It is with great sadness that I write today about the death of Harvey Pitt, who served as the 26th Chairman of the SEC. He passed away yesterday at the age of 78. Harvey was a giant of the securities bar who served as the SEC’s youngest General Counsel in 1975, and who was a senior partner at Fried, Frank, Harris, Shriver & Jacobson after his first ten-year tour at the SEC concluded in 1978. He began his tenure as SEC Chairman in August 2001, and soon thereafter he addressed the September 11 crisis, navigating that extraordinarily difficult situation to see the markets up and running again in the days after the attack. During his tenure as Chairman, he also addressed a crisis in confidence in the markets brought on by the accounting scandals at companies such as Enron and WorldCom, as well as the enactment and implementation of the Sarbanes-Oxley Act. Following his resignation in 2003, Harvey founded the global strategic business consulting firm, Kalorama Partners, LLC, and its law firm affiliate, Kalorama Legal Services, PLLC.
One of the great accomplishments of Harvey’s career for which I will always be grateful is the founding of the SEC Historical Society. He was a founding trustee and first President of the SEC Historical Society. I have been involved with the SEC Historical Society for many years, and I was very pleased to see Harvey become more involved with the organization again during my time in leadership. To me, the SEC Historical Society represents Harvey’s love for the SEC and its staff and is a fitting legacy that he leaves behind.
Beyond his career as a regulator, lawyer and CEO, Harvey was admired as a great family man, friend and mentor. I offer my condolences to his family and many friends and colleagues. I understand that there will be a service on Monday, June 5th at 1:00 pm at the Washington Hebrew Congregation.
The PCAOB has announced that, at an open meeting on June 6th at 10:00 am Eastern, the Board will consider issuing for public comment a proposal amending PCAOB auditing standards related to the auditor’s responsibility for noncompliance with laws and regulations, including fraud, in an audit. The PCAOB states: “The proposed amendments are aimed at strengthening auditor requirements to identify, evaluate, and communicate possible or actual noncompliance with laws and regulations, thereby enhancing investor protection.”
If you have never attended our conferences, this is definitely the year to participate – with so much going on at the SEC, you do not want to miss all of the insights that our incredible group of speakers bring to the table. If you have attended our conferences, you already know that you do not want to miss out on all that we have to offer this year. Sign up today and save!
One of the building blocks that you will definitely want to check out is on the topic of integration, which distills the SEC’s integration framework into a handy one-pager and explains why integration is something that small businesses raising capital need to think about. I have not seen a one-pager about integration since Marty Dunn’s “Integration Manifesto,” which had a key role in shaping today’s integration framework, as I recounted in an article in the January-February 2021 issue of The Corporate Counsel.
While on the topic of small business capital formation, the SEC’s Small Business Capital Formation Advisory Committee is set to meet on June 14th at 10:00 am. An agenda for the meeting will be forthcoming. As Liz noted earlier this month, the Small Business Capital Formation Advisory Committee recently added 14 new members to support the Committee’s efforts in providing advice and recommendations to the Commission on rules, regulations, and policy matters relating to small businesses.
I note that this upcoming meeting of the Small Business Capital Formation Advisory Committee will be both virtual and in-person, as the SEC continues to transition back a new normal of hybrid work and events.
Tomorrow is the last day for the early bird rate offer on our series of conferences that take place virtually in September. Our “Proxy Disclosure & 20th Annual Executive Compensation” Conferences – which take place September 20th – 22nd – can be bundled with our “2nd Annual Practical ESG Conference,” which takes place on September 19th. As John pointed out last week, there are a number of great reasons why you should sign up today to take advantage of our special early bird rate. Act now to secure your spot!
Yesterday, Corp Fin issued three new Exchange Act Rules CDIs addressing the SEC’s recent Rule 10b5-1 amendments. The CDIs clarify the compliance dates for the new disclosure requirements & address the need for a cooling off period in situations involving an individual with two Rule 10b5-1 plans who terminates the earlier-commencing plan:
Question 120.26
Question: When are companies required to begin providing the quarterly Item 408(a) disclosures and the annual Item 402(x) and Item 408(b) disclosures (Item 16J of Form 20-F disclosures for foreign private issuers) in periodic reports?
Answer: Release No. 33-11138 states that companies other than smaller reporting companies will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F “in the first filing that covers the first full fiscal period that begins on or after April 1, 2023.” Therefore, the following compliance dates apply:
– December 31 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-Q for the period ended June 30, 2023, and should continue to be provided in the Form 10-Q for the period ended September 30, 2023 and the Form 10-K for the fiscal year ended December 31, 2023.
– June 30 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2023.
– December 31 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
– June 30 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2024.
Smaller reporting companies must comply with these new disclosure and tagging requirements in the first filing that covers the first full fiscal period that begins on or after October 1, 2023. Therefore, the following compliance dates apply:
– December 31 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2023.
– June 30 fiscal year-end company – Quarterly disclosures must first be provided in the Form 10-Q for the period ended December 31, 2023.
– December 31 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended December 31, 2024.
– June 30 fiscal year-end company – Annual disclosures must first be provided in the Form 10-K or 20-F for the fiscal year ended June 30, 2025. [May 25, 2023]
Question 120.27
Question: When are companies required to begin providing the disclosures in proxy or information statements?
Answer: For transition purposes only, companies other than smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after April 1, 2023. Smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after October 1, 2023.[May 25, 2023]
Question 120.28
Question: The Rule 10b5-1(c) affirmative defense generally is not available if a person has multiple Rule 10b5-1 contracts, instructions, or plans in place. However, Rule 10b5-1(c)(1)(ii)(D)(2) permits a person (other than the issuer) to maintain two separate Rule 10b5-1 plans at the same time so long as trading pursuant to the later-commencing plan is not authorized to begin until after all trades under the earlier-commencing plan are completed or have expired without execution. If an individual terminates the earlier-commencing plan (i.e., the earlier-commencing plan does not end by its terms and without any action by the individual), when can trading begin under the later-commencing plan?
Answer: Pursuant to Rule 10b5-1(c)(1)(ii)(D)(2), if an individual terminates the earlier-commencing plan, the later-commencing plan will be subject to an “effective cooling-off period.” The effective cooling-off period will begin on the termination date of the earlier-commencing plan and will last for the time period specified in Rule 10b5-1(c)(1)(ii)(B). On the other hand, if the earlier-commencing plan ends by its terms without action by the individual, the cooling-off period for the later-commencing plan is not reset and trading may begin as soon as the plan’s original cooling-off period is satisfied. Depending on when the later-commencing plan was adopted, this could be as soon as immediately after the earlier-commencing plan ends. See Footnote 180 of Release No. 33-11138.[May 25, 2023]
Monday is Memorial Day. This year, I want to leave you with a story about a Marine Corps officer who was awarded the Congressional Medal of Honor posthumously for his heroism during the Battle of Okinawa. Less than 20% of Medals of Honor have been awarded posthumously – but one of those recipients was a young lawyer named Henry Courtney, Jr. Here’s a link to his bio on the Defense Department’s website, and this is his Medal of Honor citation:
For conspicuous gallantry and intrepidity at the risk of his life above and beyond the call of duty as executive officer of the 2d Battalion, 22d Marines, 6th Marine Division, in action against enemy Japanese forces on Okinawa Shima, in the Ryukyu Islands, 14 and 15 May 1945. Ordered to hold for the night in static defense behind Sugar Loaf Hill after leading the forward elements of his command in a prolonged firefight, Maj. Courtney weighed the effect of a hostile night counterattack against the tactical value of an immediate marine assault, resolved to initiate the assault, and promptly obtained permission to advance and seize the forward slope of the hill. Quickly explaining the situation to his small remaining force, he declared his personal intention of moving forward and then proceeded on his way, boldly blasting nearby cave positions and neutralizing enemy guns as he went.
Inspired by his courage, every man followed him without hesitation, and together the intrepid marines braved a terrific concentration of Japanese gunfire to skirt the hill on the right and reach the reverse slope. Temporarily halting, Maj. Courtney sent guides to the rear for more ammunition and possible replacements. Subsequently reinforced by 26 men and an LVT load of grenades, he determined to storm the crest of the hill and crush any planned counterattack before it could gain sufficient momentum to effect a breakthrough. Leading his men by example rather than by command, he pushed ahead with unrelenting aggressiveness, hurling grenades into cave openings on the slope with devastating effect. Upon reaching the crest and observing large numbers of Japanese forming for action less than 100 yards away, he instantly attacked, waged a furious battle, and succeeded in killing many of the enemy and in forcing the remainder to take cover in the caves.
Determined to hold, he ordered his men to dig in and, coolly disregarding the continuous hail of flying enemy shrapnel, to rally his weary troops, tirelessly aided casualties and assigned his men to more advantageous positions. Although instantly killed by a hostile mortar burst while moving among his men, Maj. Courtney, by his astute military acumen, indomitable leadership, and decisive action in the face of overwhelming odds, had contributed essentially to the success of the Okinawa campaign. His great personal valor throughout sustained and enhanced the highest traditions of the U.S. Naval Service. He gallantly gave his life for his country.
If you visit the Congressional Medal of Honor Society’s website, you can read the citations for each recipient of our nation’s highest award for valor. This Memorial Day, I’d encourage you to take a few moments to read a few of the citations for posthumous awards, and if you do, maybe keep these words from Archibald MacLeish in mind:
Whether our lives and our deaths were for peace and a new hope
Or for nothing, we cannot say, it is you who must say this
They say we leave you our deaths, give them their meaning
We were young, they say, we have died, remember us.
Have a safe and enjoyable holiday weekend. Our blogs will be back on Tuesday.
Earlier this month, in Alliance for Fair Board Recruitment v. Weber, a California federal court struck down the state’s board diversity statute, which required publicly traded companies based in California to have board members from underrepresented communities. In a 7-page order, Judge John Mendez granted the plaintiff’s motion for summary judgment and held that the statute was unconstitutional on its face and also violated 42 U.S.C. Section 1981. This excerpt from Kevin LaCroix’s blog on the case summarizes Judge Mendez’s ruling:
The Alliance moved for summary judgment. In opposition to the motion, the state argued that the statute satisfied strict scrutiny, or in the alternative, should have its unconstitutional provisions severed from the rest of the bill. The state argued that the bill’s racial classification was permissible because it remedied past discrimination. The state also argued that the bill did not create preferred racial and ethnic classes because individual board candidates must still compete with others.
In a May 15, 2023, decision, Eastern District of California Judge John Mendez granted the Alliance’s motion for summary judgment, holding that while the state argued that the statute’s diversity requirements were flexible, the statute’s requirements represented a facially invalid racial quota.
In reaching his decision, Judge Mendez did not even reach the “strict scrutiny” arguments that the state had raised, instead finding that the statute was unconstitutional on its face. Citing the U.S. Supreme Court’s 2003 decision in Grutter v. Bollinger, Judge Mendez noted that a quota is “a program in which a certain fixed number or proportion of opportunities are reserved exclusively for certain minority groups.”
Judge Mendez found that AB 979 is a “racial quota” under this definition because it “requires a certain fixed number of board positions to be reserved exclusively for certain minority groups,” in violation of the U.S. Constitution’s Equal Protection Clause. Judge Mendez also ruled that the statute violated Section 1981, because, under Supreme Court precedent, “ a violation of the Equal Protection Clause of the Fourteenth Amendment also constitutes a violation of Section 1981.”
Kevin also notes that the plaintiff in this case is also the same entity that’s currently challenging Nasdaq’s board diversity listing standard in the 5th Circuit.
The decision is the latest in a series of rulings invalidating California’s statutory efforts to promote board diversity. In April 2022, a state court judge invalidated the same statute at issue in the federal court case on the grounds that it violated California’s constitution. California’s board gender diversity statute hasn’t fared any better – another state court judge struck down that law on state constitutional grounds in May of last year.
In a recent blog, Wilson Sonsini reviewed the practices of a group of 30 companies in the Silicon Valley 150 in order to assess market practice when it comes to announcing upcoming earning release dates & the subsequent earnings release Form 8-Ks. This excerpt summarizes the key takeaways concerning the time between announcement of the release date and the earnings release itself:
– Most common duration between announcement date and earnings date: Three weeks, in each of the four quarters
– Minimum number of days: 6 or 7 days in the first three quarters, 10 days in the fourth quarter
– Maximum number of days: 28 to 33 days in the first three quarters, 41 days in the fourth quarter
– Average number of days: 19.4 to 20.3 days in the first three quarters, 21.9 days in the fourth quarter
The blog also says that all of the companies reviewed furnished their earnings release Form 8-K shortly following the close of trading hours, and then held their earnings call shortly thereafter (on the same day). Only four companies included other earnings-related information as a separate exhibit to their earnings release Form 8-K; however, an additional six companies included a statement in their Form 8-K that additional materials were available on their website.