Tune in tomorrow for the webcast – “Audit Committees in Action: The Latest Developments” – to hear Deloitte’s Consuelo Hitchcock, Maynard Cooper’s Bob Dow, Tapestry Networks’ Eric Shor, and E&Y’s Josh Jones discuss the ever-expanding responsibilities of audit committees in today’s environment and provide practical guidance on navigating the challenges they face.
If you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
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I swear, I try to take crypto seriously – I really do. I mean, there are trillions of dollars being invested in it and lots of smart people think it’s the future. But it’s hard not to be dubious when so many of the crypto schemes I’ve seen people touting remind me of either the South Park underpants gnomes or episodes of the 1990s cartoon Pinky & the Brain. Last time we visited the world of crypto, we discussed a public offering of NFTs by a piece of conceptual art in corporate form. I didn’t think we could top that one – until I read this article about a DAO that’s pursuing a project that’s even more “out there”. Meet BitMouse DAO:
A new decentralized autonomous organization (DAO) wants to genetically engineer mice so that they carry Bitcoin inside them. BitMouseDAO launched on January 25. As of this writing, it has exactly two investors, almost no money, and no Discord. One investor, who put in .01 ETH, commented “Lmao,” while the other who put in the same amount said, “crazy.” The scheme, according to the DAO’s pitch, is to experiment with genetic technology to put Bitcoin inside a mouse.
The anonymous mind behind this project claims to be an artist who got the idea as they were going to sleep one night. They jotted the idea down and began to ponder its possibilities. “Over the next few weeks I started looking around to see if it was possible to carry out the experiment,” theys said in a blog post. “I was excited to imagine how this would affect us in the future.”
After namechecking artist Eduardo Kac’s genetically engineered phosphorescent rabbits, BitMouseDAO then rambles about how cool it will be to make a living thing into literal money. “We have tied the value of the mouse directly to Bitcoin, and it will fluctuate with the daily value of Bitcoin,” they said. “Maybe in ten years it will be worth $100 million, or maybe it will be worth nothing.”
I guess the way this is going to work is that the DAO will pay to have scientists figure out a way to edit the mouse’s genetic code to carry the private key that controls the bitcoins. Why would they do that? Look, don’t ask me. I’ve read the article and I still don’t know. Maybe you should check with the underpants gnomes or – since this is all about genetically engineered mice – the folks behind Pinky & the Brain.
In light of the increasingly sympathetic approach that Delaware courts have taken to Caremark claims in recent years, some commenters have observed that the risk of potential liability for directors’ breach of their oversight responsibility is much higher than it used to be. In that regard, this Proskauer blog says that one of the lessons of recent Delaware cases is that the growing demand for board oversight on ESG issues may increase the chances of viable Caremark claims:
Recent cases finding complaints to have sufficiently pled Caremark allegations may dovetail with the ever-increasing role of ESG in corporate policy and strategy. Corporate boards may be required to oversee corporate conduct with an eye towards how the company’s financial health intersects with and relies upon its commitment to sustainability, transparency and regulatory compliance. But with these added oversight obligations may come a higher risk of liability if the Caremark standards are not met.
In order to reduce this risk, the blog says that boards need identify “mission critical” aspects of the company’s business by focusing on its essential functions. Mechanisms for actively overseeing these functions should be evaluated and enhanced if necessary. In addition, the full board should regularly address mission critical aspects of the business and ensure that any complaints or significant issues concerning them find their way to the board.
For years, one of my “go to” resources for quickly referencing independence and other requirements applicable to public company directors has been Weil’s chart on those requirements. I was pleased to learn that the firm has just issued an updated version of that chart which we’ve posted in our “IPOs” Practice Area. Check it out – it covers NYSE & Nasdaq listing standards for boards and committees, as well as SEC disclosure requirements relating to directors.
While the universal proxy rules won’t go live for most companies until next year, this Goodwin blog recommends including some language in this year’s proxy about next year’s deadline for submitting the names of dissident nominees and other information required under new Rule 14a-19. This excerpt provides some sample language as well as a brief explanation of why the firm is making this recommendation:
Because universal proxy will apply to contested director elections at all 2023 annual meetings, we recommend including disclosure regarding the universal proxy deadline in this year’s proxy statement, including for companies that hold their annual meeting well in advance of the September 1, 2022 mandatory compliance date.
Sample disclosure for this purpose could be as follows: “to comply with the universal proxy rules (once effective), stockholders who intend to solicit proxies in support of director nominees other than the company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than [INSERT DATE THAT IS 60 DAYS PRIOR TO ONE YEAR ANNIVERSARY OF 2022 ANNUAL MEETING].
This additional voluntary disclosure could be particularly useful for companies with no advance notice bylaws or with advance notice bylaws that provide a notice deadline of less than 60 days prior to the meeting, and could also be useful for companies that have longer advance notice deadlines, but move their meeting date and thereby create new accelerated deadlines.
While the blog recommends this disclosure – which is called for under new Rule 14a-5(e)(4) – for meetings held prior to September 1, 2022, it also acknowledges that the universal proxy rules don’t require that disclosure for meetings held prior to that date. If you’re interested, check out Topic #10934 in our Q&A Forum, which notes that some major companies (including Apple and Starbucks) have opted to include similar disclosure in their proxies. You’ll also find there my half-baked musings about some other reasons to consider this kind of disclosure.
When a company experiences a cybersecurity incident, a disciplined communication strategy is essential in order to protect attorney-client privilege and mitigate the legal and business risks associated with the unintended disclosure of internal communications about the incident. This Bryan Cave blog lays out some “dos” and “don’ts” when it comes to communicating internally about a breach. Here are some of the don’ts:
– DO NOT include subjective conclusions/assessments (e.g., “this was a big mistake,” “our systems were not adequately protected”) in email communications.
– DO NOT circulate forensics or other reports via email, particularly in draft form. Reports should be reviewed using a screen sharing application or similar means, and any dissemination via email or otherwise should be done only when the report has been finalized and at the direction of counsel.
– DO NOT communicate about the incident via other unofficial means (e.g., texts, instant messaging, other non-company communication applications), unless the nature of the incident mandates use of an approved secondary communication method.
– DO NOT destroy or delete any written communications related to the incident until receiving specific instructions to do so.
While the tips provided by the blog are intended to address communications surrounding a cybersecurity incident, many of the dos & don’ts laid out in the blog apply generally to internal communications arising out of other crisis situations.
The January-February 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:
– SEC Looks to Amend Rules on Issuer and Insider Securities Transactions
– Is Your Insider Trading Policy Ready for Prime Time?
Dave & I 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!
Even before SEC Chair Gary Gensler was officially confirmed to his current office, people were predicting that Section 13(d) reform would be high on his list of priorities. Yesterday, the SEC announced that it is proposing amendments to Regulation 13D-G. If adopted, the primary impact of the amendments would be to accelerate the filing deadline for Schedule 13D and 13G reports – to address the concern over “information asymmetry” that John blogged about last month.
This is a welcome development for the contingent of folks who think the current rules are outdated – see this 2011 WLRK petition, for example. If this proposal is adopted, it’ll be the most significant amendment to Regulation 13D-G since the rules were adopted in 1968.
– Accelerate the filing deadlines for Schedules 13D and 13G beneficial ownership reports – generally, from 10 to 5 days for Schedule 13D and from 45 days from the end of the year to 5 business days from the end of the month for Schedule 13G;
– Expand the application of Regulation 13D-G to certain derivative securities;
– Clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; and
– Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
Chair Gensler issued a statement in support of the proposal. But not everyone is celebrating. Commissioner Peirce, who doesn’t share the view that information asymmetry is a problem in this context, issued a dissenting statement. We’ll be posting memos about this proposal in our “Schedules 13D & 13G” Practice Area. Comments are due 30 days after publication in the Federal Register or April 11th, whichever is later.
Also yesterday (and on the heels of our excellent webcast from earlier this week about whistleblower policies & procedures), the SEC announced that it had issued proposed amendments to two whistleblower program rules. From the fact sheet:
The SEC is proposing two amendments to Exchange Act Rules 21F-3 and 6, the rules governing its whistleblower program:
– The first proposed amendment would allow the Commission to make an award for a related action that might otherwise be covered by an alternative whistleblower program even where the alternative whistleblower program has the more direct or relevant connection to the related action in certain circumstances.
– The second proposed amendment would affirm the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, but would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
As expected (and previously criticized by Commissioner Peirce and former Commissioner Roisman), this proposal revisits whistleblower program rules that were most recently amended in late 2020. So, it’s not surprising that Commissioner Peirce dissented. Chair Gensler issued a supporting statement to say that the amendments will provide reassurance to prospective whistleblowers. We’ll be posting memos in our “Whistleblowers” Practice Area. Comments are due 30 days from the date of publication in the Federal Register or April 11th, whichever is later.
Dave blogged last month that the SEC has drawn criticism for proposing rules with comment periods that are shorter than the traditional 60 days, which typically runs from the date that the proposal is published in the Federal Register. On the flip side, it seems to be taking a very long time to get proposals published. As far as I can tell, the proposals on buybacks and Rule 10b5-1 reform still have not made it into the Federal Register – so the comment period clock has not yet started ticking.
For this week’s slew of rulemaking, the SEC seems to be taking a new approach. Comments are due 30 days after publication in the Federal Register OR 60 days after issuance of the proposal, whichever is later. At a minimum, that gives people until April 11th to submit comments on these proposals.
