US Senators Urge Crackdown on ‘Fake Audits’ of Crypto Firms

US Senators Elizabeth Warren and Ron Wyden urged authorities to act against ‘fake audits’ of crypto firms. The matter is outlined in a letter from the politicians.

In Warren’s view, this treatment of critical processes has harmed the banking sector, with reference to the recent collapses of Silvergate Bank, Signature Bank and Silicon Valley Bank.

“Fake audits mislead the public and threaten the integrity of the auditing industry, and, as we now know, potentially the banking and financial systems,” she said.

PCAOB, overseen by the Securities and Exchange Commission (SEC), acknowledged the problem before the Senate.

PCAOB Chair Erica Williams expressed concerns that the auditing firms overseen by her organisation conduct fake audits even for companies not under the regulator’s supervision.

Warren noted that authorities should apply political pressure and approach the issue with greater responsibility.

In November 2022, Binance was among the first to introduced the Proof-of-Reserves function, aimed at ensuring the transparency of user funds custody.

The exchange team used Merkle Tree to verify on-chain data. Subsequently, developers implemented in the system the ZK-SNARK tool to enhance security and privacy.

Binance’s example was followed by a number of other platforms, including Huobi, Bitfinex, Bybit and OKX. CEO Bitstamp US Bobby Zagotta admitted that the procedure would restore retail investors’ confidence in trading platforms.

However, Kraken co-founder Jesse Powell questioned the effectiveness of Binance’s checks. In his view, the published data do not attest to the safety of users’ assets.

A similar view was voiced by a number of experts surveyed by The Wall Street Journal.

In December, SEC representative Paul Manter urged investors to tread very cautiously regarding audits of crypto exchanges’ reserves. He argued that such checks do not always reveal the true financial state of the company.