February 9, 2021
Market Mania: Corp Fin Issues Sample Comment Letter
Yesterday, Corp Fin issued a sample comment letter for companies conducting securities offerings during times of extreme price volatility. The Staff cautioned that the risks associated with price volatility are particularly acute when companies are seeking to raise capital during times of stock run-ups, high short interest or reported short squeezes, or atypical retail investor interest – i.e., the type of “market mania” that we saw a couple weeks ago with GameStop, and last summer with Hertz.
The letter highlights issues for companies to consider when preparing disclosure documents – including automatically effective registration statements and pro-supps that wouldn’t typically be subject to Staff review. In particular, the Staff wants companies to consider disclosing on the prospectus cover page:
– A description of recent stock price volatility in the company’s stock and any known risks of investing in the stock under the circumstances
– Comparative stock price information prior to recent volatility and any recent change (or lack thereof) in the company’s financial condition or results of operation that are consistent with the recent stock price change
– Any recent change in the company’s financial condition or results of operations, such as earnings, revenues or other measure of company value that is consistent with the recent change in your stock price – if no such change to financial condition or results of operations exists, disclose that fact
Corp Fin also suggests companies provide information about potential risk factors addressing the recent extreme volatility in a company’s stock price, effects of a potential “short squeeze,” the potential impact of the offering on a company’s stock price and investors and the potential dilutive impact of future offerings on investors purchasing shares in the current offering. The sample letter includes information each of these potential risk factors should include.
For use of proceeds, the sample letter also suggests that companies disclose the possibility that they may not be successful in raising the maximum offering amount and the priorities for proceeds received.
Corp Fin cautions that the sample comment letter doesn’t provide an exhaustive list of issues companies should consider. Companies experiencing extreme price volatility are encouraged to contact their Corp Fin industry office with questions about proposed disclosure. Kudos to Corp Fin for issuing this guidance so that advisors of companies that might get caught up in a fast-moving #stonk craze can prepare in advance.
SEC Acting Chair Lee Announces Executive Staff Roster
Last week, John blogged with big news about the recent SEC appointment of Satyam Khanna as Senior Policy Advisor for Climate and ESG and John Coates as Acting Director of Corp Fin. Along with those appointments, the SEC released a roster of executive staff for Acting SEC Chair Allison Herren Lee. It’s a fair lengthy list of between 15-20 appointments, check it out to see who’s all involved with SEC activities.
Last Friday, the SEC continued with its string of appointments and issued an announcement that Kelly Gibson has been named Acting Deputy Director of the Enforcement Division. Kelly has been serving as the Director of the Philadelphia Regional Office since February 2020 and has served in the Philadelphia Regional Office for the past 13 years. Congratulations Kelly!
Insight into Perspectives of Acting Corp Fin Director
Along with the SEC appointment of Satyam Khanna, many practicing in securities law took note of the appointment of John Coates as Acting Director of Corp Fin. In addition to serving on faculty at Harvard Law School, Coates is a member of the SEC’s Investor Advisory Committee and also Chair of the Investor as Owner Subcommittee. To help shed light about Coates’s perspective on issues, this Cooley blog provides highlights about a few Committee recommendations he’s authored. The blog is worth a read, particularly for those interested several hot-button issues involving shareholder proposals and proxy advisors, and proxy plumbing.
– Lynn Jokela