Earlier today, the Commission issued a small wave of press releases announcing several new hires at the SEC. Thus initiating the process of filling several key vacancies, including:
We expect more announcements to follow, including a new Director of the Division of Corporation Finance. Stay tuned!
In an interesting development in the week leading up to the 2025 inauguration of President Donald Trump, the U.S. Securities and Exchange Commission (“SEC”) announced a legal action against Elon Musk. In its complaint filed with the U.S. District Court for the District of Columbia (the “Court”) on January 14, 2025 (the “Complaint”), the SEC alleges Musk failed to timely file a Schedule 13D after acquiring over five percent of the outstanding shares of common stock (the “Shares”) of Twitter, Inc. (the “Company” or “Twitter”). The late filing resulted in a violation of Section 13(d)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 13d-1(a) thereunder, both of which impose strict liability for such reporting failures. The SEC is seeking permanent injunctive relief, disgorgement of any ill-gotten gains, prejudgment interest, and civil penalties.
The Securities and Exchange Commission (“SEC") announced charges against 34 reporting persons for late and missing filings on Form 13F and Form 13H earlier this month. The entities and individuals charged agreed to settlements with the SEC requiring payments of $7.2 million in penalties.
I. Introduction
For fiscal years beginning on or after April 1, 2023, domestic public companies are required to disclose whether they have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of their securities by their directors, officers and employees, or the companies themselves, and if so to file those policies and procedures as an exhibit to their annual reports on Form 10-K.[1] While calendar year companies must comply with these requirements in their Form 10-K for, or proxy statement following, the fiscal year ending December 31, 2024, 49 S&P 500 companies had addressed these requirements in filings as of June 30, 2024.[2]
As a quick reminder, all institutional investment managers filing 13F reports under the Exchange Act (“13F Filers") are subject to a new requirement this year to file a Form N-PX by August 31, 2024. Form N-PX includes disclosures regarding certain executive compensation-related proposals described below.
As discussed in our previous client alert, on December 18, 2023, new rules went into effect requiring companies to report material cybersecurity incidents on Form 8-K within four business days of the company’s determination that the cybersecurity incident is material. In the last several weeks the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (the “SEC") has provided guidance regarding incident reporting in the form of a May 21 statement and a June 20 announcement from the Division of Corporation Finance Director Erik Gerding and, most recently, more formal Compliance and Disclosure Interpretations (“C&DIs") on June 24.
As previously noted in our client alert, certain of the SEC amendments to beneficial ownership reporting rules adopted in October 2023 will go into effect on September 30, 2024. As a quick reminder, for Passive Investors (i.e., those reporting on Schedule 13G pursuant to Rule 13d-1(c) who beneficially own less than 20%) and Qualified Institutional Investors (“QIIs")
As detailed in our client alert, the SEC adopted cybersecurity disclosure rules on July 26, 2023 that require disclosure of material cybersecurity incidents under new Item 1.05 of Form 8-K. If a company determines that a cybersecurity incident is material, it is required to disclose the incident within four (4) business days of such determination. In addition, such determination is required to be made “without unreasonable delay after discovery of the incident.”
On March 1, 2024, the SEC announced an enforcement action against an investment advisory firm (“Investor"), stemming from its failure to promptly convert from a Schedule 13G to 13D after forming a “control" purpose within the meaning of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.[1]
Late last month, shortly before adopting amendments to Regulation 13D/G, the Securities and Exchange Commission (“SEC") announced civil charges against several officers, directors, and major shareholders of public companies for failing to satisfy their timely reporting obligations. The SEC also charged the affiliated public companies for contributing to the reporting failures by insiders.
On March 14, 2023, the SEC charged DXC Technology Co. (“DXC") with making material misstatements with respect to its non-GAAP financial performance measures, stating that, DXC “negligently misclassif[ied] tens of millions of dollars of expenses as [transaction, separation and integration-related (“TSI")] costs and improperly exclude[ed] them in its reporting of non-GAAP measures." The SEC’s order also found that DXC, and specifically its controllership function and disclosure committee, failed to maintain “adequate" disclosure controls and procedures relating to DXC’s non-GAAP disclosures, citing the following shortcomings:
As we do each year, we offer our observations on new developments and recommended practices for calendar-year filers to consider in preparing their Form 10-K. This alert reviews the recent amendments to Regulation S-K adopted by the U.S. Securities and Exchange Commission (“SEC”) and discusses how public companies are reacting to these new requirements.
On December 15, 2021, the Securities and Exchange Commission (“SEC” or “Commission”) held a virtual open meeting where it considered four rule proposals, including two that are particularly pertinent to all public companies: (i) amendments regarding Rule 10b5-1 insider trading plans and related disclosures and (ii) new share repurchase disclosures rules.
Recently, the SEC’s Division of Corporation Finance has issued a number of comment letters relating exclusively to climate-change disclosure issues. The letters we have seen to date comment on companies’ most recent Form 10-K filings, including those of calendar year companies who filed their Form 10-K more than 6 months ago, and have been issued by a variety of the Division’s industry review groups, including to companies that are not in particularly carbon-intensive industries. Many of the climate change comments appear to be drawn from the topics and considerations raised in the SEC’s 2010 guidance on climate change disclosure, as reflected in the sample comments that we have attached in the annex to this alert. We expect this is part of a larger Division initiative because the letters are similar (although not identical), contain relatively generic comments, and have been issued in close proximity to one another. Accordingly, it is reasonable to expect that additional comment letters will be issued in the coming weeks and months.
As we do each year, we offer our observations on new developments and recommended practices for calendar-year filers to consider in preparing their annaul report on Form 10-K. In addition to the many challenges of the past year, the SEC adopted and provided guidance on a number of changes to public company reporting obligations impacting disclosures in the 10-K for 2020. In particular, we discuss the recent amendments to Regulation S-K, disclosure considerations in light of COVID-19, a number of technical considerations that may impact your Form 10-K, and other considerations in light of recent and pending changes in the executive branch and at the SEC. The full memo is available at the following link:
Of particular interest as private capital markets activity continues to grow, the “accredited investor" definition is one of the principal tests for determining who is eligible to participate in investment opportunities presented by the private capital markets. On August 26, 2020, the SEC announced that it adopted amendments to the definitions of “accredited investor" in Rule 501, as well as the definition of “qualified institutional buyer" in Rule 144A, each under the Securities Act of 1933. These amendments are part of the SEC’s ongoing efforts to simplify, harmonize and improve the framework for securities offerings that are not registered with the SEC under the Securities Act (for more information on this initiative, see our prior Monitor post here).
Issuers in the United States and their auditors have related, but distinct, obligations to evaluate on a periodic basis whether there is substantial doubt about the issuer’s ability to continue as a going concern. In normal times, this evaluation, conducted with an appropriate level of diligence, results as to almost all major public companies in the conclusion that there is no substantial doubt about the entity’s ability to meet its obligations in the months to come.
On April 8, 2020, Securities and Exchange Commission (“SEC”) Chairman Jay Clayton and Division of Corporation Finance Director Bill Hinman issued a joint statement, available here (the “Statement”) stressing the importance of COVID-19 disclosures (particularly forward-looking disclosures), and urging companies to provide as much information as is practicable regarding their current financial and operational status, as well as operational and financial planning. The Statement notes that the COVID-19 pandemic has shifted the global economic landscape and that the SEC recognizes that workers and businesses are facing profound challenges.
On August 21, 2019, the Securities and Exchange Commission (the Commission) issued two releases (the Releases) regarding two elements of the proxy voting process that are influenced by proxy advisory firms: proxy voting advice issued by proxy advisors (available here) and proxy voting by investment advisers who use that proxy voting advice (availablehere). The guidance, in the words of Commissioner Elad L. Roisman, “reiterate[s] longstanding Commission rules and positions that remain applicable and very relevant in today’s marketplace."
The Securities and Exchange Commission has announced (available here) that it will hold a roundtable on July 18, 2019, to hear from investors, issuers and other market participants about short-termism’s impact on capital markets and whether the reporting system or other SEC regulations should be changed to address those concerns. The event will begin at 12:30 p.m. ET in the SEC’s headquarters and be open to the public in person and via live webcast on SEC.gov, as well as archived for later viewing. The agenda and access information are available here. The roundtable is related to a request for comment that the SEC published in December 2018, when the SEC announced it may be reconsidering quarterly reporting (our post about that SEC request for comment on quarterly reporting is available here).
On June 19, 2018, the Securities and Exchange Commission (the “SEC") published a draft strategic plan outlining the SEC’s priorities through 2022 (the “Plan Draft"). As previously reported, the Plan Draft comprised three broad goals: focusing on retail investors, increasing innovation, and strengthening performance.
On June 19, 2018, the Securities and Exchange Commission (the “SEC") published a draft strategic plan outlining the SEC’s priorities through 2022 (the “2018 Plan"). In the 2018 Plan, the SEC elected to pursue three goals, emphasizing investors, innovation and performance, each of which is summarized below. The 2018 Plan focuses on the “Main Street" investor, responds to new market developments, such as the growth of cryptocurrencies, and improves the regulator’s use of data and analytics.
In March 2018, the Securities and Exchange Commission (“SEC”) issued a proposed rule, Rule 610T of Regulation NMS (the “Proposal”), which would create a Transaction Fee Pilot for National Market System (“NMS”) stocks (the “Pilot”). The Pilot recently received renewed attention as a result of an email sent by the New York Stock Exchange (“NYSE”) to listed issuers expressing concerns the NYSE has regarding the Pilot.
This morning the SEC posted an update regarding the potential for a government shut-down in the days and weeks ahead providing information on the Commission’s operating plan during any such shut-down. The post indicates the Commission will remain open for a few days into any government shut-down. While this news provides a glimmer of hope that registrants with ’33 Act filings in progress, or urgent questions on interpretive matters can obtain some guidance from the Staff, the assistance may be short-lived. Should the SEC eventually shut-down, a list of phone numbers for emergency personnel is provided via the link in the SEC’s posting below.
Since the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) released updated guidance addressing the use of non-GAAP financial measures on May 17, 2016, the Staff has made public over 200 comment letters sent to companies relating to non-GAAP disclosures. The below chart summarizes the major topics addressed in those comment letters and the frequency with which each topic appears.
On Thursday, July 14, 2016, the Staff in the Division of Corporation Finance posted a new C&DI on Section 13(d) that provides stockholders (and issuers) with some helpful insights, and perhaps greater clarity, on when significant stockholders can engage in a dialogue with management and still remain on Schedule 13G. As many practitioners know, Schedule 13G (the “short form” for reporting beneficial ownership of equity positions of 5% or more) often requires an affirmative certification from the reporting person(s) that the securities were not acquired, and are not held, with the purpose or effect of changing or influencing control of the issuer. This is commonly referred to as the “passive” investor certification which is set forth at the end of Schedule 13G, directly above the signature line.
On September 2, 2015, following a briefing by Oxfam America, Inc. (“Oxfam”) and the Securities and Exchange Commission (the “SEC” or the “Commission”), the U.S. District Court for the District of Massachusetts granted Oxfam’s motion for summary judgment and ordered the SEC to file with the Court within 30 days “an expedited schedule for promulgating the final [resource extraction] rule.
As discussed in our April 26, 2013 posting on the Gibson Dunn Securities Regulation and Corporate Governance Monitor, under recently amended NYSE Rule 303A.05 and NASDAQ Rule 5605(d), board compensation committees cannot select or receive advice from a compensation consultant, legal counsel or other adviser without first taking into consideration that adviser’s independence, including consideration of the factors enumerated in the rules. As compensation committees and their advisers are preparing for the July 1 effective date of these new listing standards, three observations are important:
The Delaware State bar recently proposed an amendment to Section 251 of the Delaware General Corporation Law (DGCL) to add new subparagraph (h) that would greatly enhance the appeal of the tender offer over a one-step merger structure.
The Division of Corporation Finance recently granted no-action relief to Alamos Gold, Inc., a Canadian corporation, in connection with its proposed acquisition of Aurizon Mines Ltd., another Canadian corporation. The proposed acquisition is structured as a tender offer with consideration consisting of a mix of stock and cash subject to proration that would limit each form of consideration to a specified maximum aggregate amount in both the initial and any subsequent offering period. The Division granted an exemption from Rule 14d-10(a)(2) under the Exchange Act, which provides that no bidder shall make a tender offer unless the consideration offered and paid to any security holder for its securities tendered is the highest consideration paid to any other security holder for its securities tendered. In addition, relief was granted from Rules 14d-11(b) and 14d-11(f) under the Exchange Act, which provide that a bidder may offer a mix of consideration in a subsequent offering period provided there is no ceiling on any form of consideration offered, and the same form and amount of consideration is offered in both the initial and subsequent offering periods.
During the 2012 proxy season, the SEC staff concurred that a number of high profile shareholder proposals could be excluded from company proxy statements because various key terms in the proposals were not adequately defined or explained within the text of the proposal and supporting statement. See e.g., WellPoint, Inc. (SEIU Master Trust) (avail. Feb. 24, 2012, recon. denied Mar. 27, 2012) (concurring with exclusion of an independent chair proposal that referred to the New York Stock Exchange standard of independence without defining it because “neither shareholders nor the company would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”); Textron Inc. (avail. Mar. 7, 2012) (arguing that a reference to the Rule 14a-8 eligibility requirements in a proxy access shareholder proposal was vague and indefinite, although the staff ultimately concurred with the exclusion of the shareholder proposal on other grounds); Dell Inc. (avail. Mar. 30, 2012) (concurring with the exclusion of a similar proxy access shareholder proposal because the proposal’s reference to the Rule 14a-8 eligibility requirements was vague and indefinite). While these no-action letters reflected long-standing SEC staff precedent, in the current proxy season, there has continued to be a large number of no-action requests arguing that various terms in shareholder proposals are undefined or vague and therefore excludable under Rule 14a-8(i)(3).
The Senate Committee on Banking, Housing and Urban Affairs held a hearing today on the nomination of Mary Jo White to chair the Securities and Exchange Commission. The Senators showed high support for White’s nomination and, contrary to expectation, asked few tough questions about her ties to Wall Street banks arising from her work at the law firm Debevoise & Plimpton LLP and other potential conflicts of interest.
On February 27, 2013, the U.S. Supreme Court issued opinions in two significant securities law cases, Gabelli v. Securities and Exchange Commission, 568 U.S. ___ (2013) and Amgen Inc., v. Connecticut Retirement Plans and Trust Funds, 568 U.S. ___ (2013). In the Gabelli decision the Court addressed the ability of the government to bring civil enforcement actions seeking civil penalties where the alleged fraudulent conduct occurred outside the five-year statute of limitations period. In the Amgen decision the Court addressed the class certification pleading requirements in security holder class action suits.
Last week, the NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute submitted a joint petition (available here) to the SEC, requesting that the Commission amend the beneficial ownership reporting rules under Section 13(f) of the Securities and Exchange Act of 1934, as amended. Fund managers subject to the 13(f) reporting requirements currently have until 45 days after the last day of each calendar quarter to file their Form 13F; the petition suggests that the time period be shortened to two business days.
Last week, in Gibbons v. Malone, the Second Circuit affirmed the lower court’s dismissal of a shareholder suit brought under Section 16(b) of the Securities and Exchange Act of 1934 against a former director of Discovery Communications, Inc. Also known as the short swing profit rule, Section 16(b) provides for the disgorgement of any profits earned from the purchase and sale, or sale and purchase, by a corporate insider, of any equity security within a six-month period. In Gibbons, the corporate insider sold Series C common stock, which had no voting rights, and purchased Series A common stock which had voting rights, within a six-month period. The three-judge panel held that absent SEC guidance, the purchase and sale of different types of stock in the same company, where those securities are separately traded, nonconvertible, and come with different voting rights cannot be matched, and therefore do not trigger the short swing profit rule.
The SEC’s Division of Corporation Finance recently granted no-action relief that allows an SEC reporting company, Minn-Dak Farmers Cooperative, to cease reporting on the basis that the company’s common and preferred stock are not “securities” under the federal securities laws.
We are pleased to welcome you to our new Securities Regulation and Corporation Governance Monitor, a forum for us to share with our clients and friends our current thoughts on developments in trends in securities regulation, corporate governance and executive compensation.
Many of you have loyally followed our client alerts on these topics for years, and now the Monitor will serve as a place where you can search, find and read our ever-growing collection of client alerts and other commentary on these important topics. We expect our Monitor will evolve in form and function over time, and we certainly welcome your feedback and ideas for improving this site.