- The SEC ramped up scrutiny of audit firms' service to cryptocurrency companies, fearing unscrupulous audit reports misleading investors.
- The SEC warned investors against some claims from crypto companies, Paul Munter, the SEC's acting chief accountant, said in an interview.
- The increased scrutiny has led at least one audit firm to drop crypto clients, in some cases soon after producing reports on the companies' assets and liabilities, the Wall Street Journal reports.
- Many of these companies were closely held or based offshore, helping them evade regulatory actions.
- The SEC is particularly worried about so-called proof-of-reserves reports, which aim to show that the crypto company has sufficient assets to cover customers' funds.
- In December, leading crypto exchange Binance showcased its "audited proof of reserves," independently verified by audit firm Mazars.
- However, the report contained sparse financial information, and Mazars did not express an opinion.
- A report for exchange Crypto.com this month did not disclose the nominal amounts of assets and liabilities, citing confidentiality reasons. The same Mazars partner in South Africa signed off on both the Crypto.com and Binance reports.
- Such a report "is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities," Munter added.
- Mazars last week paused doing proof-of-reserves crypto work and pulled copies of the reports from its website.
- Other audit firms, including Marcum LLP and BDO, also reevaluated their work for crypto companies, fearing lawsuits, reputational damage, and heightened regulatory scrutiny.
- The high-profile scrutiny of FTX's external auditors after the crypto exchange filed for bankruptcy disclosed the risks of signing off on unreliable numbers.
- Amplify Transformational Data Sharing ETF (NYSE:BLOK) traded lower by 0.97% at $15.29 in the premarket on the last check Thursday.
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