Month: October 2022

The SEC calls “technical glitch”—what happened to your comment letter?

Surprise!  The SEC has just reopened a slew of comment periods! Late Friday, the SEC announced that, as a result of a technical error, it had not received a number of electronically submitted comments for at least 11 rulemaking proposals.  Accordingly, it is reopening the comment periods for those identified proposals for an additional two weeks. Presumably, that also means that none of the affected proposals will be considered for adoption for at least two more weeks as the staff takes into account the new comments—pushing some of those proposals beyond their target dates in the Spring agenda. (See the “Octobers” on the agenda in this PubCo post.) Big exhale or big disappointment, depending on your point of view! What’s more, it turns out that some major proposals were affected, including the climate disclosure proposal. (You recognize, of course, that that means there were actually more than 4,000 unique comments on the climate proposal!) The announcement advises that everyone who submitted a public comment letter on one of the affected proposals through the SEC’s internet comment form between June 2021 and August 2022 should check the relevant comment file on to determine whether their comment letters were received and posted. If your letter has been posted, you can just relax. If it has not been posted, you should resubmit it. The reopening release provides instructions on how to resubmit comments electronically or on paper, which are pretty much the same way you could submit them in the first place, so good luck with that.

SEC charges Compass Minerals with disclosure violations resulting from “deficient disclosure process”

Toward the end of last month, the SEC announced settled charges against Compass Minerals International, Inc., for alleged disclosure violations that were “the consequence of a deficient disclosure process.”   In the Order, the SEC alleged that Compass misrepresented the impact of a technology upgrade at its Goderich mine—the world’s largest underground salt mine—which the company had claimed would lead to cost savings, but actually led to increased costs and below-expectation results.  Central to the case, however, was the purported failure of the company’s disclosure controls that resulted in the misleading statements: “statements to investors were not reviewed by personnel who were sufficiently knowledgeable about both Compass’s operations and its disclosure obligations.” The company was also charged with failing to disclose the potential financial risks arising out of the company’s contamination of a river in Brazil with excessive discharges of mercury, a failure the SEC also attributed to inadequate disclosure controls.  According to Melissa Hodgman, Associate Director of the Division of Enforcement, “[w]hat companies say to investors must be consistent with what they know. Yet Compass repeatedly made public statements that did not jibe with the facts on—or under—the ground at Goderich….By misleading investors about mining costs in Canada and failing to analyze the potential financial consequences of its environmental contamination in Brazil, Compass fell far short of what the federal securities laws require.” Compass agreed to pay $12 million to settle the charges. 

The FASB issues new ASU on supply chain financing arrangements

For several years, the SEC staff and advisory committees, credit rating agencies, investors, the Big Four accounting firms and other interested parties have been making noise about a popular financing technique called “supply chain financing.”  It can be a perfectly useful financing tool in the right hands—companies with healthy balance sheets.  But it can also disguise shaky credit situations and allow companies to go deeper into debt, often unbeknownst to investors and analysts, with sometimes disastrous ends. Moreover, there were no explicit GAAP disclosure requirements to provide transparency about a company’s use of supply chain financing. That may be why Bloomberg has referred to supply chain financing as “hidden debt.”  But that’s about to change. Last week, the FASB announced that it has issued a new Accounting Standards Update that enhances the transparency surrounding the use of supplier finance programs.  According to FASB Chair Richard Jones, the “FASB’s new ASU responds to requests from investors for greater transparency around a buyer’s use of supplier finance programs….It enhances transparency by requiring new disclosures intended to help them better consider the effect of these programs on a company’s working capital, liquidity, and cash flows over time.” The ASU will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which has a one-year delay.

NAM celebrates victory over SEC on non-enforcement of proxy advisory firm rules—what did it really win?

Last week, in an action by the National Association of Manufacturers against the SEC and Chair Gary Gensler, the U.S. District Court for the Western District of Texas held that the SEC violated the Administrative Procedure Act when, in June 2021, Corp Fin stated that it would not recommend enforcement of the 2020 proxy advisory firm rules while those rules were under reconsideration. In 2022, however, the SEC formally adopted new amendments to the 2020 rules reversing some of the key provisions and, at the same time, rescinding Corp Fin’s non-enforcement statement. You might think that the adoption of the new 2022 rules and rescission of the non-enforcement statement would make NAM’s suit moot?  At least, that’s what the SEC seemed to think when it moved to dismiss NAM’s complaint in August 2022, contending that the relief NAM sought would now be “meaningless.” But, in mid-September, the Court denied the SEC’s motion—citing West Virginia v. EPA—and late last week, the same Court granted NAM’s summary judgment motion for declaratory and injunctive relief: the SEC’s “suspension” of the rules was vacated because it violated the APA, and the SEC was enjoined from refusing to acknowledge or recognize the 2020 rule’s compliance date.  NAM declared victory.  But was it a hollow victory? Not according to NAM.