The Securities and Exchange Commission (SEC) is requesting that publicly traded companies disclose their involvement with struggling cryptocurrency firms to investors (via CNBC). The SEC stated in a notice published on Thursday that companies may be required by federal law to disclose whether their operations or finances have been impacted by the turbulence in the cryptocurrency market.
The action was taken in response to FTX’s collapse, which had an impact on the entire cryptocurrency industry and exposed a network of creditors to whom FTX owes billions of dollars. In the wake of FTX’s collapse, the lending division of Genesis, a significant cryptocurrency brokerage, suspended withdrawals. In contrast, the cryptocurrency trading platform BlockFi filed for bankruptcy and named FTX as one of its largest creditors.
The guidance was issued by the SEC’s Division of Corporation Finance — the branch that ensures companies disclose necessary information to investors — and is intended to assist companies in preparing disclosure documents. It does not formally introduce new disclosure requirements, but the set of recommendations indicates that the regulator is paying closer attention to cryptocurrency.
According to the sample letter, companies should discuss whether they’ve been exposed to crypto firms that have declared bankruptcy, suspended withdrawals, or experienced an unusually large number of withdrawals. It also requests that companies outline the steps they are taking to secure their customers’ crypto assets, as well as whether the crypto market disruption has caused them “reputational harm.”
Following the collapse of FTX last month, Senator Elizabeth Warren (D-MA) urged the agency to “suit up” and added that the SEC has “fallen far behind” in enforcing laws against crypto fraud. The SEC has come under fire for its handling of cryptocurrency regulation. In an interview, SEC Chair Gary Gensler defended the organization’s efforts, saying that the SEC is “already suited up” and has taken 100 enforcement actions against crypto firms.
