SEC Heightening Scrutiny of Auditors' Crypto Work

The Securities and Exchange Commission is stepping up scrutiny of the work that audit firms are doing for cryptocurrency companies, concerned that investors may be getting a false sense of reassurance from the firms' reports, a senior official at the regulator said. From a report: "We're warning investors to be very wary of some of the claims that are being made by crypto companies," Paul Munter, the SEC's acting chief accountant, said in an interview. 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. Crypto companies are eager to get the blessing of an auditor to reassure their skittish clients. The Wall Street watchdog is looking closely at how crypto companies are portraying their reports from audit firms, according to Mr. Munter. Many of these companies are closely held or based offshore, and so unlikely to fall within the regulator's remit. The SEC is effectively sending a warning to audit firms, which don't want to run afoul of their regulator, as well as putting investors on alert. "We are increasing our understanding of what's going on in the marketplace," Mr. Munter said. "If we find fact patterns that we think are troublesome, we will consider a referral to the division of enforcement." The regulator is worried particularly about so-called proof-of-reserves reports, which aim to show that the crypto company has sufficient assets to cover customers' funds.

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