June 29, 2020

ICOs: SEC Shows No Love For SAFTs

Last year, I blogged about an SEC enforcement action to halt an unregistered ICO that was being conducted in the most “best practices” way possible – through a “Simple Agreement for Future Tokens.” Under this structure, the company sells “pre-token” securities to accredited investors, which flip into non-security tokens at or after launch of a platform on which to use them. In this particular case, the SEC took issue with the fact that there would be no established cryptocurrency ecosystem at the point when the pre-tokens flipped to tokens.

On Friday, the SEC announced that it had settled the enforcement action – and the results aren’t encouraging for the crypto crowd. Here’s the highlights:

– The company agreed to return more than $1.2 billion to the initial purchasers in the offering

– The company’s paying an $18.5 million civil penalty

– For the next 3 years, the company has to notify the SEC before participating in the issuance of any digital assets

Yikes. The announcement includes this quote from the Chair of the SEC Enforcement Division’s Cyber Unit: “New and innovative businesses are welcome to participate in our capital markets but they cannot do so in violation of the registration requirements of the federal securities laws.” But with this SAFT arrangement drawing ire, a lot of folks are wondering how exactly a token offering would do that.

Reg S-T: Corp Fin Extends Temporary Relief for Signatures

In March, John blogged about Corp Fin’s temporary relief for manual signature retention requirements under Rule 302(b) of Regulation S-T. Last week, the Staff updated that statement to say that it’ll remain in effect until a date specified in a public notice, which will be at least two weeks from the date of the notice. So while the Staff continues to expect compliance, it won’t recommend enforcement if:

– a signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);

– such document indicates the date and time when the signature was executed; and

– the filer establishes and maintains policies and procedures governing this process.

The Staff also extended for an indefinite period its temporary relief for submission of paper forms under Rule 144 and other rules – which had been set to expire June 30th. For more detail, see this Cooley blog.

Last week, the SEC, Corp Fin, the Division of Investment Management and the Division of Trading & Markets also issued this joint statement, which summarizes all of the relief & assistance that the Commission provided during the pandemic to accommodate capital raising & reporting, and says the Commission won’t be extending the relief that gave companies additional time to file disclosure reports that were due on or before July 1st.

But not everyone is happy about “deregulatory” efforts by the SEC these last few months – here’s a letter to SEC Chair Jay Clayton from Chair of the House Financial Services Committee, Congresswoman Maxine Waters (D-CA), calling for the Commission to halt rulemakings unrelated to the pandemic.

Climate Change Litigation: The Next “Mass-Tort” Frontier?

BP is facing state court action for nuisance claims from the cities of Oakland & San Francisco, after the Ninth Circuit denied the company’s motion to remove the case to federal court and dismiss the claims. This Wachtell Lipton memo predicts that the decision will invite “countless actions by states, municipalities, and private litigants in state courts all over the country” – and that liabilities will extend far beyond the energy sector.

Meanwhile, as Reuters reported a couple weeks ago, PG&E is pleading guilty to 84 counts of involuntary manslaughter in connection with the 2018 Camp Fire. Although no individuals will be held criminally accountable, this plea is pretty unique because the company is admitting criminal guilt. The company is also paying up to $19 million in fines & costs accepting tighter oversight – and pledging billions of dollars to improve safety and help wildfire victims. The company cited more than $30 billion in potential wildfire damages when it filed for bankruptcy, and it’s reached various settlements and rate agreements as part of the Chapter 11 plan.

Liz Dunshee