Month: August 2021
Did your company’s proxy distribution costs grow by 2400%? The NYSE has a new rule for you
And it may even help— to some extent. A number of companies received whopping bills in the last proxy season or two for proxy distribution costs—much bigger than normal. How did that happen? As discussed on thecorporatecounsel.net blog, these types of increases have been attributed to “the proliferation of small accounts through no-fee trading platforms.” Many retail traders now hold very small numbers of shares of a large number of stocks, some as a result of recent opportunities to buy fractions or “slices” of shares that ultimately add up to one or more whole shares. And, in a number of cases, the retail traders didn’t even buy the shares; they were “gifted” by retail brokers as rewards for opening a new account or doing some other good deed for the benefit of the broker. It can all add up to surprisingly big charges for proxy distribution costs. But now there may be a bit of relief available—the SEC has just approved an NYSE proposal to “prohibit member organizations from seeking reimbursement, in certain circumstances, from issuers for forwarding proxy and other materials to beneficial owners.” “Certain circumstances” refers to free promotional shares awarded to account holders by brokerages. Notably, the blog raises the good question of how the exclusion will be enforceable in practice.
SEC steps back from two of the 2020 amendments to the whistleblower rules
The SEC’s whistleblower program provides for awards in amounts between 10% and 30% of the monetary sanctions collected in an SEC action based on the whistleblower’s original information. The program, which has been in place for more than ten years, is widely acknowledged to have been a resounding success. In September 2020, the SEC adopted a number of amendments to the whistleblower rules, some of which were quite controversial. In early August, SEC Chair Gary Gensler issued a statement indicating that he had directed the SEC staff to revisit the whistleblower rules, in particular, two of the amendments that had been adopted in 2020. (See this PubCo post.) Gensler observed that concerns have been raised, including by whistleblowers as well as by Commissioners Allison Herren Lee and Caroline Crenshaw, that those amendments “could discourage whistleblowers from coming forward.” Now, the SEC has issued a policy statement advising how the SEC will proceed in the interim while changes to those rules are under consideration. Commissioners Hester Peirce and Elad Roisman were none too pleased with the SEC’s action here, questioning whether it might be part of a troubling pattern of unwinding actions taken by the last Administration. They made their views known in this statement.
A little more on the Nasdaq Board Diversity Rule
On Friday, the SEC approved Nasdaq’s proposal for new listing rules regarding board diversity and disclosure, along with a proposal to provide free access to a board recruiting service. The new listing rules adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards in a matrix format. (See this PubCo post.) Nasdaq has now posted a three-page summary of its new board diversity rule, What Nasdaq-listed Companies Should Know.
SEC approves Nasdaq “comply-or-explain” proposal for board diversity
You probably remember that, late last year, Nasdaq filed with the SEC a proposal for new listing rules regarding board diversity and disclosure, accompanied by a proposal to provide free access to a board recruiting service. The new listing rules would adopt a “comply or explain” mandate for board diversity for most listed companies and require companies listed on Nasdaq’s U.S. exchange to publicly disclose “consistent, transparent diversity statistics” regarding the composition of their boards. In March, after Nasdaq amended its proposal, and in June, the Division of Trading and Markets, pursuant to delegated authority, took actions that had the effect of postponing a decision on the proposal—until now. On Friday afternoon, the SEC approved the two proposals.
DOJ and SEC file fraud charges against Nikola CEO
Is there anything topical missing from this case? There’s a SPAC. There’s social media. There’s an unorthodox, charismatic CEO. There are electric vehicles. There are hydrogen trucks with drinking fountains using water produced by the trucks as a by-product of their hydrogen fuel cells—or not. And, there’s a DOJ criminal indictment and an SEC complaint. Yes, I’m talking about the case against Trevor Milton, the founder, former CEO and former executive chairman of Nikola Corporation, who was charged last week with “repeatedly disseminating false and misleading information—typically by speaking directly to investors through social media—about Nikola’s products and technological accomplishments,” according to the SEC press release. What’s more, the DOJ charged, Milton exploited the SPAC structure with a “self-proclaimed media blitz” of false and misleading public statements during a period of time that, in an IPO setting, would have been considered a “quiet period.” In addition to civil SEC charges, Milton faces two counts of criminal securities fraud and one count of wire fraud, with maximum 20- and 25-year prison terms if convicted. He pleaded not guilty. As described by the U.S. Attorney for the SDNY (with an appropriate vehicular metaphor), “[a]s alleged, Trevor Milton brazenly and repeatedly used social media, and appearances and interviews on television, podcasts, and in print, to make false and misleading claims about the status of Nikola’s trucks and technology. But today’s criminal charges against Milton are where the rubber meets the road, and he now will be held accountable for his allegedly false and misleading statements to investors.” The case reinforces the point that fraudulent or misleading statements don’t have to be in a prospectus or 10-K to be actionable—social media will do just fine. According to the Regional Director of the SEC’s Fort Worth Regional Office, “[p]ublic company officials cannot say whatever they want on social media without regard for the federal securities laws. The same rules apply, and the SEC will hold those who make materially false and misleading statements accountable regardless of the communication channel they use.” Notably, this is the second recent case involving SEC charges of misleading claims in connection with a SPAC. (See this PubCo post.)
House budget package would scrap proxy advisor rules
It’s worth noting that the minibus budget package passed by the House last week includes a provision intended to put the kibosh on the proxy advisory firm rules that were adopted by the SEC in July 2020. Specifically, the bill provides that “[n]one of the funds made available by this Act may be used to implement the amendments to sections 240.14a-1(l), 240.14a–2, or 240.14a-9 of title 17, Code of Federal Regulations, that were adopted by the Securities and Exchange Commission on July 22, 2020.” Of course, Corp Fin had already put a temporary halt on enforcement of those rules. And unlike prior years, there is no provision in the House bill—yet—that would prohibit the SEC from using any of the funds to finalize rules requiring disclosure of corporate political spending. The bill next goes to the Senate, where, of course, there could be substantial changes.
Alliance Advisors wraps up the 2021 proxy season
Alliance Advisors has just released its 2021 proxy season review, a season they characterize as “dynamic,” as investors stepped forward to express their views on a variety of environmental and social topics. At least 34 E&S shareholder proposals won majority support, compared to 21 proposals last year. And over a dozen shareholder proposals on diversity, climate change and political spending won with votes in excess of 80%. There were also some new entries among the shareholder proposals—such as requests for racial audits, access to COVID-19 medicines and say on climate—that received support averaging around 30%, a level that Alliance characterizes as “remarkably” good for first timers. Alliance acknowledges that these results did not come entirely out of the blue, as large asset managers such as BlackRock and Vanguard had previously signaled that they might take steps this season to more closely align their proxy voting records with their advocacy positions.
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