SEC

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

April 18, 2023

SEC Proposes Revision To The Privacy Act

As anticipated, on February 14, 2023, the SEC proposed revisions to the Privacy Act, governing the handling of personal information in the federal government. The proposed revisions would codify current practices for processing requests for information made by the public under the Privacy Act and would result in an entire re-write of the current rules.

Background

The Privacy Act is the principal law governing the handling of personal information in the federal government regulating the collection, maintenance, use, and dissemination of information about individuals that is maintained in systems of records by federal agencies. The Privacy Act also allows individuals to access information about them and a method to correct inaccurate records.

The SEC is proposing a complete rewrite of the Privacy Act to: (i) add a provision setting forth the process by which individuals may be provided with an accounting of disclosures made by the SEC; (ii) add a provision to codify the existing practice of providing

April 11, 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

April 4, 2023

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

March 21, 2023

SEC Issues Additional Guidance Through New C&DI On The Use Of Universal Proxy Cards

On November 17, 2021, the SEC adopted final rules requiring parties in a contested election to use universal proxy cards that include all director nominees presented for election at a shareholder meeting (see HERE). The original rules were proposed on October 16, 2016 (see HERE) with no activity until April, 2021, when the SEC re-opened a comment period (see HERE).

The rule adoption came with a flurry of rule amendments, proposals and guidance related to the proxy process, some of which reverses recent rules on the same subject, including amendments to the rules governing proxy advisory firms (see HERE) and additional proposed amendments to Rule 14a-8 governing shareholder proposals (see HERE).

The final rules require dissident shareholders and registrants to provide shareholders with a proxy card that includes the names of all registrant and dissident nominees. The rules apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business

March 7, 2023

The 211 Rules And Shell Companies

In September 2020, the SEC adopted a complete overhaul of the 15c2-11 rules, the new rules of which went into effect on September 28, 2021. From a very high level, the new 211 rules: (i) require that information about the company and the security be current and publicly available in order to initiate or continue to quote a security; (ii) limit certain exceptions to the rule including the piggyback exception where a company’s information becomes unavailable to the public or is no longer current; (iii) limit certain exceptions to the rule including the piggyback exception where a company becomes and remains a shell company for a period of 18 months; (iv) reduce regulatory burdens to quote securities that may be less susceptible to potential fraud and manipulation; (v) allow OTC Markets itself to evaluate and confirm eligibility to rely on the rule; and (vi) streamline the rule and eliminate obsolete provisions. For an in-depth discussion on the 15c2-11 rules,

February 28, 2023

SEC Reopens The Comment Period On Proposed 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 amendments are intended to improve the quality, relevance, and timeliness of information related to issuer share repurchases.

The proposed new rules were part of a broader SEC initiative aimed at market manipulation and insider trading, including the recently adopted amendments related to Rule 10b5-1 Insider Trading Plans (see HERE).

On December 7, 2022, the SEC re-opened the comment period on the proposed new rules for an additional 30 days after publication in the federal register. The reason for re-opening the comment period is that the Inflation Reduction Act of 2022 added a corporate non-deductible excise tax equal to one

February 14, 2023

M&A Broker Dealer Registration

On December 29, 2022, President Biden signed H.R. 2617, the Consolidated Appropriations Act, 2023 (“Appropriations Act”) into law. As sometimes happens in these voluminous bills, a nugget affecting our industry is buried. After about 2,600 pages of text we get to Title V – Small Business Mergers, Acquisitions, Sales and Brokerage Simplification. This short provision codifies into law the broker-dealer registration requirements for entities effecting securities transactions in connection with the sale of equity control in private operating businesses (“M&A Broker”). Previously the industry has been relying on a no-action letter issued by the SEC Division of Trading and Markets on January 31, 2014, for liability protection involving these transactions (see HERE).

Background

Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”) requires securities brokers to register with the SEC and Section 15(b) prescribes the manner of registration. Section 3(a)(4) of the Exchange Act defines a “broker” as “any person engaged in the business

February 7, 2023

SEC Fall 2022 Regulatory Agenda

On January 4, 2023, the SEC published its semiannual Fall 2022 regulatory agenda (“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. My favorite Commissioner, Hester M. Peirce, was quiet about the agenda, not issuing a public statement this time. Upon publication of the Spring 2022 Agenda, Commissioner Peirce ripped the Agenda as being disconnected with the SEC’s core mission and as being focused on special interest groups instead of a broad range of market participants. 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

January 31, 2023

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

On December 14, 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”) to enhance disclosure requirements and investor protections against insider trading. The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5. The proposed rules were published in HERE. Although there is a statutory framework, the laws surrounding insider trading are largely based on judicial precedence and are difficult to navigate. The rule amendments are intended to provide clarity to the marketplace.

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

January 24, 2023

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SEC

SEC Continues It’s Crypto Focus

SEC Proposes Revision To The Privacy Act

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

Financial Reporting Manual Updated

SEC Issues Additional Guidance Through New C&DI On The Use Of Universal Proxy Cards

The 211 Rules And Shell Companies

M&A Broker Dealer Registration

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

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