Category: Litigation
Commissioner Crenshaw decries SEC action pulling the plug on defense of climate disclosure rules
As reported in this PubCo post, the SEC announced yesterday that it was ending its “defense of the rules requiring disclosure of climate-related risks and greenhouse gas emissions”—the climate disclosure rules. In response to that action, Commissioner Caroline Crenshaw issued this Statement Regarding Climate-Related Disclosures Rule Litigation: The Commission has Left the Building. She’s none too pleased with the SEC’s action—to put it mildly.
Surprise—not! SEC votes to terminate defense of climate disclosure rules
Today, the SEC announced that the Commissioners had voted to end the SEC’s “defense of the rules requiring disclosure of climate-related risks and greenhouse gas emissions”—the climate disclosure rules. As you probably know, a number of challenges to the climate disclosure rule were consolidated as State of Iowa v. SEC in the Eighth Circuit, where briefs in the case had been filed. Then, in February, Acting Chair Mark Uyeda issued a statement advising that he had requested that the Court presiding over the litigation not “schedule the case for argument” in order to allow time for the SEC to rethink its position. And here it is: according to Uyeda, “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
Delaware SB 21 signed into law
Controversial Delaware SB 21 was signed into law last evening after passage yesterday by the legislature. According to this Statement from the office of Delaware Governor Matt Meyer, the Governor has “signed Senate Bill 21 into law, thanking lawmakers for the swift passage of this critical update to Delaware’s corporate law, aimed at ensuring the state remains the premier home for U.S. and global businesses. The legislation, developed in collaboration with corporate leaders and legal experts, clarifies key governance structures to reinforce Delaware’s reputation for equitable, predictable, and efficient corporate oversight.” The law provides a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. It also addresses Delaware’s provisions related to books and records. (For a brief summary of the bill, see this PubCo post.) Notably, the legislature rejected five proposed amendments, including a proposed amendment discussed in this PubCo post, providing for an opt-in provision. The legislature also rejected a proposed amendment that would have eliminated the February 17 retroactive effective date.
Will an opt-in mechanism resolve the melee over Delaware’s controversial SB 21?
As widely reported, the Delaware legislature has responded to increasing chatter and speculation about the intentions of some companies—as well as action in some cases—to change their states of incorporation from Delaware to other states by proposing new legislation, Senate Bill 21. That proposed bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. (For a brief summary of the bill, see this PubCo post.) At this point, the bill has passed the State Senate and been reported out of the Judiciary Committee in the Delaware House. As you probably know, however, SB 21 has been quite contentious. Now, a group of 26 corporate law and governance professors from universities worldwide—apparently representing a broad spectrum of political opinion—have submitted a letter proposing a “pragmatic solution that simultaneously renders much of the debate moot and aligns with Delaware’s longstanding commitment to contractarianism: an opt-in mechanism.” An amendment providing for that opt-in has been introduced.
SEC approval now needed for formal orders of investigation
As discussed in this PubCo post, in February, Reuters reported that, under the new Administration, some SEC Enforcement staff have recently “been told that they will need to seek the Commission’s approval for all formal orders of investigation, which are required to issue subpoenas for testimony or documents,” marking a “change in procedure that could slow down investigations.” Previously, Reuters reported, authority to formally launch investigations had been delegated to Enforcement directors or other senior staff, including even supervising attorneys; during the first term of the current Administration, the “SEC required approval by its two enforcement [co-]directors to formally launch probes.” Now, that change in authority has been formalized: the SEC has amended its regulations to eliminate the delegation of authority to the Director of the Division of Enforcement to issue formal orders of investigation. That is, the SEC itself must approve these orders. The SEC release indicates that the amendment “is intended to increase effectiveness by more closely aligning the Commission’s use of its investigative resources with Commission priorities.”
SEC’s Investor Advisory Committee recommends SEC action on §11 liability after Slack. How likely is it?
In a meeting last year of the SEC’s Investor Advisory Committee, the Committee heard from a panel regarding the continued viability—or rather, lack thereof—of §11 liability following SCOTUS’s decision in Slack Technologies v. Pirani. Slack, as you know, limited §11 liability in direct listings—and, perhaps increasingly, in the context of other offerings as well—given the difficulty of tracing shares to the defective registration statement in direct listings, where both registered and preexisting unregistered shares may be sold at the same time. The presenting panel made a strong pitch for SEC intervention to facilitate tracing and restore §11 liability, ultimately advocating that the Committee make recommendations to the SEC to solve this problem. (See this PubCo post.) Two subcommittees have now crafted a recommendation, and at the recent meeting of the Committee on March 6, there was a brief discussion of that proposal. In the end, the Committee voted in favor of submitting the recommendation to the SEC, with one abstention and one negative vote. Recommendations from SEC advisory committees often hold some sway with the staff and the commissioners, so it’s worth paying attention to the outcome here. But will the new Administration be receptive to recommendations to facilitate the restoration of §11 liability? From the comments of Commissioner Hester Peirce, it doesn’t sound that way.
Sponsor of SB 21, controversial Delaware bill to amend corporate law, speaks out
In an exclusive interview with Law360, the Delaware legislator who was the primary sponsor of the proposed amendments to the Delaware General Corporation Law that have fueled so much debate recently discusses the thinking behind the proposed legislation. As discussed in this PubCo post, in response to much chatter and speculation about companies changing their states of incorporation from Delaware to other states—in other words, concerns about Delaware’s valuable corporate franchise—the Delaware legislature introduced a bill that, if adopted, would effect “sweeping changes” to Delaware’s corporate law. The bill would offer a process for boards to invoke safe harbor protection from litigation over potentially conflicted transactions for directors and controlling stockholders. The bill would also address Delaware’s provisions related to books and records. The impact could be fundamental. But there has been substantial pushback—some of which is quoted in the referenced post—from critics of the bill. In the Law360 interview, Delaware Senate Majority Leader Bryan Townsend defends the bill, citing the “‘urgency of the moment.’” In his analysis, “‘[w]hat seems to be happening here is growing frustration out there in the marketplace as to what people believe to be a departure in predictability’ in Delaware’s courts, ‘at a time when other states are standing up alternative frameworks that people are seriously considering.’” Check out the article!
Acting SEC Chair advocates “cost-effective regulations for every stage of a company’s lifecycle”
Yesterday, Acting SEC Chair Mark Uyeda delivered remarks to the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference focused on regulatory efforts affecting every stage of a company’s lifecycle. Setting the stage, Uyeda characterized his “first priority” as an effort to “return normalcy” to the SEC after the “stark aberration” of the immediately preceding Administration “from longstanding norms as to what the Commission has historically viewed its legal authority, policy priorities, and use of enforcement.” That means returning the SEC “to its narrow mission to facilitate capital formation, while protecting investors and maintaining fair, orderly, and efficient markets,” and creating “capital markets that facilitate the competitiveness and ingenuity of American industry.” And that effort begins with “enabl[ing] private companies to obtain more capital through cost-effective means,” “enabl[ing] more retail investors to place their capital into private companies,” regulatory actions to “help make IPOs attractive again,” and finally, revisiting the rules governing the disclosure obligations of public companies to reduce complexity and ensure that “smaller companies are not disproportionately burdened as they compete.” Given that Uyeda was previously counsel at the SEC to former Commissioner, now Chair nominee, Paul Atkins, I would guess that there’s a pretty good chance that his views on these topics are largely in sync with those of Atkins and, presumably, we can expect proposals on these topics in the new Administration.
SEC announces new Enforcement unit for cyber and emerging technologies
At the end of last week, the SEC announced the establishment of a new Cyber and Emerging Technologies Unit, designed to replace the current Crypto Assets and Cyber Unit and to complement the work of the newly established Crypto Task Force led by Commissioner Hester Peirce. (Here’s her new statement soliciting public feedback for the new Task Force.) The new CETU, which will be composed of approximately 30 fraud specialists and attorneys across multiple SEC offices, is likely to reflect something of a shift in approach to Enforcement in this area, focusing more on “combatting cyber-related misconduct and protect[ing] retail investors from bad actors in the emerging technologies space.” According to Acting Chair Mark Uyeda, “[i]mportantly, the new unit will also allow the SEC to deploy enforcement resources judiciously….The unit will not only protect investors but will also facilitate capital formation and market efficiency by clearing the way for innovation to grow. It will root out those seeking to misuse innovation to harm investors and diminish confidence in new technologies.”
Executive Order deletes “independent” from “independent regulatory agencies”
On Tuesday, the President signed a new Executive Order claiming that “independent” federal regulatory agencies, such as the SEC, shouldn’t really be so independent after all. Rather, the Order contends, they all should be operating under the President’s authority and supervision. According to the Administration’s fact sheet, these independent agencies need to be “reined in”: These “so-called independent agencies…have exercised enormous power over the American people without Presidential oversight.” They issue rules and regulations, the fact sheet contends, “that cost billions of dollars and implicate some of the most controversial policy matters, and they do so without the review of the democratically elected President. They also spend American tax dollars and set priorities without consulting the President, while setting their own performance standards. Now they will no longer impose rules on the American people without oversight or accountability.”
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