The United States Securities and Exchange Commission (SEC) is raising its scrutiny of audit firms’ work for cryptocurrency companies, a senior SEC official told in an interview with Wall Street Journal on Thursday.
We’re warning investors to be very wary of some of the claims that are being made by crypto companies,” said Paul Munter, the SEC’s acting chief accountant. Having such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities, he added.
Since the collapse of crypto exchange FTX, a number of crypto firms have commissioned “proof-of-reserves” audits in an attempt to assuage concerns about the financial stability of their own exchange. However, Munter stated that the results of these audits are not always indicative of the company’s financial health.
According to Munter, the SEC is warning both investors and audit firms that if it finds troubling “fact patterns,” the watchdog will consider referring the matter to the division of enforcement.
On December 12, Munter also spoke at the Association of International Certified Professional Accountants Conference in Washington, D.C., where he reportedly expressed frustration with the constantly evolving structure of crypto firms.
The move is significant because questions have been floating about Binance, the largest crypto exchange by trading volume, which did release a proof-of-reserves report but withdrew it two days later when the auditing firm it had hired, Mazars, announced it was no longer operating with crypto firms. The company had previously worked with several prominent cryptocurrency exchanges, including Binance, KuCoin, and Crypto.com.
According to the WSJ, Binance was looking for another audit firm after Mazars dropped it. Binance has reached out to multiple large firms, including Deloitte, EY, KPMG, and PwC, who are currently unwilling to conduct a [proof-of-reserves] for a private crypto company.
After rival exchange Binance backed out of a proposed acquisition, FTX filed for U.S. bankruptcy protection last month, and its founder Sam Bankman-Fried resigned as CEO.
Since the FTX collapse, a number of cryptocurrency companies have been preparing for the fallout, with many of them estimating their exposure to the troubled exchange to be huge.