SEC Flash Report: Sample Comment Letter on Disclosures Regarding Crypto Asset Market Developments

The SEC’s Division of Corporation Finance (the “Division”) issued a sample letter detailing potential comments to registrants regarding the direct or indirect impact that recent events in the crypto asset market may have on their business. The Division noted that companies should provide specific, tailored disclosures about market events and conditions, how the events and conditions impact the company, and how the events and conditions could impact investors.

While not an exhaustive list, disclosures may include information related to:

  • Significant crypto asset market developments material to understanding or assessing the business, financial condition, and results of operations;
  • How recent bankruptcies in the crypto asset market have impacted or may impact the business, directly or indirectly;
  • Direct or indirect exposure to others in the crypto asset market that have filed for bankruptcy or experienced excessive redemptions;
  • Policies and procedures for safeguarding crypto assets;
  • The occurrence of excessive redemptions or, if material, the risk of excessive redemptions;
  • Material crypto assets that serve as collateral on any loans or margins; and
  • Material risks related to reputational harm, loss of customers, financing or liquidity risks, disruptions in the crypto asset markets, and regulatory developments.

Registrants should carefully evaluate the items described above, along with the full listing of sample comments in the Division’s sample letter, and consider the need for additional disclosures in their SEC filings (including registration statements, prospectus supplements, and periodic filings) in the business description, risk factors, and management’s discussion and analysis.