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SEC under fire, pressures public firms to disclose crypto exposure

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(Kitco News) - The Securities and Exchange Commission issued a guidance to all publicly-traded companies in the United States on Dec. 8 warning them that they must review their disclosure obligations as they relate to crypto, even as the regulator and its leadership come under increasing fire from lawmakers.

“Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets,” they wrote. “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’s Division of Corporation Finance (DCF) wants companies to evaluate their disclosures to give investors “specific, tailored disclosure about market events and conditions, the company’s situation in relation to [them], and the potential impact on investors.” The DCF added that companies with ongoing reporting obligations should verify whether their existing disclosures need to be updated.

The DCF also shared a sample letter containing 16 areas of questioning they would put to firms about their exposure to crypto markets, including “a company’s exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.”

The SEC has recently been on the receiving end of scathing criticism from lawmakers and market participants for their apparent failure to protect investors from the collapse of FTX and Alameda Research last month, despite SEC Chair Gary Gensler’s well-publicized meetings with former FTX CEO Sam Bankman-Fried.

On Wednesday, New York Congressman Ritchie Torres wrote a letter to Gene Dodaro, Comptroller General of the U.S. Government Accountability Office (GAO) in which he called for Dodaro to “conduct an independent review of the SEC's failure to protect the investing public from the egregious mismanagement and malfeasance of FTX.”

Torres wrote that Gensler is “singularly responsible for the regulatory failures surrounding the collapse of FTX,” which caused billions in losses to both creditors and customers.

“Chair Gensler has said on countless occasions that there is no need for authorizing legislation from Congress: the SEC presently possesses the authority it needs to regulate crypto exchanges,” he wrote. “If the SEC has the authority Mr. Gensler claims, why did he fail to uncover the largest crypto Ponzi scheme in US history? One cannot have it both ways, asserting authority while avoiding accountability.”

Torres said that instead of investigating crypto exchanges, the SEC under Gensler “chose to dedicate scarce time and resources to investigating Kim Kardashian” and called FTX “a house of cars built on monopoly money printed out of thin air.”

He added that “Mr. Gensler's leadership has left the career staff at the SEC fundamentally demoralized to an extent rarely seen, with the SEC Inspector General reporting the highest attrition rate in a decade.”

After the collapse of FTX, the SEC announced that they were in fact in the midst of investigating the exchange for possible violations of money-laundering laws.

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