February 3, 2014

IPOs: Corp Fin Seeks More Succinct Stock Valuation Disclosure

Here’s news from this blog by Davis Polk’s Ning Chiu & Alan Denenberg:

At the recent Securities Regulation Institute, Keith Higgins, the head of the SEC Division of Corporation Finance, indicated that the SEC staff will be looking for less detailed disclosure in the S-1 regarding a company’s historical practice and grant by grant valuation description for establishing the fair value of the company’s common stock in connection with stock-based compensation in IPO registration statements.

Currently, companies provide lengthy discussions of how stock was valued and ultimately the difference between the estimated IPO price and the historical fair value of stock at various points in time as private companies. Companies disclose in MD&A the analysis to support their judgments and estimates regarding the valuations. Staff comments often request a description of significant intervening events within the company and changes in assumptions as well as weighting and selection of valuation methodologies employed that explain the changes in the fair value of common stock up to the filing of the registration statement. The questionable value of the disclosure was raised in the SEC’s own report examining its disclosure requirement, which we discussed here, noting that commenters recommended eliminating or reducing this disclosure, arguing the information is not significant to investors.

It appears that going forward, the SEC staff will no longer require or expect the level of detail that companies have been providing, and instead a few paragraphs describing the historical valuation methodology and what it will be post-IPO will be considered sufficient. However, the SEC staff will still expect a more thorough discussion in the comment letter in order to help the staff ensure that it agrees that the accounting is correct.

Meanwhile, Akin Gump’s Paul Gutermann blogs about “The Business of Climate Change: Disclosure of “Stranded Assets”…

Interview: SEC Enforcement Director Andrew Ceresney

Newly installed as the sole chief of the SEC’s Division of Enforcement with the departure of former co-chief George Canellos, Andrew Ceresney recently gave this interview to the Washington Post. The interview includes commentary on the hot topic of no admission of wrongdoing in settlements.

This is a policy that US District Judge Jed Rakoff has been among the most vocal critics of. As noted in this Bloomberg article, Judge Rakoff has questioned this policy in a lawsuit again.

Meanwhile, the SEC has posted a report detailing its enforcement actions for 2013…

Pretty funny Bloomberg piece about a penny stock that went up 900% based on mistaken impressions of what President Obama meant in his State of the Union address. Meanwhile, former SEC Chair Mary Schapiro has changed her role at Promontory Financial Group so that she is no longer working as a consultant…

Our February Eminders is Posted!

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

– Broc Romanek