Friday, February 3, 2023

Auditing Firm No Longer Working With Bitfinex as Critics Ask More Questions

Auditing Firm No Longer Working With Bitfinex as Critics Ask More Questions

There are fresh doubts Bitfinex plans to release a financial audit of its activities any time soon. Friedman LLP, the firm Bitfinex engaged to perform a full examination of its books last May has removed mention of the exchange from its site.

Also read: Former U.S. Senator Judd Gregg Envisions Dollar “Challenged by Crypto”

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If true, and Bitfinex now doesn’t intend to publish the audit it promised, it’s the latest example of a tendency at the exchange to announce transparency measures which are later quietly deleted. Ironically, the announcement itself that Bitfinex would engage Friedman was in response to criticisms in May 2017 it had failed to follow through on a promised technical audit by Ledger Labs.

That incident drew greater criticism from the fact Bitfinex quietly announced the change in a blog post eight months later. Responding to complaints over that and its general lack of transparency, the exchange hired crypto-savvy accounting and advisory firm Friedman LLP to audit its finances — and announced the move a day after the Ledger Labs news spread.

There was never a definite date provided for the audit’s publication, though “as soon as possible” and “in 2018” were mentioned at times.

Friedman Quietly Removes Bitfinex Mentions

Bitfinexed“, the self-appointed pseudonymous Bitcoin industry watchdog and Bitfinex’s long-time critic, posted on Medium that Friedman had quietly removed all references to Bitfinex from its website. The deletions included not only official announcements, but all mention of Bitfinex’s name everywhere.

A brief announcement posted on Friedman’s own site, dated May 8th 2017 and titled “Friedman Selected as Crypto-Savvy Auditor by Bitfinex” now links to a 404 page. For the record, here’s an archived version.

Neither Bitfinex nor Friedman made any public statement about this change.

A major Chinese OTC trader named Zhao Dong also claimed on Weibo that Bitfinex/Tether had over $3 billion USD in bank accounts in Japan, and said the lack of a Friedman audit was “due to the pressure of the U.S. banking industry”.

However, “Bitfinexed” noted that Dong also happens to be a Bitfinex shareholder — giving him incentive to paint the company in a positive light no matter what its financial situation.

$442 Million in the Bank

DollarBitfinexed also pointed to a December 2017 press release by Bitfinex’s PR firm 5WPR, claiming Bitfinex had shown $442,984,592 reserves of the Omni-based crypto token Tether to Friedman. However Friedman later claimed it had no evidence the funds, held by a trustee, actually were under Bitfinex’s control — and could not prove the purposes for which the funds could be used.

Tether, or USDT, is ostensibly pegged 1:1 to the USD by an equal number of provable dollar reserves. Long-rumored links between Bitfinex and Tether, the company that created the USDT concept, were revealed only after the “Paradise Papers” offshore financial leaks.

In any case, Bitfinexed said, a snapshot of a bank account balance proves nothing and is nowhere near as reassuring as an audit. Doomed exchange Mt. Gox proved his twice by revealing first a large BTC stash, and then its USD bank accounts — and still collapsed with all customers’ funds.

The Audit Promise

For the record, Bitfinex’s August 2017 promise read:

Engaging an auditor is just the first step. The comprehensive balance sheet audit, which will be dated June 30th, 2017, will require considerable time and resources on both sides. A third-party audit is important to all Bitfinex stakeholders, and we’re thrilled that Friedman will be helping us achieve this goal.

In connection with our engagement of Friedman and their expertise in the digital currency industry, we will be undertaking a process to optimize our financial operations and streamline internal accounting procedures as we push toward the goal of having fully audited financials (both balance sheet and operating results) in 2018. Transforming our back office and seeing that change to completion has been and will be a time-consuming and resource-intensive process. We are working diligently on this project and will release summarized results of that audit as soon as it is available.

How Tethers Could Be Inflating Bitcoin Price

Critics including Bitfinex have long accused the exchange of creating and using Tethers to buy bitcoins, boost the BTC price, and then sell BTC for actual dollars. Doing this would likely require more Tethers than are actually “backed” by USD and, as Bitfinexed noted, an audit would have showed traces of USDT being used in this manner.

Tether logoBitfinexed challenged exchange users to perform a third-party “audit” of their own, simply by attempting to redeem their USDT for actual USD all at the same time (which in theory should be possible). However they also cautioned that, if the money’s not really there, it would soon create havoc.

Despite a lack of transparency over its operators, location and business practices — and also despite a major hack in July 2016 that saw 120,000 BTC disappear — Bitfinex has remained one of the most popular and widely-used cryptocurrency exchanges. It’s particularly popular with large international traders.

It has to date supplied little information about how the July 2017 hack happened — or even if it did. The company compensated users for losses by creating and trading an IOU token called “BFX”, which it supplied and allowed to be traded. In April 2017 it announced it had paid back all losses — another claim that has never been independently verified.

What do you think is going on at Bitfinex? Let’s hear your thoughts in the comments.

Images via Pixabay

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