Tether-ed

Tether has long been one of the most powerful—and scrutinized—companies in crypto, thanks to its ubiquitous stablecoin, which is used for global trading and as a financial hedge for people without access to the dollar.

U.S. financial services firm Cantor Fitzgerald serves as the main custodian for Tether’s U.S. Treasury bills, which are the primary asset backing Tether’s stablecoin.

The firm’s CEO, Howard Lutnick, founded the company and rebuilt it after 658 of its employees died in 9/11. Lutnick has been touting Tether in TV appearances and recently bought a 5% ownership stake in the crypto firm, according to a recent report in the Wall Street Journal.

But with Tether facing a reported probe from the Justice and Treasury departments into possible money laundering violations, critics warn Tether—whose founder is an Italian former plastic surgeon—may have undue influence at the highest levels of the U.S. government.

“The first concern is any potential conflicts with the existing engagements that [Lutnick] has,” Brett House, an economics professor at Columbia Business School, told Fortune. “It’s hard to imagine him remaining engaged in the way he is now and serving as commerce secretary.”

To address this conflict of interest, Lutnick reportedly plans to hand over Cantor Fitzgerald’s relationship with Tether to his colleagues and to his son, who interned with the crypto firm. A spokesperson for the Trump transition team did not respond to a request for comment.

Tether-ed

Tether has long been one of the most powerful—and scrutinized—companies in crypto, thanks to its ubiquitous stablecoin, which is used for global trading and as a financial hedge for people without access to the dollar.

Due to its offshore operations and often opaque business practices, Tether has also faced scrutiny about the integrity of its reserves, and its popularity with drug traffickers and terrorism financers. Tether has also been subject to enforcement actions, including by the New York Attorney General and Commodity Futures Trading Commission, and is reportedly facing a probe by the Justice and Treasury Departments.

Tether has denied it is complicit in illegal activities, and touted its work with law enforcement agencies and blockchain analytics firms such as TRM Labs.

In the past, a big source of mistrust around Tether has been its reliance on little-known banks as partners, including the Bahamian Deltec, to manage the reserve of dollars and Treasury bills that are intended to keep its stablecoin pegged to $1. For this reason, its relationship with New York-based Cantor Fitzgerald, which Lutnick first disclosed in a December 2023 podcast, has been a key boost.

“I’m a big fan of this stablecoin called Tether,” he said at the time. Lutnick has since boosted the company’s work at crypto conferences. According to the Wall Street Journal, the two firms began working together in late 2021.

The alliance between Cantor Fitzgerald and Tether is becoming closer. In addition to the former’s ownership stake, the Wall Street firm is reportedly planning a Bitcoin lending program.

Along with his work at Cantor Fitzgerald, Lutnick served as one of Trump’s economic advisors during his 2024 presidential campaign, later leading transition efforts. Lutnick was in the running for the Treasury secretary position until last week, when he was named as Trump’s nominee for Commerce instead.

While a Treasury appointment would have created more conflict over Lutnick’s relationship with Tether, due to the department’s reported probe into the company as well as the fact Treasury is a much more influential department than Commerce.

Nonetheless, House, the Columbia professsor, warns that any cabinet position will hold substantial influence in the White House, in part due to access to privileged information and overlapping regulatory frameworks. Stablecoin legislation is set to be a policy priority for the Republican-controlled Congress during the next session.

“If the diversion from consideration of Mr. Lutnick for Treasury secretary to Commerce secretary is being posited as a way to reduce or weaken concerns about conflict of interest, I think that is misguided,” House said, “Because those concerns will remain regardless of the type of cabinet-level role one would take.”

He added that it is common for business executives to take on Cabinet positions, but that any possible conflicts should be reviewed during the confirmation process.

Despite Lutnick’s assurances that he will step down from Cantor and divest himself from any interests, investors seem to be reacting to Tether’s growing prospects, with its market cap growing by nearly $15 billion since the presidential election.