Never forget that Tether always told you it was 100% backed by US currency, and only after an investigation by the New York Attorney General (NYAG) forced its hand did it ever admit it wasn’t .
In this sense: Last week, Tether apparently published the first of his reserve reports prescribed by the AG to the world. This is required for Tether’s settlement with NYAG. The company must file one quarterly for the next two years. I say apparently because Tether actually published a one-page document that contains two pie charts: one that shows the composition of Tether’s reserves as 74.85% “cash and cash equivalents” and one that further breaks down the cash and cash equivalents’ means.
The breakdown is done with no context and no indication of how the numbers were calculated as you might expect from something created by an outside accountant. There is also nothing explicit to say that this is what Tether presented to the AG in the context of the settlement. As shown, the figures say practically nothing concrete about the actual distribution of the tether reserves.
Against this background, what is Tether trying to say with these numbers?
The 75.85% figure matches the 74% quoted by Tether’s General Counsel, Stuart Hoegner, in his affidavit to the New York Attorney General. However, the “cash and cash equivalents” breakdown is yet another covert throwback to what the company previously reported: Only 3.87% of this category is made up of cash, which means that cash is only 2.94% of Tether’s total reserves :
This is a far cry from the days when Tether tried to convince us that every tether in circulation was covered by a matching US dollar.
The other items listed in the breakdown, such as the value of “commercial paper” worth 65.39%, are almost meaningless in this context (what little to speculate is not encouraging). If Tether had published a third-party review of its reserves – as critics have repeatedly called for – we would be able to determine exactly what these items are based on the information provided in the report and the accounting standards used. Since these are no more than two barely commented pie charts, we can’t guess. There is so much room for interpretation within a term like “commercial paper” that it is meaningless without definition.
While the statement “Tether is 100% hedged” may be trivially true that Tether issues USDT and also holds assets in some form, this does not mean that Tether calls itself “stablecoin”. If a digital asset is masquerading as “stable coin,” that is exactly what that coin is backed by. If this retention is less than 4% cash and the remainder of the residue is practically undetectable, in what sense can the tether belt ever be considered “stable”?
It seems that the only purpose this release (and Tether’s earlier attempts at transparency) is intended to serve is to provide Tether’s uncritical supporters with a headline from which to argue on Twitter to distract from the truth: We still know next to nothing about Tether’s reserves.
Tether knows what it’s doing
General Counsel Stuart Hoegner has become the de facto spokesman for Tether, especially when it comes to his support. In a way, this makes sense. As General Counsel, it is only natural that Hoegner gets to the point in discussions with regulators and law enforcement agencies. On the other hand, is it appropriate that Tether, through his in-house attorney, not only refuses to acknowledge the true details of the NYAG settlement, but actively misrepresents them? Almost every account Tether made regarding his reserves has been misleading, if not an outright lie, and this includes those direct from Hoegner.
Hoegner’s public statements on Tether follow a clear pattern. Whenever the company is pushed into a corner or when skepticism about tether backing peaks, Hoegner will appear on a podcast or post a statement assuring everyone that everything is fine and that any implication that Tether is dishonest, nothing but FUD is. He will do this even if publicly available evidence directly contradicts his assurances.
This exact pattern has already played out with Tether’s pie chart document. Less than a day after its publication, Hoegner wrote a medium-sized 1,400-word post entitled “Tether sets a new standard for transparency – and reacts to criticism that is not tied to facts”. In it he complains that skeptics of Tether’s so-called “evidence” for support “move the goalposts” and “spread blatantly false and misleading misinformation and outlandish conspiracy theories”.
This is a rich position for Hoegner considering the same middle post also says:
“After more than two years of extensive research and review of more than 2.5 million documents provided by Tether and Bitfinex, the New York Attorney General’s Office found no negative results that the cables were not fully secured or that they were ever issued without assistance. “
This is an outright lie. The settlement agreement signed by Tether and Bitfinex between Tether and the Attorney General’s Office is expressly:
“Because of Tether’s inability to conduct significant banking activities during this time, it could not hold enough dollars of its own to support the hundreds of millions of new Tethers that had come onto the market. As of September 15, 2017, the only US dollars Tether allegedly held for the roughly 442 million cables in circulation was the roughly $ 61 million on deposit with the Bank of Montreal. “
As after 2017:
“As of November 2, 2018, the cables were no longer 1: 1 covered by US dollars in a Tether bank account, as a significant part of the security … was transferred to Bitfinex to offset the funds raised by Crypto Capital.”
It was only after that time – and after the NYAG investigation opened – that Tether would secretly withdraw its promise to be fully supported by Fiat. The website was tacitly changed in February 2019, from stating that “every tether is always backed 1: 1 by the traditional currency held in our reserves” to “traditional currencies and cash equivalents” and from time to time other assets and receivables Loans from Tether to Third Parties. “The change was not announced by Tether, although it represents a significant departure from the position it had insisted on until then. Instead, shortly after the NYAG change, Hoegner submitted an affidavit in which he admits that only 74% of the cables are covered by currency or cash equivalents.
Hoegner told The Block after the charts went public that “Readers shouldn’t confuse items that are not in” real cash “with lack of liquidity” – but it wasn’t until two years ago that Tether claimed that every token was 100% currency is covered. The goal posts are moved, but not by Tether’s critics, as Hoegner would have you believe. They are moved by Tether and Hoegner every time their claims about securing the tether can no longer reasonably be believed.
Tether’s motivations for this are obvious. It just has to give its followers enough evidence to keep them believing that every tether has real value. It practically never has to prove this as there is still no record of anyone being able to redeem their cables for currency that people are still buying cables.
But what does Hoegner get out of it? It must be tiresome to contradict your previous statements on the matter over and over again, especially when those previous misrepresentations have drawn the ire of the authorities, as happened with Tether in New York. Perhaps Hoegner is the ignorant patsy forced to be the public face of Tether’s ever-changing goalposts to divert attention from those responsible.
Painting it entirely as a lightning rod for tether brass, however, would not do Hoegner justice.
Tether has tried in various places to draw tens of millions of dollars from its reserve reserve, which in reality was held in an account held by Hoegner, not Tether. This was reported by Bloomberg in 2018 and confirmed by the NYAG investigation. It took place at the time when every tether should be secured 1: 1 by US currency.
Added to this is Hoegner’s own professional career, which includes a role as Deputy General Counsel and Compliance Director for Excapsa, the founders of the online casino UltimateBet. Excapsa sold UltimateBet in 2006, but the website collapsed in 2008 when it was revealed that Excapsa employees had defrauded the platform both before and after the sale. The General Counsel of Excapsa, probably Hoegner’s boss, was Daniel Freidberg. Friedberg was embroiled in the fraud scandal and, despite being involved in the sale of the company on behalf of UltimateBet, began working for the buyer almost immediately after the transaction, which appears to be an extremely unsatisfactory conflict of interest. Still, nothing came of it.
There is also Hoegner’s Medium post which brazenly misrepresents the result of the NYAG investigation, much like Tether’s press release did at the time of the settlement. Like his bosses, Hoegner knows that those who have supported Tether up to this point will more or less believe what he tells them. Because of this, Hoegner may be comfortable writing 1,400 words in Medium without acknowledging that the NYAG investigation found that Tether was not always endorsed, or that Tether continued not to conduct a third party review of its reserves.
It’s interesting to think about Hoegner’s motivations, but in the end it doesn’t matter. The fact of the matter is, Tether regularly uses Hoegner to add credibility to the company’s ongoing campaign of deception and concealment regarding its reserves. Thanks to the New York attorney general’s office, Tether is quickly running out of room to lie as the excuses keep weakening, as demonstrated by Hoegner’s ridiculous attempt to turn the NYAG investigation and Tether’s recent non-evidence into something that Twitter holds on to.
It will be interesting to see if these pie charts are what Tether actually presented to NYAG under the February agreement, and if not, if the real reserve breakdown will ever see the light of day.
For those who still don’t get it:
This is the countdown to the deadline by which the documents must be delivered.
Give NYAG a few days to analyze the data and make an official announcement. https://t.co/OrE40cUgHq
– Luca ~ STOP the FUD ~ Land (@ LucaLand97) May 19, 2021
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