Financial regulatory bodies are taking a closer look at an increasing number of businesses adopting what’s being called “crypto-treasury” strategies. This increased scrutiny follows unusual trading activity observed in these companies’ stocks.
This corporate trend, involving companies allocating a portion of their treasury to cryptocurrencies, has surged in popularity recently. Many businesses have invested in crypto assets this year. Pioneered by companies like Strategy (formerly MicroStrategy), these crypto-treasury strategies involve raising capital through the sale of stocks or bonds specifically to acquire Bitcoin and other digital currencies. For a portion of these enterprises, cryptocurrency investment has moved beyond a simple side project and is now core to their business operations.
For instance, Strategy, established in 1989, was primarily known as a business intelligence and software provider. However, in 2020, the company underwent a significant shift towards a crypto-centric business model, investing $250 million into Bitcoin. Subsequently, in February, they rebranded by dropping “Micro” from their name.
According to a report by The Wall Street Journal, citing confidential sources, both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have contacted several firms regarding this trend. The sources informed the newspaper that regulators are examining unusually high trading volumes and significant increases in stock prices that occurred just prior to public announcements about these crypto asset purchases.
SEC authorities have cautioned companies about potential violations of Regulation Fair Disclosure. This regulation prevents publicly traded companies from selectively disclosing confidential information to analysts and investors who might use that information for trading purposes. Legal professionals informed the Journal that letters from FINRA often indicate the commencement of investigations into possible insider trading activities.
The SEC did not provide an immediate response to a request for comment from Gizmodo, and FINRA declined to offer any comment.
The implementation of a crypto-treasury often involves companies quietly assessing interest from private investors who are willing to finance their cryptocurrency acquisitions. These investors are typically required to sign non-disclosure agreements, ensuring the companies’ identities remain confidential until official announcements are made. However, given the rise in stock prices observed in the days preceding news of crypto investments, it appears some details regarding these investments may have been leaked prematurely.
The Wall Street Journal, quoting data from crypto-advisory firm Architect Partners, indicated that 212 new companies have announced intentions to secure approximately $102 billion for crypto asset purchases thus far in the year.
The Wall Street Journal further stated that it remains uncertain whether regulators intend to pursue legal action against the involved companies or investors.
The publication also pointed out that SEC Chair Paul Atkins has recently expressed criticism of the commission’s previous strategies, suggesting that it had “weaponized” its enforcement powers in a way that hindered the crypto industry.
Considering the prior administration’s supportive stance toward crypto assets, a lenient response from the SEC wouldn’t be completely unexpected. The former president maintained a favorable relationship with the industry, which has purportedly been beneficial to their own financial gains.