Bloomberg News has identified several key areas where crypto companies are failing to adhere to widely accepted business norms. Particularly around auditing and accountability. Its findings should shock the industry.
Bloomberg has looked into transparency and reporting practices in the the crypto industry, and presented findings in a May 15 article that should worry observers. The investigation reveals that many companies operate outside commonly accepted norms and do not have governance in place to prevent another crisis. Such as the one caused by the implosion of FTX in late 2022.
Crypto Companies in the Spotlight
The Bloomberg inquiry focused on 60 companies that met one or more criteria: they are publicly listed, were valued at over $1 billion in private fundraising, or held significant influence in the sector as of January 2023.
Bloomberg asked each the same questions and made multiple requests for their participation or confirmation of public information between January and May 2023. The data also includes information collected on Silvergate Capital Corp. before the bank’s closure.
Under Two-Thirds Have an Independent Board
Among the most sobering findings has to do with the lack of boards. The May 15 report states that only 63% of the crypto firms had an independent board of directors—meaning that they had at least one non-executive member.
One of Bloomberg’s most startling revelations: FTX did not even establish a board until it was on its last legs. Even around the exchange’s collapse in November 2022, the board had only three members.
An independent board of directors is a basic requirement for large companies, as it offers an impartial analysis of the company’s standing. But amid a lack of regulation, crypto companies often lack the resolve to catch up with industry standards, Bloomberg found.
The findings also show that about half of the businesses surveyed (52%) currently use a third-party independent auditor. A worrying sign for an industry that has been talking a lot about transparency this year.
Although, many of the companies here said they often struggled to engage auditors. Often because of a lack of understanding of blockchain and reluctance stemming from recent scandals.
Sophisticated investors expect both an independent audit of a firm, and an independent board.
Paris-based Mazars reportedly distanced itself from the crypto industry last December after working with Binance and Crypto.com. The firm cited “concerns regarding the way these reports are understood by the public.” Binance came under heavy criticism after its chief executive, CZ, claimed the firm’s Agreed-Upon-Procedure (AUP) with Mazars was a full audit.
Mazars removed the AUP report on Binance’s proof-of-reserves from its website weeks later. Both Crypto.com and Binance have since engaged new auditors, but they have not publicly revealed names.
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