As reported yesterday by Reuters, a California-based biotech company just priced an IPO after its registration statement went effective — during the government shutdown and 20 calendar days after filing in accordance with Section 8(a) of the Securities Act. The offering was already publicly flipped on September 19, before the shutdown, starting the 15-day clock (and suggesting there were likely few, if any, Staff comments still outstanding). Having filed on October 6 before the Corp Fin Staff’s updated guidance, the S-1/A contained a pinpoint price. It also, of course, removed the delaying amendment and included the magic words from Rule 473(b).
The commencement press release included the following:
MapLight has included in the registration statement the proposed public offering price and the number of shares offered and specific language under Rule 473(b) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), such that the registration statement is expected to become automatically effective 20 calendar days after today’s filing, or October 26, 2025, pursuant to Section 8(a) of the Securities Act. MapLight expects to complete the pricing of the proposed public offering on or after such date. In the event that the federal government and the SEC resume normal operations prior to October 26, 2025, MapLight will re-evaluate the use of Section 8(a) in connection with the proposed public offering.
As a result of the shutdown of the federal government, we have determined to rely on Section 8(a) of the Securities Act to cause the registration statement of which this prospectus forms a part to become effective automatically. Our reliance on Section 8(a) could result in a number of potential adverse consequences, including the need for us to file a post-effective amendment and distribute an updated prospectus to investors, or a stop order issued preventing use of the registration statement, and a corresponding substantial stock price decline, litigation, reputational harm or other negative results.
The registration statement of which this prospectus forms a part is expected to become automatically effective by operation of Section 8(a) of the Securities Act on the 20th calendar day after the most recent amendment of the registration statement filed with the SEC, in lieu of the SEC declaring the registration statement effective following the completion of its review. Although our reliance on Section 8(a) does not relieve us and other parties from the responsibility for the adequacy and accuracy of the disclosure set forth in the registration statement and for ensuring that the registration statement complies with applicable requirements, use of Section 8(a) poses a risk that, after the date of this prospectus, we may be required to file a post-effective amendment to the registration statement and distribute an updated prospectus to investors, or otherwise abandon this offering, if changes to the information in this prospectus are required, or if a stop order under Section 8(d) of the Securities Act prevents continued use of the registration statement. These or similar events could cause the trading price of our common stock to decline substantially, result in securities class action or other litigation, and subject us to significant monetary damages, reputational harm and other negative results.
I *think* this is the first operating company IPO to price during the shutdown. (It seems there have been twoSPACs.) We don’t know of any IPOs that priced during the 2018-2019 government shutdown. Numerous companies had removed their delaying amendments, but most (like this one) added the delaying amendment back on the registration statement when the SEC reopened. If anyone knows of a prior instance of an IPO pricing after the S-1 went effective under Section 8(a), please reach out!
As anyone trying to get an IPO done right now knows, despite the welcome updated Rule 430A guidance from the SEC Staff, there are still lots of unusual complications to consider or work through while the government is shut down. For more FAQs on some of these issues, here’s a Davis Polk alert on public offerings during the shutdown with a suggestion for a way to upsize if you opt not to use Rule 462(b).
Can we upsize the offering after effectiveness like in a regular-way IPO?
Yes, but with a change to the usual mechanics.
The SEC guidance did not address whether a company can register additional shares post-effectiveness with Rule 462(b) (the rule ordinarily used, which refers to a registration statement being “declared effective”), and we believe there are risks to relying on that rule during the shutdown.
That said, a workaround can get the company to the same place, as long as the company is OK paying an additional registration fee that it might not use. The company could register 20% more shares (and pay the correspondingly higher fee), and reflect the registration of the additional shares in the fee table filed with the registration statement. The company should then disclose on the cover page of the prospectus (right after the description of the underwriters’ option to purchase additional shares) the number of additional shares it has registered in case the company decides to increase the size of the offering after effectiveness. Similar disclosure should be included in the offering summary, the underwriting section, and the selling stockholder table when applicable.
It also addresses, “What if something happens during the 20-day period that requires disclosure?”
If something happens during the 20-day period that warrants disclosure in the IPO prospectus, amending the registration statement to include it would restart the 20-day period. Rather than filing an amendment, an eligible company could instead include disclosure of the material development in a free writing prospectus (FWP) filed with the SEC, and then reflect the change in the final prospectus. However, a development can only be handled in an FWP if it does not “conflict with” the information in the registration statement. What that means is a judgment call that will depend on facts and circumstances.
If the company moves forward with this approach, it would need to complete the final prospectus with pricing terms and updated disclosure immediately after pricing so that the prospectus is filed with the SEC and ready for use before any sales are confirmed (so it will be deemed to be part of the registration statement on the date it is first used after effectiveness by operation of Rule 430C). What this means in practice is a significant acceleration of the usual timetable for finalizing the prospectus.
Finally, don’t forget that minor changes may be necessary in the closing deliverables — for example, the legal opinions should state that the registration statement “became” effective rather than “was declared” effective.
It also includes a tip for companies without a pending registration statement. It says that if you expect to file one in the near future, you should do so sooner rather than later to get in the queue. The SEC will be backed up when the government reopens and presumably will review registration statements in the order they were received.
As Dave shared in mid-October, Chairman Atkins recently gave a speech that outlined his vision for improvements he’d like to see in the Wells process.
As many of you know, the Wells process is the mechanism through which the enforcement staff notifies potential respondents or defendants of any charges—and the basis for such charges—that the staff intends to recommend to the Commission. The potential respondents or defendants are then provided an opportunity to make written or video submissions to the Commission setting forth their interests and position on the subject matter of the investigation.
These “Wells submissions” provide in most cases a last opportunity for potential respondents or defendants to persuade the staff that an enforcement action, either in whole or in part as the staff intends to recommend it, is not warranted. They also provide the Commission with a different, and potentially convincing, view of the facts and law concerning the matter.
But the Wells process presents a number of challenges for defense attorneys and their clients. From this Fortune article:
As Securities and Exchange Commission defense counsel, we can attest first-hand to the dread our clients experience when we inform them that we have received a “Wells Notice” from the Division of Enforcement at the SEC. The Wells Notice, which serves as the civil equivalent of a criminal grand jury target letter, informs the recipients that the Division is prepared to recommend to the Commissioners that they be sued. The putative defendants then learn that they have only two weeks to submit a written defense or “Wells Submission,” that may or may not be read by commissioners, and that the price of a submission is that the defendant is forced to agree that the submission itself may be used against them in any subsequent proceeding. Hardly a level playing field — until now.
This Dechert memo summarizes the key points of his speech:
Timing of Wells Submissions: Moving forward, Division staff will provide potential respondents and defendants with “at least four weeks” to complete Wells submissions. On the flip side, there should not be delays in making submissions or unreasonable requests of Division staff, as the foundation of the Wells process is good faith by both sides.
Access to Evidence: As mentioned during the SEC Speaks conference earlier this year, Chairman Atkins reiterated that Division staff must be forthcoming about sharing the investigative file with potential respondents and defendants. This information includes transcripts, documents, and other parts of the investigative record. Chairman Atkins cautioned, though, that Division staff still must adhere to limitations when applicable, such as information that would identify whistleblowers or implicate a parallel criminal investigation.
Meetings with Division Staff: Senior Division leadership will continue to meet with defense counsel prior to making an enforcement recommendation to the Commission. However, Chairman Atkins expressed that Division staff should engage more with defense counsel during earlier phases of the investigation “to discuss the direction of an investigation,” including when there is a belief that “the staff is operating under a mistaken view of the facts.”
White Papers: Chairman Atkins noted the value of white paper submissions in addressing concerns over certain legal or factual issues. These submissions are particularly helpful “in cases where a potential respondent or defendant feels obligated to make a public disclosure of a Wells notice or to save on the costs of making a Wells submission.” He also confirmed that white papers, like Wells submissions, will be provided to the Commission for review and consideration.
Commissioner Review: Commissioners currently receive every Wells submission, both in settled cases and in contested ones. Chairman Atkins stressed that the Commissioners should read the submissions, even if the recommendation has changed from what was included in the Wells notice.
Coupled with the staff now open to considering proposed settlements of enforcement proceedings and waiver requests simultaneously, this is welcome news for those navigating enforcement proceedings.
New research highlighted on the CLS Blue Sky Blog asks whether the public’s perception of the SEC influences engagement with U.S. financial markets and finds resoundingly that it does. The SEC itself monitors its public perception. The Office of Public Affairs monitors social media sentiment since negative posts could “disrupt the SEC’s regulatory agenda” and impact the public’s perception of the SEC. But little is known about how that public perception affects investor behavior.
The authors of a recent paper measured public sentiment by reviewing over 645,000 tweets that mentioned the SEC’s official Twitter (now X) account between 2012 and 2021, quantified the posts’ sentiments as positive, negative, or neutral toward the SEC and then aggregated these sentiments into a measure of public perception. Here’s what they found:
While it holds neutral views of the SEC about 58 percent of the time, the public maintains positive perceptions 29 percent of the time and negative perceptions 13 percent of the time. Moreover, perception shifts dramatically around major events: enforcement actions, regulatory changes, leadership transitions, and even broader crises like the COVID-19 pandemic.
The researchers then compared changes in perception against trading activity and found that “when public perception of the SEC improves, retail trading increases; when it deteriorates, trading declines” with an economically meaningful magnitude.
– Retail investors account for roughly 20-30 percent of U.S. equity market volume – a substantial force in market liquidity and price discovery
– Retail trading volume is 3.6 percent higher during positive perception periods and 3.4 percent lower during negative periods
– The effects are strongest . . . among small firms and companies with low institutional ownership – precisely where SEC oversight is most important for investor protection
– When multiple social media users agree in their perception (showing low disagreement in sentiment), the effects are even more pronounced
It goes on to say that “SEC perception affects not just how much retail investors trade, but how they trade.”
During periods of positive SEC perception, retail investors rely more heavily on earnings information in their trading decisions. They’re more likely to buy stocks with positive earnings surprises and sell those with negative surprises. In other words, when the SEC is perceived favorably, retail investors appear to have greater confidence in the credibility of SEC-regulated disclosures.
It concludes with some implications for the SEC and this final thought.
Public perception matters – for trading volume, for information processing, and ultimately for the SEC’s ability to maintain fair and efficient markets. In the attention economy, perception isn’t just reality; it’s a force that shapes market outcomes.
I guess Glinda was right — it’s “about popular” — but I must “protest” with the remainder of this song. It’s also about “aptitude.”
A recent Troutman Pepper Locke alert discusses a board’s obligations when a venture-backed company is considering a down round (raising funds at a lower valuation than a prior financing). Because these deals mean greater-than-anticipated dilution for existing holders — and potential shareholder opposition even when the down round is the best, or even the only, available option — they are often designed to encourage existing holders to participate, which “encouragement” can take the form of a carrot or a stick.
Such features may include pay-to-play or pull-up mechanisms, compulsory conversions, warrant coverage, or super-priority liquidation preferences, all of which can present turbulent waters for a board of directors to navigate . . .
The investors leading a down round financing often view themselves as backstopping the company at a time when others won’t, and expect to be compensated accordingly. On the other hand, management may focus on maintaining their jobs as a primary driver and their equity stake as a secondary driver. Other key stakeholders often include new investors, who may be looking for an opportunistic investment, and non-participating existing equity holders, who will be diluted and who may or may not be engaged and supportive of the transaction. The board of directors considering such a transaction should pay careful attention to its fiduciary duties as it works to bring this diverse set of stakeholders together.
Here are a few tips from the alert regarding decision-making and processes.
Informed Decision Making
Seek out alternatives: The board should consider and seek out alternative options, including bridge loans, simple agreements for future equity, convertible note offerings, mergers, asset sales, or other transactions that may be less offensive to non-participating equity holders.
Research: The board should review current market terms for similar transactions in the same or similar industries if possible, and use these as a guideline in establishing financing terms for the down round.
Process
Fair value: The board should establish a fair price for the down round. While not required, getting a 409A valuation from an independent and reputable third-party valuation firm is effective in supporting the company’s position that the pricing of the down round was appropriate.
Independent committee: If possible, the board should establish a committee of independent and financially disinterested board members to evaluate and negotiate the terms of a down round and approve the transaction.
Conflicts of interest: Any board actions involving interested directors should have the interested directors recuse themselves, and any written resolutions should clearly acknowledge which directors are interested. Transactions involving interested directors can receive extra scrutiny on review and have their own set of approval provisions within the Delaware General Corporation Law and other state laws; it is imperative to follow those provisions.
The article also addresses documentation, equity holder considerations and compliance.
Contractual blockers have become a common tool in offerings of preferred stock and warrants to cap an investor’s beneficial ownership at 4.9% or 9.9% — which can effectively prevent the investor from becoming subject to Section 13(d) or Section 16. That is, unless the blocker is considered “illusory.” Here’s a recent development on contractual blockers that Alan shared earlier this month on Section16.net:
It has become settled law that a blocker in a derivative security can be effective to cap the holder’s beneficial ownership at an amount not exceeding the cap so long as the blocker is contractually binding. The SEC filed an amicus brief in 2001 supporting that position provided that the blocker is not “illusory.” The SEC’s brief listed four factors it considers relevant to whether a blocker is illusory. In a recent decision dismissing a complaint filed by Bed Bath & Beyond against an investment fund and its manager, a judge in the SDNY applied those factors in finding that blockers included in derivative securities acquired by the fund were not illusory.
The fund invested in BB&B on February 7, 2023, by purchasing three derivative securities: convertible preferred stock, warrants to purchase more preferred stock, and common stock warrants. The preferred stock and the common stock warrants contained blockers limiting the fund’s ownership to no more than 9.9% of the outstanding common stock. The strike prices of the derivatives allowed the fund to buy common stock at discounted prices, which the fund began doing immediately through serial conversions, each for a number of shares that kept the fund below the cap, followed by a sale of the acquired shares before submission of the next conversion request. Within two weeks the number of outstanding shares doubled, and within three months BB&B filed for bankruptcy.
BB&B challenged the validity of the blockers and sought $310 million in short-swing profits. The defendants argued that the blockers were contractually binding and therefor effective to limit ownership. The court agreed the blockers were binding but also agreed with the SEC (and BB&B) that a blocker also must not be illusory. The court then addressed the SEC’s factors.
Whether the blocker is easily waivable by the parties. BB&B argued that the parties could have agreed at any time to amend the derivatives to eliminate the blockers. The court said that argument was “nonsensical” and would render every contract illusory. In any case, the documents expressly prohibited amendment of the blocker provisions.
Whether the blocker lacks an enforcement mechanism. The plaintiff argued that BB&B had no way to determine whether the fund’s ownership exceeded the cap and that, in any case, BB&B lacked the will to enforce the blockers because BB&B would have been “thrilled” to receive the additional cash. The court said an enforcement mechanism existed because the fund was required to represent in each conversion or exercise request that the issuance would not cause the fund to exceed the cap. Whether BB&B had any interest in enforcing the caps was not relevant. BB&B also argued that it could not have enforced the blockers because a side letter prohibited it from requesting any information from the fund beyond the conversion and exercise requests. The court said a blocker can be valid even if enforcement rests with the derivative’s holder. The terms of the blockers also served as an enforcement mechanism, in that the blockers provided that any issuance in excess of the cap would be null, void and cancelled ab initio, and that any excess shares would be cancelled and not eligible to vote at meetings of stockholders.
Whether the blocker has not been adhered to in practice. The fund submitted 90 exercise and conversion requests, including 15 during the first two days after acquiring the derivatives. Following each exercise, the fund immediately sold the acquired shares and submitted another exercise request. BB&B argued that the fund remained the beneficial owner of sold shares until the sales settled, meaning the cap was regularly exceeded. The court concluded that shares the fund sold could be excluded from the fund’s beneficial ownership calculation because shares are deemed sold when the seller is irrevocably committed to the transaction, which occurs on the trade date, not the settlement date.
Whether the blocker can be avoided by transferring the securities to an affiliate. The plaintiff didn’t argue that the blocker could be avoiding by transferring the securities to an affiliate, so the court didn’t address this factor.
The court’s decision serves as a useful guide in drafting blocker provisions. Also useful is the court’s statement (in footnote 8) that the SEC’s list of factors that tend to support a conclusion that a blocker is valid does not suggest that the absence of those factors undermines the validity of a blocker.
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According to a recent report from The Conference Board, more than seven out of ten S&P 500 companies disclose their use of AI as a risk factor. That’s up from just 12% in 2023. This excerpt from a CFO Dive article on the report highlights some of the specific types of risks that companies are addressing in their disclosures:
Reputational risk is the most widely disclosed issue, at 38%, according to the report. This reflects the potential impact of losing trust in a brand in the case of a service breakdown, mishandling of consumer privacy or a customer-facing tool that fails to deliver.
Cybersecurity risk is cited by 20% of firms. AI increases the attack surface, and companies are also at risk from third-party applications.
Legal and regulatory risks are also a major issue, as state and federal governments have rapidly attempted to set up security guardrails to protect the public, while providing enough support for companies to continue innovation.
We cover SEC disclosure and corporate governance risks here, but if you’re on the front lines of risk management for AI, cyber, and other emerging technologies, be sure to subscribe to our AI Counsel Blog, where we roll up our sleeves and address some of the more granular issues that legal and compliance personnel are confronting when trying to manage the risks of emerging technologies.
Morris Nichols’ Kyle Pinder and Cleary’s J.T. Ho and Helena Grannis recently published this article on how to take the next step and implement a retail voting program. The authors note that the first step in the process is making sure a company understands its shareholder base, and then, as this excerpt discusses, determine whether that program will be effective:
Once the size and voting behavior of the retail investor base is understood, companies should consider how effective a retail voting program may be in helping meaningfully improve retail investor engagement over the long term, including participation in voting and potentially to help pass, or pass at higher levels, management proposals, before they decide to adopt such a program. A company with a significant concentration of votes with several large institutional shareholders or high levels of institutional holders may find that the retail program will not substantially impact voting outcomes.
Further, companies will want to consider how much movement there is in their retail investor base. Maintaining an effective program will depend on the company’s ability to have proxies as of a particular record date. If there is significant movement in the retail base throughout the year, the company will need to engage in continual program enrollment, the program may not be as effective as anticipated as a result. Similarly, the program permitted by the SEC requires that retail investors be allowed to opt out of the program at any time and override voting instructions in particular votes, which would allow movement in voting out of a program.
This illustrates a further consideration: companies will need to invest in significant long-term engagement with retail investors to implement, refresh and maintain a program. The platform and communications to get investors to opt in as well as annual reminders may not be insignificant from a process, administrative and, potentially, cost perspective.
Once these two steps are completed, the final two steps are to determine the design of the program and determining how it will be perceived by shareholders. The article offers guidance on both of these issues, noting some specific drafting requirements for the program’s terms that necessary to comply with Delaware law, and the need to engage with shareholders to determine their sentiment toward the program prior to implementing it.
The US is considering moving to a semi-annual reporting system for public companies. There’s been a lot of speculation about what will happen if the US eliminates mandatory quarterly reporting, but based on his own country’s experience in scrapping mandatory quarterly reporting, this article from a Swedish financial regulator suggests that the answer might just be nothing:
[I]n 2014 the mandatory requirement was scrapped, in part because coming EU-regulations made it difficult to have quarterly reports mandatory. Also, the debate at that time, a period with very few IPO’s, was that the regulatory burden kept small companies from being listed. The mandatory quarterly requirement therefore had to go.
Trading statement
The half-year report was still mandatory, since Swedish companies are following IFRS. NASDAQ Stockholm also kept a requirement for the companies to issue a full-year (quarterly-like) report within two months of the final day of the year, because the annual report normally arrives late, after approximately four months. Consequently, the first and the third quarter report became voluntary. Companies only had to present a trading statement with very few numbers. However, they had to explain why this report was more useful to investors, than a comprehensive quarterly report.
Absolutely nothing
What happened? Nothing, absolutely nothing. Some companies, very few, changed the name of the Q1 and Q3 report to “quarterly statement”, but in essence the information was the same. (Footnote: The last ten years NASDAQ Stockholm and the unregulated markets in Sweden has been one of the most expansive IPO-markets in the world, so obviously quarterly reporting was not a limitation).
Although it’s a stretch to assume that US public companies will go the way of Sweden’s if mandatory quarterly reporting is eliminated, my guess is that investors will reward those who do continue to provide a steady flow of quarterly information, and that some of the potential downsides to reporting on a semi-annual basis may further encourage many companies to maintain the status quo.
I hope you were able to join us on Tuesday for our “2025 Proxy Disclosure Conference” and yesterday for our “22nd Annual Executive Compensation Conference.” Thanks again to all of valued sponsors, terrific speakers, and everyone at CCRcorp who made these events possible!
As always, our 15 panels covered a lot of ground on a wide range of topics over the past two days, and if you found that your notetaking was sometimes unable to keep pace or if you had to miss parts of the conferences, well, as they say on TV – “hey relax guy!” – because archives of the sessions will be available to attendees in the near future.
Attendees should receive an email next week with a link to our 2025 Conference Archives page. Members of TheCorporateCounsel.net, CompensationStandards.com, Section16.com and DealLawyers.com who registered for the conferences can use their existing logins to access the Proxy Disclosure Archives and the Executive Compensation Archives. In order to earn CLE credit for the archived sessions of the 2025 Proxy Disclosure & 22nd Annual Executive Compensation Conferences, you’ll need to follow the instructions outlined in our CLE FAQ page.
The unedited transcripts for the conferences will be added to the archive pages in the near future – and we’ll let you know when they’re up.
Finally, we bid farewell to our 2025 PDEC Conferences with one more quote from Fear and Loathing in Las Vegas:
“Maybe it meant something. Maybe not, in the long run, but no explanation, no mix of words or music or memories can touch that sense of knowing that you were there and alive in that corner of time and the world. Whatever it meant.”
Mahalo from Las Vegas, everybody – and safe travels!
