US SEC Intensifies Scrutiny of Crypto Auditors’ ‘Troublesome’ Work

• SEC’s acting Chief Accountant said that they are warning investors to be cautious of claims made by crypto firms.
• Paul Munter added that SEC would consider a referral to the division of enforcement.
• SEC warned that proof-of-reserve reports do not provide enough information.

According to the latest reports, US Securities and Exchange Commission (SEC) has intensified the scrutiny of Crypto auditors for the work they do for cryptocurrency firms.

Paul Munter, SEC’s acting Chief Accountant stated in an  interview, “We’re warning investors to be very wary of some of the claims that are being made by crypto companies. If we find fact patterns that we think are troublesome, we will consider a referral to the division of enforcement.”

After the collapse of FTX, crypto companies have been trying to build trust amongst customers by showing that they retain their customers’ assets using their proof of reserves report. Thus, crypto firms are reaching out to audit firms to give customers and investors’ third-party assurances.

However, the SEC warned that crypto investors must be cautious of these proof-of-reserve reports, and said that these reports do not provide enough information. SEC further argued that some of these reports do not include all the relevant financial data because crypto firms then go on to complain that it violates confidentiality.

The SEC is also warning auditing firms that their crypto audit reports can risk their public image amid rising apprehensions amongst investors.

Recently, FTX’s new CEO John Ray called the auditing statements unreliable. Due to the mounting pressure on auditors, many firms like Mazar which had authored Binance’s reserves report, had stopped “all work for crypto clients.” In fact, the Big Four accounting firms are not ready to audit the proof of reserves report due to the risk of lawsuits, reputational harm, and rising scrutiny from regulators.