On December 8, 2022, the SEC published on its website guidance to public companies of the type of disclosure it will expect with respect to exposure to crypto assets and potential market dislocations relating to crypto assets. The guidance, published in the form of a sample review letter, asks a variety of questions intended to identify material risks to a public filer resulting from owning, holding or dealing with crypto assets, and the recent market distress in the crypto space, including some recent high-profile bankruptcies of crypto focused companies.

While much of the guidance is directed at public companies whose business is directly involved with holding and dealing in crypto assets, there is also a focus on indirect exposure, such as how a public company’s customers may have been affected by crypto market dislocation and the effect that will have on the public filer. For example, one question asks:

2. “To the extent material, discuss how the bankruptcies of XX and XX and the downstream effects of those bankruptcies have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly.  Clarify whether you have material assets that may not be recovered due to the bankruptcies or may otherwise be lost or misappropriated.”

Another asks about reputational harm to the filer’s business as a result of its association with the crypto business:

9.To the extent material, discuss any reputational harm you may face in light of the recent disruption in the crypto asset markets.  For example, discuss how market conditions have affected how your business is perceived by customers, counterparties, and regulators, and whether there is a material impact on your operations or financial condition.

The recent bankruptcies of FTX, Block Fi and Celsius have raised significant concerns for the SEC, and this guidance is one facet of a multi-pronged effort the SEC is making to help ensure that crypto related market risks are adequately disclosed.

A link to the complete posting by the SEC is provided below.