The auditor for FTX’s bankrupt U.S. exchange business says it supports the work it’s doing for Sam Bankman-Fried and is proud to serve the cryptocurrency industry, which needs more trust and transparency, but it will drop its Digital asset business next month.
In his first interview with the leader of accounting firm Armanino since FTX’s collapse last month, chief operating officer Chris Carlberg said “market conditions” have changed and it will stop providing financial statement audits and so-called financial statements for FTX. Proof of Reserve report. Crypto industry.
California-based Armanino provided a clean bill of health for the 2020 and 2021 financial statements of FTX US, an arm of the Bankman-Fried cryptocurrency empire that provides trading services to U.S. residents. FTX US went bankrupt last month, along with FTX’s larger international trading business.
Carlberg said Armanino “never had a client relationship” with Bankman-Fried’s crypto hedge fund Alameda Research or FTX’s larger international trading operations, where the former billionaire allegedly defrauded clients of billions of dollars .
“We absolutely support what FTX US is doing,” Karlberg said. “Some people in the industry said that we should have done a better job in auditing internal control, but we have never participated in auditing internal control. This happens to listed companies. There is no requirement for auditing standards for private companies in the United States.”
FTX court documents describe a sprawling conglomerate of companies with often disorganized accounting and imperfect or non-existent internal controls. John Ray III, an expert in managing insolvency companies, said previous financial statements should not be relied upon.
Industry standards simply require that auditors of private companies understand the company’s internal controls and plan their audit work accordingly. “The team performed the analysis required by the standard around this topic,” Karlberg said, “and, again, we are satisfied with the work we have done in this area.”
Armanino and Prager Metis, an auditor for FTX’s international business, are facing lawsuits from FTX clients alleging “reckless or willful blindness.” Karlberg declined to comment on the lawsuit.
According to Accounting Today, Armanino is one of the 20 largest accounting firms in the United States, with revenue of about $500 million last year and more than 200 partners. It also became the leading provider of proof of crypto corporate reserve reports, a controversial product designed to attest to the safety of client funds but falls short of the kind of full financial statement audit Armanino provided to FTX US.
Regulators have questioned the value of the product, which provides only a limited snapshot of the true financial health of crypto businesses. Another accounting firm, Mazars, said last week it would stop providing such reports and pull the work it did for cryptocurrency exchange Binance from its website.
Armanino’s nine-person team responsible for producing the Proof of Reserves report will leave the company and form a new entity to take over existing clients, with the spin-off due to be completed by the end of next month.
“Given the dramatic changes that have taken place in the crypto market over the past few months, any professional services firm will need to adapt and reevaluate,” Karlberg said.
The digital asset business accounts for less than 1% of the company’s revenue, but has drawn unwanted attention since FTX’s collapse, including via its Twitter account for reposting cheers for Bankman-Fried’s appearance before the U.S. Congress.
“Our partners and our company are proud of the work we’re doing in this space,” Karlberg said. “Additional trust and transparency is needed.”
But he, like Mazars, warned investors of the risk of misinterpreting proof of reserves. “There’s still a big gap in understanding of what an audit or proof of reserve provides to the recipients of these reports. Hopefully that understanding gap will change over time, but it’s a big gap today,” he said.