The Securities and Exchange Commission (SEC) through its acting chief accountant, Paul Munter, has warned investors to be “very wary” of the proof-of-reserves (PoR) of crypto firms, as most of them may be inaccurate.
SEC raises concerns over crypto exchanges’ PoR audits
Following the abrupt collapse of FTX, whose CEO, Sam Bankman-Fried is currently on trial in the United States, crypto investors seemingly lost confidence in centralized exchanges and these companies, on the other hand, resorted to engaging independent audit firms to conduct proof-of-reserves (PoR) attestations, in a bid to reassure customers of the security of their funds.
However, in the latest development, U.S. financial watchdog, the Securities and Exchange Commission, through its acting chief accounting officer, Paul Munter, has warned crypto investors to be wary of this PoR reports, as they may not be entirely accurate.
“We’re warning investors to be wary of some of the claims that are being made by crypto companies,” Munter declared, adding that the SEC is currently pointing its searchlight into the PoR activities of crypto market participants and will not hesitate to engage its enforcement division if it finds any irregularities.
In recent weeks, established crypto exchanges including Binance, Crypto.com, and KuCoin amongst others, have published their PoR reports. However, some of the accounting firms that conducted these audits, including Mazars, and Amarnino, have suspended their services for Web3 projects due to increased regulatory scrutiny.
Munter has made it clear that investors should not completely rely on the “mere fact a company says it’s got a proof of reserves from an audit firm. Such reports are not enough information for investors to assess whether a company’s assets can cover its liabilities.”