Wall Street investment firm Hindenburg Research, the short-seller that helped launch regulatory investigations into billionaire-backed firms Nikola and Clover Health, said Tuesday it’s offering a $1 million reward for information leading to previously undisclosed details about cryptocurrency Tether’s financial reserves, ramping up potential scrutiny of the so-called stablecoin as regulators warn the virtually unregulated tokens could imperil financial stability.
Hindenburg announced the launch of its Tether Bounty Program Tuesday evening, pointing out the company “claims to hold a significant portion of its reserves in commercial paper,” but has disclosed “virtually nothing” about its counterparties, or the people and companies that may be exposed to financial risk as a result of their ties to the company
“We have doubts about the legitimacy of Tether,” Hindenburg said, adding that it doesn’t hold an investment position in the cryptocurrency, whose price is pegged to the value of one U.S. dollar (thus the name “stablecoin”) to help facilitate cryptocurrency transactions.
Hindenburg’s bounty comes less than one week after the Commodity Futures Trading Commission settled charges with Tether for making untrue or misleading statements about its token and ordered it to pay $41 million over claims its tokens were fully backed by U.S. dollars.
The CFTC found only about 27% of Tether’s reserves were backed by U.S. dollars between June 2016 and February 2019 and said the company has still not completed an audit of its reserves.
In a statement, Tether called the bounty a “pathetic bid for attention” and said bitcoin’s all-time high on Wednesday served as evidence that “everyone sees through [Hindenburg’s] opportunism.”
“Tether is a key underpinning of the multi-trillion-dollar crypto market, yet despite its repeated claims of transparency, its disclosures around its holdings have been opaque,” Hindenburg said Tuesday. “The company claims to hold a significant portion of its reserves in commercial paper yet has disclosed virtually nothing about its counterparties.”
Launched in 2014, Tether quickly became the world’s largest stablecoin, amassing a current market value of nearly $70 billion and consistently weighing in as one of the world’s four largest cryptocurrencies. Stablecoin proponents note the tokens help protect cryptocurrency investors from the market’s volatility while facilitating trading on cryptocurrency exchanges. However, regulators have warned the tokens could pose a risk to financial stability if issuers fail to maintain sufficient collateral.
“Stablecoins are acting almost like poker chips at the casino right now,” SEC Chair Gary Gensler, who’s never singled out Tether in his frequent critiques of stablecoins, told the Washington Post last month. Due to stablecoins’ growing popularity across trading and lending platforms, Gensler said he fears “there’s gonna be a problem” if they aren’t fully collateralized, adding: “Frankly, when that happens…a lot of people are going to get hurt.”
In a little over one year, short-seller Hindenburg helped spark regulatory investigations into multiple multi-billion-dollar companies. In published a report last year, the firm called electric-vehicle company Nikola a “fraud,” and alleged then-Chairman Trevor Milton misled investors about the company’s business. Milton has since been charged with criminal fraud charges. Meanwhile, Clover Health, the special-purpose acquisition company launched by former Facebook executive and “SPAC King” Chamath Palihapitiya, disclosed the Securities and Exchange Commission was investigating its practices in February, just one day after Hindenberg alleged the company misled investors about its business.
“This is not the first time Hindenburg Research has orchestrated an apparent scheme in pursuit of profit. Nor will it be the last,” Tether said Wednesday, adding it “abhors and denounces [Hindenburg’s] actions and transparent motives.”
Short-seller Hindenburg sets $1m ‘bounty’ for details on Tether’s reserves (Financial Times)
Anyone Seen Tether’s Billions? (Bloomberg)