On April 10, 2025, the staff of the SEC's Division of Corporation Finance (the "Staff") published a statement providing its views about the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities that "may involve equity or debt securities of issuers whose operations relate to networks, applications, and/or crypto assets 1." The Staff identified common issues observed during its reviews of disclosures made by issuers in the crypto asset markets in connection with offerings under the Securities Act of 1933, as amended (the "Securities Act") and registrations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). According to the statement, it is intended to provide the Staff's views while the work of the SEC's Crypto Task Force is ongoing.
The statement reflects the Staff's recent increased interest in communicating with the market through means other than enforcement actions. Indeed, it comes in the wake of other recent announcements from the Staff regarding the parameters in which meme coins, stablecoins and crypto mining will fall outside of the federal securities laws. In laying out specific guidance applicable to offerings and registrations that touch the crypto industry, the Staff signaled its understanding that businesses in this space operate differently from those in more traditional and established sectors. This implicit acknowledgment, coupled with a clear message at the end of the statement regarding the Staff's interest in hearing questions from market participants, reflects the new attitude towards crypto that is reverberating throughout the SEC.
In its statement, the Staff addressed certain disclosure requirements under Regulation S-K for Forms S-1, 10 and 20-F. The Staff organized its thoughts into six topic areas:
Description of the Business. The Staff stated that the required narrative description of the material aspects of a business "should be tailored to the issuer's business and presented in clear, concise, and understandable language, without overly relying on technical terminology or jargon," with the first exemplar being a disclosure that "[s]pecifically relates to the material aspects of the issuer's current or proposed business, rather than to crypto networks, crypto assets, or other technologies that are not specific or material to the issuer's current or proposed business." The Staff also encouraged including, among other things, disclosure that (i) addresses the current stage of development of the business and clearly delineates any forward-looking or future plans of development; (ii) is consistent with the issuer's statements and promotional materials relating to material aspects of the business; (iii) states whether the issuer intends to continue to operate the business following the launch of a network or application; (iv) describes how the issuer generates or expects to generate revenue or increase profitability or value and (v) whether the security or crypto asset has any function(s) in the operation of the business, including whether it has any intended use or role in an associated network or application.
Risk Factors. The Staff stated that the content and scope of a disclosure will depend on the nature of the security and the issuer's business and may include factors addressing the development and implementation of the issuer's business and the particular characteristics of the security (e.g., price volatility, valuation and liquidity risks, technological risks, cybersecurity risks and legal and regulatory risks).
Description of Securities. The Staff stated that the required materially complete description of the securities will depend on the particular type of security (e.g., traditional capital stock, debt securities)—or subject crypto asset—being offered, and that it is important for investors "to understand what the security represents." The Staff pointed to several important elements for this disclosure, including the (a) rights, obligations and preferences of holders, (b) technical specifications of the security or subject crypto asset and (c) supply of the security or subject crypto asset.
Directors, Executive Officersand Significant Employees. The Staff noted that in addition to executive officers, directors and certain significant employees who are (or are expected) to make significant contributions to the issuer's business, disclosure should be included regarding persons who do not hold formal titles as executive officers or directors but who perform policy-making functions typically performed by officers and directors. In addition, the Staff stated that disclosure should be included regarding third parties performing the policy-making functions typically performed by executive officers and directors, such as the directors or executive officers of a sponsor of a trust (e.g., spot crypto exchange-traded products). For such third parties, the Staff recommends including the fees paid to the third party for performing its functions.
Financial statements. The Staff stated that issuers with requests for assistance regarding the form and content of financial statements should contact the Division's Office of Chief Accountant and may also consult with the SEC's Office of the Chief Accountant on accounting and financial reporting questions, especially on "unusual, complex, or innovative transactions."
Exhibits. The Staff noted that to the extent that the rights, preferences and obligations of holders of the securities are memorialized in smart contracts or otherwise programmed into the code of a network or application, it has observed issuers working to meet their disclosure requirements by including as an exhibit the code of the smart contract(s) and/or the network or application, with the issuer updating the exhibit in response to any subsequent coding changes.
Crypto asset issuers will still need to wait and see how the SEC's regulatory approach and disclosure trends develop, but the Staff's guidance broadly should be good news for the crypto community. It also aligns with recent remarks made by Commissioner Hester Peirce in her first policy statement as leader of the Crypto Task Force, where she said: "We invite builders, enthusiasts, and skeptics to engage with us to figure out what the final rules should be and what interim steps might help to foster innovation in the meantime." Although the Staff's guidance will be helpful for crypto issuers seeking to pursue registered offerings under the Securities Act and/or Exchange Act registration, a full regulatory framework for crypto assets has yet to be developed and issuers will still need to tread carefully.
Footnote
1. The statement refers to "crpto assets" as those "generated, issued, and/or transferred using a blockchain or similar distributed ledger technology network ('crypto network'), including, but not limited to, assets known as 'tokens,' 'digital assets,' 'virtual currencies,' and 'coins,' and that relies on cryptographic protocols."
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