The U.S. Securities and Exchange Commission (SEC) along with the Financial Industry Regulatory Authority (FINRA) have begun examining trading activity in the stocks of companies that announce investments in cryptocurrencies. The increased scrutiny from regulators is linked to an abnormal rise in trading volumes ahead of public announcements regarding the purchase of digital assets.
This is reported by Finway
Regulators Check Compliance with Disclosure Rules
SEC and FINRA are concerned that information about upcoming cryptocurrency purchases may have been disclosed to certain individuals before the official announcement. This could be a violation of Regulation Fair Disclosure (Reg FD) — a rule that prohibits companies from selectively disclosing information that affects the market value of their stocks.
According to sources, FINRA has sent letters to companies, which often mark the beginning of investigations into insider trading. As explained by David Chase, a former SEC attorney, such actions may be the first phase of a broader analysis of the behavior of companies and investors. However, there is currently no confirmation that the investigation pertains to specific individuals.
Corporate Investment Boom in Cryptocurrencies and Information Leak Risks
Analysts note that the trend of acquiring bitcoins through fundraising via stock or bond issuance was initiated by MicroStrategy. More than 200 companies have already followed a similar strategy, with the total announced investments exceeding $100 billion, according to Architect Partners.
Often, firms consult with private investors during the deal preparation stage. In such cases, the parties sign non-disclosure agreements, but there are instances where information about upcoming purchases enters the public domain earlier than planned, leading to an increase in stock prices before the official announcement.
“Lawyers familiar with the deal-making process note that information leaks can not only raise suspicions among regulators but also create difficulties in determining fair pricing.”
It is worth mentioning that earlier, Pantera Capital CEO Dan Morehead predicted that geopolitical adversaries of the U.S. might start building their own reserves in bitcoins.