Monthly Archives: September 2022

September 28, 2022

SEC’s Investor Advisory Committee Meeting: “Warm Fuzzies” for Rulemaking

When I was an elementary-aged kid, our guidance counselor would come in and sing a song about “warm fuzzies” – the nice things you say to lift up your classmates when they’re getting criticized by others or feeling down. If complaints against the SEC’s ambitious rulemaking agenda are getting to SEC Chair Gary Gensler, then last week’s Investor Advisory Committee must have been a nice pick-me-up.

The IAC met to cover its previously announced action-packed agenda – which in itself was a sticking point for Commissioner Peirce. Not surprisingly, the IAC mostly gave “warm fuzzies” on the SEC rulemaking initiatives that will require more disclosure from companies.

This blog from Cooley’s Cydney Posner recaps the discussion. Here are a few condensed takeaways:

1. Human Capital: Investors think the 2020 rules are a step in the right direction, but don’t provide enough comparable & actionable data. Some panelists suggested using SASB standards as a starting point for reporting.

A JUST Capital representative said that fewer than 20% of the largest 100 employers reported on 29 metrics that she identified as being important (wages, hours, training investments, turnover, DEI, etc.) – and with a lot of non-standardized info appearing in website sustainability reports rather than the Form 10-K, data collection is laborious.

2. Schedules 13D and 13G Beneficial Ownership Reports: Investors have mixed views on the SEC’s proposal to shorten the Schedule 13D filing deadline and amend the definition of “group.” Those who oppose the proposed amendments believe they would improperly insulate companies from activist shareholder challenges. Those who support the proposed amendments believe it would helpfully address “information asymmetry” and benefit shareholders as a whole.

3. Climate Disclosures: The Committee adopted a recommendation in favor of the SEC’s climate disclosure proposal – with suggestions for improvement, such as a safe harbor for disclosures of “Scope 3” emissions. The Committee also suggested adding a “Management’s Discussion of Climate-Related Risks & Opportunities” and dropping the disclosure requirement about climate-related board expertise.

4. Cybersecurity Disclosures: The Committee also adopted a recommendation in favor of the SEC’s cybersecurity disclosure proposal – again, with suggestions for improvement. Investors favor the notion of adding a Form 8-K trigger and disclosure of policies, procedures & board oversight of cyber risks. Investors suggested enhancing comparability among companies by requiring disclosure of key factors used to determine materiality of a cyber incident. The Committee doesn’t support “law enforcement” exceptions for incident reporting. The Committee also doesn’t support the requirement to disclose directors’ cyber expertise, because investors want it to be clear that the full board is responsible for cyber oversight.

Liz Dunshee

September 28, 2022

Memes Unite! SEC Charges Alleged EDGAR-Burglar on Unrelated Shenanigans

Some people have all the “fun.” Earlier this year, a character named Theodore (“Ted”) Farnsworth attempted to take control of a meme stock company by allegedly swiping its EDGAR codes and declaring himself co-CEO. That drama has continued through the summer, with more “Incorrect Disclosures” – an actual defined term in this Form 8-K – and ensuing litigation to get the “Farnsworth Group” to acknowledge their terminations as executives.

Yet, this nonsense is not Mr. Farnsworth’s first tangle with controversy. As the former CEO of Helios & Matheson Analytics – which owned MoviePass from 2017 and played a large role in transforming that company from an operating business into bankrupt meme fodder – he is nothing if not a “disrupter.” Yesterday, the SEC announced that it had filed a complaint against Farnsworth and Mitchell Lowe, the former CEO of MoviePass, for – among other things – violating Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act. Here’s more detail from the press release:

According to the complaint, between August 2017 and at least March 2019, Farnsworth and Lowe intentionally and repeatedly made misstatements in HMNY Commission filings, press releases, and in the press that MoviePass could be profitable at its new, $9.95 per month subscription price; about HMNY’s purported data analytics capabilities; and concerning HMNY’s ability to fund MoviePass’s operations. As further alleged in the complaint, Farnsworth and Lowe also devised fraudulent tactics to prevent MoviePass’s subscribers from using the service. In addition, the complaint alleges that, between January and April 2018, Farnsworth and Lowe knowingly approved false invoices that Itum submitted to HMNY and MoviePass, disguising bonus payments as services purportedly provided by an entity Itum controlled.

This 2017 Bloomberg article details more of Farnsworth’s ventures & misadventures. And yes, I know it’s unlikely that the EDGAR codes were actually “burgled,” but I’m liking the sounds of that nickname for the movie that will be made about this. If only we could all get some sort of discounted pass to watch it in a theater.

Liz Dunshee

September 28, 2022

The Latest Issue of The Corporate Executive

The latest issue of The Corporate Executive has been sent to the printer (email to subscribe to this essential resource). It’s also available now online to members of who subscribe to the electronic format – an option that many people are taking advantage of in our “new normal” of remote work. The issue includes articles on:

– SEC Adopts Pay Versus Performance Disclosure Requirements

– To the Moon and Back: A Reflection on “Moonshot” Awards

– Delaware Developments: A Focus on Exculpation and Equity Grants

Once you’ve read through the initial “pay versus performance” guidance that this issue provides, make sure to also sign up for our November 10th “special session” – which will take a deeper dive into interpretive questions, practice pointers, big picture impact, and sample disclosures. The special session is available at a reduced rate to members of and attendees of our “Proxy Disclosure & Executive Compensation Conferences” – sign up for these resources now to get the guidance you need and to reserve your seat at this essential event.

Liz Dunshee

September 27, 2022

Director Interlocks: DOJ Making Good on Its “Non-Merger” Warning

Earlier this year, the DOJ’s antitrust head warned that the agency would be taking a hard look at interlocking directorships that might violate Section 8 of the Clayton Act. That statute prohibits competitors from having overlapping directors or managers, regardless of whether any anti-competitive conduct actually occurs.

As John has written on, the DOJ’s scrutiny could have far-reaching implications for the private equity industry – but it’s an issue for all corporate secretaries to have on their radar. Especially because, as this Perkins Coie blog reports, the DOJ has now started sending letters of inquiry to some public companies. This excerpt explains the consequences if they find a violation:

Bear in mind that the DOJ and FTC can only seek injunctive relief for Section 8 violations (i.e., removing the interlock). As part of a Section 8 investigation, however, the agencies are likely to look for evidence of other anticompetitive conduct or collusive behavior in violation of other antitrust laws, including Section 1 of the Sherman Act (which regulates agreements that unreasonably restrain trade), which could subject the companies and individuals involved to additional costly and lengthy investigations and potentially civil or criminal penalties.

Finally, note that private parties may also sue to enforce Section 8 and, unlike the federal agencies, seek treble damages.

No public company wants to be in the DOJ’s spotlight – and it sounds especially painful when director relationships are involved. The blog points out that you may want to start examining whether any of your directors also serve on the board or management of any company that could be a competitor. As you head into proxy season, remember that our 95-page “D&O Questionnaire Handbook” has guidance on navigating the Clayton Act – and a sample question.

If you aren’t already a member with access to that resource, 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. John has also blogged about interpretive issues over on

Liz Dunshee

September 27, 2022

Related Party Transactions: SEC Hooks Auditor for Deficient Procedures

As tends to be the case in late September, and as John predicted last week, the SEC enforcement actions are coming in hot. Hat tip to friend of the sites and Maynard Cooper counsel Bob Dow for highlighting this $1.5 million settlement that landed Friday against an audit firm whose work for a SPAC and another public company was allegedly deficient in regards to identifying related party transactions. Here’s more detail from the complaint:

Friedman failed to exercise professional skepticism when reviewing work papers. First, the work papers that documented the details and testing of accounts receivable and prepaid expenses and other current assets contained names included on iFresh’s related party lists. Friedman did not identify the names on the work papers as related parties, so certain related party transactions were not disclosed in the financial statements.

Second, Friedman failed to recognize red flags that indicated undisclosed related parties. For example, schedules provided to Friedman by iFresh in connection with the 2018 through 2020 audits included names of entities that had similar names as iFresh subsidiaries, and transaction descriptions that were inconsistent with iFresh’s business.

Friedman also encountered numerous red flags of undisclosed related party transactions with Li Ba HVAC & Construction (“Li Ba”). Li Ba was a related party because it was owned by Deng’s brother.

The complaint goes on to detail other “red flags,” like this:

Friedman failed to design and to perform procedures to obtain a sufficient understanding of the following significant unusual transactions involving undisclosed related parties: 1) the sale of commercial refrigeration equipment to Li Ba and the resulting large receivable with long aging and little to no collection for the 2017 through 2020 audits; 2) a legal settlement paid by Li Ba on behalf of iFresh for the 2018 audit; 3) iFresh and Li Ba extending loans to each other for the 2019 and 2020 audits; 4) Deng’s payments to iFresh on behalf of White Plains for the 2020 audit; and 5) Jiutian’s capital contributions to iFresh on behalf of Deng for the 2020 audit.

There are few things that excite SEC Enforcement more than shady SPACs and related party transactions – and this enforcement action follows remarks by Enforcement Division Director Gurbir Grewal a year ago where he emphasized gatekeeper accountability. The cherry on top is that Friedman is now owned by Marcum LLP, which back in 2020 was sanctioned and prohibited by the PCAOB from conducting audits of China-based businesses for three years. As this Twitter thread from a whistleblower lawyer points out, some companies have used their audit by Friedman to certify compliance with the new HFCAA rules. This settlement doesn’t directly impact that approach.

Liz Dunshee

September 27, 2022

Related Party Transactions: Questions Audit Committees Should Ask

As the 2022 edition of Deloitte’s “Audit Committee Guide” points out, NYSE and Nasdaq rules require that an independent board committee review & oversee related-party transactions – and that responsibility often falls to the audit committee. Deloitte notes:

While these types of transactions often occur in the normal course of business, transactions among related parties are sometimes associated with the risk of misstatement or omission in financial reporting, whether by error or fraud. Auditors are required to scrutinize related-party transactions that may pose an increased risk of fraud. These include transactions involving directors, executives, and their families; significant unusual transactions that are outside the normal course of business; and other financial relationships with the company’s executive officers and directors. Audit committees must be alert to these transactions as part of their oversight responsibilities.

The Guide suggests that audit committees consider asking these 6 questions:

1. What are the business reasons for the transaction? Are these reasons in line with the company’s overall strategy and objectives?

2. Are the terms of the transaction consistent with the market? In other words, would these terms apply to an unaffiliated party?

3. When and how will the transaction be disclosed? How will investors view the transaction when it is disclosed?

4. What impact will the transaction have on the financial statements?

5. Which insiders could benefit from the transaction, and in what way?

6. Are outside advisers needed to help understand the implications of the transaction?

Visit our “Audit Committees” and “Related Party Transactions” Practice Areas for more guidance on these topics.

Liz Dunshee

September 26, 2022

Pay Vs. Performance: Tackling Your Disclosures

The SEC’s newly adopted “pay vs. performance” disclosure rules are one of the most significant changes to executive compensation disclosure in the past decade. The new disclosures will require multiple years of information and new calculations for equity awards – and they’re required in 2023 proxy statements!

On Thursday, November 10th from 1-4pm ET, join us for a special session on “Tackling Your Pay Vs. Performance Disclosures” – featuring Compensia’s Mark Borges, Morrison Foerster’s Dave Lynn, WilmerHale’s Meredith Cross, Sidley’s Sonia Barros, SGP’s Rob Main, Fenwick’s Liz Gartland, Gibson Dunn’s Ron Mueller, and more.

This is a 3-part, 3-hour special session that will cover:

1. Navigating Interpretive Issues – we are already getting lots of questions in our Q&A forum about how to apply the new rules, and we know that new issues are arising daily. We’ll be sharing practical guidance and any SEC updates that you need to know – including what you’ll need to tell your board and executives.

2. Big Picture Impact – how will the disclosure mandate affect say-on-pay models and shareholder engagements? This session will provide context and pointers for bolstering executive compensation & compensation committee support during proxy season.

3. Key Learnings From Our Sample – attendees of this event will get first access to our sample disclosures, prepared by Mark Borges and Dave Lynn. Hear “lessons learned” from their drafting effort that will guide you through your own process and jumpstart your disclosures.

This event is available at a reduced rate of only $295 for anyone who is already a member or who is signed up to attend our “Proxy Disclosure & 19th Annual Executive Compensation Conferences” on October 12th – 14th – where we’ll be setting the stage with key takeaways from the pay vs. performance rule and the steps that you need to take now to be ready to comply. Register for the “special session” here for the member rate (or, if you are not a member but you are signed up for our “Proxy Disclosure & 19th Annual Executive Compensation Conferences,” contact for the special rate).

For non-members, the cost to attend is $595. If you’re not yet a member of, try a no-risk trial now. We’ll be continuing to add practical guidance on this topic to as disclosure hurdles & consequences come to light – such as this great podcast that Dave already taped with Gibson Dunn’s Ron Mueller about “first impressions” of the rule, emerging interpretive issues, possible pitfalls, and more.

All that to say, a membership be an essential ongoing resource if you are involved with pay vs. performance. Plus, our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. Register for the “special session” here if you are a non-member and are not attending our Conference.

Liz Dunshee

September 26, 2022

Electronic Form 144: The Future Is Now

The SEC announced on Friday that the EDGAR system is now ready to accept electronic Form 144 filings. Under rules that were adopted this past June, most Form 144 filings will be required to be made electronically beginning as early as March 2023 (the SEC will announce the exact compliance date when the final rule is published in the Federal Register, which is expected to happen within the next few weeks and will begin the 6-month countdown).

The SEC has launched a page with resources for filing Form 144 electronically. Here’s what you need to do now:

1. Make sure all of your company’s insiders have an EDGAR account and that their codes are up & running. The page explains how to search for lost codes.

2. If any reporting person doesn’t already have an EDGAR account, apply for one now. Applications require individual review by the Staff, and they expect a rush of submissions as the compliance date nears, so don’t be caught at the back of the line. The page explains the steps to apply.

3. Brush up on Form 144 CDIs for questions about when you need to file an amended Form, etc. Remember that we also have a “Rule 144 Q&A Forum” for questions about the Rule itself.

4. Check out the SEC’s page for step-by-step guidance for using the online fillable Form 144 and Frequently Asked Questions.

We’ll be discussing the implications of electronic Form 144 filings – along with many other practical topics – at our virtual “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – coming up in only two weeks, October 12th – 14th. There is still time to register! Here’s the agenda – 18 essential sessions over the course of three days. Sign up online (with the “Conference” drop-down, and the “PDEC” options), email, or call 1-800-737-1271. Bundle your registration with our “1st Annual Practical ESG Conference” and get a discounted rate!

Liz Dunshee

September 26, 2022

Quick Poll: Who Will Handle Electronic Form 144 Filings?

As John blogged in June, one of the questions surrounding the move to paperless Form 144 filings is whether brokers will continue to handle this step in the trading process – or if, because EDGAR codes are now involved and it can be a real mess if those get bungled, the Form 144 filings will now fall to company counsel.

In addition to discussing this with plan sponsors and other brokers, it’s helpful to get a sense of what other companies are planning to do. Please participate in this anonymous poll to share your thoughts:

Liz Dunshee

September 23, 2022

Enforcement: SEC Brings Action Against Boeing & Former CEO for Alleged 737 MAX Misstatements

Yesterday, the SEC announced settled enforcement proceedings against Boeing & former CEO Dennis Muilenburg arising out of alleged misstatements surrounding the catastrophic crashes of two of its 737 MAX aircraft.  This excerpt from the SEC’s press release summarizes the alleged misstatements:

According to the SEC’s order, one month after Lion Air Flight 610, a 737 MAX airplane, crashed in Indonesia in October 2018, Boeing issued a press release, edited and approved by Muilenburg, that selectively highlighted certain facts from an official report of the Indonesian government suggesting that pilot error and poor aircraft maintenance contributed to the crash. The press release also gave assurances of the airplane’s safety, failing to disclose that an internal safety review had determined that MCAS posed an ongoing “airplane safety issue” and that Boeing had already begun redesigning MCAS to address that issue, according to the SEC’s orders.

Approximately six weeks after the March 2019 crash of Ethiopian Airlines Flight 302, another 737 MAX, and the grounding by international regulators of the entire 737 MAX fleet, Muilenburg, though aware of information calling into question certain aspects of the certification process relating to MCAS, told analysts and reporters that “there was no surprise or gap . . . that somehow slipped through [the] certification process” for the 737 MAX and that Boeing had “gone back and confirmed again . . . that we followed exactly the steps in our design and certification processes that consistently produce safe airplanes.”

Without admitting or denying the SEC’s allegations, Boeing & its former CEO consented to separate orders (here’s Boeing’s order and here’s the CEO’s order) to cease and desist from future violations of Section 17(a)(2) and 17(a)(3) of the Securities Act. Boeing agreed to pay a $200 million civil penalty and its CEO agreed to a $1 million penalty.

I told everyone to prepare for a torrent of high-profile enforcement proceedings as the SEC’s fiscal year winds down. It will be interesting to see what next week brings. Stay tuned.

John Jenkins