October 25, 2017

“FAIR Act”: Congress Gives the SEC a Shove

Last month, Congress passed the “Fair Access to Investment Research Act” – signed by the President into law a few weeks later – which requires the SEC to ease restrictions on broker-dealer research reports on ETFs and other investment company securities. The FAIR Act requires the SEC to expand an existing safe harbor for research reports that prevents them from being considered an “offer” under the Securities Act, and to limit SEC & FINRA filing requirements for those reports.

I know, I know – “yada, yada, yada” – but here’s the thing, the legislation has a unique provision designed to prod the SEC to act on the rulemaking required by the statute. This Davis Polk blog explains:

The bill includes a provision that one sponsor of the bill described as an effort to “hold[] the SEC accountable to follow Congress’ direction.” The bill directs the SEC to amend its rules, within 270 days of enactment, to implement the safe harbor in a manner consistent with specific parameters set forth in the bill. If the SEC fails to do so by the 270-day deadline, however, the bill provides for an “interim effectiveness” during which the expansions to the safe harbor would automatically be deemed to be in effect, “as if revised and implemented” in accordance with Congress’ directions.

Some members of Congress have not been happy about the SEC’s inability to adopt the roughly 12 trillion regs required under Dodd-Frank & the JOBS Act on a timely basis – and this is intended to prod the agency to act more quickly:

The interim effectiveness provision may spur the SEC to act more quickly to implement the FAIR Act in order to address the inevitable ambiguities contained in legislation—facilitating its implementation through their expertise in administering the securities laws. If this device is successful in forcing the SEC to accelerate its rulemaking efforts, look for Congress to employ it in future legislation.

Of course, while Congress is telling the SEC to speed up, the agency’s been getting a different message from the courts – the blog points out that the DC Circuit has invalidated recent SEC rulemaking “for failure to conduct sufficient analysis, including in terms of the cost-benefit analysis of new rules.”

SCOTUS: MD&A “Known Trends” Case Goes Away. . .

As Broc previously blogged, last March, the Supreme Court granted cert to a 2nd Circuit case involving whether MD&A’s “known trends” line-item disclosure requirements can give rise to 10b-5 liability. Now, it looks like resolution of that issue will have to wait for another day – this Hunton & Williams memo says that the parties to Leidos v. Indiana Public Retirement System have reached a settlement.

ICOs: Nasdaq-Listed Company to Take the Plunge

Steve Quinlivan recently blogged about a Nasdaq-listed issuer that’s considering an initial coin offering. Steve does his best to describe what the company’s proposing in plain English.  See if you can figure it out – I’m admittedly not the sharpest knife in the drawer, but I have absolutely no idea.

Naturally, the company’s stock shot up 70% on the news.  Resistance is futile.

John Jenkins