Paul Munter, the SEC's acting chief accountant, claims that having evidence of reserve reports is insufficient information for investors.
According to a Wall Street Journal story citing a senior SEC official, the U.S. Securities and Exchange Commission (SEC) is intensifying its examination of audits of cryptocurrency firms in a bid to alert investors who may feel comfortable by audits such proof-of-reserve reports.
According to Paul Munter, the acting chief accountant for the SEC, "Investors should not place too much reliance in the mere fact that a corporation states it has a proof-of-reserves from an audit firm." Such a report alone "does not provide an investor with adequate information to determine if the firm has sufficient assets to fulfil its liabilities," he continued.
As many as nine cryptocurrency exchanges worldwide declared they will provide transparency reports or Merkle tree proof of reserves in the wake of FTX's failure in an effort to calm investors' fears. Using a Merkle tree proof of reserves, users may confirm the stability of their holdings on exchanges while still maintaining their anonymity, fostering confidence.
According to Munter, the SEC is advising audit companies and investors alike that it may report problematic "fact patterns" to the division of enforcement if it discovers them.
The development gains significance because there have been concerns about Binance, the biggest cryptocurrency exchange by trading volume, which did publish a report of its proof of reserves but withdrew it two days later when the auditing company it had hired, Mazars, announced it would no longer be working with crypto companies.
After Mazars quit Binance, the WSJ reported that Binance was seeking for a another audit company. In order to do a [proof of reserves] for a private crypto company, Binance "reached out to many significant companies, including the Big Four (Deloitte, EY, KPMG, and PwC), who are now refusing to do so," the company added.
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