The United States Securities and Exchange Commission issued new guidance on Thursday requiring companies that issue securities to disclose to investors their exposure and risk to the cryptocurrency market.
The forecast comes less than a month after FTX, one of the world’s largest cryptocurrency exchanges, declared bankruptcy after lending customer funds to a risky trading company founded by FTX’s former CEO Sam Bankman-Fried. The failure of the exchange impacted over 100,000 customers.
On Wednesday, SEC Chair Gary Gensler defended the agency against accusations that it has failed to prevent crypto firms from misusing customer funds. In addition, Gensler stated that the SEC would take additional enforcement actions if the firms did not follow existing rules.
Companies must include crypto asset holdings, as well as their risk exposure to the FTX bankruptcy and other market developments, in their public filings under the new guidance. According to the company’s bankruptcy filings, it has over 1 million creditors.
Following a selective review of findings made under the Securities Act of 1933 and the Securities Exchange Act of 1934, the SEC’s Division of Corporation Finance developed a sample letter, which directs companies to disclose “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading,” according to the guidance.
A recommended item in the letter requests the issuer to characterize how company bankruptcies and their consequent effect “have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly.” Another item requests a characterization of “any material risk to you, either direct or indirect, due to excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets.” Determine any material risk concentrations and quantify any material exposures.”
The SEC’s corporate finance division encouraged companies to follow these guidelines when preparing documents “that may not typically be subject to review by the Division before their use.”
(Adapted from CNBC.com)