The SEC’s Division of Corporation Finance has issued a statement providing guidance on disclosure requirements for offerings and registrations of securities in the crypto asset markets. The statement offers clarity on how existing federal securities laws apply to these offerings while acknowledging the formation of the Crypto Task Force to develop a comprehensive regulatory framework.
The guidance addresses disclosures required under the Securities Act of 1933 and the Exchange Act of 1934. It covers various disclosure topics while emphasizing that issuers should tailor disclosures to their specific circumstances.
Business Description Disclosures
The Division recommends that issuers provide clear descriptions of their crypto-related businesses that focus on material aspects specific to their business rather than general descriptions of crypto technologies. Disclosures should clearly indicate the current development stage and any forward-looking plans while maintaining consistency with public statements and promotional materials.
For issuers developing crypto networks or applications, the guidance suggests describing the purpose and operational details of the network or application, development timeline and milestones, technical architecture and functionality, transaction validation processes and consensus mechanisms, and network governance systems.
Risk Factor Disclosures
Issuers should address material risk factors specific to crypto securities, which may include business operational risks related to technology and cybersecurity, security-specific risks concerning price volatility, holder rights, valuation and liquidity and regulatory risks, including potential requirements to register with the Financial Crimes Enforcement Network, state agencies or the Commodities Futures Trading Commission.
Securities Description Disclosures
The guidance emphasizes providing comprehensive descriptions of crypto securities, including how rights and characteristics are memorialized and whether they can be modified. Issuers should detail specific holder rights regarding dividends, voting, transactions and enforcement, technical specifications about the associated network, code modification procedures and wallet requirements, and supply information including total supply, minting processes and any vesting or lock-up arrangements.
Management and Financial Disclosures
Issuers must disclose information about directors, executive officers and significant employees who contribute to the business. If third parties perform management functions, disclosure should address these relationships. Additionally, the Division notes that issuers should provide compliant financial statements and may seek assistance from the Division’s Office of Chief Accountant.
Exhibit Requirements
When rights of security holders are memorialized in smart contracts or code, issuers should file the code as an exhibit and update it when changes occur.
This guidance represents a significant step toward providing regulatory clarity for crypto asset securities while the SEC continues to develop its broader crypto regulatory framework. Unlike previous approaches, the statement acknowledges the unique characteristics of crypto assets and provides specific disclosure recommendations tailored to this emerging asset class.