Widespread Disruption in Crypto Markets Sparks New SEC Disclosure Considerations | JD Supra

On December 8, 2022, the Securities and Exchange Commission’s (SEC) Corporate Finance Division (the Division) posted a sample comment letter (the Letter) on its website that provides guidance to public companies regarding ” recent bankruptcies and financial difficulties of crypto asset market participants. The Letter is available here.

The letter is one of the division’s first public actions in the face of market uncertainty following the sudden and highly publicized collapse and Chapter 11 bankruptcy filing of crypto trading platform FTX. The letter also marks the Division’s entry into providing explicit guidance on disclosure considerations related to crypto markets.

In its guidance, the Division generally advises public companies to consider any developments in the crypto market that are material to understanding the company’s business, financial condition, results of operations, or stock price. The Division also notes that public companies should consider disclosing exposure risks to counterparties; the liquidity of the business and its ability to obtain financing; and risks related to legal proceedings, investigations or regulatory impacts on the crypto markets.

The letter contains a general comment and 15 specific comments that SEC staff may send to public companies as part of its filing review process. The example comments are broad, non-exhaustive, and organized according to standard SEC disclosure categories:

• Company Description
• Management discussion and analysis of the financial situation (MD&A)
• Risk factors

As noted in the letter, the Division suggests companies discuss whether they have been exposed to crypto firms that have filed for bankruptcy, suspended withdrawals, or experienced excessive withdrawals. The Division also encourages companies to describe what steps they are taking to secure customers’ crypto assets and whether the disruption in the crypto market has caused them “reputational damage.”

Next steps

While the letter does not formally introduce any new disclosure requirements, it does signal that the SEC is likely to take a closer look at crypto markets and public disclosures related to those markets. Additionally, in light of the current public focus on crypto regulation and the wide range of comments contained in the letter, it is also possible that the SEC will provide additional guidance to reporting companies in the near future. Companies preparing their public filings, especially companies directly or indirectly impacted by recent developments in the crypto markets, should proactively consider updating disclosures based on the content of the Letter and the latest developments in the industry. crypto industry.