Today, the SEC announced that Renee Jones has been appointed as the new Director of Corp Fin, replacing Acting Corp Fin Director John Coates, who will become SEC General Counsel. Both appointments are effective June 21, 2021.
Whether and how to regulate proxy advisory firms, such as ISS and Glass Lewis, has long been a contentious issue, with some arguing that their vote recommendations were plagued by conflicts of interest and often erroneous, while others saw no reason for regulation given that the clients of these firms were satisfied with their services. In September 2019, the SEC published in the Federal Register a new interpretation and guidance directed at proxy advisory firms confirming that their vote recommendations were considered to be “solicitations” under the proxy rules and subject to the anti-fraud provisions, and providing some “suggestions” about disclosures that would help avoid liability. (See this PubCo post.) In July 2020, the SEC adopted new amendments to the proxy rules regarding proxy advisory firms, codifying the SEC’s interpretation that made proxy voting advice subject to the proxy solicitation rules. In addition, the SEC adopted two new conditions to the exemptions from those rules for proxy advisory firms, which required disclosure of conflicts of interest and adoption of principles-based policies to make proxy voting advice available to the subject companies and to notify clients of company responses. Compliance with the new conditions was not required prior to December 1, 2021. (See this PubCo post). Yesterday, SEC Chair Gary Gensler directed the staff to consider whether to recommend further regulatory action regarding proxy voting advice. In his statement, Gensler highlighted his direction that the staff consider “whether to recommend that the Commission revisit its 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.” As a result, Corp Fin issued a Statement indicating that “it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area.” What approach will the SEC now take to proxy advisory firm regulation?
As reported by Bloomberg, Acting Corp Fin Director John Coates told a webinar audience that mandatory ESG disclosures were “overdue,” and that the SEC was moving quickly on related rulemaking. In the webinar, sponsored by NYU’s Institute of Accounting Research and the Institute for Corporate Governance & Finance, Coates said that he expects the SEC to soon be in a position to review and consider staff proposals for mandatory prescriptive rules on ESG addressing both general and industry-specific requirements. These actions are expected to be the SEC’s most significant action on climate since the 2010 guidance. (See this PubCo post.)
Corp Fin staff updates guidance regarding presentation of shareholder proposals in light of COVID-19
On Friday, the Corp Fin staff announced that it has updated its Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns originally published on March 13, 2020 and updated on April 7, 2020 (see this PubCo post and this PubCo post). The updated guidance posted on Friday tweaks the advice related to presentation of shareholder proposals, extending its application to the 2021 proxy season.
As has been widely reported, there has been a phenomenal increase in the volume of SPAC transactions as an alternative approach to becoming a public company. According to Bloomberg, around “300 SPACs launched on U.S. exchanges in the first quarter, raising almost $100 billion. That total was more than all of last year.” In this statement, Corp Fin Acting Director John Coates discusses liability risks potentially arising out of SPAC and de-SPAC transactions, that is, the transactions in which a private operating company undertakes a business combination with a SPAC, ultimately becoming a public operating company. The essence of his message is: why should a SPAC be treated differently from a traditional IPO?
According to the staff of the SEC’s Office of the Chief Accountant, in “just the first two months of 2021, both the number of new SPACs and amount of capital raised by those SPACs have been reported to already match approximately three-fourths of all such activity last year.” And there was quite a bit of SPAC activity last year. In light of the incredible volume of SPAC deals, on Wednesday, the staffs of Corp Fin and the OCA issued special guidance for SPACs. These statements address shell company, financial reporting, accounting, internal control, governance and auditor considerations in connection with a de-SPAC transaction, that is, a transaction in which a private operating company undertakes a business combination with a SPAC, ultimately becoming a public operating company. Both staffs seem to question whether the timing and other circumstances of de-SPAC transactions mean that the private operating company targets may not be fully equipped for what comes next and want stakeholders to carefully consider whether each of these private targets, in the words of OCA, has “a clear, comprehensive plan to be prepared to be a public company.” Corp Fin also wants all those who are clamoring for SPACs to be aware of all restrictions, impediments and other potential hiccups that come with the package. Could they possibly be trying to put the kibosh on SPAC fever? According to Reuters, analysts think the SEC is “worried about how much due diligence is performed by SPACs before acquiring assets, and about disclosures to investors.”
Corp Fin has once again amended Disclosure Guidance Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2, to modify—slightly—the alternatives available for companies with confidential treatment orders that are about to expire. The guidance was last amended in September 2020 (see this PubCo post), but apparently needed another revamp. The guidance addresses procedures for CTRs that were submitted, not under the new streamlined approach adopted in 2019 (see this PubCo post), but rather under the old traditional process that continues in use to a limited extent.
Yesterday, Corp Fin posted a sample comment letter containing the types of comments that Corp Fin staff might, depending on the particular facts and circumstances, issue to companies seeking to raise capital in securities offerings amid the current market and price volatility. In that context, Corp Fin believes that “specific, tailored disclosure about market events and conditions, the company’s situation and the potential impact on investors is warranted to provide investors with the information they need to make informed investment decisions and comply with the company’s disclosure obligations under the federal securities laws.” Corp Fin suggests that companies preparing offering disclosure documents take these sample comments into account, particularly if the disclosure documents would not typically be subject to staff review, such as automatically effective registration statements and prospectus supplements for takedowns from existing shelf registration statements. While most of the sample comments are not altogether surprising, Corp Fin does have some notable suggested additions to the prospectus cover page.
On Monday, the SEC announced that John Coates has been appointed Acting Director of Corp Fin. He has been the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. If that name sounds familiar—even if you haven’t been one of his students—it may be because he sometimes pops up in Matt Levine’s column in Bloomberg as the author of “The Problem of Twelve,” which he describes as the “likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.” Beyond that, he has been a very active member of the SEC’s Investor Advisory Committee, and Committee recommendations he has authored may give us some insight on his perspective on issues.
Happy new year! To complete the year- and term-end surge, just before Christmas, the Corp Fin staff issued CF Disclosure Guidance: Topic No. 11 regarding disclosure considerations for special purpose acquisition companies in connection with their IPOs and subsequent business combinations, often referred to as de-SPAC transactions. As usual, the staff provides some great questions to consider when crafting disclosure.