On April 11, 2025, the SEC published several updates to its compliance and disclosure interpretations (“CD&I”) related to compensation clawbacks and co-registrants in de-SPAC transactions.
De-SPAC Transactions
Under the new SPAC rules, a target company, or companies, are included as co-registrants on the S-4 (or other Securities Act registration statement) in association with the de-SPAC. Under Exchange Act rules, upon effectiveness of the S-4, each of the target co-registrants become separately subject to the Exchange Act reporting requirements. New C&DI 253.03 confirms that the SEC will not object if each target co-registrant files a Form 15, as long as they are wholly owned by the combined company and the combined company remains current in its Exchange Act reporting requirements.
For a review of the new de-SPAC rules see here – Part 1 – HERE; Part 2 – HERE; Part 3 – HERE; Part 4 – HERE; Part 5 – HERE; Part 6 – HERE; Part 7 – HERE; Part 8 – HERE; Part 9 – HERE; and Part 10 – HERE.
Compensation Clawback Rules
The final compensation clawback rules added a check box to the cover of Exchange Act reports for a company to indicate “If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.” For more on the compensation clawback rules, see HERE.
New CD&I 104.20 addresses how a company determines if checking this box is appropriate. The SEC indicates:
Answer: The listed issuer should look to the guidance under the generally accepted accounting principles applicable to its financial statements in determining whether the change represents the correction of an error. When the financial statements of the registrant included in the filing have been revised to reflect the correction of an error to previously issued financial statements, regardless of whether those restatements are required or not, the listed issuer must mark the check box.
A required restatement includes (1) an accounting restatement to correct an error in previously issued financial statements that is material to those financial statements (commonly referred to as a “Big R” restatement) and (2) an accounting restatement to correct an error that is immaterial to those financial statements but would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as a “little r” restatement).
The correction of an immaterial prior period error that is recorded in the current year (commonly referred to as an “out-of-period adjustment”) does not require the listed issuer to mark the check box because the previously issued financial statements are not revised.
CD&I 104.21 addresses the scenario where a company included restated financial statements, from the prior year, in an amended report, rising to the level of a “Big R” restatement and accordingly checks the box. However, the company also determines that, after applying is compensation recovery policy, no recovery of erroneously awarded compensation is required.
The SEC confirms that in the amended filing for the year wherein financials were restated, the company must check the box and include a statement that the company “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” and to explain why application of the recovery policy resulted in no recovery.
The SEC further notes that the circumstances in which this would occur are generally where: (i) no incentive-based compensation was received by any executive officers at all during the relevant time frame, or (ii) incentive-based compensation was received by an issuer’s executive officers during the relevant time frame, but that incentive-based compensation was not based on a financial reporting measure impacted by the restatement.
However, CD&I 104.22 carries the scenario further and indicates that assuming no other changes, the same company would not be required to check the box in its current year’s filing. However, when the company files its proxy or information statement in the next year it will need to include a discussion of the restatement, compensation policy, and reasons that no recovery was required. The SEC has stated that this information is similar to other executive compensation information required by Item 402 and is likely to serve a similar purpose for investors in evaluating the issuer and making voting decisions. This is also the case if the required disclosure is (i) provided in the annual report (and not incorporated by reference from a proxy or information statement) or (ii) made pursuant to the applicable requirements of Form 20-F or Form 40-F.
CD&I 104.23 starts with the premise that “In 20X5 (prior to filing the 20X4 annual report), a listed issuer with a calendar fiscal year discovers an error in its previously issued 20X3 financial statements that requires a “little r” restatement. After applying its recovery policy pursuant to Exchange Act Rule 10D-1(b), the listed issuer determines that no recovery of erroneously awarded compensation is required.” Further, the company rightfully checks both boxes on its 20X4 annual report, which is filed in 20X5, and provides Item 402(w)(2) disclosure in the proxy or information statement incorporated by reference in that report.
In this case, the company would not have to include the prior recovery disclosure and analysis in its 20X5 annual report (which will be filed in 20X6) even though the restatement technically occurred “during the issuer’s last completed fiscal year.” Similarly, the SEC will not object if a foreign private issuer who has previously provided the applicable disclosure pursuant to Item 6.F(2) of Form 20-F or Instruction (B)(19)(c) to Form 40-F omits the disclosure in its subsequent annual report.
CD&I 104.24 confirms that if a company included disclosure such as discussed above, in a report that does not include a check box on the front page (for example, Form 8-K) it would need to check the box and include the disclosure in its current annual report.
Finally, CD&I 104.25 confirms that where a company restates prior quarters of year 20X5, it would not need to check the box in its annual report for 20X5 because the restatements do not impact the annual periods in the issuer’s financial statements included in that annual report. This is true even if the issuer includes disclosures about the interim restatements in a footnote to the annual period financial statements pursuant to Item 302(a) of Regulation S-K.
However, the listed issuer is required to include or incorporate by reference from its proxy or information statement, disclosure pursuant to Item 402(w) of Regulation S-K in the 20X5 annual report filed in fiscal year 20X6, because the issuer determined during fiscal year 20X5 that it needed to prepare an accounting restatement. For purposes of that disclosure, an accounting restatement is not limited to an accounting restatement that impacts annual periods, but also includes an accounting restatement that impacts interim periods only. This position also applies to disclosure pursuant to Item 6.F of Form 20-F or Instruction (B)(19) to Form 40-F filed in fiscal year 20X6.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities 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, Linder & Cacomanolis, 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 ALC 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 the American Red Cross for Palm Beach and Martin Counties, 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.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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