In yesterday’s blog, I mentioned how the relatively short comment periods contemplated for the SEC’s recent rulemaking proposals have drawn some attention, even though delays in publishing the proposing releases may ultimately frustrate plans to rush those rulemakings through the process. Interestingly enough, Patrick McHenry (R-NC), the Ranking Member of the House Committee on Financial Services, and Pat Toomey (R-PA), the Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, also took notice of the SEC’s comment periods, sending a letter yesterday to Chair Gensler expressing concern that “rulemakings under your tenure have consistently provided unreasonably short comment periods, which will harm the quality of public comment and may run afoul of the Administrative Procedures Act.” The letter notes that the Administrative Conference of the United States, an independent federal agency charged with recommending improvements to administrative process and procedure, endorses a comment period of at least 60 days for significant regulatory actions.
Congressman McHenry and Senator Toomey urge Chair Gensler to immediately extend all comment periods for the SEC’s proposed “rules of significance” to at least 60 days, including “reopening the comment filing for those rulemakings with shorter comment periods that have closed prematurely.” They request a response by January 24, 2022.
One thing I would note in this context is that the SEC does not actually stop accepting comments when the “deadline” for comments has passed. The comment file remains open, and comments are accepted, up to the time that final rules are adopted. In fact, in my experience of both working on many comment letters over the years and working on rulemaking at the SEC, the Staff that is working on the rulemaking continues to consider any comments that come in after the deadline whenever it is possible to do so. The reality is that no matter how long you make the comment period for a proposed rulemaking, it is still going to be difficult to solicit meaningful comments from the public, and from the perspective of those preparing the comments for the SEC, it is always going to be difficult to prepare thoughtful comments in a timely manner unless you have people dedicated to doing so. So, in the end, the SEC Staff working on the rulemaking and the individuals and groups that provide the comments are just doing the best they can in the time allotted.
This recent Wall Street Journal article describes the efforts that the SEC is currently considering as a means to address the persistent “unicorn” phenomenon – private companies worth $1 billion or more. Unicorn’s have been vexing lawmakers and policymakers for decades now, as the availability of plentiful private capital, ever-increasing regulatory burdens and a persistent securities litigation threat have resulted in large companies not going public and subjecting themselves to SEC regulation, public scrutiny and plaintiffs’ lawyers. An inkling of the SEC’s plans recently emerged in the Reg Flex agenda, and now more details are emerging.
It appears that the SEC may reconsider the mandatory registration provisions of the Securities Exchange Act as a means of drawing the unicorns into the SEC’s public reporting system. The Section 12(g) thresholds that trigger mandatory registration were of course raised by the JOBS Act of 2012, but it now appears that the SEC may revisit those thresholds and/or the manner in which investors are counted for the purposes of those thresholds. In their statement following the release of the most recent Reg Flex agenda, Commissioners Peirce and Roisman noted that “[l]owering these thresholds may both contradict the express will of Congress and potentially undermine our mission to facilitate capital formation.”
Wow, it is webcast week this week! Join me tomorrow for what promises to be a very interesting discussion of the SEC’s recent proposals on our webcast “Rule 10b5-1 & Buybacks: Practical Impacts of SEC’s Proposals.” I am fortunate to be joined by Brian Breheny from Skadden, Ning Chiu from Davis Polk, Meredith Cross from WilmerHale and Keir Gumbs from Broadridge Financial Solutions, and we will discuss all aspects of these proposals and the steps that companies should be taking now.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to submit our state and license number and complete the prompts during the program.
Members of TheCorporateCounsel.net are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com – or call us at 800.737.1271.
At around this time last year, we were all wondering when the SEC’s financial information and MD&A rulemaking (which had been adopted in November 2020) was going to get published in the Federal Register so that issuers could figure out whether they could rely on the early compliance provisions for their upcoming annual reports. It was observed that, similar to the delays that we were all experiencing in late 2020 with the U.S. Postal Service, the Federal Register was experiencing some delays in publishing SEC releases, perhaps due to a flood of government-wide 11th hour rulemaking on the eve of a change in the Administration.
Last month, when the SEC proposed rule changes to Rule 10b5-1 and related disclosure items and proposed to expand share repurchase disclosures, there was some attention given to the relatively short comment periods for both proposals – they contemplated a 45-day comment period, rather than the more typical 60-day comment period, in each case running from the date of publication in the Federal Register. Given the almost month-long delay in publishing the proposing releases, commenters have already received a pretty generous period for preparing their comments, which will be extended by 45 days once publication in the Federal Register occurs.
It is not clear why the Federal Register process is taking so long. After the flood of rulemaking during 2020, the SEC did not issue very many releases requiring publication in the Federal Register during 2021, so we were not monitoring the timing closely until these new proposals emerged.
The January 5, 2022 issue of the Society for Corporate Governance’s weekly “Society Alert” noted that the Operations Subcommittee of the End-to-End Vote Confirmation Working Group announced that it has agreed to provide vote confirmation this proxy season for Fortune 500 annual meetings that are tabulated by members of the Operations Subcommittee and to pilot an early stage vote entitlement reconciliation process for 20 Fortune 500 meetings.
End-to-end vote confirmation is the affirmation to a nominee from the tabulator (and to the nominee’s beneficial owner by the bank or broker) that the vote made was counted as cast. Vote entitlement refers to bank’s or broker’s voting entitlement on behalf of their clients.
Will the SEC’s recent adoption of rules mandating the use of universal proxies change the game for proxy contests? What should companies do now to prepare for the new regime? Join us tomorrow for the webcast – “Universal Proxy: Preparing for the New Regime” – to hear Goodwin Proctor’s Sean Donohue, Gibson Dunn & Crutcher’s Eduardo Gallardo, Sidley Austin’s Kai Liekefett and Hogan Lovells’ Tiffany Posil discuss these and other issues associated with the looming universal proxy requirement. We are making this DealLawyers.com webcast available on TheCorporateCounsel.net as a bonus to members – it will air on both sites.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to submit our state and license number and complete the prompts during the program.
We’re kicking off 2022 in a big way, with three important webcasts for our members next week (thanks to each & every one of you for renewing)! Not only will these 60-minute programs deliver essential & practical info from “All-Star” lineups – if you attend the live program, you also can make the most of your time by requesting CLE credit. Join us at 2pm Eastern:
– Tuesday, January 11th for the program, “Universal Proxy: Preparing for the New Regime” – Goodwin Proctor’s Sean Donohue, Gibson Dunn & Crutcher’s Eduardo Gallardo, Sidley Austin’s Kai Liekefett and Hogan Lovells’ Tiffany Posil will discuss whether the SEC’s recent adoption of rules mandating the use of universal proxies will change the game when it comes to proxy contests and what companies should do in advance of the August 31, 2022 compliance date. We are making this DealLawyers.com webcast available as a bonus to members of TheCorporateCounsel.net.
– Wednesday, January 12th for the program, “Rule 10b5-1 & Buybacks: Practical Impacts of SEC’s Proposals” – Skadden’s Brian Breheny, Davis Polk’s Ning Chiu, WilmerHale’s Meredith Cross, Broadridge’s Keir Gumbs, and Morrison & Foerster & TheCorporateCounsel.net’s Dave Lynn will be highlighting significant aspects of the SEC’s recent proposals to amend the rules governing insider trading plans and corporate stock repurchases, including what companies can & should do before the SEC finalizes the amendments.
– Thursday, January 13th for the program, “ISS Forecast for the 2022 Proxy Season” – Davis Polk’s Ning Chiu and Gunster’s Bob Lamm will join Marc Goldstein of ISS to provide insight on ISS’s latest policy updates, how companies can help themselves with disclosures, and predictions for the biggest issues we’ll all be grappling with this proxy season.
In addition to these three webcasts next week, we have a number of other great programs lined up across our sites – and even more in the queue. If you’re a member, you are able (and encouraged) to attend programs on the sites you subscribe to, at no charge. If you’re not yet a member, subscribe now! The webcast cost for non-members is $595. If you haven’t done so already, you can renew or sign up by emailing sales@ccrcorp.com – or call us at 800.737.1271.
To get CLE credit for each of these webcasts, you just need to submit your state and license number for the applicable program, via the link on that webcast flyer page, and complete the prompts during the live program.
A company called Hygienic Dress League issued a press release earlier this week announcing that it was planning to raise capital through a Reg A+ offering. You’re probably thinking that there’s nothing particularly newsworthy about that, right? Well, check out this excerpt from the press release, which explains that while HDL is legally a corporation, it’s actually an art form:
Hygienic Dress League (HDL), a legally registered corporation as a new and original form of art, today announced they have filed an application with the Securities and Exchange Commission (“SEC”) for Regulation A+ exemption to issue securities. Today, HDL filed for a Tier 2 offering that, if approved, would allow for the issuance of up to $75 million of securities in a 12-month period. This would permit members of the public, subject to conditions, to participate in the offering. HDL believes this application is the first of its kind before the SEC.
Founded in 2007 in Detroit by Steve and Dorota Coy, husband and wife visual artists, HDL explores aspects of the human condition and contemporary society while challenging reality, truth, and belief systems through the framework of corporate activities. Thus far, HDL’s vision and exhibitions have manifested as TV commercials, public installations, fleeting out-of-home projections, and in augmented reality. HDL’s guerilla marketing and urban interventions have been experienced in 19 cities from nine countries across three continents.
At one point, the press release quotes one of HDL’s co-founders as saying that if the offering moves forward, “it will push the boundaries of art and finance, showing how the two merge and interact with each other. The goal is for people to ponder the nature of corporations, our concepts of value, and other seemingly permanent structures of our world.”
So, what is this new and original art form offering? NFTs, of course:
The first-of-its kind planned offering for participants will be for 600k non-fungible token (NFT) securities. Concurrently, HDL has begun minting NFTs representing “employees.” Each block of shares will come with its own unique NFT employee. After the planned offering, interested parties will be able to purchase certain HDL NFTs separately from NFT shares with the opportunity to sell them on open secondary markets.
I visited the SEC’s website and the only thing on file for HDL as of Thursday afternoon was a Form D for a $500K private placement. I suppose that, despite the press release, they made the filing for the Reg A offering confidentially. That’s a shame, because I’m dying to see this one. For now, we’re going to have to content ourselves with exploring the wonders of the company’s testing the waters website. As you’ll discover if you pay that site a visit, that’s not nothin’.
I do have one disclosure-related concern about this deal. I’m not sure that HDL can back up its claims to being a new and original form of art that’s pushing the boundaries of art & finance. That’s because anyone who read WeWork’s IPO registration statement or followed the bizarre aftermath of that aborted deal knows that that Adam & the gang were way ahead of HDL in turning a corporation into a piece of conceptual art.
Last September, Liz blogged about the SEC’s decision to solicit comments on proposed upgrades to the way filers accessed the EDGAR system & the way in which filer accounts are managed. The comment period expired on December 1, 2021, but it doesn’t look like changes to the EDGAR access process are imminent. That’s because on Wednesday, the SEC announced that Chair Gensler had “asked the staff to consider how the agency might address concerns articulated by commenters” on the proposed changes.
I checked out the SEC’s website, and commenters – many of whom are affiliated with third party filer support companies – expressed a number of concerns about the proposed changes. In particular, several commenters noted that the SEC’s proposal to alter the authentication scheme from an SEC-managed form-based login to the government-wide Login.gov single sign-on could cause significant problems for filers. This excerpt from DFIN’s letter is fairly representative of those concerns:
Our main concern relates to the use of Login.gov with multi-factor authentication. This approach is not an efficient option for system-to-system authentication, the most common submission method used by the majority of filers today. We recognize the Commission’s goal of providing additional security, however the proposed access through Login.gov will pose an added burden on filers as described herein.
We believe that eliminating the server-to-server submission process would introduce significant negative impacts to the reporting environment that healthy capital markets depend on, as well as significantly increase the burden to the SEC to support filers throughout the submission process.
Another common theme among the letters submitted to the SEC was a request to extend the comment period beyond its December 1, 2021 expiration date. While the SEC didn’t formally extend the deadline in its announcement, it did make it clear that the Staff “would seek additional information and engage in a dialogue regarding concerns raised by commenters, which may include consideration of further approaches to EDGAR access improvements.”
I’m sorry to disappoint those of you hoping to hear something from the SEC on its long-anticipated 13(d) reporting reform proposal, but today I’m blogging about a different set of beneficial ownership reporting rules. You probably should listen up anyway, because the proposed regs I’m talking about could be a big deal for a lot of public and private companies.
Last month, Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed regulations on reporting of beneficial ownership information under the Corporate Transparency Act. These proposed regulations will create new federal filing requirements applicable to a wide range of entities (including operating companies, holding companies, LLCs and others). Here’s an excerpt from this Wilson Sonsini memo on the potential scope of the reporting requirement:
The proposed regulations would require every foreign or domestic legal entity that qualifies as a “reporting company” — FinCEN estimates that 25 million existing legal entities, plus an additional three million new legal entities each year, will meet the criteria—to file reports with FinCEN that identify the beneficial owners of the entity as well as the individuals who have filed to form or register the entity. Companies and individuals who fail to comply with or properly facilitate the reporting process (e.g., by providing inaccurate or incomplete information to reporting companies) may be subject to potential civil and criminal penalties, including potential imprisonment.
The memo provides plenty of additional details about the scope and operation of the proposed regulations, including what information is required to be reported and when filings must be made, and the exemptions that could apply to public reporting and large operating companies. The public comment period ends on February 8, 2022, and the memo says final regs are expected sometime this year.