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SEC Investor Advisory Committee Meeting

On November 7, 2019, the SEC Investor Advisory Committee held a meeting on the topics of (i) whether investors use environmental, social and governance (ESG) data in making investment and capital allocation decisions; and (ii) the SEC’s recent concept release on harmonization of securities offering exemptions. For more on ESG matters, see HERE and for my blog on the SEC’s concept release on exempt offerings, see HERE. Both SEC Chair Jay Clayton and Commissioner Allison Herren Lee made remarks before the committee. As always, it is helpful in navigating our complex securities laws and regulatory priorities to stay informed on matters involving SEC decision makers and policy setters.

The Investor Advisory Committee was created by the Dodd-Frank Act to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank

November 19, 2019

SEC Solicits Input To Improve Markets For Thinly Traded Securities

On October 17, 2019, the SEC made a statement inviting stock exchanges and market participants to submit “innovative proposals designed to improve the secondary market structure for exchange listed equity securities that trade in lower volumes, commonly referred to as ‘thinly traded securities.’” On the same day the SEC issued a staff background paper on the subject. The SEC is not asking for input on how a company can better promote its stock and gain investor awareness, but rather how the capital market system, including trading rules and regulations, can be amended or improved to benefit thinly traded securities.

The staff background paper cites many statistics on the number of thinly traded securities, which they define as trading less than 100,000 shares daily. It also refers to the U.S. Department of the Treasury report entitled “A Financial System That Creates Economic Opportunities; Capital Markets” – see HERE for a summary of the report. As a result of

November 12, 2019

The SEC, FinCEN And CFTC Issue A Joint Statement On Digital Assets

On October 11, 2019 the SEC, FinCEN and CFTC issued a joint statement on activities involving digital assets. Various agencies have been consistently working together, with overlapping jurisdiction, on matters involving digital assets and distributed ledger technology. Earlier, in August, the SEC and FINRA issued a joint statement on the custody of digital assets, including as it relates to broker-dealers and investment advisors (see HERE).

The purpose of the joint statement is to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). AML/CFT obligations apply to entities that the BSA defines as “financial institutions,” such as futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSBs) as defined by FinCEN (for more information on MSBs see HERE), and broker-dealers and mutual funds obligated to register

November 5, 2019

Incorporation By Reference

During lulls in the very active rule changes and blog-worthy news coming from the SEC and related regulators, it is great to step back and write about basics that affect SEC attorneys and market participants on a daily basis. In the realm of securities laws, 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.

Although the concepts are relatively straight forward, 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 Securities

October 29, 2019

SEC Testifies At House Financial Services Committee Hearing

On September 24, 2019, all five SEC commissioners gave testimony to, and were questioned by, members of the U.S. House of Representatives Committee on Financial Services. Commissioner Robert J. Jackson, Jr. also gave an opening statement at the Committee hearing.

Commissioner Jackson’s Opening Statement

Commissioner Jackson’s short opening statement was consistent with his prior public views, consisting of a list of three areas in which he believes legislation should intervene to prevent corporate insiders from spending shareholder money to advance their own interests over those of investors.

His first recommendation is to shorten the current four-day 8-K filing requirement in which a company must notify the public of certain material events. For an overview of 8-K filing categories, including the categories that require an advance filing (Regulation FD) or lesser time period than the standard four days, see HERE. Commissioner Jackson states that there is “evidence that corporate insiders often trade during the ‘gap’ between key business events and

October 22, 2019

SEC Adopts New Rule To Expand Testing The Waters For All Companies

The SEC has adopted final rules allowing all issuers to test the waters prior to the effectiveness of a registration statement in a public offering. The proposed rules were published in February of this year (see HERE). The final rules are largely the same as proposed. The rule change is designed to encourage more companies to go public. Although it will help in this regard, a much larger expansion of testing the waters, allowing unlimited testing the waters (subject to anti-fraud of course) for all registered offerings under $50 million, would go far to improve the floundering small cap IPO market.

Prior to the rule change, only emerging growth companies (“EGCs”) (or companies engaging in a Regulation A offering) could test the waters in advance of a public offering of securities. The proposal implements a new Securities Act Rule 163B. For an in-depth analysis of testing the waters and communications during an offering process, see my two-part blog HERE

October 15, 2019

SEC Proposes Amendments To 15c2-11

As anticipated, on September 26, 2019, the SEC published proposed amendments to Securities Exchange Act (“Exchange Act”) Rule 15c2-11. The purpose of the rule amendment is to enhance retail protection where there is little or no current and publicly available information about a company and as such, it is difficult for an investor or other market participant to evaluate the company and the risks involved in purchasing or selling its securities. The SEC release also includes a concept release regarding information repositories and a possible regulatory structure for such entities. The SEC believes the proposed amendments will preserve the integrity of the OTC market, and promote capital formation for issuers that provide current and publicly available information to investors.

The proposed rules entail a complete overhaul of the rule and its exceptions are complicated and, if enacted, will require the development of a new infrastructure, compliance procedures and written supervisory procedures at OTC Markets, new compliance procedures and

October 8, 2019

A Drill Down On Rule 506 Of Regulation D

On June 18, 2019, the SEC issued a 211-page concept release and request for public comment on ways to simplify, harmonize, and improve the exempt (private) offering framework. The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the SEC’s exemptions for both companies and investors, including identifying potential overlap or gaps within the framework. See HERE for my blog on the release. As the topic of private exemptions becomes front and center, it is a good time to blog about the most commonly used of those exemptions, Rule 506.

Ever since the National Securities Markets Improvement Act of 1996 (“NSMIA”) amended Section 18 of the Securities Act to pre-empt state blue sky review of specified securities and offerings including offerings made in reliance on Rule 506 of Regulation D under the Securities Act of 1933 (“Securities Act), the vast majority of private capital raises are completed relying on Rule

October 1, 2019

Environmental, Social And Governance– The World Of ESG

Over the past few years, the term “Environmental, Social and Governance” or “ESG” has been both first used and brought into daily use by capital market participants. Multiple publications have been written on the subject, Nasdaq has published an ESG Reporting Guide, the House Financial Services Committee has debated multiple bills that would require various ESG disclosures and the SEC top brass is vocal, and divided, on the subject. SEC Chair Jay Clayton and Commissioner Hester M. Peirce both believe that ESG matters are too abstract and undefined to result in meaningful disclosure while Commissioners Robert J. Jackson Jr. and Allison Herren Lee just issued a joint statement expressing disappointment in the recently proposed changes to Regulation S-K (see HERE) for omitting the topic of climate risk.

It is clear that ESG matters are an important factor for analysts and investors and thus for reporting companies to consider. It is also clear that companies have increasing pressure to

September 24, 2019

SEC Issues Guidance On Proxy Advisory Firms

On August 29, 2019, the SEC issued anticipated guidance related to the application of the proxy rules to proxy advisory firms. Market participants have been very vocal over the years regarding the need for SEC intervention and guidance to rein in the astonishing power proxy advisor firms have over shareholder votes, and therefore public companies in general. The new SEC interpretation clarifies that advice provided by proxy advisory firms generally constitutes a “solicitation” under the proxy rules including the necessity to comply with such rules and the related anti-fraud provisions. On the same day, the SEC issued guidance on the proxy voting responsibilities of investment advisors, including when they use proxy advisory firms. This blog focuses on the guidance directly related to proxy advisory firms.

The SEC has been considering the role of proxy advisors for years. In 2010 it issued a concept release seeking public comment on the role and legal status of proxy advisory firms within the

September 17, 2019

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Laura Anthony

SEC Solicits Input To Improve Markets For Thinly Traded Securities

The SEC, FinCEN And CFTC Issue A Joint Statement On Digital Assets

Incorporation By Reference

SEC Adopts New Rule To Expand Testing The Waters For All Companies

SEC Proposes Amendments To 15c2-11

A Drill Down On Rule 506 Of Regulation D

SEC Issues Guidance On Proxy Advisory Firms

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SEC Solicits Input To Improve Markets For Thinly Traded Securities

The SEC, FinCEN And CFTC Issue A Joint Statement On Digital Assets

Incorporation By Reference

SEC Adopts New Rule To Expand Testing The Waters For All Companies

SEC Proposes Amendments To 15c2-11

A Drill Down On Rule 506 Of Regulation D

SEC Issues Guidance On Proxy Advisory Firms

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