A senior member of the U.S. Securities and Exchange Commission has told investors to be “very careful” about relying on “proof-of-reserves” from a cryptocurrency company.
In an interview with The Wall Street Journal on Dec. 22, the SEC’s acting chief accountant, Paul Munter, said, “We’re warning investors to be very wary of some of the claims that crypto companies are making.”
Since the collapse of the crypto exchange FTX, a number of crypto firms have paid for “proof-of-reserves” audits to ease worries about the financial health of their own exchanges.
Related:Â After a terrible year, cryptocurrencies are at a crossroads.
Munter, on the other hand, said that the results of these audits don’t always show that the company is doing well financially.
“Investors shouldn’t trust a company too much just because it says it has a proof-of-reserves from an audit firm.”
He also said that these proof-of-reserve reports don’t have “enough” information for stakeholders to figure out if the company has enough assets to cover its debts.
Munter also recently gave a talk at the Association of International Certified Professional Accountants Conference on December 12 in Washington, D.C., where he was said to have complained about how the structure of crypto firms is always changing.
Munter told WSJ that if the SEC finds “troubling” patterns of facts, it may send the case to the division of enforcement for more investigation.
John Reed Stark, who used to be the head of the SEC’s Internet Enforcement Division, put up a “red flag” on Twitter about Binance’s proof-of-reserve report on December 11.
He said that Binance’s proof of reserve report didn’t talk about how well the company’s internal financial controls worked. It also didn’t give an opinion or assurance about the numbers or say that they were correct.
On December 16, it was reported that the French auditing firm Mazars Group had taken down the part of its website that was for crypto audits.
The company had worked with Binance, KuCoin, and Crypto.com, which are all well-known crypto exchanges.
Ben Sharon, co-founder of digital asset management company Illumishare SRG, told Cointelegraph on Nov. 19 that a proof-of-reserve audit is still a good way to check the financial health of crypto exchanges, but it’s not enough by itself.
Related: As the risk of spreading grows, insurers are avoiding crypto firms with ties to FTX.
Investors have lost a lot of money over the past year because big cryptocurrency companies like Three Capital Arrows, Celsius, and most recently the cryptocurrency exchange FTX have gone bankrupt.
