Tether-owned Northern Data accused of fraud by former execs

In late 2023, Tether, the world’s largest stablecoin, announced it was taking a significant stake in Northern Data, a firm that principally focuses on Bitcoin mining but has since expanded into artificial intelligence.

Since then, former executives of Northern Data’s North American subsidiary have filed a lawsuit against Northern Data, alleging securities fraud and tax evasion, as well as whistleblower retaliation. 

Joshua Porter, the former CEO and president of Northern Data US, the company’s North American subsidiary, and Gulsen Kama, the former chief financial officer of Northern Data US, filed the lawsuit.

The lawsuit alleges that Northern Data regularly misrepresented its financial situation to investors, even as its executives, including Porter and Kama, raised concerns about the solvency of the parent company. These issues came to a head in early 2023 when KPMG insisted on performing a liquidity forecast before signing off on its audit.

Kama felt that the financials were being misrepresented to KPMG. As the engagement with KPMG kept being delayed, Aroosh Thillainathan, the founder and CEO of the parent company, allegedly insisted that the firm find a new auditor and suggested it did not matter who the auditor was, as people didn’t care. 

Thillainathan also allegedly told Kama that the Legal and Finance departments were acting as “road blockers,” interfering with his ability to find new opportunities for the firm. He insisted that these departments were meant to “execute deals that were negotiated… no questions asked.”

Furthermore, the lawsuit alleges that Northern Data was improperly managing the revenue of its North American subsidiary, described in the complaint as ‘committing tax evasion to the tune of potentially tens of millions of dollars.’ Porter allegedly insisted that “Northern Data should recognize its profits in the United States (and thus pay taxes thereon).” However, management disagreed.

Read more: Tether teases new assets as old ones are forgotten

Both Porter and Kama also allege that they were fired from their positions as retaliation for raising these issues. 

Financial Times reporting claims that Tether is the majority owner of Northern Data, owning 51% of the stock

The allegations in this lawsuit echo earlier issues raised by Germany’s financial regulator BaFin in 2021, which alleged that Northern Data had engaged in market manipulation related to misrepresentations in 2019. BaFin had referred the complaint for potential criminal prosecution, but prosecutors decided not to pursue the case.

A Northern Data spokesperson provided the following comment after publication: “It is no coincidence that these allegations from disgruntled former employees are being publicized just days after unconfirmed media speculation that the company is evaluating a potential capital markets event. The allegations are clearly financially motivated and completely baseless.  We will contest them vigorously. Integrity is paramount to Northern Data and its leadership. As a publicly listed company we have comprehensive policies and procedures to ensure the accuracy and credibility of our financial reporting. Our 2022 accounts received an unqualified audit opinion, and we will release our 2023 audited financials as scheduled. We are well capitalized and have a very robust growth plan, with revenue expected to more than triple in 2024 – a clear demonstration of Northern Data’s stability and strong investment strategy.”

Protos has contacted Tether for comment but had no response at time of publication.

Update 2024-07-08 15:12 UTC: Added comment from Northern Data.

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