There are all sorts of interesting tidbits in Proskauer’s “IPO study”, but this one in particular jumped out at me:
We continue to see a decrease in the average and median number of SEC comments in the first comment letter. Since 2013, there has been a 40% decrease in the number of first-round comments. This decrease appears to be partially related to issuers receiving fewer boilerplate comments, i.e., comments that are not issuer specific and relate more to general process requirements.
In addition, the only JOBS Act-related comment that appears to still be issued consistently is the request for testing-the-waters communications materials. 2016 also saw a significant decrease in the maximum number of comments issued in a first comment letter, decreasing to 55 from 78 in 2015 and a three-year average of 85 from 2013 to 2015. The average number of comment letters received by an issuer during the SEC review process was four. The average number of comments in the first, second and third comment letters were 25, six and four, respectively.
Despite the decline in comments, the amount of time required to complete an IPO continued to climb – rising to 221 days in 2016 from 156 days in 2015 and 123 days in 2014. The study suggests that the increase was likely attributable to increasing market volatility.
IPOs: Handling Comment Letters
While we’re on the topic of IPO comments, here’s a recent PwC blog by Corp Fin’s former Chief Accountant, Wayne Carnall, with advice to companies on how to deal with Corp Fin comments. Although the blog focuses on IPOs, much of Wayne’s advice is applicable to comments received in other settings. For example, here are some thoughts about the implications of comments & responses ultimately being made available to the public:
Remember, the comment letters and responses are public information shortly after the registration statement is declared effective. Even comment letters related to EGCs (Emerging Growth Companies), which have the ability to submit an IPO confidentially, are made public.
These letters & responses are part of your public communications and should be viewed the same as disclosures included in the S-1. The financial press writes stories about issues raised in the comment letter process. You do not want your company to be the subject of an unflattering story based on a poorly drafted response letter.
DOJ: Staying the Course on FCPA & White Collar Enforcement
This Wachtell memo says that recent remarks by Acting Principal Deputy Assistant AG Trevor McFadden suggest that the Trump DOJ will continue to aggressively pursue FCPA & white collar enforcement. Here’s an excerpt:
In these speeches, McFadden rejected what he called the “myth” that DOJunder Attorney General Sessions was not interested in prosecuting white-collar crime. McFadden emphasized that DOJ continues to “vigorously enforce” the Foreign Corrupt Practices Act, cited with approval a robust record of FCPA prosecutions in 2016, and praised the recent hiring of additional prosecutors in DOJ’s FCPA Unit, thereby suggesting that the new administration will maintain a significant
commitment to FCPA enforcement.
McFadden also praised two recent Obama Administration corporate resolutions, that imposed hundreds of millions of dollars in penalties, required criminal admissions & the retention of independent monitors. He also said that AG Sessions was committed to individual accountability for corporate misconduct.
Yesterday, the Senate voted 61-37 to confirm Jay Clayton as the next SEC Chair. The AP reports that 9 Democrats & independent Angus King of Maine joined 51 Republicans in voting for his confirmation. Jay will likely be sworn in by the end of the week…
Don’t Forget to File Your “Say-When-on-Pay” 8-K!
This Bass Berry blog provides a timely reminder that companies holding a “say-on-pay frequency” vote this year have an 8-K that needs to be filed:
Registrants should be reminded of the requirement under Item 5.07(d) to report the determination of the registrant, in light of the shareholder vote on say-when-on-pay, regarding how frequently the registrant intends to hold say-on-pay votes until the next required say-when-on-pay shareholder vote. Under the Form 8-K rules, this disclosure may be made in the Form 8-K disclosing the annual meeting voting results or in a separate Form 8-K amendment filed within 150 days following the date of the annual meeting (but, in any event no later than 60 days prior to the Rule 14a-8 shareholder proposal submission deadline).
In 2011, many companies overlooked this requirement. Most filed their 8-K disclosing the results of the vote, but forgot to follow up with the board’s decision on frequency. Since it was the first time through the cycle, the Staff cut companies some slack and granted waivers so they could continue to use S-3. Companies shouldn’t count on Corp Fin being as accommodating this time around.
Tomorrow’s Webcast: “Public Company Carve-Outs – The Nuggets”
Tune in tomorrow for the DealLawyers.com webcast – “Public Company Carve-Outs: The Nuggets”– to hear Sidley’s Sharon Flanagan, Sullivan & Cromwell’s Rita O’Neill & Covington & Burling’s Catherine Dargan discuss hot issues & tricks of the trade in dealing with public company carve-outs.
Here’s the results from our recent survey on codes of conduct:
1. At our company, we require “code of conduct” certifications from:
– All employees – 73%
– All Section 16 officers – 0%
– Different subset of employees – 27%
2. At our company, we typically obtain “code of conduct” certifications from this percentage of the employees that are required to submit one:
– 100% – 59%
– Over 90% – 35%
– Over 75% – 6%
– Below 75% – 0%
3. At our company, we require “code of conduct” certifications from our directors:
– Yes – 41%
– No – 59%
– Tax Reform: Transaction Strategies for Uncertain Times
– Coming to Grips With Appraisal
– Purchase Price Adjustments for Tax Benefits
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. 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.
Our May Eminders is Posted!
We’ve posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
While Congressional efforts at financial regulatory reform may end up languishing this year, this McGuire Woods blog speculates that 2017 may be the year that finally sees Congress act to sort out the mess that is the law of insider trading:
House Judiciary Committee Chairman Bob Goodlatte announced the committee’s agenda for the 115th Congress. Rep. Goodlatte observed that he and Ranking Member John Conyers were “committed to passing bipartisan criminal justice reform.” Rep. Goodlatte considered it “imperative [to] continually examine federal criminal laws” in conjunction with this effort.
Although past Congressional efforts to codify insider trading laws have failed, these remarks suggest that there may be an opportunity to try again. And some observers are optimistic that a reform bill could pass this year.
What might a statute addressing insider trading look like? The blog points to recent comments from Judge Jed Rakoff as providing a possible model:
Judge Rakoff spoke approvingly of the EU’s approach that focuses on equal access to market information rather than U.S. law’s focus on the insider’s fiduciary duty. Specifically, the EU prohibits anyone from trading on information “that person knows, or ought to have known, [is] insider information.” Thus, the focus is on the information itself, rather than the source.
Such an approach would eliminate disputes over the “personal benefit” test. It would also reverse Newman’s requirement that the tippee know of the tipper’s benefit. While the question of whether a trader “should have known” a tip to be insider information might be problematic, the insider trading statute – like other federal statutes – could define knowledge to include deliberate indifference or reckless disregard.
A clear and uniform federal insider trading standard would benefit everyone – prosecutors, traders & the markets.
Update: Keith Bishop notes that California has enacted an insider trading statute that, in contrast to federal law, actually defines what constitutes unlawful insider trading. Check out Keith’s blog on the statute.
Compliance Programs: Building a Risk Assessment Methodology
This “Compliance & Enforcement” blog provides advice on how to create the cornerstone of an effective compliance program – a well-constructed risk assessment methodology. Here’s an excerpt from the intro:
A deliberate, iterative self-assessment methodology is crucial to obtaining the benefits of both mitigating enforcement risk and achieving a high-efficiency compliance program. This post describes a four step process foundation for a self-assessment methodology: (1) get a detailed picture of what your company actually does, (2) map the potential compliance risk “contact points” that exist in your company, (3) assess the current controls in place to prevent, detect, and correct violations, and (4) determine and prioritize the compliance enhancement measures you undertake.
Reg FD: One Stat Says It All on Need for Training
The next time your Reg FD compliance training budget comes up for review, be sure to cite this recent study on the role of the IR officer in providing disclosure – and this finding in particular:
IROs indicate that private phone calls are more important than 10-K/10-Q reports, on-site visits, and management guidance for conveying their company’s message, and more than 80% of IROs report that they conduct private “call-backs” with sell-side analysts and institutional investors following public earnings conference calls.
In a recent speech on enhancing audit committee effectiveness, SEC Chief Accountant Wes Bricker raised the topic of audit committee overload – and said the onus is on the board to address it:
Recent surveys indicate that some audit committees are finding it difficult to perform its core responsibilities while covering other major risks on its agenda. For example, a recent Corporate Directors survey by an audit firm suggests that while 75% of directors say their workload is manageable, only 57% of audit committee members say their workload is manageable.
Among audit committee members, the survey results are more pronounced in certain industries. For example, in the banking & capital markets sector, only 34% of audit committee members surveyed indicated they believe their workload is manageable.
This emphasizes the importance of the role of the board in driving the audit committee’s focus and responsibilities. Directors should ask themselves if they are identifying the risk of audit committee overload – and if so, are they appropriately managing this risk to enable the audit committee to operate effectively.
While acknowledging that audit committees may be equipped to play a role in overseeing risks that extend beyond financial reporting, Bricker stressed the importance of audit committees not losing focus on their core roles & responsibilities.
New Accounting Standards: Don’t Forget to Disclose Material Changes in ICFR!
This “SEC Institute blog” points out another topic addressed in Wes Bricker’s speech. Here’s an excerpt:
In his recent, much publicized speech, Chief Accountant Wesley Bricker discussed the transition to the new revenue recognition standard. A bit later in the speech he addressed a not so frequently discussed issue, the requirement to disclose material changes in ICFR as it relates to implementation of the new revenue recognition, leases, credit losses and other standards.
The blog goes on to review line-item disclosure requirements that could be triggered by changes to ICFR made in connection with the implementation of the various new accounting standards that are bearing down on companies like a freight train.
Nobody’s Perfect: Glitches in New Cover Pages
I should preface this by saying that I once published a 12-page “Corporate Governance Advisor” article in which I referred to “emerging growth companies” as “ECGs” throughout instead of as “EGCs,” so I’m an expert when it comes to imperfections. With that being said, I feel obligated to report that folks have flagged a few glitches in the SEC’s recently revised forms.
As Keith Bishop noted a few weeks ago, the language adding a box for EGCs on the cover of the new 10-K & 10-Q forms has led to confusion over whether companies that are both EGCs & accelerated filers should check one or two boxes. Fortunately, this blog from Jay Knight confirms that Corp Fin has informally said that these companies should check both boxes.
More recently, a member pointed out that the pdf of the new Form S-3 on the SEC’s website has a typo in it. Instead of saying “…indicate by check mark if the registrant has elected not to use the extended transition period for complying with…” (which is what the adopting release said, and is also what all of the other pdf versions updated to date say), Form S-3 says “…for comply with…”
As Liz blogged yesterday, the latest iteration of the Financial Choice Act has attracted substantial criticism from the CII. If you’re also not a fan of the legislation, then this Bloomberg interview should cheer you up – the conventional wisdom says that it’s likely deader than disco in the Senate. That’s not a surprise, since it’s merely the opening salvo in what promises to be an extended debate over efforts to reform financial regulation.
It is likely that Republicans will try to push the bill through the Committee and onto the House floor in the coming weeks.
Not yet clear is how this effort will be coordinated—if at all—with the Trump Administration, as the Treasury Department is in the process of completing a study on financial regulatory reform, expected to be issued in early June, pursuant to an executive order signed by President Trump in February. Furthermore, while we anticipate that the House of Representatives will pass some version of the FCA in 2017, prospects in the Senate are much less clear. The Senate is more likely to pursue regulatory reform legislation that is more limited in scope than the FCA. Also, the Senate being the Senate, such action probably will not be seen until 2018.
Check out this blog from Cydney Posner for a detailed summary of Financial Choice Act 2.0.
“SEC Penalties Act” Would Raise Financial Stakes for Securities Violations
Meanwhile, back in the Senate, bipartisan legislation was introduced late last month that would substantially increase the statutory limits on civil monetary penalties, directly link the size of penalties to investor harm – and raise the financial stakes for repeat securities law violators.
According to a press release issued by the bill’s sponsors, the “Stronger Enforcement of Civil Penalties Act of 2017” – or “SEC Penalties Act” – would make a number of changes to the SEC’s current authority to levy civil penalties:
Under existing law, the SEC is constrained to penalizing violators in some cases to a maximum of $181,071 per offense and institutions to $905,353. In other cases, the SEC may calculate penalties to equal the gross amount of ill-gotten gain, but only if the matter goes to federal court, not when the SEC handles a case administratively.
This bill strives to make potential and current offenders think twice before engaging in misconduct by increasing the maximum civil monetary penalties permitted by statute, directly linking the size of the maximum penalties to the amount of losses suffered by victims of a violation, and substantially raising the financial stakes for repeat offenders of our nation’s securities laws.
Specifically, the SEC Penalties Act increases the per-violation cap applicable to the most serious securities laws violations to $1 million per violation for individuals, and $10 million per violation for entities. It would also triple the penalty cap for recidivists who have been held criminally or civilly liable for securities fraud within the preceding five years. The agency would be able to assess these types of penalties in-house – and not just in federal court.
The Financial Choice Act includes an increase in the SEC’s penalty authority too, so this might be an effort that turns out to have legs – although as this article notes, it’s Congress’s third try at this.
Whistleblowers: Securities Analysts Get Into the Game
This Reuters article tells the tale of a couple of enterprising securities analysts who smelled something fishy about a public company’s numbers, blew the whistle, and now stand to receive some serious coin from the SEC. While analysts are far from the disgruntled employee stereotype, the article notes that outsiders have played a big role in the whistleblower program:
The program, established in 2011 under the Dodd-Frank financial reform law, aimed to bolster the SEC’s enforcement program by encouraging insiders to report potential fraud. However, since its inception through Sept. 30, 2016, just over a third of the more than $111 million awarded to whistleblowers went to outsiders such as analysts or short-sellers, according to the SEC.
“Sometimes outsiders have a particular expertise and they are able to independently piece things together that might not be as obvious to those close to the matter,” said Jane Norberg, the head of the SEC’s Office of the Whistleblower.
I bet it won’t be long before somebody starts a whistleblowing hedge fund.
Broc recently blogged about Gretchen Morgenson’s NY Times column on the growth of virtual annual meetings. Frankly, I can see why the virtual-only approach might be attractive to many companies whose live meetings are attended – much like my traumatic 10th birthday party – only by a handful of people who are paid to be there.
Still, I confess that even after decades of watching executives read from turgid scripts written by junior lawyers (“I move that the reading of the minutes of the 2016 annual meeting of shareholders of the Company be dispensed with blah, blah, blah. . .”), I’m kind of a fan of in-person annual meetings.
Done well, an annual meeting can provide a great opportunity to connect with retail shareholders, and there’s also something to be said for requiring the CEO to stand in-person before shareholders once a year without a mute button and a team of advisors to help with a response to a tough question. But there’s more to recommend them than just that.
From microcap meetings held in a conference room to Berkshire-Hathaway’s annual epic, annual meetings frequently provide an endearing slice of Americana. Warren Buffett’s “Woodstock for Capitalists” is famous for its folksy charm – but you don’t have to go to Omaha for that. At a community bank meeting that I attended last year in a small Ohio town, a very nice retiree proudly showed me a copy of a passbook for a savings account that her father opened for her at the bank in the 1930s (she brought it to show the CEO, who knew her by name, asked about her family, and very much admired her memorabilia).
For larger companies, annual meetings can also provide entertainment that rivals anything on reality TV. Where else can you see Jesse Jackson spar with Meg Whitman or watch Bill Ackman get verklempt in front of a couple thousand people for free? If that’s not your style, how about the guy who became a folk hero in Minneapolis by showing up at the Green Bay Packers annual meeting wearing a Vikings jersey? Perhaps your taste runs to the “annual meeting as performance art.” If so, check out Google’s 2014 gala or Facebook’s fiesta from that same year.
Seriously, why would anyone want to get rid of an event that can offer everything from Norman Rockwell to the “Gathering of the Juggalos”? So, while the future of shareholder engagement may well be in cyberspace, I hope that the in-person annual meeting doesn’t completely go the way of the Dodo. We’ll sure lose a lot if it does.
By the way, if you think annual meeting wackiness is a recent phenomenon, here’s an article describing the shouting match between Mitch (“Sing Along with Mitch”) Miller and legendary gadfly Evelyn Davis at the 1964 Xerox shareholders meeting.
Virtual Annual Meetings: New York Comptroller’s Not a Fan
This O’Melveny memo says that I’m not the only one who prefers live annual meetings. New York’s Comptroller has a strong preference for them too – and it looks like New York’s pension funds intend to express that preference with their votes. Here’s an excerpt:
In addition to sending letters outlining his concerns to S&P 500 companies that have held virtual-only meetings, Comptroller Stringer has recommended that the trustees of the $170 billion New York City Pension Funds approve a new proxy guideline to discourage virtual-only meetings. If approved, the New York City Pension Funds would vote against all governance committee members of S&P 500 companies that hold virtual-only meetings in 2017, and would extend this voting policy to all US portfolio companies in 2018.
S&P 500 companies holding virtual-only meetings in 2017 could avoid an “against” vote from governance committee members only if they commit in advance of their 2017 annual meeting to hold their 2018 annual meeting in person or as a hybrid (virtual and in-person) meeting. The Pension Funds’ trustees are expected to vote on the voting-policy change in April 2017.
Class Actions: More, More, More
Remember how 2016 set all kinds of records for securities class actions? Well, Kevin LaCroix at The D&O Diary blogs that 2017 is on course to blow those records away:
The annualized pace of the 1st quarter’s litigation rate of 10.8% is more than four times the 1997-2015 litigation rate of 2.5%. In other words, at the current filing pace, if continued for the rest of the year, U.S. publicly traded companies would face a likelihood of getting hit with a securities suit four times greater than the average annual likelihood of a securities suit during the last two decades.
Kevin says that during the 1st quarter, U.S. publicly traded companies were being sued at an annualized rate of nearly 11%. That compares to a 5.8% rate for the record-breaking 2016 year, and an average litigation rate of just 2.5% from 1996 to 2015. Merger objection litigation is part of the story, but far from all of it. Check out Kevin’s blog for more details.
Yesterday, the SEC announced enforcement proceedings against 27 firms and individuals arising out of alleged violations of the “anti-touting” provisions of the federal securities laws . According to the SEC’s press release, the defendants left the impression with investors that their publications promoting various company stocks were independent & unbiased – when in fact the writers were compensated for touting them. Here’s an excerpt describing the allegations:
SEC investigations uncovered scenarios in which public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that did not publicly disclose the payments from the companies. The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
“If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public. These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analyses,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.
According to the SEC’s orders as well as a pair of complaints filed in federal district court, deceptive measures were often used to hide the true sources of the articles from investors. For example, one writer wrote under his own name as well as at least nine pseudonyms, including a persona he invented who claimed to be “an analyst and fund manager with almost 20 years of investment experience.” One of the stock promotion firms went so far as to have some writers it hired sign non-disclosure agreements specifically preventing them from disclosing compensation they received.
Fraud charges were filed against 7 stock promotion firms & 3 public companies – 2 company CEOs, 6 individuals at the firms, and 9 writers were also charged. The SEC announced that 17 of the defendants agreed to settlements ranging from approximately $2,200 to nearly $3 million based on the frequency & severity of their actions. Actions against 10 other defendants are pending in a New York federal court.
One other settled action is worth noting – the SEC brought separate charges against another company that was in registration at the time the publications were circulating. The agency alleged that these communications were therefore prospectuses that didn’t comply with Section 10 of the Securities Act.
My initial thought was that this was an unprecedented “sweep” – but it turns out that the SEC did something similar 19 years ago, when it brought anti-touting actions against 44 defendants in connection with Internet promotional scams.
SEC Enforcement: Harder Line on Private Equity?
This blog from Jenner & Block’s Andrew Lichtman and Howard Suskin says that the SEC may be taking a harder line in enforcement actions involving private equity fee allocations & conflicts of interest:
Over the last several years, the SEC has targeted private equity funds for various fee allocation arrangements and conflicts of interest. Rather than describing the fee practices as fraudulent, which would require a showing of scienter, the SEC has concluded that the private equity advisers committed disclosure violations. However, a recent proceeding in which the SEC secured a settlement based on both breach of fiduciary duty and fraud may foreshadow a more aggressive approach.
The SEC’s first private equity enforcement proceeding of 2017, In re SLRA Inc. (Feb. 7, 2017), involved allegations of breach of fiduciary duty & fraud against Scott Landress, the founder of a private equity fund, in connection with improper withdrawals of fees from the fund. While the SEC’s decision to pursue fraud charges may simply reflect its assessment of the egregiousness of the conduct at issue, the blog suggests that there’s reason to believe that fraud allegations may be on the table in a broader range of fee disclosure settings:
The SEC’s order stated that the failure to disclose the related-party transaction was a breach of fiduciary duty “[e]ven if” Landress had in fact hired the affiliate to perform the work. That finding suggests that the SEC may be more inclined to bring breach of fiduciary duty or fraud claims where private equity advisers fail to disclose improper fee arrangements.
Crystal Ball: Justice Gorsuch on Securities Law
The Supreme Court’s newest member doesn’t have a long record of securities law opinions as an appellate judge, but this recent post from “The Boardroom Blog” reviews Justice Neil Gorsuch’s more significant opinions & speculates that he’s likely to be skeptical of both securities plaintiffs’ claims and the idea of judicial deference to the SEC.
As Broc blogged earlier this month, the DC District Court entered a final judgment in the conflict minerals case – which placed the rule’s future squarely in the SEC’s lap.
On Friday, Corp Fin issued a statement indicating that, pending further review, it would not pursue enforcement proceedings against companies that didn’t comply with the source and “chain of custody” due diligence requirements in Item 1.01(c) of Form SD. Here’s an excerpt from Corp Fin’s statement:
Although the district court set aside those portions of the rule that require companies to report to the Commission and state on their website that any of their products “have not been found to be ‘DRC conflict free,’” that court and the Court of Appeals left open the question of whether this description is required by the statute or, rather, is a product of the Commission’s rulemaking.
In addition, as a result of a request by the Acting Chairman, we have received several comments regarding the desirability of additional guidance or whether relief under the rule is appropriate. Those comments identified several areas for the Commission to consider.
The court’s remand has now presented significant issues for the Commission to address. At the direction of the Acting Chairman, we have considered those issues. In light of the uncertainty regarding how the Commission will resolve those issues and related issues raised by commenters, the Division of Corporation Finance has determined that it will not recommend enforcement action to the Commission if companies, including those that are subject to paragraph (c) of Item 1.01 of Form SD, only file disclosure under the provisions of paragraphs (a) and (b) of Item 1.01 of Form SD.
While the conflict minerals rule remains alive, the source & chain of custody due diligence requirements in Item 1.01(c) are widely regarded as its most burdensome aspects. In a separate statement, Acting Chair Mike Piwowar offered the SEC’s rationale for the decision to halt enforcement of this aspect of the rule:
The primary function of the extensive and costly requirements for due diligence on the source and chain of custody of conflict minerals set forth in paragraph (c) of Item 1.01 of Form SD is to enable companies to make the disclosure found to be unconstitutional.
Piwowar added that until the issues raised by the Court’s decision are resolved, “it is difficult to conceive of a circumstance that would counsel in favor of enforcing Item 1.01(c) of Form SD.”
So what are you supposed to do now with your Form SD? This Gibson Dunn blog – and this Steve Quinlivan blog – review the reporting obligations that remain in effect.
EU: Full Steam Ahead on Conflict Minerals
The future of conflict minerals disclosure may be uncertain in the US – but it’s full steam ahead in the EU. This recent blog from Cooley’s Cydney Posner reports that the European Parliament overwhelmingly approved new rules on conflict minerals. There are many similarities between the US & EU versions of the rules, but the blog highlights a number of important differences. Here’s an excerpt highlighting some of the differences in approach:
Unlike Dodd-Frank, which is primarily disclosure-based, EU Member State authorities will verify compliance by EU importers by examining documents and audit reports and, if necessary, carrying out on-the-spot inspections of an importer’s premises.
The EU rules are largely more prescriptive than the U.S. rules, even though both look to the OECD due diligence framework. Importers will be required to adopt and communicate a supply chain policy (including standards consistent with the OECD model), to incorporate the policy into supplier agreements, to structure their internal management systems to support supply chain due diligence and to establish grievance mechanisms.
The rules will also require EU importers to implement an elaborate supply chain traceability system that will require detailed information about the identity of the suppliers, the country of origin, the type & quantity of minerals and when they were mined. Even more information will be required for minerals originating in conflict-affected areas. The rules are scheduled to go into effect in 2021.
FCPA: DOJ Extends Pilot Program
As noted in these memos, the DOJ has announced that it will extend its pilot program on FCPA enforcement – the 1-year period would otherwise have expired in a few weeks. See this speech by Acting Assistant AG Ken Bianco about the program.
Earlier this week, the SEC announced that it had adopted amendments increasing the amount that companies can raise under Regulation Crowdfunding in order to adjust for inflation. Companies can now raise $1.07 million under Regulation Crowdfunding – up from the $1 million limit initially established by the JOBS Act. Corresponding changes were made to the income threshold ($100K to $107K) for determining investment limits and the maximum amount ($2K to $2.2K) that can be sold to an investor who doesn’t meet that income threshold.
Financial statement disclosure thresholds – which are based on offering size – were also adjusted upward to account for inflation (i.e., $100K to $107K, $500K to $535K, and $1 million to $1.07 million).
That same day, the Staff also issued these two new Regulation Crowdfunding CDIs:
The new CDIs address thresholds for disclosure of related party transactions under Rule 201(r) & eligibility to terminate ongoing reporting obligations under Rule 202(b)(2).
Regulation A+: 6 New CDIs
It’s been a busy week or so at the SEC for matters relating to small issuers. The JOBS Act amendments & new Regulation Crowdfunding CDIs followed on the heels of these 6 new Reg A+ CDIs that were issued last Friday:
Here’s an excerpt from this MoFo blog that provides a brief summary of the new CDIs:
These address an issuer’s ability to use Form 8-A to register securities under the Exchange Act concurrent with completion of a Tier 2 Regulation A offering; the suspension of Tier 2 reporting obligations in the case of a withdrawn offering; the age of required financial statements for a Tier 2 offering; the requirement to file a tax opinion as an exhibit to Form 1-A; the inclusion of an auditor’s consent to use an audit report included in a Form 1-K annual report as an exhibit to the Form 1-K; and the application of Item 19.D of Guide 5 to Regulation A offering sales materials.
Speaking of small issuers, what child of the 1970s & 1980s does not have a soft spot for Ronco? C’mon, think about how many of this company’s products have made the transition from cheap consumer crapola to genuine pieces of Americana – the “Vegematic” . . . “Popeil’s Pocket Fisherman”. . . the “Showtime Rotisserie” – I could go on & on.
I even bought my mom the “Ronco Buttoneer” for Christmas one year (cut me some slack – I was 11 years old & she’s forgiven me).
Anyway, the latest incarnation of this American corporate icon – Ronco Brands – recently filed for a Reg A+ IPO. Here’s the preliminary offering circular.
