On Friday, the President signed into law the ‘‘Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), a $2 trillion relief package intended to provide “emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.” Here is a link to our Cooley Alert, which summarizes key portions of the CARES Act: https://www.cooley.com/news/insight/2020/2020-03-29-president-signs-cares-act
To address an issue that, as a result of the impact of COVID-19, has impeded some filers from making timely filings on EDGAR, the SEC is providing temporary regulatory relief from the notarization requirement for applications for EDGAR access codes.
Today, the staff of Corp Fin issued Disclosure Guidance Topic No. 9, which offers the staff’s views regarding disclosure considerations, trading on material inside information and reporting financial results in the context of COVID-19 and related uncertainties. The guidance includes a valuable series of questions designed to help companies assess, and to stimulate effective disclosure regarding, the impact of the coronavirus. As always these days, the guidance makes clear that it represents only the views of the staff, is not binding and has no legal force or effect.
Today, in light of the continuing impact of COVID-19, the SEC issued an order extending the filing periods covered by its previous conditional reporting relief. The order provides public companies with a 45-day extension to file or furnish specified SEC filings that would otherwise have been due between March 1 and July 1, 2020. The order supersedes and extends the SEC’s original order of March 4, 2020, which had applied to filings due between March 1 and April 30, 2020. As SEC Chair Jay Clayton observed, “[h]ealth and safety continue to be our first priority….These actions provide temporary, targeted relief to issuers, investment funds and investment advisers affected by COVID-19. At the same time, we encourage public companies to provide current and forward-looking information to their investors and, in these uncertain times, companies are reminded that they can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for forward-looking statements.” At the same time, the staff of Corp Fin issued Disclosure Guidance Topic No. 9, which offers the staff’s views regarding disclosure considerations and other securities law obligations in the context of COVID-19 and related uncertainties (to be covered in a separate post). The SEC encourages companies to contact the SEC staff with questions or matters of particular concern, such as administrative issues related to inability to obtain a required signature due to a quarantine or other issues that may need to be addressed on a case-by-case basis.
SEC staff offers relief regarding manual signature retention requirements for electronic filings in light of COVID-19
The staff of various SEC divisions, including Corp Fin, has just issued a new Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns. The statement offers some relief in connection with “the authentication document retention requirements under Rule 302(b) [of Reg S-T] in light of health, transportation, and other logistical issues raised by the spread of coronavirus disease 2019 (COVID-19).”
Today, the Co-Directors of the SEC Division of Enforcement, Stephanie Avakian and Steven Peikin, issued a brief cautionary statement regarding market integrity in the era of the COVID-19 pandemic. The statement acknowledged the unprecedented impact of COVID-19 on the securities markets and emphasized the importance of “maintaining market integrity and following corporate controls and procedures.”
Yesterday, in Salzberg v. Sciabacucchi (pronounced Shabacookie!), the Delaware Supreme Court unanimously held that charter provisions designating the federal courts as the exclusive forum for ’33 Act claims are “facially valid,” thereby reversing the decision of the Chancery Court, which had invalidated the provisions in the charters of three Delaware companies. The Chancery Court had previously invalidated the exclusive federal forum provisions (FFPs) at issue in the case because, among other reasons, Delaware’s enabling statute (Section 102(b)(1))—which provides general authority for non-mandatory charter provisions—was, in the lower court’s view, inherently limited to “internal affairs” and FFPs were “external” matters. On de novo review, the Delaware Supreme Court rejected this analysis. It characterized FFPs as intra-corporate matters, located in a new territory—the “outer band” between internal and external matters—which fell within the statutory scope of Section 102(b)(1) and are, therefore, valid on their face. Given the substantial benefits of an FFP in the event of ’33 Act litigation (which includes Section 11 claims), companies that do not have an FFP in their charters or bylaws, whether as a result of uncertainty about the validity of FFPs or otherwise—may want to revisit the issue.
The SEC has announced that, in light of the challenges associated with COVID-19 and particularly the difficulty associated with submission of comment letters, it will not take formal action before April 24 on a number of different proposed rulemakings with comment periods otherwise set to expire in March. Of course, the SEC has historically been open to consider comments submitted after the deadline but before adoption. The purpose of this extension was to expressly allow commenters additional time to comment if needed. Apparently, however, the SEC’s action was not enough for two Senators on the Senate Banking Committee, ranking member Sherrod Brown and Chris Van Hollen.
SEC adopts carve-out from the auditor attestation requirement of SOX 404(b) for low-revenue companies
On March 12, the SEC voted (by a vote of three to one, with Commissioner Allison Lee dissenting) to approve amendments to the accelerated filer and large accelerated filer definitions to provide a narrow carve-out for companies that qualify as smaller reporting companies (SRCs) and reported less than $100 million in annual revenues in the most recent fiscal year for which audited financial statements were available. Most significantly, under the final amendments, companies qualifying for the carve-out will no longer be subject to the SOX 404(b) requirement to have an auditor attestation report on internal control over financial reporting (ICFR), a requirement that applies to accelerated and large accelerated filers. In adopting these amendments, the SEC said that the amendments will “more appropriately tailor the types of issuers that are included in the definitions, thereby reducing unnecessary burdens and compliance costs for certain smaller issuers while maintaining investor protections. The amendments are consistent with the Commission’s and Congress’s historical practice of providing scaled disclosure and other accommodations to reduce unnecessary burdens for new and smaller issuers.” The new rules will become effective 30 days after publication in the Federal Register.
Today, in light of the spread of COVID-19, the SEC announced new Corp Fin staff guidance regarding annual meetings. Because of limitations on the ability to hold in-person annual meetings as a result of health and travel concerns, the staff guidance “provides regulatory flexibility to companies seeking to change the date and location of the meetings and use new technologies, such as ‘virtual’ shareholder meetings that avoid the need for in-person shareholder attendance, while at the same time ensuring that shareholders and other market participants are informed of any changes.”