Category: Securities

Fifth Circuit denies SEC request for more time to cure defects in share repurchase rule

You might recall that, on Halloween, the Fifth Circuit issued an opinion in Chamber of Commerce of the USA v. SEC, granting the Chamber’s petition for review of the Share Repurchase Disclosure Modernization rule. The Court held that the “SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to petitioners’ comments and failed to conduct a proper cost-benefit analysis.” However, recognizing that “there is at least a serious possibility that the agency will be able to substantiate its decision given an opportunity to do so,” the Court decided that, instead of vacating the rule, it would allow the SEC 30 days “to remedy the deficiencies in the rule,”  and remanded the matter with directions to the SEC to correct the defects in the rule.  The three-judge panel, however, “retain[ed] jurisdiction to consider the decision that is made on remand.” The deadline was set at November 30, 2023. On Wednesday before Thanksgiving, the SEC announced that it had issued an order postponing the effective date of the Share Repurchase Disclosure Modernization rule.  As a result, the rule was stayed pending further SEC action. (See this PubCo post.) Also on Wednesday, the SEC filed a brief motion asking the Court for an extension of time to correct the defects. Not surprisingly, the Chamber opposed the motion. On Sunday, the Court issued an Order, refusing to grant the extension. What’s next?

SEC postpones effective date of share repurchase rule

Today, the SEC announced that it had issued an order postponing the effective date of the Share Repurchase Disclosure Modernization rule.  As a result, the Rule is stayed pending further SEC action.  Why? You might recall that, on Halloween, the Fifth Circuit issued an opinion in Chamber of Commerce of the USA v. SEC, granting the Chamber’s petition for review of the final share repurchase rule and remanding to the SEC “to correct the defects” that the Court had identified.   The deadline was set at November 30, 2023.  Under the Administrative Procedure Act, the SEC observed, an agency may “postpone the effective date of action taken by it” pending judicial review when it finds that “justice so requires.”   According to the SEC, in light of the Fifth Circuit’s decision, the SEC found that it was “consistent with what justice requires to stay the effectiveness of the Repurchase Rule pending further Commission action.” Will the SEC ultimately repair the defects to the satisfaction of the Court? Will the Court ultimately vacate the rule? That all remains to be seen.

Happy Thanksgiving!

Corp Fin releases more new CDIs on pay versus performance

Yesterday, Corp Fin released yet another group of new and revised CDIs, these relating to pay-versus-performance disclosure. (See this PubCo post.) Several of the new CDIs address issues regarding peer groups and some provide advice about handling transitions in company status. A couple of the CDIs revise responses that Corp Fin provided in the February and October PVP CDIs. Summaries are below, but each CDI number is linked to the CDI on the SEC website, so you can easily read the version in full.

Happy Thanksgiving!

More new CDIs from Corp Fin

On the heels of the release of new proxy-related CDIs on Friday come another set of new CDIs from Corp Fin, released yesterday. The new CDIs, summarized below, relate to Securities Act Rules 456 and 457 (regarding completing the filing fee table), and Item 601 of Reg S-K and interactive data (regarding XBRL/inline XBRL exhibits).  Will Corp Fin trickle out some more new CDIs tomorrow?  Summaries are below, but each CDI number below is linked to the CDI on the SEC website, so you can easily read the version in full. Happy Thanksgiving!

Corp Fin issues new CDIs regarding the proxy rules

On Friday, Corp Fin released some new CDIs, summarized below, relating to the proxy rules. The CDIs can all be found under the caption Proxy Rules and Schedule 14A, and all are new with one exception for a newly revised CDI under Rule 14a-6. Universal proxy is once again a hot topic, and there are three new CDIs on universal proxy to add to your collection. (You might recall that Corp Fin issued new CDIs on universal proxy in August and December last year.   See this PubCo post and this PubCo post.) Summaries are below, but each CDI number below is linked to the CDI on the SEC website, so you can easily read the version in full. 

SEC reports Enforcement stats for fiscal 2023 —with big contributions from whistleblowers

The SEC has announced its Enforcement stats for fiscal 2023, which revealed that the SEC filed 784 total enforcement actions, up 3% from the 760 filed in fiscal 2022.  However, the level of financial remedies declined in fiscal 2023 to $4.9 billion from a record $6.4 billion last year. Nevertheless, it was still the second highest amount in SEC history. (Of course, you might recall that Gurbir S. Grewal, Director of the Division of Enforcement, said last year that the SEC didn’t expect to break last year’s records and set new ones every year because they “expect behaviors to change. We expect compliance.”)  Of those financial recoveries, in fiscal 2023, the SEC distributed $930 million to harmed investors, representing the second consecutive year of distributions in excess of $900 million. But the standout statistics this year related to the SEC’s whistleblower program, where new records were set with whistleblower awards totaling almost $600 million, and 18,000 whistleblower tips in fiscal 2023, about 50% more tips than were received in fiscal 2022. A new record was also set with a $279 million award to one whistleblower. Overall, in fiscal 2023, the SEC received over “40,000 tips, complaints, and referrals in total,” a 13% increase over last year. According to SEC Chair Gary Gensler, the “investing public benefits from the Division of Enforcement’s work as a cop on the beat….Last fiscal year’s results demonstrate yet again the Division’s effectiveness—working alongside colleagues throughout the agency—in following the facts and the law wherever they lead to hold wrongdoers accountable.” Grewal added that “[i]nvestor protection and enhancing public trust in our markets requires that we work with a sense of urgency, using all the tools in our toolkit. As today’s results make clear, that’s precisely what the Enforcement Division did in fiscal year 2023….Whether it was by leveraging risk-based initiatives, seeking robust remedies, rewarding cooperation, protecting whistleblowers, or returning nearly a billion dollars to harmed investors, the Enforcement Division stood up for the investing public.”

SEC charges Charter Communications with controls violation related to 10b5-1 plans for company buybacks

Yesterday, the SEC announced a settled action against Charter Communications for “violating internal accounting controls requirements when it engaged in stock buybacks not authorized by its board of directors.” More specifically, the Board had authorized the company to conduct stock buybacks using Rule 10b5-1 plans, but the SEC contended that Charter’s plans contained a provision that permitted too much discretion—allowing Charter to “change the total dollar amounts available to buy back stock and to change the timing of buybacks after the plans took effect.”  As a result, the SEC concluded, the plans did not satisfy Rule 10b5-1. But this was not a case about insider trading. Rather, the SEC charged, because the plans did not satisfy Rule 10b5-1, the buybacks were effectively unauthorized. And that was a problem of ineffective internal accounting controls (which, the SEC maintained, aren’t necessarily just about accounting). According to Melissa Hodgman, Associate Director of Enforcement, “[c]ompanies whose boards authorize buybacks using Rule 10b5-1 plans must have controls that reasonably assure that their trading plans meet all of the rule’s conditions….This includes the fundamental requirement that, to benefit from the protection of Rule 10b5-1, traders have to relinquish their ability to influence the amount or timing of trades after their trading plans go into effect.” Charter agreed to pay a civil penalty of $25 million. Commissioners Hester Peirce and Mark Uyeda dissented.  

Some highlights of the 2023 PLI Securities Regulation Institute

This year’s PLI Securities Regulation Institute was a source for a lot of useful information and interesting perspectives. Panelists discussed a variety of topics, including climate disclosure (although no one shared any insights into the timing of the SEC’s final rules), proxy season issues, accounting issues, ESG and anti-ESG, and some of the most recent SEC rulemakings, such as pay versus performance, cybersecurity, buybacks and 10b5-1 plans. Some of the panels focused on these recent rulemakings echoed concerns expressed last year about the difficulty and complexity of implementation of these new rules, only this time, we also heard a few panelists questioning the rationale and effectiveness of these new mandates. What was the purpose of all this complication? Was it addressing real problems or just theoretical ones? Are investors really taking the disclosure into account? Is it all for naught?  Pay versus performance, for example, was described as “a lot of work,” but, according to one of the program co-chairs, in terms of its impact, a “nothingburger.”  (Was “nothingburger” the word of the week?) Aside from the agita over the need to implement the volume of complex rules, a key theme seemed to be the importance of controls and process—the need to have them, follow them and document that you followed them—as well as an intensified focus on cross-functional teams and avoiding silos. In addition, geopolitical uncertainty seems to be affecting just about everything. (For Commissioner Mark Uyeda’s perspective on the rulemaking process presented in his remarks before the Institute, see this PubCo post.) Below are just some of the takeaways, in no particular order.

Commissioner Uyeda has some suggestions about the rulemaking process

In remarks this week before PLI’s 55th Annual Institute on Securities Regulation, SEC Commissioner Mark Uyeda shared his views about the disclosure rulemaking process. He observed that, since becoming a commissioner 16 months ago, the SEC has adopted five major disclosure rules—pay versus performance, clawbacks, amendments to rule 10b5-1, share repurchases and cybersecurity—and has identified four more that are in the works.  He focused on four key issues: determining purpose, the need for re-proposals, scaling disclosure and considering rulemaking costs and burdens on a cumulative basis. As you might guess, Uyeda had some thoughtful criticisms of the rulemaking process and offered some potential remedies.

New Corp Fin intake system for no-action requests related to shareholder proposals

Corp Fin has announced a new intake system for requests from companies for no-action positions from the staff regarding companies’ intentions to exclude shareholder proposals under Rule 14a-8. In the announcement, Corp Fin indicates that Rule 14a-8 submissions and related correspondence must now be submitted using Corp Fin’s online shareholder proposal form, available at https://www.sec.gov/forms/shareholder-proposal, and that emailed materials will no longer be accepted. The announcement—and the form itself—emphasize that staff responses to these requests are only “informal, non-binding staff views” regarding exclusion of shareholder proposals.