SEC issues new guidance 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 on Thursday issued new guidance requiring companies that issue securities to disclose to investors their exposure and risk to the cryptocurrency market.

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

On Wednesday, SEC Chairman Gary Gensler He denied the charges The agency failed to stop crypto companies from misappropriating customer funds. Gensler also said the SEC will take further enforcement action if companies fail to comply with existing rules.

Under the new guidance, companies must include in their public filings risk disclosures for crypto asset holders and FTX bankruptcy and other market developments. of the company Bankruptcy filing It indicates that the company has more than 1 million creditors.

The SEC’s Division of Corporation Finance, after a selective review of findings made under the Securities Act of 1933 and the Securities Exchange Act of 1934, created a model letter that instructs companies to disclose “required additional information, if any.” According to the guidance, the required statements, in the light of the circumstances in which they are made, should not be misleading.

A suggested item in the letter asks the issuer to describe how the company’s bankruptcies and subsequent consequences have “directly or indirectly affected or may affect your business, financial condition, customers and counterparties.” Another asks for a description of any material risk you face, directly or indirectly, due to excess redemptions, withdrawals, or suspension of withdrawals or withdrawals of crypto assets. Identify any material concentrations of risk and quantify any material exposures.

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The SEC’s Corporate Finance Division encouraged companies to adopt these recommendations when preparing documents that “would not normally be subject to division review prior to their use.”

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