For many of you, the news that Evelyn Y. Davis is slowing down at age 82 will come as a mid-proxy season boost. As noted in this Chicago Tribune article, Evelyn has been skipping annual meetings this year – and even has halted production of her 47-year-old self-published newsletter “Highlights & Lowlights,” a $600-an-issue review of her governance battles that regularly features photos of her with bemused CEOs. Although Evelyn still has been submitting shareholder proposals to companies, I haven’t heard of her actually attending a meeting for the past two years.
For those of you who have never had the pleasure, go ahead and ask an old-timer for their favorite EYD story. Many of them are unsuitable for print in this family blog. I do note that she is partial to men, particularly if they are CEOs of a Fortune 50 company. Evelyn always had remarkable success with access to the powers that be – and making the CEO available to her often was a wise decision as it made it more likely that she wouldn’t turn your shareholders meeting into a complete spectacle. One day I’ll collect stories to post (including my own). I do note that Evelyn has been quite a philanthropist over the years, particularly in the effort to preserve Chicago history.
Until I post some stories, you’ll have to live with this great WaPo piece from ’03 – and this picture of Evelyn’s pre-bought tombstone in DC (I believe its two divorces behind):
Sentencing Commission Approves Increased Penalties for Certain Fraud Offenses
As reported in this Gibson Dunn memo, the United States Sentencing Commission has responded to Dodd-Frank directives by amending the sentencing guidelines – effective November 1st – that as noted in the memo “are likely to stiffen sentences for many defendants convicted of fraud offenses, particularly insider trading. At the same time, the Commission has continued its recent trend toward the use of rebuttable presumptions, rather than inflexible rules, in determining certain aspects of offense seriousness. That emerging approach gives criminal defense counsel greater latitude to advocate for sentence calculation methodologies more carefully tailored to each particular case.”
SEC Approves Amendments to FINRA Communications Rules
As noted in this Davis Polk memo, the SEC approved a significant overhaul of FINRA’s rules governing members’ communications with customers and the public. The revised communication rules will simplify and reorganize existing rules by reducing the number of communications categories from six to three. The new rules will also implement some noteworthy changes, such as the requirement to file with FINRA within 10 days of first use retail communications relating to registered structured products. FINRA will publish a Regulatory Notice by June 27, 2012 announcing an implementation date for the new rules that is not later than March 29, 2013. FINRA acknowledges that members will need time to alter their internal policies and procedures in response to the new requirements, and has stated it will take this into consideration in establishing an implementation schedule.
Over the past week, Citigroup (45%) and KB Home (46%) joined the club of those failing to gain majority support for its say-on-pay. A list of the Form 8-Ks filed by the “failed” companies is posted in our “Say-on-Pay” Practice Area. Citi has not yet filed its Form 8-K reporting the voting results – but did address the failure in its “Citi Blog” (which oddly has no comments after this CEO pay entry). The Citi failure was front-page news for the WSJ, NY Times, etc. and I spoke at an event in NYC last night and it was the hot topic (besides the JOBS Act).
Here’s something that Mark Borges blogged last night: The shock waves from yesterday’s Citigroup “Say on Pay” vote continue to reverberate. For an insightful analysis of how to interpret the vote, see Professor J. Robert Brown’s latest post at his website “The Race of the Bottom.”
This turns out to be Citigroup’s fourth “Say on Pay” vote since 2009 – the first two were as a participant in the Troubled Asset Relief Program. I took at look at the support for the company’s executive compensation program over this entire period, which went from 82% in 2009, 89% in 2010, and 93% in 2011 to just 45% in 2012. So it appears that there was a fairly consistent level of support for the program, which spiked in 2011 (the second consecutive year in which the company’s CEO received essentially nominal compensation – $1 in 2010 and $128,000 in 2009) before the bottom fell out.
Still, it’s difficult to understand how this happened – or whether the company saw it coming, particularly when you look back on its Item 402(b)(1)(vii) disclosure from this year’s Compensation Discussion and Analysis:
As part of the process for making incentive awards to the named executive officers for 2011, the committee considered the most recent “say on pay” non-binding stockholder advisory vote held in April 2011 regarding the named executive officers’ 2010 compensation. The resolution approving 2010 executive compensation received a 92.9% favorable vote. Several key features of the 2010 program for named executive officers are carried forward to this year, such as substantial deferred amounts, performance-based vesting of certain deferred incentive awards, a four-year deferral period, significant stock awards that are subject to clawbacks and a stock ownership commitment, and limitations on perks. To better understand the reasons for the favorable say-on-pay vote and potential stockholder concerns for 2011, management engaged in stockholder outreach at various times during 2011 to discuss executive compensation in the context of Citi’s sustained profitability. In particular, management sought a better understanding of stockholder views on Citi’s disclosure and compensation processes and the priorities of our investors. The committee considered the outcome of the most recent say-on-pay vote and stockholder perspectives generally as factors in the 2011 compensation process in addition to currently applicable regulatory requirements, market considerations, and company and individual performance.
Learning Thru Improv
In this podcast, Tommy Galan of The Peoples Improv Theater discusses how you can learn thru improv (here’s how you can learn more about earning CLE through improv), including:
– How do your improv workshops work?
– What are the benefits of using improv to earn CLE?
– Have you ever done an improv workshop at a law firm?
– What’s the funniest moment that has transpired at one of your workshops?
Finally Got to See My Launch (Sort Of)…
When you work in-house, you wind up working on some funky stuff. Back in what now seems like a lifetime ago, I was in-house at Lockheed Martin and besides the typical securities & disclosure stuff, I supported the Treasury function. One of the coolest things I worked on was a synthetic sale-leaseback for a spaceport down in Cape Canaveral, home of the Atlas V rocket. The law firm expert in complicated sale-leasebacks said it was the most challenging deal she ever worked on.
Anyways, after the deal closed, I was invited down to watch a space shuttle launch but I was always too busy to make it. One of my life’s true regrets because I heard many stories about how it was one of the wonders of the world. Don’t feel bad for me though, I received some very nice closing gifts including this framed set of pictures (including one showing the demolition of the old spaceport – that was a community event when they did it, like when Vegas blows up one of its old hotels) – see below. The happy ending is that my office rocked off its hinges a few day ago when they flew the Space Shuttle to it’s new home in the Smithsonian’s Air & Space museum out near Dulles airport. Wow!
New “Deal Cube Gallery”: Email me photos of your coolest – and most tacky – deal cubes or other deal momentos as I will place them in a new “Deal Cube Gallery” on this site and run a competition allowing folks to vote. You will remain anonymous as a source if you so wish.
Spanking brand new. Posted in our “Board Composition” Practice Area, this comprehensive “D&O Biographical/Director Qualifications & Skills Disclosure Handbook” provides a heap of practical guidance – including a sample board resolution to designate executive officers and sample D&O questionnaire language. In particular, the Handbook focuses on disclosure obligations under Item 401(a) through (e) of Regulation S-K.
The Pioneers: First Company Leverages Moxy Vote
In this podcast, Doug Chia of Johnson & Johnson and Mark Schlegel of Moxy Vote discuss how companies can use Moxy Vote during the proxy season (here is a podcast with Mark from last year to learn more about Moxy Vote), including:
– How does Moxy Vote work?
– What is J&J’s involvement with Moxy Vote?
– How did J&J’s collaboration with Moxy Vote begin?
– What have been the experiences so far?
“No Personal Misconduct” Clawbacks: SEC Sues to Recover Bonuses and Stock Profits Again
As noted in this press release, in a Section 304 of Sarbanes-Oxley clawback action, the SEC sued both the former CEO and CFO of ArthroCare recently to recover bonus compensation and stock sale profits they received during an accounting fraud at the company. The two former officers had not been personally charged in connection with fraudulent financial statements; two other former officers were charged for that last year. This jibes with the District Court of Arizona holding in SEC v. Jenkins – that disgorgement of compensation and profit under Section 304 does not require personal misconduct.
By my loose count, the SEC has used Section 304 at least seven or eight times since its birth in 2002 – see the list of links to SEC clawback actions in CompensationStandards.com’s “Clawbacks” Practice Area.
Yesterday, Corp Fin issued 17 FAQs helping to interpret a bunch of issues regarding “emerging growth companies” under Title I of the JOBS Act – including scaled disclosure – ahead of the SEC’s rulemaking in this area. Here’s a Cooley alert describing these FAQs. I continue to post oodles of memos, etc. in our “JOBS Act” Practice Area, including this redline of how the ’33 and ’34 Acts have been altered…
In his blog today, Keith Bishop notes that the JOBS Act weighs in at less than 9000 words – compared to 360k for Dodd-Frank – but yet has a surprising number of technical errors…
Dave & Marty on More JOBS Act Guidance
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– Determining emerging growth company status
– Navigating the confidential submission process for registration statements
– Staff guidance on Exchange Act Section 12(g) thresholds
– Dave’s & Marty’s crowdfunding endeavors (or lack thereof)
Transcript: “What the Top Compensation Consultants Are NOW Telling Compensation Committees”
We have posted the transcript for the recent CompensationStandards.com webcast: “What the Top Compensation Consultants Are NOW Telling Compensation Committees.”
On Friday, Corp Fin posted this sample letter – courtesy of the Office of Capital Markets Trends – that has been sent to certain financial institutions in connection with their structured note offerings. The letter provides comments applicable to prospectus supplements and ’34 Act reports after the Staff’s review of takedowns of structured notes from shelf registration statements.
This WSJ article notes that at least two companies have already sent confidential registration statement submissions to Corp Fin…
Corp Fin Updates Financial Reporting Manual (Again)
On Friday, Corp Fin updated its Financial Reporting Manual for issues related to scaled disclosure for smaller reporting companies, filing requirements for reverse acquisitions, the treatment of related businesses in significance testing, revisions pursuant to ASU 2011-12, as well as other changes.
Chamber Blankets DC Subway Station Closest to SEC HQ with Ads
In what has to be a certain waste of money, according to this Bloomberg article, the Chamber of Commerce hopes to influence the SEC in a money-market fund rulemaking by the use of a “so-called station domination ad buy consisting of more than 30 posters, banners and ‘backlit dioramas’ on the train platforms, above fare card machines and even on the floor.” Maybe the money would have been better off spent renting a giant Foghorn Leghorn suit for someone to hand out flyers in…
Interesting piece in Financial Times on Friday entitled “Our faith is fraying in the god of money.” I always find taxi drivers to be enlightening and a good indicator about what the masses are thinking (ask them about CEO pay!)…
Dodd-Frank: SEC Releases Study on Cross-Border Private Securities Litigation
On Wednesday, the SEC issued its 106-page study of cross-border private securities litigation as required by Section 929Y of Dodd-Frank. At the same time, Commissioner Aguilar issued this statement to note his disappointment with the study, mainly because it doesn’t provide recommendations and because “I am particularly astonished that the Study states (at pages 58-59) that an option ‘would be for Congress to take no action’ and, thus, would continue to deny American investors who have been harmed by fraud the ability to seek redress in court.” Pretty unusual for a Commissioner to dissent from a study.
Before the study was released, the SEC received 72 comments on the topic. In his “D&O Diary” Blog, Kevin LaCroix provides some analysis of the study, which considers possible alternative approaches to the question of cross-border private securities litigation and provides a detailed overview of the ways in which the lower courts have been approaching these issues in the wake of the Supreme Court’s decision in the Morrison v. National Australia Bank.
SEC’s RiskFin Issues Report on Regulation D Offerings
On Tuesday, the SEC’s Risk Fin Division issued a 9-page report entitled “Capital Raising in the U.S.: the Significance of Unregistered Offerings Using the Regulation D Exemption” that crunches numbers extracted from Form D filings since early ’09 with goal of understanding the amount and nature of capital raised through Reg D unregistered offerings and to provide a perspective on the state of competition and regulatory burden in capital markets.
As far as I can tell, it’s Risk Fin’s first report dealing with a Corp Fin topic (hard to tell as reports are not listed on RiskFin’s webpage) – and it’s formatted in a style that I haven’t seen the SEC use before (has more of an academic feel). Oddly, the report is dated February 2012 even though it was just posted.
In his blog, Steve Quinlivan notes that some highlights of the report include:
– The median Reg D offering is modest in size: approximately $1 million.
– Both Rule 505 and Rule 506 (the most frequently used exemption in the Reg D filings) allow an issuer to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. The average amount of non-accredited investors in the Reg D offerings over the entire period is 0.1, while the median is 0. In fact, in approximately 90% of the offerings there are no non-accredited investors.
– Capital raised through Reg D offerings is more than twice as large as public equity offerings as well as each other category of unregistered offerings.
– Less than one-third (29%) of issuers are pooled investment funds (i.e. hedge funds, private equity funds and the like), of which a little more than half (55%) are hedge funds (i.e., 16% of all Reg D offerings are by self-reported hedge funds).
– Excluding hedge funds and other investment funds, issuers of private offerings tend to be small. Although a significant number of issuers decline to disclose their sizes (50%), for those that do, most have revenue of less than $1 million. Only 1.8% of all new offerings are by issuers that report more than $100 million in revenues.
And here is more analysis from Vanessa Schoenthaler’s blog…
Yesterday, Corp Fin issued 5 FAQs regarding Section 12(g) registration triggers and, for banks and bank holding companies, the Section 12(g) and Section 15(d) deregistration and cessation of reporting triggers.
I have to hand it to the Corp Fin Staff. I’ve never seen a new set of guidance come out every single day, not an easy thing to do and it definitely helps those of us navigating uncharted waters. I already have JOBS Act fatigue just watching from the sidelines (with a related case of JOBS Act carpal tunnel posting so many memos in our “JOBS Act” Practice Area)…
JOBS Act: SEC Offers “Comment Letter” Field Day
Akin to what it did nearly two years ago in the wake of Dodd-Frank, the SEC announced yesterday that it would accept comments ahead of proposing any rulemaking under the JOBS Act. Here’s the SEC’s new “JOBS Act Comments Page.”
And here is my blog from two years ago when the SEC did this for Dodd-Frank, as most of my commentary from then still applies. Looking back at the “Dodd-Frank Comment Page,” it does appear that some folks did take advantage of pre-rulingmaking commenting – although I have no idea how useful those comments were for the SEC ahead of drafting proposals.
My gut feeling is that the JOBS Act will not be quite so “popular” in attracting advance comments as the topics tend to be little “technical” for the general public and many of the rulemakings won’t impact a vast majority of existing public companies. Plus you would be shocked how many folks still haven’t gotten the news that the JOBS Act has changed the ’33 Act dramatically – many of us practice in several different fields and don’t have time to keep up with the very latest (ie. they don’t read this blog!). Anyways, weigh in yourself in the anonymous poll below…
Poll: Commenting in Advance of SEC’s JOBS Act Rulemaking
Early Bird Rates – Act by End of this Friday, April 13th: For the special early bird discount rate – both of the Conferences are bundled together with a single price – register by the end of this Friday, April 13th.
JOBS Act: Corp Fin’s New “Confidential Registration Statement Submissions” FAQs
Yesterday, Corp Fin issued 13 FAQs relating to the confidential submission process for draft registration statements by emerging growth companies. This new guidance is in addition to last week’s announcement about the confidential submission process.
– The Staff will not object if an emerging growth company does not treat “test-the-waters” communications conducted in reliance on Section 5(d) as a road show for purposes of Section 6(e). Section 5(d) test-the-waters communications are limited to communications with qualified institutional buyers (“QIBs”) and institutional accredited investors.
– An issuer currently in registration at the time of enactment of the JOBS Act that qualifies as an emerging growth company may switch to the confidential submission process for future amendments.
– A foreign private issuer that qualifies as an emerging growth company may use the confidential submission process to the same extent as a domestic company.
– Draft registration statements submitted confidentiality must be “substantially complete,” including a signed audit report of the registered public accounting firm and exhibits consistent with the existing requirements for non-public submissions by foreign private issuers.
Transcript: “The SEC Staff on M&A”
We have posted the transcript for the recent DealLawyers.com webcast: “”The SEC Staff on M&A.”
When President Obama signed the JOBS Act last week, he issued this statement that includes this excerpt:
The President is directing the Treasury Department, Small Business Administration and Department of Justice to closely monitor the implementation of this legislation to ensure that it is achieving its goals of enhancing access capital while maintaining appropriate investor protections. These agencies, consulting closely with the SEC and key non-governmental stakeholders, will report their findings to the President on a biannual basis, and will include recommendations for additional necessary steps to ensure that the legislation achieves its goals.
No doubt this is a reaction to the many Democrats who railed against the JOBS Act over the past month (and the response of some in Congress to reporter’s questions of whether they would monitor its consequences – the answer which was ‘no’ – at least they are honest about that!). But it’s just so strange – and unfortunately predictable these days – that the leaders in our government don’t even seem to know who should be minding the store. The Treasury, SBA and DOJ monitoring the securities laws? So I guess the SEC should be monitoring food and drugs…
Will the JOBS Act Rulemaking Impact the SEC’s Dodd-Frank Rulemaking Schedule?
Many members have emailed asking whether the slew of JOBS Act rulemaking ahead of Corp Fin will impact the timing of its Dodd-Frank rulemaking projects. Although I haven’t heard anyone from Corp Fin address this yet – and the SEC’s Dodd-Frank Implementation Schedule hasn’t changed – I can’t see how it won’t given the incredibly tight timeframe in which the Staff has to work.
How tight? Keith Bishop notes how the timeframe is so tight for the JOBS Act rulemaking – in his blog entitled “The SEC’s Rule Making Rule Doesn’t Follow The Rules” – that it might be impossible to finish under the President’s recent rulemaking directive…
Dodd-Frank: The SEC Finally Establishes the New “Investor Advisory Committee”
However, the SEC continues to plug away at its Dodd-Frank obligations – yesterday, it announced the formation of the new “Investor Advisory Committee” that was mandated by Section 911 of Dodd-Frank. Among the 21 members of the new committee is Steve Wallman – the tech guru that doubled as a SEC Commissioner in the ’90s who hasn’t been heard from much during the past decade…
On Thursday afternoon, President Obama signed the JOBS Act and it was off to the races for law firms as a new wave of memos bombarded the airwaves that night (we continue to post them in our “JOBS Act” Practice Area). There was a wave of other activity too – many crowdfunding services began (as will be covered in a future blog) and some regulatory activity as discussed below.
In addition, here is just a smattering of JOBS Act coverage in the press over the past week:
Corp Fin Issues Confidential Filing Guidance for Emerging Growth Companies
On Thursday, Corp Fin announced these procedures by which emerging growth companies can furnish a confidential IPO registration statement to the Staff. Section 106 of the JOBS Act provides that an EGC may submit its IPO registration statement to the Corp Fin Staff in draft form for confidential review – conditioned on the furnishing of the confidential submission and all amendments publicly with the SEC no later than 21 days prior to the date the company first conducts a road show for its IPO. Here’s more about this guidance culled from this O’Melveny & Myers memo:
Under this guidance, one copy of the draft registration statement should be sent to the following address:
Draft Registration Statement
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
The Division also announced the following with regard to the submission of draft registration statements for IPOs of emerging growth companies:
– the submission should include a transmittal letter confirming the issuer’s status as an emerging growth company;
– the draft registration statement should be submitted either as a text-searchable PDF file supplied on a CD/DVD or, alternatively, on paper (it may not be stapled or bound if submitted on paper); and
– there is no requirement to provide a registration fee at the time a confidential submission is made.
Following its receipt of a confidential submission, the Division will contact the emerging growth company to confirm receipt of the submission and to advise it of the office assigned to review the submission.
Emerging growth companies with questions regarding the draft registration statement submission and review process should call (202) 551-5867.
– Confidential Submissions by Foreign Private Issuers – In addition to the confidential submission process for emerging growth companies, the Division has long had a confidential submission process for certain foreign private issuers. This process is described in our Client Alert here. In its guidance, the Division announced that, going forward, any foreign private issuer that is permitted to submit a draft registration statement (either as an emerging growth company or under the Division’s foreign private issuer confidential submission policy) must now submit that draft registration statement in the same format and to the same address discussed above. In connection with this requirement, foreign private issuers may no longer use the e-mail address that the Division had provided for confidential submissions.
– Application of Section 5 to Confidential Submissions – The Division took the opportunity in the guidance to make clear that the confidential submission of a draft registration statement is not a public filing. Accordingly, a registration statement submitted through this process is not considered “filed” for purposes of Section 5 of the Securities Act.
JOBS Act and General Solicitation: 14 Law Firm White Paper
Also on Thursday, 14 law firms joined together to issue this white paper to address questions about private offerings during the transition period until the SEC adopts the required revisions to Rule 144A and Rule 506 under Regulation D. Under the JOBS Act, the SEC has 90 days – by July 4th – to eliminate certain existing prohibitions on general solicitation or general advertising. As noted in this Morrison & Foerster memo, the white paper “concludes that, until the SEC adopts final rules as directed by Title II of the JOBS Act, market participants relying on the Rule 506 and Rule 144A safe harbors will generally continue to implement customary procedures for these offerings. The report also concludes that market participants will continue to satisfy conditions of applicable safe harbors such as Securities Act Rules 135c, 152 and 155, as well as comply with applicable SEC and staff guidance regarding the integration of concurrent private and public offerings.”
