After Backman’s Gaffe, SEC Issues New Guidance to the Crypto Firms

The guidance from the Securities and Exchange Commission's (SEC) division of corporation finance – tasked with ensuring public companies give investors key information – is the latest sign that regulators are on high alert for further fallout in the wake of the collapse of major crypto firms including FTX and BlockFi Inc.

According to FE, the Securities and Exchange Commission released new guidance Thursday, requiring companies that issue securities to disclose to investors their exposure and risk to the cryptocurrency market.

The guidance comes about a month after FTX, one of the world's largest cryptocurrency exchanges, filed for bankruptcy after loaning customer funds to a risky trading company that was founded by FTX's former CEO Sam Bankman-Fried. Over 100,000 customers were affected by the exchange's failure.

In guidance to public companies, the SEC laid out information businesses may have to share with their investors, including whether the firms have any financially material exposures to counterparties that have filed for bankruptcy or become insolvent.

The guidance applies to any public companies that have exposure to the recent ructions in crypto. Publicly traded firms are already required by law to disclose financial material information to investors, but the SEC frequently issues more specific guidance about how they should address risks from major events.

"Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business," the SEC said in a sample letter.

Public firms should be prepared to share with investors any risks from disruptions in crypto-asset markets, including depreciated stock prices, loss of customer demand, and risk of legal proceedings, the guidance said.