Breaking a long streak of losing major cases, the US District Court for DC issued this opinion yesterday rejecting the summary judgment motion of the plaintiffs (Chamber of Commerce and NAM) – and upholding the SEC’s (& intervenor Amnesty International’s) cross-motion for summary judgment.
This means that the SEC’s rules go forward as they currently exist (ie. no de minimis exception, etc.). Even if the plaintiffs appeal, with the first report due May 31, 2014, all companies should be operating on the assumption that the rules are indeed the rules and start preparing now. We are posting memos in our “Conflict Minerals” Practice Area.
Section 16 Filings Facelift: The SEC’s New Edgar Search Page
Last month, I blogged that the SEC’s new Edgar search page received its first facelift in a decade. Now the tool has been further refined so that searches can easily include – or exclude – Section 16 filings. Simply click the “More Options” option that appears underneath the search box. Nice!
Check out Alan Dye’s Section16.net Blog for analysis on how the Supreme Court’s recent DOMA decision might impact Section 16 filings…
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Congress to FASB: “Do As I Say, Not As I Do”
– Facebook IPO Derivative Ruling: Cure for Multiforum Madness?
– Don’t You Love It When Officers Swear During Earnings Calls!
– Chancellor Strine Proposes New Approach to Multijurisdictional Shareholder Litigation
– Study: XBRL Might Be Irrelevant to Investors & Analysts
– No “Dummy Directors”: DE Court Refuses to Dismiss Loyalty Claims Against Outside Directors for Failure to Monitor
– Freedman vs. Novell: The Latest Adventures of the Business Judgment Rule
– Survey: JOBS Act Has No Major Impact on IPO Market (So Far)
On May 15 and June 17, the Steering Committee reviewed the decision made by Broadridge on May 10 to cease its practice of releasing preliminary shareholder voting information to those proponents of shareholder proposals who had requested Broadridge, as agent of banks and brokers, to distribute their soliciting material to shareholders.
In 2011, the Steering Committee had reviewed Broadridge’s practice of sharing voting trend information with dissident shareholders. At that time the Committee found that, so long as the recipients of the early voting data signed confidentiality agreements and in the absence of objections from the brokers and banks to whom the voting information belonged, the Committee had no objection to the practice.
In May of this year, however, circumstances changed. The brokers conveyed to Broadridge their concerns about the early release of their voting data. Broadridge stressed its neutrality on the merits of whether or not brokers’ early vote totals should be released, but stated that, as an agent, it was contractually bound to follow the directions of its principals, the brokers. Some members of the Steering Committee, while acknowledging that Broadridge’s contracts required it to obey its clients’ instructions, questioned the timing of the change, that is, whether Broadridge could have postponed its decision until after the current proxy season. Broadridge responded that as the brokers did not give them latitude to delay the decision, they were required to terminate the practice immediately.
A number of members of the Steering Committee suggested that the SEC was the proper body to provide clarity on this issue going forward. The Committee stated that it would continue to monitor developments on this issue.
Learn more in this article about VIFs and vote reporting…
What Does a SEC Impersonator Look Like?
Over the past few years, the SEC periodically has issued an investor alert warning about government impersonators (here is one and another). Apparently, these impersonators use fraudulent solicitations purporting to be affiliated with – or sponsored by – the SEC. There even has been a recent bogus email scam using the name of Commissioner Gallagher!
So who do you like for the movie? For some reason, I keep thinking Matthew McConaughey would be perfect for the role, particularly using much of his character from last year’s “Magic Mike”…
Transcript: “Law Firms & Independence: What to Do Now”
We have posted the transcript for the recent CompensationStandards.com webcast: “Law Firms & Independence: What to Do Now.”
Today, Netflix will forego the traditional conference call format for its earning call. As noted in this article, the company instead will host a live streaming video on its IR web page that will consist of an analyst and reporter asking management questions. These questions will be pulled from a pool of questions sent in advance by email and via Twitter. So this format is partly Warren Buffett inspired (reporters asking questions submitted by others) and partly inspired by Zillow (questions sent in via Twitter). As you will recall, Netflix’s CEO Reed Hastings has been at the forefront of leveraging social media – resulting in the SEC’s Section 21(a) report on social media.
This follows Yahoo!’s earnings call, which was conducted via video last week, as noted in this WSJ article and IR Magazine piece. Here’s the forward-looking disclaimer for the video. Yahoo! live-tweeted the call – as well as posted pics of CEO Marissa Mayer getting ready beforehand.
It will be interesting to see if this concept of leveraging video catches on with other large or media companies…
SEC’s Inspector General Issues Two Reports on Rulemaking Economic Analysis
With cost-benefit analysis of rulemaking continuing to be a hot topic across the federal government – particularly the SEC – it is noteworthy that the SEC’s IG issued two reports in this area that were posted on Friday. This report concerning the implementation of current economic analysis contains one recommendation – and this report on the current use of this analysis contains six recommendations.
Speaking of reports, the GAO has issued this report on conflict minerals sourcing – and this report on the definition of “accredited investor.”
Transcript: “E-Proxy Practice Tips: Five Years Later”
We have posted the transcript for our recent webcast: “E-Proxy Practice Tips: Five Years Later.”
Heading into last week’s annual conference for the Society of Corporate Secretaries, I blogged about my video on “how to attend conferences” – and I said I would take my own advice and meet ten new people. Here are pics from conference with the ten new people that I met (note the hand signs indicating the # of each person):
Todd Hamblet of Covington & Burling:
Joe Campbell of Computershare:
Todd Gilman of TrueBlue:
Karen Martin, wife of the Society’s David Martin:
Melissa Caen of Southern Company:
Craig Brown of MasterCard:
Tim Olson of Northwestern Company & Cathy Conlon of Broadridge:
Caryn Feinberg of SecondMarket:
Kate Karas of SecondMarket:
Thanks to American Stock Transfer/AST for a great party on Wednesday! Here is the view:
And thanks to Broadridge for the dinner on Thursday. Here I am with Maryellen Anderson:
Finally, kudos to Microsoft (John Seethoff/Peter Kraus/Stacy Anderson) for the rocking give-away hats!
With the three year anniversary of Dodd-Frank bearing down on us tomorrow comes this rumor – from this Bloomberg article – that the SEC is close to proposing pay disparity rules – perhaps as soon as August 21st! Normally, I don’t blog about rumors since they often don’t come true – but new SEC Chair White has promised to move the Dodd-Frank rules along and last week’s Reg D rulemaking proves that she means business. So perhaps we will see an entire set of the “Gang of 4” proposals soon enough.
Meanwhile, as noted in this Ning Chiu blog, there has been a bit of press about the pay ratio requirement in Dodd-Frank – as well as a House bill to stop it.
Registrations for our upcoming pair of conferences – in DC and via video webcast – are strong and for good reason. The full agendas for the Conferences are posted – but the panels include:
– Q&A with ISS
– Q&A with Glass Lewis
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Compensation Committees & Advisors: The NYSE & Nasdaq Speak
– Realizable Pay Disclosure: How to Do It
– How to Improve Pay-for-Performance Disclosure
– We Don’t Have a Good Pay Story: What Do We Disclose?
– How to Avoid Executive Pay Disclosure Litigation
– Peer Group Disclosures: What to Do Now
– In-House Perspective: Strategies for Effective Solicitations
– The SEC Staff Review Process
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Supplemental Materials
– Dealing with the Complexities of Perks
– Say-on-Parachute & Post-Deal Disclosure Developments
– Compensation Accounting, Tax & Risk Assessment Disclosures
– Shareholder Proposals & Executive Pay
– The Rise of Political Contribution Disclosures
More on Corp Fin’s Conflict Minerals FAQs
In addition to the horde of memos on the SEC’s recent FAQs on conflict minerals, you should read this Cooley news brief about informal Corp Fin guidance on the CDI dealing with timely filing for a Form SD and S-3 eligibility – and this Elm Consulting blog about the CDI regarding the need to file a Form SD or obtain an audit even if the company is supporting conflict-free sourcing…
According to this WSJ article, a PwC survey notes that companies are not making a whole lot of progress on conflict minerals: “Two-thirds of respondents to a new survey say their companies are in the early stages or have not yet started compiling information needed to meet the requirements of the Securities and Exchange Commission’s conflict minerals reporting law…. One-third of the nearly 900 executives surveyed said they still are trying to figure out if the reporting requirement applies to their businesses, according to the survey released Wednesday by PwC. Less than 5% said their companies have gathered most of the required information from their suppliers and have begun assessing it.”
July-August Issue: Deal Lawyers Print Newsletter
This July-August issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– The Merger Tarantella: Considerations in Post-Merger Corporate Governance
– The In-House Perspective: Post Merger Governance
– Activist Shareholders in the U.S.: A Changing Landscape
– Appraisal Rights: The Next Frontier in Deal Litigation?
– The Standard of Review in Going Private Transactions: Delaware’s Long Awaited Clarification
I’m sure this will be raised among many other topics – the NYSE’s rule change amending Section 312.07 of the Listed Company Manual to remove the 50% quorum requirement and add certain clarifying language that just became effective last Thursday.
Corp Fin’s Back in the CF Disclosure Topic Business, Baby!
It’s been over a year since Corp Fin issued its last guidance in the form of “CF Disclosure Topics” – there were a total of five of them in six months after the first one was issued in the fall of 2011. Yesterday, Corp Fin issued “CF Disclosure Guidance Topics: Topic No. 6 – Staff Observations Regarding Disclosures of Non-Traded REITs.” Maybe there will be flurry of activity along these lines now that there is a new sheriff, er, Director in town…
Corp Fin Updates Financial Reporting Manual (Again)
Yesterday, Corp Fin indicated that it has updated its Financial Reporting Manual for issues related to real estate acquisitions, determining significance for equity method investees, and non-GAAP measures.
Here’s a transcript of SEC Chair White’s remarks on CNBC’s “Closing Bell” from yesterday…
This Cooley news brief from Cydney Posner probably doesn’t tell many in our community anything that wasn’t predictable:
In this article from the Wall Street Journal, Bankers: The JOBS Act Isn’t Doing its Job, the author contends that if “you ask investment bankers, most of them will say the JOBS Act has fallen flat.” According to the article, “only 14% of bankers polled said they felt the JOBS Act was boosting the number of initial public offerings, according to a survey of 101 capital markets executives at large investment banks released by BDO USA LLP this week. That’s half the level who said the law was having a positive impact last winter, and down sharply from 55% who said so last year, according to BDO. The SEC is set to vote on some aspects of the JOBS Act on Wednesday morning, including proposed rules to eliminate the prohibition on general solicitation.”
Even though many of the rules implementing the JOBS Act remain to be adopted, “more than two-thirds of the bankers polled predicted the law will never achieve its goals of increasing the number of companies that go public. ‘There has clearly not been double or triple the amount of IPOs,'” according to the Director of SEC Services for BDO.
However, the new confidential filing process has been widely adopted, with estimates of 150 companies that have filed confidentially under the rule. “Nevertheless, bankers have complained the confidentiality granted by the JOBS Act has obscured the pipeline, making it more difficult to pinpoint windows in the market.” Some companies are also taking advantage of the ability to file just two years of audited financials rather than three. The article reports that this aspect of the rules has been helpful primarily to companies that changed auditors or did an acquisition and may not have three years of audited financials readily available.
The article reports that there were “95 IPOs in the first half of the year, up from 74 in the first half of last year. Excluding Facebook ‘s large $16 billion IPO last year, IPO proceeds from the first half of the year are up 66% from 2012, according to BDO, but most bankers attributed the increase to an increase in deals by private equity firms.”
Tune in to our upcoming webcast – “Reg D Offerings: What Is Happening Now” – that will provide a variety of perspectives on how to implement the new rules…
Transcript: “A Proxy Season Post-Mortem: Lessons Learned”
We have posted the transcript for our recent webcast: “A Proxy Season Post-Mortem: Lessons Learned.”
Tomorrow, the Senate Committee on Banking, Housing and Urban Affairs will take up the nominations of Kara Stein and Michael Piwowar to the Commission in an executive session. It has been unclear as to how quickly the Senate would act on these nominations, which were advanced by the Administration back in May. Once these nominations make it of the Committee, the full Senate can then consider them. At the same meeting, the Committee will consider extending Mary Jo White’s term so that it would expire on June 5, 2019.
Meanwhile, in the House last week, Rep. Michael Fitzpatrick (R-PA) re-introduced a bill that would change the definition of “accelerated filer” so that more companies could qualify for the SOX Section 404(b) relief available to non-accelerated filers. H.R. 2629, the Fostering Innovation Act, which was first introduced last year, would increase the market capitalization component of the accelerated filer definition from $75 to $250 million, while also adding in a maximum revenue measure of $100 million in annual revenue. The GAO also recently issued a report recommending an SEC requirement that non-accelerated filers disclose if they have received and auditor’s attestation on internal control, even if they qualify for the Section 404(b) exemption.
FINRA Authorizes Crowdfunding Rule Proposal
At a meeting of its Board of Governors last week, FINRA was authorized to publish a Regulatory Notice to solicit comment on proposed rules and related forms governing funding portals pursuant to Title III of the JOBS Act. The proposed rules address, among other things, the membership application process for funding portals, fraud and manipulation, just and equitable principles of trade, communications with the public, supervision and anti-money laundering. FINRA expects to publish this Regulatory Notice when the SEC proposes its Title III rules. It is unclear whether this FINRA action should be construed as indicating that SEC action on Title III rules might be imminent.
FINRA has also moved forward with a rule proposal to make Rule 144A transactions subject to dissemination under FINRA rules, now that the SEC rules have been amended to eliminate general solicitation concerns.
Transcript: “Proxy Season Post-Mortem: The Latest Compensation Disclosures”
We have posted the transcript for our recent CompensationStandards.com webcast: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”
Earlier this week, Broc blogged about a bill that was unanimously approved by the House Financial Services Committee and which targets the PCAOB’s ability to adopt rules mandating auditor rotation. That bill, H.R. 1564, the “Audit Integrity and Job Protection Act,” passed in the House on Monday evening by a vote of 321-62. The bill would prohibit the PCAOB from requiring companies to use specific auditors or require the use of different auditors on a rotating basis. The bill now will be taken up by the Senate Committee on Banking, Housing, and Urban Affairs. In addition to seeking to prevent the PCAOB from adopting mandatory auditor rotation rules, the bill would direct the GAO to revisit a 2003 study of the potential effects, including costs and benefits, of mandatory audit firm rotation.
For the life of me, I can’t figure out what sort of job protection this bill is providing, as implied by its title. Much like the JOBS Act (which included its own swipe at mandatory auditor rotation), this bill doesn’t really seem to have much to do with preserving jobs, other than perhaps for lobbyists.
NYSE Proposes 1-Year Transition Period for Internal Audit Function
From Jay Knight of Bass, Berry & Sims: Last week, the NYSE filed a proposal with the SEC to amend Section 303A.00 of its Listed Company Manual to provide a one-year transition period to comply with the internal audit requirement of Section 303A.07(c) for companies listing in connection with an IPO, as new registrants or a carve-out or spin-off. Section 303A.07(c) requires that listed companies – which are subject to Section 303A.07 – must have an internal audit function to provide management and the audit committee with ongoing assessments of their risk management and internal control processes. Companies may choose to outsource this function to a third party other than its independent auditor. The proposal should take effect within 45 days of the date of publication in the Federal Register (or a longer period as the SEC may designate up to 90 days).
Earlier this year, Nasdaq proposed a rule that would have required Nasdaq-listed companies to establish and maintain an internal audit function, similar to the present NYSE requirement. However, Nasdaq withdrew that proposal citing comments from issuers and to allow more time to consider the issue. The NYSE highlights the different exchange standards in its rule proposal when it states: “Moreover, given that any company which would be able to avail itself of the proposed transition could list on Nasdaq without ever having to comply with an internal audit requirement, the Exchange believes that investors would be at least as well protected by having these companies listed on the [NYSE], where they would be subject to such a requirement after the transition period.”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Should Startups Announce Their Funding?
– EU Touts Regulatory Pressure in Improving Board Gender Balance
– Does the Media Provide Certain Investors With News Seconds Faster?
– Moving On Up: The Art of Becoming a Director
– Response to “Inside Straight: Stop The Audit Letter Lunacy!”
– Inside Straight: Stop The Audit Letter Lunacy!
– Indemnify Me, Maybe
July 4th fireworks came a week late to 100 F Street yesterday, as the SEC adopted the changes to Rule 506 of Regulation D mandated by Title II of the JOBS Act, in what was sometimes a contentious open meeting. The changes to Rule 506–permitting the use of general solicitation and general advertising in a Rule 506 offering provided that the issuer takes reasonable steps to verify that purchasers are accredited investors–were over a year late, and generated a good bit of comment and criticism.
Ultimately, the Commission adopted the Rule 506 changes largely as proposed, noting that the determination of the reasonableness of the steps taken to verify that an investor is an accredited is an objective assessment by the issuer, based on the facts and circumstances of each purchaser and transaction. However, the Commission decided to provide in Regulation D a non-exclusive list of methods that the issuer could use to verify the accredited investor status of individuals, including reviewing copies of any IRS form that reports the income of the purchaser (along with a written representation that the purchaser will likely continue to earn that amount), reviewing bank statements, brokerage statements, CDs, tax assessments, appraisal reports and consumer reports with respect to net worth, or by receiving a written confirmation that a specified third party has taken reasonable steps to verify a purchaser’s accredited investor status, including a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA.
The SEC also made the parallel changes to Rule 144A that were proposed last year, eliminating references to “offer” and “offeree,” and thus requiring only that the securities are sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB in a Rule 144A transaction. Form D was also amended to add a separate checkbox for the new paragraph (c) of Rule 506.
The Commission helpfully reaffirmed in the adopting release that Title II of the JOBS Act did not represent a Congressional intent to eliminate the existing “reasonable belief” standard in Rule 501(a) or for Rule 506 offerings (thus the accredited investor determination is not subject to an absolute standard). The Commission also reiterated the interpretive guidance that the effect of Title II is “to permit private funds to engage in general solicitation in compliance with new Rule 506(c) without losing either of the exclusions [3(c)(1) and 3(c)(7) under the Investment Company Act.”
Commissioner Aguilar opposed the adoption of the amendments, noting in his statement that the process for adopting the amendments and the amendments “come at the expense of investors and place investors at greater risk.”
The amendments are effective 60 days after publication in the Federal Register. The SEC provided Fact Sheets for each piece of yesterday’s rulemaking package: the Rule 506 changes, the Regulation D proposal and the bad actor rules.
More Regulation D Changes Proposed
The SEC also proposed several changes to Regulation D that would help the Commission monitor the impact of Title II on the offering market and the offering practices which develop under the rule. This proposal addresses some of the concerns of commenter raised regarding the Rule 506 proposal. Under these proposals, issuers relying on Rule 506(c) to engage in general solicitation in connection with the offering would have to file a Form D 15 calendar days before commencing the offering, and file an update to the Form D information within 30 days of completing the offering. Additional information would also be required in the Form D about the issuer and the offering. If an issuer fails to file a Form D, the issuer and the issuer’s affiliates would be disqualified from using the Rule 506 exemption in any new offering for one year beginning after the required filings are made. Finally, these proposals would require that legends and cautionary statements be included on any written general solicitation material (including special rules for private funds), and that written general solicitation materials be submitted to the SEC, while the guidance in Securities Act Rule 156 would be extended to private funds. This proposal is out for a 60-day comment period.
A Blast from the Past: The Rule 506 Bad Actor Disqualification Provisions
As part of the overall package of rulemaking yesterday, the SEC followed the suggestion of some commenters on the Title II rules and adopted the Dodd-Frank Act mandated bad actor disqualification provisions. As noted by Anna Pinedo in this Morrison & Foerster blog, the final rules were largely adopted as proposed, except for modifications to the categories of persons covered; modifications to the types of actions that are covered; and modifications to the actions that are covered. The Commissioners unanimously approved these amendments, which were originally proposed back in May 2011.
Another thing that the Commissioners could all agree on yesterday was their praise for Gerry Laporte, who will be retiring from his position as Chief of Corp Fin’s Office of Small Business Policy. During the course of the open meeting, Gerry’s contributions over the years for small businesses and investors were repeatedly recognized.
