SEC’s Small Business Advisory Committee hears glimmers of positive news about the IPO market
Recently, at a meeting of the SEC’s Small Business Advisory Committee, a panel provided an update on the state of play of the IPO market. While IPO activity—traditional IPOs, SPACs and direct listings—was off-the-charts in the second half of 2020 and throughout 2021, geopolitical upheavals, market volatility, inflationary pressure, economic uncertainty and fears of recession have put a dent in the data. Quite a dent—the number of equity capital markets offerings has decreased 73% compared to a year ago, according to one of the panelists. But does that mean the IPO market is broken? Not at all. Despite the recent relatively moribund market, companies are continuing to prepare for IPOs and submit confidential filings to the SEC with the intent of going forward when an opening is in sight. As one of the two panelists observed, “despite the 2022 IPO drought, the pipeline for companies looking to access the public markets at some point in the future remains strong.” According to SEC Chair Gary Gensler’s statement at the meeting, “naturally, the number of IPOs ebbs and flows over the course of different economic and market cycles. We are living in one of those transitional times right now, shaped by economic uncertainty relating to the war in Ukraine, the pandemic, and central banks shifting from an accommodating to a tightening policy stance. What I am most interested in is the advice you might have for the long-term regarding traditional IPOs, Special Purpose Acquisition Companies (SPACs), and direct listings.” And he did hear some of that advice, albeit preliminarily, from the Committee.
Final climate rules are months away, reports Bloomberg
Here’s a big scoop from Bloomberg: the “SEC is months away from finalizing expansive new climate disclosure requirements as the agency juggles investor demands for more transparency, tech glitches and a tough Republican legal threat.” Are you really surprised though? That was a substantial, complex undertaking that elicited thousands of comments and a lot of pressure from opponents and proponents. Then, in July, came another challenge, as SCOTUS handed down West Virginia v EPA, which, although not directly addressing the SEC’s climate proposal, sure seemed to put a bull’s eye on it. (See this PubCo post.) Not to mention the SEC’s technical glitch, which led to a reopening of the comment period for a couple of weeks until November 1. (See this PubCo post.) That alone would have been enough to smoke the October target date set in the most recent SEC agenda. (See this PubCo post.) But what is real timeframe? Well, who knows. According to Bloomberg, SEC Chair Gary “Gensler has declined to give a timeline for finishing the climate regulations in recent public appearances, repeatedly pointing to thousands of comments that still need to be reviewed.” Bloomberg also reports that SEC “officials in private conversations have given no indication they’ll finish the rules this year, according to several people in contact with the agency.”
Are auditors falling down on the job of detecting fraud?
Paul Munter, the SEC’s Acting Chief Accountant, seems to think so. In this Statement, Munter expresses his concern that, in conducting audits, auditors are not adequately making use of the “fraud lens”—a focus on the consideration of fraud in the audit—in fulfilling their gatekeeper role. That is, auditors may not be adequately responding to fraud risks and red flags or otherwise exercising “professional skepticism.” It is critical, he said, that auditors evaluate whether the audit has surfaced information that may be indicative of fraud and “how fraud could be perpetrated or concealed by management.” Are auditors exhibiting a type of bias, focusing risk assessments on risks of error and essentially overlooking or minimizing risks of fraud? In light of Munter’s statement, companies could well find that their auditors may be doubling down on their application of professional skepticism. What’s more, some of Munter’s recommendations may prove useful for companies in establishing their own ethics environments and conducting their own fraud risk assessments.
Jon Stewart interviews SEC Chair Gary Gensler—an acronym bonanza?
Here’s an unexpected pair: Jon Stewart interviewing SEC Chair Gary Gensler on his podcast, The Problem with Jon Stewart. In many ways, the interview was remarkably financially sophisticated, with acronyms like “PFOF” tossed around pretty casually, not to mention “naked shorts,” “best execution,” “dark pools” and “lit markets.” Somebody definitely did his homework.
Is there an “ESG backlash” among CFOs?
While a recent survey of CEOs (discussed in this PubCo post yesterday) showed increasingly favorable reactions to ESG and its potential impact—transforming ESG “from a nice-to-have to integral to long-term financial success”— what about CFOs? According to this survey of CFOs from CNBC, they’re just not all that into it. Granted, this survey of CFOs was minuscule compared to the KPMG survey of CEOs—actually, compared to any survey. But the results were strikingly different. CNBC labeled it an “ESG backlash.”
How do CEOs view ESG?
KPMG has recently posted its 2022 CEO Outlook. With inflation raging and a possible recession looming, KPMG found that CEOs were “ready and prepared to weather current geopolitical and economic challenges while still anticipating long-term global growth.” According to the survey, confidence in economic growth over the next three years has risen to 71%. Of particular interest were the survey results related to ESG. According to KPMG, “ESG has gone from a nice-to-have to integral to long-term financial success.” But will a potential recession curtail their enthusiasm?
Corp Fin issues new Section 16 and Section 13 CDIs related to ETFs
Corp Fin has issued a few new CDIs—two relating to Section 16 and one relating to beneficial ownership under Rule 13d-3. The new CDIs address issues in connection with exchange-traded funds, or ETFs, and the use of “informational barriers.”
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 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 SEC.gov 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.