May 16, 2024

ICYMI: Senator Warren Delivers Floor Speech in Opposition to Overturning SEC Staff Accounting Bulletin 121

Washington, D.C. – On May 16, 2024, Senator Elizabeth Warren (D-Mass.) delivered remarks on the floor of the U.S. Senate in opposition to S.J.Res.59, the Congressional Review Act (CRA) resolution overturning the Securities and Exchange Commission’s (SEC)  “Staff Accounting Bulletin No. 121” (SAB 121). SAB 121 directs SEC registrants that want to issue, trade, or custody crypto-assets to present those assets as liabilities on the firm’s balance sheet.

Remarks from Senator Elizabeth Warren
As Prepared for Delivery
May 16, 2024

[Mr. / Madam] President,

Today we’re about to hold a vote under the Congressional Review Act. The CRA was passed in 1994 to give Congress a six-month window of 60 legislative days to review an agency rule, and, if it doesn’t like that rule, to overturn it. 

However, our vote today is not a vote on a notice and comment rule. In fact, our vote today is on something that doesn’t even have the force of law. Instead, our vote today is on a Staff Accounting Bulletin issued by the SEC back in the spring of 2022. The SEC has issued these bulletins, or SABs, for nearly 50 years—without anyone ever suggesting they were subject to the CRA.

The CRA has a time limit for a reason—so that settled law is settled law, something that everyone can count on. And the CRA is limited to agency rules so that a single member of Congress can’t tie up agencies and Congress with expedited procedures raking over the details of every agency action. Today’s vote, coming more than two years after the SEC wrote this Bulletin, and applied to a staff bulletin, is far outside the scope of the CRA.

We should not be holding this vote. And that's a good enough reason to vote no.

But let’s talk about substance for a moment. 

The fairness of our markets depends on transparency. Investors in pension funds and 401(k)s—and workers saving for retirement all have a right to know what they’re investing in.

The Securities and Exchange Commission is the guardian of those financial disclosures that give investors information about a company’s business plan, its leadership, and the risks it faces in the market. To help public companies disclose information about their business in a consistent way, the SEC issues Staff Accounting Bulletins to provide clarifying guidance about emerging issues in the accounting industry. 

SAB number 121, or “SAB 121,” was published to provide accounting guidance to companies that hold customers’ digital assets. It says that because of some of the unique technological and legal risks associated with digital assets, public companies that safeguard crypto assets for their customers should make the risks associated with holding those assets visible.

One way this risk shows up is that if a company that safeguards property for someone—stocks, bonds, jewelry—it bears a risk that the property could be stolen. That’s why companies that hold property for others carry insurance—and it’s why they have big safes. 

But if the company safeguards crypto, there’s a special risk: crypto can get hacked.  In fact, there have been some pretty big crypto hacks in which assets vanish. This risk isn’t theoretical—it’s real.  FTX, $600 million, Binance, $586 million, Ronin Network, $625 million, and Poly Network, $611 million, all in the last three years. We’ve seen multiple, $600 million dollar hacks of crypto platforms in the last few years alone.

The unique risks of crypto can create liabilities that seriously impact a company’s financial condition. SAB 121 simply clarifies how companies should account for those risks in their financial disclosures.

There’s a second kind of problem. If a company that safeguards property for someone—stocks, bonds, jewelry—goes bankrupt, the true owner of the stocks, bonds or jewelry can get their property back. But if the company that goes bankrupt holds crypto, the peculiarities of crypto ownership and possession mean that the creditors of the bankrupt company could keep the crypto. The true owner may be  out of luck. Once again, SAB 121 simply clarifies how companies should make clear those risks in their financial disclosures.

Now, let’s talk about what SAB 121 doesn’t do. It doesn’t bring customers’ crypto-assets onto a crypto platform’s balance sheet–or make the platform the owner of a customer’s digital assets.  Instead, SAB 121 requires disclosure of what other, substantive laws—including bankruptcy laws—are already doing.

This effort to reverse the SEC’s accounting guidance would deprive investors of accurate information on the risks of holding crypto assets and corrode public trust in our financial system and its institutions.

The vote today is about ensuring that the SEC is able to issue guidance that will help companies of all sizes produce strong, consistent, timely, and meaningful accounting disclosures. It’s about protecting a critical informational tool that investors and companies have relied on for half a century. And it’s about maintaining the integrity of our markets, which relies on a clear, consistent accounting rulebook.

Democrats should stand with President Biden against this effort to attack the SEC’s authority. I urge my colleagues to oppose.