The SPAC market has been decidedly cooler this year – due to market conditions that are affecting all IPOs, yes – but also due to SEC skepticism that culminated in a March 30th rule proposal. As noted in this article from Bloomberg’s Preston Brewer, the proposal is causing some underwriters to reconsider work on SPAC deals. John also blogged that at least one deal died because the SEC didn’t act on the acceleration request.
In case all that still isn’t enough to dampen enthusiasm, SEC Investor Advocate Rick Fleming also recently contacted the Nasdaq and NYSE to urge more stringent listing standards for SPACs. This Fried Frank blog explains:
SEC Investor Advocate Rick A. Fleming urged Nasdaq and the NYSE to revise their listing standards so that special purpose acquisition company (“SPAC”) business combinations could only be consummated when 50 percent or more of public shares would be invested in the SPAC post-combination.
In Memoranda to the exchanges, Mr. Fleming, stated that “we have significant reservations about the consequences of the current listing standards that allow for empty voting and otherwise permit significant conflicts of interest.” He highlighted the SEC’s proposed rule to increase disclosure in IPOs by SPACs and in business combination transactions involving shell companies such as SPACs, (see prior coverage).
In the Memoranda, Mr. Fleming asserted that (i) the exchanges’ elimination of a conversion rights percentage threshold and (ii) the replacement of voting protections with registration statement risk disclosures of underfunded business combinations enabled many companies to go public even when most SPAC IPO investors had redeemed their shares. He contended that this allows the occurrence of business combinations even when assets are depleted due to the exercise of conversion rights, which in turn gives early investors economic incentives to allow low-quality deals to happen. The Investor Advocate concluded that these measures (i) enabled “empty voting” and conflicts of interest and (ii) “benefitted SPAC sponsors and sophisticated IPO participants . . . at the expense of public investors.”
For more on the ongoing ins & outs of SPAC deals, visit our “SPACs” Practice Area – where we cover SEC and exchange regulations, de-SPACs, accounting issues, litigation & enforcement, and more.
If you’re not already a member with access to these resources, sign up for TheCorporateCounsel.net online or by emailing sales@ccrcorp.com or calling 800-737-1271. Our “100 Day Promise” allows you to try a subscription at no risk for 100 days – within that time, you may cancel for any reason and receive a full refund!
An observant member posted this question last week in our “Q&A Forum” (#11,109):
Does anyone have insight into when the SEC will be raising the annual gross revenue cap for a company to qualify as an emerging growth company? The JOBS Act requires the SEC to index to inflation the revenue cap every five years, and the last adjustment (from $1.0B to $1.07B) was on March 31, 2017, effective April 12, 2017 when it was published in the Federal Register.
John noted:
I have not heard anything on this, but the 10th anniversary of the JOBS Act was April 5th, so I would expect the SEC to issue something in the very near future.
It’s hard to believe that the JOBS Act is 10 years old. We have Practice Areas for “Emerging Growth Companies” and for the “JOBS Act” (and the related FAST Act) for any members looking for instruction on how to apply these regulations.
Last week on our Proxy Season Blog, I highlighted a Goodwin analysis saying that nearly 80% of Nasdaq companies have included a board diversity matrix in their proxy statement this year, rather than waiting for the August deadline to post on their website.
For those companies that have not yet published a matrix, a new memo from Compensation Advisory Partners runs through example matrices based on the most recent Nasdaq instructions from February of this year. Here are the 6 examples – check out the memo to see what they look like:
1. Matrix showing all required components as well as supplementary info
2. Matrix that excludes categories that aren’t applicable to the company’s directors
3. Matrix that shows all required categories with additional rows below the matrix about director demographics that aren’t included in Nasdaq’s listed categories (e.g., military veterans, etc.)
4. Matrix with accompanying narrative disclosure
5. Matrix for foreign company with supplementary rows below
6. Matrix for foreign company where disclosure of race is prohibited in the home country – the company must still disclose gender stats
For Nasdaq-listed companies that go the “website posting” route for the board diversity matrix, the Nasdaq instructions require completing Section 10 of the Company Event Form (accessed through the listing center) within one day of posting the matrix on your website. You’ll need to include a link to the matrix on that form.
Will the SEC extend the comment period in response to these requests? As the most recent extension request aptly points out:
The 39 days allotted for comment since the proposed rule was published in the Federal Register are woefully inadequate for the magnitude of this rule, which runs to 506 pages, contains 1,068 footnotes, references 194 dense academic and governmental reports, imposes a $10.235 billion cost on society, and seeks answers to 196 discrete questions. The public requires ample time to consider all the materials SEC has laid out in this rule in order to thoughtfully and thoroughly respond. Likewise, SEC has a statutory obligation to provide the public with a meaningful opportunity to comment. Thirty-nine days does not constitute a meaningful opportunity when there are so many wide-ranging economic and financial impacts from this rule.
But does the SEC care what commenters think? A 39-day comment period on a rule proposal of this significance does not signal that it does, and could only hurt the Commission’s position in the inevitable litigation that will follow adoption of the rules. In the meantime, I am going to keep going on the comment letters I am working on!
Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications. Since the beginning of my time with CCRCorp, I have been a contributor to and editor of The Corporate Counsel newsletter, and now I serve as Senior Editor of that publication along with John Jenkins. The Corporate Counsel newsletter is our flagship publication and has been a go-to resource for me for as long as I have been practicing law. I can remember being at the SEC when I first started out and waiting for the latest issue to circulate through people’s inboxes until it reached my desk, and I would read it cover-to-cover to take in all of the great practical guidance. I credit The Corporate Counsel with teaching me many of the practical things about the securities laws that I use in my practice every day. I refer to the online back issues of The Corporate Counsel several times a week – and you should too!
While it is hard to tell because The Corporate Counsel does not have bylines, I have written many of the articles that have been published in The Corporate Counsel over the past 15 years. With so many articles in print, it is difficult to pick just one as a favorite. But if I have to choose, I would say that my article about the integration doctrine in the January-February 2021 issue of The Corporate Counsel was my favorite, because it gave me an opportunity to tell the recent history of the integration doctrine while paying tribute to my late friend and former editor of The Corporate Counsel, Marty Dunn. The article recounts how Marty’s “integration manifesto” shaped the development of the integration doctrine, and how those concepts influenced the SEC’s rulemaking on integration in the 2020 harmonization release. To me, the article does everything I strive for in an article for The Corporate Counsel – it tells a good story, it gives some history and perspective and offers some useful, practical guidance.
I hope that you enjoy the free copy of the January-February 2021 issue of The Corporate Counsel that I have provided in this blog. If you do not have a subscription to the print or online issues of The Corporate Counsel, be sure to email our sales team today at sales@ccrcorp.com.
As Ngozi blogged earlier this week, civil rights audits are an emerging issue that companies and boards need to understand and that can impact DEI work. This workshop will feature valuable guidance from leaders in the civil rights audit space – including former US Attorney General Eric H. Holder, Jr., Laura Murphy (the pioneer of this practice), Airbnb’s Megan Cacace, Covington’s Aaron Lewis, and SOC Investment Group’s Tejal Patel.
The workshop is free and if you can’t make the live event (or if you want to re-watch it), a replay will be available for members of PracticalESG.com. If you aren’t already a member, sign up online or email sales@ccrcorp.com.
For more information, go to PracticalESG.com. My firm Morrison & Foerster LLP is proud to be a sponsor of the DEI Workshop and I encourage everyone to attend.
Earlier this month, the Ukrainian American Bar Association, Razom, Inc. and the former Minister of Finance of Ukraine submitted a petition for rulemaking to the SEC, requesting that the Commission enact a rule requiring issuers to disclose their business dealings in and with Russia and Belarus. The petitioners request that the required disclosure should include: sales to Russia (direct and indirect), purchases from Russia (direct and indirect), ownership of assets in Russia, and stakes in entities registered in Russia. The petitioners note that issuers should conduct reasonable due diligence about their customers and suppliers to ensure that their disclosures include amounts of indirect sales and purchases to and from Russia that can be reasonably ascertained through diligence of respective supply chains. The petitioners note:
These varying stances of issuers regarding their business in Russia and the choice of many to continue operating in and doing business with Russia makes information about such activities of vital importance to investors. This information is vital because it provides disclosure to investors regarding the risks and costs of continuing to operate in a heavily sanctioned market ruled by a government moving to nationlize industry. Disclosure will also enable investors and regulators to ensure issuers are meeting the ever more complex sanctions rules regarding operations in the Russian market. Likewise, issuers are concerned that Russia may apply its own counter-sanctions against issuers that do not continue fully their operations within Russia. This proposed disclosure would help investors better understand the cost of doing business in Russia.
While it is difficult to say whether the SEC will act on this petition for rulemaking (the Commission rarely does act on these petitions), one might argue that some of these disclosures may already be called for under existing disclosure requirements, depending on materiality. You might recall that the SEC had established an Office of Global Security Risk which sent comment letters to issuers seeking disclosure of business with sanctioned governments, persons and entities based on existing disclosure requirements, but it appears that the Office is no longer in operation. Given that precedent, however, it is possible to see how the SEC might seek to elicit more disclosure through means other than rulemaking, which would of course be time consuming and particularly difficult at the moment with all that the SEC has on its agenda.
Sadly, the Office of Global Security Risk’s long-time Chief, Cecilia Blye, passed away earlier this year. I worked with Cecilia in the Office of Chief Counsel and she was a wonderful colleague and a great mentor to the attorneys in Corp Fin. I offer my condolences to Cecilia’s friends, colleagues and family.
For more on the potential disclosure considerations arising from the war in Ukraine, review the resources we have posted in our “Ukraine Crisis” Practice Area.
As we move through earnings season, we are actually seeing a significant amount of disclosure regarding the impact that the war in Ukraine and the associated actions against Russia and its allies is having on the financial performance of public companies.
At a recent conference, we were discussing the range of financial statement impacts that the war in Ukraine could have, and companies and auditors are definitely focusing on these considerations. One of the key areas is impairments, as the war and the economic impacts could impact the valuation of company assets, including the actual destruction of assets and operations. Further, many companies are grappling with the fallout of ceasing business operations in Russia and Belarus, as well as the prospect of government confiscation of property in those countries. The economic impacts of the war also bring other problems, including the prospect of significant currency fluctuations and hyperinflationary economics. Finally, the disruption brought about by the war and the economic consequences can cause companies to deal with cash flow problems and, even worse, going concern considerations. Investors will no doubt be laser-focused on these issues, and as the war drags and the sanctions tighten the impact of these and other issues will become more and more pronounced.
Although I think the news coverage is doing a pretty good job of pointing this out, a major land war in Europe is something most of us have never experienced in our lifetime. The tragic loss of life is difficult to witness, and the continuous ratcheting up of tensions between Russia and the West is putting us all on edge.
The war has many implications for public companies and their boards of directors, so we understand that it is critical for our members to keep abreast of the developments as they happen. We have established a new “Ukraine Crisis” Practice Area, where you can access resources about legal developments, governance considerations, sanctions, disclosure issues and commercial and investment issues.
If you are not a member of TheCorporateCounsel.net, email sales@ccrcorp.com to sign up today and get access to the “Ukraine Crisis” Practice Area – or sign up online.
Over seven years ago, I wrote an article for The Corporate Counsel titled “Still Your Father’s Oldsmobile: The SEC’s Recent Focus on the Corporate Bond Market,” which recounted statements from former SEC Chair Mary Jo White and former Commissioner Dan Gallagher regarding the need for more transparency and the utilization of electronic platforms in bond markets. Now those issues have resurfaced in a speech that Chair Gary Gensler recently delivered to London City Week.
Gensler may have had an Aston Martin in mind rather than an Oldsmobile, because he started off his remarks with a discussion of James Bond, noting that this year marks the 60th anniversary of the first James Bond film. Carrying through the “bond” theme, Gensler noted the sheer size of U.S. bond markets and returned to some key bond market themes from years ago – transparency, platforms and resiliency.
On the topic of platforms, Gensler noted it is important that SEC consider revising its rules to reflect the increased use of electronic trading platforms in fixed income markets. Gensler has asked the Staff to consider how the Commission might enhance market integrity, access, and pre-trade transparency on these platforms. He noted that, in January, the Commission proposed a new definition for “exchange” that would cover additional fixed income platforms and some systems that bring together buyers and sellers for other securities asset classes. Gensler noted:
In addition, I’ve asked staff to consider ways to increase fair access to electronic trading platforms that would fall within the expanded definition of “exchange,” with the goal of making the benefits of these systems more widely available to investors. I think we have an opportunity to augment investor protections and market integrity as well.
Given the size and importance of fixed-income markets, improvements to transparency, platforms and resiliency for bond trading could potentially be a rare bipartisan issue that the Commission can rally around.
