Cryptocurrency companies are establishing verification measures to reassure customers following the FTX implosion.
Companies such as Binance and Crypto.com have hired outside auditors to provide proof of asset reports, which attest the business has proper assets to cover its liabilities, The Wall Street Journal (WSJ) reported Monday (Dec. 5).
The report argues these measures give only partial insight into the finances of these companies, most of which are privately held and thus not subject to Securities and Exchange Commission (SEC) requirements to file financial statements.
There are other drawbacks as well, academics told the news outlet. For example, crypto companies get to decide how often these audits are performed.
“Investors might assume that this attestation is similar to a full audit when in reality it is not complete and does not disclose the full assets or liabilities nor does it discuss any controls,” Deniz Appelbaum, assistant professor of accounting and finance at Montclair State University, told the WSJ.
The demise of FTX last month has led to calls for greater regulation of the cryptocurrency industry. And in a letter last month, U.S. Sens. Elizabeth Warren (D-Mass.) and Dick Durbin (D-Ill.) said the downfall of the company “calls into question the promise of the industry.”
But economics and finance experts interviewed by PYMNTS have said the problems at FTX had more to do with the company’s lack of oversight and standard financial wrongdoing.
“In this case, it wasn’t a crypto failure. It was a very old-fashioned fraud… The exchange failed due to stealing and lying. And we already have laws against that,” Hanna Halaburda, associate professor at NYU Stern School of Business, told PYMNTS last month.
In a separate interview, Cornell University’s Saule T. Omarova said that one of the key failures in the whole FTX saga was the lack of “common sense internal controls,” as the company apparently operated with no chief financial officer. Its board of directors amounted to just three people, one of them the company’s ex-CEO Sam Bankman-Fried.
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