SEC

SEC Proposes New SPAC Rules – Part 1

As I wrote about last week, the SEC has had a very busy rule-making few weeks. In addition to issuing six new compliance and disclosure interpretations (C&DI) for merger and acquisition transactions, most of which directly impact SPAC business organization transactions, it also proposed new rules on SPACs and all shell companies in a 372-page release. The new C&DI were the topic of last week’s blog (HERE) and in a multi-part blog series, I am delving into the proposed new SPAC rules.

On March 30, 2022, the SEC proposed rules enhancing disclosure requirements associated with SPAC initial public offerings (IPOs) and de-SPAC merger transactions; requiring that a private operating company be a co-registrant when a SPAC files an S-4 or F-4 registration statement associated with a business combination; requiring a re-determination of smaller reporting company status within four days following the consummation of a de-SPAC transaction; amending the definition of a “blank check company” to make the

April 12, 2022

SEC Issues New Mergers And Acquisitions Related C&DI

Last week was a very busy regulatory week for the SEC, including issuing six new compliance and disclosure interpretations (C&DI) for merger and acquisition transactions, most of which directly impact SPAC business organization transactions; proposed rules on SPACs’ shell companies and the use of financial projections; proposed rules to modify the definition of “dealer” for purposes of broker-dealer registration requirements; and a new accounting bulletin impacting the accounting treatment of cryptocurrencies by exchanges. This blog will discuss the new C&DI.

Background

The rules related to disclosure obligations, including in Forms 8-K, S-4 registration statements and proxy materials, and the filing of exhibits associated with a material contract, including merger agreements, have evolved over the past few years (see here related to confidential treatment of material contracts – HERE). In March 2021, the SEC issued a statement discussing certain legal specifics associated with a SPAC, including expressing concerns regarding disclosures associated with a de-SPAC transaction (i.e., a business

April 5, 2022

Regulation By Enforcement

The SEC is well known for, and often criticized for, its practice of regulation by enforcement. In recent years the SEC has been more willing to regulate by enforcement, propounding novel and new interpretations to longstanding rules and regulations. Market participants have taken notice, and offense. Advocacy groups have been very vocal against the practice including the Financial Services Institute and Small Public Company Coalition (SPCC).

Although not limited to matters involving cryptocurrencies, blockchain and all things Web3, is the area that garners the most attention for the SEC’s enforcement-based guidance, probably because it is undeniably the topic that is in the most need of actual rule-based regulation. Starting with the SEC’s 2017 Section 21(a) Report stemming from the enforcement action against the DAO, Slock.it (see HERE), almost all substantive regulatory prescription related to the world of crypto has come from enforcement actions.

Rather than heed the calls for rules and regulations over the years, the SEC has

March 29, 2022

The BSTX

On January 27, 2022, the SEC approved the country’s 17^th stock exchange, the first one of which will utilize blockchain technology. The new BSTX is a subsidiary of the Boston BOX Exchange and is a joint venture with tZero, which is providing the blockchain technology. The BSTX is expected to begin operations sometime after June 2022 and will initially only trade securities that first list directly on the BSTX. Once listed on the BSTX, a security can dual trade on other exchanges.

To begin, the BSTX will trade traditional securities but intends to move into tokenized securities and intends to brand itself with the look and feel of a digital asset exchange as opposed to the more traditional Nasdaq look. In December 2020, the SEC rejected the Exchange’s original plan to exclusively trade tokenized securities. The BOX then filed new proposed rules in May 2021 which, after 3 amendments, were approved by the SEC on January 27^th.

March 22, 2022

Non-Fungible Tokens

This one has been on my list for a while and I’m finally ready to dive in – non-fungible tokens (NFTs). In July 2017, the world of digital assets and cryptocurrency literally became an overnight business sector for corporate and securities lawyers, shifting from the pure technology sector, when the SEC issued its Section 21(a) Report on the DAO investigation finding that a cryptocurrency is, in most cases, a security HERE. The SEC’s Section 21(a) Report relied on the analysis in SEC v. W.J. Howey Co. to determine when a crypto is a security, building the guardrails to conclude that all, or almost all, cryptocurrencies at that time were/are indeed a security. For more on the Howey analysis, see HERE .

Later in June 2018, the SEC gave some relief to the crypto world by announcing that Bitcoin and Ether were likely decentralized enough as to no longer be considered a security, hedging on the conclusion as

March 15, 2022

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

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

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

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

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.

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February 1, 2022

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SEC Proposes New SPAC Rules – Part 1

Regulation By Enforcement

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SEC ReOpens Comment Period For Pay Versus Performance

SEC Fall 2021 Regulatory Agenda

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