I really enjoyed listening to the latest episode of Women Governance Trailblazers. Courtney and Liz were joined by Eun Ah Choi, Senior Vice President, Global Head of Regulatory Operations at Nasdaq, and the episode is chock-full of helpful career development and substantive tidbits that you’ll want to know — and apply — now. Tune in to hear them discuss:
– How Eun Ah’s corporate governance, M&A and securities regulatory skillset has contributed to her success in roles that span Wall Street, private practice, public service at the SEC and her current senior leadership role at Nasdaq
– Eun Ah’s insights on adapting to new organizations and roles
– How companies can set themselves up for success in complying with Nasdaq’s listing standards, and recommendations for making public markets more attractive
– Emerging policies and initiatives that boards, counsel, and investors should be watching worldwide
– The role of mentorship in Eun Ah’s career
To listen to any of the prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If you enjoy hearing Liz and Courtney chat with trailblazing women in the corporate governance field, you can support the podcast by subscribing to and rating it while you’re there! And, if there are governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and Liz always appreciate recommendations! Drop Liz an email at liz@thecorporatecounsel.net.
On Friday, Liz pulled together a highlight reel of SEC actions on crypto since January — showing the agency’s concerted effort to act quickly on this topic. Commissioner Peirce also spoke on crypto at least twice last week — in a speech and on Bloomberg’s Trillions Podcast. But Congress has plans of its own and has also been making moves. The latest is the release by members of the House Financial Services Committee and Agriculture Committee of a discussion draft of a bill that would generally shift oversight of digital assets from the SEC to the CFTC — a long-standing wish of the industry. This Eversheds Sutherland alert explains how:
Specifically, the draft bill would amend the definition of “security” in the Securities Act of 1933 and the Securities Exchange Act of 1934 to expressly exclude “digital commodities.” To fall within the digital commodity definition, digital assets must come from “mature blockchain systems” – open-source, decentralized, fully automated networks – with no single entity owning more than 20% of the token supply.
The draft bill further proposes that secondary market trading of digital commodities, under specific conditions, would not be subject to SEC oversight. These exemptions for secondary transactions would not apply if the transactions involved purchasing an interest in the revenues, profits or assets of the issuer – more akin to equity or institutional offerings.
As written, the draft bill appears to exempt from SEC regulation the issuance and secondary trading of many of crypto’s most popular tokens, such as Ethereum, Solana, BNB, and Cardano, all seemingly meeting the definition of “digital commodity.” The draft bill sets forth procedures for how digital commodity exchanges would register with and be regulated by the CFTC.
Suffice it to say, the regulatory landscape for digital assets is rapidly shifting and changes are coming from all sides — keeping up with the developments is a full-time job. Latham recently released a “US Crypto Policy Tracker” – check it out for the current state of executive order, legislative, regulatory and industry group developments!
In addition to the welcome new Liz shared last week about NYSE reducing fees that apply during the first five years of an initial listing, the SEC also recently approved an amendment to the NYSE Listed Company Manual (Section 102.01) that makes it easier for companies organized outside North America to meet the exchange’s minimum stockholder distribution standards.
Section 102.01A sets forth distribution criteria for the initial listing of domestic companies based on number of stockholders, number of publicly held shares, and/or average monthly trading volume, as applicable. Section 102.01B currently provides that, when considering a listing application from a company organized under the laws of Canada, Mexico, or the United States (“North America”), the Exchange will include all North American holders and North American trading volume in applying the minimum stockholder and trading volume requirements of Section 102.01A.11 Section 102.01B further provides that when listing a company from outside North America, the Exchange may, in its discretion, include holders and trading volume in the company’s home country or primary trading market outside the United States in applying the applicable listing standards, provided that such market is a regulated stock exchange.
Under the revised version, when a company from outside North America not listed on any other regulated stock exchange is seeking initial listing in connection with its IPO, NYSE will include all holders on a global basis. NYSE posited that the old rule did not reflect the “speed and reliability of links that enable investors who hold securities in brokerage accounts in countries outside North America to trade in the U.S. listing markets.”
Given the ease of transfer of securities between different countries in the contemporary securities markets, there is no reason why the holders of a listed company’s securities outside of North America cannot be active real time participants in the U.S. trading market . . . [T]his is particularly relevant to the listing of a foreign company listed on the Exchange when it does not have an exchange listing in its home market because the Exchange will be the only exchange trading market for such company and any investor wishing to trade in such company’s securities on a regulated exchange market will have to do so on the Exchange.
This Ropes & Gray blog notes, “The new rule is intended to enhance the NYSE’s competitiveness in attracting non-U.S. company listings, particularly relative to Nasdaq, which already permits worldwide stockholder counts.”
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, John and J.T. Ho were joined by FGS Global’s John Christiansen. They spoke with John about a variety of topics, including how investor relations and shareholder engagement are being shaped by the need to prepare for shareholder activism. Topics covered during this 24-minute podcast include:
– How the recent 13D/13G CDIs have changed investor engagement practices.
– The increasing importance of retail investor engagement.
– The challenging M&A market’s impact on activism.
– How current economic uncertainty is affecting operational activism.
– “Break the glass” plans and how to use them effectively
– Using earnings calls and investor days to defend against activism
– Tips on better communicating the company’s story to investors
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. John and J.T. continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
In fact, they’ll be hosting a LIVE version of the podcast at our October Conferences! They’ll be speaking with The Activist Investor’s Michael Levin to discuss how activists approach projects and how companies can benefit from an activist perspective. Following that discussion, Elizabeth Gonzalez-Sussman of Skadden and Dan Scorpio of H/Advisors Abernathy will share their top takeaways for public companies. Check out the full agenda and speakers — and register now to get the early bird rate!
Yesterday, the SEC announced that it had settled the civil enforcement action that it filed against Ripple Labs and two of its executives back in December 2020, which had resulted in an injunction and penalty last summer. Here’s an excerpt from the SEC’s announcement:
The settlement agreement provides, among other things, that the Commission and Ripple would jointly request the district court to issue an indicative ruling as to whether it would dissolve the injunction against Ripple in the district court’s August 7, 2024 final judgment and order the escrow account holding the $125,035,150 civil penalty imposed by the final judgment be released, with $50 million paid to the Commission in full satisfaction of that penalty and the remainder paid to Ripple.
The Settlement Agreement further provides that, following an indication from the district court that it would dissolve the injunction and release the escrowed penalty amounts as requested, the Commission and Ripple will seek a limited remand to the district court for that relief, after which they would move to dismiss their respective appeals from the final judgment, which are currently pending in the United States Court of Appeals for the Second Circuit. The Commission and the defendants filed the settlement agreement with the district court as part of their joint request for an indictive ruling.
The Commission’s decision to exercise its discretion and seek a resolution of this pending enforcement action rests on its judgment that such resolution will facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, not on any assessment of the merits of the claims alleged in the action. Furthermore, the Commission’s decision to resolve this enforcement action does not necessarily reflect the Commission’s position on any other case.
The 2020 case alleged that Ripple’s digital token was a “security” and that the company had conducted an unregistered public offering. The 2024 court decision awarded the Commission a fraction of the nearly $2 billion in penalties that the SEC had pursued, but it is still significant that the SEC is relinquishing its limited win. Commissioner Crenshaw issued this dissenting statement arguing that the settlement undermines the court’s order and the SEC’s credibility and is not in the interest of investors. Here’s an excerpt:
This settlement is part of a broader, programmatic shift to dismiss our registration cases in the crypto context.[5] In remodeling our legal stance in this area, we have pointed to a new “regulatory path,” that the agency will purportedly pursue based on the work of the SEC’s Crypto Task Force.[6] But, even if the Crypto Task Force re-writes registration rules for crypto securities in the future, that does not somehow alter the rules that were in place at the time that Ripple violated them. Further, we have no hint of what those future rules might look like or how long it will take to put them in place—if ever. So, we are today accepting a diluted settlement, that erases the investor protections we already won, based on a non-existent framework that may or may not come to fruition potentially years from now, on the basis that the current framework in place—of applying the facts to the law—was not industry or innovation-friendly.
It’s true that the SEC has done a 180 on crypto over the past few months – taking several steps to provide support and guidance to the fintech industry, which aligns with January’s Executive Order on digital assets. From the highlight reel:
I’ve probably even missed a few! This settlement shows that the SEC is not only making a concerted effort to act quickly on this topic – it is also putting its money where its mouth is.
The well-timed trades by certain lawmakers during April have once again drawn attention to the issue that – unlike most of us who are involved with public companies – some members of Congress have few qualms about appearing to use confidential information to their advantage. This time, their windfalls have sparked renewed interest in the “Transparent Representation Upholding Service and Trust in Congress Act” – cleverly nicknamed the “TRUST in Congress Act.”
Rep. Seth Magaziner (D-RI) reintroduced the bill in the House this past January with Senator Josh Hawley (R-MO) introducing a companion bill in the Senate (that one’s called the “PELOSI” Act). This legislation would go beyond the STOCK Act that already exists – which we’ve covered from time to time. Instead of simply requiring disclosure of trades, it would aim to prevent insider trading by members of Congress by requiring them to use a blind trust – specifically:
such individual and any spouse or dependent child of such individual shall place any covered investment owned by such individual, spouse, or dependent child into a qualified blind trust.
Even though the bill has some bipartisan support, its prior iterations haven’t made it to the finish line – and GovTrack gives this version a 9% chance of becoming law. With those odds, I’m not planning to trust Congress any time soon.
Yesterday I blogged about Texas, so it’s only fair to cover a Delaware topic today. Here’s a helpful guide that Meredith shared last week on DealLawyers.com (make sure to subscribe to that blog and become a member of that site for real-time updates on corporate law, M&A, and activism!):
This Mayer Brown alert outlines a three-step process for evaluating conflict transactions following the DGCL amendments that took effect in March. Below, I’ve streamlined the outline. It also contains details on and analyses of each of these steps and sets forth procedural safeguards to invoke the safe harbors.
Step One: Does the act or transaction involve a controlling stockholder or a control group?
Is there a controlling stockholder or a control group?
If the corporation has a controlling stockholder or a control group, are they involved in the act or transaction?
Is the act or transaction a going private transaction?
Step Two: If the act or transaction does not involve controlling stockholders or a control group, are directors or officers of the corporation involved?
Step Three: Are the safe harbor requirements met?
Determine which directors and stockholders are disinterested.
Will the corporation rely on the fairness safe harbor?
The alert concludes with this reminder:
What if a conflicted transaction fails to qualify for a safe harbor? If a conflicted transaction fails to satisfy any of the safe harbor criteria, including the fairness fallback, the relevant directors, officers, controlling stockholders, and control group members may be exposed to liability, including monetary damages, for breaches of their fiduciary duties. Delaware courts will assess whether to impose liability based on the individual conduct of such corporate actors:
– For breaches of the duty of care, controlling stockholders benefit from §144(d)(5) exculpation, and directors and officers may benefit from similar exculpation under the certificate of incorporation, subject to limitations relating to bad faith, intentional misconduct, knowing violations of law, and receipt of an improper personal benefit.
– Breaches of the duty of loyalty cannot be exculpated and will result in liability if proven that the director, officer, or controlling stockholder acted in a self-interested manner adverse to stockholder interests, lacked independence, or acted in bad faith.
The §144 safe harbors are not exclusive protections and do not preclude other Delaware common law protections, including circumstances under which the business judgment rule is presumed to apply.
It’s worth noting that earlier this week, the Delaware Court of Chancery rejected a claim that a 46% Stockholder was a controller. John blogged about the details on – where else? – DealLawyers.com.
Yesterday, the Texas legislature sent a bill to Governor Greg Abbott that, if signed into law, would permit Texas-based public companies to impose greater ownership thresholds on shareholders seeking to submit proposals – including proposals submitted under Rule 14a-8.
Specifically, if an eligible company amends its governing documents to incorporate this provision, a shareholder (or group of shareholders) would have to meet the following criteria to submit a proposal:
1) hold an amount of voting shares of the corporation, determined as of the date of submission of the proposal, equal to at least:
(A) $1 million in market value; or
(B) three percent of the corporation’s voting shares;
(2) hold the shares described by Subdivision (1):
(A) for a continuous period of least six months before the date of the meeting; and
(B) throughout the entire duration of the meeting; and
(3) solicit the holders of shares representing at least 67 percent of the voting power of shares entitled to vote on the proposal.
That’s a high bar! The bill would require companies to notify shareholders of the proposed adoption of these provisions in a proxy statement provided prior to the amendment’s adoption, and it would also require proxy statements to provide specific information about the process for submitting a proposal. The bill also says that these ownership thresholds wouldn’t apply to director nominations or procedural resolutions that are ancillary to the conduct of the meeting.
These amendments are part of the Lone Star State’s broader efforts to encourage companies to reincorporate and list shares on a home-state exchange (that is incorporated in Delaware). This article from Hunton’s Daryl Robertson gives a nice overview of the various corporations bills that the Texas Legislature is considering – including proposals to expand the jurisdiction of the business court that began operating in the state last September.
If your company is considering an initial listing on the NYSE – or recently listed on the NYSE – a recent rule change may help your bottom line. Thanks to Orrick’s Bobby Bee for bringing this to our attention!
The NYSE has amended Section 902.03 of the Listed Company Manual to say that during the first five years of an initial listing of a class of common equity on NYSE, an issuer will:
1. only be subject to initial and annual listing fees for its primary class of equity securities, and
2. will be exempt from all other listing fees, including fees for
a) the listing of additional shares of the primary class of equity securities (including with respect to shares issued in connection with a stock split or stock dividend),
b) the listing of an additional class of common stock, preferred stock, warrants or rights,
c) the listing of securities convertible into or exchangeable or exercisable for additional securities of the issuer’s primary class of equity securities,
d) applications in connection with a Technical Original Listing or reverse stock split, or
e) applications for changes that involve modification to Exchange records or in relation to a poison pill.
The rule went into effect on April 1st and applies to any initial listings of common equity after that date. Any company that listed a primary class of equity securities on the Exchange before April 1, 2025, but on or after April 1, 2021, will be entitled to the remaining balance of the five-year limited fee period running from April 1, 2025 until the five-year anniversary of the date on which such company listed its primary class of equity securities on the Exchange. Fees already paid and incurred prior to April 1, 2025 will not be altered or refunded.
Join us in Las Vegas to network with friends and get practical action items for your year-end and proxy season – including the latest on activism, board agendas, proxy disclosures, incentive plans, clawbacks, and more. Here’s the full agenda and here are the fabulous speakers.
Register now to get the Early Bird price before it’s gone! Hope to see you all there.