Category: Securities
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.
EDGAR Next begins March 24
In this new press release, Filer Transition to New and Improved EDGAR Begins March 24, the SEC provides references and links to “extensive guidance and resources” available to assist filers with EDGAR Next. According to the press release, the new EDGAR Filer Management dashboard will go live on March 24 on the SEC’s website, and filers can begin enrolling in “EDGAR Next.” Enrollment in EDGAR Next will remain open until December 19, 2025; however, to avoid interruption, the SEC advises filers to enroll no later than September 12, 2025. Here is the EDGAR Next webpage.
Happy International Women’s Day tomorrow March 8!!
New CDIs related to M&A
Corp Fin has just posted some new CDIs related to M&A transactions, more specifically, a revised CDI related to Form S-4 and lock-up agreements and a new group of CDIs related primarily to material changes in tender offers. The CDIs are summarized below.
Are meme coins securities? Corp Fin says no
Last week, Corp Fin issued a new statement providing its views on whether “meme coins” were securities or, if offered and sold, involved securities transactions. Meme coins are more like collectibles, the staff explained, with “limited or no use or functionality.” What’s more, Corp Fin concluded, “transactions in the types of meme coins described in this statement[] do not involve the offer and sale of securities under the federal securities laws.” But application of the staff’s guidance here might be trickier than it may appear at first glance: a footnote indicates that Corp Fin’s “view is not dispositive of whether a specific meme coin itself is a security or whether it is offered and sold as part of an investment contract, which is a security. A definitive determination requires analyzing the specific facts relating to the meme coin and the manner in which it is offered and sold.” According to Commissioner Caroline Crenshaw in her response statement, the staff guidance provided “an incomplete, unsupported view of the law to suggest that an entire product category is outside the bounds of SEC jurisdiction.”
Note that the SEC has announced that its Crypto Task Force will host a series of roundtables to discuss key areas of interest in the regulation of crypto assets, with the first event beginning on March 21.
Corp Fin expands opportunities for nonpublic review of draft registration statements
Yesterday, the SEC announced that Corp Fin was “further facilitating capital formation by enhancing the accommodations available to companies for nonpublic review of draft registration statements.” You might recall that, in 2012, the JOBS Act permitted Emerging Growth Companies to initiate the IPO process by submitting their IPO registration statements confidentially to the SEC for nonpublic review by the SEC staff. The confidential process was intended to allow an EGC to defer the public disclosure of sensitive or competitive information until it was almost ready to market the offering—and potentially to avoid the public disclosure altogether if it ultimately decided not to proceed with the offering. The process was a hit, and, in 2017, Corp Fin extended that benefit to companies that were not EGCs, allowing them, for the first time, to submit confidential draft registration statements for IPOs, as well as for most offerings made in the first year after going public. The new enhanced accommodations, announced yesterday, will “expand the types of forms eligible to be submitted as draft registration statements for nonpublic review and permit reporting companies to submit draft registration statements for nonpublic review regardless of how much time has passed since their initial public offering. In addition, companies will have added flexibility to start the review process earlier by omitting certain underwriter disclosures from their initial submissions.” According to Cicely LaMothe, Acting Director of Corp Fin, “[o]ver the years, staff have observed companies seeking to raise capital are taking advantage of the nonpublic review process when available. Expanding these popular accommodations will provide new and existing companies greater flexibility to explore and plan public offerings….These enhanced accommodations will further support capital formation while retaining investor protections available to purchasers in public offerings.”
Cooley Alert: Policy updates regarding board diversity and proxy season considerations
How to deal with the issue of board diversity has become quite the conundrum. After the killing of George Floyd, many companies enhanced and championed their policies and commitments to DEI. But recent changes to the legal and political landscape—there’s an understatement for you—have had repercussions. Consider, for example, the collective impact of the Fifth Circuit decision vacating the SEC’s order approving Nasdaq’s board diversity rules (see this PubCo post), the 2023 decision by SCOTUS effectively ending affirmative action based on race in higher education admissions (with political, if not yet legal, spillover into the corporate world), the new Administration’s executive orders intended to put the kibosh on DEI programs altogether (which have been, and are likely to continue to be, mired in litigation, see this Cooley Alert), along with the increasing volume of anti-DEI activism and political pressure, manifested in part in litigation and anti-DEI shareholder proposals. (And see this article in The Atlantic about the implications of the absence of consensus on the meaning of “DEI.”) As discussed in this new Cooley Alert, Board Diversity: Policy Updates and Considerations for Proxy Season, from our Capital Markets group, this fraught and shifting environment has compelled some proxy advisors and institutional investors to craft dramatically revised policies on board diversity that companies will need to consider this proxy season. As the Alert highlights, “[c]ompanies will need to make decisions about proxy statement disclosures amid ongoing uncertainty… while balancing competing stakeholder priorities.” Not to mention, to the extent that companies are faced with recalibrating their corporate commitments related to board diversity and DEI generally, obvious concerns with retaining authenticity and adhering to company values.
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.”
Corp Fin does a one-eighty on shareholder proposals under Rule 14a-8
In June 2023, then-Commissioner Mark Uyeda (currently, Acting Chair) spoke to the Society for Corporate Governance 2023 National Conference on the topic of shareholder proposals under Rule 14a-8. Alluding to the frequent reversals in interpretations of Rule 14a-8, he said that “[r]elying on the Commission’s rules, or its staff’s positions in this area is akin to building a sand castle on the beach. Any rule or interpretation, no matter how recently adopted, is at risk of being erased by the next wave.” No matter that Uyeda is now at the helm, that “next wave” tradition is continuing with the issuance by Corp Fin last week of new Staff Legal Bulletin 14M, which rescinds the prior Administration’s interpretation in SLB 14L and does an about-face on interpretations of two Rule 14a-8 shareholder proposal exclusions. Turnabout is fair play? (See this Pubco post.) The new SLB revises Corp Fin’s views on the scope and application of Rule 14a-8(i)(5), the economic relevance exception, and Rule 14a-8(i)(7), the ordinary business exception. The effect of new SLB 14M is to reverse some of the interpretations of “economic relevance,” “micromanagement” and “significant social policy” imposed under now rescinded SLB 14L, which had reversed interpretations of those same issues by rescinding Clayton-era SLBs 14I, 14J and 14K. Got it? Grounding its revised approach in the historical antecedents of 1998 and earlier SEC releases—as did now rescinded SLB 14L—Corp Fin takes the position that, under new SLB 14M, “where relevant to the arguments raised to the staff by companies and proponents, the staff will consider whether a proposal is otherwise significantly related to a particular company’s business, in the case of Rule 14a-8(i)(5), or focuses on a significant policy issue that has a sufficient nexus to a particular company, in the case of Rule 14a-8(i)(7).” Moreover, the new approach will involve, as a “key factor in the analysis of shareholder proposals that raise significant policy issues,” a “‘case-by-case’ consideration of a particular company’s facts and circumstances.” Where SLB 14L made exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies, new SLB 14M is expected to provide a framework for exclusion of proposals that will likely be more accommodating for companies. Companies will certainly welcome the revamp.
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