Monthly Archives: March 2018

March 16, 2018

Corp Fin Comments: Levels Dropping Significantly?

Shortly after his confirmation, SEC Chair Jay Clayton promised that the agency was “open for business.” This recent memo from Orrick’s Ed Batts says that Corp Fin seems committed to making that slogan a reality. This excerpt summarizes some notable efforts to streamline the Staff’s processes:

– The most significant development is the dramatic shift in receptiveness for waivers for audited financial statements where the production may be burdensome but not clearly material to investors. Such waivers are being granted specifically with respect to financial statements in cases of marginal significance tests or where fully audited financials would involve significant cost but not necessarily provide substantial incremental useful information.

– In addition, the Staff continue to emphasize eligibility for all filers (and not just “emerging growth companies” under the JOBS Act) to take advantage of confidential preliminary registration statements for IPOs as well as follow-on offerings occurring within one year of IPO.

– The number of Staff comments issued upon review of registration statements have declined significantly, in an effort toward a speedier path to encourage use of public markets.

Cybersecurity:  “Yahoo!” for Plaintiffs in Landmark Class Settlement

Over on “The D&O Diary,” Kevin LaCroix recently blogged about Yahoo’s landmark $80 million shareholder class action settlement in a case that arose out of the massive data breaches it announced in 2016.  Kevin points out that although derivative suits have followed on the heels of other high-profile breaches, this settlement represents the first time that shareholder plaintiffs have really hit the jackpot in data breach litigation.

This excerpt suggests that the suit could be a preview of coming attractions:

The Yahoo settlement (assuming it is approved by the court) is the first significant data breach-related shareholder lawsuit settlement. The plaintiffs’ lawyers have now figured at least one way they can make money off of this type of litigation. Interestingly, this settlement coincidentally comes just days after the SEC released new guidance in which the agency underscored the disclosure obligations of reporting companies that have experienced data breaches. It is hard to know for sure, but it could be this milestone settlement together with the SEC’s new disclosure guidelines could mean that data breach-related shareholder litigation could be an area of increased focus for the plaintiffs’ lawyers.

Wells Fargo: When All Else Fails, Send in the Nuns!

To say that Wells Fargo’s had a bumpy ride lately is a big understatement, but it now it looks like the bank may have finally “got religion” – albeit in a rather unorthodox way.  Here’s an excerpt from this CNBC report:

A group of nuns and religiously-affiliated investors said Wells Fargo & Co. has agreed to publish a review that shows the root causes of the systemic lapses in governance and risk management that have led to ongoing controversies, litigation and fines. As a result of the company’s commitment, the Interfaith Center on Corporate Responsibility will withdraw a resolution filed for the 2018 proxy calling for the review.

The engagement was spearheaded by Sister Nora Nash of the Sisters of St. Francis of Philadelphia – and the shareholder proposal had 22 other co-filers from the Interfaith Center for Corporate Responsibility, as well as the Treasurers of Rhode Island and Connecticut.

John Jenkins

March 15, 2018

Revenue Recognition: Storm Clouds on the Horizon?

Last week, Broc blogged about the latest batch of Staff comments on revenue recognition under the new FASB standard.  The folks at Audit Analytics have been pouring through companies’ SEC filings as well – and this recent blog says that there’s trouble brewing.  Here’s the intro:

We have been asked several times whether or not the adoption of the new revenue recognition standard will cause an increase in the number of restatements and control failures. While it may be early to say, our review of SEC filings provides a strong indication that we will see an uptick in revenue recognition accounting failures.

Back in October, based on the analysis of Q2 filings, we found that some companies seemed to be struggling with the ASC 606 adoption. For most of the companies, the moment of truth came on December 15, 2017, the deadline to begin reporting with the new standard.

As we were working on the Q3 update, we identified a number of companies for which the controls were found to be ineffective and a material weakness was directly attributed to the lack of progress in the ASC 606 implementation.

The blog goes on to review specific disclosures by some companies that have encountered hiccups in the implementation process for the new standard.

Former SEC Chair: Securities Lawyers Need to be “Adults in the Room”

This Bloomberg article discusses former SEC Chair Mary Jo White’s comments at a recent conference. She spoke about some of the implications of the current deregulatory mood in DC – but also had some rather pointed comments about the role of lawyers in the current environment:

According to former Chair White, in a deregulatory environment, it is incumbent upon private sector lawyers to step up and be “the adults in the room.” She urged practitioners to focus on what is best in terms of disclosure and business, and not just on what is permissible. It is important to “step up the quality of lawyering” and advise as to what the optimal is, not just what the client can and cannot do.

These steps will reduce the risk of reputational loss to both client and counsel, she noted. She closed by suggesting that attorneys should follow the counsel of the late Archibald Cox, long-time law professor and Watergate special prosecutor, who urged lawyers to have the confidence to tell their clients that “’yes, the law lets you do that, but don’t do it—it’s a rotten thing to do.’”

March-April Issue: Deal Lawyers Print Newsletter

This March-April issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a no-risk trial):

– Tax Reform’s Impact on Private Equity & M&A
– Delaware Supreme Court Reverses Controversial Dell Appraisal Ruling
– All Merger Side Letters Must Now Be Included in HSR Filings
– California Law Provides Private Company Dissolution Alternatives

Remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

John Jenkins

March 14, 2018

Our New Checklist: Board Oversight in the #MeToo Era

Over the past several months, media reports involving high profile sexual misconduct & abuse of power by politicians, celebrities, CEOs and other corporate leaders have brought the issue of sexual harassment to the top of the cultural agenda – and placed it prominently on the agenda of boards as well.

We’re posting resources for this emerging area in our “Board Duties” Practice Area – including our own checklist on board oversight of sexual harassment policies. It’s seven pages – check it out!

CII: How Boards Should Combat Sexual Harassment

One of the biggest reasons that oversight of sexual harassment policies has become a priority for boards is that it’s also become a priority for shareholders. The recent experiences of the Weinstein Company, Wynn Resorts & others have demonstrated that high-profile allegations of sexual misconduct by executives can have a potentially devastating effect on shareholder value  – and even threaten the viability of the business itself.

Reflecting rising investor concerns in this area, the Council of Institutional Investors has released a new report that provides boards with advice on how to mitigate the risk of sexual harassment. The report details practical steps that cover five key areas: personnel, board composition, policies and procedures, training and diversity.

Board Oversight: “Is It Just Me, Or Is It Getting Warm In Here?”

Investors aren’t just sharing friendly words of advice when it comes to board oversight of sex harassment & other corporate policies. This “Directors & Boards” article suggests that they’re increasingly seeking to hold directors accountable through fiduciary duty lawsuits alleging failures in oversight. Here’s the intro:

Directors and officers might want to start 2018 by doubling down on their oversight systems. Last year, boards and senior managers at several large corporations faced significant shareholder lawsuits over allegations they were not minding the store when their companies suffered high-profile traumas surrounding data breaches, sexual harassment and discrimination scandals or improper sales practices.

“What I’ve seen in these cases is there were a lot of red flags out there and the board just ignored them,” says Jorge Amador, an attorney representing shareholders in a case against Wells Fargo & Co. over phony customer accounts.

Of course, these oversight claims require plaintiffs to prevail under Delaware’s Caremark doctrine, which requires “bad faith” in the form of intentional dereliction of duty or conscious violations of law on the part of directors.

That’s a demanding standard.  In fact, Delaware’s Supreme Court has said that Caremark may be “the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” Still, no less a figure than Chief Justice Leo Strine recently dissented from a Delaware Supreme Court decision dismissing a Caremark claim against Duke Energy’s board – and the article also notes recent landmark settlements of oversight claims by Home Depot & 21st Century Fox.

So, in today’s rather fraught environment, it pays for directors to remember that however remote the risk may appear – breakdowns in oversight could hit them squarely in the wallet.

John Jenkins

March 13, 2018

Tomorrow’s Webcast: “The SEC’s New Cybersecurity Guidance” – Meredith, Keith & Dave

Tune in tomorrow for the webcast – “The SEC’s New Cybersecurity Guidance” – to hear former senior Corp Fin staffers Meredith Cross of WilmerHale, Keith Higgins of Ropes & Gray and Dave Lynn of and Jenner & Block discuss the SEC’s recent guidance on cybersecurity disclosure.

Form DRS: Gets a “Check the Box”

Yesterday, the SEC posted its updated “Edgar Filer Manual.” The most notable change is the addition of “check the box” language to the cover page of Form DRS and DRS/A. Filers of draft registration statements will now be required to check a box to indicate their status as an “Emerging Growth Company” – and to indicate whether they are opting out of the extended transition period for complying with any new or revised financial accounting standards.

Working the “Weed Beat”: Nasdaq Lists Canadian Cannabis Company

So, I was just sitting around last Sunday when Broc shot me an email with this Torys memo on Nasdaq’s decision to list Cronos, a Canadian marijuana cultivator.  He reminded me that I’ve been “covering the space” – and asked me if I wanted to blog about it.

Naturally, I said yes.  After all, who would turn down the chance to be’s “weed beat” reporter?  Anyway, the memo says that strong governance & the fact that the company’s operations were conducted solely in jurisdictions where marijuana has been legalized likely tipped the scales in favor of a listing.  Here’s an excerpt:

The listing of shares of Cronos by Nasdaq demonstrates a willingness by the exchange to accept issuers with material interests in the production and sale of cannabis in jurisdictions in which such activities are legal. Cronos has no operations or activities in the U.S. Each of Cronos’ two wholly-owned LPs and three additional LPs in which it holds a minority interest operate in compliance with the Access to Cannabis for Medical Purposes Regulations (ACMPR).

Furthermore, Cronos’ international operations are located in jurisdictions where medicinal cannabis is legalized nationally—namely, Israel and Australia. In addition, Cronos’ CEO and industry commentators have cited Cronos’ extensive work in strengthening Cronos’ corporate governance as key to achieving the Nasdaq listing.

The emphasis on the legality of Cronos’ operations doesn’t bode well for the listing chances of U.S. cultivators of “the chronic” – particularly in light of the DOJ’s recent decision to end Obama Administration policies that sheltered marijuana producers whose activities complied with state laws.

John Jenkins

March 12, 2018

ICOs: 1st S-1 is Here – Well, Kind of. . .

In a milestone of sorts, the first Form S-1 for a coin offering was filed last week by a company called “The Praetorian Group.” I flipped through it, and it’s . . . interesting.  Here’s a take on the filing from Bloomberg’s Matt Levine:

“The Praetorian Group filed what appears to be the first initial coin offering (ICO) registering tokens with the SEC,” reports Renaissance Capital. Here is the registration statement, and I am sorry to say that it is full of firsts. For instance, this is the first time I have seen this sort of disclaimer in a prospectus for a securities offering:

To the maximum extent permitted by the applicable laws, regulations and rules the Company and/or the Distributor shall not be liable for any indirect, special, incidental, consequential, or other losses of any kind, in tort, contract, tax or otherwise (including but not limited to loss of revenue, income or profits, and loss of use or data), arising out of or in connection with any acceptance of or reliance on this Prospectus or any part thereof by you.

Nope nope nope nope nope nope nope! That is not how a prospectus works! The way a prospectus works is, you write it, and your lawyers read it and make sure it’s right, and then you deliver it to investors so that they can rely on it. That’s the whole point. You don’t just hand the investors some random scribblings and say “here’s some stuff but definitely don’t rely on it.” Come on.

Yeah.  Might draw a comment on that one.  The prospectus goes on to disclaim any “representation, warranty or undertaking in relation to the truth, accuracy, and completeness of any of the information set out in this Prospectus” – which is another thing I’m sure the Staff will be totally cool with.

The registration statement’s also missing a few items – like signatures, exhibits, undertakings (basically all of Part II), for starters. Thanks to Hunton & Williams’ Scott Kimpel for tipping us off to this filing!

ICOs: SEC “Drops a Dime” to Thwart Sketchy Deals

You can’t accuse the SEC of not making use of all available technologies to protect investors – even if some of those technologies originated in the 19th century. Check out the excerpt from this BTC Manager article on how the SEC is using the telephone to put the kibosh on sketchy token offerings before they hit the street:

Well, counter-intuitive as it may seem, the agency is actually showing a preference for the good old telephone over other state-of-the-art technologies to ward off shady ICOs. Before we delve into the details, let’s first take a step back and revisit the fact that the Wall Street’s main regulator has issued multiple warnings time and again urging crypto enthusiasts to steer clear of legally sketchy ICOs no matter how compelling the propositions seem.

Jay Clayton, Chairperson at the SEC, even went as far as saying that crooks were busy harnessing blockchain and the ever-expanding crypto market to pull off serious scams that are as old as the market itself is. That is, to project an asset as the “next best thing” and then selling it once a good amount of “dumb money” pours in.

So how does the SEC use the telephone to deter the bad guys in the fast-growing realm of ICOs?

Apparently, the modus operandi is pretty simple. The folks over at SEC just pick up the telephone and call up the people behind individual ICOs. And believe it or not, the strategy has paid off. According to a key SEC official, over a dozen of cryptocurrency-related companies have abandoned their plans to raise fund from investors after they were contacted by the agency over the telephone.

Score one for us Luddites. I bet they even used a landline.

Transcript: “Auctions – The Art of the Non-Price Bid Sweetener”

We have posted the transcript for the recent webcast: “Auctions – The Art of the Non-Price Bid Sweetener.”

John Jenkins

March 9, 2018

The Disney Annual Meeting: High Drama?

Yesterday, the Walt Disney Company held its annual meeting – and apparently it wasn’t a smooth one. I’m not sure exactly what happened, but here is the intro of this press release from the “National Center for Public Policy Research”:

A veteran of more than 100 corporate shareholder meetings, National Center for Public Policy Research Free Enterprise Project Director Justin Danhof, Esq. is calling out the Walt Disney Company for its shameful manipulation of its annual shareholder meeting held today. Danhof says the company planted adoring fans and company employees in strategic positions in the meeting room so they could praise Disney CEO Bob Iger while blocking investors with serious issues from participating.

“I have never seen anything like the charade that Disney executives executed today. Iger and the rest of Disney’s leadership need to immediately issue a genuine apology to every investor who attended today’s meeting,” said Danhof. “Bob Iger has been called the most powerful person in Hollywood. What a joke that is. Today, he proved he couldn’t even handle a few critical questions from investors.”

Normal protocol for shareholder meetings allows for investors to address CEOs in an open question-and-answer session that follows formal business votes. At today’s meeting – held in Houston, Texas – Disney only allowed questions to be asked by individuals sitting in a few designated rows. Then, in an obvious effort to ensure those questions and comments were complimentary, they allowed members of a specific Disney fan club to enter the arena ahead of regular shareholders. Once inside, these fans occupied nearly all of the designated question-and-answer seats.

The meeting was held in Houston – and news about it got picked up by the papers everywhere (see this article). I have no idea what happened – but let me wager a guess: I would think it likely that Disney imposed a lot of restrictions on its meeting. As noted in this article, there were large protests by Disneyland employees protesting for higher wages who were denied entry. Of course, if it happened, Disney wouldn’t be the first company to plant employees in the audience to lob softballs – but this looks like a lot of hard spin to me. This organization likes to stir things up at “liberal” company meetings. Did it at Apple a few years ago…

This all happened ironically as our own webcast on the “Conduct of the Annual Meeting” was taking place (audio archive now available). Please take a moment to participate anonymously in these surveys: “Quick Survey on Annual Meeting Conduct” – and “Quick Survey on Whistleblower Policies & Procedures.”

SEC Staff’s Guidance on Cryptocurrency Exchanges

A few days ago, the SEC’s Enforcement Division and Division of Trading and Markets issued a joint statement over cryptocurrency exchanges. The statement is the latest effort by the SEC to address potentially fraudulent or manipulative behavior in the burgeoning market for ICOs and token deals – it’s both an informational document for investors using online trading platforms and a warning to operators of those platforms that the SEC is scrutinizing their activities. We’re posting memos about this in our “Blockchain” Practice Area

7 Ways to Sleep at Shareholder Meetings

I know I blogged about this a few years ago, but it’s own of my favorites – my 2-minute video about “7 Ways to Sleep at Shareholder Meetings”:

Broc Romanek

March 8, 2018

“Special Meeting” Shareholder Proposals: Exclusion Still Allowed (But With a Twist)

Recently, we’ve blogged about CII’s angst over Corp Fin’s recent no-action decision allowing AES Corp to exclude a shareholder proposal on the threshold required for investors to call a special meeting.

Since then Corp Fin has followed it’s AES approach – but with a significant twist. Here’s an excerpt from this blog by Keith Higgins (also see this Cooley blog):

More requests to exclude special meeting proposals such as the one in AES Corp have come in, and the Division’s approach remains essentially the same, recently though with a significant twist. In a letter to Capital One (2/21/18), the Division agreed that the company, which proposed to ratify its existing special meeting bylaw, could omit a shareholder proposal to lower the threshold to call a shareholder meeting from 25 percent to 10 percent, provided that the company’s proxy statement discloses:

– that the company has omitted a shareholder proposal to lower the ownership threshold for calling a special meeting,
– that the company believes a vote in favor of ratification is tantamount to a vote against a proposal lowering the threshold,
– the impact on the special meeting threshold, if any, if ratification is not received, and
– the company’s expected course of action, if ratification is not received.

The Division based its conditions on Rule 14a-9, suggesting that it believes a proxy statement with a ratification proposal that does not provide the required context in which shareholders are being asked to vote for ratification would be materially misleading.

Transcript: “The Top Compensation Consultants Speak”

We have posted the transcript for the webcast: “The Top Compensation Consultants Speak.”

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:

– Who Administers Political Spending Policies?
– Energy & Utility Company Governance Issues
– E&S: Sifting Through the Raters Quagmire
– Toll-Free Numbers for Earnings Calls?
– Reg A+: Many are Called, But Few are Chosen

Broc Romanek

March 7, 2018

Virtual Meetings: Not “Ordinary Business”

During this proxy season, we’ve blogged a few times about the campaign to stop companies from holding virtual-only annual meetings. As noted in this blog, some companies decided to heed the campaign and announced that they would hold a hybrid meeting instead of a virtual-only.

And this blog announced that the nuns would participate as proponents in the campaign, urging in their shareholder proposals that the topic of virtual-only meetings has become so important as a governance topic that it should no longer be considered “ordinary business” under Rule 14a-8(i)(7). Corp Fin has now issued a response to one of these no-action letter requests – this one to Comcast – and has determined that the topic is still “ordinary business.” And so Comcast can exclude the shareholder proposal…

Please take a moment to participate anonymously in these surveys: “Quick Survey on Annual Meeting Conduct” – and “Quick Survey on Whistleblower Policies & Procedures.”

Tomorrow’s Webcast: “Conduct of the Annual Meeting”

Tune in tomorrow for the webcast – “Conduct of the Annual Meeting” – to hear Bank of America’s Gale Chang, Nielsen’s Emily Epstein, Independent Inspector of Elections’ Carl Hagberg and Verizon Communications’ Dana Kahney discuss how to prepare for your annual shareholders meeting.

Kill The SEC?

Maybe the SEC’s seen its day and we should just start over? That’s what the folks at Competitive Enterprise Institute think. Check out this article

Broc Romanek

March 6, 2018

Pay-for-Performance: What It’s Not

I’ve been running an executive pay conference for over 15 years now – and I’ve always been loathe to program about “pay-for-performance” because I don’t quite understand it. I’ve always been a hard worker – so I’m the type who gives “my all” in exchange for a salary. That’s all the incentive I really need.

But I certainly can be dis-incentivized. And if that happens, my reaction is to find a new job. And the memo that the United Airlines CEO recently sent to employees – described in this article – would fall into the category of things that dis-incentivized me.

First, there is the tone of the memo – aptly described in the article as tone-deaf. And then there is the subject of the memo: taking away quarterly performance bonuses from many employees (who expected them in the regular course as they hit certain benchmarks) – and instead pooling together that money to give much larger bonuses to those that win a lottery of the bonus money. To capture the essence of that, I’ll use this excerpt from the article:

It’s a curious logic, one that says: “How do we get them to improve? How about taking away their bonus?” To be followed by “heh. heh. heh.”

Can you imagine what the United CEO would say if his compensation was subject to a random drawing. I guess we’ll never know because employee backlash already led to the company shelving this horrible idea…

Comment Letters to the SEC: Having Fun…

For a diversion from your billables, probably the next best thing to reading this blog is perusing the comments submitted to the SEC on various rulemakings. It isn’t too hard to find some written from the couch. For example, in this comment letter, there are harsh words for the SEC from the Mayor of Forest Hills Borough, Pennsylvania (assuming it’s not an impersonation which might be easy to accomplish).

By the way, we do have a nifty checklist about how to craft an effective comment letter to the SEC from Jay Knight of Bass Berry posted in our “Checklists Library.” Please contact me if you would like to contribute a checklist. They are very popular…

Transcript: “Conflict Minerals – Tackling Your Next Form SD”

We have posted the transcript for the recent webcast: “Conflict Minerals – Tackling Your Next Form SD.”

Broc Romanek

March 5, 2018

Revenue Recognition: More Corp Fin Comments

This blog by Steve Quinlivan gives us the latest about Corp Fin comments on revenue recognition disclosures under the FASB’s new standard – these comments were sent to Ford & Alphabet…

Tomorrow’s Webcast: “Activist Profiles & Playbooks”

Tune in tomorrow for the webcast – “Activist Profiles & Playbooks” – to hear Jason Alexander of Okapi Partners, Tom Johnson of Abernathy MacGregor and Damien Park of Spotlight Advisors identify who the activists are – and what makes them tick.

SEC Approves NYSE’s “Proxy Submission” Change

Just in time for the heart of the proxy season, the SEC has approved the NYSE’s rule change – eliminating the duty of listed companies to deliver a hard copy of their proxy materials to the NYSE. Instead, the NYSE will rely on the company’s materials filed with the SEC.

Broc Romanek