banks aren't covered by FDIC anyway, right?

"Privileged & Confidential"

Heh.

Anyway, follow https://twitter.com/Bitfinexed for some more happiness arount them.

While not an audit like many have said, this is better than the continued silence.

Tether has shown proof of reserves, by former director of FBI. Examinations took place in Washington, D.C.

> this is better than the continued silence.

I think it's worse. Before, Bitfinex could at least implicitly claim ignorance and that they didn't know people wanted an audit. But now they're showing they're aware of the noise, and their response is a totally bogus statement that proves nothing: FSS practically disavows all its own conclusions, and there is no mention whatsoever of liabilities. If this company actually was on the level, a genuine audit would be no problem, but this report is a clear signal that they are actively (rather than just passively) refusing to do it.

This report actually increases my confidence that Bitfinex is a house of cards and USDT is totally unbacked. For all we know, that "proof of reserves" was borrowed from customer accounts just long enough for FSS to see it, then went straight back.

From my understanding of how SWIFT works, USA should have logs of every transaction to/from these accounts. Should be pretty straightforward to calculate final balance, assuming that account info is known. Unless someone was just shipping containers of cash. I wonder if there is a way to get answer from USA authorities regarding that.

> From my understanding of how SWIFT works, USA should have logs of every transaction to/from these accounts

SWIFT is a member-owned co-operative headquartered in Belgium [1]. It "does not facilitate funds transfer: rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other."

For example, suppose you bank with Bank H and I bank with Bank J. You send me $100. Bank H will deduct $100 from your account (thereby increasing Bank H's reserves by $100) and send a message, via SWIFT, to Bank J. Bank J will then deduct $100 from Bank H's account with Bank J while simultaneously adding $100 into my account with Bank J.

The U.S. government does have the power to audit banks for a variety of reasons, but beneficial ownership records are ultimately held at the bank level. All that said, I am surprised that a bank handling U.S. dollars is willing to hold these balances given it is difficult to determine who beneficially owns Tethers.

[1] https://en.wikipedia.org/wiki/Society_for_Worldwide_Interban...

Does anyone know of a publicly available resource one can use to determine how likely a number was randomly generated by a human? Wired [1] had a high-level approach and it seems like this paper [2] has some interesting ideas as well. Humans are truly poor at creating random numbers [3] and I wonder how well 1,968,538,584.82 and 576,528,652.00 would do in such a test.

[1] http://www.wired.co.uk/article/how-to-detect-fake-numbers

[2] http://journals.plos.org/plosone/article?id=10.1371/journal....

[3] http://www.loper-os.org/bad-at-entropy/manmach.html

I am pretty sure the money exists in the bank account.

I hope you do realize that the idea that the two large numbers were randomly chosen to represent funds in a bank account that doesn’t exist, and a law firm founded by three formal federal judges (one who was a former FBI director) reported and lied about it to mislead the public, is many many times more improbable than the idea that the Tether actually holds this amount of US dollars.

That is one thing I find so crazy about the entire thing — the fact that they are backed 1:1 is the simplest possible explanation and yet the conspiracy that they were created out of thin air to artificially prop up the price of bitcoin is more believable to many/most people here.

Just so you know money is created out of thin air by the federal reserve every day and much of it is used to prop up the stock market. I’m not saying that to defend it or imply it is happening here. I just think it’s ironic cause no one is claiming that the stock market is overly inflated or that the federal reserve should go to prison even though there is proof there that it happens.

FWIW the stock market has a market cap around $30 trillion. Bitcoin alone is around $115 billion. Big price fluctuations are much more likely with a small supply and small market cap.

In a previous thread (https://news.ycombinator.com/item?id=17304571) it became apparent you've fallen for Tether's misinformation to the point where you believed they'd passed an audit. Again, they have completed zero of the "frequent" audits they claim on their website.

Is it possible you see objections to Tether as "so crazy" because of this sort of fraud on Tether's part?

Just because I was wrong about that one thing doesn’t make what I just said any less true. You have yet to provide any evidence that they are not backed by USD. Just because they haven’t had an audit doesn’t prove any of your allegations.

Why do you have it in for Tether so much in the first place?

> Just because I was wrong about that one thing doesn’t make what I just said any less true.

It's evidence of credulity where Tether is concerned.

> You have yet to provide any evidence that they are not backed by USD.

The onus is on Tether.

"We have taken in two billion dollars, but can't find an auditor to say so, so here's a non-audit while we keep the 'frequent professional audits' statement up on our site" is outright fraud.

Your threshold for claims made by proven fraudsters is remarkably low.

> Why do you have it in for Tether so much in the first place?

I don't like being lied to, especially when billions of dollars are at stake.

> I don't like being lied to, especially when billions of dollars are at stake.

That’s totally understandable and fair. I also agree it is partially on them to prove that they can be trusted and I think this report today is a step in the right direction.

That said, there is still no hard proof that they have been lying and I like to believe they are innocent until proven guilty.

Also Tether can’t fully explain the run up in prices last year since Tether only accounts for some of the crypto trading volume, and many people still paid USD to buy Bitcoin and other cryptos last year.

> That said, there is still no hard proof that they have been lying and I like to believe they are innocent until proven guilty.

There is. Their website claims "frequent professional audits". Zero audits since the founding of Tether Holdings Limited in 2014 is neither frequent, professional, nor an audit.

I should have clarified. I meant no proof that they have been lying about the 1:1 dollar backing.

I agree with you the fact that they claim they are audited and never are is a sleazy business tactic.

Proof they're lying about audits should be strong evidence the 1:1 dollar backing is an unreliable claim at best.

Unreliable claims to $2B in assets should be treated as extremely suspect until a reputable audit is provided. "I've got a Canadian girlfriend you've never met" doesn't fly in middle school; it shouldn't fly in a financial system.

Tether's claim now is more like: "There was a girl in my apartment on June 1st. Our lawyers are pretty sure of that, but not sure enough to claim anything else."

> That is one thing I find so crazy about the entire thing — the fact that they are backed 1:1 is the simplest possible explanation and yet the conspiracy that they were created out of thin air to artificially prop up the price of bitcoin is more believable to many/most people here.

Tether concealed its relationship to Bitfinex, which is generally not a good sign. Their auditor also released a statement which, I am told, is auditor-speak for "they failed the audit."

If they are backed 1:1, it requires them to have received large dollops of USD at a time when many financial institutions were wary of giving cash to cryptocurrencies. Without more details on how that USD came about, there is reason to be skeptical of that claim.

Thank you for not ripping my head off. I too am skeptical. I just think the other way is also not super likely.

On Bitfinex tethers are not used for actually purchasing bitcoins. US dollars are. Tethers are only issued when you want to withdraw funds from the exchange to, for example, take advantage of arbitrage opportunities with other exchanges that offer Tether trading pairs.

Why is that idea so unlikely? Crypto was in a bull market last year and lots of people were trying to buy. If I saw the price was cheaper on an exchange that offered Tether pairs but not USD pairs I would probably convert some USD to Tether to buy there as well.

Reply on news.ycombinator.com