Month: July 2024
Nasdaq proposes to codify new standards for review by Listing Council [Updated 10/17/24]
Nasdaq is proposing to codify the standards of review that govern appeals and reviews before the Nasdaq Listing and Hearing Review Council, referred to as the Listing Council. When a listed company receives a Staff Delisting Determination or a Public Reprimand Letter, or when its application for initial listing is denied, the company may request a review before a Hearings Panel. The decision by the Hearings Panel may then be reviewed by the Listing Council, either on appeal by the company or on the Listing Council’s own initiative. Nasdaq observes that the use of the Listing Council “helps address the perception of conflicts that may otherwise exist given Nasdaq’s status as both a self-regulatory organization and a for-profit entity.” Currently, however, there is no standard of review applicable to these Listing Council reviews of Hearings Panel decisions and, as even Nasdaq acknowledges, the Listing Rules are ambiguous regarding the extent of the Listing Council’s mandate in this context. Accordingly, Nasdaq now proposes to adopt two new standards of review: one standard—intended to “limit frivolous and baseless appeals”—for appeals of Hearings Panel decisions before the Listing Council and a second standard for Hearings Panel decisions called for review by the Listing Council. Nasdaq would apply the new standards of review to all matters that enter the Listing Council review process following approval of the proposal; matters pending review by the Listing Council when the proposal becomes effective would remain subject to current rules.
Democrats introduce bill to restore Chevron deference
Senator Elizabeth Warren and several other Democrats have just introduced a bill, the Stop Corporate Capture Act, designed to checkmate SCOTUS’s recent decision in Loper Bright v. Raimondo (see this PubCo post), which overturned the decades-long deference of courts, under Chevron U.S.A., Inc. v. Nat. Res. Def. Council, to the reasonable interpretations of statutes by agencies. The doctrine of Chevron deference mandated that, if a statute did not directly address the “precise question at issue” or if there was ambiguity in how to interpret the statute, courts had to accept an agency’s “permissible” interpretation of a law unless it was arbitrary or manifestly contrary to the statute. According to Warren’s press release, the “Stop Corporate Capture Act codifies the Chevron doctrine and reforms the regulatory process to end corporations’ influence over the rulemaking process, prioritize scientific and public integrity, and reduce delays in implementation of laws.” The bill, she contended “will bring transparency and efficiency to the federal rulemaking process, and most importantly, will make sure corporate interest groups can’t substitute their preferences for the judgment of Congress and the expert agencies.” Senator Chris Van Hollen, another sponsor of the bill, observed that “[i]t’s impossible to overstate the harm that Americans could face if we don’t act. This legislation protects federal agencies’ bedrock authority to carry out the laws that Congress passes—while making the regulatory process more open, transparent, and grounded in the public interest.” A similar bill, introduced by Representative Pramila Jayapal, is pending in the House. Will the legislation succeed? Don’t bet on it. According to Reuters, the bill has “slim chances of passing in an election year in the Senate, which Democrats only narrowly control.” Still, there’s always next year—depending, of course, on the results of the election.
SEC approves NYSE rule regarding change of primary business
In April, the NYSE filed a proposed rule change with the SEC that would allow the NYSE to commence immediate suspension and delisting procedures for a listed company if that company has “changed its primary business focus to a new area of business that is substantially different from the business it was engaged in at the time of its original listing or which was immaterial to its operations at the time of its original listing.” In July, the NYSE amended the proposal to make several changes, including a new requirement to provide prompt written notice to the NYSE if a listed company undertakes a change in its primary business focus. The SEC has now issued an Order granting accelerated approval of the amended proposal.
Cooley Alert: Federal Court Dismisses Bulk of SEC’s Complaint Against SolarWinds in Cyberattack Case
The 2020 SolarWinds hack was perhaps one of the worst cyberattacks in history, reportedly directed by the Russian intelligence service and affecting 18,000 customers, including some very well-known companies and about a dozen government agencies including the Treasury, Justice and Energy departments. Following the cyberattack, the SEC filed a complaint against SolarWinds and its Chief Information Security Officer, charging securities “fraud and internal control failures relating to allegedly known cybersecurity risks and vulnerabilities.” (See this PubCo post.) SolarWinds and Brown then moved to dismiss the complaint for failure to state a claim. On July 18, 2024, a federal district court issued a 107-page opinion, dismissing most of the SEC’s case against SolarWinds and its CISO.
New Cooley Alert: SEC Reporting Implications for Publicly Traded Companies Impacted by CrowdStrike Defective Software Update
As you know, the recent CrowdStrike defective software update caused massive and, in some cases, systemic failures to computers and networks of CrowdStrike’s customers running certain Microsoft operating systems. If your company was affected by the CrowdStrike server-related outages, you will certainly want to review this new Cooley Alert, SEC Reporting Implications for Publicly Traded Companies Impacted by CrowdStrike Defective Software Update from our Cyber/Data/Privacy and our Public Companies Groups.
Are the floodgates about to open after the demise of Chevron deference?
Utah v. Julie A. Su, a new opinion from Fifth Circuit, concerns an appeal of the “weighty question”—post Chevron—of whether, as phrased by the Court, “ERISA allow[s] retirement plan managers to consider factors that are not material to financial performance when making investment decisions affecting workers’ retirement savings.” Can ERISA fiduciaries “consider ‘collateral benefits’ when making investment decisions on behalf of the pension plans they manage”? In 2021, the Department of Labor adopted a new rule that interpreted ERISA to allow retirement plan managers to consider “‘the economic effects of climate change and other environmental, social, or governance factors’ in the event that competing investment options ‘equally serve the financial interests of the plan.’” That rule had effectively reversed a “midnight regulation” adopted by the prior Administration that “forbade ERISA fiduciaries from considering ‘non-pecuniary’ factors when making investment decisions.” The new rule was immediately challenged by a group of states, companies and trade associations, claiming that the new rule was inconsistent with ERISA and arbitrary and capricious under the Administrative Procedure Act. The district court, following the mandate of Chevron, deferred to the interpretation of the current DOL and rejected the challenge. Plaintiffs appealed. And then…… SCOTUS overruled Chevron. In a new decision, a three-judge panel of the Fifth Circuit has elected not to answer that weighty question on appeal—not now at least: “Given the upended legal landscape, and our status as a court of review, not first view, we vacate and remand so that the district court can reassess the merits.” Are we about to see a slew of these types of decisions revisiting agency regulations after the demise of Chevron? Time will tell.
In Corner Post, SCOTUS takes another swipe at the administrative state
This term, SCOTUS delivered two big wallops to the administrative state in the decisions eliminating Chevron deference (Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Dept of Commerce, see this Pubco post) and the use of administrative enforcement proceedings seeking civil penalties ( SEC v. Jarkesy, see this PubCo post). But that wasn’t all. There were at least a couple of other cases this term that reflected the same kind of skepticism toward the administrative state. They might be worth your attention. One of them, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, discussed below, concerned the statute of limitations under the Administrative Procedure Act. For our purposes, though, the potentially critical repercussion of Corner Post was articulated in the dissent by Justice Ketanji Brown Jackson, who argued that the case effectively decimated the limitations period for facial challenges to agency regulations, setting up the potential for a never-ending series of challenges to long-standing regulations and perhaps even, yes, gaming of the system.
Nasdaq toughens up suspension and delisting process for SPACs
Nasdaq has just filed a proposal, Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Certain Procedures Related to the Suspension and Delisting of Acquisition Companies, designed to address the suspension and delisting process applicable to Acquisition Companies, companies such as SPACs with business plans to complete one or more acquisitions, as described in Rule IM-5101-2. The rule changes would apply to an Acquisition Company that “fails to (i) complete one or more business combinations satisfying the requirements set forth in Listing Rule IM-5101-2(b) (“Business Combination”) within 36 months of the effectiveness of its IPO registration statement; or (ii) meet the requirements for initial listing following the Business Combination.” The proposal would also “limit the Hearings Panels authority to review the Nasdaq Staff’s decision in these instances to a review for factual error only.” Nasdaq also proposes to clarify Listing Rule 5810(c)(1) (with no substantive change) to improve transparency and readability. The rule changes will be operative for Staff Delisting Determination letters issued on or after October 7, 2024.
In Ohio v. EPA, SCOTUS reinforces powerful role of judiciary in agency oversight
As has been widely discussed, the administrative state took quite a shellacking this last SCOTUS term. But as I noted earlier, it wasn’t just the elimination of Chevron deference in Loper Bright (see this PubCo post) or administrative enforcement proceedings seeking civil penalties in SEC v. Jarkesy (see this PubCo post). There were at least a couple of other cases this term that contributed to the drubbing. One of them, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, had the effect of extending the statute of limitations under the Administrative Procedure Act (see this PubCo post). Another case, Ohio v. EPA, in which SCOTUS put a temporary hold on the “good neighbor” provision of the Clean Air Act because EPA failed to “reasonably explain” its action, might also be worth your attention. In Ohio, Justice Neil Gorsuch, writing for the majority, concluded that enforcement of EPA’s rule should be stayed because the challengers were likely to prevail on the merits. Why? Because EPA had provided an inadequate explanation for the continued application of the emission control measures in the plan in response to comments. Where have we heard this “failure-to-explain” theory recently? How about Chamber of Commerce of the USA v. SEC, vacating the SEC’s share repurchase rule for, among other things, failure to respond to petitioners’ comments (see this PubCo post) or even National Association of Manufacturers v. SEC, vacating the 2022 rescission of certain proxy advisor rules for arbitrarily and capriciously failing to provide an adequate explanation to justify its change (see this PubCo post). Justice Amy Coney Barrett dissented, joined by Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson, contending that the majority opinion “risks the ‘sort of unwarranted judicial examination of perceived procedural shortcomings’ that might ‘seriously interfere with that process prescribed by Congress.’” As characterized by Professor Nicholas Bagley of the University of Michigan Law School in Michigan Law, in its “broad strokes,” the dissent asserted that “courts shouldn’t be in the business of fly-specking lengthy notice-and-comment records,” especially with the benefit of hindsight. The question, he continued, “is whether the agency has behaved arbitrarily and capriciously, and that’s a pretty demanding standard.” With this decision, SCOTUS amplifies the increasingly powerful role of the judiciary in overseeing federal agencies, adding to the decisions this term seeking to rein in the administrative state.