“Be Wary Of Proof of Reserve”

• Since the demise of FTX, several crypto firms have commissioned “proof-of-reserves” audits.
• The change comes as the fallout from FTX has spread throughout the crypto industry.

The Securities and Exchange Commission (SEC) of the United States is increasing its scrutiny of audit firms’ work with cryptocurrency companies. A senior US SEC official has urged investors to be “extremely careful” of relying on a crypto company’s “proof-of-reserves.” 

Paul Munter, SEC’s acting chief accountant stated:

 “We’re warning investors to be very wary of some of the claims that are being made by crypto companies”.

The change comes as the fallout from FTX has spread throughout the crypto industry. FTX filed for bankruptcy protection in the United States last month, and its founder, Sam Bankman-Fried, resigned as CEO. According to Munter, the findings of these audits aren’t always indicative of the company’s financial condition.  He added that these proof-of-reserve filings are “missing” the information needed for stakeholders to decide if the corporation has adequate assets to satisfy its liabilities.

Earlier this month, former SEC Internet Enforcement Chief John Reed Stark raised a “red flag” on Twitter over Binance’s proof-of-reserve report. He claimed that Binance’s proof of reserve report did not examine the efficacy of internal financial controls.