Some crypto firms are prevented from going public by SEC scrutiny.

By CoinUnited.io Research Team

26 Jan 2023

2 min read

Since the beginning of this year, the volatile cryptocurrency industry has been plagued by financial turmoil and failures, and IPO attempts by crypto businesses have been thwarted by the Securities and Exchange Commission's increased scrutiny.

Companies with a concentration on cryptocurrencies, such as Bullish Global, Circle Internet Financial, and eToro Group Ltd., have had trouble getting the necessary SEC clearances for an IPO. Has faced repeated rounds of questions from SEC staff about its business since filing paperwork to go public on the Nasdaq Stock Market, according to people familiar with the questioning. the companies were seeking stock-exchange listings through mergers with special-purpose acquisition companies, an alternative path to going public that thrived in 2020 and 2021 before increased regulatory checks and market turbulence ended the SPAC boom. Despite not adopting a SPAC structure, Galaxy stated in March 2021 that it intended to go public in the United States and expected to pass the Securities and Exchange Commission's (SEC) review process by year's end.

According to a source familiar with the situation, the SEC didn't intentionally try to prevent the companies from going public. However, crypto firms believe the pace of the agency's review hurt their efforts, especially following the crash of a popular cryptocurrency and the failure of a large crypto hedge fund, which impacted many exchanges and lenders.

The majority of cryptocurrency companies argue that their tokens are not securities and are thus exempt from regulations meant to safeguard investors' capital.

Scott Kimpel, a partner at Hunton Andrews Kurth LLP, has observed, "Anyone bringing a crypto transaction before the SEC should understand there is going to be a lot of friction."

Financial disclosures, legal concerns, the effects of market disruption, and other topics are discussed with potential securities issuers by SEC accountants and attorneys.

All potential issuers seek is for the process to culminate in the regulators approving the company's disclosures, allowing them to sell their shares to the public. There is still no progress from Bullish, Circle, or eToro. According to regulatory filings, the SEC took a year or more to study their going-public paperwork before finally approving them.

The SEC addressed three letters to Coinbase Global Inc. with queries after the firm went public in 2021. People acquainted with the letters claim that Bullish responded to more than ten letters over the course of more than a year.

According to the source, the SEC sent Galaxy a single letter with more than 90 questions when the company initially filed papers to go public in the U.S. with the SEC in October 2021. Shares of Galaxy on the Toronto Stock Exchange are down almost 80% from their high during the past year, but an insider says the business still believes it can overcome the SEC's obstacles.

On a conference call in August of 2022, Galaxy Digital CEO Mike Novogratz expressed frustration that "it's taken as long as it has." A representative from the Galaxy team has declined to elaborate.

If the SEC's assessment of the transaction takes too long or there are other issues that prevent the agreement from going through, the SPAC is obligated to repay the investor's money.

In February, Circle announced a revised target date for the completion of its merger with SPAC Concord Acquisition Corp. of December 2022.

According to those familiar with the matter, Circle spent a significant portion of last year attempting to address more than a hundred issues made by the SEC about its disclosures. Early in November, the sources said, the business had only a few minor comments remaining, suggesting the deal could be able to close by the deadline.

After that, the SEC reportedly took a more cautious approach to reviewing Circle.

After the demise of FTX, the SEC produced a list of 16 questions it wanted crypto businesses to address in public filings. Some of these concerns were pertinent to the firms under scrutiny, according to the source.

According to the source, the files were difficult to evaluate for a number of reasons, including the fact that several firms had changed hands during the assessment period.

Circle CEO Jeremy Allaire remarked at the time, "I think that it's been a comprehensive process" when asked about the company's interactions with the SEC.

According to the source familiar with the matter, the SEC's concerns for eToro centered on its crypto business despite the fact that eToro also provides customers with access to equities. According to records, 63% of the company's commissions and interest income in the first half of 2021 came from crypto trading. It took the SEC months to react to eToro's letters, the individual said, since the agency was concerned about the accounting method eToro used to digital assets it stored for users.

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