According to the SEC’s acting chief accountant, Paul Munter, investors should not put too much faith in a company that is unable to complete a proof-of-reserves audit.
A senior US Securities and Exchange Commission official has warned investors to be “very wary” of relying on a crypto company’s “proof-of-reserves.”
“We’re warning investors to be very wary of some of the claims that crypto companies are making,” said SEC acting chief accountant Paul Munter in an interview with The Wall Street Journal on December 22.
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.
“Investors should not put too much faith in a company’s claim to have proof of reserves from an audit firm.”
He went on to say that these proof-of-reserve reports “lack” the information needed for stakeholders to determine whether the company has enough assets to meet its liabilities.
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.
According to Munter, if the SEC discovers “troublesome” fact patterns, the matter may be referred to the division of enforcement for further review.
Earlier this month, John Reed Stark, former SEC Internet Enforcement Chief, raised a “red flag” on Twitter about Binance’s proof-of-reserve report on December 11 via Twitter.
He claimed that Binance’s proof of reserve report did not address the effectiveness of internal financial controls, expressed an opinion or assurance conclusion, or vouch for the numbers.
On December 16, it was revealed that the French auditing firm Mazars Group had discontinued its section of its website dedicated to crypto audits.
The company had previously worked with several prominent cryptocurrency exchanges, including Binance, KuCoin, and Crypto.com.
Ben Sharon, co-founder of digital asset management firm Illumishare SRG, previously told Cointelegraph on November 19 that a proof-of-reserve audit is still a viable step to review the financial health of crypto exchanges, but it isn’t sufficient on its own.
Over the last year, major cryptocurrency firms such as Three Capital Arrows, Celsius, and, most recently, cryptocurrency exchange FTX have gone bankrupt, costing investors millions of dollars.
