Tether is a bigger scam than FTX, says Cyber Capital founder

In an explosive thread on X, Cyber Capital founder Justin Bons accused Tether of being the biggest fraud in crypto history. He believes the stablecoin issuer’s alleged scandal has surpassed both FTX and Bernie Madoff’s scandals. Bons warned that Tether’s lack of transparency and failure to conduct proper auditing make it a significant threat to the crypto market.

Justin Bons calls Tether a scam

“Tether is a $118 billion scam, bigger than FTX & Bernie Madoff combined!” Bons declared. He further called attention to the stablecoin issuer’s alleged fraudulent practices, including failing to provide proof of reserves or submit to an independent audit. Despite promises to conduct an audit since 2015, Bons noted that “no audit has ever been conducted,” leading him to label USDT as “counterfeit money.”

Warning against USDT

With USDT remaining one of the most widely used stablecoins in the crypto market, Bons urged the crypto community to abandon it, warning of the potential for a catastrophic collapse. “Wean off USDT before it pulls us all down!” he urged.

Furthermore, Bons compared the potential collapse of Tether to the disastrous failure of Terra Luna, which collapsed in 2022. He warned that the USDT issuer’s bankruptcy could have even greater consequences. This is because the company is responsible for billions of circulating USDT tokens, which are believed to be backed by equivalent dollar reserves without independent verification.

He said: “We have to trust that they have $118 billion in collateral with no evidence!” Tether has previously faced regulatory scrutiny, including a $41 million fine by the US Commodity Futures Trading Commission (CFTC) in 2021 for misleading claims about its reserves. Despite this, Bons pointed out that there has been no real audit of the company’s financial position.

Financial audit issues

According to Cyber Capital’s founder, an accountant was fired in 2018 for being “too thorough.” Then, in 2021, the stablecoin company partnered with accounting firm BDO to publish a report on its reserves. However, Bons criticized this as misleading.

He explained that the report was not a formal audit, but an “accountant’s report,” which does not provide the same level of scrutiny. He claimed, “Tether has never submitted its alleged reserves to a true, unrestricted, third-party audit!”

Bons also raised concerns about the company’s governance structure. He highlighted that Tether Holdings’ board of directors consists of only two members, which he said leaves the company vulnerable to mismanagement. “Tether Holdings’ board of directors has only 2 members… implying that USDT reserves are still not segregated,” he added.

Allegations of Ponzi scheme

Bons also linked the company’s activities to past criminal activity, citing alleged ties to Crypto Capital, a Panama-based bank that was shut down by authorities for laundering money for Colombian drug cartels. He also suggested that the company’s activities have historically had questionable connections.

These include relationships with disgraced bankers and individuals involved in Ponzi schemes. “The founders are former Ponzi scheme artists, gambling fraudsters and disgraced bankers,” he said.

Tether’s Legal Troubles and the FTX Story

Furthermore, Bons’ allegations come as the USDT issuer continues to face legal challenges. On August 9, 2024, Celsius Network Ltd. filed a lawsuit against the stablecoin firm. The bankrupt cryptocurrency lender accused Tether of fraudulent and preferential transfers of Bitcoin worth more than $3.5 billion.

The plaintiffs noted that the move exacerbated Celsius’s financial problems before its collapse. However, Tether CEO Paolo Ardoino has denied the allegations, calling the lawsuit an “extortion.”

Meanwhile, former FTX CEO Sam Bankman-Fried filed a 102-page appeal requesting a new trial on September 13. SBF alleged that Judge Lewis Kaplan made several biased rulings that hampered his ability to mount a proper defense.

In addition, his attorney, Alexandra Shapiro, argued that Kaplan’s decisions, including requiring Bankman-Fried to give pre-testimony testimony outside the presence of the jury, undermined the defense. He also claimed that the judge’s comments may have influenced the jury’s perception.

On the other hand, Tether, along with Circle and other stablecoin issuers, recently blacklisted accounts linked to the North Korean hacking group Lazarus. This reflected the USDT issuer’s commitment to combating illegal activities despite mounting criticism over transparency and legal issues.