October 11, 2017

The New Playbook? Treasury Recommends All Sorts of Reform!

As noted in Steve Quinlivan blog, Reuters article and WSJ article, the Treasury Department issued this 232-page report last week, as mandated by the Administration’s Executive Order that sets forth core principles for the markets.

This is one of 4 reports coming out of Treasury dealing with various types of reform. In this Treasury Report, there’s a bunch of recommendations that impact our area of law – and most of them can be accomplished at the agency level, not needing action by Congress. We’re posting memos in our “Regulatory Reform” Practice Area.

As noted in Steve’s blog, the list includes (but is certainly not limited to):

1. Repeal of Section 1502 (conflict minerals), Section 1503 (mine safety), Section 1504 (resource extraction), and Section 953(b) (pay ratio) of Dodd-Frank. In the absence of legislative action, the SEC should consider exempting smaller reporting companies (SRCs) and emerging growth companies from these requirements.
2. The SEC should move forward to remove SEC disclosure requirements that duplicate financial disclosures required under GAAP by the FASB.
3. Companies other than EGCs be allowed to “test the waters” with potential investors who are QIBs or institutional accredited investors.
4. $2,000 holding requirement for shareholder proposals should be substantially revised.
5. Resubmission thresholds for repeat proposals be substantially revised from the current thresholds of 3%, 6%, and 10%.
6. SEC should continue its efforts, when reviewing company offering documents, to comment on whether the documents provide adequate disclosure of dual class stock and its effects on shareholder voting.
7. Modify rules that would broaden eligibility for status as an SRC and as a non-accelerated filer to include entities with up to $250 million in public float as compared to the current $75 million.
8. Extend the length of time a company may be considered an EGC to up to 10 years, subject to a revenue and/or public float threshold.
9. Expand Regulation A eligibility to include Exchange Act reporting companies.
10. Tier 2 offering limit should be increased to $75 million.
11. The SEC, FINRA and the states propose a new regulatory structure for finders and other intermediaries in capital-forming transactions.
12. Accredited investor definition should be amended with the objective of expanding the eligible pool of sophisticated investors.
13. Review of provisions under the Securities Act and the Investment Company Act that restrict unaccredited investors from investing in a private fund containing Rule 506 offerings.

Here’s a “Fact Sheet” for the Report. Also see Appendix B of the Treasury Report (pg. 203) for a tabular breakdown of the recommendations by topic…

Today’s Webcast: “Evolution of the SEC’s OMA”

Tune in today for the webcast – “Evolution of the SEC’s OMA” – to hear Michele Andersen, Associate Director of the SEC’s Division of Corporation Finance & Ted Yu, Chief of the Corp Fin’s Office of Mergers & Acquisitions, Skadden’s Brian Breheny, Weil Gotshal’s Cathy Dixon, Alston & Bird’s Dennis Garris and Morgan Lewis’ David Sirignano in a discussion of how the Corp Fin’s Office of Mergers & Acquisitions has evolved over the years…

Mandatory Arbitration: Bad for Defendants?

In July, John blogged about SEC Commissioner Piwowar’s apparent support for mandatory arbitration clauses – which historically have been considered contrary to public policy & potentially inconsistent with Securities Act anti-waiver provisions.

This blog from Lane Powell’s Doug Greene explains why a shift to mandatory arbitration wouldn’t be the panacea that companies are looking for – in fact, they might be a lot worse off. Here’s a teaser:

These arbitrations would be unmanageable. Each plaintiffs’ firm would recruit multiple plaintiffs to initiate one or more arbitrations—resulting in potentially dozens of arbitrations over a disclosure problem. Large firms would initiate arbitrations on behalf of the institutional investors with whom they’ve forged relationships, as the Reform Act envisioned. Smaller plaintiffs’ firms would initiate arbitrations on behalf of groups of retail investors, which have made a comeback in recent years.

We often object to lead-plaintiff groups because of the difficulty of dealing with a group of plaintiffs instead of just one. In a world without securities class actions, the adversary would be far, far worse—a collection of plaintiffs and plaintiffs’ firms with no set of rules for getting along. Securities-disclosure arbitrations would cost multiple times more to defend and resolve.

All this to say – if a policy shift does come to fruition – we’re not sure it’ll be quickly embraced.

Broc Romanek