Yesterday, the SEC proposed big changes to the rules and forms governing registered offerings. The amendments – as set forth in this 511-page proposing release – are intended to encourage public capital formation by increasing efficiency, flexibility, and cost savings for public companies – while making it easier for broker-dealers to provide research coverage for a broader universe of public companies and maintaining robust investor protections. These excerpts from the SEC’s fact sheet explain the key points:
Form S-3 eligibility:
– The proposed amendments would revise Form S-3’s eligibility requirements by, among other changes, removing the requirement that issuers be subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) for 12 months before using the form and eliminating all of the form’s transaction requirements, including the instruction that requires issuers to have at least $75 million in public float to register an unlimited amount of securities on the form. Form S-3 would continue to require that issuers be current and timely in their Exchange Act reporting requirements and would prohibit certain “ineligible issuers” from using the form.
– Taken together, the proposed amendments are intended to allow a greater number of issuers flexibility to access the public securities markets quickly by using Form S-3 while also ensuring that investors remain appropriately protected. The release states that, under the proposed amendments, there could be an increase of over 60 percent in the number of issuers eligible to offer an unlimited amount of securities on Form S-3. These newly eligible issuers would benefit from the cost savings and capital raising efficiencies and flexibilities associated with the ability to use Form S-3 and conduct shelf offerings.
Enhanced Registration and Communication Benefits:
– Currently, certain registration and communication benefits are reserved for “well-known seasoned issuers” (WKSIs). In order to qualify as a WKSI, an issuer must have at least $700 million in public float or have issued at least $1 billion of debt securities in registered offerings. Under the proposed amendments, issuers would not be required to meet either of these metrics in order to qualify for the enhanced registration and communication benefits. Instead, under the proposed amendments, issuers would qualify for all of those benefits — other than the ability to use an automatic shelf registration statement — if they are eligible to use Form S-3 and have at least one class of common equity securities listed on a national securities exchange. Issuers would have to be subject to the Exchange Act’s reporting requirements for 12 months before being able to use an automatic shelf registration statement.
– These proposed amendments are intended to provide a greater number of issuers the flexibility to access the public securities markets on demand using automatic shelf registration statements and to benefit from other offering-related flexibilities while also ensuring that investors remain appropriately protected. The release states that, under the proposed amendments, there could be an increase of over 200 percent in the number of issuers eligible for all of the enhanced registration and communication benefits.
Preemption of State Securities Law Registration and Qualification Requirements:
– The proposed amendments would define “qualified purchaser” under Section 18(b)(3) of the Securities Act and preempt state securities law registration and qualification requirements with respect to any registered offering. Such preemption currently applies to registered offerings in which the securities being offered and sold are listed or approved for listing on a national securities exchange. Preemption currently does not, however, apply to registered offerings of unlisted securities.
– The proposed amendments, therefore, would eliminate the costs associated with complying with numerous states’ registration and qualification requirements for registered offerings of unlisted securities. The proposed amendments are intended to lower the cost of a registered offering of unlisted securities and, as a result, facilitate capital formation in a manner that is consistent with investor protection.
Incorporation by Reference on Form S-1:
– The ability to incorporate by reference information into Form S-1 filed before the effective date of the registration statement (backward incorporate) currently is limited to issuers that, among other things, have filed an annual report for their most recently completed fiscal year. Further, the ability to incorporate by reference information filed after the effective date of a Form S-1 (forward incorporate) currently is limited to issuers that are smaller reporting companies (SRCs). Under the proposed amendments, issuers would be able to backward incorporate regardless of whether they had filed an annual report for their most recently completed fiscal year and forward incorporate regardless of whether they are an SRC. The proposed amendments would, therefore, allow a greater number of issuers to enjoy the cost savings associated with incorporation by reference, with an estimated increase of up to 106 percent in the number of issuers eligible to forward incorporate on Form S-1.
The SEC’s press release touts the proposal as “the most significant modernization of the registered offering framework in more than 20 years.” If adopted, the amended rules would also maintain parity between certain Form N-2 filers and operating companies across registration, offering, and communication provisions, and expand access to broad-based advertising for certain non-variable annuity insurance products.
Comments are due 60 days after publication of the proposal in the Federal Register (which usually takes about 30 days). For more color on the proposal and its potential impact, members can check out the memos that we’ll be posting in our “Securities Act Reform” Practice Area.
In addition to yesterday’s proposal on registered offerings, the Commission issued a 318-page proposal on “Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies.” If adopted, these changes would simplify the public company reporting framework and recalibrate disclosure obligations to align with a company’s size and maturity. Specifically, the SEC’s fact sheet highlights that, if adopted, the proposal would:
• Raise the public float threshold for becoming a large accelerated filer from $700 million to $2 billion and calculate it based on the average stock price over the last 10 trading days of the second fiscal quarter.
• Require that the public float threshold be met two years consecutively so that a one-year swing alone does not change filer status.
• Require at least 60 consecutive calendar months of reporting before a company can become a large accelerated filer.
• Eliminate the categories of accelerated filer and smaller reporting company filer so that all companies that are not large accelerated filers simply become non-accelerated filers. Non-accelerated filers would not be required to obtain an auditor’s attestation on a company’s internal control over financial reporting.
• Extend to all non-accelerated filers the same disclosure scaling and other accommodations currently available to smaller reporting companies and emerging growth companies. This includes no say-on-pay or say-when-on-pay shareholder advisory votes, scaled executive compensation disclosure (including no pay versus performance disclosure), and fewer years of financial statements (with reduced presentation requirements).
• Establish a new sub-category of small non-accelerated filers for companies with total assets of $35 million or less for the two most recent years. Small non-accelerated filers would have an additional 30 days to file Form 10-K annual reports and an additional five days to file Form 10-Q quarterly reports.
• Update the Commission’s issuer “small entity” definitions for purposes of the Regulatory Flexibility Act.
The fact sheet notes that if the proposed amendments were in place today, 19.2 percent of current public companies would be large accelerated filers (compared to 35.4 percent currently) and 80.8 percent would be non-accelerated filers. A total of 17.9 percent of public companies (or 22.2 percent of non-accelerated filers) would be small non-accelerated filers. Taken together with the registered offerings proposal, these amendments could be especially helpful!
Comments are due 60 days after publication of the proposal in the Federal Register (which usually takes about 30 days). We’ll be posting memos that dive into the impact of the proposal in our “Filer Status” Practice Area for members.
In a recent perusal of the SEC website, I came across this official org chart that shows how the Commission is currently structured. This can be helpful for understanding who’s doing what – e.g., what’s under the purview of the Office of the Chair versus various Divisions.
We’ve posted this org chart along with a collection of Staff information and guidance on our “SEC Staff Guidance” Practice Area for members – which you can get to through the “SEC Rules” menu at the top of our home page. It’s a helpful one-stop shop for Commission and Staff info that lives across various parts of the SEC website.
That was fast! After a quick turn with OIRA that John blogged about last week, the SEC announced yesterday that it had issued a final rule to rescind its “neither admit nor deny” policy – and repeal Rule 202.5(e) of the SEC’s informal rules of procedures, which codified the policy.
Since 1972, the so-called “gag rule” said that the Commission wouldn’t settle enforcement actions involving sanctions unless the defendant or respondent agreed not to publicly deny the allegations in the complaint or administrative order. Here’s an excerpt from the rescission announcement:
Rescinding Rule 202.5(e) aligns the Commission with the overwhelming majority of federal agencies that do not have a similar rule and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors. The recission recognizes that the effect on the public interest from such denials may be minimal and that the policy itself may have created an incorrect impression that the Commission is trying to shield itself from criticism.
The announcement continues:
There is no known instance of the Commission seeking to reopen an administrative or civil proceeding as a consequence of a defendant or respondent violating a no-deny provision to which they have consented.
In light of the recission of Rule 202.5(e), the Commission will not enforce existing no-deny provisions that have already been entered. In the event of a breach of an existing no-deny provision, the Commission will take no action to ask a district court to vacate a settlement (or to reopen an adjudicatory proceeding) in connection with the terms of the settlement agreement.
The Commission generally does not require settling defendants to admit to allegations. Today’s recission does not affect the Commission’s practice related to admissions in settlements and does not affect the Commission’s discretion to settle with defendants who decline to admit facts or liability or its discretion to negotiate for admissions as part of a settlement.
In this statement supporting the decision to rescind the policy, Commissioner Peirce reiterated that settlements won’t disappear – the messaging will just be less one-sided:
Ending this imprudent policy, of course, does not mean that the Commission will stop resolving cases through settlement. The excellent investigative work of our professional, dedicated staff stands on its own ground, notwithstanding a defendant’s protestations of innocence. The public now will be able to assess the Commission’s case in light of a defendant’s denials. The result, I expect, will be what free speech often produces: somewhere between cacophony and euphony—neither terribly pleasing to the ear, not entirely unpleasant to hear. That the noise happens at all, however, is a substantial step forward for both the Commission and the right of a free people to speak their mind.
Yesterday, the SEC approved a NYSE rule change that amends Section 703.12(II) of the NYSE Listed Company Manual to expand the circumstances under which rights may be listed on the exchange. Here’s an excerpt from the SEC order:
As described in more detail in the February 11, 2026 Notice, the Exchange proposes to amend Section 703.12(II) of the Manual to provide that for purposes of the Exchange’s listing standards, “rights” will refer to the privilege offered to recipients of such rights to subscribe for shares of a class of securities of such issuer that is listed or to be listed on the Exchange, regardless of whether the recipients of the rights are existing shareholders of record of such issuer.
The Exchange also proposes to permit the listing of a right where the security into which such right is exercisable will be listed on the Exchange upon the exercise of the rights and such exercise is pursuant to a registration statement filed under the Securities Act of 1933 (“Securities Act Registration Statement”) that has been declared effective by the Commission prior to or simultaneous with the listing of such rights (“Prospective Listing Rights”).
The Exchange further proposes related changes, among other things, to specify that listed rights may be issued to the initial recipient of such rights either with or without the payment of consideration by such initial recipients, to set forth numerical requirements for listing of Prospective Listing Rights, to provide that funds paid upon exercise of Prospective Listing Rights must be held in a trust account, and to establish a maximum listing period and specify conditions for delisting of Prospective Listing Rights.
This isn’t the first time the NYSE has proposed expanding the circumstances under which rights can be listed on the exchange – but prior iterations didn’t make it across the finish line. The exchange expects the update will “give issuers greater flexibility in structuring a rights offering as a capital raising tool” and will “provide a source of capital for the acquisition of assets.” Here are a few other details from the Notice:
The proposed provisions relating to Prospective Listing Rights mean that some listed rights may list and trade on the Exchange prior to the listing and trading of the securities for which such rights are exercisable. The Exchange believes that this amendment will give issuers greater flexibility in structuring a rights offering as a capital raising tool.
Specifically, the Exchange believes that the requirement that there be an effective Securities Act Registration Statement in relation to the exercise of the Prospective Listing Rights prior to or simultaneous to the listing of the Prospective Listing Rights would provide a significant investor protection as it would ensure that investors trading or exercising the Prospective Listing Rights would have access to the appropriate level of disclosure to enable them to make informed investment decisions. The Exchange notes that the issuer of the Prospective Listing rights will be required by law to update this Securities Act Registration Statement to reflect any material changes in the information required to be included therein that arise between the time of effectiveness of the Securities Act Registration Statement and the exercise of the Prospective Listing Rights, thereby ensuring that investors trading the Prospective Listing Rights on the Exchange will have access to current information about the issuer on a continuous basis.
Any security underlying a Prospective Listing Right will be required to meet applicable initial listing standards set forth in Section 102.00 or Section 103.00. Prospective Listing Rights would only be eligible for initial listing if, at the time of initial listing, such Prospective Listing Rights meet the following initial listing requirements: (i) at least 1,000,000 rights issued; (ii) an opening trading price of at least $1.00 per Prospective Listing Right; (iii) market value of publicly-held securities of at least $10 million, and (iv) at least 400 public holders of round lots.
The Exchange notes that the proposed distribution requirements are identical to those required
for securities to be listed under the “equity” standards (i.e., for trading on the NYSE’s trading floor) under Section 703.19 (“Other Securities”) of the Manual. The required $10 million in market value of publicly-held securities proposed initial listing requirement for Prospective Listing Rights exceeds the $4 million total market value for securities listed under the “equity” standards for securities listed under Section 703.19.
As proposed, any funds paid upon exercise of Prospective Listing Rights by the holders thereof must be held in a trust account controlled by an independent custodian until consummation of the transaction in connection with which such Prospective Listing Rights are being exercised. The Prospective Listing Rights must provide by their terms that the funds held in trust will promptly be returned to the holders who have submitted the required exercise price in the event that the transaction agreement is terminated or is not consummated within one year of the initial listing of such Prospective Listing Rights.
This summer, the Nevada Secretary of State is launching Phase 2 of its new business portal – Orion – which was first announced back in 2023 and began an initial rollout last December for UCC forms.
“Orion” is a nod to Nevada’s first “territorial secretary,” Orion Clemens. You may not have heard of Orion Clemens, but you have probably heard of his younger brother Samuel – better known as Mark Twain. With this new portal, Orion’s fame will no doubt eclipse his brother’s for generations to come. (Okay, maybe not “eclipse,” but being honored with a business licensing website is better than nothing, and it is generous for Nevada to bestow this honor even though Clemens eventually left Nevada and lived out his days in the superior state of Iowa.)
The summer launch will change the filing process for business licenses, articles of incorporation, registrations, certificate requests, etc. If you are making filings in Nevada, it is important to know that new forms are required. The website says:
– There are new, easier to understand forms! Please note that the new ORION system will only accept the updated filing forms.
– Forms previously used in SilverFlume will not be accepted after launch.
– To help you prepare, links to all new forms will be updated on NVSOS.gov at lease 30 days prior to go-live.
In remarks last week at the MFA Legal & Compliance Conference, the SEC’s newly minted Enforcement Director, David Woodcock, outlined how he intends to lead the Division and what that means for current enforcement priorities. Here’s an excerpt:
As a matter of first principles, my goals are aligned to those of Chairman Atkins: to return the enforcement program back to basics. That means vigorously protecting investors and safeguarding markets, while also providing transparency and certainty to those we regulate.
A quick aside, there has been considerable attention paid to the decline in the number of cases brought over the last several years. Let me be clear: this Commission has deliberately shifted toward an emphasis on quality over quantity, and I fully support that direction.
Our focus is, and will remain, on protecting investors and safeguarding markets from real harm. That means identifying and stopping fraud and manipulation in all its forms—for instance, offering frauds, accounting and disclosure fraud, insider trading, market manipulation, fraud by foreign actors targeting U.S. markets and investors, and breaches of fiduciary duties by advisers misusing client assets.
To emphasize the Division’s focus on rooting out fraud, David has reinstituted the “Retail Fraud Working Group” – which focuses on protecting retail investors and strengthening coordination with state and federal partners. The speech says we’ll hear more on this in the coming weeks.
Another key takeaway from the speech is that the Commission is committed to distinguishing fraud from errors – and calibrating remedies accordingly. But investigative targets who want to try to show that their missteps were unintentional will have to be able to make a case with evidence and facts. According to these remarks, the Division will also look favorably on self-reporting and cooperation. Here’s more detail on that point:
A company that self-reports, cooperates fully, and remediates will not be treated the same as one that conceals or obstructs.
The takeaway is simple: engage early, engage seriously, and engage candidly. If your client operates in a gray area, take advantage of the Commission’s stated commitment to pre-enforcement dialogue. If we misunderstand your business model, use that opportunity to clarify. The days when a subpoena was our primary tool of communication are behind us.
That being said, I want to emphasize that the Division’s staff are some of the finest securities lawyers anywhere. Zealous client advocacy by defense counsel is wanted and expected, but I ask that you respect the Division chain of command, and not assume that you as counsel have a perfect understanding of the Commission’s priorities and what cases will or will not ultimately be brought. Similarly, respect and dialogue go both ways. You should treat our staff with the utmost respect, because that is how we aim to treat you.
Check out this Cleary memo for more color on David Woodcock’s impact on the Division and its priorities.
We don’t blog much about Delaware Superior Court decisions, but in this D&O Diary blog, Kevin LaCroix highlights a recent case that’s worth a read. Here’s Kevin’s intro:
One of the perennial D&O insurance issues involves the question whether “disgorgement” amounts awarded in SEC proceedings represent “penalties” for which insurance coverage is precluded. In the latest example of a case involving these issues, the Delaware Superior Court recently held, in reliance on the statutory provisions defining the SEC’s authority to seek monetary remedies, that the disgorgement amounts and prejudgment interest awarded against a large media company are not “penalties” for which coverage is precluded. As discussed below, the court’s analysis of the issues, and its reference to the relevant statutory provisions, is both detailed and instructive.
In explaining the decision and its implications, Kevin says:
Although I continue to view the Delaware Superior Court as generally favorable to policyholders, I don’t think this generalization explains the court’s decision here. I don’t think the court’s decision here can be understood as yet another example of this court’s policyholder proclivity.
The court’s reasoning here about whether or not “disgorgement” is a “penalty,” and therefore precluded from coverage, is based on the language of the statutory provisions authorizing the monetary remedies the SEC may seek. The court found a distinction in the statutory language between “penalties” on the one hand and “disgorgement” on the other, and, more importantly for purposes of the issues in dispute here, the court found further that the words used in the relevant policy provision “mirror” those securities law statutes. Both the statute and the policy provision, the court said, “delineate” between penalties on the one hand and disgorgement on the other.
In other words, the court’s decision is grounded in the relevant statutory provisions and corresponding policy language. Moreover, this connection to the relevant statutory provisions was sufficient for the court to reject the insurer’s attempt to rely on seemingly contradictory dictionary definitions of the term “penalties.”
As Kevin notes, the insurer is likely to appeal – and disputes on this issue are likely to continue. Here are his parting thoughts:
I suspect that in the future policyholders seeking coverage for disgorgement amounts will try to marshal the arguments that were successful here – that is, that the relevant statutory authority allowing the SEC to seek monetary remedies draws a distinction between “penalties” on the one hand, and disgorgement on the other hand, and that the relevant policy language “mirrors” this distinction.
In this 27-minute episode of the Women Governance Trailblazers podcast, Courtney Kamlet and I spoke with Suzanne Miglucci, who is a board-readiness coach, Chair of the NACD’s Research Triangle Chapter, and has held CEO, CMO and independent director roles at various companies. We discussed:
1. Suzanne’s career highlights from her various roles, including her time as CEO of Charles & Colvard and her time as CMO at ChannelAdvisor.
2. Leveraging technology and trusted resources to stay informed on current governance issues.
3. Tips for expanding and maintaining a professional network.
4. Top three pieces of advice for C-suite leaders who are seeking executive coaching or board readiness training.
5. Suzanne’s advice for the next generation of women governance trailblazers.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Drop me an email at liz@thecorporatecounsel.net.
The last time we blogged about the folks from the r/wallstreetbets subreddit was during the height of the pandemic’s meme stock craze. I was pretty dismissive of them back then, but I’ve gotta tip my hat to them for the comments they recently submitted on the SEC’s semiannual reporting proposal. Not only do they raise some pretty good points, but they do so through an endearing and amusing mix of self-deprecation and sarcasm. For example, there’s this:
We understand the Commission is more accustomed to receiving comment letters from people who use words like “stakeholder ecosystem,” and we will try to keep up. A word on who we are, we are self-directed retail investors. Some of us are very good at this and some of us are, in the technical securities law sense, terrible at it. Many of us learned what a 10-Q was the hard way, which is to say we bought a stock, watched it fall 40% on an earnings release, and then read the filing to find out why. That is a stupid order of operations and we acknowledge it. But it is also the entire mechanism by which a generation of retail investors taught itself to read financial statements, and the Commission is now proposing to cut that mechanism in half.
And then there’s this:
We also want to register, respectfully, our objection to the suggestion that quarterly reporting is a burden the Commission can lift to help companies focus on the long term. The companies we trade are not being held back from greatness by the obligation to file four reports a year. Apple files a 10-Q every quarter and has nine hundred billion dollars in cash equivalents. Nvidia files a 10-Q every quarter and is worth more than the GDP of most G20 countries. The entire S&P 500 files a 10-Q every quarter, and the S&P 500 is at an all-time high. If quarterly reporting is crushing American capitalism, American capitalism is hiding it well. We have looked.
To paraphrase Jerry Maguire, you had me at “that is a stupid order of operations. . .” The only negative is one that undoubtedly would have been pointed out to the authors by their fellow Redditors if this was posted on that website – it’s a 750 word wall of text without any paragraph breaks. The folks at Securities Docket flagged this problem as well, and commented “C’mon man! Just hit “Return” on the keyboard a couple times!”
Still, I wonder if Securities Docket may be pointing the finger at the wrong culprit. This seems to be a problem with a lot of comments on the SEC’s website that don’t attach a .pdf, so maybe the problem is with the SEC’s interface? In any event, whoever is to blame obviously hasn’t gotten the message that every Reddit user has heard repeatedly – “paragraphs are your friend.”
