Be ‘very wary’ of crypto proof-of-custody audits: SEC official

A senior U.S. Securities and Exchange Commission official has warned investors to be “very careful” about relying on “proof of reserves” from a crypto firm.

“We warn investors to beware of some of the claims made by crypto companies,” said SEC acting chief accountant Paul Munter in a Dec. 22 interview with The Wall Street Journal.

A number of crypto firms have commissioned “proof of reserves” audits since the collapse of crypto exchange FTX, in an effort to allay concerns about the financial strength of their own exchange.

However, Munter said the results of these audits were not necessarily an indicator that the company was in good financial shape.

“Investors should not place too much faith in the mere fact that a company claims to have obtained proof of reserves from an auditing firm.”

He further added that these proof of reserve reports “lack” enough information for stakeholders to determine whether the company has enough assets to meet its liabilities.

Munter also recently spoke at the Association of International Certified Professional Accountants conference in Washington, DC on December 12, where he would have expressed their frustration with the ever-changing structure of crypto businesses.

Munter told the WSJ that if the SEC discovers “inconvenient” patterns of facts, it can refer the matter to the Enforcement Division for further review.

Related: Proof of Reserves: Can Reserve Audits Avoid Another FTX-like Moment?

Earlier this month, John Reed Stark, former SEC chief of Internet Enforcement raised a “red flag” on Twitter on Binance’s proof of reserve report via Twitter on December 11.

He said Binance’s proof of reserve report does not address the effectiveness of internal financial controls, nor does it express any opinion or conclusion of assurance, or guarantee the numbers.

It was revealed on December 16 that French auditing firm Mazars Group, has removed its section on its website dedicated to crypto audits.

The company had worked with several top crypto exchanges including Binance, KuCoin, and Crypto.com

Ben Sharon, co-founder of digital asset management firm Illumishare SRG, previously told Cointelegraph on November 19 that a reserve proof audit is still a viable step to review the financial health of crypto exchanges, but that alone is not enough.

Investors have lost millions in the past twelve months with the failure of major crypto firms, including Three Capital Arrows, Celsius and most recently FTX cryptocurrency exchange.