Join us tomorrow at 2:00 pm eastern time for our webcast, “Cryptocurrency: Making Sense of the State of Play” here on TheCorporateCounsel.net. Hear from Ava Labs’ Lee Schneider, Liquid Advisors’ Annemarie Tierney, Cooley’s Nancy Wojtas and Coinbase’s Jolie Yang about current regulatory posturing and risks, structuring deals & products in the current regulatory environment, lessons from recent high-profile token collapses, and guidance on how to navigate uncertainties.
This webcast is free to members of TheCorporateCounsel.net and is available to non-members for $595. If you aren’t already a member, sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
The latest issue of The Corporate Counsel has been sent to the printer. It is 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 our “new normal” of remote work. The issue includes articles on:
– When and How to Update Your Shelf Registration Statement
– Officer Exculpation: Q&As on Delaware’s Recent Amendment
Please email sales@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
On October 11, we kick things off with our first ever “1st Annual Practical ESG Conference.” This standalone conference will deliver usable, practical guidance on the hottest ESG topics, in a candid and conversational format. I will be joining an amazing group of ESG practitioners from legal, accounting/auditing and in-house corporate backgrounds to help you stay ahead of reputational risks, stakeholder demands and regulatory initiatives – and provide meaningful pointers to design, implement and improve corporate ESG programs.
On October 12-13, we take a deep dive into the upcoming proxy season with the “2022 Proxy Disclosure Conference.” With all of the forces shaping the 2023 proxy season, you do not want to miss this event. The talented group of panelists that we have assembled for this event will provide you with all of the guidance that you need to successfully navigate the upcoming proxy season.
On October 14, we turn our attention to critical executive compensation matters at the “19th Annual Executive Compensation Conference.” At this conference, you will hear from a wide range of panelists speaking on seven panels that will address all of the hot topics in executive compensation today.
It is not too late to register for our Conferences today! Sign up online (with the “Conference” drop-down, and the “PDEC” options), email sales@ccrcorp.com, or call 1-800-737-1271. You can still bundle the Conferences together to get a discount rate.
If you have already signed up to attend our Conferences next week, thank you for your joining us! You will receive an email later this week from info@ccrcorp.com with instructions for logging on to the Conference platform.
The SEC announced that it will highlight the importance of long-term planning and investor resilience during World Investor Week 2022, which takes place October 3-9.
World Investor Week is a global effort promoted by the International Organization of Securities Commissions (IOSCO) that brings together regulators on six continents to raise awareness about the importance of investor education and protection. During the event, SEC staff will host outreach events highlighting the importance of establishing an emergency fund, avoiding high-interest debt, conducting research on investment opportunities, understanding the risks of investing, portfolio diversification, and fraud prevention.
Last Thursday, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the beneficial ownership information reporting provisions of Corporate Transparency Act. FinCEN adopted the final rule largely as proposed in December 2021. As John noted when the rule was proposed, the regulations create a new federal filing requirements applicable to a wide range of entities (including operating companies, holding companies, LLCs and others). The goal of the new rule is to enhance FinCEN’s ability to protect national security and the financial system, by providing information that can be used by national security, intelligence, and law enforcement agencies. The effective date for the rule is January 1, 2024.
As this KPMG Regulatory Alert notes, the final rule outlines who is required to submit a beneficial ownership information report, as well as when and what information is required. Subject to certain exemptions, corporations, limited liability companies, and entities formed with (or registered to do business with) any secretary of state or similar office of a state or Native American tribe will be required to report specific information about their beneficial owners and individuals who filed the application to form the entity or registered it to do business.
Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024 will have 30 days after receiving notice of their creation or registration to file their initial reports. FinCEN indicates that it will publish for comment the reporting forms that will be used to comply with the reporting obligations under the new rule.
At the Fall conference of the Council of Institutional Investors (which took place in Boston last month), U.S. Asset Owner members approved an amendment to CII’s corporate governance policies that redefines what CII considers to be “over-boarding.” The new policy recommends that directors serve on no more than two for-profit corporate boards if they are employed full-time and a maximum of four for-profit corporate boards if they are not employed full-time. Previously, CII’s policy on board service recommended that a director who is not employed full time could serve on a maximum of five boards, and that a director who is employed full-time be limited to three boards.
CII’s amendment also requests that companies disclose all for-profit board memberships for each director, and that nominating and governance committees develop and publicly disclose their policies on board service.
Last week, CII submitted a comment letter on the SEC’s draft 2022-2026 strategic plan and offered suggestions on the Commission’s proposals to update its disclosure framework. The letter generally supports the Commission’s overall plans to modernize the design, delivery and content of corporate disclosure. Specifically with respect to sustainability disclosure, CII recommends that the SEC work with other regulators and standard setters, including the International Sustainability Standards Board, to limit “disclosure fragmentation in the global markets.”
CII also advises the SEC to evaluate the following factors when adopting rules to update its disclosure framework:
– Materiality to investment and voting decisions;
– Depth, consistency and reliability of empirical evidence supporting the connection between the disclosure and long-term shareowner value;
– Anticipated benefits to investors, net of the cost of collection and reporting; and
– Prospect of substantially improving transparency, comparability, reliability and accuracy.
CII’s letter also supports the SEC’s plans to require companies to use iXBRL format and reiterates CII’s request that SEC correspondence with public companies be made available in a structured, machine-readable format.
Yesterday, the SEC announced a $361 million settlement with Barclays for an unprecedented over-issue that is every security lawyer’s nightmare:
The SEC’s order states that, following a settled Commission action against a BBPLC affiliate in May 2017, BBPLC lost its status as a well-known seasoned issuer (WKSI). As a result, BBPLC had to quantify the total number of securities that it anticipated offering and selling and pay registration fees for those offerings upon the filing of a new registration statement.
The SEC’s order notes that, given this requirement, BBPLC personnel understood that the firm needed to track actual offers and sales of securities against the amount of registered offers and sales on a real-time basis; yet, no internal control was established for this purpose. According to the SEC’s order, as a result of this failure, BBPLC offered and sold approximately $17.7 billion of securities in unregistered transactions.
As the SEC’s order states, BBPLC self-reported its over-issuances to regulators, provided meaningful cooperation during the SEC staff’s investigation, and subsequently commenced a rescission offer.
This all relates to notes and corporate debt offerings that the bank attempted to conduct via a shelf registration statement. Barclays announced the over-issue back in March. Since the securities weren’t registered, they had to offer to buy them back at the price they were sold for – which the bank estimated would lead to a $600 million loss. The rescission offer expired earlier this month. With this settlement, Barclays is paying another $200 million in civil penalties on top of the money it lost (plus disgorgement and prejudgment interest that are deemed satisfied by the rescission).
The order says that Barclays established a multi-person working group when it lost WKSI status. That group talked about calculating the total amount of securities that the business expected to offer and sell, in order to pay registration fees in advance. They also talked about the need to track actual offers & sales. But they didn’t create any process or assign responsibility for that task. The SEC’s order describes what must have been a rough week:
On March 8, 2022, a member of Group Treasury reached out to the member of the legal department who had been part of the Working Group, inquiring as to how many securities remained available to be offered and sold off of the 2019 Shelf because Group Treasury was planning on doing a sale of corporate debt securities.
Over the course of that day and the next, various BBPLC personnel attempted to calculate the cumulative amount of securities offered and sold from the 2019 Shelf in order to determine the amount of securities that remained available for sale. Over the course of these efforts, it became clear to all involved that there was no internal control in place to track in real time the amount of securities offered and sold against the amount of securities registered.
On or around March 9, 2022, BBPLC personnel concluded that securities had been offered and sold in excess of what had been registered on the 2019 Shelf. Shortly thereafter, BBPLC halted new offers and sales of securities from the 2019 Shelf and, on March 14, 2022, alerted regulators about the over-issuance and disclosed to the market that BBPLC did not have sufficient issuance capacity to support further sales from inventory and any further issuances of certain ETNs.
Here are the new controls that Barclays is adopting as part of this settlement – which are a good benchmarking reference for other companies. Barclays has to internally audit these processes in a few months and submit a report to its audit committee and the SEC Staff:
1. The centralization of oversight of BBPLC’s SEC-registered shelves in Group Treasury;
2. The maintenance of clear minimum control requirements for BBPLC’s SEC-registered shelves, including, but not limited to, a process for reviewing any change in WKSI status for BBPLC and the tracking of offers and sales off of BBPLC’s SEC-registered shelves as appropriate; and
3. The maintenance of a data repository, with appropriate controls and governance designed to ensure reliability of the data, for the purpose of tracking offers and sales, as appropriate, off of BBPLC’s SEC-registered shelves.
In the press release, the SEC cautions non-WKSIs to make sure to have internal controls to track registration statement capacity after each takedown. That’s good advice! Check out our “Form S-3 Handbook” for how exactly to do it. I do wonder, will the Staff be tracking this more? That would be a lot of work. The release here urges self-reporting if you discover unregistered sales. Hopefully you catch it before getting to $18 billion.
Our thoughts go out to everyone in our community who has been affected this week by severe weather. Yesterday, the SEC announced that the Staff invites questions from anyone with securities law obligations that may be affected by Hurricanes Ian & Fiona. The Staff will evaluate the appropriateness of providing regulatory relief for those as applicable. Here is the applicable contact info:
– Division of Examinations staff in the SEC’s Miami Regional Office (covers Florida, Mississippi, Louisiana, U.S. Virgin Islands, and Puerto Rico) can be reached at 305-982-6300 or miami@sec.gov.
– Division of Corporation Finance staff can be reached at 202-551-3500 or via online submission at http://www.sec.gov/forms/corp_fin_interpretive.
– Division of Investment Management staff can be reached at 202-551-6825 or imocc@sec.gov.
– Division of Trading and Markets staff can be reached at 202-551-5777 or tradingandmarkets@sec.gov.
– Office of Municipal Securities staff can be reached at 202-551-5680 or munis@sec.gov.
Individuals experiencing problems accessing their securities accounts or with similar questions or concerns relating to the hurricanes are encouraged to contact the SEC’s Office of Investor Education and Advocacy by phone at 1-800-SEC-0330 or email at help@sec.gov. The SEC also urged investors to be vigilant of hurricane-related securities scams.
