US Regulators Investigate Crypto Treasuries
The Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) are investigating over 200 firms with crypto treasuries for potential insider trading.
A Regulatory Sweep
Federal regulators are scrutinizing companies that have turned to crypto purchases as a core strategy, following allegations of insider trading. Specific firm names remain undisclosed, but the news appears as many companies adopt a MicroStrategy-inspired approach to cryptocurrency accumulation. The SEC’s investigations were prompted by unusual trading volumes and price surges before public announcements.
The SEC has also warned firms about violating Regulation Fair Disclosure, which prohibits selectively sharing nonpublic information with certain investors. When companies engage outside investors for large crypto purchases, they must secure non-disclosure agreements. However, stock price spikes before announcements suggest these terms may have been breached.
The Corporate Crypto Playbook
According to CoinGecko, 108 companies currently own Bitcoin, but their treasuries have expanded to include altcoins like Ethereum, Solana, and Litecoin. Many firms employ a “flywheel” strategy, raising capital through debt and equity to fund significant crypto buys. These plans, often nonpublic, can give select investors an unfair trading advantage if disclosed early.
The flywheel model involves using raised capital, often through low-cost debt, to purchase substantial amounts of crypto, which can elevate the company’s stock price. This enables further capital raises for additional crypto buying, creating a feedback loop. Any leaked information regarding forthcoming purchases can disrupt this intricate system.
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