Category: Securities
SEC approves NYSE proposal to limit the use of reverse stock splits to regain compliance with price criteria
In October last year, the NYSE proposed, like Nasdaq, to take on the challenge of repeated reverse stock splits by limiting the circumstances under which a listed company could use a reverse stock split to regain compliance with the minimum price criteria. The NYSE subsequently filed a couple of amendments to the proposal, and, while comments are still being solicited, the SEC has now approved the proposed rule change, as modified by Amendment No. 2, on an accelerated basis.
SEC approves Nasdaq proposal modifying minimum bid price compliance periods
In August 2024, Nasdaq submitted a new rule proposal aimed at accelerating the delisting process for companies with shares that trade below $1. Briefly, under the proposal, a company that was non-compliant with the $1 minimum bid price requirement and did not regain compliance after two 180-day compliance periods would be suspended from trading on Nasdaq. In addition, any company that has effected a reverse stock split within the prior one-year period but becomes non-compliant with the $1 minimum bid price requirement would immediately be sent a Delisting Determination without any compliance period. (See this PubCo post.) Last week, the SEC approved the proposal.
Commissioner Mark Uyeda designated as acting SEC Chair
The SEC has announced that Commissioner Mark T. Uyeda has been designated Acting Chair of the SEC. As you know, Paul Atkins has been nominated to serve as Chair, following his confirmation by the Senate. Uyeda said that he is “honored to serve in this capacity after serving as a Commissioner since 2022, and a member of the staff since 2006….I have great respect for the knowledge, expertise, and experience of the agency and its people. The SEC has a vital mission—protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—that plays a key role in promoting innovation, jobs creation, and the American Dream.”
SEC charges Celsius Holdings with improper accounting for stock awards and disclosure control failures
In this settled action—part of a slew of SEC Enforcement cases reported out in the last days before the change in Administration—the SEC alleged that Celsius Holdings, Inc. engaged in improper accounting for stock-based compensation expenses when the company modified the terms of stock awards for six departing employees and retiring board members, but failed to re-value them as required under GAAP. As a result, the SEC alleged, in periodic and current reports, Celsius’ financial statements were materially inaccurate and misleading. The SEC charged that Celsius violated the reporting, books and records, internal accounting controls and disclosure controls and procedures provisions. Celsius has agreed to pay $3 million to settle the charges.
SEC files complaint against Elon Musk alleging violation of Section 13(d)
On Tuesday, the SEC filed a complaint in the D.C. federal district court alleging that Elon Musk ignored the Section 13(d) beneficial ownership reporting deadline when, in March 2022, he acquired more than 5% of outstanding Twitter shares. Because Musk failed to timely file the report with the SEC, the SEC alleged, he was able to continue to make purchases of Twitter common stock at artificially low prices, allowing him to underpay for the shares by at least $150 million Hmmm. Think this case will be pursued after the SEC comes under new management?
McMahon takes a bump
On Friday, the SEC announced settled charges against Vince McMahon, founder, controlling shareholder and former Executive Chair and CEO of World Wrestling Entertainment, for “knowingly circumventing WWE’s internal accounting controls,” making false or misleading statements to WWE’s auditor, and causing “WWE’s violations of the reporting and books and records provisions of the Exchange Act.” The SEC alleged that McMahon signed two settlement agreements relating to claims of sexual misconduct (as the WSJ framed it), one in 2019 and one in 2022, on behalf of himself and WWE but failed to disclose the existence of the agreements to “WWE’s Board of Directors, legal department, accountants, financial reporting personnel, or auditor.” Oops. The SEC charged that this omission “circumvented WWE’s system of internal accounting controls and caused material misstatements in WWE’s 2018 and 2021 financial statements,” leading WWE ultimately to issue financial restatements. McMahon agreed to pay a $400,000 civil penalty and to reimburse WWE just over $1.3 million pursuant to SOX 304(a), the SOX clawback provision. According to the Associate Regional Director in the SEC’s New York Regional Office, “[c]ompany executives cannot enter into material agreements on behalf of the company they serve and withhold that information from the company’s control functions and auditor.” (Even if—or maybe especially if—it involves hush money.)
SEC charges Entergy with violation of internal accounting controls requirements
At the end of last year, the SEC announced settled charges against Entergy Corporation, a Louisiana-based utility company with shares traded on the NYSE, for failure to maintain internal accounting controls adequate to ensure that its surplus materials and supplies were accurately recorded on its books and financial statements in accordance with GAAP. The case represents yet another example where the charged misconduct related only to ineffective controls, without any associated charges of fraud. According to Sanjay Wadhwa, Acting SEC Enforcement Director, “internal accounting controls serve as a front-line defense in ensuring the accuracy and reliability of financial statements….Investors rely on public companies, such as Entergy, to ensure that adequate internal accounting controls are in place. We allege that Entergy failed to fulfill its obligation in this regard.” Entergy agreed to pay a civil penalty of $12 million. Rumor has it that we’re likely not going to see a lot more of these “controls-only” types of Enforcement actions once the SEC comes under new management.
Cooley Alert—Climate and Sustainability Regulations: 2024 End-of-Year Review
Just because we’re highly likely to see a monkey wrench thrown into the current SEC’s efforts to adopt regulations on climate and sustainability (see this PubCo post and this PubCo post) doesn’t mean that we won’t be seeing a lot of activity in connection with state and international ESG requirements, along with voluntary reporting standards and various stakeholder policies, that will affect many US and other companies in this new year. This new Cooley Alert, Climate and Sustainability Regulations: 2024 End-of-Year Review, from our Public Companies and ESG and Sustainability Advisory groups, provides a rundown of developments regarding current key climate and sustainability regulations, such as the California climate statutes and the EU’s Corporate Sustainability Reporting Directive, and the scoop on significant stakeholder developments as of the end of 2024. The Alert also highlights “critical areas of focus for the year ahead.” If your company may be subject to any climate or sustainability frameworks—whether mandatory or voluntary—this is a comprehensive Cooley Alert that you need to read!
What might the FASB be looking at for 2025?
In the last couple of months of 2024, the FASB issued some “invitations to comment” intended to allow FASB stakeholders to express their views on whether or not the FASB should pursue the projects identified. It could well turn out that these ITCs offer a preview of topics that the FASB might be taking up in 2025. What’s more, two of these projects have the potential to be somewhat contentious: accounting for intangibles, such as brand recognition, copyrights, patents, trademarks, trade names, customer relationships and customer lists, and key performance indicators. In an interview with the WSJ, FASB Chair Rich Jones observed that “[y]ou’re seeing us really explore what, depending on the direction those projects take, could be a very significant shift in financial reporting.”