SEC provides disclosure guidance on crypto securities offerings

Description of Business

Issuers are required to provide a narrative description of the material aspects of their business. Disclosures should be clear, concise, understandable and tailored to the issuer’s specific business activities. 

Disclosures involving crypto assets typically:

• address the material aspects of the current stage of business development and clear delineation of future plans;
• are consistent with public statements and promotional materials;
• include plans to operate the business following launch of a network or application, including whether the issuer or another entity will be involved in such operations;
• discuss milestones to fully implement the business;
• explain revenue generation and profitability plans; and
• describe the role of the security or crypto asset in the operation of the business.

When developing or acquiring a network or application (or planning to), an issuer should describe the network or application’s purpose and operation -  including development timeline, milestones, costs/source of funds and status, technology details, transaction processes, products and services to be offered, roles, security measures and governance systems.

Risk Factors

Issuers must discuss material factors that make an investment speculative or risky. Disclosures will depend on the nature of the security, the issuer’s business and the specific characteristics of the security.

Disclosures involving crypto assets typically include:

• risks related to planned business operations and implementation;
• security risks, including risks relating to unique characteristics of the security; and
• legal and regulatory risks relating to registration with financial services agencies or other regulatory authorities.

Description of Securities

Issuers are required to provide a materially complete description of their securities. Specific disclosures will depend on the particular type of security, and such disclosures should help investors understand what the security represents.

Disclosures involving crypto assets typically include information about:

• rights, obligations and preferences of security holders;
• technical specifications related to the network or application associated with the security; and
• rules governing the total supply of the security.

Directors, Executive Officers and Significant Employees

Disclosures must include information about management of the issuer.

 Disclosures involving crypto assets typically include:

• the identity and experience of executive officers, directors and significant employees; and
• information about other persons, including third parties (and fees paid to such third parties) performing policy-making functions.

Financial Statements

Issuers must provide financial statements that comply with applicable SEC requirements. The Division’s Office of Chief Accountant can provide assistance on the form and content of financial statements and other financial information required to be included in Commission filings. The SEC’s Office of the Chief Accountant can provide assistance on accounting and financial reporting questions involving complex or unusual transactions.

Exhibits

Issuers are required to file any instruments defining the rights of security holders as exhibits. As it relates to offerings and registrations of securities in the crypto asset markets, this typically includes the smart contract code and network or application code (updated as necessary in response to subsequent changes in such code).

Contacting the Division

The Division welcomes questions and requests for assistance regarding the application of the SEC’s disclosure rules to offerings and registrations and ongoing reporting obligations.