As I’m sure you are all aware, recently Bitfinex and Tether announced that the relationship between them, and their auditor, Friedman LLP has been dissolved.

“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. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”

- Tether spokesperson

For the purposes of this blog post, we are going to assume the following:

Tether actually has the dollars. Friedman was in fact willing to audit Tether and Bitfinex, but wanted more information than Bitfinex and Tether were willing to provide.

On January 19th, Bitfinex decided to have one of their shareholders (who is also a very large OTC trader), take a look at the bank account balances which he proclaims all of the money is there.

Let’s pretend this is true.

What matters is the order of the transactions, and who legally owns the account.

Bitfinex and Tether could have supplied recent statements to Friedman LLP showing balances, but it’s very important to VERIFY how that money came to be.

I have long suspected that in the event Tether and Bitfinex has the money they claim to have, we’d have to inspect the order of the transactions to ensure they were not running pump and dumps with fake money.

Under that scenario, they would print hundreds of millions of Tethers, buy Bitcoins, transfer the bitcoins to say, GDAX… then once they pumped it up enough… liquidate the bitcoins and then funnel the money back to their bank. “See! The money is all there!”

Something that is very interesting is watch what happens when GDAX goes down, the volume on Bitfinex dries up dramatically… until GDAX comes back online.

This shows there could be some sort of process going on between GDAX and Bitfinex.

If they were smart, they could do this literally within minutes. Pump on Tether exchanges while simultaneously having large sell orders on GDAX/Bitstamp/Gemini and then immediately transfer the funds back to their main account.

My hats are off to the intelligence of Phil Potter. He’s slick.

We need the promised 2016 audits as well

Once they hired Friedman, they claimed they were only doing audits from June 30th, 2017 onward.

I’d argue that Bitfinex needs a full audit. Especially of 2016 when they seized 36% of everyone's money on their platform. It’s critical that we know what happened with those customers funds, and if they traded with them.

It’s important that we know if Bitfinex actually had any kind of insolvency prior to the ‘hack’, which could have then been swept up in the haircut.

The audit of 2016 is just as important as 2017. Because the exchange losing nearly ten years of total revenues is going to have a huge incentive to… fool around.

Bitfinex has already promised a 2016 audit when they hired Ledger Labs.

However, they eventually admitted they never even engaged Ledger Labs to do a financial audit.

If Bitfinex promised a 2016 audit, I believe they should be held to their own promises. Just like Tether claims regular professional audits, yet has not once provided one.

The Bitfinex ‘shelf’ corporations

Bitfinex and Tether are likely prohibited from opening bank accounts. They’ve been completely blacklisted because the banks rightfully have money laundering concerns.

Bitfinex and Tether have repeatedly claimed that this is because ‘banks hate competition from Bitcoin!’, which is why GDAX, Bitstamp, Gemini, Kraken… have no banking.

Wait, no, that’s not true. All of those exchanges have banking, and just recently Bittrex claims to be opening USD banking. So much for banks hating on cryptocurrency.

Because those exchanges (with the exception of Kraken in my opinion), are trying to follow the rules. You follow the rules, you have banking.

Bitfinex doesn’t want to follow the rules. It also doesn’t help when they are cycling through countless shell accounts.

Two of the three shell accounts Bitfinex has been using. Source

Bitfinex had banking in Taiwan, but when Wells Fargo cut off Bitfinex, their bank finally figured out what the client was actually doing and terminated the account.

Interestingly, one of the employees at the bank was fired for misrepresenting the Bitfinex account.

Just recently, they updated their “deposit” section of their website. This time, with yet another shell corporation.

Once again, “Global Trade Solutions A.G.” is not Bitfinex or Tether.

That’s just the three bank accounts, and three shell/shelf corporations that we know of. There could be dozens more that we don’t know about.

Upon a little digging, “Global Trade Solutions A.G.” has some… interesting dates on their publicly available records… indicating it’s an older shell company.

Notice the nominee director is the same as “CRYPTO SP. ZO.O”

The problem with doing this when it comes to auditing is quite simple. None of these corporations are legally tied to Bitfinex or Tether. They’re complete shells and just funnel the money back to Bitfinex/Tether.

However, they likely credit your accounts on Bitfinex, or Tether… *BEFORE* their shell corporations funnel the money back to their main accounts.

Which means all Tether issuance's may precede the deposit of the money to their main ‘super secret bank account’… which… may also not be in their name.

If the bank account isn’t in their name… then technically they don’t have the money… even if they have control of it… it doesn’t belong to Tether Limited, legally speaking.

There is then also the problem if they are operating their primary bank accounts the same way as their Taiwanese banks, by having someone at the bank misrepresent the real business, and if they say what bank it is, the banks finds out and… of course terminates the account.

They already have a history of this!

You can’t audit this!

If you are in fact operating in this manner, you can also choose to cheat once in a while… because when you cheat… it looks like all of the other transactions.

Maybe they do have a lot of money coming in… but when it slows down… they cheat just a little to restart the pump. How would you detect this if everything is coming in ‘late’ ?

A former shareholder of Bitfinex, exposed their cheating once before in 2013.

He further clarified it, in another post.

Once a cheater, always a cheater.

Bitfinex and Tether from what I understand, are seeking another auditor. Here’s the problem with that theory.

Their spokesperson admits that Friedman LLP wanted more data, this would indicate that the auditor was in fact still willing and happy to audit their books.

This auditor likely has already spent months going over things, but Bitfinex and Tether, rather than provide them with the additional data they want… instead decides to fire them and find another auditor?

Wouldn’t another auditor ask for that same data? That auditor would have to start all over again as well, further delaying an audit.

In my opinion, there’s likely something horribly wrong with their full transaction history and they want to find an auditor that will ignore that, and just look at their final balances and then proclaim it’s all cool.

To Friedman LLP’s credit, they did not fall for this stunt, which brings up their value as a legitimate auditor.

Conclusion

As I’ve said many times before, Bitfinex will never be able to complete a real audit. For the size of their company, they need a Big 4 accounting firm to audit them.

Not one of their OTC traders who happens to also be a shareholder (and obviously a direct interest in telling people everything’s cool).

They are allegedly a billion dollar company. They need real audits. This is not a mom and pop operation anymore.

By allegedly firing their auditor, they’ve proven to me that something is catastrophically wrong with the transaction history.

Any legitimate auditor is going to ask for those same records, and they don’t want to provide them for a very good reason.

I suspect that the next stalling tactic is going to be “We can’t do an audit because we are still seeking an auditor.”

They may try and claim “Oh we need an auditor that understands blockchain”. There is nothing ‘blockchainy’ about auditing United States Dollars in a standard bank account.

And all a blockchain is… is a ledger.

Pretty sure that an audit firm is going to understand a ledger.

Don’t buy the nonsense.

Be sure to see my previous post, because it’s important to note that Bitfinex was founded by a person who himself tried to start a ponzi scheme, then roughly a month later started Bitfinex.

Trade carefully.

-Bitfinex’ed