On April 10, 2025, the SEC’s Division of Corporation Finance (Corp Fin) issued a statement expressing its views about the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities in the crypto asset markets.1 This statement is a welcome development for market participants seeking to offer and sell crypto securities or engaged in crypto asset businesses, as it provides some insight into the staff’s views on applicable disclosures.
While the Securities and Exchange Commission (SEC) continues to engage in efforts to develop a regulatory framework for crypto assets, including a roundtable series it has dubbed the “Spring Sprint Toward Crypto Clarity,” Corp Fin issued the statement to provide greater clarity on the application of disclosure obligations under the federal securities laws to crypto assets in the interim. This statement follows other recent statements seeking to provide regulatory clarity to market participants.2
Key Takeaways
Issuers engaged in registered or qualified offerings involving or related to crypto asset securities should consider how the SEC’s disclosure obligations apply to their business and offering. The staff’s observations and views provide a useful guide to approach disclosure considerations.
Importantly, the staff’s statement shows a willingness to engage with market participants about disclosure and financial reporting requirements, highlights areas where consultations about the omission or substitution of information may be considered, and notes that scaled disclosure may apply to certain categories of issuers, such as newly public companies, smaller reporting companies, or foreign private issuers.
Issuers interested in pursuing registered or qualified offerings should engage with counsel and consider taking the staff up on its offer to discuss the best strategy to disclosures, which can potentially expedite the registration or qualification process.
Background: Challenges in the Registration or Qualification of Offerings in the Crypto Industry
In recent years, issuers in the crypto asset markets have sought to register Securities Act offerings of securities, qualify offerings under Regulation A, or register classes of securities under the Exchange Act. As the statement noted, offerings and registrations of securities in the crypto asset market may involve equity or debt securities of issuers whose operations relate to networks, applications, and/or crypto assets. They also may “relate to crypto assets offered as part of or subject to an investment contract,” which the staff identified as a “subject crypto asset.”
Issuers in the crypto industry often grapple with the application of the SEC’s disclosure requirements to their particular businesses and offerings in determining the material information required for such offerings or registrations, particularly given certain unique characteristics of digital assets and the crypto industry. For example, if an issuer intends to “decentralize” such that it will recede in its ability to materially affect or influence how a digital asset or its related blockchain platform develops, what should individuals who may purchase the asset know about the related risks? What might that mean for disclosure of management and key executives and directors? These and many other issues differ materially from those addressed in a traditional offering of common stock or debt securities, and existing rules and guidance either do not address or say relatively little about them.
To address the uncertainty, in recent years many industry actors and their attorneys have engaged in dialogue with the staff as part of the registration or qualification process. In some cases, these issuers successfully achieved Securities Act registration or Regulation A qualification through interaction with the staff about necessary disclosures. Issuers and potential issuers, however, have often received significant numbers of comments from the staff as the staff and issuers developed an approach to the unique characteristics of digital assets and technologies. As a result, issuers may have faced longer processes than in other contexts and, in some cases, the delays may have triggered issuers to abandon offerings due to a variety of factors, including cost and timing constraints.
The statement is the first specific and concrete public description of the staff’s observations regarding disclosures that would be important to investors under existing requirements. It specifically expresses the staff’s views about disclosure questions presented to the staff by industry actors. As a result, the statement may also signal more streamlined and expedited registration and qualification processes for companies in the industry moving forward, which would also be consistent with recent statements of support for providing paths for compliance for the industry by the SEC and its staff.
Topics Discussed in the Statement
Discussed briefly below are the areas highlighted by the statement for disclosure consideration, such as the description of the business; risk factors; description of securities, including rights, obligations, and preferences, and technical specifications; directors, officers, and significant employees; financial statements; and exhibits. Issuers must consider their individual facts and circumstances in determining their disclosure obligations. The highlighted disclosure considerations are neither all-encompassing nor applicable in all circumstances.
Description of the Business
SEC rules require issuers to describe the material aspects of their business. An issuer should tailor disclosure to its business, which could include addressing the stage of development and future plans and should be consistent with public statements and materials such as white papers or developer documentation. An issuer operating or developing a network or application should discuss whether it intends to continue operating the business after the network or application launches, and any contemplated business activities after launch. If it does not intend to operate the business, it should disclose how it will be operated and whether another entity will be involved. Issuers also should address revenue generation or value, as well as whether the security or crypto asset involved has any function or use in the business, network, or application.
Other disclosures that may be relevant for issuers developing or acquiring a network or application, or intending to do so, may include disclosures about the development team; the current state and timeline; milestones, estimated costs, and source(s) of funds for development; objectives of the network or application and how the technology accomplishes it; licenses or intellectual property rights related to the technology; process for validating transactions, the consensus mechanism, block size, transaction speed, fees, and reward mechanism, if any; any products or services that will be offered; roles that exist or will exist in the network; and information about the process for upgrades/updates, measures taken for security, and the governance system, if applicable.
Risk Factors
Under SEC rules, issuers must provide a discussion of the material factors that make an investment in a company or its securities speculative or risky. The statement highlights a variety of risks to consider when providing potential investors with information about the development and implementation of the issuer’s business, characteristics of the particular security, operation of networks or applications, and the legal and regulatory environment.
Description of Securities
Issuers seeking to register or qualify an offering of securities must provide potential investors with a materially complete description of their securities, which would include crypto assets that are securities. Thus, issuers should provide a description of terms, rights, and characteristics of the particular security they are offering. This would include a discussion of transfer rights, voting rights, rights to payments such as dividends and distributions, preferences, and rights with respect to transactions that impact the issuer or network, such as a merger, liquidation, or bankruptcy. Disclosure consideration also should be given to the characteristics of the security, such as terms, maturity, redemption, retirement, ability to loan or pledge, whether it is certificated or uncertificated, or whether it is eligible for deposit at a securities depository.
Technical Specifications
For issuers offering crypto asset securities and/or developing a network or application, technical information about the network or application would likely be material to investors. Issuers should consider disclosure about technical specifications, including whether and how the underlying code may be modified, by whom and when, and the impact such activities may have on the rights of the security holder or holder of the crypto asset. Additionally, information about technical requirements for holding or accessing the security or crypto asset, such as those related to wallets or key and transaction fees, should be provided. An issuer should disclose where the definitive record of ownership exists and who maintains it, as well as information about third-party securities audits, if any.
Supply
Issuers should provide information about the rules governing the total supply of the security or crypto asset, whether any entity or person is responsible for implementing rules for the governance or has authority to make changes, and any plans for arrangements with market makers or similar firms to distribute or provide liquidity for the security or crypto asset and the terms.
Directors, Executive Officers, and Significant Employees
Under SEC rules, issuers engaged in registered or qualified offerings are required to provide information about its directors and executive officers, or persons performing similar functions, as well as significant employees. Issuers should consider how such requirements may apply to their particular facts, including when there is a sponsor or other third-party performing functions that may be typical of directors and officers, and provide any relevant disclosure. While traditional executive compensation disclosure may not be applicable, consideration also should be given to disclosure of fees paid for performing the function.
Financial Statements
SEC rules contain financial statement requirements for issuers engaged in registered or qualified offerings or when registering classes of securities. Corp Fin’s Office of Chief Accountant (CF-OCA) is available to assist with requests regarding the form and content of financial statements. CF-OCA administers the process for requests for the omission or substitution of financial statements under Rule 3-13 of Regulation S-X. The SEC’s Office of the Chief Accountant is available for accounting and financial reporting consultations on complex, unusual, or innovative transactions.
Exhibits
SEC rules generally require an issuer to file, as an exhibit, instruments that define the rights of security holders. In the context of offerings of securities in crypto asset markets, this may include the code of a smart contract or network or application.
[1] See Statement on Offerings and Registrations of Securities in the Crypto Asset Market (April 10, 2025), available at https://www.sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025.
[2] See Statement on Meme Coins (February 27, 2025), available at https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins, Statement on Proof-of-Work Mining Activities (March 20, 2025), available at https://www.sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025, and Statement on Stablecoins (April 4, 2025), available at https://www.sec.gov/newsroom/speeches-statements/statement-stablecoins-040425.