Section 13 – Beneficial Shareholder Reporting Requirements – Part II
As discussed last week, the SEC has adopted final amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (“Exchange Act”). The amendments were first proposed in February, 2022 – see HERE.
The amendments update Sections 13(d), 13(g) and Regulation 13D-G to accelerate filing deadlines for both initial and amended reports; expand the timeframe within a business day in which filings may be timely made; and require that Schedule 13D and 13G filings be filed using XBRL.
The final rules do not adopt proposed changes to determine beneficial ownership where a person holds cash settled derivative securities but rather refer to guidance on the subject. Likewise, the final rules do not adopt many changes that had been proposed to clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; or to provide new exemptions to permit certain persons to communicate and consult with one
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
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 Issues Guidance On Spring-Loaded Compensation Awards
On November 29, 2021, the SEC issued accounting guidance on the recognition and disclosure of “spring-loaded awards” made to executives. A spring-loaded award is a share-based compensation arrangement where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction. The SEC new guidance and scrutiny is not unexpected following the re-opening of the comment period on proposed rules on listing standards for the recovery of erroneously awarded executive compensation (“Clawback Rules”) (see HERE) and proposed new rules on share repurchase programs and stock trading plans (blogs coming soon on each of these).
According to the new SEC accounting bulletin prepared by the SEC’s Office of the Chief Accountant and the Division of Corporation Finance, non-routine spring-loaded grants merit particular scrutiny by those responsible for compensation and financial reporting governance at public companies. In particular, it is the SEC’s
Climate Disclosure Guidance
Ahead of the imminent publication of updated climate disclosure rules, the SEC has published a sample comment letter providing companies with guidance as to the regulator’s current focus and expectations under the rules. The last official SEC guidance on climate-related guidance was published in 2010; however, the SEC, and individual top brass, have been vocal about the need for updated regulations. In that regard, in March 2021, the SEC published a statement requesting public input on climate change disclosures. It is expected that either a rule proposal or temporary final rules are forthcoming. For more information on differing views following the March 2021 request for public comment, including from regulators, industry groups and individual SEC Commissioners, see HERE.
In 2010 as today, companies were and are required to report material information that can impact financial conditions and operations (see most recent amendments to MD&A disclosures: HERE). In addition to MD&A, climate-change-related disclosures, including risks and opportunities, may
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
FinCEN Updates Due Diligence Rules
On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued new final rules under the Bank Secrecy Act requiring financing institutions, including brokerage firms, to adopt additional anti-money laundering (AML) procedures that include specific due diligence and ongoing monitoring requirements related to customer risk profiles and customer information. In addition, the new rules require financial institutions to collect and verify information about beneficial owners and control person of legal entity customers.
The Securities Exchange Act of 1934 (“Exchange Act”) specifically requires brokerage firms to comply with the Bank Secrecy Act. FinCEN provides minimum rules. Brokerage firms are also required to comply with AML rules established by FINRA, including FINRA Rule 3310. The purpose of the AML rules is to help detect and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation. FINRA also provides a template to assist small firms in establishing and complying with AML procedures. As
SEC Issues Guidance On “Voting Power” For Purposes Of Bad Actor Rules
The SEC has published clarifying guidance and information on defining “voting equity securities” for purposes of the application of the bad actor rules under Rule 506 of Regulation D of the Securities Act of 1933, as amended (“Securities Act”). The clarifying language was contained within the SEC’s March 25, 2015 release of the final rules amending and adopting Regulation A+.
Rules 262 and 505 of the Securities Act disqualify the use of offerings under Regulation A and Rule 505 of Regulation D if an issuer, its predecessor, or an affiliate of the issuer is considered a “bad actor” as defined by such rules. In particular, the rules disqualify the issuer if the specified covered person is subject to certain administrative orders, industry bars, an injunction involving certain securities law violations or certain specified criminal convictions. “Covered persons” under the rules extends to the issuer, predecessor, affiliate, directors, officers, general partners, 20% or greater beneficial owners, promoters, underwriters, persons
SEC Issues New Guidance on Use of Twitter and Other Social Media Communications
On April 21, 2014, the SEC updated its Division of Corporation Finance Compliance and Disclosure Interpretations (C&DI) to provide guidance as to the use of Twitter and other social media communications in conjunction with a public offering or business combination transaction.
Background
Previously, on April 2, 2013, in response to a Facebook post made by Reed Hastings, CEO of Netflix, the Securities Exchange Commission (“SEC”) issued a report confirming that companies can use social media, such as Facebook and Twitter, to make company announcements in compliance with Regulation Fair Disclosure (Regulation FD) as long as investors are alerted as to which social media outlet is being used by the company.
Regulation FD requires that companies take steps to ensure that material information is disclosed to the general public in a fair and fully accessible manner such that the public as a whole has simultaneous access to the information. Regulation FD ended the era of invitation-only conference calls between company management
