Yesterday, Corp Fin issued a “Staff Statement on Meme Coins” in which it said that it did not view so-called “meme coins” as securities for purposes of the federal securities laws. The Statement defined meme coins as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading.” It went on to analogize meme coins to collectibles, because they are usually purchased for “entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”
The Statement then analyzed the legal status of meme coins under the federal securities laws and concluded that they were not “securities” under the Howey Test . This excerpt summarizes the basis for that conclusion:
The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
The Staff cautioned that meme coins that don’t fit the description outlined in the statement may be securities and will be evaluated based on the economic realities of a particular transaction.
The problem of director notetaking during board meetings is a persistent one, and the bad news is that, as Ralph Ward highlighted in a recent issue of The Boardroom Insider, it’s becoming even more challenging to address as AI tools find their way into the boardroom. This excerpt provides some examples:
In a thoughtful client alert, Robins, Kaplan partner Anne Lockner cites the true-life story of an online board meeting with a member who was logged in, but not actually participating. Instead, he had an online AI assistant sit in to prepare a summary for later review (and later circulation to all participants). While there’s “nothing to prevent participants from taking their own notes, using AI to summarize would be hard to stop,” she says. Still, this situation creates multiple legal nightmares, such as whether the director is actually “attending,” fiduciary duty, and confidentiality of the notes.
Another note-taking tech headache – what if the director is indeed present and participating, but using one of the many transcription tools to take his own minutes/notes of the meeting? While most online meeting platforms give the moderator power to record the session or not (and to prevent participants doing so), using such a capture widget on your own computer (or even on your smart phone) to transcribe would be simple. Of course, this creates an alternate version of the meeting minutes. If preserved, it would be fair game for any legal discovery demand down the road, and could tell a very different tale from that of the approved minutes.
It’s enough to send a shiver down your spine, isn’t it? Anyway, I think every lawyer who has ever counseled a board has a horror story about director notes. Mine involves a director who wrote a speech opposing a proposed merger that he planned to deliver at the board meeting held to consider it. He ultimately supported the deal, so the speech went undelivered, but he kept it, and it ended up in the plaintiff’s hands. The plaintiff’s lawyer had a very good time with the speech during the director’s 11 hour deposition – the director, well, not so much.
In addition to their typically higher profile, public companies may also have heightened security concerns for their executives since they are often required by Regulation FD to disclose their executives’ involvement in certain public events, so it’s common for high-profile public companies to engage and pay for personal security services for their CEOs and other senior executives. Some public companies also require their executives to use company aircraft for personal travel due to security concerns.
The December 2024 shooting of the CEO of UnitedHealthcare has caused public companies to reassess — and sometimes enhance — their security arrangements and other measures they take to protect the safety of their executives. We’ve recently posted a new “Checklist: Executive Security” that addresses the following topics — all of which boards and management teams should be aware of as they consider changes to executive security programs:
– Recent trends in personal security spending by public companies
– Additional steps companies are now considering to minimize risks to their management teams
– Board fiduciary duty considerations
– SEC disclosure requirements
– Institutional investor and proxy advisor positions
– Tax and benefit implications of personal security arrangements
Last December, a group of prominent law professors came together to form a group they call “The Shadow SEC,” whose stated purpose is to “provide, encourage, facilitate, and distribute policy discussions and debates relating to the federal securities laws” and the SEC. In response to the Trump administration’s Executive Order asserting presidential control over independent agencies like the SEC, the members of this group penned a spirited defense of the SEC’s independence on the CLS Blue Sky Blog. Here’s what they argue are some of the consequences if the agency loses its independent status:
What would happen if the SEC in fact loses its independence? Concentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation. Entrenched companies could seek to have the SEC build regulatory moats to prevent competition. Parties seeking to avoid the rigors of the SEC’s disclosure regime may succeed in having that regime diluted and subject to expanded exceptions, making share prices less accurate and eroding the efficiency of the pricing of capital and distorting the manner in which U.S. firms are operated.
What this defense doesn’t address is the proverbial “elephant in the room” – the Trump administration’s embrace of the “unitary executive theory” and what a judicial endorsement of that theory would mean for independent agencies. This theory essentially says that the President possesses sole authority over the Executive Branch, including the ability to remove any subordinate officials at will. In other words, truly “independent” agencies aren’t a thing that the Constitution contemplates.
As Meredith pointed out in her recent blog on the Executive Order, the SCOTUS held in a New Deal Era case called Humphrey’s Executor v. US that the President didn’t have the authority to fire the head of an independent agency. Justice Scalia questioned Congressional efforts to limit executive power in this fashion in his dissent from the SCOTUS’s 1988 decision in Morrison v. Olson(“Article II, § 1, cl. 1, of the Constitution provides: “The executive Power shall be vested in a President of the United States”. . . [T]his does not mean some of the executive power, but all of the executive power.”).
Scalia was the lone dissenter in that case, but more recently, the Humphrey’s Executor decision and cases following it have been criticized by a growing chorus of conservative scholars and practitioners. Many expect that the current SCOTUS will be open to revisiting and ultimately overruling it – and a high court showdown certainly seems to be where all this is heading.
The unitary executive theory has plenty of conservative champions, but it’s worth noting that even in this deeply partisan era, not all conservative scholars are on-board. For example, here’s what George Mason law professor Ilya Somin wrote about the risks of reviving the unitary executive theory in a 2018 Cato Institute publication:
Federal agencies now regulate almost every aspect of American life. If the president has near-total control over them, he or she has much greater power than originally granted — more than can safely be entrusted to any one person. So long as the executive wields authority far beyond the original meaning, Congress should be allowed to insulate some of it from total presidential control to prevent excessive concentration of power.
As I read The Shadow SEC’s defense of the SEC’s status as an independent agency, it occurred to me that in today’s politically fraught environment, it’s hard for the SEC or any agency to be truly independent, whether the President can replace its leadership at will or not. For example, just look at what’s transpired at the SEC over the past month or so.
On his way out the door, former SEC Chair Gary Gensler gave a steroid shot to his crypto enforcement team in an effort to ensure that the crypto crackdown continued after his departure. Then, during the final week of Biden’s presidency, the SEC decided to file an enforcement action against Elon Musk for alleged Section 13(d) violations.
I’m firmly in the camp of those who believe that Elon Musk thinks he’s above the law and should be held to account, but the optics of an 11th hour decision like this couldn’t be worse. In fact, Bloomberg Law is reporting that this decision looked so bad that it prompted Commissioner Uyeda to take the extraordinary step of asking Enforcement staffers if they were willing to sign off on a statement that their recommendation to pursue an action against Musk was not politically motivated. (That’s not a great look either.)
After Trump’s inauguration, the SEC immediately put the kibosh on the climate change rules and responded to Gary Gensler’s efforts to install a “dead hand pill” for his crypto crackdown by replacing the agency’s existing crypto & cyber unit and, more notably, exiling its top crypto litigator to Siberia. Of course, all of this came on the heels of years of Commission actions in which we’ve usually been able to count on important policy issues being decided by a 3-2 party line vote.
After an extended period of this kind of partisan tug of war at the SEC, it’s a little hard not to raise an eyebrow when members of The Shadow SEC say things like if the SEC wasn’t independent, “[c]oncentrated interest groups can be expected to pressure each new administration to change regulation in ways that might not be in the interest of investors and the public and that might not enhance capital formation.” C’mon – seriously? I mean, have these folks been paying attention to anything that’s happened at the SEC over the past decade or so?
I think the basic problem isn’t the leadership at the SEC or other independent agencies, it’s that Congress’s sclerotic legislative process has put these people in an untenable position. As I’ve previously blogged, the simple truth is that Congress can’t get its legislative act together, so whatever party controls the White House will continue to push the people running federal agencies to accomplish what really should be legislative objectives. Until that’s addressed, a lot of agency actions are going to look highly partisan and pretty far from anyone’s idea of “independent.”
The January-February issue of the Deal Lawyers newsletter was just sent to the printer. It is also available online to members of DealLawyers.com who subscribe to the electronic format. This issue includes the following articles:
– M&A Buyers Beware: Who Bears the Cost of Defense of a Third-Party Claim?
– Practice Points Arising from Albertsons’ Claims Against Kroger for Breach of their Merger Agreement
The Deal Lawyers newsletter is always timely & topical – and something you can’t afford to be without to keep up with the rapid-fire developments in the world of M&A. If you don’t subscribe to Deal Lawyers, please email us at sales@ccrcorp.com or call us at 800-737-1271.
I frequently whine to my colleagues about how whenever it’s my week to blog, substantive topics seem to dry up and I’m reduced to blogging about things like the mortal dangers posed by pickleball. This week, however, I’ve got nothing to whine about, and a big reason for that is that Acting SEC Chair Mark Uyeda is making news this week every time he opens his mouth.
The latest example of this occurred yesterday, in opening remarks that Commissioner Uyeda delivered at a meeting of the SEC’s Small Business Advisory Committee. If you work with small, unlisted companies, this excerpt from those remarks suggests that a really big and helpful change might be in the works:
This afternoon, the Committee will discuss the challenges faced by small public companies that are not listed on a national securities exchange. I believe that scaled disclosure requirements is important for smaller companies, as the costs for preparing disclosure can disproportionately burden smaller companies. Small public companies that are not listed on an exchange may face even more unique challenges. For example, unlisted companies with a public float of less than $75 million are ineligible to use shelf registration statements.
There may also be investor protection concerns associated with small companies whose stock have relatively low liquidity and may be more prone to manipulation. However, do these concerns justify not permitting small companies – that may be in greater need for capital than larger, listed companies – to use shelf registration statements and quickly access the capital markets when timing and other conditions are ideal?
Unlisted companies face a lot of challenges when trying to raise capital in public offerings, and while the ability to streamline the offering process by using shelf registration statements for primary deals won’t address them all, it will definitely make it easier for those companies to give the public capital markets a shot.
Despite recent criticisms of some of its decisions and the high-profile moves out of the state by a handful of public companies in response to them, Delaware’s Chancery Court has long been regarded as part of the “secret sauce” that makes the state the preferred jurisdiction of incorporation for most public companies. Texas is attempting to replicate that through the creation of its own business court, and now it appears that Nevada is laying the groundwork to do the same. This excerpt from a recent Business Law Prof Blog explains what Nevada’s up to:
The Nevada Legislature will consider a constitutional amendment this session to create an appointed business court. This is the language of the resolution as it was introduced by Assembly Members Joe Dalia and Shea Backus. Full disclosure, I strongly support Nevada creating this legal infrastructure and have helped on this issue.
The amendment would authorize the Legislature, at some future date, to create an appointed business court with “exclusive original jurisdiction to hear disputes involving shareholder rights, mergers and acquisitions, fiduciary duties, receiverships involving business entities and other commercial or business disputes in which equitable or declaratory relief is sought.”
It envisions creating a court comprised of at least three judges to be appointed by Nevada’s Governor off of a list of nominations to be provided by an existing Commission on Judicial Selection. In contrast to the short terms for the Texas business court, these appointed judges would serve six year terms.
The blog notes that this effort has plenty of hurdles to clear. The amendment will need to be approved by the Legislature twice and then face a public referendum. Since Nevada’s Legislature only meets once every two years, if the bill passes, it will need to pass again in 2027 before it can be presented to voters. Only after that happens could the Legislature enact legislation creating a business court.
Over on LinkedIn, Prof. Ann Lipton has a post in which she cites a Reuters’ article on how recent moves by the SEC’s Acting Chair Mark Uyeda have shifted power from investors to the board. She says that the newly proposed DGCL amendments would amplify this shift:
The proposed changes to Delaware law represent a hard swing allocating power away from shareholders (as litigants and information seekers) to corporate insiders. In the past, Delaware has justified changes of this sort by pointing out that, unlike 40 years ago, today’s shareholder base is largely institutional and sophisticated.
But the incoming SEC has already made some opening dramatic moves to undercut the power of institutional investors (the changes to 13D reporting take my breath away), and I expect many more on the horizon, from jawboning about ESG votes to limiting proxy advisors.
So we’re seeing the same moves at the federal and state levels, namely, a recalibration to put relatively unlimited discretion back in the hands of corporate insiders.
The proposed DGCL amendments have prompted a flood of commentary from academics & practitioners, but if you’re looking to understand the background and implications of the amendments, you need to spend some time with this 21-page deep dive from Morris Nichols. (Also check out the materials I referenced in my DealLawyers.com blog this morning.)
Last month, Commissioner Peirce offered a preview of coming attractions that we might see from the SEC over the next few years. Her remarks focused more on general policy approaches than on specific regulatory initiatives. In contrast, Acting SEC Chair Mark Uyeda got down to “brass tacks” yesterday in a speech delivered at the Florida Bar’s Annual Federal Securities Institute. Commissioner Uyeda discussed potential regulatory changes affecting both private and public companies. Here are some of the highlights from his remarks:
– Enhance Retail Investors’ Ability to Invest in Exempt Offerings. Commissioner Uyeda said that he has directed the Staff to explore ways to “explore regulatory changes that enable greater retail investor participation in the private markets, whether through modifications to the accredited investor definition or otherwise, while continuing to ensure that those investors are protected against fraud and bad actors.” In addition to discussing the need to review the accredited investor definition, Commissioner Uyeda also signaled that efforts to simplify some of the regulations governing exempt offerings may also be on the table.
– Revise EGC Definition & Duration to Increase IPO Attractiveness. Commissioner Uyeda praised the JOBS Act’s creation of an on-ramp to compliance with Exchange Act reporting requirements for emerging growth companies. However, he observed that in recent years, the SEC has not provided any relief for EGCs in several new rules, including cybersecurity disclosure, the Rule 10b5-1 amendments, and the clawback rules, and has provided only limited relief to EGCs for its climate disclosure rules. Accordingly, he said that he has directed the Staff to “review the EGC definition and recommend potential changes, including how a company qualifies and the duration for which it retains the status. As part of its review, I have also requested the Commission staff to consider how EGCs could benefit from having an on-ramp to comply with certain existing disclosure obligations.”
– Review & Update Filer Status Thresholds. Commissioner Uyeda observed that the SEC’s rules on filer categories are needlessly complex and do not provide sufficient scaled disclosure benefits. As an example, he notes that a company with a $250 million public float is subject to the same disclosure requirements as a company with a $250 billion public float. That’s because the SEC hasn’t changed its “accelerated filer” and “large accelerated filer” thresholds since they were established in 2005. To make matters worse, because the smaller reporting company definition has been updated, there’s a lot of overlap, which in turn has resulted in increased complexity and compliance costs. Commissioner Uyeda says that the SEC “should be considering whether to re-align the Commission’s filer categories to reflect the size and makeup of public companies today. Following any potential re-alignment, the Commission should also review its disclosure requirements and identify rules that should apply only to the largest companies.”
It’s important to keep in mind that Commissioner Uyeda is serving as Acting Chair, so the final say on the SEC’s priorities for the upcoming year will rest with Paul Atkins after he’s confirmed. Still, as we’ve previously said, both Commissioner Uyeda and Commissioner Peirce worked closely with Atkins during his prior tenure at the SEC, so I’d wager this is a pretty good preview of the SEC’s regulatory priorities when it comes to promoting capital formation.