SEC heightens expectations for crypto disclosures

Following a number of crypto bankruptcies and federal investigations into alleged misappropriation of crypto assets, the U.S. Securities and Exchange Commission’s Division of Corporate Finance announced new guidance for public company disclosures regarding crypto investments.

Along with the guidance, the Division of Corporate Finance released a sample letter describing several considerations that public companies should keep in mind for their disclosures.

Among other considerations, the sample letter indicates issuers should carefully evaluate their disclosures of:

• Impacts from the price volatility of crypto assets.
• Impacts from the bankruptcies of FTX, Voyager, Celsius, BlockFi, and other major market participants.
• Direct or indirect exposure to other counterparties, customers, custodians, or other participants in crypto asset markets known to have experienced insolvency or excessive redemptions, have crypto assets that are unaccounted for, or have experienced material corporate compliance failures.
• If the company holds crypto assets which serve as collateral for any loan, margin, rehypothecation, or other similar activities.
• Changes to company processes in light of crypto market developments, including steps taken to safeguard crypto assets.
• Potential impacts of regulatory developments, including pending crypto legislation or regulation.

The guidance and sample letter followed an earlier announcement by the Division of Corporate Finance that it was adding a dedicated Office of Crypto Assets to its disclosure review program. The new office focuses resources and expertise to address the unique issues relating to crypto assets. The Office of Crypto Assets will refer matters to the Division of Enforcement when it finds that companies failed to provide investors meaningful disclosures about the material impacts of crypto asset market conditions.