Howard Lutnick Under Scrutiny During Senate Hearings
Howard Lutnick, the chairman of Cantor Fitzgerald and President Donald Trump’s nominee for U.S. Commerce Secretary, found himself on the defensive during a recent nomination hearing before Senate Democrats. The scrutiny centered around Cantor Fitzgerald’s substantial investment in Tether, the issuer of the world’s largest stablecoin, USDT.
Lutnick appeared before the Senate Committee on Commerce, Science, and Transportation on January 29, just a day after his testimony before the Senate Banking Committee. This double appearance highlighted the growing concerns regarding the financial services giant’s involvement with Tether.
Cantor Fitzgerald plays a crucial role as Tether’s primary custodian for U.S. Treasuries, managing a considerable portion of its reserves while also holding convertible debt issued by Tether’s parent company. The opaque nature of the reserves backing USDT has raised red flags within the crypto industry for several years. During his recent testimony, Lutnick attempted to assuage those concerns, asserting that his firm’s custodial role ensures Tether’s reliability. He stated, “As its custodian, I can confidently say that Tether is good for the money it claims is behind the stablecoin.” However, during the hearing, Lutnick appeared to soften his earlier stance.
“While Cantor Fitzgerald does not conduct continuous diligence on Tether’s financial statements, I believe my previous comments were accurate when made,” Lutnick noted according to a published transcript. This statement marked a notable retreat from his earlier assertion that “Tether has every penny, and it can produce liquidity on a moment’s notice.”
In the realm of speculative betting, Polymarket participants are currently estimating a 10% chance that Tether will face insolvency by 2025, alongside a 14% probability of it de-pegging during the year—both indicators of potential trouble for the issuer. A similar contract regarding insolvency for the year 2024 had an average probability of only around 4% throughout the last quarter of the previous year.
During his testimony, Lutnick confirmed that “Cantor Fitzgerald made a convertible debt investment in the holding company that owns the Tether stablecoin business in April 2024.” He emphasized that this investment does not provide Cantor Fitzgerald with an ownership stake in Tether. “Cantor Fitzgerald’s debt investment in Tether does not constitute an equity interest,” he clarified, aiming to alleviate concerns over the depth of his firm’s ties to the stablecoin issuer.
Tether has long faced criticism regarding the lack of transparency surrounding its financials, with many industry observers calling for an independent audit of the company’s books due to the significant role USDT plays in the broader cryptocurrency ecosystem. While Lutnick acknowledged the necessity of audits for U.S. dollar stablecoin issuers, he refrained from demanding one specifically for Tether. When pressed on whether he would publicly urge Tether to undergo an independent audit within a three-month timeframe, he responded, “Upon my confirmation as Secretary of Commerce, I will faithfully execute my duties consistent with applicable government ethics laws and regulations.”
In response to inquiries about his potential influence on cryptocurrency regulation, Lutnick dismissed allegations that he had promised to “defuse threats” against Tether. “I have never suggested to anyone that I would do anything improper with respect to Tether,” he asserted. He did, however, caution that “the U.S. Congress should be careful not to undermine dollar hegemony on blockchain through legislation,” emphasizing the importance of maintaining the dollar’s dominance in the evolving digital landscape.
