Tether Faces Fresh Allegations Over Its Chinese Investments and Crypto Backed Loans

UTC by Bhushan Akolkar · 3 min read
Tether Faces Fresh Allegations Over Its Chinese Investments and Crypto Backed Loans
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Tether is facing severe accusations of using public money for funding its own investments and putting the reserves at risk. Tether refutes these claims saying it is yet another attempt to defame the company.

Stablecoin issuer Tether has been once again in controversy facing fresh allegations. A report from Bloomberg BusinessWeek has questioned some of the company’s alleged investments.

Currently, Tether has $69 billion worth of USDT under circulation. The company has claimed that it has an equivalent USD backing the stablecoins in circulation. Bloomberg journalist Zeke Faux, however, alleged that Tether and its CFO Giancarlo Devasini has used the company’s reserves to make investments. This seems to contradict Tether’s public position that its holdings are fully backed at all times.

These allegations go further and beyond. Faux alleged that Tether has also invested some of its reserves in Chinese commercial paper. Bloomberg Businessweek received a document detailing the reserves of Tether Holdings Ltd. The document reveals that Tether has given billions of dollars in short-term loans to large Chinese companies.

Tether’s lawyers also denied commenting on this matter. However, added that Tether has the vast majority of its commercial paper has high grades from credit-rating firms.

Allegations Related to Offering Crypto-Backed Loans by Tether

The Bloomberg journalist mentions that Tether has also been offering billions of dollars in crypto-backed loans. Some of these loans have Bitcoin as collateral. However, Tether’s lawyers claim that these secured loans are low risk since the borrowers have put up bitcoin that’s way more worth than their borrowings.

John Betts, former chief executive officer of Noble Bank International LLC in Puerto Rico, said that Tether’s CFO has put the company’s reserves at risk by investing them and earning millions of dollars in profit for himself. “It’s not a stablecoin, it’s a high-risk offshore hedge fund,” says Betts. Furthermore, Bloomberg reports that Tether doesn’t have all of its assets in the Bahamas.

Also, Tether is facing an ongoing battle with US enforcement. The FBI is examining whether if Tether has deceived banks years ago. Earlier in 2021, the US Department of Justice sent a letter to Tether CFO while initiating a criminal bank fraud investigation. The Bloomberg analyst also said:

“Tether still hasn’t disclosed where it’s keeping its money. If Devasini is taking enough risk to earn even a 1% return on Tether’s entire reserves, that would give him and his partners a $690 million annual profit. But if those loans fail, even a small percentage of them, one Tether would become worth less than $1.”

Tether Refutes These Accusations

Tether has responded to the Bloomberg story calling these allegations baseless. It added that such claims are “based on innuendo and misinformation, shared by disgruntled individuals with no involvement with or direct knowledge of the business’s operations”. Tether further noted:

“The Bloomberg BusinessWeek piece published today is a one-act play the industry has seen many times before, taking snippets of old news from various places and dubious sources, and making it fit a pre-packaged and pre-determined narrative.”

Tether noted that this is another attempt to undermine the market leader. It added that the company’s track record of innovation, liquidity, and success speaks for itself.

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