On July 22, 2020, the U.S. Securities and Exchange Commission adopted amendments to its rules under the Securities Exchange Act of 1934 that exempt persons furnishing proxy voting advice from the information and filing requirements of the federal proxy rules. The most prominent proxy advisory firms that provide such proxy voting advice in the United States today are Institutional Shareholder Services and Glass Lewis & Co. Pursuant to the amendments, the SEC codified its view that proxy voting advice generally constitutes a “solicitation,” imposed new conditions to exemptions under Exchange Act Rule 14a-2(b) and added examples of what may be “misleading” within the meaning of Exchange Act Rule 14a-9. The SEC also published supplemental guidance to assist investment advisers on assessing how to consider registrant responses to proxy voting advice in light of the new amendments to the proxy rules.
The new rules have the potential to alter the dynamics between public companies and proxy advisory firms, with public companies gaining some leverage. The new rules have been criticized by some industry participants with an interest in maintaining the prior system.
Duane Morris’ client alert on these new rules was issued on July 30, 2020 and is available here.
Yesterday, May 21, 2020, the Securities and Exchange Commission announced that it approved amendments to its rules and forms “to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure.” The 267-page final rule release is available by clicking here.
The amendments update SEC rules which have not been comprehensively addressed since their adoption, some over 30 years ago. Jay Clayton, the SEC’s Chairman, said that amendments are “designed to enhance the quality of information that investors receive while eliminating unnecessary costs and burdens [and] will benefit investors, registrants and the market more generally.”
Among other things, the amendments:
- update the significance tests (i.e., to determine when financial statements regarding an acquisition or disposition must be included) in Rule 1-02(w) and elsewhere by revising the investment test to compare the registrant’s investments in and advances to the acquired or disposed business to the registrant’s aggregate worldwide market value if available; revising the income test by adding a revenue component; expanding the use of pro forma financial information in measuring significance; and conforming, to the extent applicable, the significance threshold and tests for disposed businesses to those used for acquired businesses;
- modify and enhance the required disclosure for the aggregate effect of acquisitions for which financial statements are not required or are not yet required by eliminating historical financial statements for insignificant businesses and expanding the pro forma financial information to depict the aggregate effect in all material respects;
- require the financial statements of the acquired business to cover no more than the two most recent fiscal years;
- permit disclosure of financial statements that omit certain expenses for certain acquisitions of a component of an entity;
- permit the use of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board in certain circumstances;
- no longer require separate acquired business financial statements once the business has been included in the registrant’s post-acquisition financial statements for nine months or a complete fiscal year, depending on significance; and
- make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X, which will also apply to issuers relying on Regulation A.
The amendments will be effective on Jan. 1, 2021, but voluntary compliance will be permitted in advance of the effective date.
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.
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.
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.
The Wall Street Journal and other news outlets reported late yesterday that Netflix, Inc. filed a Form 8-K disclosing that each of Netflix and its CEO, Reed Hastings, had received a Wells notice from the staff of the Securities and Exchange Commission relating to an alleged violation of Regulation Fair Disclosure (FD) in connection with a Facebook post by Hastings on July 3, 2012. Hastings’ Facebook post stated that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we’ll blow these records away.”
Continue reading SEC Staff Issues Wells Notice to Netflix and Its CEO
As required by the JOBS Act, the U.S. Securities and Exchange Commission has proposed rules to eliminate the prohibition on general solicitation and general advertising in private placements exempt from registration by Rule 506 under the Securities Act of 1933, as long as all purchasers of the securities are accredited investors. The elimination of the prohibition on general solicitation and general advertising will result in issuers being able to attract a wider variety of investors with less cost. Increased competition for quality investments could also improve terms for issuers, reducing their cost of capital.
The firm’s client alert regarding the SEC’s proposal may be accessed here.