On Friday, the SEC posted a notice saying that it “will remain open and operational in the event the federal government undergoes a lapse in appropriations on October 1. Any changes to the SEC’s operational status after October 1 will be announced on this website.” So the SEC’s complete operations – including review and declaring registration statements effective – will continue until further notice (this is what happened during the pair of shutdowns in fiscal ’96, which was the last time the government shut down – see this NY Times article about those). So maybe the answer to my poll about how many Corp Fin Staff are considered “essential” during a shut down is “all”?
It looks like some media outlets got confused and reported something different, perhaps because at the same time its “we’re staying open” notice was posted, the SEC simultaneously posted its shutdown plan. What we don’t know is how long the SEC can keep its doors open if the rest of the government is closed.
On Friday, the SEC extended the comment period for its latest Reg D proposals by 30 days…
Today’s Spreecast: “PCAOB’s Audit Report Proposals: A Big Sleeper?”
Come participate in the spreecast – “PCAOB’s Audit Report Proposals: A Big Sleeper?” – at 1 pm eastern today! During it, Davis Polk’s Joe Hall & re:theauditor’s Francine McKenna will analyze the PCAOB’s new audit report proposal that could come to rival Sarbanes-Oxley’s Section 404 – internal controls – as a burden we all face. To access the spreecast, go here at 1 pm eastern. [Note the recent “More on Reg D Offerings Today” spreecast has had over 700 views; a new spreecast has been calendared for October 22nd: “Latest Corp Fin Comment Letter Trends“]
Here are FAQs about how spreecasts work – but the upshot is you have to register for Spreecast first (although it’s possible to watch without registering if you close a prompt). Simply sign up by using an email address by clicking the “Or sign up via email” link in the upper right hand side of the site (it’s in small print under the “Connect with Facebook” logo).
The Great Ellison and the America’s Cup
Here’s a note from Yahoo!’s Carrie Darling:
Last Wednesday, as I was flying back home from Broc’s conference in D.C., I watched The Great Gatsby. Unfortunately, the timing of my flight was such that I was missing the America’s Cup yacht race. When I got off the plane, I had a text from my husband saying that Oracle Team USA had won the America’s Cup. All I could think of was “The Great Ellison.” I kept saying it over and over to myself as I waited in baggage claim (baggage claim is really slow in San Jose). What is this America’s Cup you ask? Why is Ellison so great? Well, let me tell you . . .
Larry Ellison is the CEO of Oracle Corp. and is the driving force behind/owner of Oracle Team USA. Last Wednesday, Oracle Team USA’s victory marks one of the most improbable comebacks in the history of sports. His team won 11 races to score the 9 points required for victory, due to a penalty imposed by the International Jury of two points. Only a week before on September 18, Oracle Team USA trailed the series 8-1. They came back to win the series over Emirates Team New Zealand with eight consecutive victories. What an amazing day for sports and sailing.
So, what is the America’s Cup? The America’s Cup is the oldest international sporting trophy. The America’s Cup, affectionately known as the “Auld Mug”, is a trophy awarded to the winner of the America’s Cup match races between two sailing yachts. One yacht, known as the defender, represents the yacht club that currently holds the America’s Cup and the second yacht, known as the challenger, represents the yacht club that is trying to take the cup away from the defender. The timing of each match is determined by an agreement between the defender and the challenger.
The trophy was originally awarded in 1851 by the Royal Yacht Squadron for a race around the Isle of Wight in England, which was won by the schooner America. America finished 8 minutes ahead of her closest rival. Queen Victoria, who was watching at the finish line, was reported to have asked who was second, the famous answer being, “Ah, Your Majesty, there is no second.” Thus, the trophy was renamed the America’s Cup after the yacht (not after the country) and was donated to the New York Yacht Club (NYYC) under the terms of the Deed of Gift, which made the cup available for perpetual international competition.
Any yacht club that meets the requirements specified in the Deed of Gift has the right to challenge the yacht club that holds the Cup. If the challenging club wins the match, it gains control of the cup.
The trophy was held by the NYYC from 1857 until 1983 when the Cup was won by the Royal Perth Yacht Club, ending the longest winning streak in the history of the sport. From the first defense of the Cup in 1870 through 1967, there was always only one challenger. In 1970, for the first time, there were multiple challengers. Louis Vuitton has sponsored the Louis Vuitton Cup as a prize for the winner of the challenger selection series since 1983.
Early matches for the Cup were raced between yachts that were between 65-90 ft. long. The 2010 America’s Cup was raced in 90 ft. multi-hull yachts in Valencia, Spain. Challenger BMW Oracle Racing beat defender Alinghi 2-0 and won the Cup for the Golden Gate Yacht Club, bringing it back to San Francisco Bay. The 2013 America’s Cup was raced in AC72 wing-sail catamarans, and was held in the San Francisco Bay. It remains to be seen where Ellison will decide to hold the next America’s Cup races. If not in San Francisco, I vote for Lanai!
With a government shutdown starting to look quite possible on Tuesday, many members have emailed me this week wondering how deals will get through Corp Fin if it indeed happens. As I blogged last week, sadly we’ve seen this movie before. Here’s a blog about what the SEC said back in ’11, when a shutdown seemed likely (but never happened). Essentially, the SEC’s statement said:
EDGAR will remain fully functional – but that the SEC’s Divisions (including Corp Fin) will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal activities. As a result, new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings.
There will be only an “extremely limited number” of Staffers working during the shutdown – so although the SEC’s statement provides an email address and phone number for emergencies, I imagine only true emergencies will be handled by the Staff. Other than these designated essential Staffers, any attempt to work during the shutdown is a firing offense – so there is nothing that a staffer can do for you even out of kindness of their heart. The government is scheduled to shutdown tonight at midnight.
I imagine that we will see a similar statement from the SEC either today or on Monday…
Improving Your Communications
In this podcast, Theresa Hyatte and Scott Morgan of MorganHyatte explain why – and how to – better communicate, including:
– What types of communication training do most corporate lawyers need?
– How is training for talking to the media different than other types of communication training?
– How can a corporate lawyer tell if they are someone that needs training?
– What is your process for training?
The legal cost and accounting cost of the following items can easily cause death by expense of crowdfunding:
1. Disclosure Document and Due Diligence Cost
2. Accounting Cost of Financial Statements and shareholders’ equity statements, so that investors understand what percentage they are buying and for how much. Even if the financials are not audited or reviewed, even if “compiled” standard, accountants compiling the financials require special certifications for public offerings, and therefore at higher costs.
3. Portal Costs – How do the Portals get paid? Assuming some cost to the Issuer, out of the raise, or in advance?
4. Portal Legal Fee Cost – Legal Negotiations between Issuer and Portal – What liability shifting from Portal to Issuer will occur in the Portal Agreement? Issuer’s counsel called on scene to protect Issuer from liability, or alternatively add a liability risk disclosure to the Disclosure Document. Will Portal’s counsel start with an underwriting agreement and edit? (If so, this process will keep Issuer’s counsel busy, and on their toes.) Very costly process either way, especially as we collectively “figure this out”. Even after “standard” provisions settle in, the Portal Agreement would likely be a negotiated agreement, which adds Portal’s law firm costs to the mix. Who pays those? Negotiating process between Issuer’s counsel and Portal’s counsel will add cost to an already “too large budget, for the size of the deal”. Add an interesting phenomenon if the Portal does not have counsel?
5. Legal Fee Cost of Subscription Agreements, with many permutations. With complexity comes cost. Though these costs will settle down eventually.
6. Legal Fee Cost, Consultant’s Cost, or Issuer’s In-House Compliance Cost, of Monitoring Investor Compliance with the Investor Thresholds – Various percentage calculations and income or net worth calculations, and investment limits based on both, will require due diligence on the investor. Issuer must maintain calculations on each investor and its threshold. The “per investor” cost of legal fees goes up.
7. Legal Fee Cost, or Issuer’s In-House Compliance Cost, of Reporting Notice to the SEC – Crowdfunding notice will likely be a pre-offer notice, which typically includes substantial detail in reporting, if not inclusion of the disclosure document.
8. Social Media Cost – Legal Fee cost of managing/reviewing/editing communications of Issuer/clients over social media.
Crowdfunding: A Preview of State Discontent?
And Kim Lisa Taylor of Trowbridge & Taylor notes: This “Notice of Intent to Issue Cease and Desist Order” illustrates the Ohio Division of Securities’ opinion about crowdfunding. Despite the fact that SoMoLend jumped the gun, Ohio appears to have carefully crafted this Notice to illustrate their issues with crowdfunding in general. This Notice could be the first of many if other states share their sentiments.
There are currently a number of companies online purporting to offer crowdfunding opportunities (not just the donation type), who apparently don’t understand that it’s not yet legal or that they will have to be an approved portal to offer them when (if ever) it becomes legal. The public’s confusion appears to stem from the mass media’s misuse of the term “crowdfunding” to describe everything from crowd-sourcing (for non-profit purposes) to advertising for accredited investors under new Rule 506(c).
When I tell people it’s not yet legal, they don’t believe me, citing the numerous websites and articles that talk about it as if it is. My law partner and I I teach hundreds of real estate investors how to syndicate every year. This misinformation problem seems to be prevalent in the real estate investing industry – and I hear that many “guru” types are teaching crowdfunding to wannabe group sponsors as if it’s legal. I also have a column in the September/October issue of “Personal Real Estate Investor Magazine.”
Crowdfunding: Will It Really Help Startups in the Long Run?
Say startups raise small sums of $100K-$400k through crowdfunding. What are they left with then? Is the result consonant with the rationale for the Act, creating jobs? Will such startups be real businesses? Can they go forward as is? Or do they then have to raise real sums? Could they? Will the commercial lender look at them? The VC? Will such startups be able to do real rounds or even go IPO? Would they have to go through an expensive restructuring to become a real contender?
As a strategic matter, startups that go after such small sums – $100K-$500k – usually think that they need only a small cash infusion to get into production, to get the first contract, to build a prototype and file a patent application, or to sit and code in an incubator, but how often is this need realistic? Usually they end up being seriously undercapitalized, if they succeed at all, because they misunderstand burn rate. They mistake their real costs and their real needs because they defer the critical financial questions. Marketing, ramp up, and scale up seem much farther away than they actually are. Sometimes reality is too complex to understand or too scary to think about. Such startups usually end up going back to the trough many times.
Too many startups have been down this path. It’s the classic story in angel, friend, and family funding. Sometimes the startups are the next instant hit, the designer cupcake or disruptive gadget, but more often, the startups run through the first $300k and then they are back trying to raise the next $300k, if, in fact, they don’t just disappear. Their “deal lawyer” rarely sees them again or they become the habitual client, in the door every two years or so. Years on, they seem to be largely in the business of raising small sums. And if one looks at their real business model, one sees that the world has moved on and the market opportunity or the technology window has gone; someone else has already done it or built something better.
Crowdfunding is a source of ready cash but I’m not sure it has much to do with creating jobs or growing real companies. Vanity funding may have its place, but it doesn’t make economies run – which was the point if the JOBS Act.
You may not be familiar with the ‘mandate’ under the America Invents Act, under which patent lawyers are asked to provide free legal assistance to startups and inventors as part of the ABA Model Rule 6.1 obligation to provide “at least” 50 hours of pro bono work a year. That is quite an obligation when all lawyers in this high liability field are pressured to discount heavily and to accept conflict-ridden sweat equity.
Here’s a note from the US Patent Office: “The America Invents Act specifically called on the United States Patent Office and practitioners alike to establish a pro bono program to assist financially under-resourced independent inventors and small businesses. The USPTO is working with different regions across the country by educating both IP law associations and non-profits on how these pro bono programs work and how to successfully implement them in new regions. Efforts are now well underway with volunteers endeavoring to achieve the goals of ABA Model Rule 6.1 to provide at least 50 hours of pro bono legal services per year.”
A while back, I blogged that Dr. Mike Piwowar was sworn in as an SEC Commissioner by the SEC’s Los Angeles Regional Office Director – and a few members asked me who had the authority to swear a Commissioner in? Before answering that question, let me explain what the oath is.
As noted on this site, federal employees take the same oath of office as Congress, by which they swear to support and defend the Constitution. Specifically, the oath is:
“I, [name], do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.” 5 U.S.C. ยง3331
According to this site, the history of the oath for federal employees can be traced to the Constitution, where Article II includes the specific oath the President takes – to “preserve, protect, and defend the Constitution of the United States.” Article VI requires an oath by all other government officials from all three branches, the military, and the states. It simply states that they “shall be bound by oath or affirmation to support the Constitution.” The very first law passed by the very first Congress implemented Article VI.
So now to the question of who within the SEC has the authority to administer the oath? I think it is pretty much anyone. As I recall, some low-level Staffer – who worked in human resources – swore me in on the first day when I joined the Staff (each time; I was sworn back in when I did my second tour of duty).
25 Years Ago Today: Grabbing a Doughnut…
Wow. Twenty-five years ago, I began my legal career by starting my job as an examiner in Corp Fin. Upon arriving and doing the half-day of orientation – including getting sworn in – I reported to duty in one of the banking branches. My branch chief handed me a copy of Regulation S-K and said “read this.” That was my training. More on all that someday.
Anyways, six of us started the same day. Back then, Corp Fin hired most of its new lawyers straight out of law school (laterals were rarely hired from firms, etc.) So at the beginning of every fall, there would be a new class of “newbies.” A handful would start every two weeks – ie. start of a bi-weekly pay period – through August and September (we started before we even learned whether we had passed a bar exam – I believe you would be on tentative status for a year, giving you three chances to pass). Most of the examiners in the Division were young and single – and from different parts of the country. A lot of fun.
So a hearty “shout out” to those that started in my class, including good friends Mark Coller, Bill Tolbert & Larry Spaccasi. Marty Dunn, Laurie Green, Peggy Fisher, Scott Freed & Todd Schiffman started a few weeks before. Here’s a recent pic of Bill & I using our fingers to signify the 25th anniversary. And Mark, Larry & I are in this old pic from back in the day. I had hair (and crutches as I started the job with a broken leg)!
Today is the “Say-on-Pay Workshop: 10th Annual Executive Compensation Conference”; yesterday was the “Annual Proxy Disclosure Conference” – and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – on the home pages of those sites – will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Flash Player). Here are the “Course Materials,” filled with talking points and practice pointers.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s conference agenda; times are Eastern.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
SEC’s Portal: Voluntary Submission of General Solicitation Materials Used in Rule 506(c) Offerings
Yesterday, the SEC created this “voluntary submission” portal for general solicitation materials used in Rule 506(c) offerings. There is also a bold-faced paragraph for folks to submit tips & complaints to report possible violations of the federal securities laws…
SEC’s Office of Investor Education Issues Two Reg D Alerts
Yesterday, the SEC’s Office of Investor Education issued these two Reg D alerts:
A while back, I tweeted about how I wish we could all bet on the weather. I was quickly schooled by a member who pointed out that there is a huge weather derivatives industry. Maybe this is why we have global warming? Someone is manipulating the weather with ray guns…
More on what is wrong with some parts of the legal profession. See this order regarding a “baby continuance”…
Today is the “Tackling Your 2014 Compensation Disclosures: The Annual Proxy Disclosure Conference”; tomorrow is the “Say-on-Pay Workshop: 10th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – on the home pages of those sites – will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Flash Player). Here are the “Course Materials,” filled with talking points and practice pointers.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s conference agenda; times are Eastern.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list for each Conference in the FAQs.
How Do “Bad Actor” Disqualifying Events Fit With FINRA Forms U4 & U5?
Today’s a big day as the SEC’s new Reg D rules kick in. Here’s something from MoFo’s Nilene Evans in this blog:
The new SEC “bad actor” provisions of Rule 506(d) become effective on September 23, 2013. Investment banks, which monitor FINRA compliance by their professionals, must ensure that their compliance systems capture all the potentially new requirements of Rule 506(d). The FINRA disclosure obligations of Forms U4 and U5 are more extensive than the Rule 506(d) provisions and for the most part, the texts are very different. But it is clear that most of the SEC “bad actor” disqualifying events are picked up by FINRA other than Rule 506(d)(1)(viii), which addresses violations of U.S. Postal regulations. For our readers’ convenience, here is a chart comparing the FINRA U4/U5 disclosure obligations to Rule 506(d).
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– FINRA Cracks Down on Private Placements
– U.K. Mulls Audit Reforms
– Delaware Enacts Benefit Corporation Legislation
– Fair Value Reporting: Active Markets Not a Sound Basis
– GAO Issues Report on Internal Control Audits for Small Companies
About a decade ago, I blogged – and even created a “Berlin-Bremen Stock Exchange” Practice Area on this site – about a stock exchange that listed the shares for a number of companies without their consent (which they then sought to delist to avoid naked shorting risks). Unfortunately, I hear that the Berlin-Bremen scam continues to live today.
Skadden’s Brian Breheny brings us this scary news about a new one:
We understand that a number of companies have received a letter from the St. Petersburg (Russia) Stock Exchange stating that it is in the process of unilaterally listing the company’s securities. These letters appear to be part of an exchange initiative to increase the number of companies it lists and may, in certain circumstances, trigger obligations on the part of the letter’s recipients — even if the company has not consented to the listing. The letters state that the securities will be listed 30 days after the date the notice was sent (generally, the end of September 2013).
Corp Fin’s Small Business Compliance Guide: “Disqualification of Felons & Other “Bad Actors”
Yesterday, Corp Fin posted this Small Business Compliance Guide entitled “Disqualification of Felons and Other “Bad Actors.”
Meanwhile, Keith Bishop blogs today about an interpretation issue with the Bad Actor amendments related to the “affiliated issuer” definition (or lack thereof)…
Course Materials Now Available: Many Sets of Talking Points!
For the many of you that have registered for our Conferences coming up on Monday, we have posted the Course Materials (attendees received a special ID/PW this week via email that will enable you to access them; note that copies will be available in DC). The Course Materials are better than ever before – with over 40 sets of talking points comprising 140 pages of practical guidance. We don’t serve typical conference fare (ie. regurgitated memos and rule releases); our conference materials consist of originally crafted practical bullets and examples. Our expert speakers certainly have gone the extra mile this year!
For those seeking CLE credit, here’s a list of states in which credit is available for watching the Conferences live in DC and by video webcast.
– How to Attend by Video Webcast: If you are registered to attend online, just go on Monday to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – that will be on the home pages of those sites – will take you directly to Conference. Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). Here is the conference agenda; times are Eastern.
– Register Now – There is still time to register for our upcoming pair of executive pay conferences – which starts on Monday, September 23rd – to hear what Keith Higgins, the Director for the Division of Corporation Finance, says about the proposed pay ratio rules, as well as catch a “how to implement pay disparity rules” workshop that is part of the last panel on Tuesday, September 24th. If you can’t make it to Washington DC to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now.
– Registration for Attendance in DC – Walk-Ups Only: Going forward, you are no longer be able to register to attend in Washington through this site (however, you still will be capable of registering online to watch by video at any time). You can still register to attend in DC – you just need to bring payment with you to the conference and register in-person.
Yesterday, the SEC – by a 3-2 vote – held an open Commission meeting in which it proposed pay ratio rules. The proposed rule doesn’t specify any required calculation methodologies for identifying the median employee in terms of total compensation for all employees – so companies would have flexibility (eg. can use statistical sampling) – and companies would then disclose their methodology. Have it your way!
The proposing release is fairly open-ended – so it’ll be interesting to see if that makes folks happier or uncomfortable. Flexibility is the name of the game since what you can do – which you can’t do with NEO comp – is use reasonable estimates to come up with the 402 number for the “median employee” (although there won’t be much to calculate for the median employee at most companies since they don’t get paid a dozen different ways like many CEOs). For the statistical sampling section, drop by your friendly statistician to understand it. But that should not be much of a challenge as companies conduct statistical sampling for a whole host of issues.
There’s a 60-day comment period. The proposing release specifically says there’s a transition period once final rules are adopted, allowing companies to “omit” the first year. So if the rules become effective in 2014 (which is the most realistic timeframe), then you are first required to comply in the 2016 proxy season with 2015 fiscal year information.
– What This Means – There is still time to register for our upcoming pair of executive pay conferences – which starts next Monday, September 23rd – to hear what Keith Higgins, the Director for the Division of Corporation Finance, says about these proposed rules, as well as catch a “how to implement pay disparity rules” workshop that is part of the last panel on Tuesday, September 24th. If you can’t make it to Washington DC to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now.
Registration for Attendance in DC – Walk-Ups Only After 9/19: Starting at 8 pm eastern tonight, you will no longer be able to register to attend in Washington through this site (however, you still will be capable of registering online to watch by video at any time). After this cutoff, you can still register to attend in DC – you just need to bring payment with you to the conference and register in-person.
SEC Goes After 23 Firms for Reg M Short Selling Violations Before Offerings
A few days ago, the SEC issued this press release announcing enforcement actions against 23 firms for improperly participating in public stock offerings after selling short those same stocks – as noted in this Reuters article, 22 of the firms settled – one has not. At the same time, the SEC’s National Examination Program and OCIE simultaneously issued a risk alert to highlight risks to firms from non-compliance with Rule 105 of Regulation M, including highlighting that in 40 settled actions finding Rule 105 violations since ’10, the SEC has collected disgorgement, penalties and interest in excess of $42 million.
More Threats of a Government Shutdown? Egads…
In case you haven’t been following the national news, there is yet another threat of a federal government shutdown that would shut down the SEC, etc. There have been so many threats and close calls, I’ve started to treat them as “crying wolf” – see this blog from April 2011. Anyways, the new D-Day is October 1st…
A member sent on this Bloomberg article about how Washington DC really works…
As you may recall, when the say-on-pay rules were first implemented in 2011, a number of companies forgot to file the subsequent Form 8-K/A under Item 5.07 disclosing the company’s determination regarding say-on-frequency. (The 8-K/A is due no later than 150 days after the annual meeting, but in no event later than 60 days prior to the deadline for submission of shareholder proposals under Rule 14a-8.) This oversight resulted in, among other things, companies either losing S-3 eligibility for one year or seeking a waiver letter from the SEC Staff.
As this proxy season was the first that smaller reporting companies were required to include say-on-frequency in their proxy statements, here is your friendly reminder for those companies of this 8-K/A filing obligation so that they can avoid the negative consequences that come with missing this required filing. Here is an excerpt from the November-December 2012 issue of The Corporate Counsel:
Timely Reporting of the Issuer’s Ultimate Frequency Determination–S-3 Eligibility. As we have discussed (see, e.g., our March-April 2012 issue at pg 10), a number of issuers failed to timely report (under Form 8-K Item 5.07), within 150 days after the Say-on-Frequency vote, the issuer’s decision as to the frequency of future Say-on-Pay votes. The Staff ended up being relatively understanding when processing Form S-3 eligibility waivers arising from this situation, but that accommodating stance may not be repeated in 2013 for SRCs conducting their first Say-on-Frequency vote. Form S-3 eligibility may be especially important for SRCs, including the General Instruction I.B.6 limited primary shelf eligibility adopted in 2007 for issuers with a public float under $75 million.
We now think the best course for SRCs (and other issuers conducting their Say-on-Frequency vote for the first time) would be to determine up front that the frequency favored by shareholders will be adopted by the SRC as its Say-on-Pay frequency, so that the frequency that is adopted by the SRC can be disclosed in the Item 5.07 Form 8-K reporting the annual meeting voting results within four business days of the meeting. This approach obviously avoids the risk of neglecting to file the Form 8-K amendment within 150 days of the triggering event.
Miss the “More on Reg D Offerings Today” Spreecast? Catch It Now
The technology held up during yesterday’s spreecast on Regulation D – except I had feedback from my microphone this time but luckily I barely spoke. The archive is now available if you care to watch – nearly 400 views!
This September-October issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Forum Selection Bylaws: The New Frontier
– Checklist: Shareholder Outreach Following M&A Transaction Announcements
– Lock-Ups: When Can They Give Rise to “Affiliate” Status & Potentially Implicate Rule 13e-3?
– Delaware Law: Amended to Provide for Ratification & Validation of Defective Corporate Acts
– A Dozen Take-Aways: In Re: Trados
Come participate in the spreecast – “More on Reg D Offerings Today” – at 2 pm eastern today! During it, Leonard Street’s Stephen Quinlivan, Cohen Gresser’s Bonnie Roe & Davis Wright’s Joe Wallin will provide color commentary that supplements last week’s Reg D webcast – think of it as network analysis after a Presidential debate. To access the spreecast, go here at 2 pm eastern. [Note last week’s Alan Dye spreecast has had over 500 views; a new spreecast has been calendared for September 30th: “PCAOB’s Audit Report Proposals: A Big Sleeper?“]
Here are FAQs about how spreecasts work – but the upshot is you have to register for Spreecast first (although it’s possible to watch without registering if you close a prompt). Simply sign up by using an email address by clicking the “Or sign up via email” link in the upper right hand side of the site (it’s in small print under the “Connect with Facebook” logo).
Here is David Jenson’s analysis of comment letters on the latest Reg D proposals. And Keith Bishop wrote this blog yesterday entitled “Congress Wants To Ban Felons While California Doesn’t Want To Ask.” And this blog has funny lyrics for a song entitled “The 506(c) Seed Financing Blues.”
SEC to Focus on Private Fund Adviser Compliance Procedures in Rule 506(c) Offerings
Here’s an excerpt from this blog by Morrison & Foerster’s Jay Baris:
With general solicitation and general advertising on the horizon, private fund advisers should review their policies and procedures to determine whether they are reasonably designed to prevent the use of fraudulent or misleading advertisements, said Norm Champ, the Director of the SEC’s Division of Investment Management, in remarks today before the Practicing Law Institute in New York. This review is especially important, he said, if the funds intend to engage in general solicitation. Hedge fund sponsors should also confirm that their practices for verifying accredited investor status meet the new requirements that apply to Rule 506(c) offerings.
Hats Off to the “NACD Directorship 2020”!
I’m weary of those that profess to be governance experts but they simply complain about changes from the status quo and offer no solutions to the numerous problems that still plague us. That’s one reason why I would like to congratulate the NACD for putting together a real – and comprehensive – effort to make meaningful change. Learn more in this blog…