US SEC warns crypto investors against blind trust in ‘proof of reserve’ audits

US SEC warns crypto investors against blind trust in ‘proof of reserve’ audits

US SEC warns crypto investors against blind trust in 'proof of reserve' audits

Following the collapse of the FTX crypto exchange due to a liquidity crunch, several global crypto companies conducted the audits of their respective proof of reserves. The aim is to assure their users that in the event of an emergency, the exchanges will be able to handle all withdrawals without going bankrupt. U.S. Securities and Exchange Commission (SEC) officials have warned crypto investors that they should not blindly trust the internal audits of crypto companies.

In recent days, KuCoin, Binance, CryptoCom, and Giottos, among other exchanges, have had their proof of reserves verified, both internally and through third-party authenticators.

In a recent interview, Paul Munter, the SEC’s acting chief accountant, said that not all companies even share their audit numbers and therefore should not be considered reliable sources.

“Investors should not place too much faith in the simple fact that a company claims to have obtained proof of reserves from an auditing firm. Having such a report is not sufficient for an investor to assess whether the company has enough assets to cover its debts,” Munter said in a Wall Street Journal report.

Mazars, the auditing firm working with crypto majors like Binance and CryptoCom, temporarily halted all work for crypto industry clients on December 16.

Although the exact reason for the act has not been revealed, Mazars has disabled web pages displaying audit results for Binance.

Law enforcement authorities in the United States are closely monitoring developments in the crypto industry.

An alarm, for example, was raised against Binance’s proof of reserve report earlier this month by John Reed Stark, former head of the SEC of Internet Enforcement.

OKX, a Seychelles-based cryptocurrency exchange, released its second proof of reserve report on Friday, December 23. As part of its commitment to earning the trust of as many investors as possible, the company has committed to providing similar reports every month.

Crypto exchange FTX filed for bankruptcy last month, following the arrest of its founder and CEO, Sam Bankman Fried, for defrauding customers.

In the process, the overall valuation of the crypto market according to CoinMarketCap.

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