Ropes & Gray recently published a rundown of the comments submitted to the SEC in response to its ground-breaking climate change disclosure proposals. The memo notes:
By the time the comment period on the SEC’s proposed climate disclosure rules closed, the SEC had received approximately 14,000 comment letters. Over 1,000 of these letters were substantive, an extraordinarily high number. In this analysis, we provide statistics on the comment letters and note some of the many significant comment letters submitted.
The type of organization that submitted the most comment letters were, not surprisingly, trade associations, with the largest number in that category representing the financial services, agriculture and energy and extractive resources industries. There were 200 comment letters from corporations, representing a very significant turnout from individual issuers. Institutional investors were just behind corporations, submitting 133 letters. Other sources of comment letters include academia, consultants and service providers, standard-setting organizations, government, various think tanks and other organizations. The sheer volume and range of letters submitted in response to the proposal certainly gives the SEC staff and Commissioners a lot to consider when formulating final rules.
The SEC recently consolidated its resources for small businesses under a new Small Business Capital Raising Hub that is accessible from the SEC website’s main page under the “Education” tab. The new hub combines resources from the Office of the Advocate for Small Business Capital Formation with resources from Corp Fin’s Office of Small Business Policy. We expect that the staff will continue to update this new hub with more resources as they become available.
This week, we will mark six months since Russia invaded Ukraine, and the crisis continues to unfold in ways that we probably could not have imagined at the beginning of this year. We reflect on the terrible human toll that the conflict has wrought, and we hope for a peaceful resolution as soon as possible.
As I recently noted in the blog, the war has presented many disclosure challenges for public companies over the past six months, and will no doubt continue to do so as long as the conflict continues. We have covered the impacts of the war in a number of our publications, but I would like to point you to our Ukraine Crisis Practice Area here on TheCorporateCounsel.net. In the Practice Area, we continue to post useful resources on a wide range of topics, including sanctions, disclosure issues, board oversight considerations, and commercial and investment issues.
If you are not already a member of TheCorporateCounsel.net with access to the Practice Areas and other critical resources, sign up now and take advantage of our no-risk “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The prices for an annual membership increase on September 1st, so please act now.
In the latest Deep Dive with Dave podcast, I am joined by Chris Gaskill, Executive Vice President, Chief Legal Officer and Secretary at Summit Materials, to discuss the hottest topics for MD&A, including:
• The COVID-19 pandemic
• Inflationary pressures in the world economy
• Supply chain issues
• The war in Ukraine
• The use of non-GAAP financial measures
• Key takeaways for drafting your MD&A
You can still register for our always-popular conferences – the “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – to be held virtually Wednesday, October 12th – Friday, October 14th. With new SEC rules, record numbers of shareholder proposals, and relentless regulatory & investor scrutiny, your proxy disclosures – and the actions that support them – are more important than ever. Our Conferences provide practical guidance about rule changes, Staff interpretations, emerging disclosure risks, investor and proxy advisor positions, executive pay expectations, the board’s role, and more.
Here’s who should attend:
– Anyone responsible for preparing and reviewing proxy disclosures – including ESG and executive pay disclosures and responses to shareholder proposals.
– Anyone responsible for implementing executive and equity compensation plans or who counsels or advises boards on their oversight responsibilities, including CEOs, CFOs, independent directors, corporate secretaries, legal counsel, HR executives and staff, external reporting teams, accountants, consultants, and other advisors.
For more details, check out the agenda – 18 panels over 3 days. Our speakers are fantastic and this is truly a “can’t miss” event for anyone involved with proxy disclosures, corporate governance, and executive compensation.
Conference attendees will not only get access to our unique & valuable course materials (coming soon) – we’ll also be making video archives and transcripts available after the conference, so that you can refer back to all of the practical nuggets when you’re grappling with your executive pay decisions, disclosures and engagements. Plus, our live, interactive format gives you a chance to earn CLE credit and ask real-time questions.
Register today! In addition, check out the agenda for our “1st Annual Practical ESG Conference” – which is happening virtually on Tuesday, October 11th. This event will help you avoid ESG landmines and anticipate opportunities. You can bundle the Conferences together for a discount.
I blogged yesterday about my dismay in reading that today’s retail investors find equity investing to be hopelessly complicated. Law Profs Christina Sautter & Sergio Alberto Gramitto Ricci sent a word of encouragement, by pointing me to their latest paper. It was just posted last week and addresses the important topic of “investing education” in the age of mobile apps & financial inclusion. The paper is a response to another recent analysis – “Regulating Democratized Investing” – by Abraham Cable, which proposes a way to encourage investor choice & access on new apps, without people losing their life savings in misguided day trading.
In their paper, Christina & Sergio walk through the rise of “finfluencers” – social media influencers who have become informal educators to a huge number of retail investors, for better or for worse. Companies that get mentioned often have to contend with misinformation & rumors. The professors suggest that mandatory investing education at the high school level would help the public navigate information sources (and save corporate secretaries from headaches).
Here’s the part that I found especially thought-provoking:
Private Ordering: … In the future, Fisch’s “just-in-time education” recommendation could also be extended to proxy materials and proxy voting to make materials and corporate governance more accessible and engaging for retail investors. Although many retail investors care about corporate governance engagement, they are not generally well versed in corporate governance legal terminology. There are examples on social media of retail shareholders showing a lack of knowledge regarding the meaning of a “record date,” what happens on the record date, and when voting occurs.
Retail investors are not just unfamiliar with corporate law terminology but also the mechanics of corporate governance as well as the substantive issues at play in proxy items. For example, some technicalities like a partially completed proxy card resulting in the remainder of votes being cast in accordance with management recommendations is not necessarily intuitive. Investing education courses should include instruction not just on investing but these intricacies of corporate governance to empower retail investors.
Including Corporate Governance in Education: Civics education has been found to nurture political engagement with positive ramifications on equality and citizens’ agency. In a globalized world, with corporations rivaling nation states in power and influence, the benefits of widespread investing education cannot be overstated. Corporate governance allows citizens to partake in decision making affecting virtually all aspects of their lives. Share ownership is the key that provides access to corporate governance.
Including corporate governance in investing education curricula not only completes the set of knowledge necessary for investing in companies’ shares, but also enhances the agency of investors as citizens. Investing education bridges the gap between citizens and Wall Street. It also provides citizens with the tools to engage with the companies in which they invest.
There you have it: a call to action for corporate governance experts to save the world. Maybe I can finally convince my non-lawyer friends to follow this blog.
In a new 18-minute episode of our “Women Governance Trailblazers” podcast, Courtney Kamlet & I interviewed Rachel Kahn-Troster, Executive VP at the Interfaith Center on Corporate Responsibility, about her unique career path and mentor experiences.
Rachel also shares her thoughts on how companies can continue to improve on human rights issues – and how she works with ICCR members to engage with companies on this and other topics. It’s worth hearing Rachel’s perspective, because as I blogged earlier this week, members of the ICCR coalition engaged in a record level of activity during the 2022 proxy season.
PwC recently published its annual roundup of comment letter trends – detailing the types of issues that Corp Fin has raised on company filings, from July 2021 through June 2022. Here’s the “Top 10” – and how the comment volume is trending compared to last year at this time:
1. Non-GAAP – up
2. MD&A – up
3. Segment reporting – down
4. Risk factors: climate change matters – up
5. Revenue recognition – down
6. Fair value measurement – unchanged
7. Disclosure controls and ICFR – unchanged
8. Inventory and cost of sales – unchanged
9. Form compliance and exhibits – unchanged
10. Business combinations – unchanged
In terms of real-time trends, Dave recently blogged about continued inquiries about disclosure on the war in Ukraine, and John blogged about comments on inflation & supply chain pressures. We also just posted the latest edition of our “SEC Comment Letter Process Handbook” – 47 pages of practical insights to help you anticipate comments and navigate responses. Special thanks to Sidley’s Sonia Barros and Sara von Althann for contributing their expertise to this resource, which helps our entire securities law community!
On the heels of an insider trading action and reported investigation into Coinbase, the SEC is sending another strong signal that it intends to regulate digital assets (one way or another). Earlier this week, the agency announced charges against a group of entities and their founder for their roles in unregistered crypto offerings. Here are some of the allegations from the 17-page complaint:
1. From at least 2017 through the present, Dragonchain conducted an unregistered offering of a crypto asset called a “Dragon” (“DRGN”), illegally raising over $16 million in proceeds through unregistered offers and sales of these securities to approximately 5,000 investors in the United States and abroad. Dragonchain used these proceeds to try to develop a type of blockchain technology – a peer-to-peer database spread across a network of computers – that businesses can incorporate into their daily activities. Dragonchain offered and sold DRGN tokens through channels that included a Dragonchain website, social media, conference appearances, and Telegram.
2. In 2017, Dragonchain minted DRGNs and conducted an offering of 55% of them in two phases: (1) a discounted “presale” in August 2017 to members of a crypto investment club, and (2) an initial coin offering (“ICO”) in October and November 2017 marketed predominately to crypto investors. Through this offering, Dragonchain raised approximately $14 million.
5. Dragonchain’s marketing materials explicitly stated that the value of the token would increase as adoption of its technology grew. Dragonchain told purchasers that the value of DRGNs would rise as the Dragonchain “ecosystem” matured. Dragonchain also stated that it would use proceeds of the offering to develop additional features and market its technology to businesses, thereby promoting adoption of its technology.
6. Dragonchain also made clear to investors that DRGNs would be “listed” on trading platforms. Roets, Dragonchain’s founder, personally told investors that he understood that liquidity and the ability to exit an investment quickly was an advantage of being a crypto investor over a traditional investor.
7. Dragonchain retained social media forum moderators and crypto influencers who regularly discussed DRGNs’ investment value, trading prices, and market capitalization, and Dragonchain’s Twitter profile regularly reposted others’ investment value-related tweets about DRGNs.
11. The Dragon Company, meanwhile, used DRGNs to pay service providers for a variety of services provided to Dragonchain during 2019 through 2022, thereby selling DRGNs through an illegal unregistered offering.
After painting that picture, the SEC refers back to its 2017 Section 21(a) Report, which was issued before Dragonchain’s offering and found that the crypto assets at issue there were “investment contracts” – and therefore, securities. The complaint then continues with another 7+ paragraphs of facts that the SEC believes show a violation of Sections 5(a) and 5(c) of the Securities Act. The SEC is seeking permanent injunctions, disgorgement, and civil money penalties.
The company had been notified in advance of this investigation – and sent an open letter to the SEC in response. With the way things are going, there will probably be more crypto enforcement actions to come.
In an attempt to support growth in retail investing, the World Economic Forum recently partnered with BNY Mellon and Accenture to survey what leads people to participate – or not – in capital markets. The 95-page report includes this sad finding:
– Gaps in financial education are the primary barrier to investing: In France, Germany, the UK and US, retail investors feel they have a comparatively better understanding of newer, less established products (e.g. cryptocurrency and non-fungible tokens or NFTs) compared to more traditional asset classes (e.g. bonds and stocks).
Diving deeper, nearly 40% of investors said they don’t understand stocks or bonds. Another 18-24% said they don’t know where to access these products! Meanwhile, 40% of global retail investors hold crypto, and Bitcoin is making its way into retirement portfolios.
Having spent my entire career to-date in the public company and capital markets space, being the type of person who mostly just holds boring old index funds, and having just written a blog about complicated regulatory questions & uncertainties surrounding digital assets, this news fills me with both dismay and FOMO. Maybe what stocks need is a spokesperson who is younger than 90 (no offense, Warren & Charlie). According to the survey, 70% of retail investors are under 45 years of age.
Despite crypto’s rise, we’re nowhere near an inflection point. This Reuters article says that the value of the global equity & bond markets still dwarf crypto – $124.4 trillion and $126.9 trillion in 2021, respectively, compared to $3 trillion for crypto (and that’s before the 2022 slide). The survey details how this class of “investments” (?) comes with its own challenges…