The SEC issues new guidelines requiring companies to disclose cryptocurrency risks

An exterior view of the US Securities and Exchange Commission (SEC) headquarters in Washington.

Jonathan Ernst | Reuters

The Securities and Exchange Commission issued new guidance Thursday, requiring companies issuing securities to disclose to investors their exposure and risks to the cryptocurrency market.

The directives come about a month after FTX, one of the world’s largest cryptocurrency exchanges, filed for bankruptcy after lending clients money to a risky trading firm founded by former FTX CEO Sam Bankman-Fried. More than 100,000 customers were affected by the stock exchange failure.

On Wednesday, SEC Chairman Gary Gensler fend off charges That the agency failed to prevent crypto companies from misusing customer funds. Gensler also said the SEC will take further enforcement action if companies fail to comply with existing rules.

Under the new directive, companies will have to include their crypto-asset holdings as well as their exposure to FTX bankruptcy and other market developments in their public filings. company bankruptcy filings It indicates that the company has more than a million creditors.

The SEC’s Corporate Finance division developed a sample letter after selective review of findings under the Securities Act of 1933 and the Securities Act of 1934, which directs companies to disclose “such additional material information, if any, as necessary to disclose with the requested statements, in light of the circumstances in which they were made, are not misleading” as directed.

A proposed element of the letter asks the issuer to describe how the company’s bankruptcy and subsequent effects have affected or may affect your business, financial condition, clients, and counterparties, either directly or indirectly. Another asks to describe “any material risks to which you are exposed, whether direct or indirect, due to excessive redemptions, withdrawals, suspensions of redemptions or withdrawals, of crypto assets. Identify any material concentrations of risk and identify any material exposure.”

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The SEC’s corporate finance division encouraged firms to adopt these recommendations as they prepare documents “that may not ordinarily be subject to review by the department prior to their use.”

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