February 7, 2023

A senior U.S. Securities and Exchange Commission official has warned investors to be “very wary” of relying on a crypto company’s “proof-of-reserves.”

“We are warning investors to be very wary of some of the claims made by crypto companies,” SEC acting chief accountant Paul Munter said 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, aiming to allay concerns about the financial soundness of their own exchange.

However, Munter said the results of these audits are not necessarily an indication that the company is in a good financial position.

“Investors should not put too much faith in the mere fact that a company says it has proof of reserves from an accounting firm.”

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

Munter also recently spoke at the Association of International Certified Professional Accountants Conference in Washington, DC on Dec. 12, where he Reportedly expressed his frustration with the constantly evolving structure of crypto companies.

Munter noted to WSJ that if the SEC discovers “troublesome” fact patterns, it may refer the case to the Department of Enforcement for further investigation.

Related: Proof-of-Reserves: Can reservation audits avoid another FTX-like moment?

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

He said Binance’s Proof of Reserves report did not address the effectiveness of internal financial controls, nor express an opinion or certainty conclusion, nor vouch for the numbers.

On December 16, it was revealed that French accounting firm Mazars Group has shut down its section on its website on crypto audits.

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

Ben Sharon, co-founder of digital wealth management company Illumishare SRG, told Cointelegraph earlier on Nov. 19 that a proof-of-reserve audit is still a viable step to assess the financial health of crypto exchanges, but in itself not enough.

Investors have lost millions over the past 12 months with major crypto companies going bankrupt, including Three Capital Arrows, Celsius, and most recently cryptocurrency exchange FTX.