On Tuesday, July 25, 2017, the Securities and Exchange Commission (“SEC”) issued a Report of Investigation (the “Report”) finding for the first time that an offer and sale of virtual currency, often called an Initial Coin Offering (abbreviated “ICO”) or “Token Sale”, can be subject to U.S. federal securities laws. While the SEC decided not to pursue an enforcement action in this particular instance, the SEC did find that that the ICO that was the subject of the Report involved an offering of securities subject to U.S. federal securities laws.
Securities Regulation
SEC Chairman Jay Clayton Delivers First Public Remarks Since Confirmation
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.
SEC Economist Comments on New Technologies Used by the Commission to Identify Risk, Detect Fraud and Enforce the Securities Laws
Last week Scott Bauguess, Acting Director and Acting Chief Economist of the Securities and Exchange Commission’s (SEC) Division of Economic Risk and Analysis, shared insights about how the SEC is leveraging artificial intelligence and machine learning to track, and perhaps predict, emerging risks in the marketplace.[1] In the latest in a series of speeches,[2] Bauguess also described how the SEC is using big data, harnessed with the appropriate processing power and partnered with human intuition, to focus investigative and enforcement resources. While Bauguess and others at the SEC see a bright future for data analytics at the SEC, particularly in identifying emerging trends, Bauguess stressed the human element is ever important in assessing risk, combatting fraud and bringing or recommending enforcement actions.
SEC Revises Cover Page of Exchange Act and Other Forms and Revises Other Rules Under JOBS Act
Today, new rules became effective that change the cover page of many forms filed with the Securities and Exchange Commission (the “SEC”). The SEC has adopted technical amendments to conform certain rules and forms to self-executing provisions of the Jumpstart Our Business Startups Act (the “JOBS Act”). The SEC’s adopting release is available here. Although the rule changes were driven by the need to accommodate Emerging Growth Companies (“EGCs”) in the SEC’s reporting regime, the amendments affect the Securities Act registration forms and Exchange Act reporting forms used by all companies, even those that are not EGCs. The technical amendments apply to Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3, F-4, 10, 8-K, 10-Q, 10-K, 20-F, 40-F and C.
SEC’s Division of Corporation Finance Suspends Enforcement of Certain Conflicts Minerals Requirements
It has been an eventful week for those following the conflict minerals rules in the news. The United States District Court for the District of Columbia issued final judgment in the long-running conflicts minerals litigation (detailed here) and, following a statement by Acting Chairman Piwowar, the Division of Corporation Finance has issued a blanket statement that it will not recommend enforcement of some of the most burdensome requirements of the rules (available here).
SEC Adopts Amendment Shortening Trade Settlement Cycle From T+3 to T+2 (potential implications)
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.
Non-Voting Shares Make Their Public Debut and Generate Some Governance Concerns, but How Will Courts View the Structure When First Presented?
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.
SEC Adopts Requirements for Active Hyperlinks In Exhibit Indexes
The SEC has adopted final rules requiring an active hyperlink to each filed exhibit identified in the exhibit index of most Securities Act and Exchange Act registration statements and reports that are required to include exhibits under Item 601 of Regulation S-K. The rules become effective on September 1, 2017 (though the adopting release encourages early compliance), provided that smaller reporting companies and non-accelerated filers that submit filings in ASCII format need not comply with the rules until September 1, 2018. The new requirements will apply to Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3, F-4, SF-1, SF-3, 10, 10-K, 10-Q, 8-K, F-10, 20-F and 10-D (though the compliance date for Form 10-D will be announced at a later date). The requirement will not apply to other forms under the multi-jurisdictional disclosure system used by certain Canadian issuers or to Form 6-K, as exhibits and exhibit indexes are not required by those forms.
SEC Brings Enforcement Action for Deficient Disclosure of Financial Advisors’ Fee Arrangements
On February 14, 2017, the U.S. Securities and Exchange Commission (the “SEC”) announced the settlement of an enforcement action against CVR Energy, Inc. (“CVR” or the “Company”). The SEC brought action against the Company for its failure to disclose adequately the material terms of its fee arrangements with two investment banks in connection with the financial advisory services each bank provided to CVR during the pendency of a hostile tender offer launched by an activist. See CVR Energy, Inc., Exchange Act Release No. 80039 (February 14, 2017).
Acting SEC Chair Piwowar Directs Staff to Reconsider Conflict Minerals Rule
On January 31, 2017, the SEC’s Acting Chairman, Michael Piwowar, issued a public statement (available here) that he has directed the Commission’s Staff to reconsider whether the Staff’s prior guidance on conflict minerals disclosures (previously published in April 2014 and available here) is still appropriate and evaluate whether additional relief may be appropriate.