- SEC Chief Accountant Paul Munter tells investors to be “very wary” of crypto proof-of-reserves
- The warning came after a series of bankrupt crypto companies like FTX, Celsius and Three Arrows Capital
- According to the SEC, a crypto company’s proof-of-reserve does not present solid evidence of internal financial controls
The US Securities and Exchange Commission (SEC) cautioned investors to be extremely careful of putting their faith in a cryptocurrency firm’s “proof-of-reserves.”
Paul Munter, the SEC chief accountant, told The Wall Street Journal on December 22 that investors should be “extremely skeptical” of some of the claims being made by cryptocurrency businesses.
“We’re warning investors to be very wary of some of the claims being made by crypto companies,” he said.
Since the demise of cryptocurrency exchange FTX, several cryptocurrency businesses have commissioned proof-of-reserves audits to allay worries over the stability of their exchange.
Munter, however, argued that the outcome of such audits is no guarantee of the company’s financial health: “Investors should not put too much weight on a company’s claim that it has a proof-of-reserves from an audit firm,” he warned.
In addition, he said that the information contained in these proof-of-reserve reports needs to be more sufficient for stakeholders to decide if the corporation has enough liquidity to cover its liabilities.
On December 12, Munter allegedly vented his anger with the ever-changing organizational structure of crypto businesses at the Association of International Certified Professional Accountants Conference in Washington, DC.
In an interview with the WSJ, Munter said that if the SEC finds problematic details in the system, it may send the case to the enforcement division for additional investigation.
John Reed Stark, the former head of the SEC’s Internet Enforcement division, warned on Twitter on December 11 about Binance’s proof-of-reserve report.
He added that Binance’s report should have talked about internal backup plans or stood by the data it presented.
On December 16, it was reported that the French auditing company Mazars Group had removed its crypto auditing page from its website. The company had previously collaborated with notable cryptocurrency marketplaces, including Crypto.com, KuCoin, and Binance.
For example, on November 19, digital asset management business Illumishare SRG co-founder Ben Sharon told Cointelegraph that a proof-of-reserve audit still works as an excellent step to examine the stability of crypto exchanges. Still, it needs to be more adequate on its own, especially in the eyes of the authorities.
In 2022 alone, investors lost millions of dollars as big cryptocurrency enterprises, including FTX, BlockFi, and Voyager, filed for bankruptcy.
Many crypto skeptics took the opportunity to bash the sector to prove that it has no place in modern society. However, some individuals, such as Pantera CEO Dan Morehead, say that the closure of the companies has nothing to do with the purpose of blockchain. To him, these firms closed simply due to the irresponsibility of the executives, not because of the technology and possibilities that cryptocurrency, Web3, and blockchain hold.
