Here’s something Meredith blogged last week on DealLawyers.com: Some predicted the demise of SPACs after the new disclosure rules went effective last summer, but this Norton Rose Fulbright memo says companies looking to go public should be seriously considering a de-SPAC as a quicker, cost-effective way to go public during a limited IPO market. While it acknowledges that “regulatory loopholes were the founding principle of SPACs,” it argues that the new rules will improve the process and, by doing so, render SPACs “an even more appealing option.”
Here are a few of the benefits the article says the de-SPAC approach still offers versus IPOs:
– Price certainty: The price discovery process in a traditional IPO typically occurs one day prior to the IPO, at the conclusion of a six-month process of going public. The underwriters typically undervalue the company to provide an advantage to their traditional institutional clients. In contrast, the price discovery process in a SPAC merger typically occurs upfront, typically upon the signing of a term sheet, and is a bilateral negotiation between the SPAC and the target. This process frequently results in a higher valuation of the company.
– Timing: Usually taking 9 to 24 months, traditional IPOs expose businesses to a range of outside economic changes that could compromise valuation and lower investor appetite. The regulatory load related to IPOs, comprised of extensive SEC additional filings and compliance measures, further extends the time period it takes for a company to go public. On the other end of the spectrum, the likelihood of negative market conditions derailing the public listing process is significantly reduced by choosing to execute a SPAC transaction within a six-month window.
– Projections: Critics contend that SPACs are susceptible to inflated valuations due to the excessive scope for speculative projections they allow. Nevertheless, pro forma projections are indispensable for emerging companies that possess disruptive innovation and limited historical performance. In a traditional IPO, historical performance is predominantly considered. In contrast, SPACs allow companies to provide forward-looking projections, thereby being more attractive to such investors who attach premium to a company’s long term economic performance and growth. The problem is not the projections themselves, but rather the necessity for enhanced regulatory oversight to guarantee transparency—a matter that the SEC’s new regulations are attempting to resolve.
– SPAC Sponsors: SPAC sponsors will often raise debt or private investment in public equity (PIPE) funding in addition to their original capital to not only finance the transaction, but also to stimulate growth for the combined company. The purpose of this backstop debt and equity is to guarantee the successful completion of the transaction, even if the majority of SPAC investors redeem their shares. Furthermore, a SPAC merger does not necessitate an extensive roadshow to pique the interest of investors in public exchanges (although raising PIPE necessitates targeted roadshows). Sponsors of SPAC are frequently seasoned financial and industrial professionals. They may utilize their network of contacts to provide management expertise or assume a role on the board.
On Friday, the Corp Fin Staff published a statement to address the characteristics of stablecoins that would cause them to be – or not be – a “security.” Here’s the bottom line:
It is the Division’s view that the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”).[5] Accordingly, persons involved in the process of “minting” (or creating) and redeeming Covered Stablecoins do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration.
The statement is a true delight for anyone who considers themselves a “securities law nerd” – because it explains how the Staff applies the seminal cases of Reves v. Ernst & Young and SEC v. W.J. Howey Co. to stablecoins. The Staff first discusses characteristics that would weigh against a stablecoin being a “security”:
– Designed to maintain a stable value relative to the United States Dollar, or “USD,” on a one-for-one basis, at any time and in unlimited quantities
– Can be redeemed for USD on a one-for-one basis (i.e., one stablecoin to one USD); and
– Backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation.
Additionally, the statement identifies marketing practices that would indicate the stablecoin isn’t being sold as a “security”:
– Marketed solely for use in commerce;
– Does not entitle a Covered Stablecoin holder to the right to receive any interest, profit, or other returns;
– Does not reflect any investment or other ownership interest in the Covered Stablecoin issuer or any other third party;
– Does not afford a Covered Stablecoin holder any governance rights with respect to the Covered Stablecoin issuer or the Covered Stablecoin; and/or
– Does not provide a Covered Stablecoin holder with any financial benefit or loss based on the Covered Stablecoin issuer or any third party’s financial performance.
On Friday, state intervenors in the litigation over the SEC’s climate disclosure rule filed a motion to hold the case in abeyance. The motion resulted from the Commission’s recent withdrawal from defending its rule. When the SEC officially dropped its defense, Commissioner Crenshaw objected to the decision on procedural grounds. Her point, basically, was that the SEC Commissioners must follow an administrative process to undo the agency’s rules, not just sit back, “rooting for the demise of this rule, while they eat popcorn on the sidelines.” She stated:
If the agency chooses not to defend that rule, then it should ask the court to stay the litigation while the agency comes up with a rule that it is prepared to defend (be it by rescission or otherwise, but certainly in accordance with APA mandates). At the very least, if the court continues without the Commission’s participation, it should appoint counsel to do what the agency will not – vigorously advocate in the litigation on behalf of investors, issuers and the markets.
So now, someone other than the SEC has asked the court to suspend the litigation – the 18 states that had previously intervened to defend the rule. This September 2024 explainer from the NYU School of Law about the role of states as amici and intervenors points to litigation over the Affordable Care Act as an example of state intervenors keeping a rule alive after the government dropped its defense due to a change in administration. It also reminds me of how the National Association of Manufacturers, as an intervenor, is the only party still defending the SEC’s 2020 proxy advisor rules.
At this point, the states in this case have simply requested the court to pause litigation until the SEC determines what action it will take on the rules (the motion also asks the court to direct the SEC to file status reports every 90 days). It’s not clear yet whether the court will grant that motion. And given other priorities and limited resources, I’m not holding my breath for the SEC to come up with an alternative rule that it’s prepared to defend.
Last Thursday, the Senate Banking Committee voted to advance the nomination of Paul Atkins to serve as Chair of the SEC, following the hearing that was previewed by John and summarized by Dave. The voting tally was 13 to 11, according to this Reuters article.
The article shares predictions on how Atkins would approach the PCAOB if/when confirmed. We’re tracking the nomination proceedings here…
When I mentioned in a blog post yesterday that more stock market volatility is undoubtedly on the way, I certainly did not envision a market rout of the scale that we experienced yesterday. As a student of finance (I have a Master’s degree in finance, believe it or not), I would have thought that the markets had already priced in the risks from tariffs to a great extent, given that trade policy was a major plank of President Trump’s campaign platform and he had in fact already imposed significant tariffs against major trading partners (not just remote islands where the only inhabitants are penguins). But unfortunately, markets do not operate with the ruthless efficiency that was touted in my finance textbooks and are instead fragile creatures susceptible to overreaction and panic when reality bites. The major stock indexes experienced their worst day since the depths of the pandemic in 2020, with the Dow Jones Industrial Average down 4% and the Nasdaq Composite down 6%. Strangely, we did not see the usual announcement from the SEC that is posted during market freefalls in which the agency assures use that it is closely monitoring markets.
I don’t know about you, but I have very distinct memories of the stock market routs that I have experienced over the course of my adult life. I was in college when the infamous “Black Monday” crash occurred on October 19, 1987. It was cataclysmic in its scale, with the Dow Jones Industrial Average dropping 22.6% in a single trading session, representing the largest stock market rout since the Great Depression. Next up was the bursting of the dot.com bubble in the early 2000s, which was much more of a prolonged form of torture. I was in private practice at the time and wondering where my next deal was going to come from, but then the corporate scandals came along and I was very busy for the next couple of years. And then of course there was the 2008 financial crisis, which prompted a prolonged market collapse where the Dow Jones Industrial Average fell by 53 percent between October 2007 and March 2009, as we all teetered on the edge of the economic equivalent of “nuclear winter.” In more recent memory, we experienced the terrifying market descents that arrived with the realization of the scope and impact of the COVID-19 pandemic and the measures taken to prevent the spread of the disease, which at the time seemed like something approaching “end of days.” In all of these cases, the markets eventually dusted themselves off and got back up to continue their ascent. Sometimes it took only a few days, and sometimes it took years. Let’s hope that this time we are in the “only a few days” category.
In the meantime, public companies of all shapes and sizes are scrambling to come up with a game plan for addressing the new market and economic environment that is brought about by the shift in global trade policy. Here are five key considerations from my perspective:
1. The impact of the tariffs, including the potential for supply chain disruptions and the closing of existing global markets, should be assessed quickly so that the uncertainty can be addressed in upcoming earnings releases, earnings calls and SEC filings. For some companies, it may be necessary to accelerate the earnings process or schedule ad hoc presentations to address investor concerns as quickly as possible. In the meantime, companies should be cognizant of Regulation FD when communicating with investors and analysts who are seeking immediate answers through one-on-one communications. Many companies will likely need to revisit their earnings guidance for the year, and those revisions will need to be addressed quickly in upcoming earnings communications. In prior periods of significant economic uncertainty (such as during the COVID-19 pandemic), many companies were forced to suspend or discontinue their guidance, given the difficulty in forecasting future performance.
2. Companies are obligated to address in the MD&A “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” and “known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” I would say that these tariff actions fall squarely in the “known trends and uncertainties” category, so even though they go into effect in the current quarter, companies will need to address the impact of the tariffs and the other potential collateral consequences in SEC filings covering the recently ended quarter. Disclosures in SEC filings should be closely aligned with the messaging in the company’s earnings release and earnings call and any other public statements on the topic.
3. Companies will need to carefully assess their liquidity and capital needs in light of the potential for continued volatility in the markets, the potential impact of the global trade situation and the prospect of an economic recession. There may be opportunities to advantageously access the debt capital markets or lending markets as interest rates continue to decline. As we last saw with the COVID-19 pandemic, when faced with significant uncertainty, companies often shift into a cash preservation mode, and thereby delay or abandon plans for major capital expenditures, acquisitions, etc.
4. Many companies will inevitably consider ways to prop up their stock price, given the profound market drop that we experienced yesterday. During the early days of the COVID-19 pandemic, share repurchase programs proliferated as companies sought to stem the tide of stock price declines. A significant challenge for companies at this particular point in time is that they are likely in possession of material nonpublic information about their completed fiscal quarter (and potentially the impact of the new tariffs), so unless they had put a Rule 10b5-1 plan in place prior coming into possession of that information, such companies will not be able to enter the market to repurchase their own securities pursuant to a pre-existing share repurchase program or under a newly-established program until the material nonpublic information is disclosed. Those companies that do not currently have a share repurchase program in place may wish to get the board to approve one, so that it could be announced when the company releases its earnings. In evaluating whether to repurchase shares in an effort to support the company’s stock price, companies should carefully consider their liquidity needs and whether the cash directed toward share repurchases is better preserved or directed elsewhere during this time of significant uncertainty.
5. A prolonged decline in stock prices and uncertainty about the ability to meet financial objectives due to external factors can wreak havoc on equity and incentive compensation programs. Companies will inevitably struggle with how to properly incentive their executives and employees during the course of turbulent market and economic conditions. In my opinion, companies should resist the urge to consider option repricings, for all of the reasons that I lay out in the ariticle “Option Repricing: Are You That Deparate?” in the May-June 2022 issue of The Corporate Executive. Similarly, companies should think twice about “moonshot awards” as a means to retain executives, as a I discuss in the articles “To the Moon and Back: A Reflection on ‘Moonshot Awards’” in the July-August 2022 issue of The Corporate Executive and “Houston, We Have a Problem: When ‘Moonshot’ Awards Come Back to Earth” in the May-June 2024 issue of The Corporate Executive. Depending on how all of this plays out, companies may need to revisit their incentive compensation programs so that they can continue to retain talent during tough times, often in ways that prove to be unpopular with the proxy advisory firms and institutional investors. Finally, companies should be monitoring any situations where executives have pledged a significant amount of their stock. As you may recall, during and after the financial crisis, the stock market rout triggered forced sales of company securities for executive officers and directors of public companies, resulting in high-profile meltdowns at some major companies. For more on this topic, check out my article “Hedging and Pledging Revisited in Volatile Markets” in the May-June 2022 issue of The Corporate Executive.
This week on the Proxy Season Blog, Liz notes a trend that has emerged thus far in this proxy season where we are seeing “unprecedented” withdrawal rates for environmental and social shareholder proposals. Liz notes that the Staff’s publication of Staff Legal Bulletin No. 14M earlier this year may have something to do with an increased propensity on the part of the proponents to withdraw these types of proposals. A new ISS-Corporate analysis of 295 shareholder proposals on E&S topics submitted to companies year-to-date in 2025 notes:
While the outcome of 72% of these proposals remains pending, a review of those with a finalized status (voted, withdrawn, omitted) reveals significant shifts in both proponent behavior and the SEC’s response to no-action requests from companies. Excluding pending proposals, proponents have withdrawn 95% of requests focused on environmental issues and 62% of requests focused on social issues (excluding those related to lobbying and political contributions) – an unprecedented withdrawal rate.
The ISS report goes on to note:
This heightened expectation for proposal omissions is evident in the review of proposals focused on lobbying and political contributions transparency. Between 2015 and 2024, only 32 of 915 such proposals were omitted due to a no-action request. So far, in 2025, 71% of these requests have been omitted, signaling a clear shift in the SEC’s approach and enforcement under its new guidance.
These observations signal a potentially significant shift in the shareholder proposal landscape. We will continue to monitor these developments as the proxy season unfolds.
We have covered in this blog last week’s enactment of Senate Bill 21, which makes several significant changes to the Delaware General Corporation Law. The amendments address safe harbors for transactions involving interested directors or officers or controlling stockholders and also impose limits on stockholder books and records inspection demands.
The law firm memos have been rolling in on this topic, and you can read all of the important insights that those memos provide in our “Delaware Law” Practice Area. Check it out today!
It was only two months ago when I first blogged about the Trump Administration’s initial round of tariffs, which were announced as many larger companies were finalizing their annual reports on Form 10-K for the year ended December 31, 2024. Now, as those companies are beginning to prepare their earnings reports and quarterly reports on Form 10-Q for the first quarter, the Trump Administration has announced sweeping new tariffs that are more broadly applicable than the initial round of tariffs, which had targeted specific countries and goods. Companies will now need to revisit the disclosure implications from these tariff actions in the context of preparing their earnings releases, as well as the Risk Factors and Management’s Discussion and Analysis sections of their upcoming SEC reports.
Yesterday, President Trump declared that foreign trade and economic practices had created a national emergency under the International Emergency Economic Powers Act of 1977 (IEEPA) and imposed across-the-board tariffs on all countries, along with individual reciprocal higher tariffs for certain countries, subject to certain exceptions. The White House Fact Sheet regarding the latest tariff action notes:
– Using his IEEPA authority, President Trump will impose a 10% tariff on all countries.
– This will take effect April 5, 2025 at 12:01 a.m. EDT.
– President Trump will impose an individualized reciprocal higher tariff on the countries with which the United States has the largest trade deficits. All other countries will continue to be subject to the original 10% tariff baseline.
– This will take effect April 9, 2025 at 12:01 a.m. EDT.
– These tariffs will remain in effect until such a time as President Trump determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated.
– Today’s IEEPA Order also contains modification authority, allowing President Trump to increase the tariff if trading partners retaliate or decrease the tariffs if trading partners take significant steps to remedy non-reciprocal trade arrangements and align with the United States on economic and national security matters.
– Some goods will not be subject to the Reciprocal Tariff. These include: (1) articles subject to 50 USC 1702(b); (2) steel/aluminum articles and autos/auto parts already subject to Section 232 tariffs; (3) copper, pharmaceuticals, semiconductors, and lumber articles; (4) all articles that may become subject to future Section 232 tariffs; (5) bullion; and (6) energy and other certain minerals that are not available in the United States.
– For Canada and Mexico, the existing fentanyl/migration IEEPA orders remain in effect, and are unaffected by this order. This means USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff. In the event the existing fentanyl/migration IEEPA orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff.
As with the prior tariff actions taken this year, the new tariffs will undoubtedly prompt retaliatory action by other countries and escalate the ongoing trade war. With these latest across-the-board tariffs, more companies that depend on international trade will be impacted, and as a result disclosures will need to reflect the scope of the impact. As I noted back at the beginning of February, companies should consider the following factors when updating their disclosures:
– Whether the new US tariffs or new tariffs to be imposed by the other countries will be collected on the company’s goods or goods that are utilized in production of the company’s goods.
– How the tariffs will impact the price that is charged for the company’s goods.
– How the tariffs will impact the cost of goods utilized in producing the company’s goods.
– Whether the imposition of tariffs may impact the availability of goods, including goods in the company’s supply chain.
– Whether the imposition of tariffs will impact the demand for goods that are subject to the tariffs.
– Whether the imposition of tariffs will cause inflationary pressures in the economy and will otherwise have negative economic impacts that could in turn impact the demand for a company’s goods and services.
– Whether mitigation strategies could increase costs that a company may not be able to recover.
As the earnings season for the first quarter plays out over the next few weeks, we are likely to see the impact on companies of the initial round of tariffs, which could offer insights on how these latest tariff actions could impact a broader range of companies in the second quarter and beyond.
As this Nasdaq First Quarter Review & Outlook notes, the first quarter of 2025 was a rough one for the stock market, as the period was marked by “significant economic, geopolitical and market turbulence in the United States.” The piece notes that the S&P 500 registered its worst quarterly performance since the third quarter of 2022, correcting more than 10% in the latter half of the first quarter. The economic uncertainty does not appear to be receding any time soon, so it appears that the markets will continue to be in for a rough ride for the foreseeable future.
With the return of significant market volatility, now is good time to have access to all of the essential resources available on our sites and in our publications. We have seen this movie before, and we have all of the resources that you need to navigate the volatile market environment. Here are just a few of the resources that we have archived on our sites for your consideration in today’s environment:
The memo goes on to provide several best practices for AI governance including:
– “Establishing clear data provenance and governance practices.
– Designating cross-functional AI leads within the organization (legal, IT, HR, etc.).
– Providing employee-level training on AI tools and acceptable uses.
– Updating licensing agreements to reflect new transparency requirements.
– Maintaining awareness of evolving federal and state-level regulations.”
Good AI governance isn’t always easy, but through utilizing best practices companies can capitalize on AI and minimize risk. One key point is that AI can be applied very differently across a company. These differing use cases present unique governance challenges and underlie the need for transparency at every level. Companies should also be clear in their policies about what constitutes “AI use.” Sales and marketing may use AI in the context of pitching ideas or writing copy, and research and development may use machine learning AI systems to analyze data or develop new products. Good AI governance requires leadership to understand all AI deployments within a company and the unique challenges associated with each.
If you have not checked out all of the useful information available on the AI Counsel Blog, I encourage you to do so today. If you do not have access to the blog, please sign up online or email sales@ccrcorp.com.