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SEC Division Of Corporation Finance Statement On Disclosure Review

On June 24, 2024, Erik Gerding the Director of the SEC’s Division of Corporation Finance made a statement regarding the SEC’s state of disclosure review.  In fiscal year 2023 and continuing into 2024, the top areas of review and comment by the SEC were China-related matters, artificial intelligence, non-GAAP disclosures, management’s discussion and analysis, revenue recognition and financial statement presentation.  In addition, disruptions in the banking industry, cybersecurity risks, the impact of inflation and disclosure related to or as a result of newly adopted rules (such as pay versus performance) are gaining attention by SEC review teams.

The director’s statement gives some insight into the SEC’s focus and serves as a reminder to our clients and us practitioners alike to be sure we are staying abreast of the ever-changing capital markets environment.

China Related Disclosures

A few years ago, the SEC enacted the Holding Foreign Companies Accountable Act and approved rules implementing same (see HERE).   The SEC continues to

Financial Reporting Manual Updated

On January 30, 2023, the SEC’s Division of Corporation Finance updated its Financial Reporting Manual (“Manual”).  The latest update is dated as of December 31, 2022.  Although we attorneys like to leave the accounting to the accountants, the Financial Reporting Manual is a go to resource for all practitioners and is generally one of the many resources always open on my desktop.

As the preamble to the Manual states, it was originally created as internal guidance to the SEC staff.  In 2008, in an effort to increase transparency of informal staff interpretations, the SEC posted a version of the Manual to its website.  The SEC continues with its usual disclaimers that the manual is not formal guidance and that they can change their interpretations or views at any time, etc.  Regardless, we all use it as a resource and in my years of experience, have never had the SEC take a counter-position to the Manual’s guidance unless there has been

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

SEC Announces It Will Not Enforce Amended Rules Governing Proxy Advisors

On June 1, 2021, SEC Chair Gary Gensler and the SEC Division of Corporation Finance issued statements making it clear that the SEC would not be enforcing the 2020 amendments to certain rules governing proxy advisory firms or the SEC guidance on the new rules.

In particular, in July 2020 the SEC adopted amendments to change the definition of “solicitation” in Exchange Act Rule 14a-1(l) to specifically include proxy advice subject to certain exceptions, provide additional examples for compliance with the anti-fraud provisions in Rule 14a-9 and amended Rule 14a-2(b) to specifically exempt proxy voting advice businesses from the filing and information requirements of the federal proxy rules.  On the same day, the SEC issued updated guidance on the new rules.  See HERE for a discussion on the new rules and related guidance.

Like all rules and guidance related to the proxy process, the amendments were controversial with views generally falling along partisan lines.  On June 1, 2021, Chair

SPAC Transactions Continue Amid SEC Cautionary Statements

Since I wrote about the SPAC IPO boom in June 2020 (HERE), the trend has not waned.  However, as soon as celebrities like Jay-Z, Shaquille O’Neal, A-Rod and astronaut Scott Kelly jumped in, I knew the tide was shifting, and recent SEC alerts bring that to light.  To be clear, SPACs have been used as a method for going public for years and will continue to do so in the future.  In fact, I firmly believe that going public through a SPAC will continue and should continue to rival the traditional IPO.  With so much SPAC money available in the market right now (an estimated $88 billion raised in 2021 so far already exceeding the estimated $83.4 billion raised in all of 2020) and the Dow and S&P beating historical records, SPACs are an excellent option as an IPO alternative.

However, SPACs should not be viewed as the trendy investment of the day and both investors and

Intellectual Property And Technology Risks – International Business Operations

In December 2019, the SEC Division of Corporation Finance issued CF Disclosure Guidance: Topic No. 8 providing guidance related to the disclosure of intellectual property and technology risks associated with international business operations.

The global and technologically interconnected nature of today’s business environment exposes companies to a wide array of evolving risks, which they must individually examine to determine proper disclosures using a principles-based approach.  A company is required to conduct a continuing analysis on the materiality of risks in the ever-changing technological landscape to ensure proper reporting of risks.  To assist management in making these determinations, the SEC has issued additional guidance.

The guidance, which is grounded in materiality and a principles-based approach, is meant to supplement prior guidance on technology and cybersecurity matters including the February 2018 SEC statement on public company cybersecurity disclosures (see my blog HERE); Director Hinman’s speech at the 18th Annual Institute on Securities Regulation in Europe in March, 2019; the SEC

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