We have noted the trend that the Corp Fin Staff is answering more no-action and interpretive requests on a variety of topics these days, as well as putting out new and revised Compliance and Disclosure Interpretations at a steady pace over the course of the past year. Consistent with this recent trend, the Staff of the Office of Mergers and Acquisitions recently issued an interpretive letter addressing whether the parties to an over-the-counter derivatives contracts referencing equity or other securities would be deemed a “group” for the purposes of Section 13(d)(1) or Section 13(g)(1) of the Exchange Act. The interpretive request was submitted by O’Melveny on behalf of Bank of America and affiliates. As this O’Melveny alert notes:
On January 23, 2026, the staff (the “Staff”) of the Office of Mergers and Acquisitions in the U.S. Securities and Exchange Commission’s (the “SEC”) Division of Corporation Finance issued an interpretive letter to Bank of America, N.A. and its affiliates (collectively, “BofA”) clarifying that the entry by BofA and a sophisticated counterparty into over-the-counter (“OTC”) derivative contracts in the ordinary course of business, without more, is not a sufficient legal basis to deem the parties a reporting “group” (i.e., single person for purposes of calculating beneficial ownership) pursuant to Section 13(d)(1) or Section 13(g)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”).
* * * * *
Prior to the BofA Letter, there existed substantial uncertainty as to whether parties to a derivative contract would be considered to be “acting as” a “group” for purposes of Section 13(d)(1) or Section 13(g)(1) of the Exchange Act as a result of entering into the contract. If the parties were deemed to be a reporting group, such group would beneficially own all of the shares of the class of securities underlying the derivative contract owned by each of the group members, thereby causing each of the parties: (i) if the group owned more than 5% of the outstanding class of securities, to become subject to reporting under Sections 13(d) or 13(g) of the Exchange Act, and (ii) if the group owned more than 10% of the outstanding class of securities, to be individually subject to Section 16 of the Exchange Act.
The Staff indicated in its response that it would not object to any determination by a financial institution that it does not “act as” a “group” with any counterparty to an OTC derivative and that, therefore, the institution together would not be required to aggregate ownership as a single “person,” solely as a consequence of entering into an OTC derivative contract, based on the representations provided by Bank of America in the request, which are generally applicable to ordinary course OTC derivative transactions.
The O’Melveny alert notes that this the interpretive letter is the sixth example of Staff interpretive guidance obtained by O’Melveny and BofA in the context of OTC derivatives since 2011. Shoutout to my former Corp Fin colleague Rob Plesnarski for all of his great work in this area!
Over five years ago, the SEC adopted amendments to Regulation S-K that require more detailed disclosure concerning a public company’s human capital. The amendments proved to be controversial, because they relied on a principles-based approach the gave companies leeway to determine what was material from a human capital perspective, and for the ensuing four years we expected further amendments to the item requirement that would be more prescriptive in approach. Those changes never materialized, but in 2025 companies encountered a distinct shift in government and shareholder approaches to diversity, equity and inclusion, which had been one topic that many companies addressed in their human capital disclosure.
With all of these developments, it is helpful to take a look back on human capital disclosures over the past five years, and Gibson Dunn recently provided us with this perspective in its alert “Five Years of Evolving Form 10-K Human Capital Disclosures.” The alert notes:
Human capital resource disclosures by public companies have continued to be a focus since the U.S. Securities and Exchange Commission (the “Commission”) adopted the new rules in 2020, not only for companies making the disclosures, but employees, investors, and other stakeholders reading them. This alert updates the alert we issued in December 2024, “Four Years of Evolving Form 10-K Human Capital Disclosures,” available here, and reviews disclosure trends among S&P 100 companies categorized into 28 topic areas. Each of these companies has now included human capital disclosure in their past five annual reports on Form 10-K. This alert also provides practical considerations for companies as we head into 2026.
Overall, our findings indicate that companies are reframing their disclosures related to diversity, equity, and inclusion (“DEI”) in response to the current legal, regulatory, and political environment, with the acronyms “DEI” and “DE&I” being completely removed from all human capital disclosures of S&P 100 companies in 2025. This year, companies generally continued to shorten their human capital-related disclosures, decrease the number of topics covered, and include less quantitative information in some areas, often as a result of decreased diversity-related disclosures.
Among the findings reported, Gibson Dunn notes the following with regard to the content of human capital disclosure:
Most common topics covered. This year, the most commonly discussed topics remained consistent with the previous three years, with the top five most frequently discussed topics being talent development, talent attraction and retention, employee compensation and benefits, diversity and inclusion, and monitoring culture. The topics least discussed this most recent year, however, changed slightly from those of the previous year as quantitative pay gap and diversity in promotion disclosures were tied as the fifth least frequently covered topics (joining physical security, diversity targets or goals, quantitative new hire diversity, and supplier diversity), replacing full-time and part-time employee split.
I think that we can certainly expect to see more evolution in the approach taken to this disclosure requirement during the course of the 2026 annual reporting and proxy season.
We offer 500 Practice Areas that cover in detail the topics that are of most interest to you in your practice. The real advantage of these Practice Areas is that they often provide the history and context for the topic you are researching, so you can understand the issues with the complete context. I often hear from members who note how useful these Practice Areas are to their day-to-day practice. If you are not a member of TheCorporateCounsel.net with access to these Practice Areas, I encourage you to reach out to the CCRcorp team today by email to info@ccrcorp.com or by calling 1.800.737.1271 to subscribe to this essential resource.
The Committee Majority Staff’s memorandum to the House Committee on Financial Services notes that this will be the first appearance of Chairman Atkins before the Committee. There is certainly quite a bit for these Committees to address with Chairman Atkins, given his articulated focus on, among other things, “Making IPOs Great Again,” addressing crypto asset regulation, and expanding investment opportunities for retail investors.
On this last point, the Senate Committee on Banking, Housing and Urban Affairs is currently considering the Incentivizing New Ventures and Economic Strength Through Capital Formation Act of 2025 (INVEST Act), which was passed by the House back in December 2025. As this Carlton Fields memo notes, Title II of the INVEST Act focuses on expanding investment opportunities for investors, including expanding the ability of investors to qualify as “accredited investors” and therefore invest in the private markets.
If you have been reading this blog for a while, then you know that I am never going to be angling to be the president of the XBRL fan club. Now, things are about to get real with XBRL filing fee information, with the SEC announcing last week that “starting on March 16, 2026, EDGAR generally will suspend filings rather than issue warnings for incorrect or incomplete structured filing fee-related information for all filers. EDGAR will continue to issue warnings in some instances.”
This has a been a rough winter in the mid-Atlantic, as we have gotten a taste of what it is like to live in those Northern regions of the country where the snow falls, turns to ice, and doesn’t go away until late Spring. As I navigated yet another frustrating weekend of snow removal, equipment failure and brutal cold, I tried to go to my happy place and think about how nice it will be here in just a few months when the flowers are blooming, or even just a few months after that when the leaves are starting to turn and there is a hint of Fall in the air. I suspect I am not alone in pursuing this type of coping mechanism during these bleak February days.
If you too are thinking of a Fall happy place, consider signing up for our 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences in Orlando, Florida on October 12-13. From now until April 3, you can take advantage of our Super Early Bird rate. I must say, Orlando in mid-October sounds pretty good to me right now! So please check out the latest information about the Conferences available at our 2026 PDEC page.
No one likes waiting in line, especially (I assume) the world’s richest people. So I guess it shouldn’t come as a surprise that part of the planning for the SpaceX (plus xAI) IPO is figuring out how to accelerate entry into major stock indexes that otherwise have lengthy (sometimes longer than the lockup) waiting periods. Think amusement park fast passes, but this one is about avoiding rollercoaster-like post-IPO period stock price volatility by balancing supply and demand. The WSJ reports:
Advisers for the company . . . have reached out to major index providers . . . to discuss how SpaceX and this year’s other hot startups might join key indexes sooner than normal, according to people familiar with the matter.
Companies typically must wait several months or a year after their public debut before gaining inclusion in a major index such as the S&P 500 or the Nasdaq-100. Inclusion unlocks access to retail and institutional capital from funds, particularly those mimicking the performance of indexes that have to hold the companies in the index.
The traditional waiting period is intended to give the companies time to demonstrate that they are stable and liquid enough to handle extensive buying from index funds.
SpaceX hopes to skirt traditional rules in an effort to bring liquidity to its shareholders sooner as part of its planned IPO. SpaceX advisers have sought index policy changes that would fast-track its entry into major indexes for the company and benefit other highly-valued private companies, the people said.
Just earlier this week, Nasdaq posted a Nasdaq-100 Index Consultation seeking feedback from market participants on potential methodology changes, including a 15-trading-day “fast entry” for newly Nasdaq-listed large (top 40) companies.
Currently, new constituents may only be added to the index at the time of the Annual Reconstitution, as a replacement for a deleted index member, or as the result of a spinoff event. As a result, large companies that are newly listed on an eligible exchange (either by way of an initial public offering (IPO) or by transferring from an ineligible exchange) often aren’t added to the index in a timely manner. Requiring the removal of an existing security before adding new index members delays the timely inclusion of large companies that investors would reasonably expect to be added sooner.
To alleviate this situation, Nasdaq proposes to incorporate a “Fast Entry” rule. Under this rule, a new Nasdaq listed company will be evaluated for index inclusion. If its entire market capitalization ranks within the top 40 current constituents in the index, it will be announced as a “Fast Entry” addition to the index with at least five trading days’ notice and would be added to the index after fifteen trading days. The company will be exempt from seasoning and liquidity requirements, and its inclusion will not require the removal of another security. Instead, the constituent count will be increased until the next Annual Reconstitution, consistent with the treatment of spin-offs.
This consultation will remain open for comment until COB on February 27. I’m sure people smarter than me will weigh in on what this means for the broader market and Main Street investors’ 401(k)s, but I take this as another sign that the oncoming IPO wave will be an interesting ride.
The D.C. federal district court recently addressed Elon Musk’s motion to dismiss the highly anticipated SEC lawsuit regarding Musk’s publicly scrutinized Twitter stock beneficial ownership reporting back in 2022. Musk had disclosed his ownership stake in Twitter on a Schedule 13G, more than 20 days after crossing the 5% threshold, and one day before filing a 13D reporting that he’d accepted a seat on Twitter’s Board.
In the motion to dismiss, Musk argued:
– Section 13(d) unconstitutionally forces speech
– Rule 13d-1 is unconstitutionally vague
– The SEC is selectively enforcing Section 13(d)
– SEC Commissioners are unconstitutionally protected from removal
The court found that “the balance Congress struck in Section 13(d) does not violate the First Amendment” and Rule 13d-1 is not unconstitutionally vague. It also found that Musk hadn’t presented enough evidence (for now) for a “selective enforcement” defense. (As John has shared, Section 13(d) enforcement is not unusual.) On the last point, the court said briefing was “woefully inadequate” for the court to address the issue, but also that:
Ultimately, the Supreme Court has cautioned that “the unlawfulness of [a] removal provision does not strip [an agency head] of the power to undertake the other responsibilities of his office” [. . . and] Mr. Musk has not shown that dismissal of the SEC’s Complaint is an appropriate response to the SEC Commissioners’ purported unconstitutional protections from removal.
The SEC seeks $150 million (the amount he allegedly underpaid for Twitter stock by disclosing late), plus a civil fine.
If you read the related documents in full, remember that the activities that are the subject of this complaint preceded the amendments to Regulation 13D-G that were adopted a little over two years ago that tightened the filing deadlines.
For busy audit committee members, there are almost too many great annual publications with suggestions for your annual audit committee agenda. Luckily, Dan Goelzer’s latest Audit Committee and Auditor Oversight Update shares summaries and key takeaways, along with this 2026 audit committee action plan from the Center for Audit Quality (CAQ) that distills them into 10 succinct points.
Map 2026 risks to scenarios (economic, tariff/trade, cyber/AI, supply chain) and agree on triggers, decision rights, and escalation paths.
Update cyber incident response and AI governance (policy, model risk controls, change management, monitoring); set AC reporting metrics (e.g., time to detect, model drift indicators).
Be aware of leading SEC comment letter themes and focus on non-GAAP measures, MD\&A clarity, segment reporting, and revenue recognition; ensure management has remediation plans and disclosure controls aligned with these trends.
Be aware of the top internal control issues in adverse ICFR management assessments and focus on accounting personnel resources, segregation of duties, information technology, inadequate disclosure controls, and non-routine transactions.
Assess Pillar Two/global minimum tax impacts (measurement, disclosures, controls) and confirm readiness in tax and consolidation processes.
Challenge impairment and going concern judgments amid interest rate and liquidity dynamics; review refinancing plans and covenant sensitivities.
Refresh fraud risk assessment and investigations protocol, including data‑driven detection and hotline triage; confirm auditor’s use of data analytics and how AC will get insight.
Clarify AI in the audit and finance functions: understand where the external auditor uses tech/AI, the benefits/limits, and how management’s AI controls interface with audit procedures.
Tighten cyber reporting to the board—define thresholds for “material incident,” board‑ready dashboards, and linkage to enterprise resilience KPIs.
Revisit AC charter, skills, and education plan—ensure technology fluency (AI, data governance), transaction oversight (M\&A comeback), and disclosure expertise are covered.
Succinct, yes, but easier said than done, so Dan’s update adds some color to key topics. For example, EY summarizes (pg. 16) the top 5 ICFR issues from an August 2025 Ideagen report (available for download) that provides a 20-year analysis of SOX 404 disclosures. As noted above, the top internal control issues are staffing-related (accounting personnel resources (73-79%) and segregation of duties (60-65%)). That’s from 2024, and Protiviti says that this may only have gotten worse due to AI-related workforce transformations:
AI has driven layoffs and workforce transformations, which can have a profound impact on the effective operation of established internal controls. The risk is that, in planning AI initiatives, those controls may be an afterthought. This issue goes beyond managing the risks directly associated with AI and maintaining a “human in the loop.” While AI may automate certain processes and even strengthen some controls, it can introduce new risks or weaken existing controls – such as segregation of duties – particularly during workforce reductions and organizational changes. Audit committees should ensure that the chief financial officer (CFO), chief audit executive (CAE), chief information officer (CIO), and others are advocating for sustaining the control structure throughout AI planning and implementation.
Needless to say, management teams should be focused on maintaining (or improving!) the company’s control structure during AI implementation and be ready to answer questions from their audit committees.
This article from Nasdaq’s Chief Economist & Director of Economic Research attempted to answer how much mandatory quarterly reporting costs public companies. They looked at the total cost of SEC reporting, including audit & consulting fees plus systems and technology expenses:
Experts estimate that total annual SEC compliance costs, including audit costs, range from below $0.5 million for small companies to $5+ million for large companies – averaging roughly $2.3 million per company. For all U.S. companies, that adds to roughly $9 billion a year.
Then, by comparing disclosure requirements and page lengths of various forms (10-Ks are only twice as long as 10-Qs!) and considering FPI disclosures and 8-K requirements, they estimated that moving to semi-annual reporting would reduce SEC reporting costs by half and “add roughly $45 billion to U.S. market valuations.”
Corp Fin Director Jim Moloney also addressed the possible shift away from mandatory quarterly reporting at SRI, noting that it may be voluntary, with companies being able to choose between one or three 10-Qs. He said life sciences companies with one product candidate, for example, may not feel the need to put so much information into the market since investors are focused on limited data points — like remaining cash, trial data and regulatory approvals. And for companies that file one 10-Q, Form 8-K might be used for flash numbers to allow stock buybacks, etc.
One big, open question seems to be how much information and engagement the street expects for non-10-Q quarters. If companies also forego earnings calls for those quarters, that would significantly reduce the burden on financial reporting teams and on public company CEOs & CFOs.
