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14 December 20224 minute read

Crypto winter spreading to public company disclosure

As the “crypto winter” sets in, the SEC’s Division of Corporation Finance (Division) has signaled that additional winter storms may be brewing for public companies that provide insufficient disclosure about crypto holdings and crypto exposure. On December 8, the Division released a sample letter containing comments public companies might receive related to disclosures concerning the potential business, financial, and legal impacts from the recent crypto-asset market events.


Since the first half of 2022, reports have indicated that the total value of cryptocurrencies is down by approximately 70 percent.  In addition, a number of high-profile cryptocurrency exchanges have filed for bankruptcy, including Celsius Network, Voyager Digital, BlockFi, and FTX.  All of these events have had a range of impacts on investors and other participants in the crypto-asset markets.

The Division’s letter

Against this backdrop, and in light of the growth of institutional interest in crypto assets and blockchain technology over the past few years, the Division expressed concern about “the material impacts of crypto asset market developments” on companies with reporting obligations. 

The Division stated that “companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis” and should also “evaluate their disclosures with a view towards providing investors with specific, tailored disclosure about market events and conditions, the company’s situation in relation to those events and conditions, and the potential impact on investors.”

To that end, the sample letter contains a detailed list of potential questions to registrants that reveal the types of disclosures on which the Division will focus when it reviews company filings, including disclosures concerning:

  • Crypto market developments material to the registrant’s business, financial condition, results of operations or share price, including the material impacts from the price volatility of crypto assets

  • How specific crypto market participant bankruptcies have impacted or may impact the registrant’s business, financial condition, customers and counterparties, including whether the company has material assets that may not be recovered

  • The exposure of the company to customers, and counterparties in crypto asset markets that have experienced certain events such as bankruptcy, insolvency, excessive or suspended redemptions, customer assets that are unaccounted for; or material corporate compliance failures or whether the company itself has experienced any similar issues and, if so, the impact on the company’s financial condition and liquidity

  • Whether and how the company uses crypto assets as collateral for any of its obligations or the obligations of any third party and, if so, how current market conditions have impacted the value of those assets and the company’s liquidity

  • Material risks related to any involvement in crypto asset markets – including legal/bankruptcy proceedings, regulatory actions, reputational harm, operational disruptions, customer demand, or price volatility – and steps taken to mitigate risk in response to the disruption in crypto asset markets and

  • If relevant, steps taken to safeguard customer crypto assets and prevent comingling, as well as policies and procedures to prevent self-dealing and conflicts of interest and any changes to the company’s processes as a result of current crypto market disruption.

Key takeaways

The Division’s publication of the sample letter leaves little doubt that the SEC and its staff are monitoring the impacts of the crypto winter on reporting companies.  Failure to address the disclosure issues highlighted by the Division may lead to SEC enforcement proceedings and private litigation.

Affected companies should review the letter and consider taking appropriate steps, such as:

  • Assessing any potential direct or indirect exposure to crypto asset markets

  • Evaluating and revising planned disclosures as appropriate, with a focus on the areas highlighted by the Division

  • Updating disclosure controls and procedures to ensure appropriate information regarding crypto assets is gathered and assessed to support disclosure decisions, and

  • Where appropriate, documenting the evaluation and the basis for decisions made.

If you have any questions regarding the sample comment letter, the impact of crypto assets on your business or potential ways to reinforce your disclosure, please contact any of the authors or your DLA Piper relationship attorney.