The SEC has been questioning advisers' efforts to follow the agency's rules around custody of clients' digital assets for several months, but the probe has gathered pace in the wake of the blow-up of crypto exchange FTX, the sources said. They spoke on condition of anonymity as the inquiries are not public.SEC enforcement staff are asking investment advisers for details around what the firms did to assess custody for platforms including FTX, one of the sources said.
The SEC's investigation signals the regulator is targeting a long-brewing issue for traditional firms that have sought ways to invest in crypto, attorneys told Reuters. The agency's accounting guidanceto hold digital assets on behalf of clients, limiting options for advisers seeking custodians. "This is an obvious compliance issue for investment advisers. If you have custody of client assets that are securities, then you need to custody those with one of these qualified custodians," said Anthony Tu-Sekine, head of Seward and Kissel's Blockchain and Cryptocurrency Group.Under Democratic leadership, the SEC has made crypto a priority area for enforcement,the size of its crypto team last year.
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