On April 10, 2025, the staff of the Division of Corporation Finance of the US Securities and Exchange Commission (SEC) issued a statement (Staff Statement) expressing its observations regarding certain disclosure requirements under the federal securities laws regarding the offering and registration of securities in the crypto asset markets.
The Staff Statement does not address all material disclosure items, but focuses on certain disclosure requirements set forth in Regulation S-K that apply to registration forms under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934, as amended (the Exchange Act), Form 20-F, and Form 1-A.
The Staff Statement outlines how compliance with a series of existing disclosure requirements should be approached in filings related to crypto asset markets. Key observations include:
- Description of business. The staff emphasized that disclosure of an issuer’s business should focus on:
- Information material for understanding the general development of the business or the business intended to be done by the issuer (eg, the timeline for developing the network and/or application, achieving network maturity or application launch, and milestones needed to fully develop the network or application)
- Tailoring the disclosure to material aspects of the business, consistent with the issuer’s public statements and promotional materials (including, but not limited to, white papers and developer documentation)
- The process by which transactions are validated, the roles of various parties in connection with the network or application (eg, users, on- and off- chain service providers, transaction validators, governance participants), measures ensuring the safety of the network or application, and the governance system of such network or application.
- Risk factors. The staff noted that the content and scope of risk factor disclosures depend on the nature of the security offered and the issuer’s business, highlighting examples such as:
- Risks related to technology, cybersecurity, and implementation of the issuer’s business
- Risks related to the characteristics of the security, including its form, price volatility, rights (or lack thereof) of the security holder, liquidity, supply, and custody, and
- Risks related to other applicable laws and regulations, such as compliance with the requirements of the Financial Crimes Enforcement Network, the Commodity Futures Trading Commission, and federal or state banking rules and regulations.
- Description of securities. The staff observed that with regard to description of securities in registration statements relating to crypto asset markets, issuers have provided information regarding:
- The process by which the rights and characteristics of a security are memorialized and conveyed when transferred, and whether those rights and characteristics may be modified
- The rights, obligations, and preferences of security holders, including voting rights, rights to dividends, rights to profit-sharing distributions, enforcement of these rights, and rights related to liquidation, bankruptcy, sale, network forks, or similar events
- The term, maturity, and restriction on transferability of the security, how the crypto asset can be accessed, held, transferred, redeemed, retired, burned, whether or not it can be loaned or pledged (and by whom), and whether it is eligible for deposit at a securities depository
- Technical specifications, such as the asset’s associated network or application, the ability to modify the underlying code, and the impact such modifications may have on the holder of the security or crypto asset
- Technical requirements for holding, accessing, and transferring the crypto asset, the existence of a record of ownership, the divisibility of the crypto asset, and the ability to undergo third-party auditing, and
- The rules governing the supply of the asset, including methods for minting, redemption, liquidity, and the person or entity responsible for implementing the rules governing the total supply, and with the authority and ability to change the rules.
- Directors, executive officers, and significant employees. Acknowledging the disclosure requirements related to executive officers, significant employees, and directors who are (or are expected to) make significant contributions to an issuer’s business, the staff noted that in situations where a third party performs policy-making functions typically provided by executive officers and directors, issuers have provided disclosures for such parties, including any fees paid to the third party performing those functions.
- Exhibits. Where the rights, preferences, and obligations of holders of the asset are documented in a smart contract, or otherwise programmed into the code of a network or application, the staff remarked that some issuers have included the applicable code as an exhibit to the filing.
SEC Commissioner Hester Peirce issued her own statement in support of the Staff Statement, noting that the staff’s guidance and observations may be helpful for issuers:
- Developing a blockchain and issuing debt or equity
- Registering the offering of an investment contract in connection with an initial coin offering
- Issuing a crypto asset that itself is a security, or
- Integrating non-fungible tokens into video games and issuing debt or equity.
The Staff Statement and Commissioner Peirce’s statement encourage questions regarding the application of the SEC’s existing disclosure rules to offerings, registrations, and reporting obligations while the SEC’s Crypto Task Force continues to develop a framework for the regulation of crypto assets.
The Staff Statement also directs issuers to contact the division’s Office of Chief Accountant or the SEC’s Office of Chief Accountant with requests for assistance with financial reporting, especially where unusual, complex, or innovative transactions are involved.
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