Liz recently blogged about the SEC’s recent Section 21(a) report addressing the actions of certain members of Climate Action 100+ (“CA100”) during the 2021 proxy contest targeting Exxon Mobil. This Cooley memo highlights some of the key insights to be drawn from that report:
– No enforcement action, but a clear warning. The SEC’s investigation raised serious concerns, and the SEC used the report to provide guidance for investors participating in similar organizations. Coordinated action prompted by an intermediary’s pressure on members to align regarding the acquisition, holding, disposition or voting of securities may provide circumstantial evidence of an agreement or understanding sufficient to create a “group” as determined under Sections 13(d)(3) and 13(g)(3).
– Disclaimers alone are not enough. Investors may reserve independent voting discretion and disclaim “group” status, but the SEC emphasized that actual conduct controls. At the same time, parallel voting, ordinary-course communications, independent voting decisions and passive receipt of an activist solicitation do not, standing alone, establish a “group.”
– Schedule 13G eligibility presents a separate risk. Even if investors have not formed a “group,” a qualified institutional investor or passive investor holding more than 5% may lose eligibility to report on Schedule 13G if its activities have the purpose or effect of changing or influencing control of the issuer. The report suggests that this analysis can extend beyond a director contest to coordinated efforts targeting specific management or policy outcomes.
– Proxy advisers are a natural area to watch. The report repeatedly focuses on intermediaries that organize investors around shared objectives and voting outcomes. That framework closely tracks the December 2025 executive order, which specifically directed the SEC to consider whether a proxy adviser can facilitate coordination among investment advisers sufficient to create a “group” as determined under Sections 13(d)(3) and 13(g)(3).
This Sheppard Mullin blog discusses the Third Circuit’s recent decision in In re Ocugen, Inc. Securities Litigation in which a three-judge panel repealed its decades old “Oran-Burlington rule.” The Third Circuit, unlike the Second and Ninth Circuits, had previously applied a categorical defense to securities fraud claims — “if a company’s stock price did not decline (or quickly recovered) after a purported corrective disclosure, the misstatement was immaterial as a matter of law.”
The Oran-Burlington rule originated in the Third Circuit’s 1997 decision in In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410 (3d Cir. 1997), and its 2000 decision in Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000). The rule established a test for determining the materiality of alleged misstatements: if the company’s stock price exhibited little or no movement (or a quick rebound) after a corrective disclosure, then the misstatement was immaterial. Both Burlington and Oran rested on a strict application of the efficient market hypothesis, which posits that markets immediately incorporate any material information into stock prices, such that the absence of a price movement following a disclosure indicates the market did not consider the disclosure material.
In Ocugen, the Third Circuit held that the Supreme Court’s later decision in Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), foreclosed a bright-line materiality test based solely upon stock-price movement (or lack thereof). The panel traced the origins of the materiality standard to TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), in which the Supreme Court held that an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by a reasonable investor as having significantly altered the “total mix” of information made available. Twelve years later, in Basic Inc. v. Levinson, 485 U.S. 224 (1988), the Supreme Court adopted the same standard for Section 10(b) claims while rejecting a Third Circuit bright-line rule that deemed pre-merger discussions per se immaterial until the parties reached an agreement-in-principle on key terms. In Matrixx, the Supreme Court rejected another categorical rule, this time a Seventh Circuit rule that rendered statistically insignificant adverse event reports per se immaterial, reaffirming that materiality requires a fact-specific inquiry.
The blog notes that this decision removes a barrier to claims in the Third Circuit. But it’s important to note that the case was brought following the announcement that the company would restate 15 quarters of financial statements. The Third Circuit vacated the district court’s judgment and, despite the announcement that the financials were “materially misstated,” on remand, instructed the district court to assess the misstatements under the “total mix” standard.
The Court cautioned that it was not replacing the Oran-Burlington rule with another categorical rule; thus, bare allegations of a restatement that occurs when errors are material to the prior period financial statements, without explanation of what the restatement means, may still fail to meet the materiality standard. [. . .] [T]he decision preserves materiality as a meaningful ground for defense, especially given the court’s warning that restatements are not per se proof of material falsity.
The defendants pointed to other language in the bylaw requiring disclosure of a “participant” in the solicitation. Citing federal case law interpreting the term participant under the federal proxy rules, Vice Chancellor Will observed that these decisions rejected attempts to classify individuals as “participants” unless they either financed the proxy contest or directly participated in the solicitation. Applying this precedent and common law interpretive principles, the Vice Chancellor concluded that the investor was not a participant in the activist’s proxy solicitation.
Vice Chancellor Will’s conclusion that the investor was not a participant in the solicitation proved fatal to another argument put forward by the defendants that the nominations could be rejected. The defendants pointed to a bylaw provision requiring disclosure of any information required to be disclosed in a proxy statement under Schedule 14A. While Item 5(b) of Schedule 14A requires disclosure of the participants in the solicitation, the Court’s conclusion that the investor wasn’t a participant precluded this argument.
The Delaware Supreme Court also affirmed VC Will’s conclusion that the defendants waived legal theories they had not advanced until late in the expedited proceedings. More from John on the Chancery Court’s decision:
The defendants attempted to “pivot” and contended that Rule 14a-9, which prohibits false and misleading statements or omissions in proxy materials, required the activist to disclose this information in order to comply with Schedule 14A. Vice Chancellor Will rejected this argument, noting that the letter rejecting the activist’s nominees didn’t cite Rule 14a-9, and that it would not be permitted to subsequently raise that as a basis for rejection:
“When a board rejects a nomination, it must give the nominating stockholder sufficient notice of the contractual basis for rejection. Having grounded its rejection in the asserted failure to disclose [the other investor] as a participant, the defendants cannot wait until trial to abandon that basis and advance a different theory of contractual noncompliance. Advance notice bylaws are not moving targets.”
Yesterday, Corp Fin issued six new and two revised CFIs. With the exception of one CFI addressing the timing of Form 4 filings for transactions on a foreign stock exchange, the CFIs cover Form S-8 and Rule 701-related topics. Here’s the list along with a brief summary of each new or revised CDI:
Securities Act Rules
Section 240. Rule 457 — Computation of Fee
New Question 240.19 – Addresses use of Rule 457(o) for offerings of defined contribution plan securities
Section 271. Rule 701 — Exemption for Offers and Sales of Securities Pursuant to Certain Compensatory Benefit Plans and Contracts Relating to Compensation
New Question 271.28 – Addresses the use of Form S-8 to register shares to be issued upon vesting of restricted stock awards and the securities underlying outstanding stock options and RSUs granted prior to the time the issuer became an Exchange Act reporting company.
New Question 271.29 – Addresses an acquiring company’s ability to rely on Rule 701 for restricted stock and the securities underlying stock options and RSUs held by employees terminated prior to the acquisition.
Securities Act Forms
Section 126. Form S-8
Revised Question 126.14 – Addresses an acquiring company’s ability to register on Form S-8 shares of the acquiror that are associated with the compensatory awards held by former employees of the target and assumed by the acquiror.
Revised Question 126.19 – Addresses the contributions under a 401(k) plan that would require the issuer to pay a registration fee in situations where Securities Act registration is required.
New Question 126.46 – Addresses an issuer’s ability to apply the filing fees associated with the securities underlying the forfeited RSUs to future registrations of offers and sales of securities underlying the RSUs.
New Question 126.47 – Addresses an issuer’s ability to register common stock issued upon settlement of RSUs by the date of vesting instead of the date of the grant.
Exchange Act Section 16 and Related Rules and Forms
Section 135. Form 4
New Question 135.05 – Addresses the Form 4 filing deadline for transactions effected on a foreign securities exchange.
Because tokens are often thinly traded during off-hours, they are susceptible to sharp price moves when users buy or sell more than the markets can handle.
Regulators have also warned that such tokenized assets create opportunities for bad actors to engage in insider trading and market manipulation while circumventing oversight. In the U.S. stock market, exchanges use surveillance to identify suspicious activity and the people behind it, while brokerages must know the identity of their customers. But such controls don’t currently exist with tokenized stocks
.As we see the proliferation of various tokenized versions of public company stocks, whether issuer sponsored or not — companies should be considering whether their existing insider trading policy language adequately covers the potential risk of employees trading tokenized versions of company stock.
Said differently, you shouldn’t be able to circumvent insider trading rules by trading in a tokenized version of your company’s stock when you’re prohibited from trading the company stock. This might seem obvious, but as third party tokenized stocks come online this strikes me as a new potential risk that may not be explicitly covered by an existing policy because the token wouldn’t be “company stock.”
On Wednesday, the SEC announced that its Small Business Capital Formation Advisory Committee will meet on Tuesday, October 27th at 10:00 am Eastern. Here’s the agenda for the meeting, which, as this overview from the SEC’s press release indicates, will continue the Committee’s discussions on how to encourage more IPOs as well as potential tweaks to Regulation Crowdfunding:
Building upon ideas generated during prior committee meetings, the morning session will focus on ways to encourage more companies to go public. The committee will consider ways to modernize the IPO process and potential regulatory reforms to improve the offering process, IPO communication rules, and analyst coverage and support.
During the afternoon session, the committee will consider Regulation Crowdfunding (Reg CF), including the current regulatory framework, successes to-date, challenges, and whether there are potential policy changes to Reg CF that could improve the exemption in order to further expand access to early-stage capital raising. To facilitate the discussion and deepen the committee’s understanding of the Reg CF landscape, members will hear from several experienced professionals in the crowdfunding space.
The meeting will be open to the public and livestreamed on SEC.gov.
A new study says that how companies talk about CEO departures can have a tangible impact on the success of their succession efforts & their former CEO’s success in obtaining new employment. Here’s the abstract:
This study examines whether the frequently used, seemingly platitudinous, euphemistic language common in CEO departure announcements has real economic consequences. We analyze 1,330 forced exits at U.S. publicly listed firms between 2016 and 2025, where incentives to soften negative information are strongest and euphemistic framing appears in 27% of cases.
Our Employment Outcomes Hypothesis predicts that such framing benefits departing CEOs by muting adverse reputational signals. Accordingly, euphemistically described forced departures are associated with an increase in the odds of reemployment within a year and a reduction in job search duration.
Our Succession Outcomes Hypothesis predicts that euphemistic framing dampens negative inferences about the firm, facilitating faster and stronger successor matches. When no immediate successor is appointed, euphemistic narratives are associated with a shorter succession search, lower odds of early successor turnover, and the appointment of high-quality successors. These findings are robust to alternative specifications, endogeneity corrections, and additional tests.
Overall, our results suggest that the language firms use to explain forced CEO departures is not merely boilerplate but a consequential disclosure choice that shapes labor-market outcomes for departing CEOs and succession outcomes for firms.
I guess the bottom line is that taking the high road pays dividends for everyone involved in the CEO’s departure. Of course, there’s sometimes a fine line between positive spin and pure fiction – and it’s one that companies cross at their peril.
In order to obtain the protections of the PSLRA’s safe harbor, a forward-looking statement must be “accompanied by” meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Over on The Business Law Prof Blog, Prof. Ann Lipton recently flagged the SDNY’s decision in Construction Industry Laborers Pension Fund v. Fortrea Holdings Inc., (S.D.N.Y.; 9/26), in which the Court concluded that certain statements made by management at an industry conference weren’t protected by the safe harbor because they weren’t “accompanied by” meaningful cautionary statements.
This excerpt from the Court’s decision addresses the issue:
At that conference, Mr. Pike prefaced his remarks with the following fifteen-word warning, and nothing else: “Forward looking statements. We may make some forward-looking statements, you have all the usual stuff here.” Mr. Pike made the third statement at the Barclays Global Healthcare Conference on March 12, 2024: “Now turning to Fortrea, of course, there [ ] may be forward looking statements here.”
Mr. Pike’s cursory warnings were insufficiently “meaningful” to qualify the statements for the safe harbor….
To be sure, executives of publicly traded companies are not required to incant a precise prophylactic warning to warrant protection under the safe harbor. But all that was required was for Mr. Pike or one of his employees to orally identify the “document, or portion thereof, that contains the additional [cautionary] information” — in other words, to direct his audience to the cautionary statements made in some prior disclosure.
Ann noted that, in the end, things worked out for the company because the case was dismissed on other grounds. However, she says the Court’s approach to the “accompanied by” requirement came as a bit of a surprise, because for as long as she can remember, courts have been “handwaving the PSLRA’s formal requirement of accompaniment.”
This Ashurst Perkins Coie memo reviews commentary on SEC enforcement initiatives at two recent conferences held in Chicago. This excerpt discusses some of the insights gleaned from commentary at those events on the SEC’s recently announced Financial Reporting and Accounting Unit and what that unit expected to focus on:
The establishment of the Division’s Financial Reporting and Accounting Unit, announced by the SEC in an August 5, 2026, press release and discussed by [SEC Enforcement Director David] Woodcock in a September 18, 2026, speech persisted as a recurring theme across conferences, panels, and panelists. The unit is the successor to the Financial Reporting and Audit Task Force that Woodcock led in 2013, but panelists drew a critical distinction: Unlike a task force, a dedicated unit has its own staff, management structure, and resources—more akin to the SEC’s Cyber and Emerging Technologies Unit in terms of institutional permanence.
Panelists expect the unit to pursue public company accounting fraud, non-GAAP disclosure cases, and auditor/gatekeeper matters. Life sciences, healthcare, pharmaceutical, and medical device companies were flagged as sectors of particular interest to the current administration. Speakers cautioned, however, that financial reporting cases are inherently complex and typically take approximately two years to develop; the first year will likely involve matters already in flight. Defense counsel reported that staff in at least some accounting-related investigations are pushing for testimony earlier in the process—sometimes before document productions are complete—signaling a shift in investigative tempo.
I hope you were able to join us on Tuesday for our “2026 Proxy Disclosure Conference” and yesterday for our “23rd 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 13 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, don’t fret – 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 2026 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 2026 Proxy Disclosure & 23rd 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.
One final quote as we leave Orlando – and I’ll take it from Walt Disney, both because it wouldn’t be right to leave Orlando without hearing from him, and because I think it sums up the big picture lessons from this year’s conferences:
“In this volatile business of ours, we can ill afford to rest on our laurels, even to pause in retrospect. Times and conditions change so rapidly that we must keep our aim constantly focused on the future.”
