Monthly Archives: October 2013

October 17, 2013

Corp Fin’s New Chief Counsel & Chief Accountant: Jonathan Ingram & Mark Kronforst

Hats off to Jonathan Ingram, who was tapped as Acting Chief Counsel & Associate Director for Corp Fin. Jonathan has served as Deputy Chief Counsel for nine years. And last week, Corp Fin announced that Mark Kronforst was promoted from Associate Director to the Division’s Chief Accountant. He fills a hole in the Division that has lasted several years. Craig Olinger had served as Acting Chief for quite a while – longer than some would stay in the job on a “permanent” basis…

With the shutdown finally over – just in time as the SEC was running on fumes – the SEC has removed the “operating status” box from its home page

Proxy Advisors: Nasdaq Files SEC Rulemaking Petition Seeking “Models & Methodologies” Disclosure

Last week, Nasdaq filed a petition for rulemaking with the SEC seeking more disclosure about how proxy advisors disclose their models and methodologies. The SEC’s existing positions in this area emanate from a ’03 amendment to the Investment Advisers Act and a pair of ’04 no-action letters. Here’s a WSJ op-ed from Nasdaq describing the petition. See Ning Chiu’s blog on the petition.

Mark Cuban: Jury Finds Not Liable of Insider Trading

Yesterday, as noted in this DealBook article, a jury found Mark Cuban not liable of insider trading (I had just blogged an update on this lengthy case). Although his trial wasn’t mentioned the night before during a Leno appearance, Mark was quite critical of the SEC during the remarks he made right after the verdict was read. The SEC takes another one on the chin in court…

– Broc Romanek

October 16, 2013

A Biggie! SEC Chair’s Speech on Disclosure Reform

Although it’s been clear that SEC Chair White’s priorities are in the enforcement area, it appears that she intends to make an impact in the area of corporate disclosure. Yesterday, she delivered this speech on disclosure reform that expresses concern for information overload and summarizes the history of other reform projects over the years.

The speech notes that the Regulation S-K study mandated by the JOBS Act – which is coming soon – is just the first step towards a project with a larger scope. There is a mention of social media (but none of mobile devices). And the last paragraph before the “Conclusion” raises the prospect of companies filing a “core document” or “company profile” with information that changes infrequently – a concept that has been kicked around internally at the SEC for a while. And of course, this was a project that Meredith Cross was dying to undertake while Corp Fin Director until the financial crisis got in the way. It will be interesting to see how folks react to this important speech (comments like this one have been sent in over the years) – this Reuters article states that both investors and corporates were happy with it…

Say-on-Pay: Now 61 Failures

Last week, Masimo Corporation became the 61st company to fail its say-on-pay in ’13 – see the Form 8-K – with 48% support (the company failed last year with only 37% support). Note that the 8-Ks doesn’t quite characterize the vote as a failure, as it just provides the share data. However, the proxy statement states that abstentions have the effect of an “against” vote – so when the math is done, the company received less than majority support.

With 61 failures, this year now ties last year with the number of failures. Thanks to Karla Bos of ING for the heads up on this!

Pay Ratio Proposal: Chamber & Others Request 60-Day Extension

Since my “Pay Ratio Roadmap” webcast on was wildly popular, I have a calendared a new webcast for next Thursday, October 24th that drills down even more: “Drilling Down: Statistical Sampling for Pay Ratios.”

And last week, the Chamber of Commerce and 13 other organizations sent this letter to the SEC requesting a 60 day extension of the pay ratio comment deadline. A little early in the comment process in my opinion to seek an extension – but it’s not a surprise given how outspoken some of these groups have been about this provision of Dodd-Frank…

Meanwhile, Towers Watson has these survey results about how respondents felt would be the biggest challenges if the SEC adopted a pay ratio rule (56% concerned with complying; 31% concerned about where ratio stands compared to peers; 21% concerned about explaining process of determination).

– Broc Romanek

October 15, 2013

Government Shutdown: The SEC Has a Few Days Left?

No official word yet, but given that the SEC said a few weeks ago that it has enough “carryover balances” to fund it for a few weeks during the shutdown, the agency probably just has a handful of days left before it needs to implement its shutdown plan. Luckily, yesterday was a federal holiday – so that bought the SEC one more precious day.

If the SEC implements its shutdown plan, roughly 250 of the SEC’s 4000-plus staffers would keep on working and EDGAR would remain operational – but most core Corp Fin operations would stop including registration statement reviews. So bear in mind this notice that companies should plan to accelerate their registration statements while they can if at all feasible.

We wait with bated breath for the SEC to post an update as to when a change in its operational status will take place…

Court Challenges to SEC Conflict Mineral Rules Continue

Here’s news from Davis Polk’s Ning Chiu from this blog:

Last week, the National Association of Manufacturers, Chamber of Commerce and the Business Roundtable began their appeal of the SEC conflict minerals decision with an opening brief filed in the U.S. Court of Appeals for the District of Columbia. We discussed previously the district court case upholding the SEC rules. The Appellants’ arguments are largely similar to those raised in the district court case.

The brief contends that the Commission’s analysis was “woefully inadequate” in four respects: refusing to create a de minimis exception, requiring reports if minerals “may have originated” in the Congo, expanding the scope to include non-manufacturers and allowing only a limited transition period for larger companies. Below is a summary of each argument:

De minimis exception. While the SEC inferred that Congress intended to preclude a de minimis exception because it did not do so explicitly, and even a very small amount of minerals could be necessary to a product’s functionality, the appellants attest that the Commission has express statutory authority to create exemptions for the Exchange Act section that governs these rule as well as implied authority to provide exemptions if the regulatory burdens yield little gain. In addition, the SEC’s decision not to provide any exception, even in some narrow form, lacked any rational analysis.

“Did originate” requirement. The appellants assert that the statute only requires disclosure of whether minerals “did originate” and the SEC wrongly adopted a “may have originated” standard instead. The district court had found the SEC’s interpretation to be reasonable as a means for how companies would determine whether their minerals “did originate,” and believed that the distinction is merely one of “semantic(s).” Appellants, however, claim the SEC’s standard is extremely broad in its application, forcing companies to “prove a negative” that their minerals did not originate from the DRC.

Including non-manufacturers. Appellants maintain that the statute is not ambiguous as to the types of companies that are subject to the law, as the statutory reference to “contract to manufacture” was intended to be restricted only to the products to be included, while “manufacture” was the appropriate trigger for determining which companies are covered.

Phase-in period. Appellants emphasize that the SEC was flawed in giving small companies four years and larger companies only two years to comply, given that larger companies will need to rely on those small companies for their reports.

Finally, the brief alleges that the rule violates the First Amendment by forcing companies to publicly state on their own websites that their products are “not DRC conflict free,” which serves as a “scarlet letter,” and will also frequently be false or misleading.

Here’s FEI’s blog about the American Petroleum Institute’s (API) newly filed amicus curiae brief filed in this case

A Conflict Minerals Rulemaking Petition: From the Corporate Perspective

It’s not every day that someone in our community submits a rulemaking petition to the SEC. Recently, Troutman Sanders’ Brink Dickerson submitted this petition for further rulemaking in the conflict minerals arena – which perhaps could also be viewed as a way to help direct the SEC to consider given the efforts that companies are having to go through in order to become compliant.

Remember that you can submit comments on a rulemaking petition – unfortunately, you can do so only by email (which the SEC would then convert into a PDF and post) – not through an online form like you can with any of the SEC’s proposed rules. The SEC does not formally consider rulemaking petitions that often – most are submitted by special interest groups – but any positive comments might help this one get attention.

Brink reminds us that where a SEC registrant sells a business during a year, the seller still is responsible for conflict mineral reporting for the portion of the year that it owned the business and needs to make sure that its sale agreement provides it with appropriate access to information and support in fulfilling that obligation.

– Broc Romanek

October 14, 2013

Do You Read This Blog for the Cartoons?

Recently, I ran into a friend who I hadn’t seen in a while and he mentioned that he read my blog for the cartoons. I assumed he was referring to my world’s largest list of Flintstones characters. But just in case he was not, here is one that reflects the sheer ridiculousness of this shutdown from “Poorly Drawn Lines”…

– Broc Romanek

October 11, 2013

Julie Yip-Williams: “My Cancer Fighting Journey”

Early this year, I met a woman sitting next to me at a small meeting named Julie Yip-Williams who practices at a major firm in New York City. We did not talk long but I liked her and invited her to join my advisory board for this site. I was shocked to recently learn that she is battling colon cancer – and has been writing regularly in her blog about that battle. If you find her writings to be inspiring, please drop her a line to say so – even if you have never met her. A young mother of two, it’s selling her short to say that she is inspiring and quite a writer.

Below is a list of Julie’s favorite posts:

Invictus explores the questions of why and whether there is a reason and purpose for all the bad things that happen in the world. Smarter thinkers than I have considered these abstract and metaphysical questions for centuries. This is my humble attempt.

Moments of Happiness describes how I have come to find happiness after being diagnosed with cancer.

Faith, A Lesson of History speaks to my love of personal history, in large part because my memories serve as the source of the faith I have in my own strength. I believe that strength lives within each of us; it’s just a matter of whether we are willing to study our own past to unlock that strength.

Deals With God describes my belief in God, the rage I’ve felt for him, the love I have for my husband, the fear I have for the safety of my family after being diagnosed with cancer and the deal I am making with God now.

No Man Is An Island is about the bonds that unite us as human beings.

Splendor in the Grass and Glory in the Flower speaks to the magic and power of our children and their ability to help us through our darkest hours.

Dreams Forsaken is a seemingly sad piece about the dreams that cancer has taken from me, but it is excruciatingly honest and through that honesty I find comfort and the hope of new dreams.

Numbers Mean Squat describes my sentiments about my statistical odds of survival.

Death, I’m Not Afraid of You is my attempt at confronting Death.

I’m Not Crazy is an explanation of why I believe sharing my cancer fighting journey with the entire world denies the cancer power over me.

Armor On! is what I read when I am preparing myself for chemo, complete with a speech for the chemo and a battle cry.

Insider Trading: The SEC v. Mark Cuban Case Continues

Thankfully, I haven’t been blogging about all of the developments in the SEC’s insider trading case against Mark Cuban – for violating a confidentiality agreement – because it’s been years and still ongoing (this was my initial blog about it). Here is Professor Bainbridge’s blog on the latest as the case proceeds to a jury trial…

Survey: Board Attitudes

Recently, BDO USA released this board survey that, among other things, shows that:

Social Media – 64% are aware of the new SEC guidance that allows companies to disclose material information through postings on social media, but only 11% anticipate utilizing social media for material disclosures in the future.

Time Management – When asked what topics they would like to spend more or less of their time on, directors cite succession planning (47%) and studying industry competitors (45%) as areas they would like to spend more time. Risk management (38%) and evaluating management performance (32%) were the other areas where sizable percentages expressed an interest in spending more time. Perhaps more revealing is how few of these directors expressed a desire to spend less time on any of these areas, with the possible exception of compliance and regulatory issues.

Ranking Risks – 69% cite regulatory/compliance overload as the greatest risk facing their businesses. Cyber breaches (13%), fraud/corruption (9%), privacy violations (6%) and intellectual property misappropriation (3%) are cited by far smaller percentages. When asked to identify the greatest risk for fraud at their companies, a large proportion cite embezzlement or similar crimes against the company (42%). Corruption/bribery (20%), earnings management (18%), insider trading (12%) and revenue recognition (8%) are cited by smaller proportions.

Executive Pay – Given the sensational performance of the stock market in 2013, 34% are concerned that this focus on equity is leading to a growing gap in compensation between the CEO and other members of the management team. Of those expressing this concern, a majority (56%) believe the most approach to address the gap is to expand equity-based compensation to more members of the management team, while one-third (33%) suggest moving a larger portion of CEO compensation back to traditional, long-term cash or annual cash incentive programs. Few (11%) suggest re-introducing executive perquisites back into the compensation mix for key employees.

When asked what performance measurement they consider the best substitute for at least a portion of equity-linked pay, directors cite profit growth (39%) and free cash flow (24%) as the most likely substitutes. Operational efficiency (18%), revenue growth (14%) and market share (6%) are the other alternative measurements cited by the directors.

– Broc Romanek

October 10, 2013

More on “Twitter IPO: Does a Response of ‘Dot-Dot-Dot’ Mean ‘Yes’?”

Last week, Twitter’s Form S-1 was made public, as noted in this DealBook piece. As noted in this article, perhaps too much information was revealed because a lock-up expiration date was included – although predicting a date that an IPO will go to market off this information is plain silly. That is dependent on market conditions, etc. – not driven by a date in a pre-effective registration statement that can be easily changed.

As you can imagine, I received a lot of feedback on my recent blog about Twitter’s IPO. First, here’s the poll results in response to the question of “whether you think that a response of dot-dot-dot is the equivalent of no comment:”:

– No comment – 53%
– Yes, we are doing an IPO – 25%
– Get out of my way – 11%
– Did you just slip me a mickey? – 12%

One member asked what dot-dot-dot means in Morse code? It is “S” according to this chart. And this article about the shares of Tweeter Homes taking off is hilarious!

More on “Can Companies Announce Confidential S-1 Submissions By Tweet?”

The other issue that I blogged about was the ability of companies to rely on Rule 135 to announce a confidential Form S-1 submission by a tweet. I argued that a tweet could comply with Rule 135. But I will now make the interesting observation that a Rule 134 notice (the applicable safe harbor after filing) probably couldn’t be relied upon for a tweet due to the more lengthy disclaimers in that rule – juxtaposed by the fact that a tweet is limited to 140 characters – unless there was clearer guidance from the SEC that the disclaimers could simply be linked to in the tweet.

As for whether a confidential submission in considered to be a “filing” – thus rendering Rule 135 inapplicable – the Corp Fin Staff issued this FAQ:

Question: Does the confidential submission of the draft registration statement constitute a filing for purposes of the prohibition in Section 5(c) against making offers of a security in advance of filing a registration statement?

Answer: No, since the confidential submission is not the filing of a registration statement, it would not count as the filing of a registration statement for purposes of Section 5(c).

As I originally blogged, I think it would be hard to argue that a tweet does not fit within the plain meaning of Rule 135 since the rules lays out what is permitted, not what is required (beyond a simple legend).

Should Companies Use Their Ability to Make Confidential S-1 Submissions?

Many in the mass media became fixated with the ability of qualified companies – as now permitted per the JOBS Act – to file their initial registration statements with the SEC confidentially. Here are articles in favor (or neutral):

– The New Yorkers’ “The Virtues of Twitter’s Confidential I.P.O. Filing
– Fortune’s “Twitter’s IPO will not be done in secret
– Gunster’s “Twitter announces its IPO in a tweet

Here are articles that are against the practice:

– Politico’s “Twitter’s IPO: Five questions for Washington
– The Guardian’s “Twitter’s secret IPO undermines its mission of transparency
– New York Magazine’s “Twitter Files for Supersecret IPO
– DealBook’s “An Initial Filing, in Fewer Than 140 Characters

Also see DealBook’s “In Twitter’s IPO Filing, Signs of a Start-Up That Has Matured.” It notes: “The Twitter IPO filing released last week had 86 percent of the initial one’s content.” Also see Marty Rosenbaum’s blog about Twitter’s simple governance structure.

Twitter: 55 Risk Factors! Does Size Matter?

It’s funny to see the mass media wrestle with the risk factors in Twitter’s IPO (and this blog notes 5 favorites). I count 55 risk factors in Twitter’s Form S-1. As I wrote in my “Risk Factors Handbook,” companies typically have between 20-30 risk factors in their disclosure – with IPOs having even more. Facebook had about 50. Do you think the number of risk factors corresponds to the overall risk of investing in a particular IPO?

Poll: How Many Weeks Do Investors Need to Digest the Form S-1 Before an IPO?

In the media articles against the confidential process above, the most cited criticism is that the period of time before a Form S-1 is publicly available before the IPO commences might be as short as 21 days under the JOBS Act. As noted in this New Yorker piece, this is not much shorter than the IPOs of Apple and Microsoft back in the day – but don’t let that sway your vote below:

polls & surveys

– Broc Romanek

October 9, 2013

John Olson on “The Risks of Not Shooting Straight”

From our recent proxy disclosure conference, we felt that the keynote remarks of Gibson Dunn’s John Olson are so important for all practitioners to hear that we transcribed them and are making them freely available among other important remarks made at our conferences over the years…

Tune in today to hear John speak during the webcast: “Dealing with the Board: Presentations, Etiquette & More.”

ISS Issues Survey Results for 2014 Policy Updates

Here’s news from Davis Polk’s Ning Chiu from this blog:

ISS received more than 500 responses on emerging issues that could make up its policy update for the 2014 season, with a total of 128 institutional investors and 350 corporate issuers. Over 90% of the issuers were based in the United States, compared to 66% of the investors.

Last year, ISS implemented a controversial policy that they will recommend against any board that fails to respond to a shareholder proposal that receives a majority of votes cast. Recognizing the flak that resulted, ISS included a question about the policy in this year’s survey. Only 36% of investors indicated that the board should implement specific actions, while 40% wanted the board to exercise its discretion freely. Another 24% of investors suggested it depended on the circumstances, including the level of shareholder support on the proposal. It is unclear whether these survey answers will change the policy.

Investors were more inclined to rally around concerns of director tenure, as more than 10 years would be deemed problematic by 74%, with concerns related to independence and limitations on the board’s ability to change its membership. Over half of investors encouraged rotation of key positions such as board chair, lead director and committee chairs.

Service on other public company boards is one way investors assess director performance, including positive factors such as a director’s breadth of experience and expertise, or negative aspects such as governance concerns at those other companies. Fifty-four percent of investors believe ISS should consider company performance, primarily TSR, when evaluating directors.

More than half of the investors indicated it would be appropriate for ISS to distinguish policies based on company size when it comes to equity compensation plans, but not as many investors supported differentiation for issues such as chair and CEO separation.

Performance conditions on equity awards in equity-based compensation plans seeking shareholder approval were considered very significant by 75% of investors if ISS moves to a holistic approach to equity plan evaluation, while the cost of the plan and other features such as vesting requirements were similarly viewed by a majority of investors.

For share authorizations, a large number of investors found the size of the requested increase, the ratio of outstanding compared to new potential shares and the use of the shares to be important. More than half indicated that a company’s governance structure was very important in these voting decisions.

The next step is for ISS to release draft policies for open comment, before issuing new policy updates in November.

California Overhauls State Anti-Securities Fraud Statute

A few weeks ago, California Governor Jerry Brown signed into law Senate Bill 538–which overhauls the anti-fraud provision of the California Securities Law of 1968, and will likely make it more difficult for would-be plaintiffs to maintain lawsuits for securities fraud. Specifically, SB 538 revises California Corporations Code ยง 25401 to make it unlawful, in connection with the offer, sale, or purchase of a security, to: (a) employ a device, scheme, or artifice to defraud; (b) make an untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.

Learn more in the memos posted in our “California” Practice Area – and in this Keith Bishop blog entitled “Die Verwandlung: How The Legislature Likely Raised The Bar On Securities Fraud Actions”…

– Broc Romanek

October 8, 2013

Tomorrow’s Big Pair of Webcasts: “Pay Ratio Roadmap” & “Doing Board Presentations”

In a “first” – and hopefully it’s a “last” – I am hosting two separate webcasts tomorrow. Both of them are biggies.

First is this webcast at noon eastern on “Doing Your Pay Ratio Homework Now: A Roadmap” – to hear Compensia’s Mark Borges, Deloitte Consulting’s Mike Kesner and Towers Watson’s James Davies, Paul Platten, Steve Seelig and Dave Suchsland get into the nitty gritty of how to do the math in the SEC’s pay ratio proposal. Here’s a set of Course Materials that you should print in advance.

This program will not be an overview of the SEC’s new proposal on pay ratio disclosures–we have posted plenty of memos to get you up-to-speed. Rather, this program will drill down to see where you stand if the proposal was adopted–and to help you decide whether you should consider submitting a comment letter to the SEC using hard facts. So this program will help you evaluate how to choose a compensation definition; how to conduct statistical sampling in this area; how to access the right data and calculate the median.

Then at 2 pm eastern, tune into for the webcast – “Dealing with the Board: Presentations, Etiquette & More” – during which three long-time practitioners who have been before hundreds of boards will discuss how to get hired, what types of presentations work best for boards, how to handle tricky relationship and culture issues and how to handle issues that come from outside the boardroom. Join legends Stasia Kelly of DLA Piper, John Olson of Gibson Dunn and Stewart Landefeld of Perkins Coie for this special event.

Round Two! SEC Renews “Small and Emerging Companies” Advisory Committee

Last week, the SEC renewed the term of its “Small and Emerging Companies” Advisory Committee, which was formed based on a Dodd-Frank mandate in 2011 for a two-year term. The SEC wasn’t required to maintain this advisory committee – but apparently felt it was providing value. There has been a lot of rulemaking lately impacting smaller companies – so it seems like maintaining a sounding board is a good idea.

Delaware Supreme Court Chief Justice Myron Steele to Retire

Here’s something that I recently blogged on my Blog: Delaware Supreme Court Chief Justice Myron Steele announced that he would retire effective November 30th, three years ahead of the end of his 12-year term. As noted in this article, Chief Justice Steele has served on the bench in Delaware for 25 years – and as Chief Justice since ’04.

This is a big loss for the Delaware bench. I first met the Chief Justice when we taped a panel about director duties after the Disney case for our “2nd Annual Executive Compensation Conference” in 2005. He was also kind enough to participate in a webcast on this site in ’07 entitled “An M&A Conversation with Chief Justice Myron Steele.” We wish him the best of luck in retirement or whatever he plans to do!

– Broc Romanek

October 7, 2013

If the SEC Shuts Down? Plan for Acceleration for Registration Statements Beforehand

As I blogged last week, the SEC found enough carryover funds from last year’s budget to stay fully operational even though the federal government has shut down – but only has funds to stay open a “few” weeks. Given that a week already has passed since the broader government shutdown began, the SEC posted this notice on Friday:

We understand that the ongoing uncertainty about possible changes in the SEC’s operating status in the event of a prolonged federal government shutdown is raising concerns for registrants that are planning to request acceleration of their registration statements in the near future. If a change in our operating status becomes imminent, we will provide as much advance notice as we can and will consider granting requests for acceleration of the effective date of those pending registration statements.

If the SEC does run out of funds, it has posted this shutdown plan, during which roughly 250 of the SEC’s 4000-plus staffers would keep on working. EDGAR would remain operational – but most core Corp Fin operations would stop including registration statement reviews. More to come as the shutdown grinds on…

Last week, the PCAOB posted an updated standard-setting agenda that outlines milestones on various standard-setting projects.

FINRA: Underwriting Review Procedures Enhanced

Here’s news from Suzanne Rothwell: Last week, FINRA implemented significant enhancements to its review procedures that expedite the issuance of a “no objections” letter in the case of offerings without issues requiring pre-offering staff review or that do not require substantial pre-offering staff review. The enhanced procedures are welcome as they will allow less problematic offerings to move more quickly through the FINRA underwriting review process.

Current Same Day Clearance Process for Shelf Offering: FINRA will continue to operate the Same Day Clearance Process for the review of shelf filings, including shelf filings by well-known seasoned issuers, which provides an automated issuance of a “no objections” letter the same day that a base registration statement and/or shelf takedown are filed with the Department. The Process is available for primary offerings, offerings that list selling security holders or that have equity lines of credit. The Same Day Clearance Process is only intended for filings where there is insufficient time for the full review process and such filings are reviewed by the staff on a post-offering basis.

Immediate Clearance Process: Effective September 30th, FINRA implemented an Immediate Clearance Process for shelf filings, including those of WKSI issuers, enhancing the Same Day Clearance Process. However, filers can still rely on the current Same Day Clearance Process for shelf offerings.

Under the Immediate Clearance Process, filers can receive an immediate “no objections” letter 24 hours a day, 7 days a week, which is issued automatically by FINRA’s Public Offering System once all required information and representations have been provided in the System. For the first time, there is no need for FINRA staff to check if information and representations have been completed in its Public Offering System because the System will not issue a “no objections” letter without the representations and complete information.

FINRA staff will conduct a post-offering review of the filing and representations submitted. In order to receive an immediate “no objections” letter, the filer must provide (in addition to the standard Same Day Clearance Process and WKSI filer representations):

– An undertaking that any information necessary to complete the filing (e.g., the due diligence on FINRA association affiliation of officers, directors and greater than 5% shareholders) will be provided no later than 3 business days following the initial submission; and
– The Fed Wire Number for the submission of the filing fee and the date of that Wire.

FINRA: Limited Review Process for Exchange-Listed Securities

Here’s more news from Suzanne Rothwell: FINRA also implemented a new Limited Review Process for SEC-filed initial and secondary offerings of securities that are or will be listed on a national securities exchange. The filer must request limited review and FINRA staff will determine whether to grant the request. The offering must meet the following requirements to qualify for limited review.

– Securities listed (or to be listed) on a national securities exchange (corporate or investment program).
– Firm commitment or straight best efforts distribution methods.
– Total underwriting compensation within allowable guidelines.
– Securities received as underwriting compensation would make the filing ineligible for the limited review procedure.
– Underwriting arrangements do not include prohibited terms as defined in FINRA Rule 5110(f)(2), such as indeterminate items of value.
– FINRA members are identified in the offering documents and filing system.
– Offering is filed with the SEC.
– Offering does not include a new or novel securities product or pose complex regulatory issues (e.g., an unlisted REIT).

The filing broker-dealer is required to represent at the time of the initial filing that:

– All documents required to be filed pursuant to FINRA Rule 5110, have been or will be submitted no later than 5 business days prior to the member’s participation. Documents required include but are not limited to underwriting or distribution related documents, any engagement letters, letters of intent or any other document entered into by any participating member(s) and the issuer during the 180-days preceding the initial filing with the SEC.
– All representations made at this time are accurate to the best of our knowledge. We undertake to notify the staff, no later than 5 business days prior to the member’s participation of any changes that may affect the staff’s No Objections Letter. We understand that this notification may require a review prior to the member’s participation. If a notification is not made, the information filed herein will be presumed to be accurate at the time of the member’s participation in the offering.

In addition, the filing broker/dealer must provide the four representations set forth below prior to issuance of a “no objections” letter, although these representations can be deferred at the time of initial filing of the offering with FINRA:

– The association or affiliation between any participating member(s) and any officer, director, or beneficial owner of 5% or more of any class of the issuer’s securities is indicated (if applicable) in the filing system.
– The terms and arrangements between the issuer and participating members do not include any prohibited arrangements.
– No participating member(s) has acquired unregistered securities that would be considered underwriting compensation during the 180 day period preceding the initial filing with the SEC through 90 days after the effective date of the filing.
– As applicable, the offering is in compliance with FINRA Rule 5121, including appropriate disclosure of any affiliation between the issuer and any participating member.

The limited review procedure would result in an expedited “no objections” letter once all representations are made to FINRA. However, if any of the four representations are deferred, the staff would issue a “limited review defer” letter. FINRA staff may also change the filing to be reviewed under the full review process if the staff determines that the offering is not eligible for limited review.

– Broc Romanek

October 4, 2013

My Day with Faruqi & Faruqi’s Juan Monteverde

Had a blast at our week of conferences last week! The speakers did a great job. Interviewing Congressman Mike Oxley was a career highlight (and luckily, my days as ‘Billy Broc’ Oxley never came up). I’m particularly thankful to Faruqi & Faruqi’s Juan Monteverde for coming and being willing to answer many direct questions about the motivations and nature of his proxy disclosure lawsuits (stay tuned for more from Juan). Juan is a character and definitely added spice to the conference (next year’s conference? Vegas in late September!). Here is a pic of us together:


SEC Provides Additional Guidance on Form 13F Confidential Treatment Requests

In this blog, Leonard Street’s Steve Quinlivan notes:

The SEC Division of Investment Management has issued additional guidance that is meant to assist institutional investment managers that wish to request confidential treatment, or CT requests, for certain information reported on Form 13F. The guidance elaborates on the types of information that the SEC believes might be relevant in evaluating a confidential treatment request for an Ongoing Acquisition/Disposition Program in a Reportable Security.

In 1998 the SEC provided detailed guidance to Form 13F filers that might be making CT Requests for an Ongoing Acquisition/Disposition Program. In particular, the 1998 letter elaborated on five categories of information that Form 13F requires to be provided in a CT Request for an Ongoing Acquisition/Disposition Program in a Reportable Security, in order for the SEC to be able to make an informed decision about whether delaying or preventing public disclosure is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets.

In reviewing CT requests for Ongoing Acquisition/Disposition Programs since issuing the 1998 letter, the SEC staff has further identified information, for each of the five categories, that is particularly helpful in reaching an informed decision on the CT requests. The new guidance spells out the additional information in detail.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for 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:

– Ontario Securities Commission Consults on Board Diversity
– Debate Begins on PCAOB’s Audit Report Proposal
– Federal Court: Skeptical Whether Dodd-Frank Extraterritorial Jurisdiction Provision Overturns Morrison in Government Actions
– Notes: ABA’s FINRA Corporate Financing Rules Subcommittee
– Survey: Two-Thirds of CEOs Don’t Receive Outside Leadership Advice – But Nearly All Want It

– Broc Romanek