The US regulator states the accounting firm Friedman LLP, which was Tether’s auditor in 2017 has failed to properly perform audits.
Tether’s former auditing firm, Friedman LLP has been sued by the U.S Securities and Exchange Commission. The SEC is suing for $1.5 million, this was stated in an order that was issued last Friday. The SEC has claimed improper professional conduct in its lawsuit against the auditor.
The order states that Friedman LLP failed to comply with standards set forth by the Public Company Accounting Oversight Board as they conducted their audits involving two public companies during the time period 2017 to 2020.
One of the companies investigated was iFresh Inc. which is an Asian/Chinese supermarket chain with various locations operating in four segments wholesale, retail, liquor, and pharmaceuticals. The company is publicly traded with a current price of $0.01 a share. Friedman LLP was found to have failed at designing and performing audit procedures that would have detected various erroneous transactions on the part of iFresh.
The SEC charged iFresh with repeatedly filing materially inaccurate financial statements that failed to fully disclose related party transactions. The SEC accused iFresh of participating in undisclosed transactions involving the CEO of iFresh and his brother. The SEC stated that Friedman didn’t properly do their job or exercise enough professional skepticism during its review thus failing to recognize any red flags. The company didn’t obtain sufficient evidence, respond to fraud risks, or perform any procedures to identify these party transactions of iFresh.
Friedman made more of the same mistakes when dealing with another public issuer as the SEC stated the firm did not exercise professional skepticism and due process failing to obtain audit evidence that would have been appropriate or connecting any evidence with multiple transactions and relationships that occurred during the audit of the public issuer.
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The court order made the statement that the SEC believes Friedman LLP engaged in conduct that was unprofessional and very improper, not following the rules stated in Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e) of the Rules of Practice set forth by the SEC. It doesn’t stop there as the SEC states that Friedman also violated Section 10A(a)(2) of the Exchange Act and Rule 2–02(b)(1) of Regulation S-X.
Friedman did not make any statements to agree with or deny the allegations but instead allowed itself to be censured, implement new undertakings to train its staff, and pay a total of $1,564,612 which included $524,138 for disgorgement, pre-judgment of $40,574, and a $1,000,000 monetary penalty.
All of this comes amid more investigations as the firm also has ties to Tether. Tether’s financial activities have been scrutinized and under the scope for a while now. Last week during its trial Tether was ordered by a Judge to produce documents showing the dollar backing of its stablecoin, as crypto traders claim the stablecoin issuer tried to prop up the price of Bitcoin with unbacked tokens.
Tether is currently the defendant in a class-action lawsuit that has a stablecoin issuer being accused of “unlawful, deceptive, immoral, unethical, oppressive, and unscrupulous” practices. The plaintiffs in the case state that there is nothing to prove Tether is backed by 1:1 US Dollar reserves. Tether has stated the allegations are false and will be seeking recompense from the plaintiffs.
