Blow for crypto: Binance, Crypto.com abandoned by their auditor

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The poison of suspicion continues to spread in the crypto sphere.

This poison, disseminated by the nightly implosion of Sam Bankman-Fried’s crypto empire on November 11, infects most companies in the sector, especially the largest ones.

The cryptocurrency exchange, valued at $32 billion in February, filed for Chapter 11 bankruptcy within days on November 11. So was its sister company, Alameda Research, a hedge fund that also functioned as a trading platform, primarily for institutional investors.

FTX and Alameda were the twin heads of the Bankman-Fried empire, which is wanted for extradition from the Bahamas to the United States, after regulators filed a series of criminal and civil charges against him, accusing him of fraud and conspiracy to defraud FTX Clients and Investors.

Bankman-Fried’s Shadow

Bankman-Fried lives in the Bahamas, where FTX was also headquartered. He was arrested, denied bail, and an extradition hearing is set for February 8, 2023. The former crypto kingpin denies he intended to defraud.

“From at least 2019 on or about 2019, up to and including about November 2022”, Bankman-Fried “and others known and unknown, willfully and knowingly combined, conspired, confederated and agreed together and with each other to commit a wire fraud,” prosecutors for the Southern District of New York from the U.S. Department of Justice alleged.

“Bankman-Fried orchestrated massive fraud for years, embezzling billions of dollars of trading platform client funds for his own benefit and to help grow his crypto empire,” the SEC alleges in its civil complaint.

Mark Cohen, attorney for Bankman-Fried, said his client is “reviewing the charges with his legal team and considering all of his legal options.”

The big deal is that days before FTX filed for bankruptcy, Bankman-Fried claimed the company’s assets were “fine.” This lie now has serious consequences for the entire crypto industry, as investors try to figure out what the impact will be of the fall of FTX, which was a central player in the crypto space.

It is in this context that the audit firm Mazars Group has just announced that it is cutting ties with crypto firms, and more particularly Binance, Crypto.com and Kucoin.com. This is a huge blow for the three companies and especially for Binance, which became a juggernaut after the collapse of FTX.

Mazars said it has “suspended its activity relating to the provision of proof of reserves reports for entities in the cryptocurrency industry due to concerns about how these reports are understood by the public”.

$6 billion in net withdrawals in 3 days

The company said its Proof of Reserves reports are “done in accordance with relevant reporting standards for an agreed-upon procedures report.”

“They do not constitute assurance or an audit opinion on the subject. Instead, they report limited findings based on agreed-upon procedures performed on the subject at a historical time,” the statement continued.

The purpose of the proof of reserves audit is to show that the crypto business has enough reserves to withstand a run on it from its clients and investors. This audit also aims to increase public trust and provide transparency when most crypto companies are unregulated, which means they are opaque and investors and customers can only rely on what senior leaders are saying.

Mazars’ decision comes after the company published an audit on Binance that was mocked on social media for the selective information it contained.

By cutting ties, Mazars therefore reinforces the distrust and mistrust surrounding the sector. This is a big flaw for Binance and its CEO Changpeng Zhao, who have emerged since the fall of FTX as the new kings of the crypto space.

“Mazars has indicated that it will temporarily suspend work with all of its crypto clients globally, including Crypto.com, KuCoin and Binance. Unfortunately, this means that we will not be able to work with Mazars at this time,” said a Le Binance spokesperson said in an emailed statement.

For the past few days, the company has been experiencing massive withdrawals from panicked customers: there were $6 billion in net withdrawals in three days, from Dec. 12 to Dec. 14, the Binance spokesperson said.

“We were able to fill them without breaking stride,” reassured the spokesperson.

Are withdrawals still in progress?

But the company did not say whether the withdrawals were still ongoing.

“We recently successfully completed proof of our reserves in conjunction with Mazars, who provided independent verification of our on-chain secure digital assets matching our client balances 1:1,” a Crypto spokesperson said. com in an e-mail statement.

One-on-One (1:1) means that each client crypto asset is backed by company reserves, in case the client wishes to withdraw their cryptocurrencies.

“We have also provided our customers with the ability to verify that their balance is included,” the spokesperson added. “We will continue to engage with reputable audit firms in 2023 and beyond as we seek to increase transparency across the industry.”

Crypto.com did not respond to questions regarding the withdrawals.

Kucoin.com did not immediately respond to a request for comment.

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