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The SEC has stepped up scrutiny of audit firms’ services to cryptocurrency companies, over concerns that unscrupulous audit reports could mislead investors.
The SEC has warned investors about some claims from crypto companies, Paul Munter, acting chief accountant of the SEC, said in an interview.
The heightened scrutiny has led to at least one audit firm dropping crypto clients, in some cases soon after producing reports on companies’ assets and liabilities, The Wall Street Journal reports.
Many of these companies were tightly owned or based overseas, which helped them evade regulatory measures.
The SEC is particularly concerned about so-called proof-of-reserve reports, which purport to show that the crypto company has enough assets to cover client funds.
In December, leading crypto exchange Binance presented its “audited proof of reserves,” independently verified by auditing firm Mazars.
However, the report contained little financial information and Mazars did not express an opinion.
A report for the Crypto.com exchange this month did not disclose the nominal amounts of assets and liabilities, citing confidentiality reasons. The same partner Mazars in South Africa signed the Crypto.com and Binance reports.
Such a report “is not sufficient information for an investor to assess whether the company has enough assets to cover its debts,” Munter added.
Last week, Mazars halted proof-of-reserve cryptography work and pulled copies of the reports from its website.
Other audit firms, including Marcum LLP and BDO, have also reassessed their work for crypto companies, fearing lawsuits, reputational damage and increased regulatory scrutiny.
The scrutiny of FTX’s external auditors after the crypto exchange filed for bankruptcy revealed the risks of signing untrusted numbers.
The Amplify Transformational Data Sharing ETF (NYSE:BLOK) traded down 0.97% to $15.29 pre-market when last checked on Thursday.
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