SEC Adopts New EDGAR Rules
A year after publishing proposed rules, on September 27, 2024, the SEC adopted rule and form amendments to the EDGAR system dubbing the updates as EDGAR Next (for a review of the proposed rules see HERE). The rule changes are meant to enhance security and improve access to the EDGAR system. My view is that will accomplish the former and not the latter. The changes require EDGAR filers to authorize identified individuals who are responsible for managing the filers’ EDGAR accounts. Individuals acting on behalf of filers on EDGAR will need individual account credentials to access those EDGAR accounts and make filings.
The new rules amend Rules 10 and 11 of Regulation S-T and amend Form ID. Only the identified authorized individuals will be able to access a filer’s EDGAR account. The authorized individual(s) need not be an employee of the filer, but the filer needs to provide a notarized power of attorney to appoint someone.
Through the
Foreign Private Issuers – SEC Registration And Reporting And Nasdaq Corporate Governance – Part 1
Although many years ago I wrote a high-level review of foreign private issuer (FPI) registration and ongoing disclosure obligations, I have not drilled down on the subject until now. While I’m at it, in the multi part blog series, I will cover the Nasdaq corporate governance requirements for listed FPIs.
Definition of a Foreign Private Issuer
Both the Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”) contain definitions of a “foreign private issuer” (“FPI). Generally, if a company does not meet the definition of an FPI, it is subject to the same registration and reporting requirements as any U.S. company.
The determination of FPI status is not just dependent on the country of domicile, though a U.S. company can never qualify regardless of the location of its operations, assets, management and subsidiaries. There are generally two tests of qualification as a foreign private issuer, as follows:
Related Party Transactions – Foreign Private Issuers
About a year ago, the SEC brought several enforcement proceedings targeting shortcomings in related party transactions disclosures, including by Lyft. The action provides a reminder that Item 404(a) is broadly construed and reminded me that related party transactions are a topic worthy of blogging about. Last week I published a blog on related party transaction disclosures for domestic companies (see HERE) and this week covers foreign private issuers (FPIs).
Item 404 of Regulation S-K sets forth the related party disclosure obligations for domestic companies that must be included in various periodic reports and registration statements under the Securities Exchange Act of 1934 (“Exchange Act”) and in registration statements under the Securities Act of 1933 (“Securities Act”). Foreign private issuers can comply with Item 404 by providing the information required by Item 7.B of Form 20-F plus any additional information required by its home.
Item 7.B of Form 20-F
General Disclosure
Item 7.B of Form 20-F requires certain disclosure
Related Party Transactions – Domestic Companies
About a year ago, the SEC brought several enforcement proceedings targeting shortcomings in related party transactions disclosures, including by Lyft. The action provides a reminder that Item 404(a) is broadly construed to require a description of transactions since the beginning of the registrant’s last fiscal year in excess of $120,000 in which it was or is to be a participant, and in which a related person had or will have a direct or indirect material interest. When the cases came out, I added related party transactions to my (very long) list of topics worthy of a blog and now is the time.
Item 404 of Regulation S-K sets forth the related party disclosure obligations for domestic companies that must be included in various periodic reports and registration statements under the Securities Exchange Act of 1934 (“Exchange Act”) and in registration statements under the Securities Act of 1933 (“Securities Act”). Foreign private issuers can comply with Item 404 by providing the
Terminating Reporting Obligations In An Abandoned IPO
It has been a tough few years for small cap (and all) initial public offerings (IPOs). Although I have been seeing a small up-tick in priced deals recently, we are not yet near the highs of 2020 – 2022. Among the various challenges facing IPO issuers, lengthy Nasdaq/NYSE review periods and trouble building out sufficient allocations have been especially difficult resulting in a lengthier IPO process than expected.
An increased IPO timeline adds significant expense to the process. A registration statement cannot go effective with stale financial statement. Financial statements for domestic issuers go stale every 135 days requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that a closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.
NYSE Approves Change To Delist Companies That Change Primary Business
On July 24, 2024, the SEC approved an NYSE rule change to allow for the delisting of companies that change their primary business.
NYSE Continued Listing Standards
As I wrote about in October 2023, the NYSE continued listing requirements as set forth in the Listed Company Manual section 802.01 include (pre-rule change) (see HERE):
- Distribution of Capital Stock: (i) total stockholders of 400; or (ii) total stockholders of 1,200 and an average monthly trading volume of less than 100,000 shares; or (iii) total non-affiliated publicly held shares of 600,000.
- Market Value: (i) average global market capitalization of less than $50 mil and stockholders equity is less than $50 mil for 30 consecutive trading days.
- Disposal of Assets – Reduction of Operations: The NYSE will consider a suspension or delisting if: (i) the company has sold or otherwise disposed of its principal operating assets or has ceased to be an operating company or has discontinued a substantial portion of its
Supreme Court Strikes Down Chevron Deference
In June 2024, the U.S. Supreme Court struck down a decades old judicial precedent that provided guidance as to when judges could defer to a federal agencies’ interpretation of a law. The original precedent derived from the 1984 case Chevron v. Natural Resources Defense Council, which gave deference to federal agencies’ interpretations of a law over the judicial system. Although Chevron applied to all federal agencies, in light of a slew of recent litigation by and against the SEC related to rule making and interpretations (for example related to who is a “dealer” – see HERE) I decided to cover it in a blog.
Chevron v. Natural Resources Defense Council
Chevron v. Natural Resources Defense Council (“Chevron”) held that a government agency must conform to any clear legislative statements when interpreting and applying a law, but courts will give the agency deference in ambiguous situations if its interpretation is reasonable. In other words, if
Commissioner Uyeda’s Statement On Dealer Litigation
On August 19, 2024, SEC Commissioner Mark T. Uyeda published a statement regarding one of the numerous defendants in SEC initiated enforcement proceedings claiming unlicensed dealer activity. The statement resonates with the sentiments of most of my colleagues, peers and clients.
Background
In November 2017 the SEC shocked the industry when it filed an action against Microcap Equity Group, LLC and its principal alleging that its investing activity required licensing as a dealer under Section 15(a) of the Exchange Act. Since that time, the SEC has filed numerous additional cases with the sole allegation being that the investor acted as an unregistered dealer. In each case, the investor entity purchased convertible promissory notes from micro-cap OTC Markets issuers (or other existing note holders), which, after the applicable Rule 144 holding period, were converted into shares of common stock and sold on the open market. As the securities were generally low priced, the conversions resulted in large quantities of additional
NASDAQ Amends Rule 5210 – Listing Prerequisites
In March 2024, the Nasdaq Stock Market quietly amended Rule 5210 requiring that all lead underwriters on an IPO must be Nasdaq members or limited underwriting members as a prerequisite to applying for a listing. The new rules also created the “limited underwriting member” class and accompanying rules applicable to the group and its associates including eligibility, application process and ongoing requirements. Although the amendment garnered little attention at the time, now that it has become effective, it is loudly impacting the small cap IPO market.
Rule 5210 – Background
Nasdaq Rule 5210 sets forth the prerequisites for a company to apply for a Nasdaq listing. Until October 2023, the Rule had 12 subparts with new Rule 5210(l) being added in October 2023 and new Rule 5210(m) being added in March 2024. Rule 5210(l) requires that any company listing on Nasdaq comply with the recovery of erroneously awarded compensation (Clawback) rules. For more on the Clawback rules see HERE.
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
