You know how much I love it when celebrities intersect with our little corner of the world, right? Well, then I’m sure it comes as no surprise that I can’t resist blogging about this NYT article discussing Spike Lee’s foray into promoting a cryptocurrency business:
Before Spike Lee accepted cryptocurrency, he turned down Crocs. Years ago, the filmmaker rejected an offer to buy into the Colorado company that makes perforated foam clogs, a decision that caused him to miss out when its stock soared on the strength of the footwear fad.
“I wish I would’ve given some money back then,” Mr. Lee said in a recent interview. “Anytime something is new, you’re going to have people who are going to be skeptical. With some of the best ideas, people thought the inventors were crazy.”
Now he has taken a leap into another cultural craze, having agreed to direct and star in a television commercial for Coin Cloud, a company that makes kiosks for buying and selling Bitcoin and other virtual currencies. Although cryptocurrency is not widely used for transactions, an increasing number of merchants now accept it as payment.
The article says he shot the commercial last month. Honestly, I can’t wait to see it – “What makes Cloud Coin the greatest crypto company in the universe? It’s gotta be the shoes!”
– John Jenkins
Over on the “D&O Diary,” Kevin LaCroix reports that federal securities class action filings declined significantly during the first half of 2021. Here’s an excerpt summarizing his findings:
Federal court securities class action lawsuit filings declined in the first half of 2021 to the lowest semiannual levels in several years. Several factors contributed to this relative decline, most significantly the shift by plaintiffs’ lawyers toward filing federal court merger objection lawsuits as individual actions rather than as class actions. In addition, as discussed further below, other factors contributed to the relative decline. The filing levels in the year’s first six months puts the filing for the full year 2021 on pace for the lowest annual filing levels since 2015, after several intervening years in which filings were at historically high levels.
Merger objection class action filings dropped by 81% this year. Unfortunately, that doesn’t mean that the number of those lawsuits is actually declining, but merely that they’re being filed as individual actions. Why? Kevin says it’s to reduce the likelihood of court scrutiny of plaintiffs lawyers’ merger objection mootness fee “racket”.
– John Jenkins
Last month, I blogged about AMC’s efforts to cultivate the meme stock “apes” who’ve pushed the company’s valuation to staggering heights. Part of that effort was directed at persuading stockholders to authorize another 25 million shares so the company could continue its efforts to shore up its balance sheet through stock sales. That effort apparently failed, as AMC’s CEO Silverback Adam Aron acknowledged when he took that proposal off the table last week. Here’s an excerpt from a recent Marketwatch.com article:
In a Tuesday morning filing, AMC Entertainment disclosed that it is abandoning its request that shareholders approve an issuance of 25 million new shares as part of a planned capital increase that would have allowed the company to leverage its alpha “meme stock” status but also diluted the stakes of existing stockholders who are overwhelmingly retail investors and who have made their opposition to the plan quite plain on social media.
AMC chief Adam Aron, who has made a habit of engaging directly with the retail investors now thought to hold roughly 80% of his company’s shares, took to Twitter minutes after the filing to let his base know that they were the reason behind his decision.
Accompanied by a picture of the words “I see you, I hear you, I value you,” Aron tweeted that while he still wants the capital from 25 million new shares to pay down AMC’s remaining debt load and give him cash reserves to play with as the theater industry recovers, he is acutely aware of the difference in opinion among AMC’s retail base on social media and “does not want to proceed with such a split.”
While AMC pitched this as a move to keep its retail investors happy, there may be a more pragmatic issue associated with the decision that other meme stocks may also have to face. Put simply, the problem is that retail investors don’t vote. And as this Axios article points out, with an investor base that’s 80% retail, “it’s not clear whether enough of them would have ‘shown up’ to even move the vote forward.”
In other words, AMC may have a tough enough time just getting a quorum for its annual meeting, let alone persuading a majority of the outstanding shares to vote in favor of a charter amendment. As Lynn blogged last week, at least one public company has already had to adjourn its meeting due to the absence of a quorum. With the rise of retail ownership in public companies and TD Ameritrade’s policy change on discretionary voting, chances are that other retail investor-heavy companies are also going to find pulling a quorum together to be a challenge.
– John Jenkins
If you’re interested in a deep dive into the comments on climate change disclosure received in response to Commissioner Lee’s invitation, be sure to check out this Davis Polk memo, which provides an overview of the type of commenters who weighed-in, summarizes the most salient topics raised in comments, and discusses the SEC’s potential next steps. This excerpt lists the topics covered by commenters that the memo summarizes:
– Does the SEC have authority to mandate climate disclosures, and would doing so survive the cost-benefit analysis required for rulemaking?
– Given a perceived desire for both meaningful and comparable climate disclosures, which types of disclosure standards (e.g., general or industry-specific standards, a single global standard or multiple standards around the world and a standard drawing on existing third-party frameworks or a novel framework) should the SEC use for any mandatory climate disclosure regime?
– If the SEC mandates climate disclosures, what information should the SEC require to be disclosed?
– Should the SEC provide protection from liability, whether through a safe harbor, having climate disclosures be furnished rather than filed or by requiring disclosures on a specialized form outside of 10‑Ks and 10-Qs?
– Should climate disclosures be subject to the same level of rigor as other types of SEC disclosures, such as financial disclosures, by imposing requirements for audit or assurance or internal controls?
– If the SEC creates a new disclosure mandate, should its scope include not only public companies but also private companies and not only climate disclosures but also ESG disclosures more broadly?
The memo also includes an appendix summarizing 30 letters submitted by high-profile academics, business and government representatives, standard setters and sustainability advocates.
– John Jenkins
One of the more provocative items contained in Commissioner Lee’s invitation to provide comments on potential climate change disclosure rules was this question:
What climate-related information is available with respect to private companies, and how should the Commission’s rules address private companies’ climate disclosures, such as through exempt offerings, or its oversight of certain investment advisers and funds?
Not surprisingly, this has attracted a lot of comments – pro and con. Ann Lipton recently blogged about the response to the possibility of private company disclosure, and included excerpts from comments submitted by some high-profile players, including representatives of private equity and major investors. Check the blog out – you may find some of their views to be a bit different than you might have expected.
– John Jenkins
According to a recent study, there is an epidemic of regulatory non-compliance in crowdfunding offerings so great that the author says it calls into question the continued viability of the crowdfunding experiment. Here’s an excerpt from the abstract:
The JOBS Act of 2012 launched a number of experiments in the regulation of securities offerings. The exemption it created that allows online equity crowdfunding offerings to retail investors garnered the most attention, in part due to widespread concerns regarding the potential for fraud and abuse. More than three years after the first crowdfunding offering, no empirical analysis of compliance has been conducted that would debunk or confirm critics’ concerns. This Article plugs that gap by analyzing a sample of 362 crowdfunding offerings and evaluating compliance with some of crowdfunding regulation’s simplest, most fundamental regulatory requirements.
During the first 13 months of crowdfunding, almost half of issuers failed to file complete financial statements that met the applicable standard of review, barely one-quarter of issuers that were required to file two annual reports did so, less than 15% of issuers timely filed the final amount raised in their offering, and the only data point on Form C that was reviewed was, far more often than not, substantially inaccurate. Finally, the third-largest crowdfunding funding portal may be violating the prohibition against a funding portal’s giving advice. In short, these findings reveal a deeply embedded culture of noncompliance.
In light of the SEC’s decision last year to raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million and to liberalize the rules on investments by both accredited & non-accredited investors, these allegations are pretty alarming. They become even more alarming after taking into account projections that the global crowdfunding market will grow by nearly $200 billion over the next four years.
– John Jenkins
We’ve previously blogged about Corp Fin’s push for more disclosure about supply chain finance arrangements & FASB’s decision to study a disclosure requirement. According to this WSJ article, FASB has decided to move forward with the goal of putting together a rule proposal by the end of this year. This excerpt describes supply chain finance arrangements and some of the reasons why formal disclosure requirements are under consideration:
As part of these programs, banks typically provide funding to pay a company’s supplier of goods and services. The supplier is paid earlier, but gets less than it would have without the agreement. The company pays the amount it owes the supplier to the bank, usually later than it would have paid its supplier. The bank then keeps the difference in exchange for its services. U.S. companies currently aren’t obliged to disclose supply-chain financing arrangements in their financial filings, which can make their liquidity position appear stronger than it actually is.
The tool has come under greater scrutiny from regulators and accounting rule-makers amid its growing popularity in recent years. Greensill Capital, a U.K.-based supply-chain finance provider, in March filed for insolvency after auditors of the company’s bank arm were unable to find evidence of collateral that one of its customers used for borrowing. Supply-chain financing was also a primary contributor to the 2018 implosion of U.K. firm Carillion PLC, according to Fitch Ratings.
The scope of the potential disclosure requirement was laid out at FASB’s June 30th meeting and summarized in FASB’s most recent project update. Companies would be required to describe the overall arrangements and would use certain contractual terms (such as the buyer confirmation) as indicators that an arrangement has been established. Disclosure would be required of the key terms of the arrangement as identified by management and the amount that the buyer has confirmed has been made available for suppliers to elect to be paid early for as of the end of reporting period. A description of where that amount appears on the balance sheet would also be required.
– John Jenkins
We’ve posted the transcript for the recent DealLawyers.com webcast: “The Leveraged ESOP as an Exit Alternative.” This program covered a lot of ground about an attractive alternative to a sale for many privately held companies. Shawn Ely of Lazear Capital Partners, Steve Goodman of Lynch, Cox, Gilman & Goodman, PSC & Steve Karzmer of Calfee, Halter & Griswold LLP addressed a number of topics, including
– Overview of a Leveraged ESOP
– Tax Aspects of Leveraged ESOPs for Sellers & the Company
– Structuring and Financing an ESOP Deal
– Corporate and ERISA Fiduciary Considerations
– Restrictions and Post-Closing Obligations
– John Jenkins
Last month, Liz blogged about a hoax whistleblower email message that was making its way around public company ethics inboxes. Unfortunately, we’ve recently learned that there are at least two more of these in circulation. Here’s the first:
To Whom It May Concern:
I want to report an incident that I believe is of interest to the ethics board. It has recently come to my attention that a certain employee I work with, which I will leave nameless for the time being (referring to them as Doe), is engaged in an activity I feel is inappropriate. Doe and I both work in one of the company’s sales teams. A while back, a few of us went to grab drinks after work, and a conversation soon ensued. We were discussing work matters, and specifically our client relationships, and things of that nature, when Doe leaned over and whispered so that only I could hear that the best way to retain your clients is to keep them happy if I know what they mean. At the time, I paid no mind to it. Later that evening, while getting back to our cars, Doe and I were by ourselves. I mentioned in passing that this year was not bad considering COVIC from what we initially expected when again they said something along the lines of how they never expected a bad year because of how they take care of their clients. This time I asked what they meant. They kept saying “Cmon, you know what I mean” and stuff like that. They told me that when it comes to lon-lasting clients or important leads, they go above and beyond, making sure they are happy. I agreed with them, saying I do the same. They they said – no no, I mean really take care of them. When I probed, they said that their clients trust them to give them the best possible price, and in return they get favors. When I asked what these favors might be, they were initially coy about it, but gave me a recent example. They said they give some big client the star treatment, because that person’s wife is a deputy superintendent in the county where their kids go to school. They said it’s always good to make friends with people like that, because you never know when you will need a favor, like getting your kids into a good high school or even college, and in fact they already hit that lady up to help get their sister a job, and she said she will see what she can do. I again don’t remember exactly how I responded. I just remember feeling flabbergasted but acting like what tey told me was no big deal and saying something about how our company doesn’t appreciate us (I was trying to make them feel like I’m cool with what they told me). They agreed and said that for the most part, there aren’t that many opportunities available for us, but when they spot something, they always try to think of helping out people that can later help them.
Initially, I was thinking about going with this to HR, but I couldn’t bring myself to do that because I know it will come back to me. I also cannot just tell my boss about this because that person is close to Doe, and I guarantee they will not take my side or at least try to brush it off. I know it’s important to be a team player and support each other, but I’m pretty sure what I’m describing here is a big no-no. Worst of all, I don’t want it to reflect badly on me later on if anyone finds out. A part of me just wants to pretend I didn’t hear it, and act like nothing happened. However, after some thought, I decided to first reach out to you and hear what the committee has to say. I read the material you provided online in the code of conduct, and I realize that in order for you to see this through, I might eventually need to give you their, and maybe even my name, but for the time being, I just want to get your take on it.
Here’s the second:
To members of the anonymous hotline, The location I wrote in the report is false. About a month ago, something was brought to my attention, which I want to report. Before I go into detail, I want to make sure the committee understands I refuse to reveal my identity and choose to remain anonymous. I don’t mind giving out the name of the person I am reporting, but that is only after I am promised that no one can find out I made the claim. The person I am reporting is a long-time employee. Recently, I found out that for invoices in at least one firm, (I found out it happened multiple times) he adds a large upcharge before having us send them out. I have no idea what he claimed under that upcharge, but I’m sure of it, because a buddy of mine working in that firm in their accounting department confirms it. I did a little digging and found that the invoices are always billed to the same customer- a big company we have been working with for a long time. At first, I thought that there’s still a chance nothing fishy is going on, and maybe I’m just not aware of all the details. However, after a while that same friend told me he asked around and turns out the person taking care of these invoices on their end is always the same guy, which my friend tells me is a bad apple. He said he checked, and all invoices are paid promptly and in full- no question asked, and that he personally saw the receipts. I then did some searching on social media (Facebook and Instagram of them and their family members) and found that the our guy and his culprit are actually related somehow. I’m not sure how, as they don’t share the same last name, but I can see that they have lots of pictures with each other attending weddings, fishing, on holidays and stuff like that. I realize how serious what I’m saying is, but I’m only coming to you after making sure that I’m not implicating someone innocent here. My friend at the other firm is someone I trust completely and agreed we shouldn’t do anything so until you guys get back to me. We both decided that no matter what we will not be going to our bosses or anyone on HR on this because we know then people will know it was us that found out. Please contact me as soon as possible and let me know what happens next.
Liz gave some solid advice in her blog about what to do if one of these lands on your desk, and you may want to take another peek at it. I don’t think anybody knows for sure what the game is here, but sending out a bunch of hoax emails seems to be a pretty good way to gum up the works of corporate whistleblower programs.
– John Jenkins
As Lynn blogged a few weeks ago, the SEC recently approved Nasdaq’s rule proposal permitting direct listings with capital raises. Last week, Nasdaq filed a proposed amendment to that rule that would tweak the pricing parameters for these new listings. This excerpt from the filing summarizes the proposal:
For a Direct Listing with a Capital Raise, Nasdaq rules currently require that the actual price calculated by the Cross be at or above the lowest price and at or below the highest price of the price range established by the issuer in its effective registration statement (the “Pricing Range Limitation”). Nasdaq now proposes to modify the Pricing Range Limitation such that a Direct Listing with a Capital Raise can be executed in the Cross at a price that is at or above the price that is 20% below the lowest price and at or below the price that is 20% above the highest price of the price range established by the issuer in its effective registration statement.
In addition, Nasdaq proposes to modify the Pricing Range Limitation such that a Direct Listing with a Capital Raise can be executed in the Cross at a price above the price that is 20% above the highest price of such price range, provided that the company has certified to Nasdaq that such price would not materially change the company’s previous disclosure in its effective registration statement. Nasdaq also proposes to make related conforming changes
Comments on the proposal are due 21 days after its publication in the Federal Register.
– John Jenkins
