Tag: SEC Division of Corporation Finance
Corp Fin posts three new CDIs on Rule 10b5-1
Last week, Corp Fin posted (and then deleted and reposted—but that’s another story) three new CDIs regarding the affirmative defense under Rule 10b5-1. As you may recall, in December last year, the SEC adopted new amendments to the rules regarding Rule 10b5-1 plans. These amendments added new conditions to the affirmative defense of Rule 10b5-1(c) designed to address concerns about abuse of the rule by opportunistic trading on the basis of material non-public information. Among other changes, Rule 10b5-1(c)(1) was amended to apply a cooling-off period to persons other than the issuer, impose a good-faith certification requirement on directors and officers, limit the ability of persons other than the issuer to use multiple overlapping Rule 10b5-1 plans, limit the use of single-trade plans by persons other than the issuer to one single-trade plan in any 12-month period, and add a condition that all persons entering into Rule 10b5-1 plans must act in good faith with respect to those plans. In addition, the amendments included requirements for new disclosures regarding (1) companies’ insider trading policies and procedures, and the use of 10b5-1 plans and certain other similar trading arrangements by directors and officers; (2) director and officer equity compensation awards made close in time to company to disclosure of MNPI; and (3) bona fide gifts of securities on Forms 4 by Section 16 filers and transactions under 10b5-1 plans on Forms 4 and 5. (See this PubCo post.) The new CDIs relate to the timing of compliance and the use and termination of multiple plans.
Corp Fin posts a slew of new CDIs on pay versus performance
On Friday afternoon, Corp Fin posted a slew of new CDIs—15 in total—regarding the new pay-versus-performance rule. You may recall that, in August last year, the SEC finally adopted a new rule that will require disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance—a new rule that was originally mandated by Dodd-Frank in 2010. Lots of questions have arisen about implementation of the rule, and SEC representatives let it be known that CDIs on the topic would be forthcoming. (See this post from thecorporatecounsel.net blog.) Not surprisingly, most of the CDIs are about the complicated Pay Versus Performance table and are just as thorny as the rule, so get your Advil ready.
Corp Fin issues new CDIs regarding the clawback rules
In October last year, the SEC adopted a new clawback rule, Exchange Act Rule 10D-1, which directed the national securities exchanges to establish listing standards requiring listed issuers to adopt and comply with a clawback policy and to provide disclosure about the policy and its implementation. The clawback policy must provide that, in the event the listed issuer is required to prepare an accounting restatement—including not only a “reissuance,” or “Big R,” restatement (which involves a material error and an 8-K), but also a “revision” or “little r” restatement—the issuer must recover the incentive-based compensation that was erroneously paid to its current or former executive officers based on the misstated financial reporting measure. (See this PubCo post.) Now, the Corp Fin staff has issued some new CDIs, summarized below, providing guidance about the timing of the new required disclosure, which officers of foreign private issuers are subject to the disclosure rule and plans subject to the clawback.
Renee Jones to leave SEC; Erik Gerding to be named Corp Fin Director
On Friday, the SEC announced the departure of Renee Jones as head of Corp Fin. She has been Director of Corp Fin since June 2021 and will be returning to her position on the faculty of Boston College Law School. In her place as Director of Corp Fin will be Erik Gerding, who is currently serving as Deputy Director of Corp Fin. SEC Chair Gary Gensler praised Jones for leading Corp Fin “during a time when we have proposed—and in numerous cases adopted—critical reforms to benefit investors….I am grateful for her counsel, judgment, and deep understanding of the capital markets. Thanks to Renee’s leadership, we have enhanced investors’ access to the full, fair, and truthful information as required by our securities laws to make informed investment decisions.” Gerding remarked that he “look[s] forward to continuing the work that Renee led at the Division over the last year….” Will we see any difference in Corp Fin rulemaking? Time will tell.
Corp Fin posts revised and new non-GAAP CDIs
The Corp Fin staff has issued a group of revised and new compliance & disclosure interpretations on the use of non-GAAP financial measures. The CDIs are more detailed and expansive in describing disclosure that the staff considers to be misleading as well as presentations that the staff believes reflect excessive non-GAAP prominence over the comparable GAAP number under Reg S-K Item 10(e). Summaries are below.
Corp Fin urges companies to amp up disclosure on impact of crypto market developments
Last week, Corp Fin posted another sample comment letter—this one urging affected companies to provide “specific, tailored disclosure” about the “disruption” in the crypto markets and collateral events, the “company’s situation in relation to those events and conditions, and the potential impact on investors.” The sample comments focus on “the material impacts of crypto asset market developments, which may include a company’s exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.” Below is a brief summary.
Corp Fin speaks at “SEC Speaks”
At last week’s PLI program, SEC Speaks, Corp Fin Director Renee Jones and crew discussed a number of topics, among them disclosure of emerging risks, recent rulemakings, staff focus on Part III disclosures, shareholder proposals and MD&A disclosures. But there’s no denying that the most entertaining moments came from the caustic side commentary provided by former SEC Commissioner Paul Atkins, whose perspective on current trends is, hmmm, distinctly at odds with the zeitgeist currently prevailing at the SEC.
Corp Fin feels the pinch—will the new budget alleviate the problem?
In testimony this week before the Subcommittee on Financial Services and General Government of the House Appropriations Committee, SEC Chair Gary Gensler talked about the budget request for SEC operations for next year. He emphasized that, over the last five years, while the capital markets have grown to $100 trillion, the SEC has “shrunk.” And for Corp Fin, the “shrinkage” has been quite significant.
Corp Fin issues new M&A-related CDIs
Last week, the SEC issued a number of new CDIs related primarily to M&A transactions, including Forms 8-K, communications under Rule 14a-12, and, in the context of de-SPAC transactions, the Rule 14e-5 prohibition of purchases outside of a tender offer.
Corp Fin posts sample comments related to Ukraine disclosure
Corp Fin has posted a sample comment letter to companies about potential disclosure obligations arising out of the Russian invasion of Ukraine, the international response to it and related supply chain issues. Corp Fin wants companies to provide more “detailed disclosure, to the extent material or otherwise required,” about the direct or indirect impact on their businesses of their exposure to or business relationships with Russia, Belarus or Ukraine, any goods or services sourced in those countries and supply chain disruption. The letter provides a useful resource to help companies think through how their businesses have been or may be affectedCorp Fin has posted a sample comment letter to companies about potential disclosure obligations arising out of the Russian invasion of Ukraine, the international response to it and related supply chain issues. Corp Fin wants companies to provide more “detailed disclosure, to the extent material or otherwise required,” about the direct or indirect impact on their businesses of their exposure to or business relationships with Russia, Belarus or Ukraine, any goods or services sourced in those countries and supply chain disruption. The letter provides a useful resource to help companies think through how their businesses have been or may be affected, even if they don’t have operations in Russia or Ukraine.