The US Securities and Exchange Commission (SEC) Division of Corporation Finance staff recently issued guidance to public companies on disclosures regarding recent developments in the crypto asset market, including recent bankruptcies and financial distress among crypto asset market participants.

The guidance generally states that public companies must provide investors with specific, tailored disclosures about crypto market events and conditions, the company’s position in relation to those events and conditions, and the potential impact on investors if it is material to an understanding or evaluation of the business. , financial condition and results of operations or the value of the company’s shares.

The guidance indicates that to the extent materially necessary or otherwise, public companies should consider developments in the crypto asset market in their filings with the SEC, such as:

  • significant effects of developments in the crypto asset market, which may include the Company’s exposure to counterparties and other market participants;
  • risks related to the company’s liquidity and ability to obtain financing; and:
  • risks related to legal proceedings, investigations or regulatory impacts in the crypto asset markets.

The guidance reminds firms that they should assess whether they have experienced or may be affected by issues related to developments in the cryptoasset market that are characterized as potential risks in their existing disclosures and, if so, update their disclosures accordingly.

The guidance includes a non-exhaustive list of disclosure considerations, as well as a model letter outlining the types of comments the SEC may issue during its filing review process. Such comments may require revisions or updates to company documents in the following categories:

  • general impact on business;
  • business description;
  • Management Discussion and Analysis (MD&A); and:
  • risk factors.

Importantly, the guidance emphasizes that there is no standard format or set of disclosures that will ensure that a company meets its disclosure obligations, and that a company’s specific disclosure requirements will depend on specific facts and circumstances. The breadth of findings listed by the staff indicates that the guidance is likely to apply even to companies that may not be directly involved but have a material impact on the crypto markets. Companies preparing their periodic reports and/or registration statements should review the sample questions and consider whether disclosure should be updated in these categories.

The guidance joins the SEC Staff Accounting Bulletin 121 (SAB 121), issued in April of this year, heralding enhanced oversight of public companies in the crypto space.

Especially in the wake of the collapse of Luna and FTX, and given the uproar in the crypto asset markets, there is a strong possibility that the SEC and its staff will issue additional guidance to the crypto industry and scrutinize the crypto markets more closely. in the coming months. If you have questions about the guide or other crypto or public company matters, please contact a member of Wilson Sonsini. fintech and financial services or representation of a public company practices.

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