Category: Securities
JOBS Act 3.0?
Will there be a JOBS Act 3.0? The JOBS and Investor Confidence Act of 2018 just passed the House by a vote of 406 to 4, so, even though Senators may often be chary of jumping on the House bandwagon—remember the doomed Financial Choice Act of 2016 and then 2017— the overwhelming and bipartisan approval in the House still makes the odds look better than usual.
SEC votes to amend Rule 701(e) and to issue concept release regarding Rule 701 and Form S-8
Just under the wire to satisfy a Congressional mandate, the SEC today voted unanimously to adopt an amendment to Rule 701(e) to raise the threshold that triggers the requirement for delivery of additional disclosure to investors. The Commissioners also voted to issue a concept release soliciting comment on potential revisions to modernize Rule 701 and Form S-8, as Chair Jay Clayton observed, in light of “developments and innovations in labor markets and compensation practices.” The amendment to Rule 701(e) will become effective immediately on publication in the Federal Register. Companies that “have commenced an offering in the current 12-month period will be able to apply the new $10 million disclosure threshold immediately upon effectiveness of the amendment.” Here is the press release, here are the final rules, and here is the concept release.
So long to mandatory universal proxy?
In this Reuters article, the author delivers the scoop that the SEC has shelved its 2016 proposal to mandate the use of universal proxy cards in contested elections of directors. In case you were thinking that anything from 2016 was probably old and cold anyway, keep in mind that the just-adopted rules changing the definition of “smaller reporting company” were proposed back in 2016. (See this PubCo post.) In fact, the proposed rule mandating the use of universal proxies was still on the SEC’s Spring 2018 agenda for long-term actions, and Reuters reports that “SEC officials have said publicly in recent months that the proposed rule-change remains a priority.” However, “several people familiar with the matter” have now advised Reuters that SEC Chair Jay Clayton “has in fact shelved the proposal.”
SEC Enforcement settles action about perks disclosure
This SEC Order, In the Matter of The Dow Chemical Company, is a great refresher—at Dow’s expense, unfortunately for Dow—on the analysis required to determine whether or not certain expenses and benefits are perquisites or personal benefits that must be disclosed in the Summary Comp Table in the proxy statement. As you probably know, the analysis for determining whether an item is a disclosable “perk” can be very tricky to apply, especially when it involves the use of corporate jets by executives and their friends and families. The SEC claims that Dow applied the wrong standard altogether in its analysis, failing to disclose over a five-year period $3M in CEO perks and understating the CEO’s disclosed perks by an average of 59%. Dow settled the charges for a fine of $1.75M and also undertook to engage an independent consultant that would perform a review of Dow’s policies, procedures and controls and conduct training related to the determination of perks.
Groups take aim—from opposite directions—at shareholder proposals
New groups have recently been formed to take aim at the shareholder proposal process—its use by proponents and its implementation by Corp Fin—from both the right and the left ends of the political spectrum. In one case, the coalition formed is seeking to head off the recent surge of support by various institutional holders of shareholder proposals for environmental, social or governance disclosure or actions. For example, last year, proposals to enhance disclosures regarding climate change won majority votes at three major companies, in large part as a result of support from mammoth asset managers such as BlackRock and Vanguard, and two climate change proposals won majority support this year. It’s also been reported that nine ESG proposals were successful in winning majority votes this year. (See, e.g., this PubCo post.) On the other side is a group that is seeking to reform the shareholder proposal process to reverse a turn, as perceived by the group, by Corp Fin toward exclusion of more shareholder proposals related to ESG issues.
GAO issues annual report on conflict minerals filings in 2017
Under Dodd-Frank, the GAO is required to assess annually the effectiveness of the SEC’s conflict minerals rules in promoting peace and security and to report on the rate of sexual violence in the DRC and adjoining countries. The GAO has released its annual study on conflict mineral disclosures filed with the SEC in 2017. The report is based on a random sample of 100 Forms SD, interviews with company representatives and other stakeholders.
Right after celebrating its second birthday, proposal to change the definition of “smaller reporting company” is adopted (updated)
[This post has been updated to reflect the adopting release, which has now been posted here, as well as posted statements from the Commissioners.] The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, the proposal has just celebrated its second birthday—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
SEC proposes changes to its whistleblower program
Yesterday, the SEC voted (by a vote of three to two) to propose amendments to the rules related to its whistleblower program. According to Chair Clayton, the program has been a resounding success in providing incentives to individuals to blow the whistle on wrongdoing. The press release reports that “[o]riginal information provided by whistleblowers has led to enforcement actions in which the Commission has ordered over $1.4 billion in financial remedies, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been, or is scheduled to be, returned to harmed investors.” The proposal is intended to improve the program by increasing efficiencies and providing more tools and more flexibility to the SEC, enabling the SEC to adjust, within certain limitations, the amounts payable as awards under the program. The amendments also modify the requirements for anti-retaliation protection to conform to SCOTUS’s recent decision in Digital Realty v. Somers (see this PubCo post).
SEC adopts mandatory Inline XBRL
This morning, the SEC voted (by a vote of four to one) to adopt rules mandating the use of Inline XBRL (eXtensible Business Reporting Language) for the submission of financial statement information for operating companies. The rulemaking is part of the SEC’s disclosure modernization initiative. For the most part, the Commissioners showed a lot more enthusiasm for this proposal than for the changes to the definition of “smaller reporting company” also adopted earlier today. (See this PubCo post.)
On its second birthday, proposal to change the definition of “smaller reporting company” is adopted
The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, today is the second birthday for this proposal—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
This morning, the SEC unanimously voted to amend the definition of “smaller reporting company” to allow more companies to take advantage of the scaled disclosures permitted for companies that meet the definition. (Here is the press release.) The amendments raise the SRC cap from “less than $75 million” in public float to “less than $250 million” and include as SRCs companies with less than $100 million in annual revenues if they also have either no public float or, in a change from the proposal, a public float that is less than $700 million. The change was intended to promote capital formation and to reduce compliance costs for small public companies. (The SEC also voted to mandate Inline XBRL and to propose a number of changes to the whistleblower program, but those will be covered in subsequent posts.)
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