• The U.S. Securities and Exchange Commission (SEC) is increasing its scrutiny of audits of cryptocurrency companies in an effort to protect investors.
• The SEC warns investors and audit firms that any troublesome “fact patterns” could result in a referral to the division of enforcement.
• Binance, the largest crypto exchange by trading volume, was looking for another audit firm after it was dropped by Mazars.
The U.S. Securities and Exchange Commission (SEC) is increasing its oversight of cryptocurrency companies by examining the audits of such businesses in order to protect investors. In the wake of the collapse of FTX, as many as nine exchanges around the world announced that they would publish transparency reports or Merkle tree proof of reserves to reassure investors.
The SEC is warning investors not to place too much confidence in the fact that a company has a proof of reserves from an audit firm. Paul Munter, the SEC’s acting chief accountant, said that such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities.” If the SEC finds any troubling “fact patterns”, they will consider referring the case to the division of enforcement.
This scrutiny comes at a time when questions have been swirling around Binance, the largest crypto exchange by trading volume, which released a report of its proof of reserves that was withdrawn two days later when the auditing firm it had hired, Mazars, announced it was no longer working with crypto firms. Binance has since been trying to find a new audit firm to work with, but the Big Four (Deloitte, EY, KPMG and PwC) are reportedly unwilling to conduct a proof of reserves for a private crypto company.
The SEC’s increased scrutiny of cryptocurrency companies is a positive development for investors, as it will help protect them from potential scams or frauds. The SEC’s warnings that investors should not too heavily rely on audit reports could help to ensure that investors have all the necessary information before making an investment. Additionally, the SEC’s enforcement efforts could help to deter any potential fraudulent activity.