Securities Law Blog

On November 30, 2022, we published a blog post regarding Form 10-K disclosure planning and using the SEC’s Division of Corporation Finance (the “Division”) sample comment letters as a guide. On December 8, 2022, the Division issued a new sample comment letter providing guidance with respect to disclosure that may be required from issuers regarding any potential impacts from turmoil in the cryptocurrency industry.

The Division’s issuance of the guidance follows the collapse last month of FTX and its subsequent bankruptcy filing.  As a result of FTX and other recent bankruptcies and financial distress among crypto asset market participants, the Division has advised that companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business.

The sample comments address disclosure obligations issuers should consider with respect to crypto asset market developments generally, as well as more specifically in their business descriptions, risk factors, and management’s discussion and analysis.  The Division further advised that the sample comments “focus on the need for clear disclosure about the 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 sample comments are applicable to all issuers, rather than being limited to companies that incorporate digital assets into their business.

While the sample comment letters do not present an exhaustive list of all comments that the Division may have when reviewing a filing, they do provide guidance as to the type and level of disclosure that issuers should consider in preparing their future filings.  In addition to annual reports, proxy statements and registration statements in connection with initial public offerings or merger transactions, the Division also reminded issuers to take the sample comments into consideration as they prepare disclosure documents that may not typically be subject to review by the Division before their use, such as automatically effective registration statements and prospectus supplements for takedowns from existing shelf registration statements.