In a recent Twitter debate, a former U.S. Securities and Exchange Commission (SEC) lawyer, John Reed Stark, voiced serious apprehensions about Tether, a popular cryptocurrency, accusing it of being a “counterfeiter.”
Stark engaged in a civil and informative discussion with Paolo Ardoino, Tether’s Chief Technology Officer (CTO), who had responded with a series of tweets defending the company.
Stark emphasized the distinction between “regulated” and “registered” regarding crypto firms like Tether. While Tether is registered with the Financial Crimes Enforcement Network (FinCEN), it lacks traditional regulatory oversight, consumer protection measures, net capital requirements, audits, examinations, inspections, or individual licensure.
Stark criticized the practice of misleadingly presenting registered status as regulatory compliance, stressing the need for robust and effective regulatory frameworks.
He pointed out that Tether is currently under criminal investigation by the U.S. Department of Justice and had previously settled a significant investigation with the New York Attorney General’s office for $18.5 million.
The absence of audited financial statements and the reliance on appearances and relationships to generate legitimacy were also highlighted as red flags.
Investor Risks: Tether’s Impact Without SEC Registration
Stark expressed concerns about Tether’s impact on investors, stating that without the safeguards provided by SEC registration, customers risk investing without reliable information or protections. He noted that in the event of hacks, theft, or crashes, investors would be left as unsecured creditors with little hope of recovery.
Stark challenged Ardoino’s argument by comparing risks in banks and crypto firms. While acknowledging flaws in the traditional financial system, Stark emphasized the stark differences in regulatory oversight, consumer protections, and insurance coverage between banks and crypto platforms.
Stark dismissed the notion of “code is law” often touted by DeFi (decentralized finance) proponents, highlighting the crypto ecosystem’s lack of trust and recourse. He underscored the critical role of financial intermediaries in providing customers redress, relief, and protection.
Nevertheless, Stark expressed skepticism about the integrity and transparency of Tether. Without independent verification and U.S. oversight, the risks for users are substantial. He criticized the reliance on attestation reports as evidence of honesty, considering it misleading and unethical.
However, Stark’s concerns highlight the need for stronger regulations and oversight in the cryptocurrency industry. The debate between industry insiders and regulatory advocates like Stark continues as the crypto market evolves and attracts increasing attention from investors and authorities alike.
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