The U.S. Securities and Exchange Commission filed and settled charges last week against Friedman LLP, the former auditing firm of stablecoin issuer Tether, finding “serial violations of the federal securities laws” and numerous instances of “improper professional conduct,” according to an order published Monday.
In the SEC’s investigation of Friedman LLP’s audits of two publicly traded companies, Chinese grocery chain iFresh and another, unnamed company, the auditor was found to have lied about conducting its audits in accordance with the standards of the Public Company Accounting Oversight Board.
The SEC’s order, issued Friday, details sloppy accounting practices that were common at Friedman LLP from 2015 to 2020, including its failure to “respond to fraud risks” and “exercise due professional care and professional skepticism,” among other things, the order said.
Though the SEC’s order against Friedman LLP makes no mention of Tether, the stablecoin issuer retained the New York-based accounting firm from May 2017 to January 2018, when the professional relationship was “dissolved.” At the time, a representative for Tether told CoinDesk that the firm was fired for not providing an audit quickly enough.
The question of Tether’s reserves is one of the crypto industry’s most persistent mysteries, spurred on by the stablecoin issuer’s own secrecy. Though Tether has taken recent steps toward increased transparency, publishing semiregular attestations verifying its reserves, it has closely guarded other information about its holdings, including their actual composition.
Last year, Tether paid $18.5 million to settle a 22-month investigation by the New York attorney general’s office (NYAG) into whether it sought to cover up the loss of $850 million in customer and corporate funds held by a payment processor.
Tether’s attorneys have also petitioned the New York Supreme Court to prevent the NYAG from providing the public with documents detailing its reserves, after CoinDesk filed a Freedom of Information Law request seeking access to some of the documents generated by NYAG’s investigation.
In its settlement agreement with the SEC, Friedman LLP has agreed to train its staff in proper auditing procedures, and will pay a $1 million civil penalty and $564,138 in disgorgement and prejudgment interest.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.