SEC War on Crypto Unlikely to End Anytime Soon

In Brief

• SEC settles with Denver-based auditing firm.
• Spicer Jeffries has ties with crypto firms and executives.
• Gary Gensler requested a bigger budged to tackle crypto 'misconduct.'

The Securities and Exchange Commission (SEC) has settled charges against an auditing firm this week. However, this could be just another salvo in the U.S. war on crypto.

On March 29, the SEC announced that it had settled with Spicer Jeffries, a Denver-based private fund auditing firm.

Audit engagement partner Sean Tafaro was also accused of “improper professional conduct” in connection with audits of two private funds.

According to the SEC, Spicer Jeffries and Tafaro assessed that the “valuation of investments was a significant fraud risk.” However, they did not implement the planned audit approach to respond to the risk.

Furthermore, the firm is approved by the Public Company Accounting Oversight Board (PCAOB). This enables it to conduct audits of SEC registrants and securities broker-dealers, according to its website.

Crypto Ties
The move could be the latest effort by the securities regulator to quash the crypto industry and any entities connected to it. In 2018, Spicer Jeffries hosted a “Cryptocurrency Expert Panel” for the Palm Beach Hedge Fund Association (PBHFA).

“Hedge fund managers and quants mingled with investors, technologists, venture capitalists, and digital asset experts among many others,” the firm reported at the time.

In December 2022, the SEC heightened its scrutiny of auditing firms that deal with digital asset clients. Paul Munter, the agency’s acting chief accountant, told the WSJ: “We’re warning investors to be very wary of some of the claims that are being made by crypto companies.”

In the latest settlement, the SEC accused Spicer Jeffries of “failing to obtain sufficient audit evidence” about the method of measuring fair value and valuation models.

“The order also finds that Spicer Jeffries’ deficient system of quality control led to failures to adhere to professional auditing standards,” it added.

The firm did not admit or deny the allegations but consented to the SEC’s order finding that they engaged in improper professional conduct.

Spicer Jeffries agreed to be censured and to an independent consultant to review its quality control policies and procedures.

SEC War on Crypto Continues
It does not look like Uncle Sam’s war on crypto will end at any time in the near future.

On March 29, SEC chair Gary Gensler addressed the Financial Services Subcommittee. In his testimony, he requested increased funding for the agency in the 2024 budget request.

This would go towards more enforcement action against crypto companies. Gensler said the “Wild West of crypto markets,” which is “rife with noncompliance,” needs more attention.

Disclaimer
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