When Reg FD was adopted almost 25 years ago, its objective was to level the playing field among all investors and eliminate the problem of companies providing preferential access to material information to favored investors. A recent post on “The CLS Blue Sky Blog” says that Reg FD isn’t working very well when it comes to private investor meetings, and suggests that the only viable solution to the problem may be to ban those meetings:
The blog identifies three possible solutions to the preferential disclosure problem that have been suggested. The first, and most extreme, is an SEC ban on private meetings. The second involves reliance on updates to NIRI’s standards of practice & ethical standards that require companies to provide fair and equal access to all investors and that would essentially end private meetings. The third alternative involves enhanced efforts to ensure that MNPI is not shared during private meetings. It says that the results of a new study evaluating each of these alternatives suggest that a ban on private meetings may turn out to be the only solution that will prevent preferential disclosure:
Should the SEC prohibit private meetings altogether? Data from our study alone cannot conclusively answer this question. However, our results show that the current flexibility in Reg FD allows IROs to disclose different information to preferred investors, suggesting that Reg FD is not fully meeting its stated goals. Further, the SEC’s focus on materiality consideration does not appear to be an effective solution. When taken in conjunction with prior research that documents informational advantages from private meetings, our results suggest that regulators consider eliminating private meetings if they wish to eliminate preferential disclosure and truly create a level playing field as was initially intended with Reg FD.
The study’s authors suggest that one way to implement a ban on private meetings would be to require all investor meetings to be publicly webcast, which is a practice that some companies already follow.
On July 31, 2024, the requirement for large accelerated filers to submit filing fee data in Inline XBRL (iXBRL) format went into effect. Unfortunately, we’ve heard from some of our members that it’s been a bit of a bumpy ride for some filers. Here’s what one member had to say:
Just want to alert you that things did not go as smoothly as the SEC expected for the first day of mandated iXBRL tagging of filing fee data for Large Accelerated Filers. While many fee-bearing filings containing iXBRL tagging of filing fee data went through successfully, some were – and still are – inexplicably still stuck “in progress” and have neither been accepted NOR disseminated on the SEC’s public website. A software fix was supposed to be in place late yesterday but we know of filings still stuck in limbo.
We received this communication yesterday morning. There isn’t anything up on the SEC’s website about this issue, so hopefully it’s been ironed out by now – but please let us know if you’re continuing to experience problems.
By the way, before everybody panics, the new tagging requirement applies only to large accelerated filers for now. Other filers will be phased in beginning on July 31, 2025.
General counsels spend a lot of time in the board room, and many of them – and a lot of other lawyers who advise boards – would like to serve on corporate boards themselves. If you’re one of those people, then this Barker Gilmore blog has some advice for you about how to stand out from the crowd of potential candidates for board seats. I mentioned in a prior blog that the Barker Gilmore folks are from my hometown of Fairport, NY, which reminds me that if you’re interested in finding out how to make the transition from lawyer to public company director & CEO, there’s another Fairport native you could speak with – my brother Jim.
Members of DealLawyers.com may recall that Jim was my first guest on our “Deal Lawyers Download” podcast series, where we discussed, among other things, how he transitioned from law firm partner to GC & Chief Development Officer at a NYSE-listed company. Well, fast forward a couple of years, and Nasdaq’s pumping this video message into Times Square:
Yeah, the guy somehow ended up being appointed Chairman, President & CEO of a public company. This is very typical – I’m the oldest of three brothers, and we’ve always been very competitive with each other, so one-upmanship is a family tradition. For example, when we played high school football, I was All-League, Jim was All-Region, and my youngest brother, Jason, was All-State. So, naturally, when Liz opted to head back to Fredrikson full time & I became managing editor because I was the only full-time editor left, Jim just had to one up me. What about Jason? Well, he’s been the COO of a large private company for several years, so he one-upped me long ago, and I’m sure he has his sights set on Jim. Jason was All-Ivy League in college, so I like his odds.
I guess the dog days of August have officially arrived when the news is so slow that I find myself blogging about Non-Fungible Tokens, or NFTs. But here we are. Anyway, a recent complaint filed in the Eastern District of Louisiana challenges the SEC’s efforts to classify NFTs as securities. The plaintiffs allege that two SEC enforcement actions targeting NFTs on the basis that they are securities under the Howey test put the agency in the business of “determining when art needs to be registered with the federal government before it can be sold.”
The plaintiffs contend that the SEC is all wet when it tries to apply Howey to NFTs. This paragraph of the complaint provides the gist of their argument:
The relationship between a creator of digital artwork and a NFT holder is not meaningfully different from the relationship between any other type of artist and art owner. By acquiring artwork in the form of NFTs, the purchaser does not automatically (or typically) enter any ongoing contractual relationship with the seller or creator of the asset.
While the seller or creator—like Plaintiffs here—may publicly discuss their intentions to continue creating and marketing their art and may use the profits from the NFT sales to financially support themselves and their artistic endeavors, that does not mean that the seller or creator has any ongoing commitment or obligation to undertake any specific action or to manage any common venture for the purchaser’s benefit. Instead, the purchaser possesses and holds the asset outright, albeit perhaps with a subjective hope or belief that the asset will increase in value. Thus, no investment contract exists under the test established by Howey.
That’s an interesting argument, but since we’re dealing with NFTs, you’d expect to see a touch of goofiness to this lawsuit – and it doesn’t disappoint. Let’s meet our plaintiffs:
– The first is songwriter Jonathan Mann, aka “Song a Day Man.” According to the complaint, he’s in the Guiness Book of World Records for writing a song a day every day since January 1, 2009. He’s even written a song commemorating the filing of this lawsuit. Fittingly, it’s called “I’m Suing the SEC.”
– The second is Brian Frye, a professor at UK Law School. Prof. Frye is a true NFT afficionado, and one of his claims to fame is selling a piece of conceptual art called “SEC No-Action Letter Request” as an NFT. In what may be the most meta move of all time, Frye’s letter asked the SEC to opine on whether his plan to sell NFTs of the no-action request to the public constitutes an offering of a security that must be registered under the Securities Act.
We’ll keep an eye on this one. It has the potential to be more entertaining than the usual cases challenging the SEC.
One of this year’s favorite topics among corporate law pundits has been whether Delaware’s century-old dominance as the preferred jurisdiction of incorporation for public companies has been threatened by the alleged increasing unpredictability of the Chancery Court. We’ve spilled a lot of ink on this topic – and the efforts to amend the DGCL to address it – over on the DealLawyers.com blog. But Delaware’s status is a topic that isn’t relevant only to M&A lawyers, so I thought a recent article by UCLA’s Stephen Bainbridge titled “DExit Drivers: Is Delaware’s Dominance Threatened?” was worth sharing here.
Prof. Bainbridge looks at the recent sound & fury about Delaware and concludes that a mass exodus of corporations is pretty unlikely. Here’s the abstract:
For over a century, Delaware has led the corporate law landscape, though it has not been without competitors. States such as Georgia, Maryland, New Jersey, Ohio, Pennsylvania, Tennessee, and Virginia have attempted to rival Delaware, attracted by its significant tax revenue from incorporations. Today, Nevada emerges as a notable challenger, actively promoting “DExit”-a push for companies to leave Delaware. Consequently, this analysis primarily examines the choice between Delaware and Nevada.
Widespread discussion of the potential for mass DExit was triggered by recent criticisms from business leaders and prominent corporate lawyers. While such complaints have not yet triggered a mass exodus from Delaware, many firms are reportedly considering changing their corporate domicile. But is Delaware’s dominance genuinely at risk? Are these just isolated incidents or signs of a broader trend?
This article provides both an empirical and a qualitative analysis of firms that reincorporated from Delaware to another state between 2012 and 2024. It analyzes these firms based on size, filing status, and new state, along with their stated motivations.
The data suggest two main conclusions. First, almost all reasons given for reincorporation seem implausible. If DExit becomes more frequent, plaintiff lawyers should scrutinize these disclosures, particularly focusing on enhanced liability protections for controllers, directors, and officers, suggesting possible conflicts of interest requiring entire fairness review. Second, the number of reincorporations from Delaware remains minimal compared to the vast number of new incorporations Delaware attracts annually. Given the strong inertia behind the initial incorporation decision and the weak drivers for DExit, it is unlikely to become widespread soon.
One threat that the article doesn’t address is the idea that private equity and venture capital investors might be spooked by recent Delaware case law impinging on their ability to exercise post-IPO control and therefore decide to incorporate startups in jurisdictions perceived to be more friendly to controlling stockholders. However, that argument seems less compelling following the recent DGCL amendments, which become effective today.
I’m a big movie fan, so one of the things I love to do when I travel is visit the locations used in classic films shot in the city I’m visiting. For instance, my wife and I were in Vienna last year, and I dragged the poor woman across the city visiting sites of some of the iconic scenes in one of my all-time favorite films, “The Third Man.” These included the Vienna Riesenrad (Ferris Wheel), where the famous “Cuckoo clock” scene was shot, and the doorway of Schreyvogelgasse 8, where Harry Lime first appeared.
This October, my wife is accompanying me to San Francisco for our conferences. I’m very excited to be back in San Francisco for the first time in several years. My wife is too, or at least she was, until she found out my plans for our pre-conference itinerary.
Among its many other charms, The City by the Bay has served as a location for many classic movies, and I plan to spend time visiting some of the sites where two of my favorite SF filmed movies, “Vertigo” and “Bullitt“, were shot. Another of my favorite films set in San Francisco, “The Maltese Falcon”, wasn’t actually filmed there, so I’ll have to content myself with wandering around “Sam Spade’s San Francisco”, and visiting some of the places referenced in Dashiell Hammett’s novel.
