An ATM program can be an attractive alternative to a traditional underwritten offering for companies that have frequent capital needs but don’t need a large influx of capital in a short time. That’s especially true during prolonged periods of capital markets volatility when traditional offerings are especially challenging to execute. As John and Dave shared in the March-April 2023 Issue of The Corporate Counsel newsletter, ATM programs allow issuers to raise money quickly in amounts that can be digested by the market through normal trading activity without adversely affecting the trading price, they’re relatively inexpensive, they don’t require management to devote time to roadshows and they’re flexible, allowing issuers to take advantage of favorable market conditions.

This Goodwin alert notes that the popularity of ATM programs among REITs has surged in recent years, surpassing traditional underwritten offerings in volume. In the fourth quarter of 2024, REITs raised the largest quarterly total on record through ATM programs. The alert goes on to describe some recent developments in the use and structure of ATMs by REITs, some of which are applicable more broadly.

For example, the alert notes that sales syndicates are expanding — sometimes with up to 15 broker-dealers listed as sales agents on the ATM prospectus supplement cover, which helps issuers satisfy the relationship expectations of banks that serve as lenders in their debt syndicates and may motivate these banks to enhance research coverage. But a large syndicate can introduce complexity in an offering structure appreciated for its efficiency. The alert says that issuers often employ one or more of these solutions to address the operational complexity:

– Rotational execution schedules: Many ATM programs adopt formal rotation schedules (daily, weekly, monthly, or quarterly), assigning execution rights to different agents on a rolling basis. These schedules are often established up front (or managed by a lead administrative agent) to ensure equitable participation, reduce conflicts, and accommodate bank availability and investor flows.

– Lead administrative agent model: A lead bank can be designated as a de facto “administrative agent,” tasked with maintaining the rotation calendar, coordinating diligence bring-downs, and overseeing compliance procedures. Although not formally designated in the offering documents, this role somewhat mimics the administrative agent role in a loan facility.

– Coordination role of sales agent counsel: The role of counsel to the sales agents takes on a broader scope in multidealer ATM programs, where even modest changes (e.g., updating a risk factor or tax disclosure) can require iterative sign-off from multiple sales agents’ legal and compliance teams. Typically, a single law firm will represent all named sales agents and serve as the primary point of contact for the issuer and its counsel in managing diligence, documentation, and procedural workflows. This firm is responsible for gathering internal approvals and sign-offs from each participating broker-dealer, often requiring outreach to multiple deal teams and compliance personnel. In-house legal and regulatory staff at the individual banks are looped in on a need-to-know basis, preserving confidentiality and minimizing administrative burden on the issuer.

Some ATMs also include a form of revenue-sharing arrangement that “provides for all agents participating in the program to receive a portion of the sales agent commissions generated by trade executions, often irrespective of whether the particular agent was an executing agent.”  This addresses issues that can arise when the list of sales agents is very long — in which case, some “back of the order” agents won’t get many opportunities to execute trades and may not have the same infrastructure and trading experience, particularly for forward sales, which are now a standard feature of ATM programs for many issuers.

– Meredith Ervine 

Cornerstone Research recently published its latest report, Securities Class Action Settlements—2024 Review & Analysis. While securities class action settlements generally “continued at a pace typical of recent years,” median settlement amounts for securities class actions declined a bit from the 13-year high in 2023. The report identifies several potential reasons for this.

– Institutional investors served as lead plaintiff less frequently in 2024 settlements, with their involvement reaching the lowest level in 10 years. An institutional investor serving as lead or co-plaintiff has historically been associated with cases with larger settlements and higher plaintiff-style damages. Lower institutional investor involvement is consistent with lower median plaintiff-style damages.

– Issuer defendants had significantly smaller median total assets than in 2023, marking the lowest level observed since 2018. Additionally, a greater percentage of 2024 settlements involved issuers that had been delisted from a major exchange and/or had declared bankruptcy. Issuer defendant firm assets and issuer distress both have potential implications for the ability to fund a settlement, which is consistent with the smaller settlements in 2024.

– This was also the first year in which a large number of settled cases were related to SPACs. SPAC cases tended to settle for smaller amounts compared to non-SPAC cases. Commentators have suggested that D&O insurance coverage for SPAC cases was likely limited, which may have played a role in the lower SPAC-related settlement values.

The authors expect the proportion of SPAC-related settlements to continue for a few years. They also believe that the number of settled cases will continue at a similar pace, given recent filing trends, and settlement amounts may remain at relatively high levels, based on the data on potential investor losses reported by Cornerstone Research in its Securities Class Action Filings — 2024 Year in Review.

– Meredith Ervine 

John recently recorded an informative 12-minute podcast with Kristina Veaco, principal at Veaco Group. Veaco Group is a corporate governance consulting firm specializing in board evaluations and assessments leading to more effective boards. Don’t miss this episode if you’re looking to engage a governance consultant. They discussed:

1. Do board evaluations really help boards become more effective?
2. How governance consultants approach an engagement
3. The parties involved in a governance consulting engagement
4. How a governance consultant can help in resolving specific challenges
5. The most important skills needed by a governance consultant
6. Willingness of directors to participate in the process
7. Key questions a company considering retaining a governance consultant should ask

As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. Email me at mervine@ccrcorp.com or John at john@thecorporatecounsel.net.

– Meredith Ervine 

The SEC’s Investor Advisory Committee met last Thursday. As Dave shared, the major agenda topics included pass-through voting/engagement with beneficial owners and non-GAAP financial disclosures. Here are some of the most interesting tidbits I took away from the commentary on pass-through voting by panelists Jill Fisch of University of Pennsylvania Carey Law School, John Galloway of Vanguard, Will Goodwin of Tumelo, Katie Sevcik of EQ Shareowner Services, and Paul Washington of the Society of Corporate Governance:

– The challenges with offering true voting choice (not just policy choice) for retail investors are largely engagement-related, not due to technology limitations.

– For institutional investors, the biggest issue with the traditional system is that there’s often a discrepancy between how their shares are voted in their separate account and how their shares held in pooled vehicles are voted, which dilutes their input. Pass-through voting can solve this discrepancy.

– There are more options when pass-through voting is offered to institutions, including true pass-though voting (voting their own individual ballots), creating a tailored voting policy or choosing among policies.

– Pass-through voting may present some challenges for issuers that need to be addressed. Those include: (i) identifying, communicating and engaging with upstream investors, (ii) educating retail investors about the choices offered, (iii) difficulties getting a quorum, (iv) implications for loaned shares and (v) other proxy plumbing considerations.

– There are many hurdles to greater retail investor participation. Those include: (i) access to information/information overload, (ii) limited time, (iii) intermediation issues (for example, that beneficial owners can’t attend a meeting without documentation from the broker), and (iv) the need for nuanced analysis on a proposal by proposal basis.

Law Prof Jill Fisch also pointed out that the voting instruction forms sent by brokers sometimes inadequately describe proposals, presenting another hurdle to retail investor participation because they have to do more digging. For example, a voting instruction form might just list “racial equity audit” or “health and safety governance” with no explanation of what the proposal is actually seeking to accomplish.

The panelists didn’t necessarily agree on the best outcome or path forward, but they seemed to acknowledge the importance of each other’s ‘must-haves’ and ‘need-to-haves’ as the proxy voting system evolves. Those include strong turnout, an informed voting base, that the system is cost-effective and efficient, that voting outcomes are accurate, and that there’s a democratic process for beneficial owners.

– Meredith Ervine 

During last Thursday’s meeting, the Investor Advisory Committee also discussed non-GAAP financial measures, including whether current requirements related to non-GAAP disclosures (Regulation G and Item 10(e) of Regulation S-K) should be strengthened and whether greater standardization would benefit investors. Here are a few notable points made during the discussion by panelists Timothy Brown of KPMG, Steven Grey of Grey Value Management, Jeff Mahoney of the Council of Institutional Investors, Vanessa Teitelbaum of the Center for Audit Quality and Jose R. Rodriguez, independent board and audit committee chair.

– As Liz shared yesterday on CompensationStandards.com, Jeff Mahoney gave a strong reminder that transparency of non-GAAP measures in the context of executive compensation disclosures remains a priority for CII and its members. It’s one of the three main advocacy priorities that CII has identified for 2025. (CII previously submitted a rulemaking petition and follow-up letter on this topic.) Specifically, CII wants the Compensation Discussion & Analysis section of the 10-K or proxy statement to include an explanation of why non-GAAP measures are better than GAAP for determining executive pay and to include a quantitative reconciliation (or hyperlink) — not just the qualitative disclosure as to how the number is calculated from the audited financial statements that is currently required under Instruction 5 to Item 402(b) of Regulation S-K for disclosure of target levels that are non-GAAP financial measures.

– One of the questions presented to the panelists was “What challenges or benefits exist in implementing industry-specific non-GAAP reporting guidelines?” Jose Rodriguez suggested that the SEC release industry-wide guidance after issuing a comment letter to a company that discloses KPIs and non-GAAP measures that have become industry standard. He noted that, when a comment letter is issued, the company receiving the comment pivots its approach accordingly but its competitors often do not — meaning the problematic KPI or non-GAAP measure continues to be disclosed by others.

– Much of the discussion surrounded controls over non-GAAP numbers and the very limited role of a company’s auditors with respect to non-GAAP measures and disclosures. Some committee members expressed concern that investors may not always understand that non-GAAP numbers are unaudited. Some panelists suggested that companies consider engaging external support to weigh in on non-GAAP numbers to check calculations and consider consistency year-over-year, etc., but didn’t go so far as to say that mandating additional review of non-GAAP numbers was appropriate.

If you need a non-GAAP primer (or a deep dive), check out our recently updated “Non-GAAP Financial Measures” Handbook.

– Meredith Ervine 

I recently blogged about the US District Court for the District of Colorado’s decision in Cupat v. Palantir Technologies, Inc. that dismissed a Section 11 claim arising out of a direct listing after applying the strict tracing requirement from SCOTUS’s decision in Slack Technologies v. Pirani. This Bloomberg article from Fried Frank’s Samuel Groner and Katherine St. Romain points out that there have been conflicting decisions from District Courts on this topic following the Slack decision.

In the September 2024 In re Coinbase Glob., Inc. Sec. Litig. decision, the US District Court for the District of New Jersey refused to dismiss Section 11 claims in a putative class action against cryptocurrency exchange Coinbase, which also went public via a direct listing.

In the [complaint], Plaintiffs allege they “acquired Coinbase common stock pursuant and/or traceable to the Offering Materials.” Additional Plaintiffs specifically allege: they purchased Coinbase stock on April 14, 2021, the first day of Coinbase’s Direct Listing, at prices near the opening price; and 88% of shares outstanding were registered pursuant to the Offering Materials when they purchased the Company’s stock. Lead Plaintiff alleges it purchased the Company’s stock on November 30, 2021, when 74% of the shares outstanding were registered pursuant to the Offering Materials. The Court finds Plaintiffs have plausibly alleged that they purchased shares pursuant and/or traceable to the Offering Materials.

As I shared in April, the Cupat v. Palantir Technologies, Inc. decision from the District of Colorado suggested that “nothing short of” chain-of-title allegations would be sufficient to plead traceability after Slack. Notably, Coinbase has appealed the District Court’s decision to the Third Circuit, “arguing the district court erred in allowing the case to proceed based on ’a possibility that the plaintiff purchased registered shares, not that a plaintiff actually purchased registered shares.’”

– Meredith Ervine 

It feels like a lifetime ago, but you may remember that a coalition of investors led by ICCR filed a lawsuit in 2021 challenging the SEC’s 2020 amendments to Rule 14a-8, which, among other things, had changed the submission and resubmission thresholds in the rule. The complaint questioned the SEC’s economic analysis and argued that the SEC exceeded its authority to unfairly impede the shareholder proposal process. The lawsuit was supported by many institutional investors.

As Reuters reports, last Thursday, a District Court granted the SEC’s motion for summary judgment.

U.S. District Judge Reggie Walton in Washington, D.C. rejected arguments that the SEC arbitrarily and capriciously adopted the changes, including on the alleged pretext it supported corporate opposition to reforms on contentious issues such as climate change and workplace diversity.

The SEC was required to determine whether the changes would “promote efficiency, competition, and capital formation, and it did so,” Walton wrote in a 64-page decision . . .

In a joint statement following Walton’s decision, the plaintiffs said the changes “only serve to hurt shareholders and companies alike. Despite this decision, shareholders will continue to engage with corporations on their environmental and social impacts.”

House Committee on Financial Services Chairman French Hill and Subcommittee on Capital Markets Chairman Ann Wagner issued a statement applauding the decision and noting, “The House Financial Services Committee will continue working to streamline the proxy process and reduce burdens for companies seeking to compete in our public markets.”

– Meredith Ervine 

At the end of last month, the SEC submitted its fiscal 2026 budget request to Congress. As SEC Chairman Paul Atkins said in his statement before the House Appropriations Subcommittee on Financial Services and General Government, the agency’s request for $2.149 billion for SEC operations is flat compared to both the FY 2025 and FY 2024 funding levels.

The budget anticipates approximately 4,100 full-time equivalents (FTEs), representing a net reduction of 447 FTEs compared to fiscal 2025 levels. Taking a look at the budget justification (thanks to the Daily Update from Securities Docket for highlighting!), it appears that the Enforcement Division is expected to be down to approximately 83% of its fiscal 2024 staffing levels, while Corp Fin staffing levels are expected to be around 86%.

Why then is the budget flat compared to prior years? Chairman Atkins’ statement notes that about $100 million is included in case the SEC absorbs the PCAOB’s functions:

At this lower FTE level, the budget request actually is approximately $100 million more than the amount that would be required to maintain our current state of operations. There is some uncertainty regarding the FY 2026 budget, including the potential transfer of the functions of the Public Company Accounting Oversight Board (PCAOB) into the SEC. If Congress approves this budget request, we anticipate that this funding could support such a transfer of the PCAOB functions into the SEC in FY 2026.

I was curious how this $100 million compares to the PCAOB’s current operating budget, so I Googled it. According to Reuters, the PCAOB’s 2025 budget was almost $400 million, which is not funded through the federal budget. It is funded by accounting support fees that would be eliminated by merging the PCAOB’s responsibilities into the SEC, meaning, as Dan Goelzer notes, future appropriations would be needed in perpetuity to support the SEC’s ability to do this work.

– Meredith Ervine 

Early last week, I attended Northwestern’s Corporate Counsel Institute in Chicago. Programming kicked off with two panels — “Steady On: Strengthening the Board-GC Relationship and Maintaining Effective Board Governance through Times of Change” and “The Many Hats of the In-House Lawyer” — that discussed why and how GCs and Corporate Secretaries need to have black belts in relationship building. The panels highlighted some of the less glamorous aspects of being in-house counsel that can be surprisingly important to the uninitiated.

For example, the GC panelists described two of their lesser-known responsibilities and why they shouldn’t be written off as unimportant or administrative:

– Board driver: Sometimes your board members are stranded and need to be picked up at the airport, etc. These are excellent opportunities for more casual, one-on-one interactions with a director that don’t come around often. You should take advantage of them.

– Seating chart manager: The GC panelists said seemingly inordinate amounts of time go into setting the seating chart for board dinners. But, while this may seem purely administrative, it’s a key step in strengthening relationships for board members and management. They stressed the importance of making sure directors sit with members of management and rotate for each dinner. And that GCs need to make sure they are part of that rotation and getting the opportunity to sit near each director.

They also identified some times when the strength of the relationships you’ve developed with your directors and colleagues are especially important. For example:

– When you need to say no. Hopefully, you already have a reputation for being a “yes, but…” lawyer, but if you know you need to deliver bad news, get others aligned with your perspective before that meeting so you’re not the only one thinking about and raising risks.

– When a board member takes on a new leadership role. Two independent directors on the first panel stressed the importance of knowing that they could reach the GC — or hear back from them quickly — if they needed to discuss something, especially when taking on a new board leadership role. (They stressed that going from a committee member to a committee chair is a huge shift!)

– During director recruitment. A GC or Corporate Secretary who knows all the directors well will have invaluable insight on director candidates since he or she has a deep understanding of the board’s culture.

Finally, for something completely off-topic, if you find yourself with a reason to visit Chicago in the summer, take it! My trip was too short and mostly in conference rooms, but I was reminded of how special Chicago summers are. It inspired me to plan a return trip!

– Meredith Ervine 

FINRA filings are about to get significantly more expensive! Under a rule change submitted last fall, they are going to phase in higher fees over the course of the next few years. FINRA doesn’t receive tax dollars – it relies on fees to fund its mission of regulating brokers. It’s been over a decade since some of the fees have last increased. Not surprisingly, FINRA says that the current fee structure isn’t keeping up with costs.

For Section 7 – which spells out the fees that apply to reviews of proposed underwriter arrangements for public offerings under FINRA Rule 5110 – FINRA is hiking the fee cap for non-WKSIs by 400%! Here’s more detail:

Section 7 of Schedule A to the FINRA By-Laws sets forth the fees associated with filing documents pursuant to the Corporate Financing Rule. It currently provides for a flat fee of $500 plus .015% of the proposed maximum aggregate offering price or other applicable value of all securities registered on an SEC registration statement or included on any other type of offering document (where not filed with the SEC), with a cap of $225,500; or a fee of $225,500 for an offering of securities filed with the SEC and offered pursuant to Securities Act Rule 415 by a Well-Known Seasoned Issuer (“WKSI”) as defined in Securities Act Rule 405. The fee associated with any amendment or other change to the documents initially filed with Corporate Financing is also subject to the current $225,500 cap.

FINRA has not raised the fee cap since 2012. FINRA is proposing to increase and modify the fee cap beginning in July 2025 as follows:

Corporate Financing Public Offering Review Fee Cap – Proposed Implementation
IPO	2024	2025	2026	2027	2028	2029
Non-WKSI	$225,000	$1,125,000	$1,125,000	$1,125,000	$1,125,000	$1,125,000
WKSI	$225,000	$270,000	$324,000	$389,000	$467,000	$560,000

 

This proposed rule change would raise the fee cap to $1,125,000, which would account for the significant growth in the size of offerings since the cap was last raised in 2012. However, for WKSIs, the cap would be raised to $560,000 over a period of five years. FINRA notes that raising the caps would also create more consistency with the SEC IPO review fee, which has no cap.

FINRA projects that increasing the cap as proposed would capture 81% of the incremental revenues if there were no cap while bounding the impact on WKSIs whose offerings tend to be less resource intensive for Corporate Financing to review. FINRA believes such fees are and would continue to be paid for by, or passed through to, issuers. When the proposed fee increase is fully implemented, it is designed to generate an additional $31 million in annual revenue by 2029.

In addition, FINRA is implementing a private placement review fee for private offerings that exceed $25 million and that use a registered broker-dealer. The cap for those fees is around $40k.

The new fees go into effect on July 1st. This Alston & Bird memo offers a couple important action items:

Issuers and FINRA members are advised to prepare for the implementation of these increased and new fees and consider their impact on future offerings from a budgetary standpoint and, in the case of private placements, to update expense reimbursement provisions of placement agent agreements (e.g., to ensure clarity regarding treatment of FINRA filing fees, which we expect would be reimbursable by the issuer outside any expense cap).

– Liz Dunshee