Former SEC official slams Tether for running a Ponzi scheme, labels firm as a ‘house of cards’

Former Securities Exchange Commission (SEC) enforcement official John Reed has questioned the implication of the alleged lack of transparency by USDT stablecoin provider Tether.

According to Reed, who worked with SEC for almost two decades, Tether’s failure to disclose key information about its balance sheet might be a sign the firm is operating as a ‘house of cards’, Reed said in a tweet.

The former SEC official made the remarks in response to a December 2 CNBC interview where Tether co-founder Reeve Collins was tasked to explain the company’s lack of full disclosure, especially in the wake of the FTX cryptocurrency exchange collapse. Based on Collins’ response, Reed suggested that the company was running a Ponzi scheme.

“Wow, tell us Tether is running a Ponzi scheme without telling us that Tether is running a Ponzi scheme. Just listen to his answers. IMHO, as a former SEC enforcement official of 18 yrs, the evasion/deflection/lack of responsiveness makes me believe Tether is a house of cards,” Reed said.

Tether dismisses questions on reserves

Amid the trust questions, Collins dismissed the notion that the company is hiding something about its reserves, maintaining that the Tether’s stablecoin has stood the test of time by retaining the $1 peg.

“Well, what I can say is, in the last eight years of Tether’s operating history, they’ve always redeemed every token for exactly $1. I sold the company at the end of 2015, and the principles have continued to operate, in my opinion, to the absolute best of their ability and with the best risk mitigation tactics in the industry, it has withstood the test of time,” he said.

Additionally, Collins acknowledged that the industry needed more transparency, considering the latest events related to FTX alongside BlockFi’s bankruptcy filing.

“These questions are okay, and the industry as a whole is going to become more and more transparent due to these recent failures of FTX and BlockFi and these other companies. And so that is really good for the industry moving forward,” he added.

Reed’s take on FTX management

Notably, the focus first turned to Tether in the wake of the Terra (LUNA) ecosystem crash that resulted in a significant loss of customer funds.

Following the FTX collapse, Reed has become critical of how the exchange was managed, with founder Sam Bankman-Fried coming under fire for alleged mismanagement of customer funds. Reed recently noted that the FTX situation is worse than the infamous Bernie Madoff Ponzi scheme.

At the same time, Reed termed non-fungible tokens (NFTs) as a ‘giant Ponzi scheme’. According to the former enforcement attorney, NFTs are ‘more crypto nonsense’.