The poison of suspicion continues to spread in the cryptosphere.
This poison, spread by the sudden implosion of Sam Bankman-Fried’s crypto empire on November 11, infects most companies in the industry, especially the largest.
The cryptocurrency exchange, which was valued at $32 billion in February, filed for Chapter 11 bankruptcy within days on November 11. This was also the case for its sister company, Alameda Research, a hedge fund that also operated as a trading platform. especially for institutional investors.
FTX and Alameda were the twin heads of the Bankman-Fried empire, who is wanted for extradition from the Bahamas to the United States after regulators brought a series of criminal and civil charges against him, accusing him of alleged fraud and conspiracy to commit fraud against FTX Clients and Investors.
Bankman Fried’s shadow
Bankman-Fried lives in the Bahamas, where FTX was also headquartered. He was arrested, denied bail and a hearing on his extradition is scheduled for February 8, 2023. The former crypto king denies that he intended to commit fraud.
“From at least in or about 2019 through or about November 2022, “Bankman-Fried” and others known and unknown have willfully and knowingly conspired, conspired, confederated and agreed to co-operate and with each other wire fraud,” prosecutors for the United States Department of Justice’s Southern District of New York alleged.
“Bankman-Fried orchestrated a massive, years-long fraud, diverting billions of dollars of the trading platform’s client funds for his own personal gain and to grow his crypto empire,” the SEC alleges in its civil complaint.
Mark Cohen, a lawyer for Bankman-Fried, said his client is “discussing the charges with his legal team and considering all of his legal options.”
The big problem is that, days before FTX filed for bankruptcy, Bankman-Fried claimed the company’s assets were “fine.” This lie now has serious consequences for the whole crypto sector as investors try to understand what will be the impact of the fall of FTX, which has been a central player in the crypto space.
It is in this context that the accounting firm Mazars Group, formerly the accounting firm of Donald Trump, has just announced that it is cutting ties with crypto firms, and more specifically Binance, Crypto.com and Kucoin.com. This is a huge blow to the three companies and especially to Binance, which became a juggernaut after the collapse of FTX.
Mazars said it has “paused its activity related to providing proof of reserve reports for entities in the cryptocurrency sector due to concerns about how these reports are understood by the public.”
$6 billion in net withdrawals in 3 days
The company said its Proof of Reserves reports are “conducted in accordance with reporting standards relevant to an agreed procedure report.”
“They do not constitute assurance or an audit opinion on the subject matter. Instead, they report limited findings based on the agreed upon procedures performed in the subject matter at a historical time,” the statement continued.
The purpose of the proof of reserves audit is to show that the crypto company has sufficient reserves to handle a run on its clients and investors. This audit also aims to increase public trust and demonstrate transparency when most crypto companies are unregulated, meaning they are opaque and investors and customers can only rely on what the top executives say.
Mazars’ move comes after the company published an audit on Binance that was mocked on social media for the selective information it contained.
By cutting ties, Mazars thus reinforces the distrust and suspicion surrounding the sector. It is a major blot for Binance and its CEO Changpeng Zhao, who have emerged as the new kings of the crypto space since the fall of FTX.
“Mazars has indicated that they will be temporarily suspending work with all of their crypto clients worldwide, including Crypto.com, KuCoin and Binance. Unfortunately, this means we will not be able to work with Mazars for now,” a Binance spokesperson said in an email. mail statement.
In recent days, the company has suffered massive withdrawals from panicked customers: there was $6 billion in net withdrawals in three days, from Dec. 12 to Dec. 14, Binance’s spokesperson said.
“We were able to fulfill them without slowing down,” the spokesperson reassured.
Are withdrawals still ongoing?
But the company didn’t say whether withdrawals are still underway.
“We recently successfully completed Proof of Our Reserves in partnership with Mazars, who provided independent verification of our secure on-chain digital assets matching our client balances 1:1,” a Crypto.com spokesperson said in an email. email statement.
One-to-one (1:1) means that each client’s crypto asset is backed by the company’s reserves, in case the client wants to withdraw their cryptocurrencies.
“We have also offered our customers the option to check whether their balance is included,” the spokesperson added. “We will continue to work with reputable accounting firms in 2023 and beyond as we seek to increase transparency across the industry.”
Crypto.com did not respond to questions about withdrawals.
Kucoin.com did not immediately respond to a request for comment.