February 5, 2023

US Regulator Forces Firms to Disclose Crypto Bankruptcies

WASHINGTON - Publicly traded companies subject to "crypto winter" and collapse FTX or others companies holding digital assets will be required to disclose this information to investors in accordance with new guidance from the U.S. Securities and Exchange Commission (SEC).The disclosure is likely to apply directly to companies that include digital assets in their business. But the guidance released on Thursday indicates that it could apply to any company with a material relationship to the troubled cryptocurrency market.

“Recent bankruptcies and financial difficultiesamong participants in the cryptoasset market have led to widespread disruption in these markets,” writes the SEC’s corporate finance division. “Companies may have disclosure obligations under federal securities laws relating to the direct or indirect impact that these events and related events have had or may have on their business.” cryptocurrency market after the collapse of FTX, which filed for bankruptcy in November. According to this guidance, companies should consider the overall impact of changes in the crypto asset market and find out if they are exposed to counterparty risk. In addition, they must consider the risks associated with the company's liquidity and its ability to obtain funding, as well as legal and regulatory issues, the guidance says.

FTX faces multiple federalinvestigations, including by the US Securities and Exchange Commission. Agency staff, who scrutinize disclosures by public companies, will keep an eye on the details of how crypto industry bankruptcies – and their consequences – may have affected companies, according to one illustrative commentary in the guide. “Clarify if you have tangible assets that cannot be returned due to bankruptcies or may otherwise be lost or embezzled,” employees urge. Companies should also explain how they take steps to protect clients' crypto assets, as well as the policies or procedures in place to prevent self-trading or conflicts of interest, the sample letter says. BLOOMBERG

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