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Disclosure Considerations Related To The Conflict In The Ukraine

In addition to being a tragedy, the Russian attack on the Ukraine has disrupted businesses around the world, caused a spike in oil prices and raised disclosure issues for public companies as we are firmly in 10-K and proxy season.. In addition to the obvious disruption of business in both the Ukraine and Russia, the U.S. and many other European countries have imposed significant sanctions against Russia that may also impact companies and U.S. capital market participants. No fewer than three of my clients have been directly affected by the conflict from the extreme of having to close an entire division to the less impactful certain non-collectability of receivables.

Disclosure requirements will depend upon the specific facts and circumstances of a particular company, but key areas that may need attention are risk factors, description of business and management’s discussion and analysis (MD&A).

Risk Factors

In August 2020, the SEC adopted final amendments to Item 105 – Risk Factors

March 8, 2022

Exchange Act Rule 10c-1

SEC Proposes Rules Related To Securities Lending Market

In November 2021, the SEC proposed new Exchange Act Rule 10c-1, which would require lenders of securities to provide the material terms of securities lending transactions to a registered national securities association (RNSA), such as FINRA. FINRA would then make the information publicly available. The proposed rules are part of an initiative by the SEC and FINRA to increase public access to information on short positions and borrowing related to short positions.

Although the rule would definitely provide an improved level of transparency to market participants regarding short positions, it will also add a significant compliance burden to broker dealers and clearing agencies.

Consistent with recent SEC proposals, the comment period was only open for 30 days following publication in the federal registrar and as such comments closed January 7, 2022.

Background

Securities lending is the market practice by which securities are transferred temporarily from one party, a securities lender, to another, a securities borrower, for a fee. Most

March 1, 2022

Inline XBRL Tagging

SEC ReOpens Comment Period For Pay Versus Performance

On January 27, 2022, the SEC re-opened the comment period on proposed rules under the Dodd-Frank Act requiring disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance (“Pay vs. Performance”). The rules were previously proposed in April 2015, and have languished since then (see HERE). In addition to re-opening the comment period on the 2015 proposed rules, the SEC has expanded the proposal to include additional performance metrics.

The SEC administration under Gary Gensler has been actively tacking compensation and insider trading related issues recently including re-visiting executive compensation clawback rules (see HERE); publishing new guidance on disclosures and accounting for spring-loaded compensation awards (see HERE); proposing amendments to Rule 10b5-1 insider trading plans (see HERE); and proposing new share repurchase program disclosure rules (see HERE).

Background

Section 953(a) of the Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934

February 22, 2022

clawback rules

SEC Fall 2021 Regulatory Agenda

In mid-December, the SEC published its semiannual regulatory agenda and plans for rulemaking. The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. The Fall 2021 Agenda (“Agenda”) met with criticism from Commissioner Hester M. Peirce and now former Commissioner Elad L. Roisman as failing to provide any items intended to facilitate capital formation – one of the main tenets of the SEC. The Agenda is published twice a year, and for several years I have blogged about each publication.

The Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame jumped up to 52 items since Spring, which had only 45

February 15, 2022

SPAC Shareholder Litigation

SPAC Shareholder Litigation – First Fire

On January 3, 2022, the Delaware Court of Chancery denied a motion to dismiss a shareholder lawsuit against a SPAC’s sponsor, its directors, and financial advisor claiming among items, breach of fiduciary duty. The facts supporting the claim mirror common factual scenarios in SPAC and de-SPAC (acquisition transaction) transactions where the post SPAC public company has a decline in stock value. As such, the case is being closely watched by SPAC sponsors and boards of directors.

Background on SPACs

A special purpose acquisition company (SPAC) is a blank check company formed for the purpose of effecting a merger, share exchange, asset acquisition, or other business combination transaction with an unidentified target. Generally, SPACs are formed by sponsors who believe that their experience and reputation will facilitate a successful business combination and public company. SPACs are often sponsored by investment banks together with a leader in a particular industry (manufacturing, healthcare, consumer goods, etc.) with the specific intended purpose of effecting

February 8, 2022

CorpFin

Virtual Annual Meetings

As the Covid-19 pandemic continues to disrupt normal business operations and impede a third proxy/annual meeting season, the SEC has issued guidance regarding compliance with the federal proxy rules for upcoming annual meetings considering health, transportation, and other logistical issues raised by the spread of Covid. Layering onto the guidance directed at extra-ordinary circumstances is the growing underlying belief that virtual and hybrid meetings are here to stay and public America must navigate a new road map.

SEC Guidance

On January 19, 2022, the SEC Divisions of Corporation Finance (“CorpFin”) and of Investment Management issued guidance related to meeting the requirements of the federal proxy rules for holding annual meetings in light of Covid disruptions. In addition to the specific guidelines, the SEC strongly encourages all market participants, including broker-dealers, transfer agents, and proxy service providers to be flexible and work collaboratively with one another with the goal of facilitating a company’s obligation to hold an annual meeting.

As I’ve

February 1, 2022

Bulletin 14L

The SEC Has Issued New Guidance On Shareholder Proposals And Updated The Rule 14a-8 No-Action Letter Process

On November 3, 2021, the SEC Division of Corporation Finance (“Corp Fin”) issued Staff Legal Bulletin 14L (“SLB 14L”) related to Rule 14a-8, rescinding prior Bulletins 14I, 14J and 14K and effectively destroying four years of interpretative guidance related to the exclusion of ESG related shareholder proposals from proxy statements. SLB 14L also provides interpretative guidance on the use of images in shareholder proponents’ supporting statements, proof of ownership, and the use of email for notices.

Following the issuance of Bulletin 14L, the SEC announced that it was reversing a 2019 policy change related to providing written responses to no-action letter requests in accordance with Rule 14a-8 in the proxy process. The earlier 2019 policy change provided that the SEC no longer had to provide written responses to company’s that sought to exclude a shareholder proposal. Rather, the SEC could inform the company and the proponent of its position (concurs, disagrees or declines to state a view) orally or

January 25, 2022

Exchange Act Rule 10b-18

SEC Proposes New Share Repurchase Disclosure Rules

On December 15, 2021, the SEC proposed amendments to Securities Exchange Act Rule 10b-18, which provides issuers and affiliates with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) when issuers bid for or repurchase their common stock. The proposed new rules are part of a broader SEC initiative aimed at market manipulation and insider trading, including proposed new amendments related to Rule 10b5-1 Insider Trading Plans (see HERE). The proposed amendments are intended to improve the quality, relevance, and timeliness of information related to issuer share repurchases.

The proposed rules would require an issuer to provide a new Form SR before the end of the first business day following the day the issuer executes a share repurchase. Form SR would require disclosure identifying the class of securities purchased, the total amount purchased, the average price paid, as well

January 18, 2022

insider trading

SEC Proposes Amendments To Rule 10b5-1 Insider Trading Plans

As expected from the Spring 2021 Regulatory Agenda, on December 15, 2021, the SEC proposed amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”) to enhance disclosure requirements and investor protections against insider trading. Although there is a statutory framework, the laws surrounding insider trading are largely based on judicial precedence and are difficult to navigate. I last wrote about insider trading in 2014 (see HERE) but there have been many curves in the road since that time.

Since the adoption of Rule 10b5-1, courts, commentators, and members of Congress have expressed concern that the affirmative defense under Rule 10b5-1(c)(1)(i) has allowed traders to take advantage of the liability protections provided by the rule to opportunistically trade securities on the basis of material nonpublic information. Furthermore, some academic studies of Rule 10b5-1 trading arrangements have shown that corporate insiders trading pursuant to Rule 10b5-1 consistently outperform trading of executives and directors not conducted under a

January 11, 2022

SEC Issues Guidance On Spring-Loaded Compensation Awards

On November 29, 2021, the SEC issued accounting guidance on the recognition and disclosure of “spring-loaded awards” made to executives. A spring-loaded award is a share-based compensation arrangement where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction. The SEC new guidance and scrutiny is not unexpected following the re-opening of the comment period on proposed rules on listing standards for the recovery of erroneously awarded executive compensation (“Clawback Rules”) (see HERE) and proposed new rules on share repurchase programs and stock trading plans (blogs coming soon on each of these).

According to the new SEC accounting bulletin prepared by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance, non-routine spring-loaded grants merit particular scrutiny by those responsible for compensation and financial reporting governance at public companies. In particular, it is the SEC’s

January 4, 2022

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SEC ReOpens Comment Period For Pay Versus Performance

SEC Fall 2021 Regulatory Agenda

SPAC Shareholder Litigation – First Fire

Virtual Annual Meetings

SEC Proposes Amendments To Rule 10b5-1 Insider Trading Plans

SEC Issues Guidance On Spring-Loaded Compensation Awards

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SEC ReOpens Comment Period For Pay Versus Performance

SEC Fall 2021 Regulatory Agenda

SPAC Shareholder Litigation – First Fire

Virtual Annual Meetings

SEC Proposes Amendments To Rule 10b5-1 Insider Trading Plans

SEC Issues Guidance On Spring-Loaded Compensation Awards

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