SEC sends letter to companies urging updated disclosures amid ‘widespread disruption’ in crypto markets

The Securities and Exchange Commission is sending a letter to U.S. public companies asking firms evaluate their disclosure obligations, including a “specific tailored disclosure,” about how recent crypto bankruptcies and broader financial distress across the digital asset market may have hit their business.

The letter is intended to illustrate the type of comments the securities agency might send to public companies.

“In meeting their disclosure obligations, companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis,” the SEC’s division of corporate finance said in its release.

In an attached sample letter, the agency asks for companies to disclose their relationship with other firms that have filed for bankruptcy, have experienced excessive redemptions (bank runs), have crypto assets unaccounted for, or experienced “material corporate compliance failures.”

Asked whether cryptocurrencies needed their own set of tailored rules, SEC Chair Gary Gensler told Yahoo Finance on Wednesday the agency would enforce securities laws already in place.

Gensler noted the SEC has already taken 100 enforcement actions against crypto firms, with a few dozen coming under his tenure.

“The basic message that I have had is the same public message as private message,” Gensler told Yahoo Finance. “Come into compliance. Your field will not last long outside of public policy norms.”

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler, testifies before the Senate Banking, Housing and Urban Affairs Committee during an oversight hearing on Capitol Hill in Washington, U.S., September 15, 2022. REUTERS/Evelyn Hockstein

The letter goes on to encourage companies to share how they safeguard customer crypto assets and what governance protocols they have set in place to prevent conflicts of interest.

The agency also recommended firms discuss whether market conditions have affected how their business is perceived, how pending crypto regulation could affect financial conditions or business, specifically in the form of a company’s share price, customer demand, debt financing or legal proceedings “pending or known to be threatened.”

The SEC’s letter comes after offshore crypto exchange FTX filed for chapter 11 bankruptcy on November 11. The Bahamas-headquartered crypto firm, which has an estimated $8 billion hole on its balance sheet, has sparked a wave of financial contagion amongst the industry’s other firms.

The $8 billion hole has come after reports and bankruptcy court documents suggest the business lent money to former FTX CEO and founder Sam Bankman-Fried’s trading firm, Alameda Research. In a court document, FTX’s new management called the company’s collapse “a complete failure of corporate controls.”

The events surrounding FTX’s collapse have pushed crypto lender BlockFi to also declare bankruptcy, while others, such as the lending divisions of Genesis Trading and crypto exchange Gemini, have paused withdrawals and begun to organize as creditors.

A report from Coindesk revealed over the weekend Genesis owes creditors at least $1.8 billion, $900 million of which belongs to Gemini. The total market value of all crypto assets plummeted by $200 billion to $860 million over the past month according to Coinmarketcap.