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The SEC wants public companies to disclose their crypto exposure

Under the radar of regulators.
Under the radar of regulators.

US financial regulators don’t want any more crypto-related surprises—or shocks, rather—to mar the market.

That’s why the Securities and Exchange Commission (SEC) advised publicly-listed companies to release updated, detailed disclosures of how they’ve been affected by recent upsets in the cryptocurrency industry, sparked by crypto exchange FTX’s downfall. It shared a “sample letter” companies can use as guidance to meet disclosure obligations yesterday (Dec. 8).

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Learning from crypto’s “Lehman moment,” the federal agency formed after the 1929 Wall Street crash expects firms to address the direct and indirect impact of crypto asset market developments from various angles: quantity and quality of crypto assets bought and sold, material impact from the price volatility of crypto assets on the business and finances, any funds lost or misappropriated due to bankruptcies, all the policies in place to safeguard assets, and any risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.

The information-gathering exercise is a bid to bring more transparency in a relatively opaque industry with no clear overseer. Especially after FTX’s implosion plunged the industry into chaos, compelling companies to halt operations and, in extreme cases, declare bankruptcy, lawmakers want to hear from FTX founder Sam Bankman-Fried who, despite his eagerness to give interviews on various platforms, has missed a deadline to respond to a US Senate committee request to testify on Dec. 14.

Person of interest: JPMorgan Chase’s Jamie Dimon

A banking industry veteran, Jamie Dimon, has time and again deemed cryptocurrencies “worthless”—an assessment he doubled down on earlier this week.

In a Dec. 6 CNBC interview, the JPMorgan chief called crypto a “total sideshow” and tokens “pet rocks.” Linking the vastly unregulated industry to several illicit activities, including ransomware, money laundering, anti-terrorism financing, tax avoidance, and sex trafficking, Dimon called for more scrutiny: “The regulators who beat up on banks should maybe focus a little more on crypto” he said.

Company of interest: MicroStrategy

A few years ago, traditional companies would not touch volatile digital coins with a barge pole. But over time, a handful of companies, including Elon Musk’s Tesla and Jack Dorsey’s Block, have amassed sizable crypto portfolios. According to Yahoo! Finance, at least 15 companies, including Microsoft, Visa, and Paypal, have been exposed to crypto either through investments, partnerships, or side ventures.

Others like trading platform Coinbase Global, bitcoin miner Marathon Digital Holdings, and crypto-focused bank Silvergate Capital Corp have built or rebuilt businesses around the new-age asset.

The earliest and biggest bet placed among public firms came from MicroStrategy.

In 2020, the business analytics platform co-founded by Michael Saylor adopted bitcoin as its primary reserve asset—the first established company to add digital currency to its balance sheet. The exposure did cost MicroStrategy during the June bitcoin crash. Specifically, it wiped off over $1.2 billion. But Saylor’s faith is unwavering. As of Sept. 2022, MicroStrategy held 130,000 bitcoin.

Even after stepping down as MicroStrategy CEO after 33 years at the helm in August, Saylor said he intends to focus “more on bitcoin” at his next job. The bitcoin bull, though, isn’t a proponent of any-and-all cryptocurrencies. He says all alt-coins, especially the second-largest by market cap, Ethereum, are “committing securities fraud.” He’s also called FTX “unethical and illegal from the very beginning.”

Crypto needs regulation, according to SEC chief Gary Gensler

“These are not laundromat tokens: Promoters are marketing and the investing public is buying most of these tokens, touting or anticipating profits based on the efforts of others,” he said. “Therefore, investors deserve disclosure to help them sort between the investments that they think will flourish and those that they think will flounder. Investors deserve to be protected against fraud and manipulation.” —SEC Chair Gary Gensler’s September speech

Back to the crypto collapse start: FTX’s founder

The US House Financial Services Committee, the first to announce an investigation into the FTX collapse, has its first hearing scheduled for Dec. 13. A letter from Senator Sherrod Brown called upon FTX’s Bankman-Fried to voluntarily confirm his attendance by end-of-day yesterday (Dec. 8) or risk being subpoenaed.

Bankman-Fried, widely known as SBF, had earlier tweeted that he will appear before the committee after he’s “finished learning and reviewing what happened” but that may not happen by the date of the hearing. Committee chairman Maxine Waters called bluff on his lack of understanding of the situation, citing the several tweets and media appearances he’s made, and said it is “imperative” that he attend.

On Dec. 8, Waters debunked articles claiming she would not force SBF’s testimony, tweeting, “A subpoena is definitely on the table.”

Related stories

🏛 The road to crypto regulation starts with a string of Senate and House hearings

🧾 Crypto is under-taxed in the US. Here’s what Congress can do to change that.

🤞 Crypto exchanges are desperate to show they’re not the next FTX

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