Paul Munter, the SEC’s acting top accountant, has said that just providing investors with confirmation of reserve reports is not sufficient.
According to a Wall Street Journal article citing a senior SEC official, the SEC is boosting its examination of audits of cryptocurrency firms in a bid to caution investors who may feel comfortable with audits such as proof-of-reserve reports.
SEC acting chief accountant Paul Munter cautioned investors to not put too much stock in a company’s claim that it has a proof-of-reserves from an audit firm. An investor “cannot determine if the firm has adequate assets to meet its obligations” based on such a report alone, he said.
At least nine cryptocurrency exchanges across the globe have promised to comfort uneasy investors in the wake of FTX’s demise by publishing transparency reports or Merkle tree evidence of reserves. In order to build confidence between users of different exchanges, a Merkle tree proof of reserves was developed as a cryptographic data structure that protects user anonymity while yet allowing them to independently verify the security of their holdings.
According to Munter, the SEC has warned both investors and audit firms that it may submit problematic “fact patterns” to the division of enforcement if they identify them.
When you consider that Binance, the biggest cryptocurrency exchange by trading volume, released a report on its proof of reserves only to retract it two days later when its auditor, Mazars, stated it would no longer deal with crypto businesses, you can see the importance of this new development.
Also Read: Polygon Breaks Network Record Just Before Final Testnet Debut
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
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