Duane Morris on Capital Markets

March 25, 2020 by Darrick M. Mix

SEC Announces Reporting Relief and Issues Guidance Regarding COVID-19

On March 25, 2020, the Securities and Exchange Commission announced that it is extending the filing periods covered by its previously enacted conditional reporting relief for certain public company filing obligations under the federal securities laws, and that it is also extending regulatory relief previously provided to funds and investment advisers whose operations may be affected by COVID-19. In addition, the SEC’s Division of Corporation Finance issued its current views regarding disclosure considerations and other securities law matters related to COVID-19.

Filing Deadline Relief for Public Companies

To address potential compliance issues, the SEC issued an order [https://www.sec.gov/rules/exorders/2020/34-88465.pdf] that, subject to certain conditions, provides public companies with a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. This order supersedes and extends the SEC’s prior order of March 4, 2020. Among other conditions, companies must continue to convey through a current report (Form 8-K) a summary of why the relief is needed in their particular circumstances for each periodic report that is delayed. The SEC may provide extensions to the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. The SEC encouraged companies and their representatives to contact SEC staff with questions or matters of particular concern.

Relief for Funds and Investment Advisers

The SEC also issued two orders [https://www.sec.gov/rules/other/2020/ia-5469.pdf and https://www.sec.gov/rules/other/2020/ic-33824.pdf] that provide certain investment funds and investment advisers with additional time with respect to holding in-person board meetings and meeting certain filing and delivery requirements, as applicable. These orders supersede and extend the filing periods covered by the SEC’s prior orders of March 13, 2020. Among other conditions, entities must notify the SEC and/or investors, as applicable, of the intent to rely on the relief, but generally no longer need to describe why they are relying on the order or estimate a date by which the required action will occur.

Disclosure Guidance for Public Companies

Further, the Division of Corporation Finance issued Disclosure Guidance Topic No. 9 [https://www.sec.gov/corpfin/coronavirus-covid-19] (the “Guidance”), providing the staff’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The Division has been monitoring how companies are reporting the effects and risks of COVID-19 on their businesses, financial condition, and results of operations and is providing the Guidance as companies prepare disclosure documents during this uncertain time. In the Guidance, the Division reminds companies that a number of existing rules or regulations require disclosure about the known or reasonably likely effects of and the types of risks presented by COVID-19. As a result, disclosure of these risks and COVID-19-related effects may be necessary or appropriate in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements. The Guidance also poses a series of questions designed to help companies assess COVID-19-related effects and consider their disclosure obligations (for example: How has COVID-19 impacted your financial condition and results of operations? In light of changing trends and the overall economic outlook, how do you expect COVID-19 to impact your future operating results and near-and-long-term financial condition? Do you expect that COVID-19 will impact future operations differently than how it affected the current period?)

The Guidance notes that companies and related persons to be mindful of their market activities, including the issuance or purchase of securities, in light of their obligations under the federal securities laws. For example, where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders who are aware of these matters should refrain from trading in the company’s securities until such information is disclosed to the public. The Guidance also reminds companies of their obligations under Regulation FD to avoid selective disclosures.

April 29, 2019 by Duane Morris

SEC Adopts Simplified, Modernized Disclosure Requirements

On March 20, 2019, the SEC adopted amendments to rules and forms of Regulation S-K to further simplify and modernize disclosure requirements. The final amendments were published in the Federal Register on April 2, 2019, and, except as noted below, become effective on May 2, 2019, 30 days after publication in the Federal Register. The SEC stated that it intends for the amendments to benefit investors by eliminating outdated, redundant and unnecessary disclosure; reducing cost and burdens of SEC reporting companies; and simplifying investors’ access to, and evaluation of, material information. These new rules follow on the heels of the SEC’s prior effort on simplification, which was published in the Federal Register on October 4, 2018. Combined with the earlier effort, these latest changes reflect a concerted push by the SEC to relieve SEC reporting companies of filing obligations that provide little value to investors.

This Alert provides a brief overview of certain of the amendments and practical considerations for SEC reporting companies and does not address parallel amendments to investment company and investment adviser rules and forms.

Read the full Alert on the Duane Morris LLP website.

January 15, 2019 by Darrick M. Mix

The Government Shutdown and Effectiveness of Registration Statements under Section 8(a)

Given the shutdown of the SEC as part of the wider government shutdown, we are seeing many registration statements being filed with no delaying amendment language and with the language required by Rule 473 to allow automatic effectiveness in 20 days in accordance with Section 8(a) of the Securities Act. In the last two weeks, at least 30 such registration statements have been filed. In all of 2018, there were only three such registration statements, and in all of 2017, there were only two. Obviously, the deals must go on, and corporate issuers and their counsel have seen the Division of Corporation Finance’s FAQs regarding Actions During Government Shutdown and have heeded the answers set forth therein. (For now, the FAQs are posted on the Division of Corporation Finance’s homepage.)

The first of these “automatically effective” registration statements filed in 2019 was on Form S-4 in connection with the pending merger of BSB Bancorp and People’s United Financial, Inc. Since then, issuers have filed these registration statements on Forms S-1, S-3 and S-4 in connection with a variety of transactions. If the government shutdown continues, we should expect to see many more of these filings.

October 4, 2018 by Darrick M. Mix

California Mandates Gender Diversity on Public Company Boards

California has become the first state in the nation to require public companies to put female directors on their boards. On September 30, 2018, Governor Jerry Brown signed a bill mandating that by the end of 2019 certain publicly traded companies with headquarters in the state appoint at least one woman to their boards. Further, by 2021, companies subject to the law with at least five directors will need to appoint at least two female directors to their boards, and those with at least six directors will need to appoint at least three female directors to their boards. Companies subject to the law that do not comply with the mandates will face financial penalties.

Whether the law is constitutional is questionable. Governor Brown acknowledged as much after he signed the bill, stating, “I don’t minimize the potential flaws that may indeed prove fatal to its ultimate implementation,” but he justified the law, stating that “recent events in Washington, D.C.—and beyond—make it crystal clear that many aren’t getting the message.” Opponents argue that the mandate violates both the California and U.S. Constitutions because it imposes impermissible gender quotas and requires companies to reject or replace men seeking to serve on boards. In addition, opponents claim that the law violates constitutional principles because it applies to companies headquartered in California even if they are incorporated in another state, creating an inherent conflict between California law and the corporate law of every other state.

Regardless of whether the California law is ultimately enforceable, there is no question that proxy advisory firms and some institutional investors like BlackRock remain focused on board diversity, including gender diversity, and there will continue to be pressure on public company boards to increase their diversity. Action by shareholders seeking to increase board diversity, rather than state governments mandating quotas, is likely to be more enduring and ultimately more successful.

February 21, 2018 by Barry Steinman

U.S. Supreme Court Holds Whistleblowers Must Report to SEC to be Afforded Protection Under Dodd-Frank Act

On Wednesday, February 21, 2018, the United States Supreme Court held, 9-0, in the case of Digital Realty Trust, Inc. v. Somers that the term “whistleblower” under the Dodd-Frank Wall Street Reform and Consumer Protection Act does not include individuals who report violations of securities laws internally to their companies but not to the United States Securities and Exchange Commission.

In Digital Realty Trust, Paul Somers sued his former employer, Digital Realty Trust, alleging that his employment was terminated because he reported certain suspected securities laws violations to Digital Realty Trust’s senior management and that such termination constituted an unlawful retaliation against a whistleblower under the Dodd-Frank Act. The Court held in favor of Digital Realty Trust, stating that the whistleblower anti-retaliation provision under the Dodd-Frank Act does not protect individuals who have reported alleged misconduct internally to their employer, but not to the SEC.

In reaching its conclusion, the Court focused on the actual text of the anti-retaliation provision of the Dodd-Frank Act as well as the Dodd-Frank Act’s purpose. The Court noted that the Dodd-Frank Act defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.” Further, the Court stated that the purpose of the Dodd-Frank Act was to aid the SEC’s enforcement efforts by motivating people who know of securities law violations to tell the SEC.

The Court’s ruling overturned the Ninth Circuit’s March 2017 ruling and resolved a split between the Ninth and Fifth Circuits. In March 2017, the Ninth Circuit found that Mr. Somers was entitled to protection under Dodd-Frank Act. In July 2013, the Fifth Circuit ruled in the case of Asadi v. G.E. Energy that whistleblowers must take their complaints to the SEC to be eligible for protection under the Dodd-Frank Act.

May 15, 2017 by Barry Steinman

SEC Issues Updated Guidance Regarding Conflict Mineral Rules

On April 7, 2017, the SEC Division of Corporate Finance issued updated guidance regarding the SEC’s conflict minerals rules, stating that, in light of uncertainties regarding how the SEC will resolve issues relating to its conflict mineral rules, the SEC will not recommend enforcement action with respect to a company – even if it is subject to Item 1.01(c) of Form SD – to comply with the disclosure obligations under the SEC’s conflict minerals rules by only including in its Form SD the disclosures required by Items 1.01(a) and (b) of Form SD.

The SEC was prompted to update its guidance by the April 3, 2017 final judgment of the U.S. District Court for the District of Columbia in National Association of Manufacturers, et al. v. Securities and Exchange Commission,[1] in which the court held that the provisions of Item 1.01(c) of Form SD that require companies to report to the SEC and state on their websites that a product has “not been found to be ‘DRC conflict free’” violates the First Amendment of the U.S. Constitution.

Continue reading “SEC Issues Updated Guidance Regarding Conflict Mineral Rules”

December 15, 2014 by Darrick M. Mix

The Comverge Case: Fiduciary Duties and Break-up Fees in M&A

Our partner Richard Renck in Wilmington recently posted an entry on our Delaware Business Law Blog regarding the Comverge case decided last month by the Delaware Court of Chancery. Among other things, the Court’s opinion provides practitioners and clients with insight regarding break-up fees as well as a road map of how the Court of Chancery reviews challenges to third-party sale transactions, approved by a disinterested board, under the enhanced scrutiny of Revlon. Please see Richard’s post here.

July 25, 2013September 10, 2014 by Richard L. Cohen

SEC Ends Losing Streak; Conflict Minerals Rule Upheld

The SEC scored a victory in the U.S. Court of Appeals for the District of Columbia Circuit in a case filed in October 2012 by the U.S. Chamber of Commerce, the Business Roundtable, and the National Association of Manufacturers. The plaintiffs challenged the SEC’s rule on disclosure of the use of conflict minerals on grounds that aspects of the rule were arbitrary and capricious under the Administrative Procedure Act and claiming that the disclosures required by the SEC and by Congress run afoul of the First Amendment. In a 63-page decision in favor of the SEC, the Court found no problems with the SEC’s rulemaking and disagreed that the “conflict minerals” disclosure scheme transgressed the First Amendment.

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July 24, 2013September 10, 2014 by Darrick M. Mix

Fifth Circuit to Dodd-Frank Whistleblowers: Call the SEC First

The U.S. Court of Appeals for the Fifth Circuit’s decision last week in Asadi v. G.E. Energy (USA) has been hailed as a triumph for employers because it requires whistleblowers who bring retaliation claims under the Dodd–Frank Wall Street Reform and Consumer Protection Act to show that they suffered retaliation because they reported potential violations to the U.S. Securities and Exchange Commission. The Fifth Circuit rejected the position adopted by the SEC in its regulations implementing Dodd-Frank and by the few district courts that have addressed the issue. That rejected approach interprets Section 922 of Dodd-Frank to apply its enhanced protections to certain whistleblowers even if they had not reported their concerns to the SEC. Although this decision narrows the category of employees who can seek the enhanced protections of Dodd-Frank, it will likely increase the number of whistleblowers who report their concerns to the SEC.

Our firm’s client alert regarding the case can be found here.

January 11, 2013September 10, 2014 by Thomas G. Spencer

FTC Revises Hart-Scott-Rodino Thresholds

The Federal Trade Commission announced yesterday that it has made its annual adjustments to the thresholds for determining whether a transaction is reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the amount of the related filing fee. The new thresholds were published today in the Federal Register. Under HSR, certain transactions may not be completed until a waiting period (generally 30 days unless extended by a request for additional information or terminated early upon request) has expired after the required notifications are filed.

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