On April 10, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance (the Division) issued a statement aimed at providing greater clarity on the application of federal securities laws to crypto assets. These offerings may involve equity or debt securities of issuers whose operations relate to networks, applications, and/or crypto assets. The offerings may also relate to crypto assets offered as part of or subject to an investment contract (such a crypto asset, a “subject crypto asset”). The statement does not modify or amend existing rules, but instead tries to translate the traditional disclosure requirements for the unique realities of the crypto asset universe. Notably, the statement also does not address whether or not crypto assets are deemed securities for purposes of federal securities laws, rather, the statement addresses disclosure requirements for those issuers offering crypto assets as part of or subject to an investment contract.

Background

The SEC’s statement addresses the disclosure requirements under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”) and is part of an ongoing effort by the SEC, led by Acting Chairman Mark T. Uyeda and the newly formed Crypto Task Force, to develop a comprehensive regulatory framework for crypto assets.

The disclosures required in connection with offerings and registrations under the Securities Act and the Exchange Act are designed to protect investors, facilitate capital formation, and promote fair, orderly, and efficient markets. Recently, some issuers in the crypto asset markets have registered or qualified offerings of securities under the Securities Act or registered a class of securities under the Exchange Act. The statement reflects the Division’s observations regarding disclosures provided in response to existing disclosure requirements and addresses specific disclosure questions presented by market participants.

Key Disclosure Requirements

  1. Description of Business
    SEC rules require issuers to provide a narrative description of the material aspects of their business. This includes:
  • Specific Business Activities: Clearly outlining the issuer’s current or proposed business activities, such as operating or developing a network or application.
  • Development Stage: Detailing the current stage of business development and any forward-looking plans.
  • Consistency: Ensuring that disclosures are consistent with public statements and promotional materials, including white papers, and developer documentation. 
  • Revenue Generation: Explaining how the issuer generates or expects to generate revenue.
  • Function of Crypto Assets: Describing any functions or roles that the security or crypto asset has in the operation of the business.

Where an issuer is developing or acquiring a network or application, disclosures should include:

  • Whether the initial development team is developing a network, application, or crypto asset.
  • The current state and timeline for development.
  • Milestones needed to fully develop the network, application, and/or crypto asset.
  • The objectives of the network and how the technology functions.
  • Whether the technology is derived from proprietary or open-sourced software.
  • The process for validating transactions, the consensus mechanism, and transaction fees.
  • A description of products and services offered through the network or application.
  • The roles within the network or application, such as users, service providers, developers, and governance participants.
  • The process for network and application upgrades and updates.
  • Measures taken to ensure network and/or application security.
  • A description of the network or application’s governance system.

2. Risk Factors

SEC rules require a discussion of the material factors that make an investment speculative or risky. This includes:

  • Business Operations: Risks related to technology, cybersecurity, and business implementation.
  • Security Characteristics: Risks related to the form, price volatility, rights of holders, and liquidity of the security.
  • Regulatory Compliance: Risks related to compliance with other applicable laws and regulations, such as money transmission laws or registration with other regulatory authorities.

3. Description of Securities

Issuers must provide a complete description of their securities, including:

Rights, Obligations, and Preferences

  • Memorialization of Rights: How the rights of holders and characteristics of the security are documented, how these rights convey when the security is transferred.
  • Holder Rights: The rights that holders have and do not have, such as with respect to dividends, payments, profit sharing, distributions, and voting rights.
  • Impact of Transactions: The rights that holders have and do not have with respect to transactions that impact the issuer or the network, such as liquidation, bankruptcy, sale, merger or network forks.
  • Security Characteristics: The characteristics of the security, such as term, maturity, restrictions on transferability, how the security or subject crypto asset can be accessed, held, and transferred, redeemed, retired, or burned.

Technical Specifications

  • Network/Application Association: The network or application associated with the security or subject crypto asset, and whether the underlying code can be modified, how, when, and by whom, and what effects that may have.
  • Technical Requirements: The technical requirements for holding, accessing, and transferring the security or subject crypto asset.
  • Record of Ownership: Where the record of ownership exists and how it is maintained.
  • Divisibility: Whether the security or subject crypto asset is divisible and any applicable limits.
  • Security Audits: Whether the security or subject crypto asset and the smart contracts and/or code on which it is/are based, if applicable, have been subjected to a third-party security audit.

Supply

  • Total Supply Rules: The rules governing the total supply of the security or subject crypto asset, including the total supply, whether it is fixed at a maximum possible supply, the method for minting or generating the asset, whether the supply will be created at initial generation, continuously, or from time to time, whether there is a process for redeeming, retiring, freezing, or burning the asset, whether any of the supply is reserved for the network’s treasury, particular uses or participants, and whether any portion of the supply is subject to vesting and/or lock-ups.
  • Implementation of Rules: Whether any entity or person is responsible for implementing rules governing the total supply and/or has the authority to change the rules.
  • Market Maker Arrangements: Whether the issuer intends to enter into any arrangements with market makers to distribute and/or provide liquidity for the asset and the terms of such arrangement.

If the issuer’s business involves crypto assets that themselves are not securities, similar disclosures, if material, may be relevant to the section of the registration or offering statement discussing the issuer’s business.

4. Directors, Executive Officers, and Significant Employees

Issuers must disclose information about the identity and experience of those managing the issuer, including executive officers, directors, and significant employees. This also applies to third parties performing policy-making functions typically performed by executive officers and directors. For example, spot crypto exchange-traded products have a sponsor with directors and executive officers who perform functions similar to directors or executive officers and disclosures has been provided with respect to the sponsor, including any fees paid to the third party for performing such functions.

5. Financial Statements

Issuers must provide financial statements that comply with applicable requirements. The SEC’s Office of the Chief Accountant is available for consultation on accounting and financial reporting questions.

6. Exhibits

Issuers must file as an exhibit any instrument defining the rights of security holders. This includes the code of smart contracts or the network/application, with updates as necessary.

Additional Guidance on Crypto

While the SEC’s statement does not take a position on whether crypto assets are securities, the SEC has been prolific in issuing guidance to the crypto industry. This statement follows the February 2025 prior statement on meme coins issued by the Division, which clarified the Division’s view that certain transactions in the types of meme coins described in the statement, do not involve the offer and sale of securities under the federal securities laws (discussed here). On April 4, 2025, the Division issued a issued a similar statement on stablecoins clarifying the Division’s view that the offer and sale of certain covered stablecoins, as described in the statement, do not involve the offer and sale of securities under the Securities Act or the Exchange Act.