Over on the Business Law Prof Blog, Prof Benjamin Edwards of the UNLV William S. Boyd School of Law has been tracking filings by companies seeking to reincorporate from Delaware since the passage of Delaware’s Senate Bill 21 in late March. Among the eight reincorporations he identifies over twoblogs (seven to Nevada and one to Texas), he identifies the reasons companies commonly cite when seeking to move their state of incorporation. Below, I’ve paraphrased some of the proxy disclosures he cites in the blogs:
– More predictability and certainty. These disclosures point to Nevada and Texas using a “statute-focused approach to corporate law” and particularly that Nevada statutes “codify the fiduciary duties of directors and officers.”
– Reducing risk of “opportunistic litigation,” saying that there’s an “increasingly litigious environment in Delaware” and the company wants to avoid “unnecessary distraction to the company’s directors and management team,” sometimes citing specific past examples.
– Avoiding franchise taxes, comparing annual fees in Nevada to Delaware franchise taxes.
– Cheaper D&O insurance, claiming that reduction in litigation costs may reduce premiums.
– Local presence — citing a nexus to the new state.
Some of the disclosures specifically address the recent amendments to the DGCL and mostly say that it’s still appropriate to reincorporate because of continued uncertainty. They say, “the DGCL Amendments are new, untested and subject to judicial interpretation,” and “interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.”
Speaking of interpretive questions, on Tuesday, April 29, at 2 pm ET, we’re hosting the webcast “2025 DGCL Amendments: Implications & Unanswered Questions” on DealLawyers.com. Hunton’s Steven Haas, Gibson Dunn’s Julia Lapitskaya, and Morris Nichols’ Eric Klinger-Wilensky will give an overview of the amendments, discuss implications for transactions with directors & officers or controlling stockholders and for books & records demands, and consider unanswered interpretive questions.
Members of DealLawyers.com are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
On April 4, the SEC posted this Notice of Filing of Application, as Amended, for Registration as a National Securities Exchange by Texas Stock Exchange LLC, which application was initially filed on January 31 and amended on April 2. TXSE’s press release says it is the first fully integrated exchange to seek registration in 25 years! A Troutman alert notes this historic application “comes against the backdrop of an assertive campaign by the state of Texas to position itself as a rival to both New York and Delaware as the financial and corporate home for publicly traded companies.”
The alert also takes a close look at the application to better understand how the exchange plans to operate since the application includes its proposed listing rules. Securities practitioners will be happy to know that the rules will look familiar — there are many similarities to Nasday’s listing rules. In fact, the alert says, “the TXSE’s proposed corporate governance and shareholder approval rules appear to be based, virtually verbatim in certain instances, on Nasdaq’s rules, including the latter’s recent tightening of rules relating to reverse stock splits.”
With respect to initial listing criteria, however, TXSE aligns more closely with NYSE and has no tiers. And, in a move that might make it less palatable to small- and micro-cap companies, its proposed initial and continued listing requirements are more stringent than the Nasdaq Capital Market. The Troutman team prepared this helpful comparison of the TXSE’s proposed initial listing criteria with those of NYSE and the Nasdaq Capital, Global and Global Select Markets.
But that’s not all! The alert also points out that both NYSE and Nasdaq have “announced the creation of Texas-located markets or offices, with the NYSE moving one of its electronic exchanges to the state and Nasdaq opening a new regional headquarters in Dallas.” Move over, New York, there’s a new sheriff in town.
On Friday, Corp Fin posted a handful of new CDIs, including six new Exchange Act Forms CDIs that address clawbacks-related checkboxes on the Form 10-K cover page and the timing of required Item 402(w)(2) disclosure and one new Exchange Act Rules CDI that addresses co-registrants in a de-SPAC transaction. Below, I’ve paraphrased the Form 10-K CDIs, and I addressed the de-SPAC CDI in a DealLawyers.com blog.
104.20: When an issuer reports a change to its previously issued financial statements in an annual report, it should determine whether “the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements” for purposes of the check box by looking to applicable accounting guidance on whether the change represents the correction of an error. The CDI notes that this includes “Big R” restatements and “little r” restatements but excludes “out-of-period adjustments” since the previously issued financial statements are not revised.
104.21: Companies must mark the check box on the cover of an amended annual report to indicate that the restatement “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” pursuant to Exchange Act Rule 10D-1(b) even when (1) no incentive-based compensation was received by any executive officers at all during the relevant time frame or (2) incentive-based compensation was received but that incentive-based compensation was not based on a financial reporting measure impacted by the restatement (and explain).
104.22: After filing an amended 20X3 10-K, an issuer includes the same restated financial statements in its subsequent 20X4 annual report. Assuming there are no additional restatements, the staff will not object to the check boxes remaining unmarked on the cover page of the 20X4 annual report. But the proxy or information statement filed during 20X5 that includes 20X4 executive compensation information pursuant to Item 402 must also include the disclosure of Item 402(w)(2) of Regulation S-K.
104.23: If an issuer discovers an error in its previously issued 20X3 financial statements in 20X5 (prior to filing the 20X4 annual report), applies its recovery policy, determines that no recovery is required, checks both boxes on its 20X4 annual report and provides Item 402(w)(2) disclosure in its proxy or information statement incorporated by reference, the staff will not object if the 20X5 annual report does not include or incorporate by reference Item 402(w)(2) disclosure, notwithstanding that the restatement occurred “during…the [issuer’s] last completed fiscal year” as long as there are no additional facts that would affect the conclusion of the prior Exchange Act Rule 10D-1(b) recovery analysis that no recovery is required.
104.24: An issuer initially reports a restatement of an annual period in a form that does not include a cover page check box requirement – for example, a Form 8-K or a registration statement. If that annual period is presented in the issuer’s financial statements in its next annual report, the issuer is required to mark that check box on the cover page of that annual report.
104.25: If an issuer determines in the fourth quarter that it is required to prepare restatements of its first, second and third quarterly periods of that year, the issuer is not required to mark any of the check boxes on the cover page of its annual report even if the issuer includes disclosures about the interim restatements in a footnote to the annual period financial statements. However, it must provide disclosure pursuant to Item 402(w) of Regulation S-K in its 10-K or proxy or information statement since, for purposes of that disclosure, an accounting restatement is not limited to one that impacts annual periods.
In recent years, the Ninth Circuit has limited a plaintiff’s ability to rely on a short seller report as “corrective disclosure” for pleading loss causation in a federal securities law claim. As this Alston & Bird alert reports, the Fourth Circuit has recently chimed in and followed the Ninth Circuit’s lead.
In Defeo v. IonQ Inc., the Fourth Circuit affirmed the district court’s decision granting the defendant’s motion to dismiss because the short seller report the plaintiffs relied on to plead their claim was not a “corrective disclosure” for purposes of loss causation. The Fourth Circuit explained . . . the plaintiffs “fail to clear the high bar of showing that the” Scorpion Capital “[r]eport revealed the truth of IonQ’s alleged fraud to the market.”
The Fourth Circuit determined that disclaimers in the report “rendered it inadequate to reveal any alleged truth to the market” — pointing to the fact that the Scorpion Capital report “relies on anonymous sources for its nonpublic information and disclaims its accuracy” and “admits some quotations may be paraphrased, truncated, and/or summarized,” which the Fourth Circuit says “gives Scorpion Capital the kind of editorial license that could allow it to say just about anything and cloak it in the imprimatur of truth in order to make a buck.”
While both the Fourth Circuit and the Ninth Circuit left open the possibility that a short seller report may be used in litigation in certain circumstances, the alert notes that many short seller reports include the same disclaimers that disqualified the Scorpion Capital report from qualifying as corrective disclosure. Accordingly, it says the decision will be “a powerful and persuasive new precedent for defendants as courts hopefully continue curtailing securities class action plaintiffs’ use of short seller reports to plead federal securities law claims.”
A recent blog from Kevin LaCroix on The D&O Diary includes this additional observation:
It was particularly of interest to me that the court did not find that the short-seller’s report did not cause the company’s share price to decline; in fact, the appellate court expressly acknowledged that the company’s share price did decline after the report was published. The appellate court was careful to distinguish between the revelation of fraud (of the kind that could establish loss causation) and the allegation of fraud (which alone are insufficient to establish loss causation), a critical distinction in considering whether the plaintiffs had sufficiently alleged that “new information” had been disclosed to the marketplace for purposes of pleading loss causation.
I also think it is important to note that this case is a SPAC-related lawsuit, a fact that I noted and emphasized at the time this case was first filed. This aspect of the case is important to highlight because quite a number of the SPAC-related suits that have been filed over the last several years are, like this one, based on allegations that first surfaced in short-seller reports. The district and appellate courts’ consideration of the short-seller report allegations here could prove relevant in many of the other SPAC-related lawsuits that have been filed.
The latest issue of The Corporate Counsel newsletter has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the following articles:
– Capital Formation: The SEC Hits the Ground Running
– Capital Markets Alternatives: Rights Offerings
Please email sales@ccrcorp.com to subscribe to this essential resource if you are not already receiving the important updates we provide in The Corporate Counsel newsletter.
We must have entered the “crypto phase” of Corp Fin’s to-do list, because yesterday, the Staff of the SEC’s Division of Corporation Finance published a statement on the application of federal securities laws to crypto assets. This is a topic that folks in the crypto industry have been wanting for years.
The move to share guidance is consistent with the agency’s about-face on regulating crypto. I’m sure it’s no coincidence that it’s arrived on the heels of last week’s statement on stablecoins. This one doesn’t address whether an asset is a “security.” Rather, it explains how the disclosure rules apply to equity or debt crypto assets that are securities. For purposes of the statement, a “crypto asset” is an asset that is generated, issued, and/or transferred using a blockchain or similar distributed ledger technology network (“crypto network”), including, but not limited to, assets known as “tokens,” “digital assets,” “virtual currencies,” and “coins,” and that relies on cryptographic protocols.
It’s going to take some time for the SEC’s Crypto Task Force to deliberate and issue a comprehensive regulatory framework for these assets (we’ve blogged about some recommendations). So, in the meantime, the statement sheds light on how issuers whose operations relate to networks, applications and/or crypto assets can comply with existing Reg S-K disclosure requirements. Specifically, Corp Fin gives examples of what issuers could discuss in response to:
1. Description of Business
2. Risk Factors
3. Description of Securities
– Rights, Obligations, and Preferences
– Technical Specifications
4. Supply
5. Directors, Executive Officers, and Significant Employees
6. Financial Statements
7. Exhibits
The Staff also noted that nothing in the statement is intended to suggest that registration or qualification is required in connection with an offering of a crypto asset if the crypto asset is not a security and not part of or subject to an investment contract. In a statement, Commissioner Hester Peirce – who was anointed as “Crypto Mom” many years ago – gave more color:
Offerings and registrations for which this statement may be relevant involve equity or debt securities of issuers whose operations relate to networks, applications, or crypto assets. Other offerings and registrations for which this statement may be relevant involve crypto assets offered as part of or subject to an investment contract. Registration or qualification is not required in connection with an offering of a crypto asset if the crypto asset is not a security and not part of or subject to an investment contract. The statement reflects the Division’s observations regarding disclosures provided in response to existing requirements and takes into account crypto-related disclosure questions the Division has received.
This guidance might be helpful for a company that is:
– developing a blockchain and issuing debt or equity;
– registering the offering of an investment contract in connection with an initial coin offering;
– issuing a crypto asset that itself is a security because, for example, it provides a revenue stream based on the issuer’s performance; or
– integrates non-fungible tokens into video games and is issuing debt or equity.
This for sure won’t be the last update we see on crypto and the securities laws. A Crypto Task Force Roundtable is happening today at the SEC. Last week, (then Acting) Commissioner Uyeda directed the Staff to review statements the Staff had previously issued on crypto topics – with an eye toward deregulation.
I couldn’t find this statement on SEC.gov. Maybe I missed it. But at any rate, it was on “X” and reported by all the crypto outlets, and I guess that’s where we get news now.
On Wednesday, the President issued a memo that gives more color to the “review & repeal” directive contemplated by Executive Order 14219 that was issued a few months ago. The memo says that all agency heads should prioritize regulations that could be struck down as overreach or otherwise unlawful under recent Supreme Court cases. Here’s the real kicker:
In effectuating repeals of facially unlawful regulations, agency heads shall finalize rules without notice and comment, where doing so is consistent with the “good cause” exception in the Administrative Procedure Act. That exception allows agencies to dispense with notice-and-comment rulemaking when that process would be “impracticable, unnecessary, or contrary to the public interest.”
SEC Commissioner Caroline Crenshaw already dissented from the Commission’s decision to drop its defense of climate disclosure with no attempt at “notice & comment” repeal. Now, other rules could be on the chopping block. The memo refers specifically to these SCOTUS cases:
1. Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024);
2. West Virginia v. EPA, 597 U.S. 697 (2022);
3. SEC v. Jarkesy, 603 U.S. 109 (2024);
4. Michigan v. EPA, 576 U.S. 743 (2015);
5. Sackett v. EPA, 598 U.S. 651 (2023);
6. Ohio v. EPA, 603 U.S. 279 (2024);
7. Cedar Point Nursery v. Hassid, 594 U.S. 139 (2021);
8. Students for Fair Admissions v. Harvard, 600 U.S. 181 (2023);
9. Carson v. Makin, 596 U.S. 767 (2022); and
10. Roman Cath. Diocese of Brooklyn v. Cuomo, 592 U.S. 14 (2020).
This Fact Sheet gives a paragraph on how the executive branch is interpreting each of those cases. From Politico:
The White House directive appears to claim that the high court’s 2024 ruling known as Loper Bright applies retroactively, although the court’s conservative justices held explicitly that the decision is forward-looking.
The SEC has been somewhat insulated from the fallout of the Loper Bright decision because courts haven’t given much deference to SEC rules in recent years anyway. But under this memo, things could get interesting – especially given some of Chair Atkins’ views on the PCAOB, Sarbanes-Oxley rules, shareholder proposals, and more. As John blogged when Loper Bright was issued, while the rollback of certain disclosure requirements could be happy news for companies in some ways, companies also should consider the business impact of the broader, government-wide deregulation effort. The Politico article predicts the memo will face legal challenges.
We’ve posted an informative 27-minute episode of the “Timely Takes” podcast – John met up with Brian Breheny of Skadden, Rick Hansen of HP, and Allie Ritherford of PJT Camberview to discuss the Staff’s recent CDIs on Schedule 13G eligibility and their impact on shareholder engagement practices. With multiple guests and a technical subject, this one ended up being akin to a “mini webcast” – so we’ve also posted a transcript that you can refer back to. Topics include:
1. Overview of the Staff’s recently updated CDIs on Schedule 13D/13G and additional informal Staff guidance.
2. How investor approaches to engagements with management have changed in response to the CDIs.
3. How companies should respond to the new environment and maximize the value of investor engagements.
4. How investors’ response to the CDIs may influence the role of proxy advisors in contested elections.
5. Implications for companies facing activist campaigns.
6. Recommendations for investors on how to navigate the new environment.
If you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share, email John at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com.
Yesterday, the Senate voted 52-44 to confirm the nomination of Paul Atkins as Chair of the SEC. Chair Atkins was approved to serve for the remainder of Gary Gensler’s term, which expires June 5th, 2026. SEC Commissioners can serve for up to 18 months past the expiration of their term, and then the Senate has to vote again on reappointment for a subsequent 5-year term.
Chair Atkins will be overseeing a Staff that has hit the ground running on capital formation priorities – despite thinner ranks. The three other current Commissioners issued this statement to welcome Chair Atkins back to the SEC.
Here’s a big development that was revealed in a blog last month from Nasdaq president Tal Cohen:
We are excited to share that Nasdaq has begun engaging with regulators, market participants and other key stakeholders, with a view of enabling 24-hour trading five days a week on the Nasdaq Stock Market.
Our timeline is pending regulatory approval and alignment with critical industry infrastructure providers, which we anticipate being in the second half of 2026.
Honestly, my first thought in reading this was. . . not excitement. With “fake news” causing a multi-trillion-dollar market swing earlier this week, it seems like we already have our hands full during regular trading hours.
I’m just a lowly securities lawyer, so I wouldn’t expect my opinion to matter to anyone. But apparently Investor Relations folks also have some concerns, as discussed in detail in this LinkedIn newsletter. This Fast Company article explains in layman’s terms:
Companies, especially the ones found on the tech-heavy Nasdaq, like Apple, Amazon, Alphabet, Nvidia, and more, like to control when investors receive news about them, as much as they can, anyway. The reason for this is that news, especially when it’s first disseminated, can make a stock’s price swing wildly in one direction or another.
This is why many companies report their earnings before or after regular market hours. Retail investors typically don’t trade in those hours, which helps mitigate any large-scale fear- or greed-based selling or buying when news hits.
If stocks are traded 24/5, companies lose this buffer—which could lead to increased trading volatility. If this change happens, every CEO or CFO will have to be extra careful what they say during earnings calls, as any statement—correctly interpreted or not—could lead to instant trading volatility.
And for the media covering Nasdaq companies—and the markets in general—well, they will no longer be able to call it a night after 4 p.m. If the Nasdaq is trading 24/5, that means U.S. financial news is now happening 24/5, and investors are going to want real-time analysis and updates.
I understand the change would bring benefits, but I’m exhausted just thinking about it.
Nasdaq is actually not the first exchange to pursue 24-hour trading. The SEC approved the “24X exchange” last fall – which offers trading 23 hours a day, five days a week. That approval drew criticism – but Commissioners Peirce and Crenshaw responded with this statement defending their decision. So, unfortunately for me, it seems like they’re on board with the concept.
