Consumer advocacy group Consumers’ Research has released a report accusing Tether, the issuer of the USDT stablecoin, of being opaque and not conducting a full audit of its dollar reserves.

Teather is accused of being non-transparent (again)

Consumers’ Research analysts said that the USDT issuer has yet to conduct an audit of its reserves, although it has promised to do so since 2017. In addition, the stablecoin received a “4 out of 5” stability rating in the S&P Global rating, where “5” is the worst.

The report includes a letter to the governors of all U.S. states, which reports on Tether’s opaque activities. In addition to the open letter, Consumers’ Research has launched a special resource with a detailed description of its claims.

Thus, the organization accuses Tether of repeatedly promising to audit its reserves thoroughly. Despite promises, the project has never provided a full report from a respected auditing firm. They also saw similarities with the situation of FTX and Alameda Research. Tether’s lack of transparency is reminiscent of the circumstances that led to the collapse of FTX.

“As you will see outlined in the attached Consumer Warning, Tether has many of the same issues that FTX and Celsius had before their collapse – potentially costing consumers billions of dollars using deceptive and misleading marketing tactics that are inconsistent with the truth.”

Finally, the company is blamed for doing business with unscrupulous partners. Analysts also believe that the company failed to prevent USDT from being used to circumvent international sanctions and other illegal activities.

At the same time, the first stage of Consumers’ Research against Tether was launched in June. The company accused the issuer of the USDT stablecoin of having ties to Russian and Chinese authorities, terrorist organizations, and drug cartels.

Incognito dollar for sanctioned countries

Earlier, Wall Street Journal (WSJ) journalists said that USDT has become an “incognito dollar” for countries such as Venezuela and Russia, ensuring the free transit of capital abroad.

The article’s authors referred to the fact that USDT threatens the financial system and national security of the United States since it remains unregulated. The WSJ claims that the asset’s trading volume for 2023 exceeded the same indicator for the Visa payment system.

In addition, stablecoin issuer Tether’s profit for the same period amounted to $6.2 billion, which is more than the world’s largest ETF provider, BlackRock. The WSJ emphasized that the company managed to achieve such figures with a staff of 100 people.

WSJ singled out Venezuela and Russia, noting that USDT is widely used in these countries to circumvent sanctions. In the first case, the state-owned company Petroleos de Venezuela is using a stablecoin to pay for oil supplies.

“Russian oligarchs and weapons dealers shuttle Tether abroad to buy property and pay suppliers for sanctioned goods. Venezuela’s sanctioned state oil firm takes payment in tether for cargoes. Drug cartels, fraud rings and terrorist groups such as Hamas use it to launder income.”

The article’s authors also pointed to the rapid scaling of USDT within the global market. In particular, Tether’s efforts to promote itself in Georgia were highlighted here.

Journalists quote Eralp Hatipoglu, CEO of the company’s local partner, the CityPay.io service, as saying that the organization provides international payments in USDT worth about $50 million monthly. According to him, this is due to the pressure exerted by the United States on the global banking system.

Hatipoglu also stated that the service carefully checked transaction participants but did not provide evidence.

Claims against Tether are gaining momentum

Earlier in August, bankrupt Celsius Network accused Tether of misappropriating assets and violating the terms of the agreement.

The court documents indicate that in 2020, Celsius Network entered into an agreement with Tether. Under the agreement, the company received borrowed funds in USDT stablecoins. In response, the platform sent Tether 39,542 Bitocin (BTC) as collateral.

Celsius Network representatives claim that Tether hastily liquidated a large number of bitcoins in 2022, violating the terms of the contract and leading to the company’s bankruptcy.

Tether CEO Paolo Ardoino responded that Celsius Network decided not to provide additional collateral and instructed Tether to liquidate bitcoins to close the position.

There is another equally resonant case in the issuer’s history, which ended relatively recently—a lawsuit against Tether and Bitfinex. The scandal erupted back in 2019. Representatives of Tether and the Bitfinex crypto exchange initially hid the close relationship between the companies. For a long time, the parties did not advertise that both organizations belong to the same parent structure — iFinex Inc. The presence of common managers was also hidden. This led to many suspicions of a conflict of interest.

It was later revealed that Bitfinex used Tether’s reserves to cover its losses. There were also allegations of market manipulation. The New York State Attorney General’s Office uncovered details of the illegal operations. The companies were later forced to admit their connection.

This case raised doubts about how well Tether is backed. Tether and Bitfinex later settled the case, paying a fine of $18.5 million. The companies also agreed to provide regular reports on their reserves.

Is Tether really that bad?

Tether Limited Inc. has been facing fraud allegations almost since its founding. The USDT issuer’s history really does have some dark pages. However, judging by their actions, the company’s representatives are ready to take responsibility for mistakes and fight for the project’s development.

The claims of Consumers’ Research and The Wall Street Journal are not unfounded. Many of them could be resolved by an independent audit.

The claims against Tether have hardly changed over the years. Despite the pressure, the project continues to live and develop. Tether may be able to step over the subsequent investigations with negative conclusions, the validity of which, in turn, can also be challenged.

Bankrupt lending platform Celsius has filed a lawsuit against Tether seeking 39,542 BTC.

According to the lawsuit, the amount was collateral for a loan from the issuer of the Tether (USDT) stablecoin. Tether requested more collateral after the price of Bitcoin (BTC) dropped in early 2022.

Celsius granted Tether‘s request, but the collateral was again threatened. The lawsuit says that while the lending platform was raising funds during the period specified in the contract, the USDT issuer liquidated the entire collateral within hours.

According to the lawsuit, “amidst the chaos,” on June 13, 2022, then-former Celsius CEO Alex Mashinsky allegedly permitted Tether to liquidate the collateral in an orderly manner. However, the platform noted that the lender never received written consent:

Tether’s efforts, of course, are now subject to intervening federal bankruptcy law. Thus, these preferential and fraudulent transfers of Bitcoin should be avoided, and the Bitcoin or its value should be recovered for the benefit of Celsius’s estate.

The company said that instead of providing additional collateral, Celsius instructed Tether to liquidate its Bitcoin collateral to close a position of approximately $815 million.

In addition to 39,542 BTC, Celsius demanded 15,658 BTC and 2,228 BTC, which it allegedly provided as additional collateral, for a total of 57,428 BTC.

Tether’s response

Commenting on the situation with Celsius, Tether CEO Paolo Ardoino noted that the entire process, from over-collateralization to margin call and liquidation, was carried out properly, as instructed by Celsius management.

According to him, in 2022, Tether provided USDT to some of its clients, including Celsius. Tether’s agreements with its customers are simple: Tether provides USDT to select customers who provide excess collateral in Bitcoin.

This complaint shows a lack of basic understanding of the concepts of market slippage, block liquidation and risk management. Very poor arguments made. Also the liquidation was directed by Celsius management team and agreed each step in the way.

He also reminded that Tether’s top priority remains the safety of USDT users. According to Ardoino, the company’s capital is $12 billion, so stablecoin holders will not be affected even in a worst-case scenario.

We, at Tether, have proven our resilience uncountable numbers of times in recent years. Bullying never scares us. We are very confident in being able to demonstrate the correctness of our actions in court.

What happened to the loan?

In 2020, Celsius entered into an agreement with Tether to borrow stablecoins USDT and EURT at low interest rates. At its peak, Celsius had over $2 billion in loans from Tether, secured by a significant amount of Bitcoin as collateral.

Amid the Bitcoin crash in mid-2022, the crypto lender’s collateral was at liquidation risk. According to the agreement, the company was required to provide additional collateral.

Celsius claims that Tether acted in bad faith by hastily liquidating a significant amount of cryptocurrency and breaching the terms of the agreement.

The document says this ultimately led to financial difficulties and bankruptcy for the company. Celsius’s lawsuit’s main goal is to return the Bitcoin assets, which the crypto lender claims were sold below market value and with numerous violations.

How did Celsius go bankrupt?

Celsius froze the withdrawal of client assets in June 2022. A month later, the company went bankrupt. According to several analysts, the crypto broker was experiencing liquidity problems. However, the company stated the opposite—allegedly, this measure was supposed to help “stabilize liquidity.”

At the end of January 2023, a forensic expert found that Celsius Network faced a shortage of stablecoins worth a billion U.S. dollars in May 2021. At the same time, the company did not notify clients or regulators about this until the bankruptcy itself but continued to advertise its services.

Celsius Network’s creditors revealed a reorganization plan for the company, which most account holders approved. In November 2023, the court approved Celsius’ restructuring plan. A few months later, the crypto lender announced that it had completed bankruptcy proceedings and intended to pay creditors $3 billion.

Celsius CEO blames prosecutors for collapse

In July 2023, Mashinsky was arrested after the Securities and Exchange Commission filed a lawsuit against the company. He is accused of fraud and market manipulation, and the company’s token is recognized as security. He was soon released on bail of $40 million. Prosecutors said they would need six to eight weeks to collect evidence, including Mashinsky’s videos on the Internet, in which he allegedly misled investors.

He pleaded not guilty, and his lawyers called the charges “baseless.” Moreover, Mashinsky himself previously accused the New York Attorney General’s Office of the collapse of his business.

In September 2023, Mashinsky’s bank accounts and real estate were frozen by a court decision as part of a criminal case against the company and its top management.

What’s next?

The lawsuit is no guarantee that Celsius will get what it wants. For now, the platform is likely to face another lawsuit after a two-year bankruptcy battle. Either way, the lawsuit further illuminates how Tether has sidestepped the financial difficulties other crypto firms have faced during the 2022 bear market.