The US Securities and Exchange Commission is increasingly scrutinizing audits conducted for cryptocurrency companies with concerns over their legality.
These crypto companies They are trying to display their clients’ assets after the collapse of FTX. Many are seeking auditing firms to provide third-party assurance to their clients and potential investors.
However, the SEC warned that investors should be skeptical of these proof-of-reserve reports, arguing that they do not provide enough information. The SEC said some of these reports neglected to include all relevant financial information, which the firms claimed violated confidentiality.
According to Acting Chief Accountant, Paul Munter, the SEC is investigating how crypto companies are portraying these auditing reports. “We’re increasing our understanding of what’s happening in the market,” Munter Said, “If we find fact patterns that we think are troubling, we will consider a referral to the division of enforcement.”
However, since many companies are located overseas, they are outside the jurisdiction of the federal securities regulator. As a result, the SEC is effectively issuing warnings not only to investors but also to auditing firms about their reputations being at risk.
Auditors Leaving Crypto Firms
The potential reputational risk of verifying crypto company books has already become apparent. After the collapse of FTX, the authorities started questioning The legitimacy of the firm’s auditors, Prager Matisse and Armanino. Although both companies stand by their work, FTX’s new CEO John Ray stated that the auditing statements were not reliable.
Binance, the world’s largest cryptocurrency exchange, is struggling to retain auditors after Mazar suspended operations. was done independently by the global auditing firm Verified Binance’s Proof of Store, But Its Reported Contains little financial information, Not confirming the numbers, Mazar suspended his work with Binance and pulled his report from its website, neglecting to express an opinion on the report.
Now, Binance says that even the Big Four accounting firms are “reluctant” to provide proof of reserve audits. Many believe that the lack of effective internal controls in crypto companies will compromise the integrity of the financial statements. Meanwhile, concerns over the risk of lawsuits, reputational damage, and regulatory scrutiny are causing other such companies to reconsider taking on crypto customers.
Insurers Out, Bankruptcy Lawyers In
In addition to accounting firms and auditors, insurers are increasingly Question Their relationship with crypto customers. In light of the above risks, insurers have denied or significantly limited coverage for customers engaged in cryptocurrencies.
But as these financial firms shy away from further involvement with crypto companies, another group of professionals is seeing more employment. A sequence of crypto company bankruptcies has resulted in trading losses over the past year flourishing For bankruptcy attorneys.
BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.