Anusuya Lahiri
Thu, December 22, 2022
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.
The SEC’s Crypto Crackdown Is Just Getting Started After FTX Blowup
Allyson Versprille
Thu, December 22, 2022
The SEC’s Crypto Crackdown Is Just Getting Started After FTX Blowup
(Bloomberg) -- The US Securities and Exchange Commission is just getting started with its crackdown on crypto firms that refuse to abide by its rules.
SEC Chair Gary Gensler said in an interview on Thursday that the agency’s patience is wearing thin for digital-asset exchanges and other firms that shirk its regulations. Just hours earlier, the watchdog - which had already filed a lawsuit against FTX co-founder Sam Bankman-Fried — sued two more prominent crypto executives for their alleged roles in the collapse of the digital-asset exchange.
“The runway is getting shorter” to start following rules and register with the agency, said Gensler. “The casinos in this Wild West are non-compliant intermediaries,” he added.
Although he declined to identify firms facing scrutiny, or comment on where the FTX probe may go next, Gensler warned about a number of practices that are rampant in the industry.
Over the past year and a half, the SEC chief has argued that most tokens are really just unregistered securities trading on the blockchain. He says they must follow the agency’s tough trading and investment rules.
Client Funds
Gensler chided platforms for not walling off the different parts of their business, such as custody and market-making functions. He also said client funds often aren’t being properly segregated — a problem that’s gained a lot of attention following the failure of FTX.
The SEC has accused former FTX chief executive officer Bankman-Fried and two of his former top associates — Caroline Ellison and Gary Wang — of participating in a multi-year scheme to defraud investors by falsely touting the exchange as a safe platform, while at the same time diverting customer funds to trading firm Alameda Research and concealing other risks and problems.
On Thursday, Gensler also took issue with so-called proof-of-reserves reports, which some crypto firms publish to prove they have enough funds on hand to back customer deposits. Gensler said the practice, which has been used by major crypto firms including Binance Holdings Ltd., falls short of the disclosures needed to protect investors.
“Proof of reserves is neither a full accounting of the assets and liability of a company, nor does it satisfy segregation of customer funds under the securities laws,” Gensler said.
More broadly, the SEC chief signaled that regulators remain focused on crypto firms’ financial record keeping.
“There are some in this field that have talked about ways to give customers confidence that their crypto is really there,” Gensler said, without referencing any specific firm. “They should do that by coming into compliance with time-tested custody, segregation of customer funds rules and accounting rules.”
Allyson Versprille
Thu, December 22, 2022
The SEC’s Crypto Crackdown Is Just Getting Started After FTX Blowup
(Bloomberg) -- The US Securities and Exchange Commission is just getting started with its crackdown on crypto firms that refuse to abide by its rules.
SEC Chair Gary Gensler said in an interview on Thursday that the agency’s patience is wearing thin for digital-asset exchanges and other firms that shirk its regulations. Just hours earlier, the watchdog - which had already filed a lawsuit against FTX co-founder Sam Bankman-Fried — sued two more prominent crypto executives for their alleged roles in the collapse of the digital-asset exchange.
“The runway is getting shorter” to start following rules and register with the agency, said Gensler. “The casinos in this Wild West are non-compliant intermediaries,” he added.
Although he declined to identify firms facing scrutiny, or comment on where the FTX probe may go next, Gensler warned about a number of practices that are rampant in the industry.
Over the past year and a half, the SEC chief has argued that most tokens are really just unregistered securities trading on the blockchain. He says they must follow the agency’s tough trading and investment rules.
Client Funds
Gensler chided platforms for not walling off the different parts of their business, such as custody and market-making functions. He also said client funds often aren’t being properly segregated — a problem that’s gained a lot of attention following the failure of FTX.
The SEC has accused former FTX chief executive officer Bankman-Fried and two of his former top associates — Caroline Ellison and Gary Wang — of participating in a multi-year scheme to defraud investors by falsely touting the exchange as a safe platform, while at the same time diverting customer funds to trading firm Alameda Research and concealing other risks and problems.
On Thursday, Gensler also took issue with so-called proof-of-reserves reports, which some crypto firms publish to prove they have enough funds on hand to back customer deposits. Gensler said the practice, which has been used by major crypto firms including Binance Holdings Ltd., falls short of the disclosures needed to protect investors.
“Proof of reserves is neither a full accounting of the assets and liability of a company, nor does it satisfy segregation of customer funds under the securities laws,” Gensler said.
More broadly, the SEC chief signaled that regulators remain focused on crypto firms’ financial record keeping.
“There are some in this field that have talked about ways to give customers confidence that their crypto is really there,” Gensler said, without referencing any specific firm. “They should do that by coming into compliance with time-tested custody, segregation of customer funds rules and accounting rules.”
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