On Wednesday, the President issued a memo that gives more color to the “review & repeal” directive contemplated by Executive Order 14219 that was issued a few months ago. The memo says that all agency heads should prioritize regulations that could be struck down as overreach or otherwise unlawful under recent Supreme Court cases. Here’s the real kicker:
In effectuating repeals of facially unlawful regulations, agency heads shall finalize rules without notice and comment, where doing so is consistent with the “good cause” exception in the Administrative Procedure Act. That exception allows agencies to dispense with notice-and-comment rulemaking when that process would be “impracticable, unnecessary, or contrary to the public interest.”
SEC Commissioner Caroline Crenshaw already dissented from the Commission’s decision to drop its defense of climate disclosure with no attempt at “notice & comment” repeal. Now, other rules could be on the chopping block. The memo refers specifically to these SCOTUS cases:
1. Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024);
2. West Virginia v. EPA, 597 U.S. 697 (2022);
3. SEC v. Jarkesy, 603 U.S. 109 (2024);
4. Michigan v. EPA, 576 U.S. 743 (2015);
5. Sackett v. EPA, 598 U.S. 651 (2023);
6. Ohio v. EPA, 603 U.S. 279 (2024);
7. Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021);
8. Students for Fair Admissions v. Harvard, 600 U.S. 181 (2023);
9. Carson v. Makin, 596 U.S. 767 (2022); and
10. Roman Cath. Diocese of Brooklyn v. Cuomo, 592 U.S. 14 (2020).
This Fact Sheet gives a paragraph on how the executive branch is interpreting each of those cases. From Politico:
The White House directive appears to claim that the high court’s 2024 ruling known as Loper Bright applies retroactively, although the court’s conservative justices held explicitly that the decision is forward-looking.
The SEC has been somewhat insulated from the fallout of the Loper Bright decision because courts haven’t given much deference to SEC rules in recent years anyway. But under this memo, things could get interesting – especially given some of Chair Atkins’ views on the PCAOB, Sarbanes-Oxley rules, shareholder proposals, and more. As John blogged when Loper Bright was issued, while the rollback of certain disclosure requirements could be happy news for companies in some ways, companies also should consider the business impact of the broader, government-wide deregulation effort. The Politico article predicts the memo will face legal challenges.
We’ve posted an informative 27-minute episode of the “Timely Takes” podcast – John met up with Brian Breheny of Skadden, Rick Hansen of HP, and Allie Ritherford of PJT Camberview to discuss the Staff’s recent CDIs on Schedule 13G eligibility and their impact on shareholder engagement practices. With multiple guests and a technical subject, this one ended up being akin to a “mini webcast” – so we’ve also posted a transcript that you can refer back to. Topics include:
1. Overview of the Staff’s recently updated CDIs on Schedule 13D/13G and additional informal Staff guidance.
2. How investor approaches to engagements with management have changed in response to the CDIs.
3. How companies should respond to the new environment and maximize the value of investor engagements.
4. How investors’ response to the CDIs may influence the role of proxy advisors in contested elections.
5. Implications for companies facing activist campaigns.
6. Recommendations for investors on how to navigate the new environment.
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, email John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
Yesterday, the Senate voted 52-44 to confirm the nomination of Paul Atkins as Chair of the SEC. Chair Atkins was approved to serve for the remainder of Gary Gensler’s term, which expires June 5th, 2026. SEC Commissioners can serve for up to 18 months past the expiration of their term, and then the Senate has to vote again on reappointment for a subsequent 5-year term.
Chair Atkins will be overseeing a Staff that has hit the ground running on capital formation priorities – despite thinner ranks. The three other current Commissioners issued this statement to welcome Chair Atkins back to the SEC.
Here’s a big development that was revealed in a blog last month from Nasdaq president Tal Cohen:
We are excited to share that Nasdaq has begun engaging with regulators, market participants and other key stakeholders, with a view of enabling 24-hour trading five days a week on the Nasdaq Stock Market.
Our timeline is pending regulatory approval and alignment with critical industry infrastructure providers, which we anticipate being in the second half of 2026.
Honestly, my first thought in reading this was. . . not excitement. With “fake news” causing a multi-trillion-dollar market swing earlier this week, it seems like we already have our hands full during regular trading hours.
I’m just a lowly securities lawyer, so I wouldn’t expect my opinion to matter to anyone. But apparently Investor Relations folks also have some concerns, as discussed in detail in this LinkedIn newsletter. This Fast Company article explains in layman’s terms:
Companies, especially the ones found on the tech-heavy Nasdaq, like Apple, Amazon, Alphabet, Nvidia, and more, like to control when investors receive news about them, as much as they can, anyway. The reason for this is that news, especially when it’s first disseminated, can make a stock’s price swing wildly in one direction or another.
This is why many companies report their earnings before or after regular market hours. Retail investors typically don’t trade in those hours, which helps mitigate any large-scale fear- or greed-based selling or buying when news hits.
If stocks are traded 24/5, companies lose this buffer—which could lead to increased trading volatility. If this change happens, every CEO or CFO will have to be extra careful what they say during earnings calls, as any statement—correctly interpreted or not—could lead to instant trading volatility.
And for the media covering Nasdaq companies—and the markets in general—well, they will no longer be able to call it a night after 4 p.m. If the Nasdaq is trading 24/5, that means U.S. financial news is now happening 24/5, and investors are going to want real-time analysis and updates.
I understand the change would bring benefits, but I’m exhausted just thinking about it.
Nasdaq is actually not the first exchange to pursue 24-hour trading. The SEC approved the “24X exchange” last fall – which offers trading 23 hours a day, five days a week. That approval drew criticism – but Commissioners Peirce and Crenshaw responded with this statement defending their decision. So, unfortunately for me, it seems like they’re on board with the concept.
We have reached an exciting milestone for our “Women Governance Trailblazers” podcast – our 50th episode! For this 16-minute interview, we talked with Sharon Binger – who is Managing Director, Chief Compliance Officer and Head of Litigation at Silver Lake. We discussed:
1. Pivotal moments that shaped Sharon’s career path, including advice for women navigating leadership roles in litigation, corporate governance and compliance.
2. How boards are approaching rapidly evolving opportunities and risks relating to generative AI and national security.
3. The impact of the current regulatory and enforcement environment on compliance programs.
4. Sharon’s approach to leadership as a director and executive.
5. The role of mentorship in Sharon’s career.
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 governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Drop me an email at liz@thecorporatecounsel.net.
I think it’s fair to say that the market reaction to “Liberation Day” has been more severe than was expected when Dave first shared disclosure considerations for tariffs last week. If your company’s business is affected as the duties kick in, those considerations warrant an even closer look now. And given recentcommentary, you might even want to dust off “recession” risk factors from 2008-2009 and consider whether and how some version of that should be added in a future periodic report (with particularity, of course).
While the business folks take a close look at the numbers, they’ll depend on the disclosure folks for risk factor suggestions. The immediate question becomes, “Do we need to update the risk factors in our Form 10-Q?” To analyze whether a “material change” has occurred, you need to be able to issue spot and ask the right questions on a compressed timeframe. This Bryan Cave memo identifies business risks that could arise as a result of tariffs as well as a potential economic slowdown. It suggests considering:
– Tariffs – magnitude of business subject to tariffs, availability of alternative suppliers and contractual cost-allocation provisions, ability to raise prices, etc.
– Economic slowdown – impact of reduced consumer confidence and demand, impact on credit markets and interest rates, lower equity valuations, effects on foreign currency, etc.
– Other issues – whether other countries will retaliate and the spiral effect that could have, uncertain duration of trade conflicts, the possibility of legal challenges or Congressional action, impact on the reputation of U.S. companies abroad, uncertainty for future cap-ex or investment, etc.
The memo also discusses forward-looking statements, MD&A and disclosure control issues. I recommend revisiting John’s 2022 blog on “quarterly risk factor updating practices” – as well as Dave’s blog last week on “market rout” considerations that go beyond the risk factors. For a deeper dive on “everything old is new again,” we discussed recession-related risk factor updates in the November-December 2008 issue of The Corporate Counsel newsletter.
I am sorry to say I do not have a lot of risk factor examples for the business impact of the breakdown in the rule of law and the democratic order that Ray Dalio says investors aren’t paying enough attention to (yet). Hopefully the probability of this big-picture risk is still low enough to make it immaterial for most companies.
If you analyze those risks “just for fun,” the threats themselves can also be viewed as piecemeal issues that would overlap to a certain extent with the items above – and may be similar to some things discussed over the years in “international operations” risk factors. Companies also would need to consider whether there could be particularized impacts from unenforceable contracts, retaliation, lack of qualified workers, changes in bribery practices, shifting consumer and tourism habits, etc… Risk factors and investor litigation would be the least of our worries!
It appears companies really thought through their risk factors for recently filed Form 10-Ks. This Bloomberg Law article says that a number of companies updated their 10-Ks to describe new and novel risks in our current environment, such as:
1. Diversity Programs – including criticism, legal threats and investigations, etc.
2. Immigration Enforcement – creating an increase in supplier costs, especially in the food industry
3. Tariff Threats – the 10-Ks typically discussed rising costs, supply chain impacts, impact on packaging materials, but as I discussed in today’s first blog, you may need to take another look for the 10-Q
4. Executive/Office Safety – some companies expressed that they may be more likely than others to be a target of an attack or disruption
6. Wildfires and Extreme Weather Events – negative impact on facilities and employees
I can’t say that all of these are 100% brand new. It’s possible that some of these risks had previously been combined with other topics, but they now rise to the level of requiring their very own paragraph(s). Or, maybe this is the first year that a critical mass of companies have discussed them. Bloomberg’s analysis found that companies typically used the “general risk factors” section to describe these new threats.
Dave and I recently interviewed Keir Gumbs – Principal & General Counsel at Edward Jones – for the latest episode of “Mentorship Matters with Dave & Liz.” Keir needs no introduction to most readers of this blog – he’s been at the SEC, Covington, Uber, and he has spent a lot of time through the years making a positive impact on the corporate governance & securities community. Keir is also very motivating, and the conversation gave me renewed energy for my work and for those around me! Check out this 26-minute podcast to hear:
1. The role of mentors in Keir’s career development
2. Advice to young corporate and securities lawyers looking to learn from leaders in the field
3. Foundational skills and knowledge that set the stage for Keir’s career
4. Recommended resources and strategies for maintaining a deep and current understanding of the field
5. Keir’s approach to gathering and synthesizing information, and applying his judgment, to fit the context and audience
6. Which is better: the ’33 Act or the ’34 Act?
Thank you to everyone who has been listening to the podcast! If you have a topic that your think we should cover or guest who you think would be great for the podcast, feel free to contact Dave or me by LinkedIn or email.
We were optimistic last year about the IPO window opening. Hope glimmered as recently as last month, when a handful of high-profile IPOs priced or revealed plans to go public. And in addition to the SEC’s focus on capital raising, the House Financial Services Committee held a hearing in late March to discuss 40 bills aimed at improving access to private capital for companies across the country – as well as making public offerings more viable. Some of the proposed bills would extend accommodations for emerging growth companies and smaller reporting companies, for example. That’s encouraging!
But the tumbling stock market has put a damper on those efforts. This Business Insider article reports that some previously expected deals are taking a pause. The article also discusses the extended IPO slump that we’ve experienced over the past few years. Here’s an excerpt:
But now, the long-anticipated boom in IPOs has suddenly gone bust. CoreWeave’s public offering in March was the biggest tech IPO since 2021, but it was forced to price itself well below the expected range. And on Friday, StubHub and Klarna both announced they were putting off their planned IPOs, as Donald Trump’s tariffs sparked a huge slide in the stock market. IPO analysts at Renaissance now estimate that there could be as few as 150 deals this year, which would make 2025 the fourth straight down year for IPOs.
In addition to the market freefall, the article points to a lack of sell-side analysts, economic uncertainty, availability of private capital, and investors’ unrealistic expectations for IPO payoffs as pre-existing contributors to the low number of offerings. Companies could overcome that last issue by lowering their valuations, according to the article – which cites Klarna as an example of doing this successfully even though it is painful for early investors. It also says that some analysts are still holding out hope for an IPO rebound in the second half of this year.
Last week, Dave reminded us of 5 topics that existing public companies should consider as we make our way through this period of market uncertainty. The companies pumping the brakes on public offerings also have a few things to think about. Those that were already far down the IPO path are no doubt receiving a lot of tailored guidance from their bankers and lawyers. For those earlier in the process, I’d offer these thoughts:
1. Dual (or triple) track your options – The IPO window might reopen. But volatility also seems to be the “new normal.” IPO readiness is no quick feat, and you don’t want to be caught flat-footed. Consider shoring up your internal processes, understanding financial statement requirements for public offerings, and continuing with governance prep and other IPO readiness steps – while also seeking other exit or funding opportunities.
2. Stay well-capitalized – Depending on the circumstances, some companies will shift their attention towards a sale, while others will want to move ahead with other debt or equity financings to support their business strategies. This 2022 Wilson Sonsini playbook for late-stage private companies also recommends “prudent financial stewardship” and incentivizing employees.
3. Keep tabs on market and regulatory developments – Keep monitoring the performance of publicly traded peers so that you can recalibrate expectations about valuation and messaging for a future IPO or other financing. The SEC’s 44th Annual Small Business Forum – which is coming up this Thursday and includes our own Dave Lynn as a speaker – will be a great opportunity to hear from regulators and other small businesses about how they’re approaching capital raising requirements and opportunities.
4. Remember the big picture – The talking heads always emphasize during these downturns that the markets continue to eventually increase over time. An IPO may continue to be worthwhile, even in a down market, if the funding lays the groundwork for a bigger and better exit event. But also make sure to think through how your time as a publicly traded company would play out in terms of voting control, the activism threat landscape, etc.
As this recent Wilson Sonsini memo explains, private investments in public equity (PIPEs) and registered direct offerings (RDOs) can be attractive paths to capital during times of market volatility. Here are a few of the pros & cons:
PIPEs and RDOs can be good alternatives to traditional underwritten offerings, particularly during periods of market volatility, because they can be negotiated discreetly and publicly announced after the parties agree to terms. However, given the lack of company leverage (usually) and near-term illiquidity of the securities sold, the cost of capital is typically higher for PIPEs than underwritten offerings.
Because an investor receives freely tradable securities in an RDO, the securities are typically sold at a smaller discount to the current market price of the company’s common stock in an RDO than in a PIPE; in 2024, the average discount for PIPEs surveyed was 6.2% while RDOs surveyed priced the securities at an average premium of 2.0% above market price.
The 43-page report summarizes trends in these types of financings, based on the 205 PIPEs and RDOs by U.S.-based technology and life sciences companies that raised at least $10 million and had at least one closing between January 1 and December 31, 2024. Here are a few key takeaways:
– The mix of transactions shifted towards PIPEs. Compared to the prior year, 2024 saw a 38.1% increase in the number of PIPE transactions reviewed, while the number of RDOs remained unchanged. This shift may be driven by the SEC’s “baby shelf” rule, which limits the ability of smaller market cap companies (i.e., those with a public float of less than $75 million) to raise over one-third of their market cap using a registration statement on Form S-3 (which provides the flexibility to finance without necessarily undergoing SEC review) over the course of the previous 12 months.
When a company wishes to sell securities in excess of this limitation, it will typically do so through a PIPE. In 2024, 42.8% of PIPEs and 56.9% of RDOs were completed by companies with a public float under $75 million; however, of these small cap companies, 87.9% of PIPEs were for over one-third of the company’s public float (which would otherwise trigger the baby shelf rules even if no other securities were sold by the company over the prior 12 months), while only 55.2% of RDOs by small cap companies were for over a third of the company’s public float. See the sections on “2024 PIPE and RDO Activity” and “‘Baby Shelf’ Rule” for additional information.
– RDOs priced their securities at a premium to market price. 2024 saw a continuation of a trend of securities sold in RDOs pricing higher relative to prior periods. In 2024, the average premium for RDOs surveyed was 2.0%, compared to an average discount of 1.8% and 3.9% for 2023 and 2022, respectively. The average discount for PIPE transactions was relatively flat between 2024 and 2023.
This trend may reflect marginally stronger investor sentiment for companies that are not subject to the “baby shelf” rules or transactions that do not required delayed liquidity through registration rights. See the section on “Security Price” for more information.
– Insiders participated in fewer transactions. In another signal that markets may be warming up again, in 2024 company insiders (e.g., directors, officers, and affiliates) participated in 18.5% of the deals reviewed, compared to 27.6% in 2023. The decrease was more pronounced among technology transactions, which saw a 50% decrease in the percentage of deals with insider participation compared to the prior year.
In challenged markets, insiders typically participate in more financings to help attract outside investors or simply to preserve the viability of a company. Conversely, a decrease in insider participation suggests an increase in the investment appetite of outside investors who generally present fewer reporting and approval requirements than when insiders are involved. See the section on “Types of Investors” for additional information.
On the topic of smaller company financings, we covered how the “baby shelf” limitation is measured in the context of an at-the-market offering in the September-October 2024 issue of The Corporate Counsel newsletter. That issue is available online to members of The CorporateCounsel.net who subscribe to the electronic format.