The poison of suspicion is continuing to spread in the crypto sphere.
This poison, disseminated by the overnight implosion of Sam Bankman-Fried's crypto empire on Nov. 11, is infecting most companies in the sector, especially the largest ones.
The cryptocurrency exchange, valued at $32 billion in February, filed for Chapter 11 bankruptcy in a matter of days on Nov. 11. This was also the case for its sister company, Alameda Research, a hedge fund which also operated as a trading platform, mainly for institutional investors.
FTX and Alameda were the twin heads of the Bankman-Fried empire, who is being sought for extradition from the Bahamas to the United States, after regulators filed a series of criminal and civil charges against him, accusing him of alleged fraud and conspiracy of fraud against FTX customers and investors.
Bankman-Fried's Shadow
Bankman-Fried lives in the Bahamas where FTX was also headquartered. He was arrested, refused bail and a hearing on his extradition is set for Feb. 8, 2023. The former crypto king denies having intended to defraud.
"From at least in or about 2019, up to and including in or about November 2022," Bankman-Fried "and others known and unknown, willfully and knowingly did combine, conspire, confederate, and agree together and with each other to commit wire fraud," prosecutors within the U.S. Department of Justice's Southern District of New York alleged.
"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. alleges in its civil complaint.
Mark Cohen, an attorney for Bankman-Fried, said his client "is reviewing 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 entire crypto sector, as investors try to understand what the impact of the fall of FTX, which was a central player in the crypto space, will be.
It is in this context that the audit firm Mazars Group, formerly Donald Trump's accounting firm, has just announced that it is cutting ties with crypto firms, and more particularly Binance, Crypto.com and Kucoin.com. This is a huge blow for the three companies and especially for Binance, which became a juggernaut after the collapse of FTX.
Mazars said it "paused its activity relating to the provision of proof of reserves reports for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.”
$6 Billion of Net Withdrawals in 3 days
The company said its proof of reserves reports are "performed in accordance with reporting standards relevant to an agreed upon procedures report.”
"They do not constitute either an assurance or an audit opinion on subject matter. Instead they report limited findings based on the agreed procedures performed on the subject matter at a historical point in time,” the statement continued.
The objective of the proof of reserves audit is to show that the crypto firm has enough reserves to deal with a run on it from its clients and investors. This audit is also intended to increase public trust and demonstrate transparency when most crypto firms are unregulated, which means that they are opaque and investors and clients can only rely on what the top executives say.
Mazars' move comes after the firm published an audit on Binance that was mocked on social media for the selective information it contained.
By severing ties, Mazars therefore reinforces the mistrust and suspicion surrounding the sector. It's a big blemish for Binance and its CEO Changpeng Zhao, who have emerged since the fall of FTX as the new kings of the crypto space.
"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," a Binance spokesperson said in an email statement.
For the past few days, the company has suffered massive withdrawals by panicked customers: there were $6 billion of net withdrawals in three days, from Dec. 12 to Dec. 14, Binance’s spokesperson said.
"We were able to fulfill them without breaking stride," the spokesperson reassured.
Are Withdrawals Still Ongoing?
But the company didn't say whether withdrawals are still ongoing.
"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 spokesperson for Crypto.com said in an email statement.
One-on-One (1:1) means that every customer crypto asset is backed by the company’s reserves, in case the customer wants to withdraw their cryptocurrencies.
"We have also provided our customers the ability to verify that their balance is included," the spokesperson added. "We will continue to engage with reputable audit firms in 2023 and beyond as we seek to increase transparency across the entire industry."
Crypto.com didn't respond to questions regarding any withdrawals.
Kucoin.com didn't immediately respond to a request for comment.
