Liz and I continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. In particular, we’ve covered a number of developments related to institutional investor voting policies applicable to 2025 annual meetings (cheers to Liz on these — they are not easy to track!) and to shareholder proposals. Here are some of the recent related entries:
Following that blog an easy way to stay in-the-know on shareholder proposals, engagement trends and more. Members can sign up to get that blog pushed out to them via email whenever there is a new post.
Dave and Liz recently shared helpful tariff-related disclosure considerations for upcoming 10-Qs. This H/Advisors Abernathy article has tips for navigating earnings and investor calls in these periods of unprecedented uncertainty. Generally, it stresses that management teams need to be nimble, provide detailed and precise information where they are able to and also be comfortable saying “we don’t know” when asked questions they shouldn’t be expected to have answers to. Here are some tips from the alert:
Ditch the “closely monitoring” and “wait and see” messages. Leadership must be able to answer detailed, pointed questions from investors and analysts. This is especially important if a company has substantial exposure and/or a complex global supply chain. Tackle the issue head on. Don’t wait for the question.
Ensure internal alignment and message consistency. Board directors should use the same talking points as the CEO and CFO, and the same goes for investor relations and government affairs. All must be consistent to avoid confusion with financial audiences and uncertainty with other stakeholders.
Deliver earnings and investor calls live – or be prepared to ditch any pre-recorded versions. Daily, if not hourly, news and market jolts mean messages may have to quickly change to be credible with audiences. Addressing pressing issues immediately instills confidence in management.
Tailor financial guidance to a specific situation. Adjust and augment disclosures if needed. Even if near-term expectations have not changed, longer-term outlooks may be nearly impossible to peg accurately. It’s acceptable to adjust guidance disclosures to reflect current circumstances. Outline underlying assumptions and key swing factors. Silence can be perceived as re-affirming.
Talk about operational changes being considered or implemented – to a point. Focus on options rather than disclosing specific long-term plans, given that tariffs could be diluted or reversed if Trump strikes deals. It’s also OK to acknowledge what level of tariff in a certain country the business can sustain – and what it can’t.
On the compliance front, this CFA Institute post reminds us that companies are unlikely to adjust out the impact of tariffs in their non-GAAP numbers. It notes that tariffs are generally “normal, recurring, cash operating expenses necessary to operate a business, especially if that business already has an established history of paying tariffs.”
I would add that companies should be especially mindful of the Reg. FD risks posed by private meetings in these periods of uncertainty. Private reaffirmation of earnings guidance even shortly after a public earnings announcement may not be appropriate with the current pace of change. Be wary of investor “one-on-ones” having a different tone than recent public statements or providing “additional color.” Companies might be finding themselves following a “no comment” policy more often than usual or making more frequent public disclosures to accommodate private meetings.
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
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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.
