As we are all aware, the SEC has been closed since December 27th as a result of the ongoing partial shutdown of the federal government. While there are staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement, and the SEC continues to operate certain systems such as the EDGAR system, most activities are currently suspended. The SEC does not have staff in place to review registration statements and other filings, acceleration requests, Rule 3-13 waiver requests, and no-action letter requests, including with respect to shareholder proposal exclusions. As discussed in our previous post available here, the Staff has provided an FAQ page regarding operations during the shutdown. These FAQs were updated and supplemented recently. You should continue to visit the SEC’s website, including the FAQs, for any additional updates both during and shortly after the shutdown.
Securities Regulation
SEC Expands Regulation A to Allow Offerings by Reporting Companies
On December 19, 2018, the Securities and Exchange Commission (the “SEC") adopted amendments to Regulation A allowing U.S. and Canadian companies that file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act"), to conduct securities offerings using Regulation A. The amendments were mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law in May 2018.
Changes and Considerations for the 2018 Form 10-K
Below are select developments to keep in mind when preparing the Annual Report on Form 10-K this year. Registrants will need to update their disclosure in the upcoming 2018 Form 10-K as a result of recent rulemaking by the Securities and Exchange Commission (the "SEC") and new SEC guidance and accounting rule changes, as well as to reflect new and developing risk areas that the SEC or investors have identified.
Partial Shutdown: Potential Impact on SEC Operations
A partial shutdown of the federal government began at midnight on December 21, 2018. As a result, the SEC Division of Corporation Finance (the “Staff”) announced that the SEC would “remain fully operational for a limited number of days” from the beginning of the federal government shutdown. The SEC will be closed on December 24th and 25th in observance of the federal holiday. It is expected to have funding to remain in “open” status through the end of December 26th. Should the shutdown continue past the 26th, the SEC’s operating status is expected to change to “closed” and the SEC will begin to operate according to its Operations Plan under a Lapse in Appropriations and Government Shutdown. As currently envisaged, starting on December 27th the SEC “will have only an extremely limited number of staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement.” Regardless of the SEC’s operating status, the EDGAR filing system will continue to accept reports, registration statements and other filings. Accordingly, public companies must continue to file periodic and current reports when due on Forms 10-K, 10-Q and 8-K; however, from December 27th the SEC will not be able to declare registration statements effective nor qualify Form 1-A offering statements. A prolonged shutdown could create difficulties for the IPO market and for many public companies without an effective shelf registration statement and, in particular, would create a complex calculus for any company thinking about going public in January.
SEC to Reconsider Quarterly Reporting, Solicits Public Comment
On December 18, 2018, the Securities and Exchange Commission published a request for comment on earnings releases and quarterly reports, available here. The request was issued the day before, and in place of, the SEC’s previously scheduled open meeting to consider whether to issue such a request, as discussed here.
The Changes Keep Coming: SEC Updates C&DIs and NYSE Updates Rules for Revised “Smaller Reporting Company” Definition
On November 7, 2018, the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff") released four updated, and withdrew six, Compliance and Disclosure Interpretations (“C&DIs") in light of the June 2018 amendments to the definition of a smaller reporting company (“SRC"). We summarized the amendments to the SRC definition in our previous blog post here.
Desktop Calendar of SEC Deadlines for 2019 Now Available
November is a good time to confirm plans for SEC reporting and capital markets transactions in the next year. To assist public companies in keeping track of the various filing deadlines, we have prepared a desktop reference calendar that sets forth filing deadlines for many SEC reports. To assist companies with planning capital markets transactions, including IPOs, our calendar also provides the staleness dates for 2019 (i.e., the last date financial statements may be used in a prospectus or proxy statement without being updated).
The SEC Adopts Strategic Plan for 2018-2022
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.
SEC Division of Corporation Finance Provides Interpretive Relief on New Disclosure Requirement
On September 25, 2018, the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff") issued a new Compliance and Disclosure Interpretation (“C&DI") providing transition guidance and relief on reporting requirements under the disclosure update and simplification rules adopted on August 17th, 2018 (the “Final Rules"). As discussed in our recent post (available here), the Final Rules become effective 30 days from publication in the Federal Register, but do not indicate whether the amendments should be applied to periodic reports covering periods ending on or after the effective date or to all periodic reports filed after the effective date. ( As of the date of this posting, the Final Rules have still not been published in the Federal Register.) The timing is significant because the Final Rules require companies’ quarterly reports on Form 10-Q to include a new statement of changes in stockholders’ equity and to disclose the amount of dividends per share for each class of shares with respect to the interim period.
Important Reminders for Upcoming 10-Q Filings
As calendar year filers begin preparing their Forms 10-Q for the third quarter, there are a few items they should keep in mind.
Potential Impact of SEC’s New Disclosure Update and Simplification Release