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SEC Asks Companies to Disclose Information on Crypto Exposure

On Thursday, December 8, 2022, the Securities and Exchange Commission (“SEC”) published a notice to its website informing companies of their potential disclosure obligations regarding their crypto assets.[1] The notice contains a “sample letter”, laying out questions the agency may pose to companies depending on their “particular facts and circumstances”.[2]

In its lengthy sample letter, the SEC first asks the company to provide disclosure of any “significant crypto asset market developments material to understanding or assessing” the business.[3]  The agency then asks the company to discuss how potential bankruptcies have impacted the business, and, if material to an understanding of the business, to describe any direct or indirect exposures to external participants in the crypto asset markets known to have filed for bankruptcy, faced heavy redemptions, or suspended withdrawals from customers.[4] The letter asks companies to explain the steps taken to safeguard its customer’s crypto assets and to disclose whether the crypto assets are used as collateral for the company’s or any other parties’ loan, margin, or similar activity.[5] Finally, the letter asks the company to detail nine risk factors it faces in relation to the crypto asset market.[6]

The notice states that the sample letter is not an exhaustive list of the issues companies should consider with regards to crypto exposure, and that companies should evaluate 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.”[7]

The SEC’s notice comes as no surprise, given the recent collapse of the crypto-currency exchange FTX –whose founder and CEO Sam Bankman-Fried was indicted on December 13th in the Southern District of New York on charges of conspiracy and fraud[8]– and the resulting pressure from the public and investors for increased crypto-exchange oversight.[9] Without specifically referencing FTX, the notice acknowledges that recent bankruptcies and financial distress among “crypto asset participants”  have caused “widespread disruption” in those markets.  The letter appears to be the SEC’s preliminary step towards avoiding future disruption.

It remains to be seen how many companies will receive such letters, and whether this enhanced level of inquiry is enough to quiet claims against the SEC that it has failed to prevent crypto firms from misusing customer funds.  Publicly traded companies are already required to report material information relevant to an assessment of their financial condition,[10] so this notice appears to act more as a reminder of those reporting obligations, adding specific guidance regarding crypto exposure, than a heightened enforcement measure.

[1] U.S. Securities and Exchange Commission, Sample Letter to Companies Regarding Recent Developments in Crypto Asset Markets, Dec. 8, 2022, available at

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Allison Morrow, Matt Egan, FTX founder Sam Bankman-Fried charged with fraud, CNN Business, Dec. 13, 2022, available at

[9] Dave Michaels, SEC Faces Calls to Boost Crypto-Exchange Enforcement After FTX Collapse, Wall Street Journal, Dec. 8, 2022, available at

[10] See 17 C.F.R. § 229.300 et seq.