Most of you who read this blog, subscribe to our sites, or even just follow the “who’s who” of securities law are very familiar with our long-time Senior Editor Dave Lynn. I’m thrilled to say that you’ll be seeing more of his name right here in the coming weeks!
Dave will be rejoining our blogging lineup for the time being and will be imparting the wisdom he’s accumulated from his years as a Partner at Morrison & Foerster – and before that, as Corp Fin’s Chief Counsel (among other SEC roles). When Dave was at the SEC, he led the rulemaking team that revised the executive compensation & related party disclosure rules, provided interpretive advice, formulated policy decisions, and published CDIs.
Tell your friends! Remember that you can subscribe here to receive either daily or weekly blog updates in your email inbox.
– Liz Dunshee
Lynn blogged recently that smaller companies are less likely to use Big Four audit firms. For an even more detailed breakdown of audit firm market share based on filer status, take a look at this recent Audit Analytics blog. Here’s an excerpt:
– Large Accelerated Filers: EY audits almost 30%, and the Big Four collectively audit almost 91% of this market
– Accelerated Filers: the Big Four, together with Grant Thornton and BDO, audit over 72% of these filers
– Non-Accelerated Filers: the Big Four and Marcum account for 57.5% of this market
– Smaller Reporting Companies: BF Borgers, M&K CPAs, Boyle CPA, Prager Metis, RBSM, Turner Stone & Company and Baker Tilly collectively audit 25% of this market, the remaining 77% is audited by 177 other firms
– Liz Dunshee
The July-August issue of “The Corporate Counsel” newsletter is in the mail. It’s also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment (subscribe here to be “in the know”). The issue includes articles on:
– Universal Proxy: Takeaways From the Reopened Comment Process
– Can It Wait Until the Next 10-Q?
Dave & John also have been doing a series of “Deep Dive with Dave” podcasts addressing the topics we’ve covered in recent issues. We’ll be posting one for this issue soon. Be sure to check it out on our “Podcasts” page!
– Liz Dunshee
Are you a fellow securities law geek who’s always wondered what it’s like to be on the other side of this operation? Now’s your chance to get involved! With Lynn departing (*sniff*), we are looking to bring in one or two self-starters to keep our resources up-to-date and a steady stream of useful info flowing to all our members. Here are the job listings:
– Associate Editor – approximately 4 years of securities law experience preferred
– Editor – 8+ years of securities law & corporate governance experience preferred
We’re fully remote and a few states are preferred, but we’re open to almost anywhere in the US. Our team is small but mighty. I won’t toot my own horn, but I will say that it’s pretty awesome to work with John, Lawrence, our cast of consulting Editors – and all of the great members who keep us in the know.
– Liz Dunshee
SEC Chair Gary Gensler made his Twitter debut earlier this week – joining Commissioners Peirce and Lee on one of the world’s best platforms for arguing with strangers. I’m pretty sure he’s the first SEC Chair to be active on Twitter during his term, and he’s amassed over 61k followers (including yours truly). No doubt he’ll be inundated with “mentions” from the blockchain crowd.
– Liz Dunshee
The July-August issue of our “Deal Lawyers” newsletter has been mailed – and posted online. It takes a deep dive into the growing business of M&A-related fiduciary duty claims against corporate officers. Topics include:
– What Claims are Being Brought Against Officers?
– Officer Liability: Beyond Motions to Dismiss
– Claims Against Persons Serving as Directors and Officers
– Pattern Energy: Officer Liability Leads to Unexculpated Director Liability
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our “Deal Lawyers” 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 – 4th 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.
– Liz Dunshee
Last week, FINRA settled a case with a broker-dealer who allegedly solicited and sold shares to 16 investors in over half a dozen Rule 506(b) offerings – because they failed to establish a pre-existing, substantive relationships with the offerees prior to participating in the offering. Here’s an excerpt from the order (also see this Cadwalader blog):
For example, D.H. Hill began participating in a private offering of securities on behalf of Issuer No. 1 in 2015. The firm executed the placement agent agreement for that offering on April 29, 2015, and first began selling interests in the offering to investors on February 25, 2016. On or before these dates, the firm did not have a substantive relationship with Investor A. D.H. Hill subsequently established such a relationship with and sold Investor A interests in Issuer No. 1’s offering on July 12, 2017, but the firm’s substantive relationship did not pre-date D.H. Hill’s participation in that offering.
Similarly, D.H. Hill began participating in a private offering of securities on behalf of Issuer No. 2 in 2017. The firm executed the placement agent agreement for that offering on May 19, 2017 and first began selling interests in Issuer No. 2’s offering on April 10, 2018. On or before this date, the firm did not have a substantive relationship with Investor B. D.H. Hill subsequently established such a relationship with and sold Investor B interests in Issuer No. 2’s offering on May 28, 2019, but the firm’s substantive relationship did not pre-date D.H. Hill’s participation in that offering.
It’s hard to know whether the companies also got in hot water over this, since the FINRA order doesn’t name them. My guess, though, is that the offerings did not go smoothly. If you’re planning a “traditional” Reg D offering under Rule 506(b), remember to verify the existence of a placement agent’s network – before signing up an agreement or involving them in due diligence.
– Liz Dunshee
We’re 6 months in to the Biden regime – and even though Gurbir Grewal just officially joined the Commission as the Director of the Division of Enforcement yesterday, it’s been quite a year already. And, every indication is that more scrutiny is expected going forward. This 21-page Gibson Dunn memo recaps trends & significant cases in the first half of the year. Here are some of the biggies:
1. Climate & ESG Task Force – charged with developing initiatives to identify ESG-related misconduct and analyzing data to identify potential violations. Additionally, the task force aims to identify misstatements in issuers’ disclosure of climate risks and to analyze disclosure and compliance issues related to ESG stakeholders and investors.
2. SPACs – A string of pronouncements in the spring was followed by announcement of the first enforcement action earlier this month.
3. Cybersecurity Enforcement Sweep
4. Shifting Approach to Corporate Penalties – In March, SEC Commissioner Caroline Crenshaw criticized the SEC’s 2006 guidance on its approach to penalties. Gibson Dunn notes that if the Commission is no longer following the 2006 guidance, then untethered from a consideration of corporate benefit or shareholder cost-benefit, the Commission’s posture on corporate penalties is vulnerable to subjective assessments of egregiousness and corporate cooperation. Moreover, unlike calculations under the US Sentencing Guidelines, there is no public disclosure of exactly how the SEC reaches a particular penalty, leaving companies and counsel unable to understand the basis for any negotiated penalty amount.
5. Discovery of Staff Positions – In recent litigation, defendants have been able to get internal Staff documents and even depose former Corp Fin Director Bill Hinman.
6. Whistleblower Awards – Coming in at a record pace.
– Liz Dunshee
As we look toward the Form 10-K deadline for June 30th companies, here’s a reminder of our benchmarking survey on “human capital” disclosures. The responses below are from companies with market cap exceeding $10 billion (check out the full results for responses from different market caps):
1. Which HCM topics will you discuss in your Form 10-K? (select all that apply)
– Description of company’s diversity and inclusion initiatives – 72%
– Workforce health & safety – 72%
– Information about company culture and/or employee engagement – 67%
– Company investment in continuing education/training opportunities – 44%
– Information about retention/turnover at your company – 28%
– Succession planning – 11%
– Legal or regulatory proceedings relating to employee management – 0%
2. Will you include quantitative HCM disclosures? (select only one)
– We’re considering doing so, but we haven’t decided yet – 52%
– Yes, we’re planning to include some quantitative disclosures – 32%
– No, we’re not planning to include any quantitative disclosures – 16%
3. What type of quantitative data is your company planning to disclose? (select all that apply)
– Employee turnover rates – 67%
– Workforce gender, racial/ethnic diversity composition data – 67%
– Breakdown of full-time versus part-time employees – 33%
– Scores from employee engagement surveys – 33%
– Workforce health & safety metrics – 33%
– Internal promotion rate – 17%
– Absenteeism rate as a percentage of total hours worked – 0%
– Dollar amount of company investment in continuing education/training opportunities, such as total spend on training per employee per year – 0%
– Geographic mix of employees – 0%
– Mental health well-being rate – 0%
– Pay equity metrics – 0%
– Volume of legal/regulatory proceedings related to employee management – 0%
– Liz Dunshee
Robinhood – the app that set retail stock trading on fire – is itself going public this week. Here’s the Form S-1, which says that the company plans to sell up to one-third of its IPO shares directly through its app. The deal is getting a lot of press – and this Nasdaq article says it’s just one of 17 IPOs on the ticket for this week. This week’s activity isn’t unusual, either. Including SPAC shells, there were 1,070 IPOs during the first half of this year. 1,070!
With the IPO market remaining hot for about a year now – and, as John blogged last week, the SPAC assembly line cranking back up – is it safe to say that the decades-long trend of declining public companies is reversing? As of the end of last year, the number of public companies had already climbed modestly – and this EY memo elaborates on encouraging stats from the first half of 2021:
– The first half of 2021 (1H 2021) saw 1,070 IPOs with total proceeds of US$222b. Globally, deal numbers increased 150% year-on-year (YOY), while proceeds rose by 215%. Strong performance between January and April plus June, pushed 1H IPO deal numbers and proceeds to their highest levels in 20 years. 1H 2021 deal numbers were 18% higher and proceeds were 71% higher compared with the former record of 1H 2007 (908 IPOs, raising US$129.8b).
– Equity markets, buoyant from positive corporate results and growth forecasts on gradual economic recovery, and market liquidity have hit new heights and provided favorable conditions for the IPO mark.
– Q2 2021 IPO deal numbers and proceeds were 597 IPOs and US$111.6b, respectively. Q2 2021 was the most active second quarter by deal numbers and proceeds in the last 20 years, and beat previous records in Q2 2007 (522 IPOs raising US$87.7b).
– Q2 2021 was 206% and 166% higher, respectively, by deal numbers and proceeds compared with Q2 2020.
– A healthy pipeline of unicorns, which are set to make their way to public markets in 2H 2021, should help to ensure a busy Q3 when the traditional holiday periods will still be affected by the travel restrictions in many countries. And despite the slowdown in SPAC IPOs in Q2 2021, companies can now realistically assess the different ways of coming to the capital market, adding SPAC mergers and direct listings into their traditional IPO considerations.
The memo says plenty of industries are “winners” in this frothy market – tech, healthcare & industrials, materials, companies that benefit from lockdowns…and also those expecting a payday when things open back up. The jury is out on whether it’s a bubble, but it’s worth enjoying the moment.
If you’re newly public – or advising IPO companies – don’t miss our August 25th webcast, “Newly Public: Building Reporting & Governance Functions.” Hear David Bell of Fenwick, Jared Brandman of National Vision, Courtney Kamlet of Vontier and Trâm Phi of DocuSign discuss lessons learned from their experience successfully managing the process of going through the IPO and creating processes from scratch.
– Liz Dunshee
