If you’ve started transitioning your company and/or directors to EDGAR Next, how’s it going? Please participate in this anonymous poll to share your experience:

– Liz Dunshee

Check out John’s latest “Timely Takes” podcast – featuring Cleary’s J.T. Ho and his monthly update on securities & governance developments. In this 22-minute installment, J.T. reviews:

1. Rule 10b5-1 CDIs

2. Clawback “checkbox” CDIs

3. Tariff disclosure implications

4. Mid-season proxy trends

5. DOJ enforcement priorities

6. Latest SEC happenings

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

– Liz Dunshee

Here’s some encouraging news:

In Q1 2025, the US IPO market saw a 55% uptick in the number of deals and a modest increase in total proceeds. The health care and technology sectors led the activity, while significant deals across various industries pointed to broader market interest.

That’s from an EY recap of Q1 IPO stats. However, momentum is choppy at best, and as this WSJ article points out, few venture-backed tech companies are rushing to market:

Just nine venture-backed companies went public in the US this year, including several biotechs and a couple of Chinese financial and consumer companies, according to Renaissance. That is fewer than the 11 that began trading in the same period last year.

No American tech company with a large ownership by venture investors has gone public this year yet.

One reason for pause is that new IPOs are likely to be a down-round for VCs who invested at sky-high valuations. A recent article from The Information says that’s been the case for every venture-backed IPO for the past 12 months! Even so, some of those investors may be willing to patiently recover their capital in the public markets. The WSJ notes:

“For many VC-backed names, it’s not a matter of avoiding a down round entirely,” Kennedy said, “as much as mitigating it.”

Companies go public to raise capital and provide liquidity to their investors. And a down-round IPO isn’t destiny—shares can rebound and soar over the longer term. Venture-backed ServiceTitan, for example, went public in December at $71 a share, well below the $118.96 paid by investors for its Series G stock in 2021. At $126.71 at Tuesday’s close, the company’s share price is up almost 80% since the IPO.

So, take heart, set expectations, and be ready to gear up if the IPO window really does open!

– Liz Dunshee

If you’re looking for a treasure trove of IPO data, check out these stats from Professor Jay Ritter at the University of Florida. Maybe some of you are already familiar with his work – as his data informs a lot of financial reporting – but I had not done a deep dive.

This particular set looks at info from initial public offerings from 1980 to 2024 – 44 years! – including the type of backing the companies had at the time they went public, age and profitability, and first-day and three-year returns by lead underwriter. We all hear the common refrains that the volume of IPOs has been lower lately and that companies have been waiting longer to go public – but seeing the data puts things in perspective:

1. The median number of IPOs from 1980-2019 was 158 – well above the 72 IPOs last year, 54 in 2023, and 38 in 2022.

2. The average age of companies going public was 9.5 years from 1980-2019, but it’s been ticking up the past several years – from 8 in 2022, to 10 in 2023, to 14 years in 2024.

3. For tech IPOs, valuations at IPO are higher – and IPO profitability is lower. For example, in 2024, the median price-to-sales ratio was about $9-$11, compared to about $3-$4 in 1980. But that’s nothing compared to the dot-com bubble, which reached a height of $49.5!

If you’re interested in these trends, make sure to check out Jay’s page, where you’ll find info on direct listings, SPACs, industry trends, and more.

– Liz Dunshee

The Center for Audit Quality (CAQ) SEC Regulations Committee recently published notes from the Committee’s March 5th meeting with the SEC Staff from Corp Fin and the Office of the Chief Accountant. John shared an update from this meeting a couple weeks ago – that segment disclosures (and AI disclosures) rank high on the Staff’s agenda.

Additionally, the meeting involved a discussion about how to apply the “investment test” under Reg S-X Rule 1-02(w)(1)(i)(A)(1) – for purposes of determining the significance of business acquisitions pursuant to Regulation S-X Rule 3-05 – when consideration includes repurchase of the acquiror’s own shares. Here’s an excerpt:

The staff did not analogize to Financial Reporting Manual section 2015.11 in responding as they noted that current Rule 1-02(w) requires adjustments for intercompany eliminations for both the asset and income tests but does not include adjustments for intercompany eliminations for the investment test, including in circumstances when total assets should be used instead of aggregate worldwide market value (i.e., when a company does not have AWMV).

With respect to the use of AWMV in the denominator of the investment test, the staff indicated that because Rule 1-02(w) does not include any adjustments in the investment test for intercompany transactions as the other tests do, there does not appear to be a basis to exclude the repurchase of a registrant’s own shares.

Further, S-X 1-02(w) uses the term “consideration transferred” to determine the numerator of the investment test. The staff notes that “consideration transferred” is a concept in US GAAP (ASC 805) and IFRS. Therefore, if the company includes the value of the shares repurchased in determining the “consideration transferred” under US GAAP or IFRS, the staff believes the full amount of the “consideration transferred” should be reflected in the numerator and there does not appear to be a basis to exclude a portion of the consideration related to the repurchase of shares for the purposes of the investment test.

The usual caveats apply to these notes – they are a summary of discussions, not authoritative, and not an official statement of the Staff. That said, they shed some light on how the Staff views various accounting-related topics. The next Joint Meeting of the Committee and the Staff is set for June 26, 2025.

– Liz Dunshee

Yesterday, the SEC announced that it had settled the civil enforcement action that it filed against Ripple Labs and two of its executives back in December 2020, which had resulted in an injunction and penalty last summer. Here’s an excerpt from the SEC’s announcement:

The settlement agreement provides, among other things, that the Commission and Ripple would jointly request the district court to issue an indicative ruling as to whether it would dissolve the injunction against Ripple in the district court’s August 7, 2024 final judgment and order the escrow account holding the $125,035,150 civil penalty imposed by the final judgment be released, with $50 million paid to the Commission in full satisfaction of that penalty and the remainder paid to Ripple.

The Settlement Agreement further provides that, following an indication from the district court that it would dissolve the injunction and release the escrowed penalty amounts as requested, the Commission and Ripple will seek a limited remand to the district court for that relief, after which they would move to dismiss their respective appeals from the final judgment, which are currently pending in the United States Court of Appeals for the Second Circuit. The Commission and the defendants filed the settlement agreement with the district court as part of their joint request for an indictive ruling.

The Commission’s decision to exercise its discretion and seek a resolution of this pending enforcement action rests on its judgment that such resolution will facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry, not on any assessment of the merits of the claims alleged in the action. Furthermore, the Commission’s decision to resolve this enforcement action does not necessarily reflect the Commission’s position on any other case.

The 2020 case alleged that Ripple’s digital token was a “security” and that the company had conducted an unregistered public offering. The 2024 court decision awarded the Commission a fraction of the nearly $2 billion in penalties that the SEC had pursued, but it is still significant that the SEC is relinquishing its limited win. Commissioner Crenshaw issued this dissenting statement arguing that the settlement undermines the court’s order and the SEC’s credibility and is not in the interest of investors. Here’s an excerpt:

This settlement is part of a broader, programmatic shift to dismiss our registration cases in the crypto context.[5] In remodeling our legal stance in this area, we have pointed to a new “regulatory path,” that the agency will purportedly pursue based on the work of the SEC’s Crypto Task Force.[6] But, even if the Crypto Task Force re-writes registration rules for crypto securities in the future, that does not somehow alter the rules that were in place at the time that Ripple violated them. Further, we have no hint of what those future rules might look like or how long it will take to put them in place—if ever. So, we are today accepting a diluted settlement, that erases the investor protections we already won, based on a non-existent framework that may or may not come to fruition potentially years from now, on the basis that the current framework in place—of applying the facts to the law—was not industry or innovation-friendly.

It’s true that the SEC has done a 180 on crypto over the past few months – taking several steps to provide support and guidance to the fintech industry, which aligns with January’s Executive Order on digital assets. From the highlight reel:

– Announcement of crypto as a priority

– Rescinding SAB 121

– Series of roundtables

– Staff statement on meme coins

– Staff statement on crypto mining

– Staff statement on stablecoins

– Staff statement on disclosure framework for crypto assets

– Disbanding the crypto enforcement team

I’ve probably even missed a few! This settlement shows that the SEC is not only making a concerted effort to act quickly on this topic – it is also putting its money where its mouth is.

– Liz Dunshee

The well-timed trades by certain lawmakers during April have once again drawn attention to the issue that – unlike most of us who are involved with public companies – some members of Congress have few qualms about appearing to use confidential information to their advantage. This time, their windfalls have sparked renewed interest in the “Transparent Representation Upholding Service and Trust in Congress Act” – cleverly nicknamed the “TRUST in Congress Act.”

Rep. Seth Magaziner (D-RI) reintroduced the bill in the House this past January with Senator Josh Hawley (R-MO) introducing a companion bill in the Senate (that one’s called the “PELOSI” Act). This legislation would go beyond the STOCK Act that already exists – which we’ve covered from time to time. Instead of simply requiring disclosure of trades, it would aim to prevent insider trading by members of Congress by requiring them to use a blind trust – specifically:

such individual and any spouse or dependent child of such individual shall place any covered investment owned by such individual, spouse, or dependent child into a qualified blind trust.

Even though the bill has some bipartisan support, its prior iterations haven’t made it to the finish line – and GovTrack gives this version a 9% chance of becoming law. With those odds, I’m not planning to trust Congress any time soon.

– Liz Dunshee

Yesterday I blogged about Texas, so it’s only fair to cover a Delaware topic today. Here’s a helpful guide that Meredith shared last week on DealLawyers.com (make sure to subscribe to that blog and become a member of that site for real-time updates on corporate law, M&A, and activism!):

This Mayer Brown alert outlines a three-step process for evaluating conflict transactions following the DGCL amendments that took effect in March. Below, I’ve streamlined the outline. It also contains details on and analyses of each of these steps and sets forth procedural safeguards to invoke the safe harbors.

Step One: Does the act or transaction involve a controlling stockholder or a control group?

1. Is there a controlling stockholder or a control group?
2. If the corporation has a controlling stockholder or a control group, are they involved in the act or transaction?
3. Is the act or transaction a going private transaction?

 

Step Two: If the act or transaction does not involve controlling stockholders or a control group, are directors or officers of the corporation involved?

Step Three: Are the safe harbor requirements met?

1. Determine which directors and stockholders are disinterested.
2. Will the corporation rely on the fairness safe harbor?

The alert concludes with this reminder:

What if a conflicted transaction fails to qualify for a safe harbor? If a conflicted transaction fails to satisfy any of the safe harbor criteria, including the fairness fallback, the relevant directors, officers, controlling stockholders, and control group members may be exposed to liability, including monetary damages, for breaches of their fiduciary duties. Delaware courts will assess whether to impose liability based on the individual conduct of such corporate actors:

– For breaches of the duty of care, controlling stockholders benefit from §144(d)(5) exculpation, and directors and officers may benefit from similar exculpation under the certificate of incorporation, subject to limitations relating to bad faith, intentional misconduct, knowing violations of law, and receipt of an improper personal benefit.

– Breaches of the duty of loyalty cannot be exculpated and will result in liability if proven that the director, officer, or controlling stockholder acted in a self-interested manner adverse to stockholder interests, lacked independence, or acted in bad faith.

The §144 safe harbors are not exclusive protections and do not preclude other Delaware common law protections, including circumstances under which the business judgment rule is presumed to apply.

It’s worth noting that earlier this week, the Delaware Court of Chancery rejected a claim that a 46% Stockholder was a controller. John blogged about the details on – where else? – DealLawyers.com.

– Liz Dunshee

Yesterday, the Texas legislature sent a bill to Governor Greg Abbott that, if signed into law, would permit Texas-based public companies to impose greater ownership thresholds on shareholders seeking to submit proposals – including proposals submitted under Rule 14a-8.

Specifically, if an eligible company amends its governing documents to incorporate this provision, a shareholder (or group of shareholders) would have to meet the following criteria to submit a proposal:

1) hold an amount of voting shares of the corporation, determined as of the date of submission of the proposal, equal to at least:

(A) $1 million in market value; or

(B) three percent of the corporation’s voting shares;

(2) hold the shares described by Subdivision (1):

(A) for a continuous period of least six months before the date of the meeting; and

(B) throughout the entire duration of the meeting; and

(3) solicit the holders of shares representing at least 67 percent of the voting power of shares entitled to vote on the proposal.

That’s a high bar! The bill would require companies to notify shareholders of the proposed adoption of these provisions in a proxy statement provided prior to the amendment’s adoption, and it would also require proxy statements to provide specific information about the process for submitting a proposal. The bill also says that these ownership thresholds wouldn’t apply to director nominations or procedural resolutions that are ancillary to the conduct of the meeting.

These amendments are part of the Lone Star State’s broader efforts to encourage companies to reincorporate and list shares on a home-state exchange (that is incorporated in Delaware). This article from Hunton’s Daryl Robertson gives a nice overview of the various corporations bills that the Texas Legislature is considering – including proposals to expand the jurisdiction of the business court that began operating in the state last September.

– Liz Dunshee

If your company is considering an initial listing on the NYSE – or recently listed on the NYSE – a recent rule change may help your bottom line. Thanks to Orrick’s Bobby Bee for bringing this to our attention!

The NYSE has amended Section 902.03 of the Listed Company Manual to say that during the first five years of an initial listing of a class of common equity on NYSE, an issuer will:

1. only be subject to initial and annual listing fees for its primary class of equity securities, and

2. will be exempt from all other listing fees, including fees for

a) the listing of additional shares of the primary class of equity securities (including with respect to shares issued in connection with a stock split or stock dividend),

b) the listing of an additional class of common stock, preferred stock, warrants or rights,

c) the listing of securities convertible into or exchangeable or exercisable for additional securities of the issuer’s primary class of equity securities,

d) applications in connection with a Technical Original Listing or reverse stock split, or

e) applications for changes that involve modification to Exchange records or in relation to a poison pill.

The rule went into effect on April 1st and applies to any initial listings of common equity after that date. Any company that listed a primary class of equity securities on the Exchange before April 1, 2025, but on or after April 1, 2021, will be entitled to the remaining balance of the five-year limited fee period running from April 1, 2025 until the five-year anniversary of the date on which such company listed its primary class of equity securities on the Exchange. Fees already paid and incurred prior to April 1, 2025 will not be altered or refunded.

– Liz Dunshee