TheCorporateCounsel.net

December 9, 2016

Corp Fin: CDIs Here, CDIs There, CDIs, CDIs Everywhere!

Getting them out the door before Keith Higgins’ imminent departure, Corp Fin dropped a whopping 35 new CDIs yesterday, covering a broad range of topics.  Here’s the inventory:

– 5 new Exchange Act Forms CDIs: Form 20-F

– 2 new Securities Act Forms CDIs: F-Series Forms

– 7 new Exchange Act Rules CDIs: Rules 3a11-1 to 3b-19

– 2 new Exchange Act Rules CDIs: Rules 12g-3 & 12h-3

– 6 new Securities Act Rules CDIs: Rule 144A

– 7 new Securities Act Rules CDIs: Rule 405

– 6 new Securities Act Rules CDI: Rules 902 & 903

SEC Enforcement Chief to Leave by Year-End

Yesterday, the SEC announced that Enforcement Director Andrew Ceresney will leave the agency by the end of the year.  The release notes that the SEC filed more than 2,850 enforcement actions & obtained more than $13.8 billion in monetary sanctions during his tenure.  The SEC also charged over 3,300 companies & over 2,700 individuals – including many CEOs, CFOs, & other senior corporate officers. Stephanie Avakian will become the Acting Director of Enforcement.

This announcement is on the heels of the one about Keith Higgins’ pending departure. As Broc blogged a few weeks ago, this exodus of Senior SEC Staffers is normal when the Administration changes hands…

Earnings Calls: Salty CEOs Earn a PG-13 Rating

My language can be a little salty at times – & one of my phobias is letting a profanity slip out at a really inappropriate time. That’s why I took a particular interest in this CNBC piece about CEOs swearing during conference calls. Holy . . . uh. . . Cow – I thought the stats would be much worse!

John Jenkins

December 8, 2016

Our New “John Tales” Blog!

Education by entertainment! The new blog on DealLawyers.com – “John Tales” – will teach you the kinds of things that you don’t learn at conferences, nor in treatises or law firm memos. John Jenkins is a 30-year vet of the deal world & he brings his humorous stories to bear on this new “long-form” blog.

When you check out “John Tales” – located at the top left corner of the DealLawyers.com home page – insert your email address when you click the “Subscribe” link if you want these precious tales pushed out to you!

Bonus! “Broc Tales” is coming to TheCorporateCounsel.net in January!

House Passes “Creating Financial Prosperity for Businesses & Investors Act”

Here’s the intro from this blog by Stinson Leonard Street’s David Jenson:

On Monday, the House of Representatives passed the Creating Financial Prosperity for Businesses and Investors Act (H.R. 6427) (the “Act”) by a vote of 398 to 2. The Act is actually a compilation of six measures that were previously considered and passed by the House in 2016, but that have thus far seen no action in the Senate. Here is a summary of each piece of legislation, along with links to our prior coverage and to the actual text of each provision.

An Awesome Book! “Niagara”

Full disclosure that the author is my cousin. But that’s what makes it even more remarkable. I just love her new book! And not just because I’m fascinated by the history of Niagara Falls. The book is a true thriller! In this 12-minute podcast, Linda Grace discusses her new book “Niagara” (here’s the related Amazon page & the Facebook page), including:

– What was your motivation for writing the book?
– Even though I’ve been a regular visitor to Niagara my entire life, I learned so much history. How do you know all that?
– Is all that history in the book actually true?
– Part of the history tour focuses on Native Americans. That’s an approach that is probably novel for many out there – but yet, it’s such a rich vein to educate. What led you to include those storylines?
– The book is so much more than just a historical tour of the area. It’s got romance, mystery, mystical, slice of life and more. It’s an emotional whirlwind. Was it always your intention to cover so much ground?
– Is the main protagonist drawn from your life at all?
– Any plans to write another book?

This podcast is also posted as part of my “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

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Broc Romanek

December 7, 2016

Corp Fin Director Keith Higgins to Leave!

Yesterday, the SEC announced that Corp Fin Director Keith Higgins is leaving in early January. I am happy for Keith – sad for the rest of us. Keith did an amazing job under tough circumstances. For example, getting the “disclosure effectiveness” project off the ground was a huge challenge. Having seen the launch of the “aircraft carrier” up close, I know how difficult it is to engage in comprehensive reform. Directors never get the time to achieve their goals these days, as Congress gives them plenty to do. I’m sure we would have even seen more change during Keith’s tenure if he was given the leash.

And Keith is among the best speakers out there. His wit never dimmed, even wearing the “Gov” mantle…I’m glad that Keith got this rousing standing “O” at the ABA meeting last month…

Deputy Director Shelley Parratt will serve as Acting Director as she did during the last transition…

Gender Diversity: Smaller Company Boards Lag

This Equilar study notes that smaller companies lag the S&P 500 when it comes to gender diversity. Only 1.4% of S&P 500 boards of directors in 2016 failed to include at least one woman, which decreased from 11.6% in 2012. In contrast, 23.8% of Russell 3000 companies had all-male boards.

The diversity gap also shows up in board recruitment. Smaller company boards often serve as the first stop on the path to large cap directorships, but Russell 3000 companies lag their larger peers in the percentage of first time directors who are female:

In fiscal 2015, 1,155 directors joined Russell 3000 boards that had never served on any public company board. Of these directors, only 15% were female. Meanwhile, in the S&P 500, of newly elected directors who never served on an S&P 500 or Russell 3000 board, 25.5% were women in 2015.

Fewer women first-time directors at smaller companies could adversely affect the pipeline for large cap positions.

It’s Done: 2017 Executive Compensation Disclosure Treatise – With “Pay Ratio” Chapter

We just wrapped up Lynn, Borges & Romanek’s “2017 Executive Compensation Disclosure Treatise & Reporting Guide” — and it’s headed to the printers. This edition has a major update to the key chapter on the new SEC’s pay ratio rules & more! All of the chapters have been posted in our Treatise portal.

How to Order a Hard-Copy: Remember that a hard copy of the 2017 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now as this will ensure delivery of this 1600-page comprehensive Treatise soon after it’s done being printed. Here’s the “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. Order Now.

Broc Romanek

December 6, 2016

IPOs: No Action Blessing for “Conditional Offers to Buy”

Corp Fin recently issued a no-action letter to Morgan Stanley regarding the use of “conditional offers to buy” – or “COBs” – in connection with IPOs. COBs are intended to facilitate sales to retail investors by providing a way for them to commit to a deal without having to be available to their financial advisors during the period between pricing and the commencement of trading. This Cydney Posner blog reviews the mechanics of the COB process laid out in Morgan Stanley’s request.

COBs are not a new idea – and have been sanctioned in concept by Corp Fin since at least 1999’s Wit Capital no-action letter. What’s interesting about Morgan Stanley’s letter is that it lays out detailed procedures that are to be followed in using COBs as part of the offering process. The desire to obtain some comfort on those procedures may reflect Morgan Stanley’s past regulatory issues in this area – the bank was fined $5 million by FINRA in 2013 for shortcomings in its IPO procedures applicable to conditional offers & indications of interest.

Whistleblowers: SEC’s 2016 Annual Report

In the wake of its latest 8 figure whistleblower award, the SEC published its 2016 Annual Report to Congress addressing the whistleblower program. Kevin LaCroix at The D&O Diary recently blogged the highlights. These include:

65% of the award recipients were insiders of the entity on which they reported information of wrongdoing to the SEC. Of these insiders, approximately 80% raise their concerns internally or understood that their supervisor or compliance personnel were aware of the violations, before reporting the information to the SEC.

From FY 2012, the first full fiscal year the program was in operation, to FY 2016, the number of whistleblower tips has increased by more than 40 percent. Since the program incepted in August 2011, the agency has received a total of 18, 334 whistleblower tips. In FY 2016, the agency received 4,218, representing an increase of 295 over FY 2015, an increase of 7.5%.

What are the most common categories of whistleblower complaints? During fiscal 2016, corporate disclosures & financials led the pack (22%), followed by offering fraud (15%) and manipulation (11%). The type of violation reported has remained generally consistent over the past five years.

This blog from Keith Bishop directs some pointed criticism at the secretive nature of the whistleblower program.

Whistleblowing: What Does the Future Hold?

This blog from Dorsey & Whitney’s Brynn Vaaler speculates about the future of the SEC’s whistleblower program under the Trump Administration. While it’s too early to know what changes may be in store, some form of the program will likely survive:

Although the current whistleblower program has been criticized by conservative groups such as the U.S. Chamber of Commerce (in part because it does not require whistleblowers to give notice to their employer at the same time they give it to authorities), the program has relatively broad bi-partisan support and has given rise to a cottage industry of law firms specializing in representing whistleblowers.

Whistleblowing supporters include Rep. Jeb Hensarling (R-Texas), chair of the House Financial Services Committee and chief proponent of legislation that would unwind most of Dodd-Frank. Hensarling’s Financial Choice Act – which as Broc recently noted, could profoundly affect the SEC’s ability to adopt regulations – does not touch the existing legislative structure for SEC whistleblower awards. Similarly, although the Trump transition website calls for dismantling Dodd-Frank, it is silent on whistleblowing. As a result, the speculation is that whatever happens to Dodd-Frank, the SEC’s whistleblower program will survive in some form.

John Jenkins

December 5, 2016

SEC Enforcement: Violate Your Policies – Get a Books & Records Sanction

The SEC’s settlement with United Continental on Friday shows that it’s a very short trip from a violation of corporate policy to a books & records violation. The proceeding involved United’s decision to re-institute a non-profitable route from Newark Airport in order to benefit the former chair of the Port Authority.

The reinstitution of the route departed from United’s normal procedures and the requirements of its corporate ethics policy. The SEC’s order lays out its view of the legal implications of those departures:

Contrary to United’s Policies, the required written authorization of the Director – Ethics and Compliance Program or of the Board of Directors was not requested or obtained before initiating the South Carolina Route, and, thus, required records were not created or maintained. United thereby violated Section 13(b)(2)(A) of the Exchange Act. United also violated Section 13(b)(2)(B) by failing to devise and maintain a system of internal accounting controls that was sufficient to provide reasonable assurances that assets are used, and transactions are executed, only in accordance with management’s general or specific authorization, including in a manner consistent with United’s Policies.

This Steve Quinlivan blog has more details – & suggests that this proceeding marks the arrival of the “Domestic Corrupt Practices Act.”

“Dela-fornia” Corporations, Part II: Abstentions Won’t Protect A Director

I recently blogged about Keith Bishop’s discussion of the wide-ranging applicability of California’s corporate statute to foreign corporations.  Keith recently blogged again on this topic – this time, he focused on Section 316 of the statute, which addresses director liability for unlawful loans & distributions.  Here’s an excerpt:

Given the potential for personal liability, some directors, deciding that discretion is the better part of valor, may simply abstain in any vote to approve these actions. However, abstaining is neither valorous nor efficacious. Section 316(b) deems that a director who abstains from voting will be considered to have approved the action if he or she was present at the board or committee meeting at which any of the above actions was taken. To avoid the risk of liability under Section 316(a), a director must either not show up or vote against these actions.

Does this requirement apply to foreign corporations?  For the most part, the answer is yes.

“Boardroom War Z”: CII & Canada Take Aim at “Zombie Directors”

As Broc blogged recently on the “Proxy Season Blog,” the Council of Institutional Investors & the Canadian Government have targeted “zombie directors” – directors who failed to achieve a majority vote, yet remain in office.  Cooley’s Cydney Posner highlights the CII’s zombie director initiative at Russell 3000 companies, while this Financial Post article describes proposed legislation that would mandate majority voting for directors of Canadian public companies.

In a press release describing its efforts to have the undead removed from boardrooms, the CII points out that directors who don’t receive majority shareholder support only rarely leave the board:

From 2013 to Oct. 26 2016, uncontested directors in the Russell 3000 did not win majority support 164 times at 104 companies. Total rejections amounted to 195, as 22 directors failed to obtain majority support more than once. Strikingly, out of these 195 rejections, only 36 directors stepped down from their boards as of Oct. 26, 2016. This represents a turnover rate of 18 percent.

John Jenkins

December 2, 2016

How Will the SEC Reach Quorum With Only Two Commissioners?

Recently, a member asked why doesn’t SEC Chair White cram in a bunch of rulemakings while she can. Putting aside how she likely would be sensitive to the optics of that, I reminded the member that Commissioner Piwowar can stop any rulemakings simply by not showing up – as the SEC’s rules require three Commissioners to be present to reach quorum (as noted in this blog).

The question then arises as to how will the SEC reach quorum when Chair White leaves on Inauguration Day. At that point, only Commissioners Piwowar & Stein will be on the Commission – and it likely will take the new Administration awhile to getting around to nominating new Commissioners (& then the Senate to confirming them).

No worries. Back in the 90s, President Clinton was slow to nominate new members to federal agencies and the SEC dropped down to a level of two Commissioners for a spell – Chair Levitt & Commissioner Wallman. In order to get business done, the SEC amended its rules to accommodate the Commission when it drops to such a low level. “The Rule of 2” – adopted in 1995 – is still on the books:

§200.41 Quorum of the Commission.

A quorum of the Commission shall consist of three members; provided, however, that if the number of Commissioners in office is less than three, a quorum shall consist of the number of members in office; and provided further that on any matter of business as to which the number of members in office, minus the number of members who either have disqualified themselves from consideration of such matter pursuant to §200.60 or are otherwise disqualified from such consideration, is two, two members shall constitute a quorum for purposes of such matter.

So the quorum rules are different when there are three sitting Commissioners as compared to two. Thanks to Hunton & Williams’ Scott Kimpel for the help finding this rule…

How Will Trump Approach Executive Pay?

Recently, a member asked: “How do you see the Presidential election influencing incentive compensation and corporate governance in 2017?” Here’s my response:

Although it is difficult to know in practice, on paper, there is a wide gulf in difference in how the markets would be regulated between a Trump Administration & a Clinton one. Whereas a Clinton Administration might have been widely influenced by Senator Elizabeth Warren and resulted in restraints on how Wall Street operated, a Trump Presidency might result in unprecedented deregulation at the behest of a GOP Congress. A Clinton Administration was rumored to pick an investor as the next SEC Chair – which would have been a first. It appears that Trump will tap someone who believes that minimal regulation is good regulation.

So I think it’s clear that restraints on how companies can govern themselves will become looser. However, executive compensation specifically could be another matter. Trump ran a populist campaign, often railing about excessive executive compensation. It’s unknown whether that was empty campaign fodder to generate votes – or whether he’ll follow through and do something concrete in this area. And I note that during a House hearing about Mylan’s controversial EpiPen pricing, some GOP reps really grilled Mylan’s CEO about her pay package…

Also see this note from myStockOptions.com entitled “How The Trump Presidency And Tax Reform May Affect Stock Compensation.” And this Bloomberg BNA article has quotes with experts giving mixed reactions to guessing whether pay ratio will disappear…

Poll: What’s the Future of Pay Ratio Disclosure?


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Broc Romanek

December 1, 2016

Financial Choice Act: Death to Interpretive Guidance at the Commission Level?

Recently, I blogged about how Section 631 of the Financial Choice Act would seriously damage the SEC’s ability to conduct rulemaking. If that didn’t move you, try Section 412 on for size:

The notice and comment requirements of section 553 of title 5, United States Code, shall also apply with respect to any Commission statement or guidance, including interpretive rules, general statements of policy, or rules of Commission organization, procedure, or practice, that has the effect of implementing, interpreting, or prescribing law or policy and that is voted on by the Commission.

As I understand it, Section 631 wouldn’t impact guidance at the Staff level – only guidance issued by the Commission itself. Whew, otherwise it would be nearly impossible to get no-action letters & CDIs out the door. But this would impact the occasional interpretive release that the SEC issues after the Commissioner vote upon it (here’s a list). And while going through the Administrative Procedures Act process is doable – it’s a lot of work & would take much more time to implement…

The Arrival of the Trump Risk Factors

A few weeks ago, I predicted that we would see risk factors related to the change in Administration. This blog by Steve Quinlivan notes that the first batch of these have been filed…

Our December Eminders is Posted!

We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

Broc Romanek

November 30, 2016

Our Regulatory Framework: The Impact of a Trump Presidency

In this 14-minute podcast, Aaron Cutler – a Hogan Lovells Partner & Former Senior Advisor to House Majority Leader Eric Cantor – discusses what the future holds in Washington DC for corporate & market regulation, including:

– Who will be taking the lead in overseeing the markets in Congress going forward?
– What are the prospects of legislative changes in the near term, including a full – or partial – repeal of Dodd-Frank?
– What type of SEC Chair might we see?
– Can the SEC operate with just two Commissioners (Chair White leaves in January bringing the number of Commissioners down to two; I’ll be blogging on this in a few days)?

This podcast is also posted as part of our “Big Legal Minds” podcast series. Remember that these podcasts are also available on iTunes or Google Play (use the “My Podcasts” app on your iPhone and search for “Big Legal Minds”; you can subscribe to the feed so that any new podcast automatically downloads…

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SEC’s Commission Composition: Alternating Parties Required

With SEC White leaving in January – and Commissioner Stein’s term ending a few months later in June – President-Elect Trump will get the opportunity to tap 4 new SEC Commissioners within a short period of time. That has to be unprecedented.

SEC Commissioners serve for a term of 5 years – except if they are appointed to fill a vacancy, they only serve for the remainder of their predecessor’s term. If their term expires and a successor is not yet confirmed, they can remain on the Commission beyond the expiration of their term (but not beyond the expiration of the next term of Congress – so they might stay on as long as 18 months after their term expires). Commissioner Stein filled a vacancy (succeeding Elise Walter) – thus, her term is shorter than 5 years. But she may wind up staying on longer than her 4-year term if a successor isn’t confirmed timely.

I’m pulling all this knowledge straight out of Section 4(a) of the Securities Exchange Act of 1934 – the law that established the creation of the SEC. Now some people are saying that the mixed composition of political party backgrounds of the Commissioners is a “tradition” and not required. I’m not sure why they’re saying that – because Section 4(a) also states:

Not more than three of such commissioners shall be members of the same political party, and in making appointments members of different political parties shall be appointed alternately as nearly as may be practicable.

So while it may be true that some federal agencies don’t have this “mixed political party” requirement for their governing body, the SEC does have it baked into long-standing legislation…

Note this statement – “Their terms last five years and are staggered so that one Commissioner’s term ends on June 5 of each year” – from the SEC’s website. This staggering is subtly called for by the last clause in Section 4(a). It’s what happened when the original set of Commissioners were appointed in 1934 – and it has continued since due to way that vacancies are filled…

Trump Transition: Plenty of Resources

This new Davis Polk blog devoted to explaining the nuances of how this transition in power might be the same – or different – from past changes in Administration is awesome. Also check out the numerous memos about the transition posted in our “Regulatory Reform” Practice Area.

Broc Romanek

November 29, 2016

Former SEC Commissioner Karmel: “Threats to the SEC’s Independence”

Former SEC Commissioner Roberta Karmel delivered this moving speech before the ABA’s “Federal Regulation of Securities Committee” recently. It’s worth reading all 9 pages. Here’s an excerpt:

In my opinion, while a background in government is useful, an agency like the SEC needs some commissioners who have had real world experience in business or the private practice of securities law. Nevertheless, we do not need SEC commissioners who do not believe in the mission of the SEC or who would like to take a hacksaw to all government regulation. I am very afraid that the Trump Administration and the Republican Congress will try to destroy the SEC, or in any event, the SEC’s independence.

Today, neither the SEC Chair nor the President seems to enjoy the freedom to choose non-partisan candidates who will be confirmed by the Senate. Qualifications are based on ideological correctness rather than expertise. This has led to very contentious and partisan decision making with many 3-2 decisions, or even worse, 2-1 votes, on important issues. Moreover, the selection of commissioners in this manner results in strong dissents designed to enable affected constituencies to appeal rulemaking to the United States Court of Appeals for the District of Columbia Circuit and prevail by upending new regulations. I am not opposed to dissents; I authored a few when I was a Commissioner, but these were based on principle, not party. Partisanship has been a historical hallmark of some agencies, like the National Labor Relations Board, where labor and management commissioners are often at odds. It was not traditionally the case at the SEC where the agency’s mission is to police the securities markets and protect investors, and where influence by outside political forces once was rare.

In my opinion, partisanship has undermined the SEC’s mission and credibility and made it very difficult for the SEC to complete rulemaking mandated by statute. It took five years for the SEC to complete the bulk of mandated rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), in part because Republicans in the Congress and at the SEC objected to many statutory provisions. In the meantime, Congress passed the JOBS Act, which mandated new deregulatory rules, and again the SEC was slow to pass rules implementing this law because Democrats found it objectionable. When the agency operated in a collegial manner, I believe it was more effective and respected and was able to pass rules without so much rancor.

By the way, Politico ran this profile on former SEC Commissioner Paul Atkins, who is leading Trump’s transition efforts in the financial regulatory area & whom met with the President-Elect yesterday…

Sen. Schumer: “Have Votes to Block Dodd-Frank Repeal”

Here’s the intro from this Bloomberg article:

Incoming Senate Minority Leader Chuck Schumer, drawing a line in the sand for the next administration, said he has the votes to stop President-elect Donald Trump from repealing the Dodd-Frank Act and “the rules we put in place to limit Wall Street.” Schumer predicted that the Senate’s Democratic minority would get help from Republicans in any such fight. “We have 60 votes to block him,” Schumer said in an interview on NBC’s “Meet the Press.”

The Jawing Over “Midnight” Rulemaking

As noted in this blog, a few weeks ago, House Majority Leader Kevin McCarthy sent a letter to government agencies warning them against finalizing any pending rules or regulations in the waning days of the Obama administration. SEC Chair White testified before the House Financial Services Committee that same day & said that there would not be any last-minute rulemaking before she leaves. Then, the House passed legislation – “The Midnight Rules Relief Act” (HR 5982) – that would amend the Congressional Review Act. It’s doubtful that President Obama would enact this if the Senate passed the bill too.

Here’s the intro from this WSJ article by Andrew Ackerman:

Financial regulators are scrambling to complete a series of unfinished rules designed to rein in Wall Street, dismaying congressional Republicans and some business groups that have urged policy makers not to rush new regulations as President Barack Obama’s term winds down. The government’s consumer finance watchdog is pushing to finish a contentious measure that could make it harder for financial firms to force consumers into mandatory arbitration. The Federal Reserve and the Securities and Exchange Commission could each wrap up postcrisis measures that would force banks and swaps dealers to add to their books costly new buffers protecting against big losses during periods of market distress. The SEC also wants to limit risky derivatives in mutual funds sold to the public, while a fellow market regulator wants to adopt new curbs on speculation in oil, gold and other commodities. Other high-profile measures are in doubt. Mr. Obama has for two years pushed a committee of agencies to complete limits on executive compensation, aimed at curbing Wall Street risk-taking. The six agencies required to write the rules are racing to complete them but may run out of time before the change in administration, according to regulatory officials.

The efforts to complete the rules before President-elect Donald Trump takes office on Jan. 20 buck calls from Republicans who want the agencies to wait, even on noncontroversial measures required by the 2010 Dodd-Frank financial overhaul, until the new administration takes over. “This type of ’midnight rulemaking’ is neither conducive to sound policy nor consistent with principles of democratic accountability,” Texas Rep. Jeb Hensarling, chairman of the House Financial Services Committee, told SEC Chairman Mary Jo White at a Nov. 15 hearing. Mr. Hensarling is reportedly under consideration to serve as Mr. Trump’s Treasury Secretary.

Regulators deny they are rushing to finish initiatives ahead of the transfer of power and say they are merely working through their normal process to finish rules that were targeted for completion this year. Ms. White, who plans to leave the agency in January, told lawmakers she is finishing rules she had long publicly described as top priorities.

Before Mr. Trump’s surprise win earlier this month, some financial firms and their lobbying groups backed the regulators’ efforts to complete their work. At the time, these groups assumed a victorious Hillary Clinton, under pressure from progressive Democrats like Massachusetts Sen. Elizabeth Warren, would adopt a more adversarial approach to Wall Street oversight than the Obama administration. With Mr. Trump’s victory, however, they anticipate policy makers who favor a lighter regulatory touch will be appointed.

Broc Romanek

November 28, 2016

Proxy Access: Gamco’s Nominee Rejected By National Fuel!

Wow! It was big news when Gamco Asset Management filed the 1st ever Schedule 14N recently. Now, National Fuel Gas has rejected Gamco’s nominee, as reported in the company’s Form 8-K. Here’s an excerpt from letter from the company to Gamco filed as an exhibit to the 8-K, which lays out the reasoning:

A stockholder that seeks to use the Company’s proxy access By-Law provision must make certain representations and warranties to the Company. If these representations are not correct, the stockholder is not eligible to use proxy access. These representations include that an Eligible Stockholder:

(i) acquired the Proxy Access Request Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent.

Cooley’s Cydney Posner blogged later today that: “In this Schedule 13D/A, filed this morning, GAMCO reported that its nominee had “informed GAMCO this morning that he has decided to withdraw [his] name as a candidate for Director of National Fuel Gas Company. GAMCO will not pursue Proxy Access.” So much for that foray.”

Hat tip to Steve Quinlivan for first reporting on this new development (and see this Ning Chiu blog)! We’re posting memos on this in our “Proxy Access” Practice Area

Disclosure Effectiveness: FAST Act Report on S-K

As also blogged by Steve Quinlivan, Section 72003 of the FAST Act directs the SEC to carry out a study of Regulation S-K’s requirements and to consult with the SEC’s Investor Advisory Committee and Advisory Committee on Small & Emerging Companies. The SEC snuck out this 26-page report to Congress just before the holiday.

Although not directly tied to Corp Fin’s disclosure effectiveness project, there definitely is some overlap. Steve highlights these recommendations in his blog:

– Relocate “Risk Factors” from Item 503(c) to a new, separate item (Item 105) in Subpart 100 of Regulation S-K.
– Eliminate the Item 512(d), (e), and (f) undertakings because they are obsolete.
– Permit the omission of attachments and schedules filed with exhibits, unless they contain information that is material to an investment decision that has not been disclosed otherwise.
– Revise Item 601(b)(21) to require disclosure of legal entity identifiers (“LEIs”) for the registrant and within the list of significant subsidiaries.
– Require machine-readable tagging of all of the information presented on the cover page of a registrant’s periodic and current reports.
– Require the use of hyperlinks whenever the rules call for the inclusion of a web address, provided the appropriate technology is available to prevent such links from jeopardizing the security and integrity of the EDGAR system.

Conflict Minerals: EU (Sorta) Adopts Regulations

Here’s a note from Lawrence Heim of Elm Sustainability Partners:

In a press conference concluded minutes ago, Bernd Lange, Chair of the International Trade Committee, Iuliu Winkler, rapporteur with Cecilia Malmstrom, Member of the EC in charge of Trade and Council presidency and Ivan Lancaric, Ministry of Economy of Slovak Republic announced what is called “informal deal on a regulation” for the EU conflict minerals scheme. This action will be legally binding and is aligned with the June 2016 political understanding. The final text will be voted on by the member states on December 7, 2016, with a vote in the plenary expected in the first half of 2017.

Details are forthcoming, but what is known now is:

– Due diligence is based on the OECD Guidelines.
– The scheme is mandatory for importers of 3TG and applies to companies with more than 500 employees but small volume importers will be exempt from these obligations. The “small” threshold was not provided in the public announcements. Previous reports place the threshold at 100kg for gold.
– The regulation allows companies to become a responsible importer by declaring in writing to the competent authority in a member state that it follows the due diligence obligations set in the regulation. A list of these importers will be published by the Commission. The competent authorities will carry out checks to ensure that EU importers of minerals and metals comply with their due diligence obligations. Details about the checks were not provided in the public announcement.
– The legal deadline for implementation is January 1, 2021 but the EP specifically invites voluntary early entry into the program by EU manufacturers and sellers not otherwise subject to the law.
– The Commission will draft a handbook including non-binding guidelines to help companies, and especially SME’s, with the identification of conflict-affected and high-risk areas.

Broc Romanek