June 6, 2024

FREE Event on June 11th!

Don’t miss’s next free virtual event – “DEI Full Circle: Exploring Executive Viewpoints, Embedding DEI Throughout the Employee Life-Cycle, and Understanding the Social Impact of DEI Work.” You can register here for this 3-hour program, which will kick-off at 12:00 pm eastern on Tuesday, June 11th. This virtual event features three panels of experts who will provide a comprehensive exploration of Diversity, Equity, and Inclusion (DEI) from various angles.

These events are free to all – you don’t have to be a member of to attend. But if you are attending events like these, you need the resources that provides. Become a member today by clicking here, emailing or by calling (800) 737-1271.

– Dave Lynn

June 5, 2024

SEC Downsizing: Closing a Regional Office

It is not that often that we see a government agency downsizing, so it was interesting to learn yesterday that the SEC has decided to close its Salt Lake City Regional Office. The SEC’s press release states:

The SLRO has long been the SEC’s smallest regional office and recently has experienced significant attrition. The agency considered its budget and organizational efficiency in deciding to close the office, and it has no plans to close any other regional offices. All current staff will be aligned to existing SEC organizational components based on their current functions and agency mission needs.

The SLRO’s enforcement jurisdiction over the state of Utah will be shifted to the SEC’s Denver Regional Office. The SEC’s National Exam Program previously shifted SLRO’s local jurisdiction to Denver many years ago; thus, regional examinations authority will be unaffected by the closure of the office.

The SEC’s regional offices perform important functions for the Commission and are principally comprised of enforcement and exam staff. Back when I started at the SEC in the mid-1990s, the regional offices also included staff who reviewed Regulation A filings, a practice which ended in 1996.

Regional offices were planned for shortly after the SEC opened for business, and Joseph Kennedy opened the first regional office in New York City in December 1934. There have been changes to the regional office network over the years. For example, the first major reorganization of the SEC’s regional offices took place back in 1993, when Arthur Levitt created several regional offices and designated smaller offices as district offices, while shuttering the Seattle regional office. The district offices subsequently regained their regional office status and each of the regional offices was named for the city in which it was located back in 2007.

– Dave Lynn

June 5, 2024

Digital Assets Legislation: Where Do We Go From Here?

Meredith recently noted Chair Gensler’s statement in opposition to legislation in the House of Representatives known as the Financial Innovation and Technology for the 21st Century Act, which would amend securities and commodities laws to address the regulation of digital assets. The House passed the legislation, by a vote of 279 to 136. As this Mayer Brown alert notes, the legislation would clarify the responsibilities of the SEC and CFTC with respect to digital assets:

The bill would create three categories of digital assets, which would determine whether a digital asset falls under SEC or CFTC jurisdiction; i.e., as a:

– “restricted digital asset” subject to SEC jurisdiction;
– “digital commodity” subject to CFTC jurisdiction; or
– ”permitted payment stablecoin” subject to either SEC or CFTC jurisdiction, depending on the nature of the intermediary involved in a transaction.

Under the bill, a digital asset would generally be considered a “restricted digital asset” unless it meets the definition of a “permitted payment stablecoin,” or is self-certified as a “digital commodity.” The bill would establish criteria for determining whether a digital asset can be considered a “digital commodity” or a “restricted digital asset” based on:

(1) the level of decentralization and functionality of the digital asset’s underlying blockchain system;
(2) the method of acquisition of the digital asset by an end user; and
(3) the party holding the digital asset (e.g., issuer or unaffiliated third party).

For illustration, it would be likely that a digital asset would meet the criteria for being a “digital commodity” if it (1) is issued through a distribution that is not used for fundraising (i.e., involves only an exchange of nominal value for the digital asset) and is open to all participants equally (i.e., a rewards program) or acquired through a digital commodity exchange; and (2) relates to a blockchain protocol that is functionally decentralized. On the other hand and in contrast, a digital asset would likely to be considered a “restricted digital asset” if it is not related to a functionally decentralized network and is obtained through an issuer distribution in exchange for meaningful value.

The bill would create a self-certification process for “digital commodities,” under which any person could file a certification with the SEC (not the CFTC) that the blockchain system to which a digital asset relates is a decentralized system (while the SEC oversees self-certification, both the SEC and CFTC are directed to engage in joint rulemaking on the self-certification criteria).

The SEC would have 60 days to reject the certification before the assets on such a system would be considered “digital commodities” subject to CFTC jurisdiction. Under this determination by the SEC, a “restricted digital asset” could initially be issued as a security—subject to SEC disclosure and offering requirements similar to those that apply to traditional securities, but specific to digital assets—and later become a “digital commodity” through self-certification. Importantly, a digital asset certified as a “digital commodity” may still be considered a “restricted digital asset” at the same time and is determined based on the holder (e.g., the units held by the issuer, an affiliate of the issuer, or who beneficially owns 5% or more of the outstanding units).

The bill would also address stablecoins and provide for the registration of digital asset intermediaries with the SEC and CFTC, while also establishing a CFTC-SEC Joint Advisory Committee on Digital Assets, which would be comprised of “a group of 20 nongovernmental stakeholders (10 appointed by each of the CFTC and SEC), which would provide advice on digital asset rules, regulations, and policies to the CFTC and SEC, including on how to the agencies should measure and quantify decentralization, functionality, information asymmetries, and transaction and network security of digital assets.” The legislation would direct the SEC and CFTC to engage in numerous rulemakings to implement the new regulatory framework.

As for where this legislation goes from here, the Mayer Brown alert notes:

Even with the strong support for FIT21 in the House, however, its future in the Senate is very uncertain. Most importantly, President Joe Biden does not support the legislation in its current form. Prior to the House vote, the White House released a Statement of Administrative Policy (SAP) stating that the Administration opposed passage of FIT21. The SAP stated that the “Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities,” but that FIT21 “lacks sufficient protections for consumers and investors.” As a result, it is highly unlikely that the Democratic-controlled Senate would bring up FIT21 for a vote unless the bill was amended to secure President Biden’s support. However, if FIT21 is considered by the Senate, the Senate’s recent 60 – 38 vote to pass the joint resolution of disapproval of the SEC’s Staff Accounting Bulletin No. 121 (which imposes high regulatory requirements on public companies, including publicly traded banks, to custody digital assets) under the Congressional Review Act suggests that the 60-vote majority needed to overcome a Senate filibuster may exist in the Senate.

In the meantime, the status quo at the SEC and CFTC will prevail when it comes to digital assets regulation.

– Dave Lynn

June 5, 2024

Our Upcoming Conferences: Register Today!

I am very excited about our return to in-person conferences in October. Our “2024 Proxy Disclosure & 21st Annual Executive Compensation Conferences” will be taking place in San Francisco on October 14th & 15th. I am particularly looking forward to participating in a number of the panels that make up the two days of conferences, which will include:

– “Erik Gerding: The Latest From Corp Fin” on October 14th

– “The SEC All-Stars: Proxy Season Insights” on October 14th

– “Game Show Lightning Round: All-Star Feud” on October 14th

– “Climate Disclosures: Your New Action Items” on October 14th

– “The SEC All-Stars: Executive Pay Nuggets” on October 15th

There are many other topics on our agenda, and I will be joined by an outstanding group of speakers for the two days of programming. This will be a great opportunity to catch up on the latest developments as we ramp up for the next proxy and annual reporting season.

You can register now by visiting our online store or by calling us at 800-737-1271. Our early bird in-person Single Attendee Price is $1,750, which is discounted from the regular $2,195 rate! If you can’t make it in person, we also offer a virtual option so you won’t miss out on the practical takeaways our speaker lineup will share, and we offer discounted rate options for groups of virtual attendees.

– Dave Lynn

June 4, 2024

T+1 Settlement Transition: How Did We Do?

As John noted last week, the new T+1 settlement cycle commenced last Tuesday and we did not end up in any sort of post-Y2K dystopian world. In fact, the move to T+1 settlement appeared to go smoothly. On Thursday, DTCC issued a statement noting:

Our analysis shows that as of yesterday, May 29, 94.55% of transactions were affirmed by the Depository Trust Company (DTC) cutoff time of 9:00PM ET on trade date. This represents a significant change from the affirmation rate observed at the end of January (73%).

When considering specific market segments as of end of day on May 29:

Prime Broker Affirmation Rate: 98.6% (up from 81% in January)

Investment Manager Auto Affirmation (central match) Rate: 97.5% (up from 92% in January)

Custodian or Investment Manager (self) Affirmation Rate: 84.29% (up from 51% in January)

Statement from Brian Steele, Managing Director, President, Clearing & Securities Services: “After working closely with the industry for over three years, we are pleased these efforts are driving a smooth transition, including very high same day affirmation rates, which increased to 94.55% yesterday. While we are proud of this progress, we will continue to collaborate with SIFMA, ICI and the industry to ensure a successful T+1 implementation in the coming days and weeks.”

On Friday, the Investment Company Institute, SIFMA and DTCC issued a joint statement noting:

“With the U.S. T+1 settlement cycle for corporate bonds, municipal bonds, and equities transactions now in place, ICI, SIFMA, and DTCC thank all the stakeholders for their collaboration and support in successfully implementing this historic change to U.S. markets. There was a tremendous amount of partnership and hard work to make T+1 a reality.

“Early indications following T+1 implementation are positive, and we look forward to working closely with firms and key stakeholders in the coming weeks to monitor and address any issues that may arise.

“Shortening the settlement cycle to T+1 promises to deliver greater operational efficiencies and substantially lower margin requirements while reducing risk in the financial system. With T+1 now live, we’ve collectively begun to achieve those benefits together.”

For practitioners, the new T+1 settlement cycle will require some getting used to, as timelines for preparing closing documents and filing final prospectuses and prospectus supplements is accelerated.

– Dave Lynn

June 4, 2024

D&O Insurance for SPAC IPOs: The Latest Guidance

We find ourselves in an uncertain time for the IPO market, and it has certainly been a rough ride for SPAC IPOs over the past couple years. It remains to be seen how the SEC’s new rules will impact the willingness of sponsors to bring SPACs to market through IPOs. For those brave souls who decide to dip their toes into the IPO waters, Woodruff Sawyer has provided a helpful publication with its 2024 edition of the Guide to D&O Insurance for SPAC IPOs. In the publication, the firm notes:

As it goes through the IPO process, the main assets of a SPAC are its cash in trust, its management team and directors, and the management team’s investment strategy.

SPAC management teams and directors are vulnerable to lawsuits from their public company shareholders as well as regulators like the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). D&O insurance is designed to mitigate the risk of litigation costs falling on individual directors and officers and the companies they serve.

The vulnerabilities associated with being a public company create a need for D&O insurance coverage for the SPAC’s management team and its board. Remember too that national stock exchange rules mandate that most of a SPAC’s board must consist of independent board members. Businesspeople who serve as independent board members typically do not accept a board appointment without the promise of good D&O insurance to protect them against lawsuits and regulatory enforcement.

The Guide to D&O Insurance for SPAC IPOs provides an overview of the most common litigation that SPACs have faced, a description of the regulatory enforcement environment, an explanation of the process for securing D&O insurance and questions to ask when engaging a broker, among other topics.

– Dave Lynn

June 4, 2024

Women Governance Trailblazers: Susanna Morgan

In this 23-minute episode of the “Women Governance Trailblazers” podcast, Courtney Kamlet & Liz Dunshee interviewed Susanna Morgan, who is a former public company CFO and is currently a director at Payoneer and Mixpanel. Susanna is also a founding member of Guilds by FirstMark. They discussed:

1. Susanna’s career path and current director roles, which include a public company and a private company backed by Andreesen Horowitz.
2. How directors can handle (or avoid) “information overload” so that they are able to focus on the most salient issues and keep the big picture in focus.
3. Why corporate governance is an important piece of financial, investor relations, and corporate development roles, and how corporate governance practices may differ between public companies and VC-backed companies.
4. Practices and approaches that allow executives and directors to get the most out of their relationship with each other.
5. Advice for effective cross-department collaboration, to balance incorporating different perspectives with moving deliberately toward strategic goals.
6. What Susanna thinks women in the corporate governance field can add to the current conversation on the societal role of companies.

To listen to any of the prior episodes of Women Governance Trailblazers, visit the podcast page on or use your favorite podcast app.

– Dave Lynn

June 3, 2024

SEC Investor Advisory Committee to Discuss AI Regulation

The SEC has announced that the SEC Investor Advisory Committee will meet on Thursday, June 6 at 10:00 am Eastern, and one of the topics to be discussed will be the regulation of artificial intelligence. The agenda for the meeting notes:

The rapid advancements in AI technologies have brought about significant benefits and challenges for companies, investment managers and other market participants. As AI becomes increasingly integrated into various sectors, it is crucial to address key issues related to disclosures, and other important aspects of AI such as data controls, bias, and education to ensure ethical and responsible AI practices within the existing regulatory framework and within any new guidance or rules. This panel aims to discuss and provide insights on how the SEC may promote the advancement of AI by helping practitioners navigate these critical aspects.

I addition to the future of AI regulation, the Committee will convene a panel to discuss the new frontier for investment advice. The Committee will also discuss potential recommendations regarding the Protection of Self-Directed Investors when Trading Complex Products and Utilizing Complex Strategies and Financial Literacy and Investor Education.

The meeting will be webcast on the SEC website.

– Dave Lynn

June 3, 2024

The Cooperation Conundrum: SEC Enforcement Director Weighs In

As anyone who has confronted the discovery of SEC violations at a client knows, one of the hardest things to tackle is whether to self-report the matter to the SEC and what level of cooperation with the SEC Enforcement staff is appropriate if an investigation commences. Much has been said over the years about the topic of cooperation, but that certainly does not mean the topic is not ripe for further discussion. Recently, at the Securities Enforcement Forum West 2024 program, SEC Enforcement Director Gurbir Grewal addressed the topic again in a speech titled “The Five Principles of Effective Cooperation with the SEC.” Grewal began his speech with this explanation of how cooperation in an Enforcement investigation is taken into account:

As numerous recent enforcement matters have shown, there are real benefits to parties that cooperate with Commission investigations. These benefits can affect both the charges and the remedies the Division may recommend, and that the Commission may ultimately impose.

On the charging side, we may recommend bringing reduced charges or we may decline to recommend charges altogether. On the remedies side, we may recommend reduced or even zero civil penalties. And where there’s been real remediation that addresses the misconduct, that may impact whether we recommend undertakings and, if we do, their scope.

Orders in a number of recent settled actions also highlight another benefit: a finding by the Commission that a party provided meaningful cooperation. This lets parties publicly demonstrate their positive conduct in what may otherwise be an unfavorable context.

A key reason we recommend that the Commission reward cooperation is because it helps us move investigations more efficiently. That benefits all parties to an enforcement investigation. For one, timely investigations and resolutions address misconduct, protect investors, and promote accountability. As I’ve spoken about before, all of that helps to enhance public trust and confidence in our markets. And timely investigations that don’t result in enforcement recommendations also mean that the cloud of investigation doesn’t hang over an entity or an individual for longer than necessary.

Now, this doesn’t mean that if you do all of the things highlighted in recent orders discussing cooperation or what I discuss today, you’ll always get to a no penalty resolution or a declination. That’s because, as you know, all of this is highly fact dependent and there’ll always be situations where some charges and remedies are necessary no matter the level of cooperation. But the bottom line is this: you’re likely to experience better outcomes with cooperation than without it.

I’m sure there are those lawyers and clients, perhaps not in this room, that say, “hey, we’ll just take our chances that the SEC doesn’t learn of a violation or, if they do, we’ll cooperate then.” While you may have run the probabilities in your heads, I think that’s a very risky gamble, with the odds increasing in our favor every day. That’s because, given the success of the Commission’s whistleblower program, our improved use of data analytics, and our increased use of risk-based initiatives, it’s really no longer a question of if we’ll find out about a violation, but often when.

The speech goes on to highlight the five principles for effective cooperation, which are as follows:

– Principle one: the best cooperation starts early and well before the SEC gets involved, with self-policing.

– Principle two: once you discover a possible violation, self-report without delay.

– Principle three: don’t stop with the self-report. Remediate.

– Principle four: the type of cooperation that earns credit requires going above and beyond what’s legally required — more than simply complying with subpoenas without undue delay or gamesmanship.

– Principle five: collaborate with Enforcement Staff early, often, and substantively.

In wrapping up, Grewal notes: “while an enforcement investigation has the potential to feel like an adversarial process, it doesn’t have to be.”

– Dave Lynn

June 3, 2024

The Commissioner Issac C. Hunt, Jr. Hall of Honor

The SEC Historical Society has announced a virtual program taking place on June 14 at 4:00 pm Eastern to recognize the inaugural awardees for its Isaac C. Hunt Jr. Hall of Honor. The announcement notes:

In 1962, “Ike” became one of the first African American attorneys at the SEC’s Division of Investment Management, then called Corporate Regulation and served as an SEC Commissioner from 1996 to 2002. To learn more about Ike Hunt, visit the special museum exhibit.

The Hall of Honor in his name recognizes African Americans who have made outstanding contributions to the financial regulatory community both while at the SEC and elsewhere. Recognizing the awardees in conjunction with the federal Juneteenth holiday helps raise public awareness of African Americans’ meaningful efforts in financial services while cementing the SEC Historical Society’s vital role as a guardian and promoter of the full history of the SEC.

The 2024 awardees are:

– Richard M. Humes, who served as Associate General Counsel for the Litigation and Administration Practice;
– Aulana L. Peters, who served as an SEC Commissioner from 1984 to 1988;
– Paul F. Roye, who served as Director of the Division of lnvestment Management; and
– Erica Y. Williams, who served as Deputy Chief of Staff for three chairs.

This virtual program will be hosted by Keir Gumbs, Principal, General Counsel at Edward Jones and SEC Historical Society Trustee. The SEC Historical Society’s announcement notes “[t]he program is part of a larger annual initiative to recognize, honor and preserve the historical contributions of people from diverse racial and ethnic backgrounds in the financial regulatory community.”

– Dave Lynn