Category: SEC

SEC: On December 18, 2015, the SEC issued a 118-page report on the definition of “Accredited Investor” (the “Report”). The report follows the March 2015 SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) recommendations related to the definition. The SEC is reviewing the definition of “accredited investor” as directed by the Dodd-Frank Act, which requires that the SEC review the definition as relates to “natural persons” every four years to determine if it should be modified or adjusted…

Nov032015

The Materiality Standard; NYSE Amends Rules; FASB Proposed Guidance

ABA Journal’s 10th Annual Blawg 100

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The recent increase in regulatory activity and marketplace discussion on the topic of disclosure has not been limited to the small business arena or small cap marketplace.  Effective September 28, 2015, the New York Stock Exchange (“NYSE”) amended its Rule 202.06 of the NYSE Listed Company Manual, which governs the procedures that listed companies must follow for the release of material information.  Also, the Financial Accounting Standards Board (FASB) has issued two exposure drafts providing guidance and seeking comments on the use of materiality to help companies eliminate unnecessary disclosures in their financial statements and to determine what is “material” for inclusion in notes to the financial statements.  Both exposure drafts solicit public comment on proposed amendments to the Statement of Financial Accounting Concepts published by FASB.

NYSE Rule 202.06 Amendment

As published in the federal register, the NYSE proposes to amend Section 202.06 of the Manual to “(i) expand the premarket hours

Oct272015

SEC Small Business Advisory Committee Public Company Disclosure Recommendations

ABA Journal’s 10th Annual Blawg 100

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On September 23, 2015, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and finalized its recommendation to the SEC regarding changes to the disclosure requirements for smaller publicly traded companies.    

By way of reminder, the Committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” as related to “(i) capital raising by emerging privately held small businesses and publicly traded companies with less than $250 million in public market capitalization; (ii) trading in the securities of such businesses and companies; and (iii) public reporting and corporate governance requirements to which such businesses and companies are subject.”

The topic of disclosure requirements for smaller public companies under the Securities Exchange Act of 1934 (“Exchange Act”) has come to the forefront over the past year.  In early December

Oct132015

SEC Advisory Committee On Small And Emerging Companies Recommends Modernizing Rule 147 for Intrastate Crowdfunding Offerings

ABA Journal’s 10th Annual Blawg 100

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On September 23, 2015, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and finalized its recommendation to the SEC regarding the modernization of the Rule 147 Intrastate offering exemption.  The recommendations are focused on facilitating recently enacted and future state-based crowdfunding initiatives.

I have written about the Advisory Committee on numerous occasions, but by way of reminder, the Committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” as related to “(i) capital raising by emerging privately held small businesses and publicly traded companies with less than $250 million in public market capitalization; (ii) trading in the securities of such businesses and companies; and (iii) public reporting and corporate governance requirements to which such businesses and companies are subject.”

In formulating its recommendations, the Advisory

Sep292015

SEC Footnote 32 and Sham S-1 Registration Statements

ABA Journal’s 10th Annual Blawg 100

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Over the past several years, many direct public offering (DPO) S-1 registration statements have been filed for either shell or development-stage companies, claiming an intent to pursue and develop a particular business, when in fact, the promoter intends to create a public vehicle to be used for reverse merger transactions.  For purposes of this blog, I will refer to these S-1 registration statements the same way the SEC now does, as “sham registrations.”  I prefer the term “sham registrations” as it better describes the process than the other used industry term of art, “footnote 32 shells.”

Footnote 32 is part of the Securities Offering Reform Act of 2005 (“Securities Offering Reform Act”).  In the final rule release for the Securities Offering Reform Act, the SEC included a footnote (number 32) which states:

“We have become aware of a practice in which the promoter of a company and/or affiliates of the promoter

Sep222015

The Stronger Enforcement Of Civil Penalties Act; A Push For Higher SEC Penalties

 ABA Journal’s 10th Annual Blawg 100

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In July a Democratic senator and a Republican senator together introduced the Stronger Enforcement of Civil Penalties Act of 2015 (SEC Penalties Act), which would give the SEC the ability to levy much heftier penalties for securities fraud, and against recidivists.  The Act was referred to the Senate Baking, Housing and Urban Affairs Committee for review and further action.  The proposed SEC Penalties Act would increase the limits on civil monetary penalties and directly link the size of the penalty to the scope of harm and associated investor losses, and substantially increase the penalties for repeat offenders.

Background:  A Trend Towards Increased Enforcement

The SEC Penalties Act continues a trend to deter securities law violations through regulations and stronger enforcement including the SEC Broken Windows policy, increased Dodd-Frank whistleblower activity and reward payments, and increased bad actor prohibitions.  See my prior blog on bad actor prohibitions HERE

The SEC Broken Windows policy

Sep152015

SEC Issues Investor Alert Warning That Fantasy Stock Trading Websites May Violate Securities Laws

ABA Journal’s 10th Annual Blawg 100

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At the end of June, the SEC Office of Investor Education and Advocacy issued an Investor Alert and reminded us all that the net of federal securities laws is far-reaching.  The Investor Alert warns investors that fantasy stock trading and similar websites violate federal securities laws and, in particular, the “security-based swap” regulations enacted by the Dodd-Frank Act.

The SEC Investor Alert warns against websites that claim to offer a chance to make money from publicly traded or privately held companies without actually buying stock.  Generally the sites are set up as a “fantasy” trading game or competition and involve a small entry fee with the chance to win a larger payment if you win the fantasy competition.  The SEC has taken the position that these fantasy stock trading programs could potentially involve security-based swaps and implicate both the federal securities and commodities laws.  The SEC has and is continuing to investigate the

Sep082015

SEC Has Adopted Final Pay Ratio Disclosure Rules

ABA Journal’s 10th Annual Blawg 100

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On August 5, 2015, the SEC published and adopted final pay ratio disclosure rules.  The final rules are substantially the same as the proposed rules which were published in September 2013.  The rules will require inclusion of the new disclosures in proxy materials, registration statements and annual reports beginning in the fiscal year starting on or after January 1, 2017.    

The proposed new rules implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) by amending Item 402 of Regulation S-K.  The recently proposed “pay vs. performance” rules, which I discussed in my blog HERE would also amend Item 402.  As an Item 402 disclosure, the new pay ratio disclosure will also be the subject of the “say on pay” advisory vote.  My blog on say on pay for smaller reporting companies can be read Here.

Interestingly, in the final published rules, the SEC makes a

Aug032015

SEC Proposed Executive Compensation Clawback Rules

ABA Journal’s 10th Annual Blawg 100

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On July 1, 2015, the SEC published the anticipated executive compensation clawback rules (“Clawback Rules”).  The rules are in the comment period and will not be effective until the SEC publishes final rules. The proposed rules require national exchanges to enact rules and listing standards requiring exchange listed companies to adopt and enforce policies requiring the clawback of certain incentive-based compensation from current and former executive officers in the event of an accounting restatement. 

In particular, the proposed rules implement Section 10D of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and as added by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Section 10D requires the SEC to adopt rules directing national exchanges to prohibit the listing of any security of an issuer that is not in compliance with Section 10D’s requirements for (i) disclosure of the company’s policy on incentive-based compensation that is

Jul282015

Intrastate Crowdfunding Legislation Has Passed in Florida

ABA Journal’s 10th Annual Blawg 100

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Florida Has Passed Intrastate Crowdfunding Legislation

As the country waits for the SEC to publish final Title III crowdfunding rules as required by the JOBS Act, states continue to enact and introduce state-specific crowdfunding legislation.   As of today, it is unclear when the final federal rules will be released and passed into law though SEC Chair Mary Jo White has publicly stated on several occasions that it will be this year.  Upon passage of the final rules, there will be a period of ramping up time in which crowdfunding portals complete the process of registering with the SEC, becoming members of FINRA and completing the necessary steps to ensure that their portal operates in compliance with the final rules.  Federal crowdfunding is coming, but it is a slow process.

Florida is the newest state to pass intrastate crowdfunding legislation.  The new Florida Intrastate Crowdfunding Exemption takes effect October 1, 2015. As

Jun302015

Going Public Transactions For Smaller Companies: Direct Public Offering And Reverse Merger

ABA Journal’s 10th Annual Blawg 100

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Introduction

One of the largest areas of my firms practice involves going public transactions.  I have written extensively on the various going public methods, including IPO/DPOs and reverse mergers.  The topic never loses relevancy, and those considering a transaction always ask about the differences between, and advantages and disadvantages of, both reverse mergers and direct and initial public offerings.  This blog is an updated new edition of past articles on the topic.

Over the past decade the small-cap reverse merger, initial public offering (IPO) and direct public offering (DPO) markets diminished greatly.  The decline was a result of both regulatory changes and economic changes.  In particular, briefly, those reasons were:  (1) the recent Great Recession; (2) backlash from a series of fraud allegations, SEC enforcement actions, and trading suspensions of Chinese companies following reverse mergers; (3) the 2008 Rule 144 amendments, including the prohibition of use of the rule for shell company