SEC settles with Tether’s former auditor for $1.5M over unprofessional accounting

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The U.S. Securities and Exchange Commission (SEC) has filed charges against Friedman LLP, a New York-based audit firm that previously worked with Tether and Bitfinex, accusing it of improper professional conduct.

In its enforcement action, the regulator accused Friedman LLP of failing to meet the Public Company Accounting Oversight Board’s audit of two companies from 2017 to 2020. One of these companies was iFresh, an Asian-American grocery chain, where Friedman’s audit procedures failed to detect “numerous undisclosed related party transactions by iFresh.”

In its audit of another unnamed public company within the same period, the auditor failed to “exercise professional skepticism and due professional care and failed to obtain sufficient appropriate audit evidence in connection with multiple transactions and relationships it encountered during its audit of that company.”

The SEC settled with Friedman for $1 million in penalties, $524,138 in disgorgement, and $40,574 in prejudgment interest.

The enforcement action didn’t mention Tether or its sister company, Bitfinex. However, Friedman was the auditor for the two companies between May 2017 and January 2018, the period in which the auditor is alleged to have engaged in sloppy and unprofessional auditing.

Tether announced on January 28, 2018, that it had parted ways with Friedman, accusing the auditor of taking too long with its audit.

“We confirm that the relationship with Friedman is dissolved. Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame,” part of its statement at the time said.

Friedman is one of several companies charged with the seemingly impossible task of revealing what’s behind the wall of Tether’s reserves. There have been half-hearted attempts by the company to prove that its USDT stablecoin is backed 1:1 by reserves.

However, the actual composition of the reserves has remained a closely-guarded secret—so closely guarded that Tether has fought resolutely in court to protect it.

However, as CoinGeek reported, the company is losing this battle, with New York Judge Katherine Polk Failla recently ruling that the stablecoin issuer must produce detailed documents on USDT’s backing.

Bitfinex/Tether rekt.

It's going to be hard to produce documents which don't exist, to prove Tethers were fully backed, which has already been proven to not have been backed by both the NYAG and the CFTC.

Good luck! https://t.co/vkFrSy9xD6 pic.twitter.com/NtTisUYbHS

— Bitfinex'ed 🔥🐧 Κασσάνδρα 🏺 (@Bitfinexed) September 21, 2022

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