A proposed rule requiring crypto projects that raise more than $25 million from the public to disclose audited financial statements has become a major point of debate after the U.S. Senate failed to move forward with the Digital Asset Market CLARITY Act.
Sen. Cynthia Lummis, a Republican from Wyoming and a key sponsor of the bill, said on September 20 that Democrats had asked for the audit requirement during negotiations but later voted against the bill.
“Democrats voted against the transparency they asked for,” Lummis wrote.
The requirement was included in the Senate’s final draft, released September 14, after lawmakers added more than 100 changes Democrats requested. Lummis and other Republican senators said those changes came from bipartisan negotiations.
What the $25M Audit Rule Would Have Done
The rule would not have applied to every cryptocurrency or token. It would have focused on certain token issuers whose tokens still depended on the company or people behind them.
- Issuers raising more than $25 million would have had to provide the SEC with audited financial statements.
- Issuers raising less than $25 million would have faced a lighter requirement: their financial statements would only need an independent review.
- The rules would also have required information about management, risks, legal issues, token supply, distribution, development plans, governance and related-party deals.
- The goal was to give investors more information about a project’s finances before investing large amounts of money.
- The proposal also created a way for some token issuers to raise money without following all the registration rules that apply to traditional public companies.
- Under the proposed Regulation Crypto exemption, qualifying projects could raise up to $50 million per year, with a $200 million lifetime limit.
Why Democrats Wanted Stronger Disclosure
Democrats wanted investors to get more information when buying tokens tied to a specific company or development team.
The concern was that some tokens might not be treated like traditional securities, even though their value could still depend on the work of a company or team. The CLARITY Act tried to address this by separating the token from the fundraising process while requiring the company behind it to provide more information.
Lummis’ office said Democrats had requested 126 major changes to the bill. These included fundraising and disclosure rules, as well as measures on illegal finance, enforcement and investor protection.
Why Democrats Still Voted Against the Bill
The Senate vote was not specifically about the $25 million audit rule. On September 15, senators voted on whether to move forward with the broader CLARITY Act. The vote was 50–49, so the bill did not advance.
Democrats mainly objected to how the bill handled President Donald Trump’s crypto interests and ethics rules. They argued that the bill did not place enough limits on federal officials’ financial interests in crypto.
There were also disagreements over stablecoin rewards, banking, enforcement and rules against illegal finance.
What Happens to Crypto Regulation Now?
Because the vote failed, the proposed $25 million audit rule did not become law. This means crypto projects do not automatically have to provide audited financial statements simply because they raise more than $25 million.
Now, crypto companies will continue to operate under the existing rules while lawmakers and regulators work on new regulations. The SEC and Commodity Futures Trading Commission still have their current powers.
Related: Coinbase CEO Pushes Back on Blame for CLARITY Act Senate Failure