Over the years I’ve noted that information required pursuant to various disclosure obligations, or new or amended rules, may be “furnished” versus “filed” with the SEC, but I realize in a “let’s get back to basics” moment, I have not yet (until now) provided a detailed explanation of what that means. In summary, information that is “filed” with the SEC carries Section 18 liability, only “filed” information can be incorporated by reference into other filings, such as an S-3 registration statement, and only “filed” SEC reports affect S-3 eligibility.
Section 18
Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) imposes liability on any person that makes or causes to be made any statement in any application, report or document “filed” pursuant to the Exchange Act or any rule thereunder which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact. Section 18 liability only applies to information filed with the SEC and not information that is furnished. Note, however, that other provisions of the Exchange Act impose liability separately from Section 18, including the general anti-fraud provisions in Section 10 and Rule 10(b)(5).
Section 18 provides a cause of action to any person that “in reliance upon such statement shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance.”
Incorporation by Reference
SEC rules allow for incorporation by reference under certain circumstances. The concept of “incorporation by reference” is simple enough – information from another document, registration statement or filing is included in a current document, registration statement or filing by referring to the other without repeating its contents. Similarly, “forward incorporation by reference” means that a document is automatically updated with information contained in a future SEC filing. For more on incorporation by reference, see HERE.
Although the concepts are relatively straightforward, their application is complex with differing rules for different classes of companies (such as an emerging growth company, smaller reporting company, or well-known seasoned issuer) and different filings such as a registration statement filed under the Securities Act of 1933 (“Securities Act”) or a periodic report filed under the Exchange Act. However, except for Form 6-K, as described below, only information that is “filed” with the SEC is incorporated by reference. Accordingly, if a Company wants to incorporate information that would normally be furnished, such as under certain Items of Form 8-K or a Form 6-K, it must specify that the disclosures are being filed under the Exchange Act and incorporated by reference into a filing under the Exchange Act or Securities Act as applicable. If the language is not included, the subject information will be deemed furnished and will not be incorporated by reference.
Form 8-K
Certain provisions in Form 8-K provide for the “furnishing” of information as opposed to the “filing” of such information. Item 2.02 (Results of Operations and Financial Condition) specifies that such disclosure is furnished and not filed for purposes of Section 18 of the Exchange Act, unless the Company specifically opts to have the disclosure deemed filed.
Items 7.01 (Regulation FD Disclosure) and Item 8.01 (Other Events) allow a company to furnish the disclosure as opposed to filing such disclosure. Disclosure made under Item 7.01 is automatically deemed furnished and not filed, whereas information under Item 8.01 must specify whether it is being furnished or filed. Like Item 2.02, a Company may elect to include language “filing” the disclosure under Item 7.01 if it chooses. As will be discussed more thoroughly in a future blog, Regulation FD requires that a Company make public disclosure of any material non-public information that is disclosed to any person with certain exceptions (such as an advisor or person that signs an NDA). Rules 100(a) and 101(e) of Regulation FD give a Company the option to either furnish or file such information on a Form 8-K. Form 8-K, in turn, allows a Company to furnish such information under Item 7.01 or file or furnish such information under Item 8.01, at its option. In order to avail itself of the option to “furnish” the information under Item 8.01, a Company must include language specifying that such information is being furnished and not filed.
Moreover, if a report on Form 8-K contains disclosures under Item 2.02 or Item 7.01, whether or not the report contains disclosures regarding other items, all exhibits to such report relating to Item 2.02 or Item 7.01 will be deemed furnished, and not filed, unless the company specifies, under Item 9.01 (Financial Statements and Exhibits), which exhibits, or portions of exhibits, are intended to be deemed filed rather than furnished.
Form S-3
One of the eligibility criteria for use of Form S-3 is that:
The company (i) has been required to file Exchange Act reports and has filed all such Exchange Act reports for a period of 12 months; and (ii) has timely filed all Exchange Act reports required by Sections 13(a), 15(d) and Section 14(a) and 14(c) materials for a period of 12 calendar months, except for reports under Item 1.01 (entry into a material definitive agreement), 1.02 (termination of a material definitive agreement), 1.04 (mine safety – reporting shutdowns and patterns of violations), 2.03 (creation of a direct financial obligation or an obligation under an off-balance sheet arrangement), 2.04 (triggering events that accelerate or increase a direct financial obligation or off-balance sheet obligation), 2.05 (costs associated with exit or disposal activities), 2.06 (material impairments), 4.02(a) (non-reliance on previously issued financial statements or related audit report where the company makes the non-reliance determination) or 5.02(e) (compensatory arrangements with certain officers) of Form 8-K.
This eligibility rule specifically refers to reports required to be “filed” under the Exchange Act. Certain Items in a Form 8-K may be “furnished” and not “filed,” including disclosures pursuant to Items 2.02 and 7.01 as discussed above and accordingly, the failure to timely file an 8-K under these Items will not affect Form S-3 eligibility.
A company with an effective S-3 registration statement that is relying on forward incorporation by reference to update such registration statement needs to be cognizant when furnishing an 8-K under Items 2.02 and 7.01. If the Company desires the information to be forward incorporated by reference, or exhibits related to such information, it must specify that the information is being filed under the Exchange Act and also specify that it is intended to be incorporated by reference into the S-3.
Form 6-K/Form F-3
The general instructions to Form 6-K provide that “information and documents furnished in this report shall not be deemed to be ‘filed’ for the purposes of Section 18 of the Act or otherwise subject to the liabilities of that section.” Accordingly, a foreign private issuer with an effective F-3 that wishes to forward incorporate information filed in a Form 6-K into that F-3 needs to be careful to include information in the 6-K that it is intended to be filed and incorporated by reference into the F-3.
Form F-3 in turn allows a company to incorporate by reference any Form 6-K previously furnished to the SEC. However, to forward incorporate by reference, the prospectus in the Form F-3 must state that the company may incorporate such Forms 6-K by identifying in such Forms that they are being incorporated by reference into the Form F-3. In other words, both the prospectus and the Form 6-K must contain specific disclosures in order to incorporate by reference.
Item 601 of Regulation S-K; Forms S-4; 10-Q and 10-K
Item 601 of Regulation S-K sets forth the Exhibit requirements for all domestic registration statements and periodic reports under the Securities Act and Exchange Act and registration statements on Forms F-1, F-3 and F-4 for foreign private issuers.
A registration statement on Form S-4 and periodic reports on Forms 10-Q and 10-K require a company to include an “annual report to security holders, Form 10–Q or quarterly report to security holders” as an exhibit where incorporated by reference into the text of the prospectus and delivered to security holders along with the prospectus as permitted by the registration statement; or, in the case of the Form 10–K, where the annual or quarterly report is incorporated by reference into the text of the Form 10–K. Although the entire annual or quarterly report must be included as an exhibit, Item 601 specifically provides that only those portions of the reports that are expressly incorporated by reference in the filing are deemed filed with the SEC and the rest is only deemed furnished.
Even though the annual or quarterly report would have been deemed filed and not furnished when first filed with the SEC, the distinction in this case is important. As noted above, Section 18 gives a person a cause of action where they purchase or sell securities in reliance on misrepresentations in a filing with the SEC. The time lapse between an originally filing and a later furnishing of such information as an exhibit, can make the difference involving potential Section 18 liability.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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