All posts by Cydney Posner

SEC posts proposal to harmonize private securities offering exemptions

As seems to be common practice these days, the SEC cancelled its open meeting scheduled for this morning and instead went ahead and posted its proposal to amend the rules to harmonize and simplify the framework for private securities offering exemptions. Here is the 341-page proposing release and the related press release. The proposal draws on input received in response to the SEC’s concept release issued in June of last year (see this PubCo post), which sought public comment on ways to  promote capital formation, to harmonize and streamline the patchwork universe of private placement exemptions and “to expand investment opportunities while maintaining appropriate investor protections.”  Currently, the framework has 10 different exemptions or safe harbors, with different sets of requirements. As SEC Chair Jay Clayton said in a 2018 speech, the current framework would not likely exist as it is if the SEC were starting with blank slate. The comment period will be open for 60 days.

SEC provides conditional relief related to coronavirus (COVID-19)

Last week, SEC officials suggested that the SEC might provide relief to address the impact of the coronavirus (see this PubCo post), and today, the SEC came through, issuing an order providing “conditional regulatory relief for certain publicly traded company filing obligations.” As SEC Chair Jay Clayton observed, the “health and safety of all participants in our markets is of paramount importance. While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within required timeframes.”  According to the order, a number of companies have advised the staff that the coronavirus “may present challenges in timely meeting certain of their obligations under the federal securities laws. These entities may include U.S. companies with significant operations in the affected areas, as well as companies located in those regions.” The SEC encourages companies to contact 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 streamlines financial disclosure requirements applicable to registered debt offerings

On Monday, without an open meeting, the SEC voted, with a dissent from Commissioner Allison Lee, to adopt final amendments to Rules 3-10 and 3-16 of Reg S-X.  Part of the SEC’s Disclosure Effectiveness Initiative, the amendments are designed to streamline and modernize the financial disclosure requirements applicable to registered debt offerings that involve guaranteed or collateralized securities, such as subsidiary guarantees.  According to the press release, the “changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis. The amended rules focus on the provision of material, relevant, and decision-useful information regarding guarantees and other credit enhancements, and eliminate prescriptive requirements that have imposed unnecessary burdens and incentivized issuers of securities with guarantees and other credit enhancements to offer and sell those securities on an unregistered basis.”  According to the SEC, by improving disclosure and reducing the compliance burden, the final amendments may encourage issuers “to offer guaranteed or collateralized securities on a registered basis, thereby affording investors protection they may not be provided in offerings conducted on an unregistered basis.” The rules will apply to several categories of issuers, including foreign private issuers, smaller reporting companies and issuers offering securities pursuant to Reg A. The changes were originally proposed in July 2018. (See this PubCo post.)    The amendments will become effective on January, 4, 2021, but voluntary compliance will be permitted in advance of the effective date. 

How do the largest fund families vote on shareholder proposals related to ESG?

In 2019, investor support for shareholder proposals related to environmental, social and governance matters reached a record average high of 29%, according to Morningstar. And that doesn’t take into account the number of climate-related proposals that were withdrawn after successful negotiation—a number that exceeded the number of climate proposals that actually went to a vote.  In this report, Morningstar analyzes the level of proxy voting support by 52 of the largest fund families for ESG-related shareholder proposals in 2019 and over the five years from 2015 to 2019. Although Morningstar finds substantial increases in average support over the last five years, five of the largest fund families, including BlackRock, voted against over 88% of ESG-related proposals, enough to prevent many of these proposals from achieving majority support.  But, in 2020, with BlackRock having joined Climate Action 100+— reportedly “the world’s largest group of investors by assets pressuring companies to act on climate change”—and having announced that it was putting “sustainability at the center of [BlackRock’s] investment approach,” the question is whether that voting strategy is about to change?

Coronavirus gives companies sourcing headaches

The spread of the devastating coronavirus has created alarm around the world, with the health and safety of the world’s populations obviously being the most important concern.  There has also been significant anxiety about the disruptive impact of the virus on the global economy—and the market has reacted to that anxiety. This special report from Dun & Bradstreet, “Business Impact of the Coronavirus,” may help companies preparing disclosures get a better handle on the effects. In addition to closure of factories, retail stores and hospitality venues, as well as cancellation of travel plans and quarantines (and resulting unavailability) of employees, the report indicates that companies may need to consider the disruptive effects of the coronavirus on both product demand and supply— the potential hit to consumer demand, especially in locked-down parts of China, and the interruption to supply chains for raw materials and components.

Cooley Alert: SEC Proposes to Modernize MD&A and Other Financial Disclosures

Check out our new Cooley Alert: SEC Proposes to Modernize MD&A and Other Financial Disclosures.  It’s a thrill from beginning to end and much more fun than watching the market these days. 

Law professors submit rulemaking petition to deter “short and distort”

A committee of law professors, led by John Coffee and Joshua Mitts, both of Columbia Law School, have submitted a petition for rulemaking with the rhythmic title, “Short and Distort,”  concerning the practice of “negative activism”: as they describe it, a negative activist “opens a large short position; disseminates sometimes aggressive negative opinion about a public company (often stopping just short of factual falsehoods)…, which induces a panic and run on the stock price; and rapidly closes that position for a profit, prior to the stock price partially or fully rebounding.”  In these scenarios, the short sellers do well, but the investing public—not so much.