Beware of Crypto Reserve Proof Audits: SEC Official

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A senior U.S. Securities and Exchange Commission official has warned investors to beware of relying on a crypto company’s proof of reserves.

Were warning investors to beware of some of the claims made by crypto companies, SEC acting chief accounting officer Paul Munter said in a Dec. 22 interview with The Wall Street Journal.

A number of crypto firms have commissioned proof of reserves audits since the collapse of crypto exchange FTX, in an effort to allay concerns about the financial strength of their own exchanges.

However, Munter said the results of these audits are not necessarily an indicator that the company is in good financial shape.

Investors should not place too much faith in the mere fact that a company claims to have obtained proof of reserves from an auditing firm.

He further added that these proof of reserve reports lack sufficient information for stakeholders to determine whether the company has enough assets to meet its debts.

Munter also recently spoke at the Association of International Certified Professional Accountants conference in Washington, D.C. on December 12, where he reportedly expressed frustration with the ever-changing structure of crypto businesses.

Munter told the WSJ that if the SEC finds inconvenient fact patterns, it can refer the matter to the Enforcement Division for further review.

Related: Proof of Reserves: Can Reserve Audits Avoid Another FTX-like Moment?

Earlier this month, John Reed Stark, former SEC Chief of Internet Enforcement raised a red flag on Twitter about Binances’ Proof of Reserve report via Twitter on December 11.

He stated that Binances’ proof of reserve report does not address the effectiveness of internal financial controls, nor does it express any opinion or conclusion of assurance, or guarantee the numbers.

It was revealed on December 16 that French auditing firm Mazars Group had removed its section on its website dedicated to crypto audits.

The company had worked with several top crypto exchanges including Binance, KuCoin, and Crypto.com

Ben Sharon, co-founder of digital asset management firm Illumishare SRG previously told Cointelegraph on Nov. 19 that a proof of reserve audit is still a viable step to examine the financial health of crypto exchanges, but this is not is not enough in itself.

Investors have lost millions over the past twelve months with the bankruptcy of major crypto firms, including Three Capital Arrows, Celsius, and more recently, cryptocurrency exchange FTX.

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