Crypto Takes Another Big Hit: Auditor for Binance and Crypto.com Cuts Ties with the Industry
Dec 19, 2022
Crypto skepticism continues to spread.
Most companies in the sector, especially the biggest ones, are losing customer faith after Sam Bankman-Fried's crypto empire collapsed overnight on November 11.
The FTX crypto exchange, whose valuation reached $32 billion in February, declared bankruptcy on November 11. A similar scenario occurred with its sister company, Alameda Research, which primarily served institutional investors.
Both FTX and Alameda were part of the Bankman-Fried empire. A series of criminal and civil charges have been filed against Bankman Fried by regulators for allegedly defrauding FTX customers and investors. Now, Fried is wanted for extradition to the US.
FTX was headquartered in the Bahamas, where Bankman-Fried lives. Having been arrested there on December 12, he will be facing an extradition hearing on February 8, 2023. However, according to the ex-CEO, he had no intention of defrauding anyone.
According to the prosecutors within the US Department of Justice's Southern District of New York, during the period from 2019 to November 2022, Bankman-Fried and others, known and unknown, conspired, confederated, and agreed with one another to commit wire fraud knowingly and willfully.
"Bankman-Fried was orchestrating a massive, yearslong fraud, diverting billions of dollars of the trading platform's customer funds for his own personal benefit and to help grow his crypto empire," the SEC complaint states.
An attorney for Bankman-Fried says his client's legal team is evaluating the charges and discussing all possible options.
There is one big problem, though: Bankman-Fried claimed that the company's assets were "fine" just days prior to declaring bankruptcy. Now, this lie has severe consequences across the crypto industry, with investors trying to figure out how the collapse of FTX, once a key player, will affect the market.
Thus, it's no surprise that Mazars Group, an accounting firm, has announced a breakup with the largest cryptocurrency platforms, in particular Binance, Crypto.com, and Kucoin.com. There is no doubt that this is a huge setback for all three exchanges and particularly for Binance, which grew stronger as a result of the failure of FTX.
According to Mazars, the firm stopped providing proof-of-reserves reports to entities in the cryptocurrency sector because of concerns regarding the public's understanding of these reports.
$6 Billion in Withdrawals Within Three Days
The accounting firm stated that its proof-of-reserves reports were prepared according to agreed-upon standards for procedure reports.
"They do not constitute either an assurance or an audit opinion on the subject matter. Instead, they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time," reads the statement.
The proof-of-reserves audit aims to verify that a crypto firm has sufficient reserves to meet clients' demands. Additionally, this audit is meant to strengthen public confidence in a firm and demonstrate transparency, as crypto companies are typically unregulated, making them opaque, and forcing their clients to rely on their executives' statements exclusively.
Mazars' decision followed the publication of its Binance audit, which was heavily criticized on social media due to its selective reporting.
Through its move to distance itself from the industry, Mazars exacerbates the mistrust and suspicion that surrounds the crypto space. Obviously, this is a big blow to Binance and its CEO Changpeng Zhao, the new leaders in crypto after the collapse of FTX.
"Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally, which include Crypto.com, KuCoin, and Binance. Unfortunately, this means that we will not be able to work with Mazars for the moment," Binance explained.
In recent days, Binance experienced a massive withdrawal of funds by panicked users: $6 billion was withdrawn over three days, from December 12 to 14, according to a spokesperson for the exchange.
The spokesperson added that all withdrawals were handled smoothly.
Do Withdrawals Still Take Place?
There was no word from the company on whether withdrawals were still taking place.
"We recently completed proof of our reserves in collaboration with Mazars successfully, who provided independent verification of our secure on-chain digital assets matching our customer balances 1:1," a Crypto.com spokesperson said.
One-on-One (1:1) means their crypto assets are backed by the company's reserves in the event clients wish to withdraw them.
The company also added that customers could verify whether their balance is included by checking their accounts. Also, the exchange plans to continue engaging with reputable audit firms beyond 2023 in order to increase transparency in the sector as a whole.