Tag: sec

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

SEC Adopts 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.  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 comes with a flurry of rule amendments, proposals and guidance related to the proxy process, some of which reverses recent rules on the same subject.

The final rules will require dissident shareholders and registrants to provide shareholders with a proxy card that includes the names of all registrant and dissident nominees. The rules will apply to all non-exempt solicitations for contested elections other than those involving registered investment companies and business development companies. The rules will require registrants and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and

Nasdaq Updated LAS Form

Effective September 17, 2021, Nasdaq updated its Listing of Additional Shares (LAS) Form and the process for the review of such forms.

Background

Nasdaq Rule 5250 sets forth certain obligations for companies listed on Nasdaq including related to requirements to provide certain information and notifications to Nasdaq, make public disclosures, file periodic reports with the SEC, and distribution of annual and interim reports.  Rule 5250(e) specifies the triggering events that require a listed company to submit certain forms to Nasdaq.

Rule 5250(e) requires the submittal of specific forms related to the following triggering events:

• Change in Number of Shares Outstanding – Each listed company must file a form with Nasdaq no later than 10 days after the occurrence of any aggregate increase or decrease of any class of securities listed on Nasdaq that exceeds 5% of the amount of securities outstanding of that class.
• Listing of Additional Shares – As further detailed below, a listed company must give

SEC Updates Filing Fees And Payment Methods

During the busiest capital markets boom most practitioners, including myself, have ever experienced, on October 13, 2021, in a whopping 432-page release, the SEC amended and modernized the filing fee payment methods and disclosure requirements.  The amendments revise most fee-bearing forms, including Securities Act registration statements, schedules, and related rules to require companies and funds to include all required information for filing fee calculation in a structured format.  The amendments also add new payment methods including ACH and debit and credit card options while eliminating the antiquated paper checks and money orders as a payment option.

The amendments are generally effective January 31, 2022.  The changes in payment type options will be effective May 31, 2022.  Pursuant to the transition provision, large-accelerated filers will become subject to the structuring requirements for filings they submit on or after 30 months after the January 31, 2022, effective date.  Accelerated filers, certain investment companies that file registration statements on Forms N-2 and N-14,

SEC Re-Visits Executive Compensation Clawback Rules

As expected, on October 14, 2021, the SEC re-opened the comment period on proposed rules on listing standards for the recovery of erroneously awarded executive compensation (“Clawback Rules”).  The Clawback Rules would 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, but finally seem to be moving forward.  Although the proposed rule remains unchanged from the July 2015 version, the SEC has added a few questions for comment in its re-opening release.

Background

There are currently existing rules which require the recovery of executive compensation and disclosure of such policies.  In particular, Section 304 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires the CEO and CFO to reimburse

SEC Report On Meme Stocks

On October 18, 2021, the SEC released a report on the meme stock craze that caused the securities of companies like GameStop Corp. to soar to unprecedented high trading prices and volume.  Commissioners Hester Peirce and Elad Roisman criticized the report as being used as an excuse to add or consider adding additional regulations in the areas of conflicts of interest, payment for order flow, off-exchange trading, and wholesale market making when, however, no causal connection between the meme stock trading and these other factors has been established.  I found the report interesting for the background and discussion on the U.S. trading markets.

Market Structure

From the perspective of individual investors, the lifecycle of a stock trade starts with an investor placing an order through an account they establish with a broker-dealer.  The broker-dealer then routes the order for execution to a trading center, such as a national securities exchange, an alternative trading system (“ATS”), or an off-exchange market

Public Market Listing Standards

One of the bankers that I work with often once asked me if I had written a blog with a side-by-side comparison of listing on Nasdaq vs. the OTC Markets and I realized I had not, so it went on the list and with the implementation of the new 15c2-11 rules, now seems a very good time to tackle the project.  I’ve added NYSE American to the list as well.

Quantitative and Liquidity Listing Standards

Nasdaq Capital Markets

To list its securities on Nasdaq Capital Markets, a company is required to meet: (a) certain initial quantitative and qualitative requirements and (b) certain continuing quantitative and qualitative requirements.  The quantitative listing thresholds for initial listing are generally higher than for continued listing, thus helping to ensure that companies have reached a sufficient level of maturity prior to listing.  NASDAQ also requires listed companies to meet stringent corporate governance standards.

SEC Cracking Down on The Crypto Wild West and Other Digital Asset Updates

After a few years of relative dormancy, the SEC is once again targeting the flourishing cryptocurrency market.  On August 3, 2021, SEC Chair Gary Gensler gave a speech to the Aspen Security Forum in which he referred to the cryptocurrency marketplace as the Wild West.  Days later, the SEC filed its first case involving securities using DeFi technology and then a few days after that, reached a $10 million settlement with Poloniex for operating an unregistered digital asset exchange.  Shortly after that, the SEC took aim at Coinbase’s planned crypto lending program causing the crypto giant to shelf the business model for the time being.  SEC Commissioners are joining in, giving speeches in various forums focused on crypto and the regulatory environment.

Background

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

2021 Annual Report of Office of Advocate for Small Business Capital Formation

The Office of the Advocate for Small Business Capital Formation (“Office”) has delivered a report to Congress following the 40^th annual small business forum (“Report”).  The Report includes recommendations of the Office and its annual forum participants.  The forum itself featured panelists and discussions on (i) navigating ways to raise early rounds; (ii) diligence including how savvy early-stage investors build diversified portfolios; (iii) tools for emerging and smaller funds and their managers; and (iv) perspectives on smaller public companies.  The forum itself had a focus on diversity, including panel speakers and discussion topics.  A clear message across the board is that women- and minority-owned businesses face the biggest challenges in the capital markets.

Background

The SEC’s Office of the Advocate for Small Business Capital Formation launched in January 2019 after being created by Congress pursuant to the Small Business Advocate Act of 2016 (see HERE).  One of the core tenants of the Office is recognizing that small businesses 

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