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Who Is An “Affiliate” And Why Does It Matter – Exchange Act; Determining Filer Status

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance.  In this multi-part series of blogs, I am unpacking what the term “affiliate” means and its implications.  The first blog in the series began with an analysis of the Securities Act definition of “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility (see HERE).  The second delved into the topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate (see HERE).  In this third part of the series, I will discuss the meaning and implications of an “affiliate” under the Exchange Act.

Exchange Act Definition of Affiliate

Exchange Act Rule 12b-2 defines an affiliate the same as the Securities Act, to wit: ‘An affiliate’ of, or a person “affiliated” with, a specified person, is a person that

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August 22, 2023

Who Is An Affiliate And Why Does It Matter – Primary VS Secondary Offering

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance.  In this multipart series of blogs, I will unpack what the term “affiliate” means and its implications.  This first blog in the series began with an analysis of the Securities Act definition of “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility (see HERE).  In this Part 2 of the series, I am delving into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.

Secondary/Resale Offerings vs. Primary Offerings

A secondary offering is an offering made by or on behalf of bona fide selling shareholders and not by or on behalf of the registrant company.  A secondary offering can only occur after a company is public.  That is, even if a company goes public

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August 15, 2023

Who Is An Affiliate And Why Does It Matter – Part 1

WHO IS AN “AFFILIATE” AND WHY DOES IT MATTER? PART 1

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance.  In this multipart series of blogs, I will unpack what the term “affiliate” means and its implications.  This first blog in the series begins with the Securities Act definition of an “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility.  In Part 2 of the series, I will delve into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.

Securities Act Definition of Affiliate

The Securities Act provides a statutory definition of an “affiliate” to begin what is a facts and circumstances analysis (as is common in the federal securities laws).  Rule 405 of the Securities Act defines an “affiliate” as “[A]n affiliate of, or

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August 8, 2023

Nasdaq Amends Pricing Limitations Rules In A Direct Listing

The rules related to direct listings continue to evolve, with the latest Nasdaq rule change being approved on December 2, 2022, although their utilization has been slow to gain traction.  Despite the Exchange’s efforts to make the process more attractive and viable, based on a few articles on the subject, only 10 companies had gone public via direct listing as of December 31, 2021, and I could not find a single example of any others since that time.  Moreover, and certainly due to the elevated listing standards and arduous process, each of the companies have been much more mature such as Spotify, Slack, Palantir and Coinbase.

In any event, both Nasdaq and the NYSE continue with an “if we build it they will come” approach.  After multiple iterations with the SEC, both Nasdaq and the NYSE approved rules that allow a company to raise capital concurrently with a direct listing (see HERE).  The very handy Nasdaq Initial Listing Guide

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May 16, 2023

SEC Continues It’s Crypto Focus

In the year and a half since Gary Gensler made it clear to the world that he intends to focus on the crypto “wild west” (see HERE) things have gone from bad to worse for the industry.  Of course, it is not all the SEC’s extreme crypto scrutiny that is causing problems, but the very real crypto winter including the collapse of the FTX exchange and its FTX Future Fund, and the realization that the metaverse of tomorrow, will actually not be here until… tomorrow have all added to industry problems.   Not to mention a slew of bankruptcy filings (FTX, Blockfi, Celsius and Voyager) and several other precarious financial positions (Blockchain.com, Coinbase, Crypto.com and Genesis, to name a few).

However, putting aside the crypto industry financial crisis, the U.S. regulators, including the SEC, FINRA and national exchanges, are scrutinizing any business with even a modicum of crypto focus to the point where it is almost impossible to move

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April 18, 2023

Guidance On Executive Compensation Clawback Rules; NYSE And Nasdaq Issue Proposed Rules

On October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”) (see HERE).  The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating clawback of compensation under certain circumstances as a listing qualification. The proposed rules were first published in July 2015 (see HERE) and have moved around on the SEC semiannual regulatory agenda from proposed to long-term and back again for years.

The Clawback Rules add a check box to Forms 10-K, 20-F and 40-F to indicate whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis.  Although the check box has already been added to the Forms, the new Clawback Rules are not effective until November 28, 2023.  As such, the SEC has issued guidance regarding compliance with the check box in

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April 4, 2023

NYSE Annual Compliance Guidance Memo 2022

In January, NYSE Regulation sent out its yearly Compliance Guidance Memo to NYSE American listed companies.  As discussed in the Compliance Memo, on October 26, 2022 the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”).  The Clawback Rules implement Section 954 of the Dodd-Frank Act and necessitate that national securities exchanges require disclosure of policies regarding and mandating the clawback of compensation under certain circumstances as a listing qualification.  Each listed issuer will be required to adopt a compensation recovery policy, comply with that policy, and provide the necessary compensation recovery policy disclosures. An issuer will be subject to delisting if it does not adopt and comply with a compensation recovery policy that satisfies the listing standards.  The NYSE must adopt the new listing standard by February 26, 2023.  For more on the clawback rules, see HERE.

Annual Compliance Guidance Memo

The NYSE Memo provides a list of important

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February 21, 2023

Small-Cap IPO Volatility – The China Connection

Less than two months after the PCAOB and the China Securities Regulatory Commission and Ministry of Finance signed a Statement of Protocol reaching a tentative deal to allow the PCAOB to fully inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, Nasdaq effectively halted all small-cap IPOs with a China connection.  This time, the issue is not audit-related.

During the week of September 19, one of our clients had a deal ready to be priced and begin trading on Nasdaq.  We had thought we cleared all comments when a call came from our Nasdaq reviewer – all small-cap IPOs were being temporarily halted while the Exchange investigated recent volatility.  The same day, an article came out on Bloomberg reporting on 2200% price swings (up and then steeply back down) on recent IPOs involving companies with ties to China – a repeat of similar volatility in the late ’80’s and early ’90’s despite three decades of

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December 6, 2022

Cannabis Trade Association Makes Plea For National Exchange Listings

The American Trade Association for Cannabis and Hemp (ATACH) has published a policy paper urging the Nasdaq and New York Stock Exchange to allow U.S. cannabis operators that “touch the plant” to list on their respective Exchanges.  The current prohibition to listing is purely discretionary and not because of any regulatory action by the SEC or any other U.S. regulatory authority.  The policy paper, published November 7, 2022, outlines very convincing arguments for allowing U.S. operators to list on the National Exchanges.

The policy paper notes that up until now, the National Exchanges have refused to list these companies while cannabis remains federally illegal out of concerns that they could be charged with aiding and abetting violations of the U.S. Controlled Substances Act (“CSA”) or with money laundering by the receipt of listing fees.  As of the time of the publication of the policy paper, cannabis is legal in 37 states, D.C. and U.S. territories.  The ATACH rightfully asserts that

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November 29, 2022

Update On Nasdaq And NYSE Direct Listings

The rules related to direct listings continue to evolve as this method of going public continues to gain in popularity.  The last time I wrote about direct listings was in September 2020, shortly after the SEC approved, then stayed its approval, of the NYSE’s direct listing rules that allow companies to sell newly issued primary shares on its own behalf into the opening trade in a direct listing process (see HERE). Since that time, both the NYSE and Nasdaq proposed rules to allow for a direct listing with a capital raise have been approved by the SEC.

The Nasdaq Stock Market  has three tiers of listed companies: (1) The Nasdaq Global Select Market, (2) The Nasdaq Global Market, and (3) The Nasdaq Capital Market.  Each tier has increasingly higher listing standards, with the Nasdaq Global Select Market having the highest initial listing standards and the Nasdaq Capital Markets being the entry-level tier for most micro- and small-cap issuers. 

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December 28, 2021

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