SEC Provides Expectations for Public Company Disclosures Regarding Impact on Crypto Ecosystem

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What happened

The Corporate Finance Division of the Securities and Exchange Commission (SEC) issued a model letter on December 8, 2022, outlining considerations that public companies that are in or related to the crypto industry should keep in mind. mind when preparing their public disclosures, covering business description, MD&A and risk factor information.

What SOEs need to consider

While the letter outlines additional points to consider in the business and MD&A sections, the majority of comments focus on risk factor disclosure, noting nine key risks, including:

any material deficiencies identified with respect to risk management processes and policies, the possibility of regulatory developments related to crypto assets and crypto asset markets, and significant reputational risk resulting from recent disruptions.

In addition, the model letter also calls for increased disclosure as to whether any of the crypto assets held or issued by the company serves as collateral for certain activities, as well as any downstream effects suffered by the company as a result of some bankruptcies in the crypto industry. . The sample letter provides an overview of general disclosure topics that the SEC focuses on, including: (i) a company’s risk exposure to other players in the blockchain ecosystem and of cryptocurrency (interdependencies within the industry), and (ii) changes in the value of assets held by the company resulting from fluctuations in the broader blockchain market.

In light of the scrutiny faced by companies exposed to the crypto industry, careful consideration should be given to any public disclosure regarding their operations to address SEC concerns about providing adequate disclosure. so that a company’s public disclosures are not misleading.

Contact Alice Hsu, Daniel Forester, Joseph Perkins or Soo Hwang to find out if your business could be impacted or if you have questions about navigating this changing regulatory landscape.

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