Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
As I blogged yesterday, the Senate is likely to confirm the two SEC Commissioner nominees soon – but it’s still interesting to read this excerpt from a WSJ article that explains the issues of being stuck at a level of three SEC Commissioners:
Securities and Exchange Commission Chairman Mary Jo White has struggled at times to advance post-crisis rules through an often-fractious commission. This year, her fourth and likely her last, could be even tougher, due to the agency’s depleted ranks. That could leave undone a raft of rules on issues that tend to split the commission along party lines, including: unfinished executive compensation curbs required by the 2010 Dodd-Frank financial law; restrictions on mutual funds and exchange-traded funds; and new disclosure requirements about the diversity of company directors.
While ideological splits have hampered Ms. White’s term from the start, she now faces a new hurdle for getting things done. SEC rules require a three-person quorum for the agency to pass a regulation, bring a civil lawsuit, or take virtually any other action not delegated to staff. And the five-member commission is now down to just three members, after two left late last year. So the quorum rule effectively hands any individual commissioner veto power over SEC action he or she doesn’t support. By simply refusing to show up to a vote, a dissenting commissioner can block the agency from acting altogether. President Barack Obama has nominated two candidates, but the Senate has yet to hold hearings, and it’s unclear when, if ever, they’ll confirm his choices. In other words, the legislative gridlock now stymieing Washington could spread to regulatory gridlock.
FCPA: SEC Enters 1st Deferred Prosecution Agreement with Individual
Here’s an excerpt from this blog by Steve Quinlivan:
The SEC has entered into its first deferred prosecution agreement with an individual in an FCPA case. One interesting fact is it’s hard to figure out what this person allegedly did that was wrong. The FCPA Professor notes the only specific allegation about the individual in the DPA is the first paragraph which merely identifies the person. There is no other specific allegation regarding him including how he caused violations of the FCPA’s books and records and internal controls provisions, and the individual did not admit or deny any of the allegations in the DPA.
March-April Issue: Deal Lawyers Print Newsletter
This March-April issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a 2016 no-risk trial):
– Spin-Offs: Frequently Asked Questions
– More Reminders That “Boilerplate” Matters
– Short-Term Investment Strategies Can Create Board Conflicts of Interest
– Delaware’s Latest M&A Export to Other States: Streamlined Tender Offers & Section 251(h)
– A Russian Proverb Explains Investor Approaches to Risk Management
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
Spanking brand new. By popular demand, this comprehensive “Market Risk of Derivatives Disclosure Handbook” covers Item 305 of Regulation S-K, an accounting driven disclosure requirement that is one of the most confusing. This one is a real gem – 27 pages of practical guidance – and its posted in our “Derivatives” Practice Area.
SEC Commissioners: Senate Gearing Up to Confirm
According to this WSJ article, it looks like the US Senate is finally ready to confirm the two SEC Commissioners who were nominated by President Obama last year. Likely will happen in a few weeks…
Webcast: “FAST Act – Gearing Up”
Tune in tomorrow for the webcast – “FAST Act: Gearing Up” – to hear our own Dave Lynn of Morrison & Foerster, Latham & Watkins’ Alex Cohen, Cohen & Gresser’s Bonnie Roe and Davis Polk’s Sophia Hudson discuss what you should now be considering as you prepare deals under the new FAST Act.
More on “Is Warren Buffett Writing Governance Best Practices?”
This blog by “The Activist Investor” entitled “Shareholder Enragement Redux” throws shade at the idea of investors sitting down with Jamie Dimon and Warren Buffett to write best practices for corporate governance to support long-term ownership…
My friend Jim Brashear of Conifer Health Solutions periodically makes an entry in his blog – “Brash Tacks” – and I love the latest entry:
This Wall Street Journal report on tech-enabled interpretation of CEO facial expression being correlated with a company’s financial performance may indicate new Regulation FD and 10b-5 risks for companies. This is a science fiction-like twist on reading an executive’s body language to supplement oral communications.
This 2014 WSJ report noted a smartphone app that claimed to analyze voices to determine the speakers’ emotional states.
Imagine a Minority Report dystopian future when corporate executives will be prosecuted by the SEC for merely thinking about FD violations . . . . wink wink, nudge nudge, say no more!
SEC’s Inspector General: No ALJ Bias
In this report, as noted in this Reuters article, the SEC’s Inspector General weighs into the controversy over bias allegations by administrative law judges in the SEC’s administrative proceedings. The SEC’s IG found no evidence to support the allegations.
More on “SEC Busts Earnings Release Hackers! 150K Releases Stolen Over 5 Years”
Back in August, the SEC announced it had caught the folks who had hacked and stolen thousands of earnings releases. Now, as this Reuters article explains, the SEC has brought an action in court against nine defendants…
An almost universal question when a company is subject to a formal or informal SEC investigation is: “Do we need to disclose the investigation?” The traditional advice is: “No, unless the underlying facts in themselves necessitate disclosure.” Comments by the Corp Fin Staff at seminars and elsewhere always have been consistent with this – but the SEC never has issued any formal guidance, which can lead to companies & audit committees second-guessing the soundness of the traditional advice.
In 2012, in Richman vs. Goldman Sachs, the SDNY held that so-called Wells notices – the SEC notice to a potential defendant that the SEC intends to proceed with formal charges unless the potential defendant can convince it otherwise – do not in themselves need to be disclosed. A fortiori, there should be no duty to disclose an investigation either, but that was not the focus of the opinion. More recently, in January 2016, in In re Lions Gate Entertainment Corp. Securities Litigation, the SDNY reached the same conclusion again. What is particularly helpful about Lions Gate is that, in concluding that no disclosure of an investigation or a Wells Notice was required, the Court systematically went through each of the potential disclosure triggers under Section 10, Regulation S-K and GAAP and ruled each out.
This is not to say that there are not plenty of situations when a company might prefer to disclose an SEC investigation – e.g., where the overall situation already has been widely discussed and there is a general desire to shorten the news cycle – but it is to say that companies can rest comfortably that they do not have a disclosure duty unless either (i) the facts underlying the matter being investigated trigger a disclosure obligation independent of the SEC investigation (or Wells notice), or (ii) they make statements about their situation that necessitate discussion of the SEC investigation (or Well notice) in order for their statements not to be misleading.
New Lease Accounting Standard: FASB Balloons Balance Sheets
As noted in these memos, the FASB recently issued ASU 2016-02, Leases (Topic 842) that ushers in a new era in which lessees will recognize most leases on their balance sheets (beginning for fiscal years after 2018) – which will increase their reported assets and liabilities – in some cases, quite significantly. Lessor accounting remains substantially similar to current US GAAP.
This analyst report notes that the accounting change may increase debt reported by companies by a staggering $1 trillion…
Transcript: “How to Get Your Equity Plan Approved By Shareholders”
We’ve posted the transcript for the recent CompensationStandards.com webcast: “How to Get Your Equity Plan Approved By Shareholders.”
1. Spousal/family member tag-along on corporate plane where executive is flying for business reasons (assume no incremental cost of tag-along):
– Definitely a perk – 52%
– Leaning toward a perk – 20%
– Leaning toward not a perk -14%
– Definitely not a perk – 15%
2. Spousal/family member tag-along on corporate plane where executive is flying for personal reasons (assume no incremental cost of tag-along):
– Definitely a perk – 87%
– Leaning toward a perk – 5%
– Leaning toward not a perk – 2%
– Definitely not a perk – 6%
3. Executive use of corporate plane for outside board meetings (i.e., director of another company):
– Definitely a perk – 60%
– Leaning toward a perk – 20%
– Leaning toward not a perk – 14%
– Definitely not a perk – 7%
4. Outside director’s use of corporate plane to attend company’s board meeting (i.e., picking up directors for meetings):
– Definitely a perk – 7%
– Leaning toward a perk – 5%
– Leaning toward not a perk – 25%
– Definitely not a perk – 64%
5. Executive use of corporate plane to attend a meeting of the board/trustees of a charitable organization:
– Definitely a perk – 59%
– Leaning toward a perk – 22%
– Leaning toward not a perk – 16%
– Definitely not a perk – 3%
B. Other Spousal/Family Member Issues
1. Travel costs associated with spouse attendance with directors at annual board retreat/meeting where all spouses are invited:
– Definitely a perk – 43%
– Leaning toward a perk – 24%
– Leaning toward not a perk – 21%
– Definitely not a perk – 12%
2. Travel costs associated with spouse attendance with directors at a board meeting where spouses are welcome, but not formally invited, and only a few spouses attend:
– Definitely a perk – 70%
– Leaning toward a perk – 21%
– Leaning toward not a perk – 6%
– Definitely not a perk – 4%
3. Spousal golf and other extra services, such as day travel or spa services, for when the board is in a formal meeting:
– Definitely a perk – 85%
– Leaning toward a perk – 9%
– Leaning toward not a perk – 4%
– Definitely not a perk – 2%
C. Mixed Business & Personal Use
1. Country club membership paid by company that is not used exclusively for business purposes, if the membership is used a few times by the executive or a family member for personal reasons:
– Entire amount of country club expenses is a perk – 22%
– Allocate incremental cost of those few personal uses as a perk – 52%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk – 24%
– Not a perk – 3%
2. Luxury box paid by company that is not used exclusively for business purposes, if the box is used a few times by the executive or a family member for personal reasons:
– Entire amount of ownership expenses is a perk – 6%
– Allocate incremental cost as a perk (eg. cost of refreshments) – 50%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk (eg. by dividing number of events box is paid for in order to allocate the cost on a per event basis) – 36%
– Not a perk – 7%
3. Membership in airline club paid by company that provide facilities at airports, if the club is also used by executive during personal travel:
– Entire amount of club expenses is a perk – 11%
– Allocate incremental cost as a perk (eg. cost of refreshments) – 40%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk (eg. valuation based on percentage of personal use) – 17%
– Not a perk – 32%
4. Relocation expenses for existing executive that the company has required to relocate:
– Definitely a perk – 25%
– Leaning toward a perk – 11%
– Leaning toward not a perk – 9%
– Definitely not a perk – 55%
5. Relocation expenses for newly hired executive, extended to induce the executive to accept an employment offer:
– Definitely a perk – 35%
– Leaning toward a perk – 29%
– Leaning toward not a perk – 24%
– Definitely not a perk – 12%
6. CEO’s assistant (whose compensation is paid for entirely by company) who spends 60% of his time taking care of personal tasks (such as maintaining the CEO’s personal calendar, paying personal bills, etc.) and the other 40% is work-related:
– Definitely a perk – 35%
– Leaning toward a perk – 29%
– Leaning toward not a perk – 24%
– Definitely not a perk – 12%
7. Would your answers change to the above questions if the executive paid the full incremental cost to the company?
– Yes to most – 60%
– Yes to a few – 19%
– Maybe for a few – 10%
– No – 11%
New Nasdaq Staff FAQ on the 20% Rule
In this blog, Morrison & Foerster’s Anna Pinedo alerts us to a new Nasdaq FAQ relating to the issuance by Nasdaq-listed companies of warrants with cashless exercise features.
Webcast: “Key Steps to an Effective Compensation Committee”
Tune in tomorrow for the CompensationStandards.com webcast – “Key Steps to an Effective Compensation Committee” – to hear Pay Governance’s Diane Lerner, Shearman & Sterling’s Doreen Lilienfeld & Global Governance Consulting’s Susan Wolf untangle the complex issues that compensation committees face in exercising their fiduciary duties against a backdrop of increased shareholder activism, potent proxy advisor policies, an active plaintiff’s bar and heightened media scrutiny.
Over the past few weeks, I keep reading tweets – mostly from Michelle Leder of @footnoted – that Edgar is down. This includes yesterday, which was the deadline for many companies to file their Form 10-Ks. I’ve always known that Edgar goes down occasionally – but it appears that it’s happening more frequently lately. But then again, maybe it has always has gone down an average of once per week. We really don’t know because the SEC doesn’t let us know when Edgar is down. This has been one of my pet peeves – that the SEC doesn’t have a blog that is Edgar-focused, which would be the perfect vehicle to inform the public when Edgar is down – and then when it’s back up. Or at least, the SEC could tweet this valuable information. The SEC now has a total of 9 Twitter handles – perhaps add one more for “Edgar News”?
I’m loving a new social media app called “Anchor,” which essentially is Twitter with voice. It’s much more personal – and quite fun to have a time-shifted conversation. Download the free app on your phone and record your own 20-second reply to my first “wave”: “The SEC’s EDGAR is down. Chronic problem?” [Of course, you can email me a response instead – I never post with attribution unless I gain permission.] You’ll see that there is a reply already at the end of my clip – please add yours. It’s simple to do (but I’m happy to help if you experience technical difficulties).
More on “The SEC’s Home Page Redesign: Less Color”
Last Friday, I blogged about the SEC’s new site redesign. Here’s two observations from members that I missed:
– Did you notice that the links to the company’s “Insider Filings” is now missing on the new Edgar site? One has to literally open up every Form 4 to see who filed it and for what amount & type.
– Noticed an “Edgar Search Results Beta” tab on the company page, which takes you to a slightly different index of filings (which unfortunately doesn’t identify the item number for 8-K filings).
– Now lists the votes of Commissioners on actions/orders in a chart that is current.
Webcast: “Hot Issues for Your Annual Meeting”
Tune in tomorrow for the webcast – “Hot Issues for Your Annual Meeting” – to hear Allen Matkins’ Keith Bishop, Independent Inspector Carl Hagberg, Potter Anderson’s Roxanne Houtman and Broadridge’s Jill Whitney discuss the latest developments – including how to handle tricky issues – related to annual shareholder meetings.
Our March Eminders is Posted!
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Here’s an excerpt from this great piece by Morgan Lewis’ Linda Griggs, Rani Doyle & Sean Donahue (also see this blog by Mike Gettelman):
Companies’ management should consider whether to add a materiality carve-out to the related party representations now being included in management representation letters as a result of the PCAOB’s Auditing Standard No. 18 (AS 18). AS 18 established “requirements regarding the auditor’s evaluation of a company’s identification of, accounting for, and disclosure of relationships and transactions between the company and its related parties” and is effective for audits of fiscal years ended after December 14, 2015.
The sample management representation letter for auditors to consider, which is set forth in Appendix A to AU Section 333, includes the following specific representations as a result of AS 18:
– Management has made available to auditors the names of all related parties and all relationships and transactions with related parties
– There are no side agreements or other arrangements (either written or oral) that have not been disclosed to the auditors
These representations are broad given the definition in the accounting literature of the term “related party,” which is applicable to AS 18 and the related management representation letter. The definition of “related party” included in the Master Glossary of the FASB’s Accounting Standards Codification includes affiliates of an entity, principal owners of an entity and members of their immediate families, management of an entity and members of their immediate families, and other parties that can influence an entity’s management or operating policies.
On Friday, CII announced that it hired Ken Bertsch to replace Ann Yerger as the Executive Director. Ken has served as head of the Society of Corporate Secretaries before his current job at CamberView…
Nasdaq’s Golden Leash Proposal: Commentary From In-House Counsel
As I’ve blogged, Nasdaq recently proposed a rule that would require listed companies to disclose third-party compensation arrangements of their directors/ nominees (while the proposed rule was rejected on technical grounds, Nasdaq plans to resubmit the proposal soon). I recently received this note from an in-house counsel:
Snapshot Summary
In short, this proposal would require Nasdaq-listed companies to publicly disclose (on their websites or in their proxy statements) compensation arrangements between activist stockholders and their director/director nominees. The proposal indicates that often times, such compensation arrangements are structured such that the director receives certain amounts from the activist if the company’s stock price increases by a certain amount over a specified time period. The concern of course is that undisclosed arrangements like these raise conflicts of interest and could interfere with those directors fulfilling their fiduciary obligations because they are incented to focus on short-term stock price results at the expense of long-term sustainable growth. The proposal recognizes that the company will only be able to disclose information that is provided to it (for example, in D&O questionnaires).
Observations
1. Overlap with Current SEC Rules
Arguably, third party compensation to directors for board service is already required to be disclosed under the SEC’s rules — and if clarification is needed on that, it could easily be provided by the SEC rather than being addressed in stock exchange rulemaking.
First of all, Reg SK, Item 402(a)(2) [entitled “All Compensation Covered”] requires “disclosure of all plan and non-plan compensation awarded to, earned by, or paid to …. directors.” Similarly, the specific provision requiring director compensation disclosure – Reg S-K, Item 402(k) – has no language limiting the disclosure to director compensation paid by the company. I don’t think it’s a stretch to say that the SEC provision covers compensation from whatever sources – i.e. the company and any other third parties. But presumably, an issue may be that the SEC’s rules are focused on compensation for the previous fiscal year – and these undisclosed activist arrangements (focused on stock price increase) could run past the fiscal year (and not result in any payment during that year).
But to that I say, let’s look at Form 8-K, Item 5.02(d)(2) that requires disclosure of “any arrangement or understanding between the new director and any other persons.” Wouldn’t that pick up the stock-price increase scenario? In case you say, “Not always – because that provision has a carveout for directors elected at an annual or special meeting,” I would point out that my understanding is that when companies settle with activists, they agree to put the directors on the board right away, and then they stand for re-election at the next annual meeting. So the Form 8-K would seem to pick up those arrangements.
I would also direct your attention to Reg S-K, Item 601(b)(10) [material contracts]. Even though most of us think this is limited to contracts to which the company itself is a party, the provision has more expansive language, picking up contracts in which the company “has a beneficial interest.” I don’t think it’s a stretch to argue that the company has a beneficial interest in a contract by a third party with a company director that rewards the director for an increase in the company stock price over a specified period of time, which would mean it would have to be disclosed under Item 601(b)(10)(ii)(A) or 601(b)(10)(iii).
Bottom line: I think it’s somewhat disingenuous for Nasdaq to have issued this proposal without any discussion about the existing SEC’s rules requiring disclosure of all compensation paid to directors. I think the better approach would just be for the SEC to clarify that its existing proxy statement rules regarding disclosure of director compensation cover third arrangements. Under that route, investors reading the proxy statements for NYSE- or Nasdaq-listed companies would be receiving comparable information when it comes to director compensation matters.
2. CII Letter – It’s not often I agree with CII, but they recently submitted a letter to the SEC asking that the proxy statement rules be clarified to require disclosure about compensation arrangements between nominees and those who nominated them. I agree with CII’s implicit suggestion that this subject matter falls within the purview of the SEC and should not be the subject of separate rulemaking by stock exchanges.
3. Sleeper Footnote #5 – Footnote #5 is a bit of a bombshell. It suggests that Nasdaq may propose to modify its director independence rules to provide that if a director receives compensation from third parties, s/he would not be considered independent. Whether it’s appropriate to adopt such a bright-line test would obviously be a very sensitive issue. My two cents worth is that it doesn’t make sense to establish this a bright-line test for director independence – but instead, the specific facts and circumstances of such arrangements should be considered by the Board when it’s making its independence determinations. The Nasdaq recently put out a survey to solicit input on this issue.
Nasdaq’s Survey: Third-Party Payments to Directors & Independence
As noted above, Nasdaq is running this survey that’s different – but clearly related to – to its Golden Leash proposal. The Golden Leash proposal relates to how companies will be required to provide disclosure about third-party director compensation arrangements. In contrast, Nasdaq’s survey is focused on the next part of this equation: the impact that these arrangements could have on director independence, with the Nasdaq asking for input on whether it should adopt rules to either prohibit directors that receive third-party payments from being considered independent directors under Nasdaq rules – or from serving on the Board at all. Nasdaq has not yet put out a proposal on this – and presumably will use the survey results to help form their opinion on this topic…
For the 1st time since 2012, the SEC has redesigned its home page – and the home pages for each of the Divisions. The site’s underlying pages haven’t changed – including the important item of the URLs not changing (which would kill millions of links over the Internet if that happened). As noted in this blog, the redesign four years ago was the first since the SEC’s site was launched 20 years ago.
Overall, I like the redesign – it’s clean and simple, as the tabs with the dropdown menus have been kept. For what I can tell, the principal difference is that there is less color than the old home page. Personally, I’m not a big fan of moving pictures on home pages (usability principle: gratuitous graphics can distract users from critical content) – nor do I like “all caps” for the home page title & the tab captions (I’m a big plain English fan). But overall, it’s a winner…
By the way, I recently celebrated 15 years since I first launched a website – RealCorporateLawyer.com in 2001. Talk about simple…
NYSE to Require FPIs to File Semiannual Financials on Form 6-K
The SEC has approved an NYSE rule change which will require foreign private issuers to file semiannual financial statements on Form 6-K. Foreign private issuers are not currently subject to any SEC rule that specifically requires the filing of interim financial information.
New Section 203.03 of the Listed Company Manual provides that each listed foreign private issuer must, at a minimum, submit to the SEC a Form 6-K that includes:
– an interim balance sheet as of the end of its second fiscal quarter; and
– a semi-annual income statement that covers its first two fiscal quarters.
The Form 6-K is required to be submitted no later than six months following the end of the company’s second fiscal quarter. The financial information included in the Form 6-K would be required to be presented in English, but would not be required to be reconciled to U.S. GAAP.
As noted in this Cooley blog, the deadline for filing a cert petition has been extended again in conflict minerals case…
Transcript: “Activist Profiles & Playbooks”
We have posted the transcript for the recent DealLawyers.com webcast: “Activist Profiles & Playbooks.”
In this blog, MoFo’s Anna Pinedo writes up a brief summary from recent speeches by SEC Chair White and Commissioner Stein. This excerpt of Kara’s comments caught my eye:
Commissioner Stein also raised interesting considerations regarding the increased reliance on private placements and other exempt offerings. She observed that “Studies have shown that a sizable amount of capital is now raised in the private markets. In fact, amounts raised through unregistered offerings have outpaced the level of capital raising via registered offerings in recent years. More than $2 trillion, in fact, was raised privately in 2014. Regulation D offerings accounted for more than $1.3 trillion of this amount. In comparison, registered offerings amounted to approximately $1.35 trillion in 2014.” She also commented on the unicorn phenomenon and the need for some level of transparency and accountability in private markets.
Here’s an excerpt from this WSJ article regarding the battle over whether Jim Doty will get another term as PCAOB Chair:
The Securities and Exchange Commission has decided not to decide on the leadership of the government’s audit regulator, at least for now. SEC Chairwoman Mary Jo White on Friday said her agency is waiting until it has a full complement of five commissioners before picking a head for the Public Company Accounting Oversight Board. The commission is currently down to just three members. Meanwhile, James Doty, the current PCAOB chairman whose term officially expired last October, can remain at the agency indefinitely until he’s either reappointed or the SEC taps a successor.
“It’s a decision I think should be left to the full commission, as in the past,” Ms. White told reporters, after remarks at a securities conference here. She added that Mr. Doty and the current PCAOB board were doing “quite well, without missing a beat.”
SEC Enforcement Lays Out Approach to Cybersecurity Cases
If you’ve ever attended the annual SEC Speaks conference, you know that the official program is an intensely uninteresting collection of short speeches by SEC officials who don’t have a lot of incentives to say groundbreaking things. But occasionally there are exceptions. I think Deputy Enforcement Director Stephanie Avakian’s discussion of cybersecurity cases on Friday was one of those.
Avakian broke those cases down into three categories.
1. Failures of registered entities to safeguard information. She cited the T. Jones Capital Equities Management case from September of last year (covered here) as an example of those.
2. Electronic thefts of material nonpublic information, and illicit securities trading following the thefts. Avakian cited the Dubovoy case filed in the District of New Jersey last August and updated on Thursday as an example of these.
3. Cyber-related disclosure failures by public companies. The SEC hasn’t brought any cases in this category yet, and much of Avakian’s discussion focused on why that is the case and how the SEC might get to the point of bringing one.
Assuringly for companies that are investing resources in cybersecurity and trying to do the right things for its customers and shareholders, Avakian said, “A company that has been a victim of an intrusion is just that: a victim.” She also said in several different ways that the Division understands that when attacks happen, critical facts can change and develop very quickly. These developing facts can make any necessary disclosures a moving target. Along these lines, the Enforcement Division will appreciate the difficulty of the circumstances, Avakian says. She added that the SEC is not looking to second guess well-thought decisions in this area.
With all of that said, the Enforcement Division very much wants companies that are victims of cyber attacks to involve appropriate law enforcement authorities as quickly as they reasonably can. It will also examine (1) whether companies have policies and procedures that are reasonably designed to protect customer information; and (2) whether companies with potential liability have self-reported issues to the Division. Regarding the second factor, the SEC’s Seaboard Report from 2001 continues to include the guideposts the Division will consider.
While no cases have yet been brought against public companies in this third category, Avakian can imagine circumstances in which the Commission does file a case to penalize inadequate cybersecurity disclosures. I can, too. Be careful out there.
It’s been six months since Nasdaq has been talking up its new Linq platform – and now it has delivered, both to settle trades and enable shareholders to vote using blockchain technology. This appears like it will be the wave of the future – particularly since blockchain technology is bound to get a big boost as more countries impose negative interest rates on their economies. Here’s a few things to review:
As noted in this blog by Steve Quinlivan, the SEC has approved a Nasdaq rule change to permit Nasdaq to exercise discretion to grant an extension to regain compliance before delisting a company that fails to hold an annual meeting.
Transcript: “Conflict Minerals: Tackling Your Next Form SD”
We have posted the transcript for our recent webcast: “Conflict Minerals: Tackling Your Next Form SD.”
Contingency Offerings: FINRA Reminds Brokers of Obligations
On February 8, 2016, FINRA released Regulatory Notice 16-08 relating to the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Exchange Act. The Notice arises from FINRA’s review of various private placement offering documents in connection with FINRA Rule 5123’s filing requirement for certain offerings. FINRA observed that broker-dealers have not always complied with the regulatory requirements applicable to contingency offerings. Accordingly, the Notice is designed to remind broker-dealers of their obligations under these rules.
