It’s been gut-wrenching to watch the wildfire destruction that has occurred in California over the past several days. Our hearts go out to the nearly 8 million residents of L.A. and Ventura Counties who are facing dangerous conditions, and everyone else affected by the disaster. I think that even if they haven’t lived in California, many people across the country have some connection to the Los Angeles region. We have all been watching with sadness – as well as hope that people will come together to rebuild.
As of this morning, the SEC has not made a broadly applicable announcement about filing relief, but I expect they would encourage companies and other regulated entities to contact the Staff with questions and concerns and tell investors to watch out for scams, similar to their response to Hurricane Helene. We will continue to monitor developments.
John drew the short draw of blogging over the holidays, and the CTA drama gave him a few things to write about. The saga isn’t over, but we now have more clarity. Here’s an update, courtesy of this McGuireWoods blog:
You may recall that on December 26, 2024, the Fifth Circuit vacated the “part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA,” as well as the Reporting Rule. In other words, FinCEN cannot enforce the CTA and there is no reporting obligation until this gets resolved.
The Fifth Circuit has issued an expedited briefing. Briefing will occur in February, and the court has scheduled oral argument on March 25, 2025, after which it will need time to issue an opinion. As with the temporary lifting of the injunction precluding enforcement, FinCEN would likely provide additional time to file should the law go back into effect. In light of this schedule, Reporting Companies now have some clarity on the time – likely Q2 2025 – they have to analyze their compliance obligations.
In this 27-minute episode of the “Women Governance Trailblazers” podcast, Courtney Kamlet and I interviewed Karla Munden, who is SVP and Chief Audit Executive with Lincoln Financial Group, and an Independent Director at American Express National Bank. Karla also recently spent time in South Africa as part of the immersive B-Direct program, where she learned how to adapt her U.S.-based corporate governance skills to a different culture. We discussed:
1. Karla’s leadership experiences and learnings over the years.
2. U.S. versus South African approaches to corporate governance and stakeholder priorities, and the importance of cultural dexterity.
3. Leadership lessons from Karla’s Navy service that have translated into her corporate roles.
4. Karla’s experiences on the boards of American Express National Bank and the William and Mary Foundation, including similarities in not-for-profit and for-profit boards, and the top qualities of effective board members.
5. Karla’s role as a minority owner of the Caroline Cobras, a football team in the National Arena League.
6. What Karla thinks women in the corporate governance field can add to the current conversation on the societal role of companies.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.
I must admit that sometimes I feel like the SEC is really trying to make it hard on us all from a technology perspective. In an ever-expanding effort to satisfy some perceived demands for data from SEC filings, we have endured several decades of complicating what otherwise should be the simple process of submitting an electronic filing that reports the information that the SEC requires to be provided to investors. My latest gripe is with the recently implemented requirement that beneficial ownership reports be submitted in a machine-readable format, rather than as an HTML or ASCII document.
Beginning on December 18, 2024, beneficial ownership reports on Schedule 13D and Schedule 13G were required to be filed with the SEC using a structured, machine-readable XML-based language. This change was adopted as part of the SEC’s Modernization of Beneficial Ownership Reporting rule amendments back in October 2023. In the adopting release, the SEC noted “[t]his requirement is intended to make it easier for investors and other market participants to access, compile, and analyze information that is disclosed on Schedules 13D and 13G.” The XML-based interface is similar to what has been implemented for Form 13F, Form D and Section 16 reports.
The key takeaway here when filing a Schedule 13D or 13G is that you can no longer just send a Word document to the filing service and have them submit the filing on EDGAR soon thereafter. Instead, you will need to complete a worksheet that the filing service provides, which can take more time and effort to complete, particularly when you have a complicated beneficial ownership report. It is best to build in some extra time for this process as everyone gets used to the new interface.
The SEC has announced that it will host the 44th Annual Small Business Forum on April 10, 2025 in-person at SEC Headquarters in Washington D.C., with the option of virtual participation. The announcements notes:
Organized by the Office of the Advocate for Small Business Capital Formation, the Forum brings together members of the public and private sectors—including entrepreneurs, small business leaders, investors, and those that support them across the small business ecosystem—to discuss and provide suggestions to improve securities policy affecting how companies raise capital from investors.
This event is planned for 1:00 pm – 4:30 pm Eastern, with an optional networking reception to follow. A full agenda will be provided as the date draws closer.
As John noted in the blog back in November, all signs point toward the SEC being more interested in promoting small business capital formation. For example, in the area of capital formation, the agenda published by Project 2025 calls for the SEC to take, among others, the following actions:
– Simplify and streamline Regulation A (the small issues exemption) and Regulation CF (crowdfunding) and preempt blue sky registration and qualification requirements for all primary and secondary Regulation A offerings.
– Either democratize access to private offerings by broadening the definition of accredited investor for purposes of Regulation D or eliminate the accredited investor restriction altogether.
– Allow traditional self-certification of accredited investor status for all Regulation D Rule 506 offerings.
– Exempt small micro-offerings from registration requirements.
– Exempt small and intermittent finders from broker–dealer registration requirements and provide a simplified registration process for private placement brokers.
It remains to be seen what regulatory efforts will ultimately be pursued, but it is encouraging that during the first Trump Administration we saw the SEC adopt the comprehensive exempt offering harmonization rule changes, which have proven to be beneficial for small business capital formation (including my favorite part, the adoption of Marty Dunn’s integration manifesto in Rule 152).
‘Tis the season for an avalanche of annual reporting and proxy season reminders as we ramp up our 2025 efforts.
First and foremost, I commend to you our “Annual Season Items” article in the November-December 2024 issue of The Corporate Counsel, which covers a wide range of topics that will be of interest when preparing your annual report and proxy statement. But if you are looking for a more condensed version, check out Weil’s “Top 10 Tips for the Form 10-K,” which does a great job of highlighting the latest top trends and considerations for companies preparing to file their Form 10-K for the fiscal year ending in December 2024, including: lessons learned from recent SEC comment letters, guidance, enforcement proceedings and litigation; new SEC rules and applicable NYSE/Nasdaq corporate governance listing standards; and developments companies face stemming from regulatory, geopolitical and other events, including considerations relating to the new administration.
As the calendar turns over to 2025, it is now time to focus on what’s next – and that is EDGAR Next. As I noted last October, the SEC adopted its “EDGAR Next” amendments in September 2024, and there has been a considerable amount of hand-wringing since that time as we have absorbed everything that is contemplated by the significant changes to the EDGAR access system.
In short, EDGAR Next will replace the current EDGAR access system that relies on old-fashioned passwords with a new access system that requires each person who accesses the EDGAR filing system to establish a user account and select a method for two-factor authentication. Filers will generally establish two account administrators, who have the responsibility for designating other persons authorized to make EDGAR filings on behalf of the filer. Filers with valid electronic filing credentials as of March 21, 2025 will have until September 12, 2025 to transition to EDGAR Next. Filers that do not complete EDGAR Next enrollment by that date will be unable to file or submit documents using the EDGAR filing system after September 12, 2025, and filing agents will be unable to make filings or submissions on behalf of the filer after that date. Existing EDGAR filers that have not completed enrollment by December 19, 2025 will not be able to enroll online, but will be required to submit a new Form ID to obtain access to the EDGAR filing system. The SEC has provided a resource page on the transition to EDGAR Next that includes this handy infographic highlighting the key steps toward implementation.
The transition to EDGAR Next will obviously have a big impact on Section 16 filers, and the SEC’s EDGAR Business Office is hosting a webinar focused on this topic on Thursday, January 23, 2025 from 1:00 to 2:30 pm Eastern time. You must register in advance for this webinar. Staff from the EDGAR Business Office will be available to answer questions during this live webinar.
There are very few things in life that are certain, but one thing I can say for certain after living with EDGAR for thirty years is that EDGAR is glitchy and rollouts of big changes can be very rocky. So it is important to focus on these EDGAR Next changes now to avoid surprises and frustrations down the road.
The SEC could have gone two ways with its rollout of Inline XBRL tagging – it could have required Inline XBRL tagging for everything in an SEC filing, which obviously would have created huge burdens for filers, or it could adopt Inline XBRL requirements as part of individual rule changes, which tortures us with a drip, drip of random tagging requirements. Obviously, the SEC chose the latter approach, and as a result it is important to try to stay on top of what new disclosure requirements require Inline XBRL tagging as the annual reporting season for year-end companies kicks off.
In 2025, the following disclosures will require Inline XBRL tagging:
– The new insider trading policies and procedures disclosure required pursuant to Item 408(b) of Regulation S-K;
– The new option grant practices disclosure required pursuant to Item 402(x) of Regulation S-K;
– Pay versus performance disclosures provided by smaller reporting companies; and
– Cybersecurity disclosures required by Item 106 of Regulation S-K (after a one-year phase in).
Keep in mind that if a company does not file interactive data exhibits on a timely basis, the company will be deemed to not be current with its Exchange Act reports for purposes of eligibility for Form S-3, Form S-8 and other forms, and will be deemed not to have available current public information for purposes of Rule 144. A filing delinquency can be remedied by filing an amendment that includes the required interactive data files, at which time the company will be deemed to be current again.
AI, cyber, and other emerging technologies are creating novel, high-stakes risk management and compliance challenges for public and private companies. We have covered SEC compliance and board governance issues associated with these technologies on this blog, and we’ll continue to do that. But we also know that law departments, compliance professionals, and the outside counsel who advise them need more granular guidance – and that’s why we’re excited to introduce our new “AI Counsel Blog.”
Our objective with the AICounsel.com blog is to highlight useful resources and guidance on best practices, as well as to alert readers to evolving issues in order to help front-line risk management and compliance professionals do their jobs. We think you’ll find this blog to be a helpful addition to your morning reading, so check it out and subscribe to receive it in your inbox!
With the proxy season now looming large, you will definitely want to join me, Mark Borges, Alan Dye and Ron Mueller tomorrow at 2:00 pm Eastern time for our annual webcast “The Latest: Your Upcoming Proxy Disclosures.” We are planning to delve into a wide range of topics, including:
– Potential Impact of New Administration on SEC Rulemaking
– Potential Impact on Compensation Disclosure (Pay Ratio, Rule 701 and more)
– Evolution of Clawback Policies, Disclosures to Date and Clawback Mechanics
– Pay vs. Performance — Preparing for the First Year of Five-Year Disclosure
– Proxy Advisor Compensation Policy Updates
– The Key CD&A Topics and Tabular Insights
– New Item 402(x) and Equity Grant Policies
– Incentive Plan and ESG Metric Trends
– Compensation-Related Shareholder Proposals
– Planning for 2025 Say-on-Pay Votes
– Planning for 2025 Equity Plan Proposals
This is a webcast that you don’t want to miss! I know that I always learn a lot during our annual program.
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We will apply for CLE credit in all applicable states (with the exception of SC and NE who require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval. This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.