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Monthly Archives: February 2023

February 23, 2023

A Little Bit of Extra Time: SEC Extends Filing Window for Form 144

Last June, the SEC adopted rule amendments to require that Form 144 be filed electronically, eliminating the paper filing option (except in the case of transactions in the securities of non-reporting companies). Electronic filing of Form 144 will begin on April 13, 2023. This rule change has caused a bit of havoc for some issuers because Form 144 filings have typically been made by brokers who execute the transactions for affiliates, but some brokers now seem to be less interested in doing so with the advent of electronic filing and insiders are looking to issuers to assist with the filings.

As the rules stand today, a Form 144 submitted after 5:30 p.m. US Eastern Time is deemed to be filed on the next business day. Yesterday, the SEC adopted an amendment to Regulation S-T to extend the filing deadline for Form 144 from 5:30 p.m. to 10 p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect, on Commission business days, the same extended filing window that is available for Form 3, 4 or 5 or Schedule 14N. The SEC also corrected some errors with the original adopting release. These amendments are effective on March 20, 2023.

– Dave Lynn

February 23, 2023

After 30 Years Should the EDGAR Filing Window Be Revisited?

As a certified old-timer, I can still remember the pre-EDGAR days at the SEC when some poor associate, paralegal or courier would come running down 5th street to the SEC’s headquarters with a stack of filings, only to be met at the door of the filing desk by a surly SEC clerk who was officiously locking that door at 5:30 pm eastern time on the dot. Today, we still live with the electronic version of that SEC clerk, with the EDGAR filing window effectively closing for the day at 5:30 pm for most filings as if it were still 1995.

In connection with the SEC’s amendments to extend the Form 144 filing window, Commissioner Uyeda issued a statement noting concern with the Commission’s piecemeal approach to changing the EDGAR filing deadlines for its forms. Noting that today marks the 30th anniversary of the SEC’s rulemaking to implement the EDGAR system for electronic filings and the outdated notion of a 9:00 a.m. – 5:30 p.m. US Eastern Time filing window, Commissioner Uyeda notes:

It is long past time for the Commission to review its rules on EDGAR submission dates, hours, and deadlines more holistically and allow filers, investors, and other market participants to provide feedback. In considering a more comprehensive review of EDGAR, I encourage a discussion on the following questions:

1. Should EDGAR be able to accept electronic submissions on Saturdays, Sundays, and federal holidays?
2. Is the current 6:00 a.m. to 10:00 p.m. Eastern Time EDGAR submission period appropriate?
3. What other forms, if any, should have their filing deadline extended from 5:30 p.m. to 10:00 p.m. Eastern Time, or another time?
4. Are filers outside of the Eastern Time zone, and particularly foreign filers, disadvantaged by the current submission hours and filing deadlines?

The EDGAR system plays a key role in disseminating material information to the marketplace. The lack of a future vision for the EDGAR system as it approaches its fourth decade is a disservice to investors and issuers alike.

– Dave Lynn

February 22, 2023

SEC Investor Advisory Committee to Discuss Growth of Private Markets

The SEC announced that its Investor Advisory Committee will meet next Thursday, March 2, and one of the items on the agenda will be a panel discussion examining the growth of private markets relative to the public markets. The agenda for the meeting states:

Panelists will explore the growth of the private markets and the factors contributing to that growth (performance, market dynamics, etc.). The panel will also look at the implications of this growth on decisions made by operating companies and investors, and if there are reasons to consider modifications to the existing disclosure and regulatory framework.

Concerns about the growth of private markets has been a topic of interest for the SEC over the past two years. As I noted in the blog earlier this month, SEC Commissioner Caroline Crenshaw recently gave a speech at the Northwestern Securities Regulation Institute during which she noted several areas of concern with Regulation D, and back in 2021, then Commissioner Allison Herren Lee gave speech at SEC Speaks outlining concerns with the growth of private markets and suggesting that the Commission revisit the definition of “held of record” in Exchange Act Rule 12g5-1. Both the “held of record” rulemaking and a rulemaking to revisit Regulation D are listed in the proposed rule stage in the SEC’s most recent Reg Flex Agenda. The Investor Advisory Committee’s consideration of the topic may mean that the Commission is moving closer to rule proposals in these areas.

The Investor Advisory Committee will also hold a session titled “Panel Discussion Regarding the Oversight of Investment Advisers: Can Regulators Keep Up with Growth in the Industry” and a session titled “Panel Discussion Regarding the Open-End Fund Liquidity Risk Management/Swing Pricing Rule Proposal.”

– Dave Lynn

February 22, 2023

Inclusion at the SEC: A Historical Perspective

The SEC Historical Society and Howard University School of Law are holding an in-person program featuring the Director of the SEC’s Office of Minority and Women Inclusion and three former SEC Chairs who served during the first decade of that office’s operations. The program is described as follows:

In this program, you’ll learn about OMWI’s origin and mandate as part of the Dodd-Frank Act and how the office was stood up by the Commission. The panelists will examine the office’s goals, priorities, challenges, and successes throughout the past decade since its establishment in 2012, and explore what the next 10 years may hold as the office leads the Commission’s diversity and inclusion efforts.

The panelists will include Former SEC Chairs Jay Clayton, Mary Schapiro and Mary Jo White, Pamela Gibbs, the Director of the Office of Minority and Women Inclusion and my Morrison Foerster colleague Haima Marlier, who serves as a trustee of the SEC Historical Society. You can register for the event at the SEC Historical Society’s website.

– Dave Lynn

February 22, 2023

Counting Votes: A Timely Reminder

Over on the Proxy Season Blog, my new CCRcorp colleague Meredith Ervine provides a timely reminder that companies should pay close attention to their disclosure concerning vote thresholds and the effect of abstentions, withhold votes and broker non-votes. The blog notes:

Hopefully you have controls and procedures around your disclosure in this area. At a minimum, every year, someone involved in the preparation of your proxy statement should take a close look at the vote thresholds and the impact of abstentions, withhold votes, if any, and broker non-votes, if any, and the way the voting alternatives are presented on the proxy card. This analysis is a complicated one, though, and requires an understanding of state corporate statutes and organizational documents, related case law, stock exchange rules (luckily, recently simplified), broker discretionary voting and SEC disclosure requirements. No matter how many proxies I’d worked on, every year I still pulled up resources to double check how each vote is treated under each approval threshold.

Welcome to the team, Meredith! If you do not have access to the Proxy Season Blog, sign up today to become a member of TheCorporateCounsel.net.

– Dave Lynn

February 21, 2023

The Final Countdown: Rule 10b5-1 Changes Kick in Next Week

Time flies when you are having fun – it seems like we were just taking down the holiday decorations, and now the end of February is rapidly approaching! That means that the SEC’s amendments to Rule 10b5-1 will be effective next Monday, February 27, 2023. While there is a longer compliance period for the disclosure elements of the SEC’s rulemaking, the major changes to the conditions in Rule 10b5-1(c) will be effective next week. As a result, new (or substantially modified) Rule 10b5-1 plans adopted next week will be subject to the following additional conditions:

1. A cooling-off period must be imposed before trading can commence under a Rule 10b5-1 plan as follows: (1) For directors or officers, the later of (x) 90 days after the adoption of the Rule 10b5-1 plan or (y) two business days following the disclosure of the issuer’s financial results in a Form 10-Q or Form 10-K for the fiscal quarter in which the plan was adopted or, for foreign private issuers, in a Form 20-F or Form 6-K that discloses the issuer’s financial results (but in any event, the required cooling-off period is subject to a maximum of 120 days after adoption of the plan); and (2) for persons other than directors, officers or the issuer, 30 days following the adoption or modification of a Rule 10b5-1 plan;

2. No overlapping Rule 10b5-1 plans are permitted, subject to limited exceptions;

3. No more than one single-trade Rule 10b5-1 plan per 12-month period is permitted, subject to limited exceptions;

4. Directors and officers must include a representation in their Rule 10b5-1 plan certifying that: (i) they are not aware of any material nonpublic information; and (ii) they are adopting the trading plan in good faith and not as part of a plan or scheme to evade the prohibitions in Rule 10b-5; and

5. All persons who enter into a Rule 10b5-1 plan must act in good faith with respect to that plan.

The SEC noted in the adopting release that the amendments to Rule 10b5-1(c) do not affect the availability of the affirmative defense for an existing Rule 10b5-1 plan that was entered into prior to February 27, 2023, except to the extent that such a plan is modified or changed in the manner described in Rule 10b5-1(c)(1)(iv) after the effective date. Such a modification or change would be equivalent to adopting a new trading arrangement, thus subjecting the new Rule 10b5-1 plan to the new conditions described above. Under Rule 10b5-1(c)(1)(iv), any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying a Rule 10b5-1 plan is deemed to be a termination of such plan and the adoption of a plan.

What should you do now that this important deadline is rapidly approaching? Check out the latest issue of The Corporate Counsel, of course, which provides the resources that you will need to update your insider trading policy and tackle the tricky issues that will inevitably arise with Rule 10b5-1, as amended. If you do not have access to the January-February 2023 issue of The Corporate Counsel and the Special Supplement to that issue, email sales@ccrcorp.com to subscribe today.

– Dave Lynn

February 21, 2023

Rule 10b5-1: The Broker Interface

The rapidly approaching effective date for the Rule 10b5-1 amendments coincides with an open window period for calendar year-end companies right after they have filed their Form 10-K, so insiders will soon be making decisions as to whether to use Rule 10b5-1 plans under the amended rule. As we noted in the January-February 2023 issue of The Corporate Counsel, the changes to Rule 10b5-1 and the new disclosure requirements adopted by the SEC may make reliance on the affirmative defense significantly less attractive to many insiders. Companies that have heretofore required or strongly encouraged insiders to use Rule 10b5-1 plans for transactions in company securities may need to revisit those policies given the changes to the rule. In any event, not using Rule 10b5-1 is always an option, so long as the insider engages in transactions while not aware of material nonpublic information and abides by all of the procedures specified in the company’s insider trading policy (e.g., pre-clearance and trading restrictions).

Those insiders who elect to implement new Rule 10b5-1 plans beginning next week (or those who elect to make substantive modifications to an existing plan) will likely be using the form of Rule 10b5-1 plan that is provided by their broker. Brokerage firms have been working to update their form of Rule 10b5-1 plan to address the new conditions set forth in Rule 10b5-1(c). It is important for the company to review the insider’s Rule 10b5-1 plan under the pre-clearance procedures established by the insider trading policy so that the company can ensure that: (i) the plan is consistent with Rule 10b5-1(c); (ii) the plan is consistent with the company’s Rule 10b5-1 plan guidelines; and (iii) the company’s rights with respect to the plan (i.e., the company’s termination rights) are properly reflected in the plan.

Given all of this, now is a good time to remind insiders of their obligations to pre-clear Rule 10b5-1 plans with the company and to request that they provide the new form of Rule 10b5-1 plan to the company for its review as soon as possible. And then get ready for the onslaught!

– Dave Lynn

February 21, 2023

Don’t Forget the Gifts!

It is important to keep in mind that amended Rule 16a-3, requiring that dispositions by gift be reported on Form 4, will become effective for gifts made on or after next Monday, February 27, 2023. Gifts made before February 27, 2023 will remain reportable on Form 5 within 45 days after the end of the fiscal year in which the gift is made, not within two business days after February 27, 2023. Note that amended Forms 4 and 5 and the amended instructions to both forms, relating to the 10b5-1 checkbox and disclosure of the date of adoption of the 10b5-1 plan, will apply to all reports filed on or after April 1, 2023, so you still have some time to get ready for those new requirements.

Now is a good time to get the word out to insiders that the two business day filing requirement for gifts is fast approaching, so they will need to let their Section 16 compliance contact person know about any gifts of company securities, preferably before they happen, particularly if your insider trading policy has not been updated yet to require pre-clearance of gifts.

Perhaps most importantly, the SEC’s interpretive guidance on gifts has been out there since the SEC proposed the Rule 10b5-1 amendments. As we noted in the January-February 2022 issue of The Corporate Counsel and the January-February 2023 issue of The Corporate Counsel, the SEC stated in both the proposing and adopting releases that “a donor of securities violates Exchange Act Section 10(b) if the donor gifts a security of an issuer in fraudulent breach of a duty of trust and confidence when the donor was aware of material nonpublic information about the security or issuer, and knew or was reckless in not knowing that the donee would sell the securities prior to the disclosure of such information.” As we discussed in the January-February 2023 issue of The Corporate Counsel, companies should consider revising their insider trading policies now to address the SEC’s new guidance. To see how we changed our Model Insider Trading Policy in light of this new interpretive guidance, check out the Special Supplement to the January-February 2023 issue of The Corporate Counsel. Email sales@ccrcorp.com to subscribe today.

– Dave Lynn

February 17, 2023

Direct Listings: Former SEC Chair & Commissioner File Amicus Brief in Slack Case

In December, I blogged about the SCOTUS’s decision to grant Slack Technologies cert petition in a case addressing the application of Section 11 of the Securities Act to direct listings. Slack is appealing the 9th Circuit’s ruling that investors who acquired their shares through the company’s direct listing satisfied Section 11’s tracing requirement. Former SEC Chair Jay Clayton and former Commissioner Joseph Grundfest recently filed this amicus brief in support of Slack’s position. The former SEC bigwigs are being represented by Freshfields, and this excerpt from the firm’s recent blog summarizes their argument:

The Ninth Circuit’s decision in Slack invented an entirely new definition of Section 11 standing that conflicts with all precedent on point. First, The Ninth Circuit’s proposed definition extended liability far beyond the distribution of securities the direct listing. If literally applied, the Ninth Circuit’s definition of standing would dramatically expand Section 11 liability across a vast array of situations that are entirely unrelated to direct listings. It would achieve those results by substituting a judicially implied remedy for the judgment of Congress, regulators, and sophisticated market participants.

Slack also conflicts with the Securities Act’s plain text. Its holding cannot be reconciled with the statute’s damages formula or its fundamental structure, including its exemptive provisions, or with governing SEC regulations. The Ninth Circuit failed to consider sixty other instances in which the phrase “such security” appears in Securities Act, and proposes a definition that is inconsistent with the same term’s meaning in those sixty instances. Legislative history offers no support for the Ninth Circuit’s divergence from established precedent. The Ninth Circuit’s purposive rationale conflicts with norms of statutory construction urged by the Supreme Court.

The amici argue that if tracing creates a problem that needs to be addressed, Congress and the SEC have the ability to address that problem through legislative or administrative action, and that what they contend is a “radical judicial rewrite” of Section 11 is unwarranted.

John Jenkins

February 17, 2023

Rule 144: Deadline for Electronic Form 144 Filings is Approaching

This recent Locke Lord blog provides a reminder that, effective April 13th, Form 144 filings will have to be made electronically. The blog highlights the fact that for some insiders, changes in traditional filing procedures are going to be necessary:

Currently, Form 144 is typically filed by mailing a paper form on or before the date a sale order is entered, often with the assistance of the seller’s broker. While some brokers are gearing up to assist with electronic Form 144 filings by soliciting consents and obtaining the necessary EDGAR filing codes from their public company officer and director clients, we understand that other brokers will no longer file on behalf of officers and directors.

For public companies that file their officers’ and directors’ Section 16 reports, the transition to electronic filing of Form 144 is likely to lead to officers and directors requesting that they file Form 144 or requesting they provide the individual EDGAR codes (CIK# and CCC#) necessary for brokers to make the electronic filing.

The blog says that for officers and directors who file their own Section 16 reports, the shift to electronic filing of Form 144 is likely to be fairly simple. The SEC has provided guidance and support and the EDGAR filing codes are the same ones that these insiders have used for their Section 16 reports.

John Jenkins