More on the SEC’s Disclosure Update and Simplification Proposing Release

by Cydney Posner

In her statement at the SEC open meeting to vote on issuing the “Disclosure Update and Simplification Proposing Release,” SEC Commissioner Kara Stein protested that “this proposal may be framed in such a hyper-technical way that it fails to provide a bona fide opportunity for a wide variety of commenters to truly access and understand what is being proposed and what we are seeking comment on.” She may have a point. The SEC’s most recent 318-page proposal to amend SEC rules to eliminate redundant, overlapping, outdated or superseded provisions is too “technical” — that’s a euphemism —  to discuss at any length, but below are some examples of the types of modifications the SEC is proposing to make. As discussed in this PubCo post, the proposal represents an interim step in the SEC’s disclosure effectiveness project, as well as an effort to implement one of the mandates of the FAST Act.  Here is the “demonstration version,” basically a blacklined copy of the rule changes. Continue reading

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Corp Fin staff issues new CDI on when shareholder efforts to influence management affect eligibility to use Schedule 13G

by Cydney Posner

The Corp Fin staff continues to dribble out new CDIs, with the newest relating to circumstances when, under Rule 13d-1, shareholder efforts to influence management will affect the shareholder’s eligibility to use Schedule 13G. Rule 13d-1 provides, in part, that Schedule 13G may be filed in lieu of Schedule 13D to report an acquisition of shares if, among other things, the shareholder has “not acquired the securities with any purpose, or with the effect, of changing or influencing the control of the issuer….” In this new CDI, the staff first makes clear that, just because a shareholder is disqualified (due to its efforts to influence management on a particular topic) from relying on the exemption from the Hart-Scott-Rodino Act for acquisitions of securities made “solely for the purpose of investment,” without the intent “of participating in the formulation, determination, or direction of the basic business decisions of the issuer,” that disqualification would not, by itself, preclude a shareholder from filing on Schedule 13G. Rather, the staff advises, eligibility to use Schedule 13G will depend on, among other things, the shareholder’s control intent, that is, whether the shareholder acquired or is holding equity securities with the purpose or effect of changing or influencing control of the issuer. According to the staff, this fact-and-circumstances determination could turn on the subject matter of the shareholder’s discussions with management, although the context in which the discussions occur would also be “highly relevant.” Continue reading

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Center for Audit Quality provides tool to help audit committees assess non-GAAP financial measures

by Cydney Posner

The Center for Audit Quality has released a new tool, Questions on Non-GAAP Measures: A Tool for Audit Committeesto help audit committees cope with non-GAAP financial measures (NGFMs).  Rather than provide a checklist, the CAQ provides examples of sample questions that audit committees should consider asking of management and external auditors regarding transparency, consistency and comparability of NGFMs. The tool is designed to assist audit committees evaluate whether management is complying with the SEC rules and guidance regarding NGFMs — particularly in light of the recent intense scrutiny by regulators of potentially abusive or misleading use of NGFMs — and whether NGFMs are actually assisting analysts and investors in understanding the performance of the business. (See, e.g., this PubCo post and this PubCo post.)     Continue reading

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Corp Fin staff issues new CDI regarding representations required in Exxon Capital Exchanges

by Cydney Posner

Corp Fin has posted a new CDI regarding the use of Form S-4 in connection with so-called “Exxon Capital” exchanges. In an Exxon Capital exchange (Exxon Capital Holdings Corporation (April 13, 1988)), an issuer that has privately sold non-convertible debt (or certain other securities) to large, sophisticated investors subsequently registers the exchange of those securities for substantially similar securities; under Exxon Capital, most holders are then able to resell the new securities (Exchange Securities) without further registration and without delivery of a prospectus. The CDI indicates that the staff’s position is premised on participants’ not being “underwriters” engaged in a “distribution” of the registered securities. To support that premise, the staff has historically requested, as a condition of the staff’s no-action position, that issuers make certain representations about the absence of a distribution of the securities received in the exchange. In the CDI, the staff indicates that these representations (which may be provided either in the prospectus or in correspondence submitted in connection with the filing) do not need to follow any particular form so long as they address the following “essential matters”: Continue reading

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SEC votes to propose rule amendments to eliminate outdated or redundant provisions

by Cydney Posner

At an open meeting today, the SEC voted to take an interim step in its disclosure effectiveness project, proposing amendments “to eliminate redundant, overlapping, outdated, or superseded provisions,” in light of subsequent changes to SEC disclosure requirements as well as GAAP and IFRS requirements. This is not the big overhaul of Reg S-K expected as a result of that project, but rather, according to Chair White, a “targeted update” that addresses discrete areas that can be modified in advance of the broader effort. The proposal also represents the SEC’s efforts in part to implement the FAST Act, which, among other things, required the SEC to eliminate provisions of Reg S-K that are duplicative, overlapping, outdated or unnecessary. (See this PubCo post.) The proposal will be open for comment for 60 days. Continue reading

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House votes to “defund” disfavored SEC rules, potential rules and guidance

by Cydney Posner

On Friday, the House passed H.R. 5485, the Financial Services and General Government Appropriations Act for fiscal year 2017, which includes appropriations for the SEC.  As noted here and here, included as part of the bill were several amendments directed at defunding SEC rules, potential rules and guidance that are generally disfavored by the Republican majority. (Think the Financial CHOICE Act. See this PubCo post.) The House passed the bill on a largely party-line vote, another battle joined over the separation of powers. So what else in new? Continue reading

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Corp Fin Chief Accountant sheds more light on non-GAAP CDIs

by Cydney Posner

In a webcast yesterday, “Non-GAAP Disclosures: The SEC Speaks,” sponsored by TheCorporateCounsel.net, Corp Fin Chief Accountant Mark Kronforst, speaking for himself and not the SEC, shed more light on the recent guidance from the Corp Fin staff on non-GAAP financial measures (NGFMs). (See this PubCo post.)   Kronforst noted that, while the staff issued some “futures” comments on the first quarter disclosures (referring recipients to the new CDIs), companies should expect to see more comments related to application of the new CDIs in connection with second quarter press releases and 10-Qs. Much more was covered in the program available at TheCorporateCounsel.net. Continue reading

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