On March 4, 2020, the SEC proposed amendments to existing exemptions from the registration requirements under the Securities Act of 1933 to simplify, harmonize, and improve the existing regulatory framework and to promote capital formation while preserving or enhancing important investor protections. Promoting capital formation continues to be a primary object of the SEC, as evidenced by the previously proposed amendments to the “accredited investor” definition. (See our IPO,… More
Category Archives: Governance
Recent Amendments to FINRA Rules 5130 and 5131
While many people extol the virtues of a good spin class (particularly in January, following New Year’s resolutions), in the context of Initial Public Offerings, “spinning” has a severely negative connotation. Spinning was a practice where a bank held back shares of a popular initial public offering to allocate to an executive officer or director of a current or potential investment banking client of the bank instead of placing those shares with investors through the standard public offering allocation process. … More
The holidays came early in Washington, as on December 18, 2019, the Securities and Exchange Commission (SEC) gave investors the gift of a proposal to expand the definitions of “accredited investor” and “qualified institutional buyer”. This gift has been under consideration for years, as the SEC published a staff report examining the accredited investor definition in 2015 and a broader concept release on the same topic earlier in 2019. … More
Yesterday, the full House of Representatives approved H.R. 2534, otherwise known as the Insider Trading Prohibition Act. If passed by the Senate and signed by the President, this legislation would mark an important milestone in insider trading jurisprudence. For decades, the Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”) have pursued insider trading violations through general anti-fraud provisions, which has resulted in extensive judge-made law and ambiguity as to when actors will be held liable for insider trading. … More
On November 6, 2019, the SEC Division of Enforcement published its annual report for fiscal year 2019. The report provides valuable insight, not only as to the Division’s performance over the past year, but also about its current priorities and where it will be focused in the near-term future. Overall, Enforcement’s program since 2017, when SEC Chairman Jay Clayton assumed leadership of the agency, has been shaped by five “core principles”: (1) focus on the retail investor;… More
Last week Institutional Shareholder Services updated its proxy voting guidelines for annual shareholder meetings to be held on or after February 1, 2020. The updates take a major step forward to advocate greater gender diversity on public company boards, express fresh opposition to super-voting shares and evergreen plan provisions, enhance support for independent board chairs, and make other important modifications.
- Gender diversity: As it signaled last year,…
The SEC’s Division of Corporation Finance recently provided helpful clarity regarding the exclusion of certain shareholder proposals under Rule 14a-8. The guidance, Staff Legal Bulletin No. 14K, relates to the “ordinary business” exception and the proof of ownership requirement of the rule.
By way of background, Rule 14a-8 permits shareholders of a public company to submit proposals for a stockholder vote, and the company is generally required to include those proposals unless a specific exception applies.… More
The Securities and Exchange Commission announced recently that it is adopting new Rule 163B to allow all issuers to “Test-the-Waters” with potential investors whom they reasonably believe are Qualified Institutional Buyers (QIBs) and/or Institutional Accredited Investors (IAIs). In 2012, the JOBS Act allowed Emerging Growth Companies (EGCs) to engage in Testing-the-Waters discussions, but companies either too large or too seasoned to qualify as EGCs did not receive this benefit.… More
Yesterday, the SEC announced that it is proposing amendments to the “accelerated filer” and “large accelerated filer” definitions to “reduce costs without harming investors for certain smaller public companies and, importantly, encourage more companies to enter our public markets.”
Last summer, the SEC adopted amendments to expand the number of smaller reporting companies that qualify for scaled disclosure. Among the adopted amendments was an increase in the public float threshold for smaller reporting companies from $75 million to $250 million. … More
Last week, the U.S. Department of Justice (DOJ) Criminal Division released revised guidance on the “Evaluation of Corporate Compliance Programs.” This latest guidance is important not only to help benchmark existing compliance programs but also to understand what DOJ will look for when making critical decisions affecting a company under investigation. DOJ’s Fraud Section had released a prior version of this guidance in February 2017. The 2019 guidance is notable in several respects,… More
This streamlined process requires the submission of a one-page application by which a company can affirm that the most recently considered CTR application continues to be true, complete and accurate regarding the information for which the company continues to seek confidential treatment. … More
In our 2018 SEC year in preview post, we called attention to an expected increase in SEC cybersecurity enforcement action. The SEC has certainly lived up to the billing throughout 2018, which was the first full year in existence for the SEC’s new Cyber Unit. In particular, the Cyber Unit and the SEC’s Enforcement Division focused on three types of enforcement actions: (1) stopping unregistered and/or fraudulent trading of digital assets,… More
Last week, the SEC staff published new compliance and disclosure interpretations clarifying some of the inner workings of exemptions for certain cross-border business combinations, exchange offers and rights offerings. These exemptions are available for specified transactions involving foreign companies whose US ownership falls below 40% or 10% of total ownership, with the latter group being afforded significantly greater relief. When the SEC originally adopting these exemptions, it sought to induce parties to include US investors in transactions where they would typically be excluded in order to avoid the burdens of complying with US securities laws.… More
A recent case offers a fresh reminder that directors must satisfy their fiduciary obligations when setting their own compensation.
In a derivative action against the non-employee directors of OvaScience, Inc., a stockholder alleged that the non-employee directors had breached their fiduciary duties and wasted corporate assets by paying themselves excessive compensation. In 2015, for example, all of OvaScience’s non-employee directors received compensation of at least $300,000 (substantially all of which represented the fair value of equity awards granted during the year),… More
Much has already been written about Elon Musk’s famous tweet offering to take Tesla private. Most of the coverage has focused on whether he violated Regulation FD’s prohibition on selective disclosure by communicating material nonpublic information through Twitter, rather than a more recognized channel of communication, or whether he violated Rule 10b-5 by lacking a sufficient basis for his claim to have “funding secured.”
What is perhaps more surprising is that,… More
Companies that will qualify as “smaller reporting companies” for the first time under the SEC’s recently revised definition should consider whether to take advantage of the simplified reporting requirements that will become available to them on September 10, the effective date of the new rule. For example, a calendar-year issuer that qualified as a smaller reporting company as of June 29, 2018 (the last business day of its second fiscal quarter) can comply with the smaller reporting company disclosure requirements in its Form 10-Q for the third quarter of 2018. … More
On July 2, 2018, the SEC brought a settled cease-and-desist proceeding against The Dow Chemical Company for failing to disclose approximately $3 million in executive perquisites, including personal use of company aircraft, in its proxy statements over five years. The SEC concluded that Dow failed to adequately train key employees to ensure that the proper standard for perquisite disclosures was being applied and that Dow had inadequate processes and procedures to ensure proper reporting of perquisites.… More
Every day it seems there is another outcry over excessive executive compensation at public companies. This year, for the first time, public companies are disclosing ratios of CEO compensation to median employee compensation, and both the media and politicians are quick to highlight pay ratios in excess of 1,000-to-one as evidence of everything that is wrong with executive compensation.
Yet these complaints have a certain air of unreality to them,… More
Perhaps in the spirit of the saying “if you can’t beat them, join them,” the Securities and Exchange Commission recently launched an initial coin offering website of its own – HoweyCoins.com. No, the SEC has not suddenly decided to join the coin offering craze. But the Office of Investor Education and Advocacy has launched this new mock site to illustrate the dangers of such offerings to retail investors. The site touts a coin investment opportunity in the travel industry and comes complete with many of the enticements common to the very offerings that the SEC is attempting to police,… More
Why You and Your Board Need to Adapt to Increased Expectations from Constituencies Old and New
Public companies are facing heightened expectations with respect to the social and environmental impacts of their business operations. Recent developments such as the emergence of the #MeToo movement and increasing public concern regarding issues ranging from climate change to gun control have highlighted the risks that exist in today’s social media-driven environment. When allegations of corporate missteps can instantly capture public attention,… More
Join us today at 12:30 p.m. Eastern time for our webinar on emerging expectations for public companies regarding corporate social responsibility. The program will feature our own Sarah Altschuller, the only US lawyer ranked by Chambers Global for business and human rights. Sarah is a true expert, and we can all learn from her expertise. More
In a unanimous decision issued Tuesday, March 20, 2018, the United States Supreme Court clarified that certain securities law class action cases may proceed in state courts. The Court declined to find that Congress intended to make federal courts the exclusive or preferred forum for resolving such claims.
The case – Cyan, Inc. v. Beaver County Employees Retirement Fund – involved the interpretation of the Securities Litigation Uniform Standards Act of 1998 (also referred to as SLUSA) and the changes that law made to the Securities Act of 1933. … More
As the SEC has made clear on numerous occasions over the past year, cybersecurity will continue to be a major enforcement priority under the Commission’s new leadership. As we have previously covered, one new area of potential enforcement activity that the SEC has warned about concerns the failure of public companies to make disclosures regarding material cyber events. While the SEC had previously provided some guidanceto publicly traded companies about when to disclose such events,… More
On Wednesday February 21, 2018, the United States Supreme Court rejected a Securities Exchange Commission regulation that sought to expand the definition of a whistleblower under the Dodd-Frank Act, and thereby resolved a split in the Circuit Courts. In Digital Realty Trust v. Somers, the Court held that anti-retaliation protection afforded to a whistleblower under the Dodd-Frank Act is available only to an individual who provides information relating to a violation of the securities laws to the Securities and Exchange Commission before suffering adverse employment action. … More
On January 17, 2018, the Massachusetts Securities Division Enforcement Section filed a complaint against the company Caviar and its founder Kirill Bensonoff for violations of the Massachusetts Uniform Securities Act in connection with an ongoing initial coin offering (ICO).
This is Secretary of the Commonwealth William F. Galvin’s first enforcement action related to an ICO. Last month, Secretary Galvin announced that the Massachusetts Securities Division would conduct a sweep of Massachusetts entities engaged in ICOs.… More
Bitcoin is white-hot. The cryptocurrency’s price has increased an astounding 2000% in 2017 alone. The app for Coinbase, the most popular cryptocurrency exchange, held the #1 spot on Apple’s app store, unseating the likes of Facebook and Instragram. Earlier this month the Chicago Exchange began offering trades in bitcoin futures, the first major exchange to do so (and futures contracts were up some 560% after one day of trading).… More
The Massachusetts Securities Division has announced that it will conduct an exam sweep of Massachusetts entities engaged in initial coin offerings (ICOs).
In the announcement, released on Friday, Massachusetts Secretary of the Commonwealth William Galvin said that he views ICOs as securities that must be registered with the state.
“Blockchain may or may not change the way banks transfer money or the way credit payments are made,… More
For the second time in less than a month (click here for a prior enforcement action), the SEC’s newly created Cyber Unit has shut down an initial coin offering (ICO). This time the ICO was for Munchee, Inc., a California-based developer of an iPhone application for people to review restaurant meals. The recent enforcement activity follows several policy statements and warnings regarding ICOs. … More
On September 28, 2017, the Securities and Exchange Commission announced regulatory relief for a broad class of companies and others affected by Hurricane Harvey, Hurricane Irma, and Hurricane Maria. The SEC staff also indicated that it would be responsive to other issues that these parties may face if brought to the staff’s attention on a case-by-case basis.
The SEC issued an exemptive order that conditionally exempts affected persons from certain requirements of the federal securities laws for a period following the hurricanes. … More
On July 25, 2017, the SEC issued an investigative report to advise those who have used or may consider using a virtual organization or capital raising entity that uses distributed ledger or blockchain technology to facilitate capital raising that these activities are subject to U.S. federal securities laws. The SEC also released an investor bulletin to educate and caution potential investors about this new and growing type of capital raising.… More