Anyone interested in great business journalism, or short-selling in general, must read Andrew Rice’s profile of short seller Nathan Anderson, the founder of Hindenburg research.
But here at Modern Consensus, we read it and thought of its relevance to one reader in particular.
Press play to hear a narrated version of this story, presented by AudioHopper.
Last week I wrote about how CoinDesk has been on a jihad to shed some transparency on exactly how the stablecoin Tether funds its gigantic reserves. The company claims that those reserves are backed dollar for dollar with actual, real-world dollar and dollar equivalent investing instruments. But Tether, the world’s third-largest cryptocurrency, has a market cap of $77 billion. It’s just rare on Wall Street for there to be an account worth that much that nobody can find. I’m not saying it’s not possible, and I’m definitely not accusing Tether of anything. Just saying … In my experience during decades of covering Wall Street and investing, it’s uncommon for an account that size to be able to operate in total secrecy.
As our story detailed, as part of its settlement with the New York Attorney General Letitia James, Tether has had to agree to reveal to her office some details of those reserves. The company maintains that it’s required to detail to the public only the broad strokes, “such as a breakdown of its reserves by category.” The company says that “particular investment details” may be “disclosed privately to the New York Attorney General.” It wants to keep those disclosures private because, according to its legal filings, releasing the details of its balance sheet would “tilt the competing playing field against Tether.”
Obviously, CoinDesk disagrees. The leading crypto news site filed a Freedom of Information Law (FOIL) request with the Attorney General’s office requesting those documents. It lost the first round, appealed the decision and seems to have won that round. But now Tether has appealed the appeal, and its filings shed a bit of light on an intriguing aspect of the case.
Tether asserts that one of the reasons it ought not be forced to open its kimono is that CoinDesk, and its Managing Editor Lawrence Lewitinn, have a grudge against the company. I happen to know from fairly deep sourcing and experience with various crypto companies that they all think CoinDesk has a grudge against them. Maybe CoinDesk is just a very grudgey publication. In any case, in its filings, tether cites several examples of CoinDesk’s alleged bias. In my opinion, a publication’s perceived—or even real—bias should have nothing to do with whether a FOIL request is honored. The public is either entitled to the information or not, and it shouldn’t really matter why a publication wants that information.
But that’s where this gets potentially more interesting.
On October 21, 2021, Hindenburg Research posted an unusual offer on its website: “Hindenburg Research Announces $1,000,000 Bounty For Details On Tether’s Backing.”
The short seller, whose highest profile success to date was outing EV maker Nikola as a fraud, offered the reward for “information leading to previously undisclosed details about cryptocurrency stable coin Tether’s backing.”
The posting makes essentially the exact case that Lewitinn has been strenuously making for years, at least since he began as founding editor of Modern Consensus, which is the position he held when he made some of the tweets about which Tether is now complaining.
The bounty offering continues, “Despite its repeated claims of transparency, its disclosures around its holdings have been opaque. The company claims to hold a significant portion of its reserves in commercial paper yet has disclosed virtually nothing about its counterparties.”
That’s essentially the same point I’m making—it’s hard to buy $77 billion of something without everyone on Wall Street knowing who the sellers were. The posting goes even deeper than Lewitinn has, coming right up to the line of asserting that Tether is lying. “Hindenburg has doubts about the legitimacy of Tether’s backing due to the company’s sparse disclosures.”
If CoinDesk is successful in its FOIL request and gets its hands on further information about Tether’s backing, Lewitinn and/or CoinDesk would seem to deserve that $1 million reward.
Modern Consensus reached out to Nathan Anderson and Hindenburg Research twice to ask whether CoinDesk or Lewitinn would be eligible for the reward. As of press time, we have not heard back; this story will be updated with further comment should they choose to respond.
(For the sake of disclosure, of course I know Lawrence Lewitinn, since he was an employee of the company that owns Modern Consensus, and I also knew him when I was the editor of the New York Observer and hired him to be our tech editor. But I can also disclose that he has never mentioned anything about the Hindenburg reward to me and I only learned about this offer 3 months after it was published from reading the story in New York magazine.)
I’m not 100% sure how these FOIL requests are adjudicated. This company has filed tons of them, and whether they’re honored and how fast seems random and arbitrary. (The editor of our sister publication California Globe, Katy Grimes, recently filed a request in California looking for Governor Newsom’s calendar—which should be the easiest thing in the world for a journalist to get—and it took months plus had absurd redactions). So it’s anyone’s guess whether CoinDesk ends up with more detailed disclosure on Tether’s backing.
Again, I have no idea whether Tether is up to anything dodgy, and I don’t have great reason to suspect they are. But even if the FOIL request reveals nothing untoward, just knowing that the company is legit will be valuable to the entire crypto marketplace. But it might be even more valuable to Lawrence Lewitinn, who from my perspective, will have earned himself (or possibly CoinDesk) a cool million bucks.
Who says journalism doesn’t pay?