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SEC Takes Prudent Action in Auditing to Ensure Proof-of-Reserves Reports
As a company that embraces radical transparency, this is a move from the US Securities and Exchange Commission that we can get behind. The SEC is getting more active in reviewing the audits of cryptocurrency companies to ensure investors of the integrity of company proof-of-reserve reports.
The best thing about the bad crypto news in the headlines – be it Luna or FTX or anyone else crashing and burning – is this fire burns away the dangerous and corrupt underbrush of scammers and grifters. As we have called for, some peers in the industry are following our lead and upping their accountability and transparency on a voluntary basis, rather than through top-down fiat. So far nine crypto exchanges have announced they will publish transparency reports or Merkle tree proof-of-reserves.
To borrow a line from a favorite Christmas movie, “Welcome to the party, pal.”
The U.S. Securities and Exchange Commission (SEC) is increasing its scrutiny of audits of cryptocurrency companies in an effort to warn investors who may feel assured by audits such as proof-of-reserve reports, according to a Wall Street Journal report that cites a senior SEC official.
“Investors should not place too much confidence in the mere fact a company says it’s got a proof-of-reserves from an audit firm,” said Paul Munter, the SEC’s acting chief accountant. Having such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities,” he added.
In the aftermath of FTX's collapse, as many as nine crypto exchanges across the world announced they would publish transparency reports or Merkle tree proof-of-reserves to reassure spooked investors. A merkle tree proof-of-reserves is a cryptographic data structure that maintains privacy, but allows users to verify the stability of their holdings on exchanges, thereby creating trust.
The SEC is warning both investors and audit firms that if it finds troublesome "fact patterns," the watchdog will consider a referral to the division of enforcement, according to Munter.