John Reed Stark, a former SEC official, said Tether has no legal framework to guide its operations in the United States.

John Reed Stark, a former Securities and Exchange Commission (SEC) official, urged the U.S. financial regulator to ban cryptocurrency firms from offering Tether USDT, describing the company as a “giant house of cards.”

In a lengthy Twitter thread on May 9, Stark touched on the different issues plaguing Tether to make his point. According to him, his experience and research on the market and financial statements over the past few years have led him to believe that the stablecoin issuer could be the next domino to fall.

Tether operates in a regulatory vacuum

Stark noted that Tether operates without regulatory constraints because it has no legal framework guiding its operations in the U.S. He added that “there are no requirements in the U.S. about how the reserves must be invested, nor are there any auditing or reporting requirements.”

“Tether’s underlying business, the essence of everything Tether does, is entirely tied to Tether’s financial reserves. Yet, these reserves remain unaudited, unverified, and therefore questionable,” he added.

According to him, this is a red flag as Tether users have to deal with its “condescending and ineffective public relations bullshit, hype and intimidation.”

Tether’s authentication problem

Stark criticized Tether’s attestation, saying it is not a replacement for audits. According to him, audits are designed to look for potential risks, while attestations only check whether the data provided is accurate at the time.

Stark said:

“In any case, an attestation is not the same as an audit, and this ‘unverified snapshot’ would never pass any form of regulatory scrutiny.”

In addition to this, the law no longer requires stablecoin issuers to submit proof of their reserves. This means that the company may not provide any further proof, leaving more questions about its reserves.

Meanwhile, Tether released its latest attestation report earlier today, showing a net profit of $1.5 billion in the first quarter of this year.

“If Tether’s internal controls are so lacking that it cannot instantly account for its financial reserves to the penny with the click of a mouse, this speaks volumes about Tether’s reliability and trustworthiness.”

Stark further wondered why Tether’s CTO, Paolo Ardonio, often discussed the company’s finances instead of its CFO.

Call for a ban

Stark noted that the Canadian province of Ontario has banned crypto platforms from offering Tether USDT and urged the U.S. to do the same.

Earlier this year, Crypto.com removed USDT for Canadians, citing regulatory compliance as the reason.

Meanwhile, this is not the first time Tether has faced questions about its reserves and operations. The stablecoin issuer has always maintained that its business is managed correctly and that it has no exposure to any troubled crypto companies.

Despite these issues, Tether’s USDT token remains the largest stablecoin. It has a market cap of $82.53 billion and a 24-hour trading volume of $24.18 billion.