The staff of the Division of Corporation Finance at the U.S. Securities and Exchange Commission (SEC) recently provided guidance for public companies regarding disclosures pertaining to recent developments in crypto asset markets, including recent bankruptcies and financial distress among crypto asset market participants.

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

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

• material impacts of crypto asset market developments, which may include a company’s exposure to counterparties and other market participants;
• risks related to a 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 companies that they should evaluate whether they have experienced or may be affected by matters relating to crypto asset market developments that are characterized in their existing disclosures as potential risks and, if so, to update their disclosures accordingly. 

The guidance includes a non-exhaustive list of disclosure considerations, as well as a sample letter highlighting the types of comments that the SEC may issue during its filing review process. Such comments may request revisions or updates to the company's filings in the following categories:

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

Importantly, the guidance stresses 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 its particular facts and circumstances. The breadth of disclosures listed by the staff suggests the guidance is likely to apply even to companies that may not be directly involved in, but are materially affected by, 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’s Staff Accounting Bulletin 121 (SAB 121), issued in April of this year, in signaling heightened scrutiny of public companies in the crypto space. 

Especially in the wake of the collapse of Luna and FTX, and given the current tumult in the crypto asset markets, there is a good chance the SEC and its staff will provide additional guidance to the crypto industry and more closely scrutinize the crypto markets in the coming months.  If you have questions about the guidance or other crypto or public company matters, please contact a member of Wilson Sonsini's fintech and financial services or public company representation practices.