James J. Moloney

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.

​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 February 2, 2018, the Securities and Exchange Commission approved a change to the New York Stock Exchange’s (Exchange) listing rules that permit companies to use “direct listings” to list their shares on the Exchange based on having a minimum independent valuation of $250 million and without having completed an underwritten initial public offering (IPO) or having their shares first traded on a private market.  Direct listing will continue to be at the NYSE’s discretion and require that the company have an effective resale registration statement on file with the SEC for at least some amount of its outstanding shares. Direct listings provide an option by which private companies can accomplish three goals without requiring an IPO: (a) make their shares a more attractive currency for merger and acquisition activity, (b) provide greater liquidity for existing shareholders, and (c) increase the value of their shares and employee stock options. The SEC approval comes in the wake of recent commentary by SEC Chairman Jay Clayton that he believes more IPOs are needed, noting they are generally beneficial to the retail investor community to the extent they provide investors with more investment alternatives, more opportunities to invest, and greater liquidity.

With all of the substantive issues impacting disclosures in companies’ upcoming annual reports, there are a few technical points reporting companies should bear in mind when preparing their annual report.  Note that some of these issues are easy to miss given that they are not yet reflected in the official PDF of Form 10-K.

Multiple class share structures have come under increasing scrutiny since Snap Inc. (“Snap”) offered exclusively non-voting shares in its March 1, 2017, initial public offering (“IPO”).  Companies employing the multiple-class structure argue that the structure contributes to corporate stability and long-term returns for shareholders, and aides in the revival of the sluggish IPO market by helping issuers overcome a reluctance to go public in the face of activist investors. However, citing corporate governance concerns and following considerable pressure and lobbying from institutional investors, both the FTSE Russell and Standard & Poor (“S&P”) Dow Jones have recently taken measures that may be seen as discouraging the practice.

In his first public speech since being confirmed as Chairman of the U.S. Securities and Exchange Commission (“SEC” or “the Commission”), Jay Clayton addressed the Economic Club of New York on July 12, 2017.  In his remarks, available here, Chairman Clayton discussed his vision of the principles that should guide the Commission and opportunities to apply those principles in practice.

The SEC has adopted an amendment to Rule 15c6-1(a) of the Exchange Act (the Settlement Cycle Rule) shortening the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (“T+3”) to two business days after the trade date (“T+2”).  The compliance date for the amendment is September 5, 2017.  The new requirement will prohibit broker-dealers from effecting or entering into a contract for the purchase or sale of a security (other than exempted securities, government securities, municipal securities, commercial paper, bankers’ acceptances, and commercial bills) that provides for payment of funds and delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.

On March 1, 2017, Snap Inc. (“Snap” or the “Company”) – owner of the popular social media platform Snapchat – priced its highly anticipated initial public offering (“IPO”). With 200 million shares sold at $17 per share, the IPO raised approximately $3.4 billion for the Company. On their first trading day, Snap shares opened at $22.41 per share and peaked as high as $28.84 the following day. As of March 10, shares closed at $22.07, above its initial offering price, but below its opening trading price. As the largest IPO of any U.S.-based company since Facebook’s public offering in 2012, many investors’ primary focus here has been on the complete lack of voting privileges associated with the shares sold in the IPO. 

On October 27, 2015, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) issued two new Compliance and Disclosure Interpretations (“CDIs”) regarding the “unbundling” of certain proposals under Rule 14a-4(a)(3) of the Exchange Act in the context of mergers, acquisitions, and similar transactions.  Federal proxy rules generally prohibit the grouping of separate matters into a single proposal submitted for shareholder approval.  The rules provide that companies must separately submit — or “unbundle” — proposals to allow shareholders to vote on each matter.  In connection with business combination transactions, acquiring companies have at times attempted to bundle several amendments to their organizational documents with the business combination when seeking shareholder approval of the transaction.  The new CDIs clarify the Staff’s position with respect to this circumstance, requiring separate votes for the transaction and for any material amendment to the acquiror’s organizational documents.  The new CDIs are available here.

Solicitations using Social Media

During a webcast earlier this year, our partner Jim Moloney, who formerly worked in the SEC’s Office of Mergers & Acquisitions (“OM&A”), spoke with the current Chief of OM&A, Michele Anderson.  On that webcast, Ms. Anderson acknowledged that “social media is here to stay,” noting that the Commission was “trying to find a way to make it work.”  Following the webcast, the SEC’s Division of Corporation Finance (“Corp Fin”) posted a new round of Securities Act Compliance and Disclosure Interpretations (“C&DIs”) that approved hyperlinking to legends or required statements in satisfaction of the requirements of Rules 134, 165 and 433 in certain situations.  Under three new interpretations, Corp Fin clarified that an electronic communication containing a hyperlink to a legend (or a required statement in the Rule 134 context) would be acceptable so long as: 

Last May, Broadridge Financial Solutions, Inc., the provider of proxy services for over 90% of public companies and mutual funds in North America (“Broadridge”), decided to end its established practice of providing interim vote tallies (sometimes referred to as “preliminary voting results”) to proponents of shareholder proposals.  Following this change in practice, the Council of Institutional Investors (“CII”) sent a letter to the SEC asking the Commission to reverse Broadridge’s change in practice.  Later in July, Broadridge reviewed its decision, promising to “continue to monitor developments on th[e] issue” and noting that it is contractually obligated to follow client directions regarding release of interim vote tallies.