In light of the recent bankruptcies and widespread disruption in crypto asset markets, the Securities and Exchange Commission recently published a sample letter for companies that may have an obligation to disclose the impact of these events on their businesses. In response to these market developments, the SEC’s Division of Corporation Finance suggests that companies should update their existing disclosures to provide investors with information that addresses these crypto asset market developments, which may include updated business descriptions, risk factors and management’s discussion and analysis.
The sample letter provided by the Division of Corporation Finance does not contain an exhaustive list of potential issues but provides sample comments that the Division may issue to companies that fail to adequately address crypto asset market developments. According to the SEC, the sample letter is intended to demonstrate the importance of clearly disclosing material impacts, such as the company’s exposure to counterparties and other market participants; possible threats to the company’s liquidity and ability to obtain financing; and any possible legal proceedings, investigations or regulatory impacts related to these market developments. The Division urges companies to use the sample letter and comments as a guide to review and consider while preparing upcoming disclosures to ensure that they are updated accordingly. The Division also encourages companies to contact the industry office responsible for the company’s filings with any questions related to their proposed disclosures.