SEC Eliminates The “Tandy Letter”
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On October 5, 2016, the SEC Division of Corporation Finance (CorpFin) announced that, effective immediately, it would no longer require companies to include “Tandy” letter representations in comment letter response or registration acceleration requests addressed to the SEC.
Beginning in the 1970s the SEC began to require an affirmative statement from the company acknowledging that the company cannot use the SEC’s comment process as a defense in any securities-related litigation. Named after the first company required to provide the affirmations, this language is referred to as a “Tandy” letter. By 2004 the “Tandy” letter was required in all comment letter responses to the SEC as well as registration acceleration requests. The “Tandy” portion of a response was required to be agreed to by the company itself, so if the response letter was on attorney letterhead, a signature line was required to be included for the company or the company could submit a separate letter. The Tandy language for an Exchange Act filing was as follows:
The company acknowledges that:
- the company is responsible for the adequacy and accuracy of the disclosure in the filing;
- staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
- the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Tandy language for a Securities Act registration statement was as follows:
The company acknowledges the following:
- Should the commission or the staff, acting pursuant to delegated authority, declare the filing effective, it does not preclude the commission from taking any action with respect to the filing;
- the action of the Commission or the staff, acting pursuant to the delegated authority, in declaring the filing effective does not relieve the company from its full responsibility for adequacy and accuracy of the disclosure in the filing; and
- the company may not assert staff comments and the declaration of effectiveness as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The End of Tandy Letters
On October 5, 2016, CorpFin announced that it would no longer require companies to include “Tandy” letter representations in comment letter response or registration acceleration requests addressed to the SEC. In its release the SEC notes that “while it remains true that companies are responsible for the accuracy and adequacy of the disclosure in their filings, the staff does not believe that it is necessary for them to make the affirmative representations in their filing review correspondence.”
Rather than require “Tandy” representations, the SEC will now include the following statement in all comment letters:
We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.
The end of the “Tandy” letter requirements was effective on October 5, 2016. As the requirement was a staff policy and not a rule, no rule release or other formal publication from the SEC was required.
Although the written “Tandy” letter is no longer required, the meaning of the words has not changed. That is, regardless of the writing, a company may still not assert staff comments, the clearing of such comments, or the fact of an SEC review of any filing, as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
As a securities attorney it is important to educate clients on what the comment and review process means, and does not mean. The purpose of a review by CorpFin is to ensure compliance with the disclosure requirements under the federal securities laws, including Regulation S-K and Regulation S-X, and to enhance such disclosures as to each particular issuer. CorpFin will also be cognizant of the antifraud provisions of the federal securities laws and may refer a matter to the Division of Enforcement where material concerns arise over the adequacy and accuracy of reported information or other securities law violations, including violations of the Section 5 registration requirements. CorpFin has an Office of Enforcement Liason in that regard.
However, neither the SEC nor CorpFin evaluates the merits of any transaction or makes an assessment or determination as to whether a transaction or company is appropriate for any particular investor or the marketplace as a whole. The purpose of a review is to ensure compliance with the disclosure requirements of the securities laws. In that regard, CorpFin may ask for increased risk factors and clear disclosure related to the merits or lack thereof of a particular transaction, but they do not assess or comment upon those merits beyond the disclosure.
As the “Tandy” Letter made clear to companies, they are still responsible for the contents of their filings, and both private litigation and enforcement proceedings may be brought regardless of an SEC review. With the end of the “Tandy” Letter, it is incumbent upon SEC counsel to remind clients of their obligations and the role of the SEC.
For further reading on the comment and review process, see my blog HERE .
Also, I have been keeping on ongoing summary of the SEC ongoing Disclosure Effectiveness Initiative. The following is a recap of such initiative and proposed and actual changes.
On August 31, 2016, the SEC issued proposed amendments to Item 601 of Regulation S-K to require hyperlinks to exhibits in filings made with the SEC. The proposed amendments would require any company filing registration statements or reports with the SEC to include a hyperlink to all exhibits listed on the exhibit list. In addition, because ASCII cannot support hyperlinks, the proposed amendment would also require that all exhibits be filed in HTML format. See my blog HERE on the Item 601 proposed changes.
On August 25, 2016, the SEC requested public comment on possible changes to the disclosure requirements in Subpart 400 of Regulation S-K. Subpart 400 encompasses disclosures related to management, certain security holders and corporate governance. See my blog on the request for comment HERE.
On July 13, 2016, the SEC issued a proposed rule change on Regulation S-K and Regulation S-X to amend disclosures that are redundant, duplicative, overlapping, outdated or superseded (S-K and S-X Amendments). See my blog on the proposed rule change HERE.
That proposed rule change and request for comments followed the concept release and request for public comment on sweeping changes to certain business and financial disclosure requirements issued on April 15, 2016. See my two-part blog on the S-K Concept Release HERE and HERE.
As part of the same initiative, on June 27, 2016, the SEC issued proposed amendments to the definition of “Small Reporting Company” (see my blog HERE). The SEC also previously issued a release related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates. See my blog HERE.
As part of the ongoing Disclosure Effectiveness Initiative, in September 2015 the SEC Advisory Committee on Small and Emerging Companies met and finalized its recommendation to the SEC regarding changes to the disclosure requirements for smaller publicly traded companies. For more information on that topic and for a discussion of the Reporting Requirements in general, see my blog HERE.
In March 2015 the American Bar Association submitted its second comment letter to the SEC making recommendations for changes to Regulation S-K. For more information on that topic, see my blog HERE.
In early December 2015 the FAST Act was passed into law. The FAST Act requires the SEC to adopt or amend rules to: (i) allow issuers to include a summary page to Form 10-K; and (ii) scale or eliminate duplicative, antiquated or unnecessary requirements for emerging-growth companies, accelerated filers, smaller reporting companies and other smaller issuers in Regulation S-K. The current Regulation S-K and S-X Amendments are part of this initiative. In addition, the SEC is required to conduct a study within one year on all Regulation S-K disclosure requirements to determine how best to amend and modernize the rules to reduce costs and burdens while still providing all material information. See my blog HERE.
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