Yesterday, Commissioner Hester Peirce kicked off the Northwestern Securities Law Institute by offering a preview of what public companies might expect to see from the SEC over the next few years. Her remarks were accompanied by the usual disclaimers, but both Commissioner Peirce and Acting Chair Mark Uyeda worked closely with Paul Atkins during his previous time with the SEC, so it’s probably not much of a stretch to suggest that her views on the agency’s priorities likely align with those of her current and future Republican colleagues.
Commissioner Peirce is well known for colorful analogies in her speeches, and she didn’t disappoint yesterday. She opened her remarks by comparing the environment that public companies have to navigate today with the “steep, varied” terrain “fraught with danger” that Sierra Nevada Bighorn Sheep confront every day. She then provided a prescription for actions that the SEC should take to help provide public companies with “a path toward more level, predictable terrain.”
Commissioner Peirce called for the SEC to recognize that both the public companies and the SEC have limited missions. Public companies exist to build long-term value for shareholders, and the SEC’s role is to “ensure that investors have the information they need to channel funds to the companies that can put that money to the best use.” In her opinion, these limited missions require the SEC to prioritize the following policy objectives:
– Fend off efforts to commandeer the SEC’s disclosure regime by people who “want information from companies for reasons other than deciding whether to invest” by returning to a position that “materiality from the perspective of the reasonable investor is the sine qua non for disclosures.”
– Stop pressuring asset managers to push public companies into contentious social and political issues through voting disclosure obligations that make them “sitting ducks” for social and political activist campaigns and scrutiny from ESG rating agencies.
– Protect investors from having their resources diverted to deal with shareholder proposals that are not aimed at maximizing corporate value by reexamining Rule 14a-8’s ownership thresholds and taking “a fresh look at how Rule 14a-8’s consideration of social significance under two bases of exclusion has affected the number, type, and excludability of shareholder proposals.”
– Refrain from using enforcement actions to override managerial decisions through an expansive definition of “internal controls” that enables the SEC to “insinuate itself into corporate management.”
– Enhance Corp Fin and OCA’s efforts to provide disclosure guidance to public companies, to engage with them on difficult disclosure issues, and to communicate early and often on the timing of reviews of registration statements in order to permit issuers to have increased confidence in their offering timelines.
– Ensure that the capital markets function in a way that is agnostic to the political party in power and serve all Americans regardless of their political ideology.
Your mileage may vary on the reasonableness and achievability of at least some of these objectives from a public policy perspective, but I think anyone who works with public companies would concede that there’s a lot to like about them from a public company perspective.
President Trump has been firing off executive orders like his pen is a machine gun ever since taking office last Monday, and it can be very hard to keep up with the pace he’s setting. Fortunately, Akin Gump has set up this page on its website to help you keep track of those orders. The page contains links to the text of specific orders and indexes them by topic and chronologically. Check it out – it’s a very helpful resource!
On Friday, Meredith blogged about the SCOTUS’s decision to lift the 5th Circuit’s nationwide injunction against enforcement of the Corporate Transparency Act. However, she also noted that a separate injunction issued by a Texas federal district court remained in place. That left potential filers asking a familiar question: “What the heck are we supposed to do?” Fortunately, FinCEN weighed in later in the day and said filers can sit tight for now. Here’s what FinCEN posted on its website:
On January 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in Texas (Texas Top Cop Shop, Inc. v. McHenry—formerly, Texas Top Cop Shop v. Garland). As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
It’s possible that the injunction in Smith v. Treasury could soon meet the same fate as the one in Texas Top Cop Shop. As Gibson Dunn observed in their recent update on the status of the CTA, “given the Supreme Court’s recent order staying the Top Cop Shop order, the government could obtain a similar stay of the district court’s order in Smith if the government requests that relief (or if the district court stays its order unilaterally) in light of the Supreme Court’s decision.” Stay tuned.
One item that doesn’t deserve to get lost in the avalanche of last week’s news is the joint statement from Commissioners Uyeda, Peirce and Crenshaw on the departure of former SEC Chair Gary Gensler. This excerpt gives you a sense of its tone:
Although as Commissioners we approached policy issues from different perspectives, there was always dignity in our differences. Chair Gensler has been committed to bipartisan engagement and a respectful exchange of ideas, which has helped facilitate our service to the American public. For that we are deeply grateful.
We have finalized rules that have promoted market integrity and corporate governance, streamlined open-end fund disclosures, reduced settlement times, and passed needed reforms to the plans corporate insiders use to buy and sell company stock, among many other policy changes. Together we have returned billions of dollars to investors harmed by violations of the securities laws and helped educate the public on the risks and rewards of investing their savings. This record helps cement Chair Gensler’s legacy of unwavering commitment, not only to public service, but to the American investor.
It’s no secret that Commissioner Uyeda and Commissioner Peirce disagreed strenuously with many of the actions taken by the SEC under Gary Gensler’s leadership, so the graciousness of their statement saluting his service is notable. As I read it, I couldn’t help thinking about the old “Looney Tunes” cartoons featuring Ralph Wolf and Sam Sheepdog. Our Boomer & Gen X readers may recall that Ralph’s job was to steal sheep, and Sam’s job was to clobber Ralph. Both gave it their all during working hours, but they were chums before and after the whistle blew. You know, I think there’s a pretty good civics lesson for all of us baked into those old cartoons!
On Friday, the SEC announced that Acting Chair Mark Uyeda appointed several new acting senior staff members to fill vacancies created by recent departures. Here’s the new lineup, as laid out in the SEC’s press release:
– Jeffrey Finnell, Acting General Counsel
– Robert Fisher, Acting Director of the Division of Economic and Risk Analysis
– Kathleen Hutchinson, Acting Director of the Office of International Affairs
– Samuel Waldon, Acting Director of the Division of Enforcement
– Ryan Wolfe, Acting Chief Accountant
If you’re wondering about Corp Fin, remember that Cicely LaMonthe was appointed Acting Director when Eric Gerding announced his departure last month.
Yesterday, with one short paragraph, SCOTUS granted a stay of the preliminary injunction the Eastern District of Texas issued in December that prohibited the government from enforcing the CTA while litigation is pending in the 5th Circuit. If you were paying attention over the holidays, you probably remember that this is the second stay of the injunction — in late December, the 5th Circuit granted the DOJ’s request for a stay, which was then quickly vacated by a 5th Circuit merits panel.
The SCOTUS blog reports further that the order itself is actually three paragraphs. Each in one paragraph, Justice Ketanji Brown Jackson dissented, and Justice Neil Gorsuch concurred. Justice Jackson argued there was no real emergency and pointed to the fact that the 5th Circuit has an expedited briefing schedule. Justice Gorsuch preferred that SCOTUS weigh in now on the propriety of “universal injunctions”—which prohibit the government from enforcing a law anywhere in the country—versus a limited injunction—which would only apply to litigants.
But the WSJ reports that a second nationwide injunction, which was issued just recently on January 7 (also by the Eastern District of Texas) in a separate case challenging the CTA, remains in place. I assume FinCEN will make a statement and update its BOI site in the near future — also because we’ve passed the January 13 extended deadline FinCEN had previously announced.
If you’re tracking this closely and want updates from FinCEN directly in your inbox, you can sign up here. (But know that we’ll keep posting about this drama!)
As we gather and post law firm resources with practical tips and reminders for annual reporting and proxy season — which you can find in our “Form 10-K” and “Proxy Season” Practice Areas — we’re also combing through them for items we should highlight in our blogs. While we’ve addressed a lot of the new requirements and considerations for macroeconomic and other developments for this year in various blogs, some compliance reminders in this Sheppard Mullin resource stood out to me since I could see some of these easily slipping through the cracks if they don’t make their way onto someone on your team’s “to do” list — especially with folks focused on this year’s new compliance requirements. Here are a few:
Description of Securities – Exhibit 4 to 10-K. Although not new for the upcoming 10-K, companies should revisit the exhibit filed with their 10-K that provides the information required by Reg. S-K Item 202(a) through (d) and (f) for each registered class of securities to confirm it is accurate. A company may have amended its charter or bylaws in a way that requires the disclosure in this exhibit to be updated.
Expiring Confidential Treatment Orders. Companies should review their exhibits to determine if any previously granted confidential treatment will expire in 2025, and if so, take steps to maintain the confidential treatment if necessary. There are two options, depending on when the confidential treatment was initially granted: request an extension or transition to the streamlined process created in 2019. The SEC provided updated guidance in January 2024.
Broken Links. In June 2024, the SEC reminded companies to confirm that the links (including links in exhibits) in their EDGAR filings are working properly before submitting their filings on EDGAR.
Powers of Attorney for Section 16 Reports. Companies should review the most recent powers of attorney filed with the Section 16 reports of their insiders to confirm that the individuals identified as an attorney-in-fact for the insider continues to be appropriate. One or more of the individuals identified as an attorney-in-fact may no longer be with the company, and a new power of attorney or a substitute power of attorney may be useful. It may be helpful to obtain signatures on such documents in connection with the D&O questionnaire process. NOTE: See the memo’s suggestions on action items relating to the transition to EDGARNext as well, although it acknowledges that calendar year-end companies may want to enroll after year-end reporting.
The memo also reminds us that “in comment letters issued in connection with 10-K reviews in 2024, the SEC staff asked about why a particular statement a company made on an earnings call was not also disclosed in MD&A (e.g., why a strategy mentioned on an earnings call was not discussed in MD&A, and whether metrics mentioned on an earnings call should be disclosed in MD&A),” emphasizing the importance of consistency with 10-K (MD&A, in particular) disclosures. I think public companies have heard that message loud and clear, but I also recognize that timing continues to make this challenging — with the earnings call script often being edited down to the wire. A “consistency check” may need to be done twice each quarter to make sure one is done on a nearly final version, with the “final check” being listening to the earnings call itself and potentially tweaking the 10-Q or 10-K accordingly.
With Northwestern’s Securities Regulation Institute coming up next week in San Diego, I wanted to share that our editorial team will have a strong showing again this year. Dave is reprising his role as Vice Chair of the event, Liz will be speaking on a D&O FAQ panel, and John, Meaghan & I will be there for moral support — hopefully getting to chat with many of you and absorbing the wisdom our colleagues and the other great speakers will be sharing.
Speaking of wisdom, if you’re headed to SRI, check out Meaghan’s Mentor Blog from yesterday resharing her multi-part series on networking at conferences!
On Friday, the SEC approved the rule change Nasdaq proposed in August to modify the delisting process for certain stocks that fail to regain compliance with the minimum bid price requirement. As we noted in November, it wasn’t clear that this proposed change was going to be approved. In the fall, the SEC extended the time period for action on the proposal and then instituted proceedings under Section 19(b)(2)(B) of the Exchange Act seeking additional analysis, which Nasdaq submitted in early January.
The rule change revises Nasdaq Rules 5810 and 5815 for stocks that fail to regain compliance with the exchange’s bid price requirement — or fall out of compliance again one year after effecting a reverse stock split. As we previously noted, the rule adds risk — of being relegated to trading on OTC markets — especially to publicly traded AI and biotech startups.
Here is additional detail on the changes, paraphrased from the release:
– Suspension After Second Compliance Period. When a company has a minimum bid price deficiency, Nasdaq rules provide an automatic 180-day compliance period and then — if the company notifies Nasdaq of the intent to cure the deficiency with a reverse stock split — a second, not automatic 180-day compliance period. If the deficiency is not cured in that second period, a Delisting Determination is issued, which can be appealed with a hearing request. Typically that hearing request would stay the suspension and delisting action pending the decision of the Hearings Panel, but Nasdaq Rule 5815 is being modified to provide that a request for a hearing shall not stay the trading suspension when the request is made by a company that was afforded the second 180-day period and failed to regain compliance during that time.
– Bid Price Deficiency One Year After Reverse Stock Split. Nasdaq Rule 5810 is being amended to provide that if a company’s security fails to meet the minimum bid price within one year since the company effected a reverse stock split, then the company shall not be eligible for any compliance period and a Delisting Determination will be issued immediately. This will prevent companies from remaining listed if they would have to engage in a pattern of reverse stock splits to maintain the minimum bid price.
Commenters seemed more concerned about the latter of the two changes — and the SEC’s release spends 12+ pages addressing those comments and concerns.
Side note: There are a number of other complexities to these rules and this process that apply in certain circumstances — for example, if a security has a closing bid price of $0.10 or less for 10 consecutive trading days during a bid price compliance period, if a company has effected one or more reverse stock splits in the prior two years with a cumulative ratio of 250:1 or more or if a company’s reverse stock split causes it to be out of compliance with another listing rule (another recent change). See this Cooley PubCo post for more.
This new Willkie CAPITAL LETTERS publication focuses on raising capital during blackout periods. It starts by saying that companies are “often well advised to wait until after they issue their earnings or file the related annual, quarterly or special report before accessing the capital markets.” But it acknowledges that “a self-imposed blackout period does not, as a matter of law, prevent a company from issuing securities so long as the company satisfies all disclosure obligations [and] [t]here may be compelling reasons to issue securities during a blackout period” like “uncooperative market conditions or unscheduled needs (e.g., M&A transactions).”
So what additional considerations do companies need to address if they’re seeking to raise capital at this time? The memo notes that many constituents need to be involved in the decision to move forward and vet the disclosure — including management and the board, the underwriters, both parties’ counsel and the auditors. It’s also important to understand the key drivers of the company’s performance, what data will be available when — including through closing of the offering — and whether changes are common during the quarterly close and financial statement review process. The materiality of the earnings information may also depend on whether the offering is debt or equity.
Speaking of earnings information, the memo gives tips on how to disclose, diligence and comfort “flash numbers” — i.e., pre-released financial information about a closed year or quarter to satisfy a company’s disclosure obligations in a capital raising transaction. The memo has these important compliance reminders when you’re putting out flash numbers:
Flash Numbers May Need to Be Furnished on a Form 8-K – Item 2.02 of Form 8-K requires a company to “furnish” a Form 8-K containing any material nonpublic information regarding the company’s results of operations or financial condition for a completed quarterly or annual fiscal period that the company or any person acting on its behalf discloses in a public announcement or release. SEC Exchange Act Form 8-K Compliance and Disclosure Interpretation 106.07 specifically requires a Form 8-K in the case of “preliminary” earnings disclosure for a completed quarterly period, even if some of the amounts are only estimates. An additional Form 8-K would be required when the final results are publicly disclosed or when revised amounts are publicly disclosed. While the disclosure of information in the context of an unregistered offering (e.g., a Rule 144A offering) may not constitute a “public announcement or release,” disclosure of flash numbers in a private offering memorandum may trigger required public disclosure under Regulation FD, as further described below. Therefore, a public company would be well advised to furnish an Item 2.02 Form 8-K even for disclosure in a private offering memorandum.
Don’t Forget About Regulation FD – Providing flash numbers in a prospectus or private offering memorandum may trigger required public disclosure under Regulation FD for public companies. The standard procedure is to file a Form 8-K including the flash numbers substantially simultaneously with the launch of the offering. The offering constituents should ensure that such a press release is drafted in a manner to avoid it being considered an “offer” of the securities under the U.S. federal securities laws. Private companies that have previously issued securities pursuant to Rule 144A should consider making any such results simultaneously available on their website or in the dataroom established to comply with Rule 144(d)(4) in order to remove information asymmetry as between potential investors in the new offering and existing and potential investors in the company’s existing securities.