The Deal Professor speaks up for SPACs
SPACs have certainly presented a well-lighted pathway for hundreds of companies to reach the public markets this past year or so. In testimony before a House subcommittee in May, SEC Chair Gary Gensler observed that we are “witnessing an unprecedented surge” in SPACs: so far in 2021, the SEC has received 700 S-1 SPAC filings, and 300 of these “blank-check IPOs” have been completed so far this year, compared to just 13 in all of 2016. Most recently, SPACs have been the target of extensive criticism, both from the SEC and outside commentators. However, in this DealBook column in the NYT, In Defense of SPACs, the Deal Professor suggests that the animus underlying much of this criticism is misguided; these “complex takeover vehicles serve an important purpose that’s worth protecting,” he contends. What is that purpose? As has long been lamented, the lane for smaller, earlier-stage companies to go public has substantially narrowed over a number of years. SPACs, he contends, have not just offered an alternative pathway to public company status—they have “single-handedly revived” the IPO market for these smaller, younger—and yes, sometimes riskier—companies to go public.
EDGAR closed to commemorate Juneteenth
The SEC has announced that EDGAR will be closed on Friday, June 18, 2021, in observance of Juneteenth National Independence Day. That means that, on June 18, 2021, EDGAR will not be operational, filings will not be accepted on EDGAR and EDGAR Filer Support will be closed. Reuters is also reporting that the SEC will close its offices on Friday in observance of Juneteenth.
WSJ reports that SEC is investigating potential violations by former PCAOB Chair Duhnke
On June 4, the SEC announced that it had “removed” William D. Duhnke III from the PCAOB and designated Duane M. DesParte to serve as Acting Chair. Duhnke had been serving as Chair since January 2018. In the press release, SEC Chair Gary Gensler said that the “PCAOB has an opportunity to live up to Congress’s vision in the Sarbanes-Oxley Act….I look forward to working with my fellow commissioners, Acting Chair DesParte, and the staff of the PCAOB to set it on a path to better protect investors by ensuring that public company audits are informative, accurate, and independent.” (See this PubCo post.) In response to a question about Duhnke’s removal at the WSJ’s CFO Network Summit earlier this month, Gensler said only that the PCAOB plays an integral role in the audit process and that he didn’t think that it was living up to its potential as a standard-setter or in its enforcement role. (See this PubCo post.) According to Bloomberg, Representative Patrick McHenry, the top Republican on the House Financial Services Committee, has said he’s opening an investigation into the firing of Duhnke. The WSJ is now reporting exclusively that the SEC is conducting an investigation into whether Duhnke “violated any rules in his handling of internal complaints” at the PCAOB.
SEC charges company with disclosure controls violation as a result of cybersecurity failure
Once again, a “control failure” is a lever used by SEC Enforcement to bring charges against a company, this time for failure to timely disclose a cybersecurity vulnerability. Yesterday, the SEC announced settled charges against a real estate settlement services company, First American Financial Corporation, for violation of the requirement to maintain adequate disclosure controls and procedures “related to a cybersecurity vulnerability that exposed sensitive customer information.” This action follows charges regarding control violations against GE (see this PubCo post), HP, Inc. (see this PubCo post) and Andeavor (see this PubCo post) where, instead of attempting to make a case about funny accounting or, in Andeavor, a defective 10b5-1 plan, the SEC opted to make its point by, among other things, charging failure to maintain and comply with internal accounting controls or disclosure controls and procedures. Companies may want to take note that charges related to violations of the rules regarding internal controls and disclosure controls seem to be increasingly part of the SEC’s Enforcement playbook, making it worthwhile for companies to make sure that their controls are in good working order. Perhaps we should pirate the Matt Levine mantra, “everything is securities fraud” (see this PubCo post): how ’bout “everything is also a control failure”?
Peirce and Roisman object to SEC’s new agenda
Even the SEC’s new Reg Flex Agenda (which reflect the priorities of the SEC Chair) has now elicited a “dissent” from the two SEC Commissioners on the other side of the political aisle. In this statement, posted yesterday, Commissioners Hester Peirce and Elad Roisman lambast the new Spring 2021 Agenda for “the regrettable decision to spend our scarce resources to undo a number of rules the Commission just adopted.” While the Agenda contains several “important and timely items”—which they identify as rules related to transfer agents and government securities alternative trading systems—the absence of other items was notable, including important rulemakings that would “provide clarity for digital assets, allow companies to compensate gig workers with equity, and revisit proxy plumbing.” (Of course, two of those rulemakings were not entirely absent, but have instead been moved to the long-term agenda. See this PubCo post.) Perhaps, they suggest, too much attention to undoing existing rules rather than creating new ones?
SEC appoints new Director of Corp Fin
Today, the SEC announced that Renee Jones has been appointed as the new Director of Corp Fin, replacing Acting Corp Fin Director John Coates, who will become SEC General Counsel. Both appointments are effective June 21, 2021.
Lots to see on the SEC’s Spring 2021 Reg Flex Agenda
Late Friday, the SEC announced that its Spring 2021 Regulatory Flexibility Agenda—both short-term and long-term—has now been posted. And it’s a doozy. According to SEC Chair Gary Gensler, to meet the SEC’s “mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, the SEC has a lot of regulatory work ahead of us.” That’s certainly an understatement. While former SEC Chair Jay Clayton considered the short-term agenda to signify rulemakings that the SEC actually planned to pursue in the following 12 months, Gensler may be operating under a different clock. What stands out here are plans for disclosure on climate and human capital (including diversity), cybersecurity risk disclosure, Rule 10b5-1, universal proxy and SPACs. In addition, with a new sheriff in town, some of the SEC’s more recent controversial rulemakings of the last year or so may be revisited, such as Rule 14a-8. The agenda also identifies a few topics that are still just at the pre-rule stage—i.e., just a twinkle in someone’s eye—such as gamification (behavioral prompts, predictive analytics and differential marketing) and exempt offerings (updating the financial thresholds in the accredited investor definition and amendments to the integration framework). Notably, political spending disclosure is not expressly identified on the agenda, nor is there a reference to a comprehensive ESG disclosure framework (see this PubCo post). Below is a selection from the agenda.
Lee agrees on easing cost of ESG compliance
How often does this happen? SEC Commissioners Allison Lee (D) and Elad Roisman (R) on the same page? Ok, well, maybe they’re just on the same fragment of a sentence, but still…. Bloomberg is reporting that, at the WSJ’s CFO Network Summit, Lee expressed her view that companies’ compliance with any new SEC disclosure requirements on ESG should not be subject to “gotcha” enforcement, instead indicating that companies will be cut plenty of slack in experimenting with any new ESG rules that the SEC may adopt. She also offered several suggestions that, interestingly, were quite consistent with suggestions made last week by Roisman to mitigate the cost of compliance.
Gensler also wants to “freshen up” equity market rules
Not only does he want to “freshen up” Rule 10b5-1 (see this PubCo post), SEC Chair Gary Gensler has the same prescription for the rules governing the equity markets. In remarks yesterday at the Global Exchange and FinTech Conference, Gensler observed that “technology has changed how market makers interact, how trading platforms compete, how investors access those markets, and the economic incentives amongst these various market participants.” For example, a few years ago, retail investors weren’t even trading on commission-free brokerage apps. But the rules governing markets were “mostly adopted 16 years ago” and “do not fully reflect today’s technology.” Gensler believes that “it’s appropriate to look at ways to freshen up the SEC’s rules to ensure that our equity markets reflect our mission: to maintain fair, orderly, and efficient markets, while ensuring we protect investors and facilitate capital formation.” Gensler focused his remarks on segmentation and concentration in the equity markets, as well as two fairly recent developments: the rise of payment for order flow (and the related issue of best execution) and gamification. This is clearly an area in Gensler’s sweet spot—having conducted research and taught classes on the intersection of finance and technology—and his remarks were of interest even for those of us who do not typically focus on market structure issues.
New survey: diversity on Fortune 100 and Fortune 500 boards
Audit firm Deloitte and the Alliance for Board Diversity have just released the Missing Pieces Report: The Board Diversity Census of Women and Minorities on Fortune 500 Boards, a study examining the representation of women and racial/ethnic minorities (including Black, Asian/Pacific Islander and Hispanic persons) on public company boards among the Fortune 100 and Fortune 500 companies. The analysis of the Fortune 100 began in 2004 and the Fortune 500 in 2010, based on public filings reviewed through the end of June 2020. The Report finds that the rate of change has been quite slow, espcially for some demographic groups. It remains to be seen whether the social unrest roiling the U.S. body politic—which has brought systemic racial inequity and injustice, exacerbated by the pandemic, into sharp focus—together with actions to mandate or encourage board diversity, such as California’s AB 979 or, if approved, the Nasdaq board diversity proposal, will accelerate the rate of change evidenced in the Report.
You must be logged in to post a comment.