SEC advises crypto companies to disclose risks following FTX collapse

Crypto companies risk warning overview: 

• Who: The U.S. Securities and Exchange Commission has advised crypto companies to disclose to their customers how financial distress in the cryptocurrency industry can affect the market. 
• Why: The advisory comes following the recent collapse and Chapter 11 bankruptcy filing of cryptocurrency trading platform FTX. 
• Where: Nationwide. 

The U.S. Securities and Exchange Commission (SEC) has advised cryptocurrency companies that they may be obligated to disclose how recent collapses and financial distress in the crypto industry could disrupt the market.

The SEC’s advisory follows the recent collapse of crypto trading platform FTX, which filed for Chapter 11 bankruptcy last month after customers began inundating the company with withdrawal requests. 

“The Division of Corporation Finance believes that companies should evaluate their disclosures with a view towards providing investors with specific, tailored disclosure about market events and conditions,” the SEC said in a news release accompanying a sample letter sent to crypto companies. 

The SEC said crypto companies should also evaluate their disclosures with regard to their own situation in relation to events and conditions, as well as the potential impact they could have on their own investors. 

Companies should consider if existing disclosures ‘should be updated,’ SEC says

Companies that have ongoing reporting obligations, meanwhile, “should consider whether their existing disclosures should be updated,” according to the SEC. 

The sample comments sent to crypto companies “focus on a need for clear disclosure about the material impacts of crypto asset market developments” along with “risks related to a company’s liquidity and ability to obtain financing.” 

The SEC’s sample comments also revolve around “risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets,” and “a company’s exposure to counterparties and other market participants.” 

“As always, companies should evaluate whether they have experienced or may be affected by matters characterized as potential risks and, if so, update their disclosures accordingly,” the SEC said. 

The SEC is urging crypto companies to take the comments they are giving them into consideration and to contact the industry office responsible for its filings with any questions they may have about their proposed disclosure.

A class action lawsuit was filed last month against FTX, along with its founder and former CEO Sam Bankman-Fried and several celebrity endorsers, by a consumer arguing the platform harmed its investors by engaging in unlawful and deceptive conduct. 

Are you concerned the cryptocurrency market has been negatively impacted by recent financial distress in the industry? Let us know in the comments. 

Read About More Class Action Lawsuits & Class Action Settlements:

• Silvergate class action claims crypto bank responsible for some FTX losses
• FTX founder, celebrity promoters face class action following bankruptcy
• Compound COMP Token Investigation
• FTX cryptocurrency exchange files for bankruptcy, investigates $500M theft