Yesterday, in another signal that the SEC is focusing on capital raising right now, the Corp Fin Staff released a batch of updates to Compliance & Disclosure Interpretations that relate to the simplified exempt offering framework adopted by the SEC way back in 2020. Better late than never!
In total, there are 24 interpretations that have been revised / withdrawn / newly issued. Here are a few of the topics addressed:
– Reg A draft offering statements
– Use of Reg D by foreign issuers
– Reg D definitions
– Application of general solicitation rules to “angel networks” and “demo days”
– Crowdfunding communications and advertising
Here’s the big ole’ line-item list of affected CDIs:
Two of the new CDIs issued yesterday provide very welcome guidance on what the Corp Fin Staff views as an acceptable process for verifying “accredited investor” status in a Rule 506(c) offering, which could make these “general solicitation” offerings much more usable. Specifically, the Staff added questions 256.35 and 256.36.
CDI 256.35 clarifies that the list of verification methods in Rule 506(c)(2)(ii) is “non-exclusive and non-mandatory.” The CDI cites back to the Commission’s 2020 adopting release for the exempt offering simplification rules, as well as the 2013 Reg D updates for a discussion of what will qualify as reasonable steps to verify that purchasers are accredited. This is a facts & circumstances analysis – the CDI and the 2013 release say that these factors are among those that the issuer should consider:
– the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
– the amount and type of information that the issuer has about the purchaser; and
– the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
CDI 256.36 addresses how minimum investment amounts can factor into the “reasonable steps to verify” requirement. This new CDI is based on a Latham & Watkins no-action letter that also was issued yesterday, which goes into more detail about relevant conditions that – when they accompany a minimum investment amount – would increase the likelihood that a purchaser is accredited and evidence reasonable steps to verify. Here’s the incoming letter with background on the interpretive request – and here’s an excerpt from the Staff’s response:
We agree that a high minimum investment amount is a relevant factor in verifying accredited investor status. As you note, the Commission stated that “if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party.” Securities Act Release No. 9415 (July 10, 2013).
We also note your representation that the minimum investment amount would be accompanied by written representations, from the purchaser, as to: (1) their accreditation (under Rule 501(a)(5) or (a)(6) if they are a natural person, or under Rule 501(a)(3), (7), (8), (9) or (12) if they are a legal entity), and (2) the fact that the purchaser’s minimum investment amount (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of each of the purchaser’s equity owners) is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.
In addition, we note your representation that the issuer would have no actual knowledge of any facts that indicate: that any purchaser is not an accredited investor; or that the minimum investment amount of any purchaser (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of any such equity owner) is financed in whole or in part by any third-party for the specific purpose of making the particular investment in the issuer.
Yesterday, the SEC approved a change to Nasdaq’s initial listing standards that will raise the bar for the liquidity requirements that apply to IPO listings and OTC uplistings in connection with a public offering. Meredith blogged about Nasdaq’s initial proposal back in December, which was subsequently amended to clarify a few details. Here’s what the rule will mean for IPOs:
First, the Exchange proposes to modify Nasdaq Listing Rules 5405(b) and 5505(b) to provide that a company listing in connection with an IPO, including through the issuance of American Depository Receipts, must satisfy the applicable Market Value of Unrestricted Publicly Held Shares requirement for each initial listing standard for primary equity securities with the proceeds of that offering.
Under the amended listing standards, previously issued shares that are registered for resale will no longer count in demonstrating liquidity. Nasdaq stated that it has observed that the companies that meet the applicable Market Value of Unrestricted Publicly Held Shares requirement through an IPO by including Resale Shares have experienced higher volatility on the date of listing than those of similarly situated companies that meet the requirement with only the proceeds from the offering – and that the Resale Shares may not contribute to liquidity to the same degree as the shares sold in the offering.
Here’s more detail on the change for companies uplisting from the OTC:
Secondly, with respect to a company uplisting from the OTC market, the Exchange proposes to modify the alternative to the ADV Requirement in Nasdaq Listing Rules 5405(a)(4) and 5505(a)(5). As revised, a company relying on this alternative will be required to satisfy the applicable Market Value of Unrestricted Publicly Held Shares requirement with only the proceeds from the offering. As a result, the Exchange also proposes to modify Nasdaq Listing Rules 5405(a)(4) and 5505(a)(5) to increase the size of the required public offering for this alternative to the ADV Requirement from $4 million to $5 million for Nasdaq Capital Market applicants and $8 million for Nasdaq Global Market applicants to align with the minimum Market Value of Unrestricted Publicly Held Shares requirement for each market.18 If the company qualifies under a standard other than the income standard, the minimum raise instead will have to satisfy the Market Value of Unrestricted Publicly Held Shares requirement of the applicable standard.
Nasdaq indicated that the proposed changes will become operative 30 days after approval by the Commission. The Commission has approved the proposal on an accelerated basis – although people are also free to continue to submit comments for a limited additional time.
For companies that are considering IPOs this year, capital structure is an important consideration. The “Investor Coalition for Equal Votes” – which was launched a few years ago to stop “unrestrained dual-class structures” as companies go public – recently released a 23-page report that summarizes the voting policies on dual-class structures of 31 of the world’s largest investors.
The report covers policies of asset owners & managers as they stood going into 2025. Although it remains to be seen whether recent Staff guidance will affect investor positions on this topic or the consequences they say they’ll impose, the report can give you a sense of investor sentiment for purposes of marketing a deal and long-term planning. Here’s an excerpt:
Although a spectrum of approaches is taken – from votes against ‘dual-class enabling’ directors at every company board they sit on, to expressing support for “one-share, one-vote” proposals – what is clear is that institutional investors have strong views on this issue. It is also the case that many investors are strengthening their lines over time, as well as using other escalation activities such as co-filing shareholder resolutions (including on class-by-class disclosure) and statements at Annual General Meetings (AGMs) and other meetings.
The report says that some investors are also beginning to vote against capital resolutions (e.g., share buybacks & issuances) at companies that have dual-class share structures. In addition to covering investors policies, ICEV also summarizes the policies of proxy advisors and global investor groups. Here in the U.S., the Council of Institutional Investors has made no secret of its preference for “one share, one vote” capital structures.
As I’ve shared on the Proxy Season Blog, despite investor disdain, proposals to eliminate dual-class share structures almost always face a steep uphill battle. However, that may not be a bad thing, because dual-class companies also tend to outperform single-class companies over the long term.
The SEC has designated a longer period for action on two NYSE proposals – one of which would affect certain companies initially listing on the exchange, and the other of which would affect companies facing delisting. Here’s more detail:
1. The first extension relates to calculation of initial distribution standards on a worldwide basis for non-U.S. companies. Meredith first blogged about the proposal last fall. In November, it was amended and restated. The Commission has received no comments and has extended the time period for approving or disapproving the proposed rule change, as amended, until May 8th. If approved, Section 102.01 of the NYSE Listed Company Manual would be amended to provide that the distribution standards therein will be calculated on a worldwide basis when listing a company from outside North America and such company (i) is listing in connection with its initial public offering, and (ii) is not listed on any other regulated stock exchange.
2. The other extension relates to a proposal to provide that the Exchange won’t review a compliance plan submitted by a domestic or non-U.S. listed company that is determined to be below compliance with a continued listing standard unless the company has paid in full all outstanding listing or annual fees due to the Exchange and will immediately commence suspension and delisting procedures in accordance with Section 804.00 of the Manual if such fees are not paid in full by the plan submission deadline; or (2) with respect to any unpaid fees that have become due and payable since the commencement of its plan period, will immediately commence suspension and delisting procedures in accordance with Section 804.00 of the Manual if such fees are not paid in full at the time of any required periodic review of such plan. The Commission has designated June 13th as the date by which it will either approve or disapprove the proposed rule change. If you’re facing delisting and also behind on your fees, you’ve got a few more months to find that money…
Yesterday on DealLawyers.com, John shared the latest episode of our “Understanding Activism with John & J.T.” podcast, which is available to members of DealLawyers.com. This time, J.T. Ho and John were joined by Garrett Muzikowski, Managing Director, M&A, Activism & Governance Advisory at FTI Consulting. They spoke with Garrett about recent developments and trends in activism.
Topics covered during this 20-minute podcast include:
– The rise of new activists
– The potential for a rise in private equity “white knight” investors
– Trends in activist demands
– Trends in timing of activist approaches
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. John & J.T. continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
If you aren’t already a DealLawyers.com member and want access to this podcast series and our other helpful M&A, Delaware law, and activism resources, 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. 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.
Yesterday, the SEC issued this 5-page final rule to eliminate the delegated authority that had permitted the Director of the SEC’s Division of Enforcement to issue formal orders of investigation. I blogged last month about a policy-level precursor to this change – and its impact on SEC investigative procedures. Here’s more detail from the final rule:
The Commission delegated authority to issue formal orders of investigation to the Director on August 11, 2009. “Delegation of Authority to Director of Division of Enforcement,” 74 FR 40068-01 (Aug. 11, 2009). The delegation was made effective for a one-year period, ending on August 11, 2010, to allow Commission review of the Division’s exercise of formal order authority. On August 16, 2010, the Commission amended its rules to extend the Director’s delegated authority to issue formal orders of investigation beyond the one-year period. “Delegation of Authority to the Director of Its Division of Enforcement,” 75 FR 49820-01 (Aug. 16, 2010); see also 17 CFR 200.30-4(a)(13).
The amendment will delete this delegation provision, 17 CFR 200.30-4(a)(13), to more closely align the Commission’s use of its investigative resources with Commission priorities.
As noted in the rule, a formal order of investigation is needed in order to authorize specifically designated enforcement staff to exercise the Commission’s statutory power to subpoena witnesses and take certain other actions.
You may be wondering why the SEC skipped issuing this amendment as a proposal and went straight to the final rule. The rule states that no notice and comment period is needed to delete the delegated authority because the amendment relates solely to agency organization, procedure, and practice. Accordingly, the amendment is final and will become effective upon publication in the Federal Register.
Boards are certainly not lacking on “data” these days. In fact, one of the most challenging aspects of working with boards right now is sorting through all the possible information & data points in order to pinpoint what is actually helpful and decision useful. Despite all the blood, sweat & tears that go into preparing board materials, I recently heard one director share that he felt he was “wading through mud.” So, it sounds like there’s still room for improvement.
This report from Board Intelligence and NACD shares practical ideas for striking the right balance between context & information overload, and between reviewing the last quarter’s corporate performance & considering what’s ahead. Here are the top 3 “board pack critical thinking gaps,” according to directors:
1. Too operational at the expense of strategy
2. Too internally focused, with little insight into the wider market
3. Light on the implications of the information presented
To close those gaps, the report recommends asking these questions about the board materials before they go out:
– Does each report address the key questions that are on directors’ minds?
– Do reports provide a balanced analysis, giving a forward-looking view as well as looking backward, and considering the internal and external context?
– Does management offer actionable insights by answering two key questions in their reports: “What are the implications?” and “What will we stop, start, or do differently as a result?”
– If management is using slides to share information, are those slides sufficiently detailed or accompanied by a memo so they can be easily understood without a voice-over?
– Is each report tailored to the board’s specific needs and sufficiently strategic?
– Is the board pack shared in a timely manner to allow sufficient review and meeting preparation?
In the latest 20-minute episode of the “Women Governance Trailblazers” podcast, Courtney Kamlet and I talked with Niamh Corbett, who is Head of Americas for Board Intelligence. We discussed:
1. Niamh’s career path, from investment banking to Board Intelligence commercial roles and national thought leadership.
2. Top trends in board communication and advice on how boards can be most effective.
3. Similarities and differences between the U.K. and U.S. on board reporting and corporate governance, including stances on diversity and inclusion.
4. The biggest risks and opportunities for today’s boards of directors.
5. What governance practitioners should be thinking about in the U.S. deregulatory environment.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are “women governance trailblazers” whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Shoot me an email at liz@thecorporatecounsel.net.
If you work with life sciences companies, you know that clinical data developments and releases do not always fit neatly into SEC disclosure and fundraising rules. Two recent Fenwick memos give must-read roadmaps on these topics. Here are a couple of disclosure considerations (also read this fundraising / IR piece):
What if data are expected around the time of a Form 10-K or Form 10-Q filing or a planned investor meeting?
If the company has undisclosed topline clinical data when filing an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q, it generally must disclose those data in the filing.
To avoid issues, you can either advance the Form 10-Q filing to a date before the company receives the data or delay the data receipt until after the scheduled filing.
Once the CEO or any other key executives who regularly engage with investors are aware of the data, they should stop all discussions with investors prior to disclosure.
Does the four business day reporting deadline for Form 8-K apply to topline clinical data releases?
No. A span of six to seven days from the point of receiving the data to public release is typical, however, more rapid disclosure may be necessary with negative results. Additionally, there may be other important timing considerations if the data are expected to support a financing for the company. A proactive legal strategy includes early discussion of the preferred release time with your investor relations team.
The memo also covers special blackouts, conference presentations, and more. Given these complexities, it’s smart to think ahead. The Fenwick team outlines how to prepare in advance:
When should I start preparing for disclosure?
Preparations can often begin several months in advance. Once a calendar is set for planned readout dates, establish a strong communication channel with the clinical team working on the trial readout, your investor relations team and your legal team. Make sure that you understand the basics—the trial structure, when the data are planned to arrive, and what data are anticipated. This will help you evaluate regulatory risks and necessary disclosures while setting expectations for the internal and external flow of information. Having a communications plan in place early can also be helpful if it becomes necessary to disclose data early (e.g., if there is a safety signal necessitating early unblinding or trial termination).
What can I prepare in advance?
It can help to develop a detailed day-by-day task plan. This plan should include proposed tasks from the moment the data arrives at the company for processing and reviewing, right up to the date of disclosure, and even beyond. This approach also helps solidify your position as a crucial participant in decisions about data timing and provides structure for the internal dissemination of data during the pre-public release phase.
Collaborate with the cross-functional team responsible for managing the data release to create core forms of press releases, corporate presentation slides and other supplementary items, such as a preliminary Q&A.
Establishing a structured timeline can be instrumental in ensuring everyone is aligned on key disclosure dates, the availability of key stakeholders, and assessing potential training needs in advance of receiving data.
