That was fast. Elon Musk apparently thought better of fighting the enforcement action that the SEC announced on Thursday over his tweets – because on Saturday evening, the SEC announced that it had reached a settlement with Musk & Tesla.
What, I’ve got to work weekends now? Broc never said anything about this. . . Anyway, this excerpt from the SEC’s press release lays out the deal’s basic terms:
Musk and Tesla have agreed to settle the charges against them without admitting or denying the SEC’s allegations. Among other relief, the settlements require that:
– Musk will step down as Tesla’s Chair and be replaced by an independent Chair. Musk will be ineligible to be re-elected Chair for three years;
– Tesla will appoint a total of two new independent directors to its board;
– Tesla will establish a new committee of independent directors and put in place additional controls & procedures to oversee Musk’s communications;
– Musk and Tesla will each pay a separate $20 million penalty. The $40 million in penalties will be distributed to harmed investors under a court-approved process.
According to this NYT article, Musk rejected a comparable deal before the the SEC filed its lawsuit. The sticking point was Musk’s unwillingness to accept the SEC’s standard “neither admit or deny” language (no, I’m not kidding).
Steve Quinlivan blogged his take on the settlement. This excerpt lays out the message to public companies with tweeters at the helm – and suggests that another prominent organization could learn a lesson here as well (also see our own new “Social Media Handbook” – and this blog by John Stark):
So the message to public companies is clear: If you have executives out there communicating material information on social media, you need to have disclosure controls and procedures in place to review the information before and after publication. Or at least one or the other. It would seem the White House would benefit from a similar rule.
Poll: Did the SEC Let Musk Off Too Easily?
On Friday, we ran a poll asking whether folks thought Musk should be subject to a D&O bar – 43% said ‘yes’ and 36% said ‘no’ (the rest punted). Now please take a moment to participate in a new anonymous poll:
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That was fast. Yesterday, the SEC announced the filing of an enforcement action against Tesla CEO Elon Musk arising out of his ill-considered tweetstorm & subsequent comments about a potential “going private” transaction during the first two weeks of August. The SEC’s complaint makes it clear that Enforcement isn’t messing around – this is a Rule 10b-5 securities fraud case, unaccompanied by any non-scienter based allegations. Here’s an excerpt from the SEC’s press release:
On August 7, 2018, Musk tweeted to his 22 million Twitter followers that he could take Tesla private at $420 per share (a substantial premium to its trading price at the time), that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote.
The SEC’s complaint alleges that, in truth, Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies. According to the SEC’s complaint, Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.
Co-Director of Enforcement Stephanie Avakian added that taking care to provide truthful & accurate information is one of a CEO’s “most critical obligations” – and one that applies equally when communications are made via social media instead of through traditional media. Speaking of issues surrounding the use of social media – be sure to check out our new “Social Media Handbook.”
Musk’s predicament calls to mind another automotive industry visionary with whom he’s been compared – Preston Tucker. Check out this article for an overview of Tucker’s innovative “Tucker Torpedo” & the fallout from the SEC’s 1948 investigation into his company. Of course, let’s not get carried away – Tucker’s story had elements of tragedy to it, but Musk’s is pure farce.
Upping the Ante: SEC Seeks a D&O Bar Against Musk!
Elon Musk is one of the world’s wealthiest people, so financial penalties that might prove ruinous to anyone else may not provide that much of a sting. However, the potential raised by this portion of the SEC’s prayer for relief would definitely leave a mark:
Ordering that Defendant be prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.
That’s a D&O bar, and it’s not unusual for the SEC to seek one – in fact, this ’Compliance & Enforcement’ blog says that they are sought in more than 70% of cases involving individual defendants.
But let’s face it, Elon Musk isn’t Joe Bagadonuts – we’re talking about a guy who figured out how to land a rocket standing up. There are few CEOs more closely identified with their companies than Elon Musk, and some question whether Tesla could survive without him. That means the SEC’s decision to pursue a bar raises the stakes for Musk, Tesla, and Tesla’s investors.
Poll: Should the SEC Seek a D&O Bar?
Please take a moment to participate in our anonymous poll:
This WSJ article speculates that the work that companies have done in order to comply with new accounting standards & address the financial statement impact of tax reform may have opened Pandora’s box when it comes to restatements. Here’s an excerpt:
During the first six months of 2018, 65 companies detected accounting mistakes significant enough to require them to restate and refile entire financial filings to regulators, compared with 60 companies for the same period last year, according to Audit Analytics. The Massachusetts-based research firm analyzed disclosures from more than 9,000 U.S.-listed going back to 2005, identifying companies that had to reissue their financials because prior documents were deemed no longer reliable.
The uptick came during a period when finance teams were overhauling corporate accounting paperwork to comply with the new U.S. tax law and new revenue accounting rules. In many instances CFOs and their staffs had to go over past financial reports to recalculate the value of tax credits or liabilities, or to assess how past results would look under new rules.
The article highlights two companies – Seneca Foods & Camping World Holdings – that restated financials based upon issues discovered during efforts to address the new revenue recognition standard (Seneca) and tax reform (Camping World).
We’ve previously blogged about Audit Analytics’ warning that the new revenue recognition standard might result in more restatements – so if this turns out to be a trend, they’ll have every right to say “we told you so.”
SEC Enforcement: A Very Expensive “Fish Story”
The SEC recently announced an enforcement action against SeaWorld & its CEO for alleged disclosure shortcomings associated with the impact of the documentary “Blackfish” on the company’s business. This Ning Chiu blog summarizes the proceeding. Here’s an excerpt:
News articles begin to speculate as early as August 2013 that there may be a link between the film and the company’s declining attendance. That fall, the company’s annual reputation study conducted by its communications department found that its score had fallen by more than 12% from the prior year. This finding was presented to the strategy committee that included the CEO, but was excluded from materials for a later meeting that the chairman of the board attended.
Musical acts and promotional partners started to cancel performances or withdraw from their marketing arrangements, which the SEC believes “should have provided confirmation” that the company’s reputation had been materially damaged by the film. Instead, in articles around the same time, the CEO expressly stated that he could not “connect anything” between the film and any effect on the company’s business. The company also stated in other media that there was “no truth” to the suggestion that the company’s reputation had suffered.
SeaWorld and its CEO agreed to settle the SEC’s charges without admitting or denying the allegations. The company paid a $4 million penalty and the CEO paid $850,000 in disgorgement and prejudgment interest and a $150,000 civil penalty.
Bad News: Give It to ‘Em Straight!
I guess you could say that the theme of today’s blogs is “bad news” – so this recent blog from Adam Epstein about how to deliver that kind of news to investors is probably a good way to close things out. The short answer is “give it to ’em straight.” Adam reviews all the ways he’s seen companies try to spin bad news, and says they just don’t work. Here’s an excerpt:
It doesn’t work. Smart investors have seen this movie before, and it ends badly. Every public company has bad quarters. Great companies face bad news directly, and succinctly, because nothing they say is going to undo the bad results. Every other path destroys trust and erodes value.
The blog acknowledges that sometimes a company’s bad quarter may distract from many other positive developments in the business. If that’s the case, the blog advises that instead of using those developments to spin bad news, management is better off to let those future results speak for themselves when announced.
Earlier this year, we blogged about evidence from insider gifts that backdating was alive and well. Now a recent study says that there’s a new twist on option backdating – instead of manipulating the timing of equity awards, CEOs are supposedly manipulating the market price of the shares on the award dates.This Stanford article about the study says insiders are reaping the same windfalls that they received when awards were backdated in the old fashioned way.
Here’s an excerpt quoting one of the authors of the study, Stanford Prof. Robert Daines:
In Dating Game 2.0, however, many top executives appear to be reaping the same kinds of windfalls with a new variant on the original scam. Instead of manipulating the dates of option grants to match a dip in the stock price, companies appear to be manipulating the stock price itself so that it’s low on the predetermined option date and higher right afterward.
“I was surprised, because it sounded too cynical at first,” says Daines, who teamed up with Grant R. McQueen and Robert J. Schonlau at Brigham Young University. “But we tested for all kinds of benign explanations and none of them fit the data. The unusual stock patterns happen so often, and they exactly fit with the self-interest of the CEOs and senior executives. Either the CEOs are incredibly lucky or they are manipulating stock prices.”
So how are companies supposedly manipulating the market price? Would you believe “bullet-dodging” & “spring-loading”:
The researchers found concrete evidence for both bullet-dodging and spring-loading in corporate “8-K” disclosures, which companies are required to file when important new developments occur between regular quarterly reports. At companies that issued lots of stock options, the disclosures before an option grant were more likely than not to drive shares down and those that came after an option date were more likely to send prices up. The same pattern showed up with company-issued “guidance” about upcoming earnings and with accounting decisions that effectively shift profits from one quarter to the next.
The more things change, the more they stay the same.
How to Respond to ESG Research Providers
If you are involved with a public company and you haven’t yet heard from an ESG research provider – don’t worry, you will. With ESG becoming more important to institutional investors, many are turning to these providers for assessments of public companies’ ESG performance. The problem is that there are more than 150 of these outfits – and many of them want you to respond to detailed questionnaires. So the question becomes – should you respond to these guys, and if so, how?
This Westwicke Partners blog has some helpful advice on that front. Here’s an excerpt on the pros & cons of responding to these questionnaires:
If you receive a questionnaire from one (or a dozen) of these ESG research providers seeking information on your company’s ESG disclosure and practices, it’s important to consider a few pros and cons of responding:
– Pro: Responding allows your company to better ensure the accuracy of the data used to determine your rating.
– Pro: Responding may set your company apart from those that decline to participate. Many ESG providers give higher ratings to companies that provide more ESG-related disclosures, and some even denote which companies did not respond to their questionnaires.
– Con: Responding can be a significant drain on your organization’s time and resources. Some questionnaires are estimated to take 1,000 hours to complete and require input from as many as 30 employees across multiple departments.
The blog also has pointers on determining how best to participate in the data-gathering process & handling inbound questionnaires from ESG research providers.
FCPA: 2nd Cir. Rejects “Monty Python” Approach to Foreign National Liability
This Drinker Biddle blog notes that the 2nd Circuit recently shot down the DOJ’s attempt to extend the scope of FCPA jurisdiction over foreign nationals. Here’s an excerpt:
The Second Circuit ruled on August 24 in United States v. Hoskins that the Foreign Corrupt Practices Act (FCPA) does not apply to foreign nationals who do not have ties to United States entities for bribery crimes that take place outside of U.S. borders. In doing so, the court rejected the government’s broadened theory of prosecution against Lawrence Hoskins, a U.K. citizen and former executive of the U.K.-based subsidiary of Alstom S.A., a global company headquartered in France that provides power and transportation services.
I’m no FCPA expert, but it sure seems like the DOJ was pushing the envelope in this case. The government’s position reminded me of the old Monty Python “Tax on Thingy” sketch – where at one point Terry Jones says that “to boost the British economy I’d tax all foreigners living abroad.” We’re posting memos in our “Foreign Corrupt Practices Act” Practice Area.
As a Cleveland Browns fan, I thought I’d seen it all over the course of the past two decades – a veritable “12 Days of Christmas” of incompetence & hilarity:
The Browns have been so dependably inept for so long that they’ve lent their name to a new word to describe staggeringly incompetent behavior – “Brownsing.” So, I guess I shouldn’t have been completely surprised when the SEC announced that (now former) Browns LB Mychal Kendricks had been charged with insider trading. But as jaded as I am about my favorite team, this was something new:
The SEC alleges that after meeting at a party, Mychal Kendricks began receiving illegal tips from Damilare Sonoiki, an analyst at an investment bank who had access to confidential, nonpublic information about upcoming corporate mergers. Kendricks allegedly made $1.2 million in illegal profits by purchasing securities in companies that were soon to be acquired and then selling his positions after the deals were publicly announced, in one instance generating a nearly 400 percent return on his investment in just two weeks.
In return for $1.2 million in alleged profits, Kendricks lost a $3.5 million payday from the Browns, will undoubtedly face a significant civil penalty from the SEC, and – because the US Attorney’s Office in Philly has also brought criminal charges – potentially faces up to a year in prison. Yes, this is some next-level Brownsing for sure.
Kendricks isn’t the first NFL player to get on the wrong side of the securities laws. Former NY Giants DB Will Allen pled guilty last year to charges brought in connection with his role in an investment scheme targeting athletes. In 1999, Hall of Fame QB Fran Tarkenton consented to an injunction against future violations of the securities laws, including Rule 10b-5, for his role in an alleged fraud scheme.
Materiality Definition: FASB Goes Back to SAB 99
We’ve previously blogged about FASB’s controversial efforts to amend the definition of “materiality” for purposes of financial statement disclosure. At the end of August, FASB amended Accounting Concepts Statement No. 8 to address materiality.
This recent blog from Cydney Posner says that with the amendment, FASB has hopped into Marty McFly’s DeLorean & traveled about a decade back in time. Here’s the intro:
In 2015, FASB sent a number of stakeholders into a tizzy when it issued two exposure drafts, part of its disclosure framework project, intended to “clarify the concept of materiality.” After hearing from any number of preparers, practitioners and other commenters, FASB has now reversed course.
According to FASB, the “main amendment” in Amendments to Statement of Financial Accounting Concepts No. 8, issued at the end of August, “reinstates the definition of materiality that was in FASB Concepts Statement No. 2, Qualitative Characteristics of Accounting Information, which was superseded in 2010.” In other words, it’s back to SAB 99.
Elad Roisman Confirmed as SEC Commissioner
Yesterday, the Senate confirmed former Senate Banking Committee staffer Elad Roisman to serve as an SEC Commissioner. Once he is sworn in, his appointment means that the SEC will finally have a full slate of 5 Commissioners – at least for now. Commissioner Kara Stein is expected to leave her post at year end.
While media reports indicate that President Trump is likely to nominate Commissioner Stein’s former aide Allison Lee to fill Kara’s upcoming vacancy, that hasn’t happened yet. CNN Congressional Correspondent Phil Mattingly tweeted that it was interesting that Commissioner Roisman’s nomination was not paired with a nominee recommended by the Democrats, as often has been the case..
Tune in tomorrow for the webcast – “Nasdaq Speaks: Latest Developments & Interpretations” – to hear senior Nasdaq Staffers Arnold Golub, Lisa Roberts, Nikolai Utochkin and John Zecca discuss all the latest that Nasdaq-companies need to know.
Narcissism: Not a Desirable Part of a CEO’s Skill Set
This Stanford article says that a recent study concluded that companies led by overconfident, self-centered risk takers are likely to face a lot of lawsuits. Here’s an excerpt:
In an article published in Leadership Quarterly, O’Reilly and colleagues Bernadette Doerr and Jennifer A. Chatman of the University of California, Berkeley, show that narcissistic CEOs subject their organizations to potentially ruinous legal risks as well. Not only are they more likely to become embroiled in protracted litigation, but their personality traits make them less sensitive to objective assessments of risk. Narcissists are less willing to take advice from experts and to settle lawsuits — even when it’s likely that the company will lose.
I’ve gotta say, I’m pretty skeptical about this study – after all, this management style worked well for Hank Scorpio.
Securities Litigation: #MeToo Class Actions the New Normal?
Last week, a shareholder class action was filed against CBS following revelations of alleged sexual harassment by CEO Les Moonves. Over on the D&O Diary, Kevin LaCroix recently blogged that these lawsuits may represent the “new normal” for shareholder litigation. Here’s an excerpt:
The securities suit against CBS follows a now growing list of companies that have been hit with D&O lawsuits following revelations of sexual misconduct by one of the firm’s executives. Earlier this summer, National Beverage Corp. was hit with a securities suit following allegations that its CEO had sexually harassed company employees. Earlier suits have arisen involving Wynn Resorts and 21st Century Fox.
Kevin says it is increasingly clear that the accountability process arising out of revelations of sexual misconduct won’t just target the wrongdoer, but also other executives who allegedly facilitated the misconduct or turning a blind eye.
Time for an update on the Wu-Tang Clan’s crypto activities – and I’m afraid the news is bad. Very bad. Remember when I blogged about Ghostface Killah’s planned ICO for his C.R.E.A.M. (Cash Rules Everything Around Me) token? Sadly, this “Digital Music News” story reports that it has, shall we say, “underperformed”:
Back in January, a cryptocurrency company called Cream Capital hoped to raise $30 million through an initial coin offering (ICO). The company was named after the Wu-Tang Clan’s 1993 song, ‘C.R.E.A.M.’, which stands for ‘Cash Rules Everything Around Me’. Wu-Tang’s Ghostface Killah was a founding member of the company, and hoped his involvement with the cryptocurrency would help raise funds during its initial coin offering.
However, it appears as though the ICO hasn’t gone well, as the coin’s value has plunged more than 96% since it launched back in January. The Cream Dividend token initially went on sale back in November of 2017, when coins were sold for as little as $0.02 per coin. The price for the cryptocurrency subsequently spiked in January to a high of $0.12, before riding a downward trending wave. The current value of the coin at the time of writing is just $0.0045, making it a crypto-flop.
So, Ghostface Killah’s C.R.E.A.M. coin has lost 96% of its value. That’s not good – but if it’s any consolation, he’s got a lot of company among much higher-profile cryptocurrencies.
Sarbanes-Oxley Compliance: You Know It Don’t Come Easy. . .
Protiviti recently released its annual “Sarbanes-Oxley Compliance Survey”, which reviews companies’ compliance efforts & the costs associated with them. This year’s survey says even after 16 years, this stuff’s still not easy – costs for many companies continue to rise, & the hours commitment continues to grow. Here’s an excerpt with some of the key takeaways:
– Compliance costs continue to rise for many organizations but remain dependent on size, SOX year, filer status and more – Many organizations experienced increases in their SOX compliance costs during their last fiscal year, and those spending $2 million or more grew as well. However, annual compliance costs did decrease from the prior year for certain groups of companies.
– SOX compliance hours have increased significantly – There are likely many factors at play here, including changing organizational structures resulting from ongoing digital transformation efforts, as well as continuing PCAOB inspections of external auditors that are placing increased demands on their clients to perform more rigorous SOX compliance testing and reporting.
Perhaps surprisingly, the survey also says that the use of automated controls testing & process automation remains low – and that implementing these technologies represents a significant opportunity to improve the efficiency of the compliance process.
Sustainability: More On “Will Delaware’s Statute Move the Needle?”
I’ve previously blogged about Delaware’s new sustainability certification statute. This recent blog from Lois Yurow reviews the statute & considers the “why bother?” question. Here’s an excerpt:
So why would a company bother getting a certificate (and paying fees, and assuming a disclosure obligation)?
Every company is at liberty now, certificate or no certificate, to voluntarily issue a sustainability report. Indeed, 85% of the Fortune 500 published a sustainability report in 2017. No doubt those reports represent a genuine commitment on the part of the issuing companies. Still, it pays to consider who chooses what a given company reports on: what goals it adopts, what metrics it uses to gauge progress, who measures that progress, and what specific information will be shared. With voluntary reporting, companies have almost infinite flexibility.
Under the Certification Act, reporting entities will need to disclose “objective and factual” performance results, and each entity’s governing body will be required to specifically address those results, offering its view of whether they represent success. By imposing these rules, the statute responds to the ever lingering concern that at least some sustainability reports are as much about marketing as they are about real change. The public in general, and investors in particular, may find the Certification Act’s data-heavy reports more valuable.
We’ll see how this plays out – I guess I’m still in the “corporate equivalent of buying a Subaru” camp when it comes to this statute, but this is the first piece I’ve seen that articulates what might be in it for companies that are looking to do more than just signal their virtue.
Earlier this year, we blogged about the GAO’s assessment of the SEC’s efforts to promote better climate change disclosure. According to the GAO, the biggest constraint that the SEC faced in its efforts was its need to rely on self-reporting. But this Bloomberg article says that the SEC isn’t pushing companies to improve disclosure in this area:
The SEC last issued a climate change-related public comment letter in September 2016, when it asked Chevron to expand its risk factor disclosure related to California’s greenhouse gas emission regulations. Typically, the SEC issues such letters to companies with suggestions on how they can fill in gaps. But the agency has been silent during this administration.
The article says that during the Obama administration, the SEC issued 44 climate change-related comment letters, while the SEC under Chairman Jay Clayton hasn’t issued any.
In another climate change disclosure-related development, the WSJ recently reported that SEC has dropped its investigation of ExxonMobil’s disclosures about how it accounted for oil and gas assets. As the WSJ reported in 2016, the investigation centered on the impact of climate change on the company:
The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects.
The SEC’s investigation followed on a similar one initiated by the NY & Massachusetts AGs. That investigation continues, as does private class action litigation surrounding the company’s climate disclosure.
#Crypto Utopia: A Very Deep Dive on the Crypto Economy
Want to get up to speed fast on all things crypto? Check out #Crypto Utopia, a 124-page presentation on the current state of the cryptoeconomy – including an analysis of the market environment and regulatory & legal issues – from Autonomous.com and Latham & Watkins.
This recent “D&O Diary” blog says that the securities class action bar has latched on to Elon Musk’s ill-considered tweetstorm. Here’s an excerpt on the winners of the race to the courthouse:
On Friday, two Tesla shareholders filed separate securities class action lawsuits in the Northern District of California against Tesla and Musk. The first of the lawsuits, filed by Tesla shareholder William Chamberlain, purports to be filed on behalf of a class of shareholders who purchased or sold Tesla shares between August 7, 2018 and August 10, 2018, inclusive.
The second of the two lawsuits, filed by Tesla investor Kalman Isaacs, purports to be filed on behalf of a class of shareholders who purchased Tesla securities after 12:48 pm EST on August 7, 2018 (the time of Musk’s first take-private tweets) and including August 8, 2018. According to news reports, Issacs is a short seller who sustained significant losses purchasing shares at the inflated price to cover his short position. Both complaints allege that Musk’s tweets contained material misrepresentations in violation of the federal securities laws and seek to recover damages on behalf of the plaintiff class.
Subsequently, the class action lawsuits have continued to roll-in – and the alleged class period for the more recent complaints extends from August 7th through August 14th. That time frame includes the dates when media reports began to surface about the SEC’s decision to subpoena Tesla for information surrounding the tweets, when Elon penned a blog purporting to explain what he meant by “funding secured” (we’ll get to that in a minute), and when he apparently had a bizarre house guest.
Since 75% of those of you who took our recent poll are of the view that either Musk’s tweets violated the securities laws or that he is a supervillain, I don’t expect that you’re shedding a lot of crocodile tears over these developments.
Tesla Tweets: “Why, Elon, Why?”
Even if you’re enjoying his predicament (shame on you), you’ve got to be wondering – why on earth did Elon Musk end his tweet with the phrase “funding secured?” Lots of other people had the same question – and so he posted this blog explaining his comment:
Why did I say “funding secured”?
Going back almost two years, the Saudi Arabian sovereign wealth fund has approached me multiple times about taking Tesla private. They first met with me at the beginning of 2017 to express this interest because of the important need to diversify away from oil. They then held several additional meetings with me over the next year to reiterate this interest and to try to move forward with a going private transaction. Obviously, the Saudi sovereign fund has more than enough capital needed to execute on such a transaction. . .
Yada, yada, yada . . . Anyway, this goes on for another 424 words, making a total of 518 carefully chosen and undoubtedly heavily-lawyered words to explain 2 very ill-considered ones. Still, the manure content in this statement seems pretty high. This “MarketWatch” article says that the SEC still has lots of questions for Elon, so my guess is that his word count will go much higher before this is over (and Broc is quoted in that article).
I recently blogged about how CoinBase is laying the groundwork to possibly become the first “token securities exchange.” If so, it may want to take the recent comments from FinCEN’s Director Ken Blanco in this “ABA Journal” article to heart. He says that financial crimes enforcers are watching the crypto space—and they don’t like what they see.
The Treasury’s Financial Crimes Enforcement Network and the Internal Revenue Service “have examined over 30 percent of all registered virtual currency exchangers and administrators since 2014,” said Kenneth Blanco, FinCEN’s director, in an Aug. 9 speech to the Block (Legal) Tech conference at Chicago-Kent College of Law. “And there is no question we have noticed some compliance shortcomings.” Specifically, Blanco maintains that adequate money laundering controls are not put in place until a trading platform or peer-to-peer exchanger gets an investigation notice.
“Let this message go out clearly today: This does not constitute compliance,” he said. “Compliance does not begin because you may get caught, or because you are about to be discovered. That is not a culture that protects our national security, our country, and our families. It is not a culture we will tolerate.”
Blanco’s comments were echoed by Amy Hartman, Assistant Director of the SEC’s Enforcement Cyber Unit, who expressed concerns about the potential for fraud associated with stateless virtual currencies & advised any company thinking about a coin offering to “engage competent securities counsel.”
My wife recently announced that we’re having a garage sale – which bums me out because now I have to help her clean the garage so the strangers who stop by to peruse our junk won’t think less of us. Anyway, last Friday, the SEC announced some garage cleaning of its own – in the form of this 314-page release adopting amendments to certain “redundant, duplicative, overlapping, outdated, or superseded” disclosure requirements.
There’s a lot to digest in the release, but this Steve Quinlivan blog provides a helpful guide to the changes. Here’s an excerpt summarizing the revisions to Item 101 of S-K:
The amendments revise Item 101 of Regulation S-K to eliminate required disclosures in the business description regarding:
– Financial information about segments
– Research and development spending
– Financial information about geographic areas, such as revenues from external customers in the issuers country of domicile and foreign countries, but where material must be covered in the MD&A
– Risks attendant to the foreign operations and any dependence on one or more of the registrant’s segments upon such foreign operations, but where material should be covered in risk factors
The SEC’s press release notes that the rule changes are part of Corp Fin’s initiative to review & improve disclosure requirements for the benefit of investors and issuers. We’re posting memos about this in our “Fast Act” Practice Area.
Beyond “Bedbugs”: More Corp Fin Actions to be Posted on Edgar
While this doesn’t appeal to the prurient interest nearly as much as the recent decision to post “bedbug” letters on Edgar, Corp Fin announced yesterday that it has decided to post more Staff actions on Edgar. Here’s an excerpt from the announcement:
Starting October 1, 2018, the Division will begin to release through EDGAR orders we issue granting or denying regulatory relief on behalf of the Commission, as identified below. We intend to continue our efforts to enhance transparency in subsequent phases by releasing additional types of documents, including those memorializing actions or positions taken by the Division staff, such as interpretive guidance and no-action relief.
Orders that will soon become available include Reg A & 1934 Act orders of effectiveness, orders declaring 1933 Act registration statements abandoned, and orders granting exemptions under the tender offer rules. This is pretty prosaic stuff, but stay tuned – availability of interpretive guidance & no-action relief on Edgar could be more interesting.
PCAOB Seeks Comment on Draft Strategic Plan For 1st Time
The PCAOB recently issued a draft of its 5-year Strategic Plan – and the accompanying press release notes that for the first time, it’s soliciting comments from the public. Here’s an excerpt from the press release with an overview of the key goals of the plan:
After its own careful study and a survey of PCAOB staff and the public, the new Board intends to:
– Broaden its approach to driving improvement in the quality of audit services and more clearly communicate how it is driving that improvement.
– Ensure that its inspections and standard-setting activities are responsive to and do not impede technological innovations.
– Engage proactively more often and directly with investors, audit committees, and other stakeholders to encourage relevant and timely conversations about the quality of audit services.
– Optimize PCAOB operations to more efficiently and effectively use resources.
– Reinforce the PCAOB’s culture of integrity, excellence, effectiveness, collaboration, and accountability.
So what’s behind the PCAOB’s decision to seek public input on its strategic plan? Here’s some insight from a recent Gibson Dunn blog:
Coming on the heels of a complete turnover of the Board and the subsequent departure of numerous senior personnel, the process by which the Board is crafting its strategic plan provides further evidence—if any were necessary—that this Board intends to seek out new ways to operate and to fulfill the PCAOB’s mission.
