Last Friday, the SEC announced that it had settled a string of 21C administrative proceedings brought against eight officers, directors, and shareholders of public companies for their failure to report plans and actions leading up to planned going private transactions. The SEC press release can be found here. In doing so, the SEC sent another strong reminder to those that beneficially own more than 5% of the equity securities of a public company to keep their 13D disclosures current.
Securities Regulation
SEC Grants No-Action Letter Allowing for 5-Business Day Debt Tender Offers
Today, January 23, 2015, the Division of Corporation Finance (the “Staff”) granted a no-action letter that was submitted on behalf of a consortium of law firms, including Gibson Dunn, whereby the Staff agreed to not recommend Enforcement action when a debt tender offer is held open for as short as 5 business days. This letter builds upon an evolving line of no-action letters granted over the past three decades that have addressed not only the overall duration of debt tender offers (typically the rules require a minimum of 20 business days), but also formula pricing mechanisms (that allow a final price to be announced several days prior to expiration). Following an extensive dialogue with members of the bar and numerous market participants, including issuers, investment banks and institutional investors that began several years ago, the Staff is now opening up the relief that it previously limited to “investment grade” debt securities. Under the no-action letter, “non-investment” grade debt securities are now eligible to be purchased on an expedited basis. In order to take full advantage of this relief, issuers will need to disseminate their offers in a widespread manner and on an immediate basis. This should enable more security holders to quickly learn about the offer and permit holders to receive the tender consideration in a shorter timeframe. In addition, the abbreviated offering period will allow more issuers to better price their tender offers with less risk posed by fluctuating interest rates and other timing and market concerns related to the offer.
SEC Proposes Amendments to Exchange Act Rules to Implement JOBS Act’s Liberalized 12(g) Registration and Deregistration Thresholds
On December 17, 2014, the SEC proposed amendments to revise the rules that govern the thresholds for registration and deregistration under Exchange Act Section 12(g). These amendments would change Exchange Act Rules 3b-4, 12g-1, 12g-2, 12g-3, 12g-4, 12g5-1 and 12h-3, as well as Securities Act Rule 405, to further implement the JOBS Act mandate that was partially reflected in the text of Exchange Act Section 12(g) upon the JOBS Act’s passage.
SEC Approves PCAOB’s New And Amended Standards On Related Party Transactions And Significant Unusual Transactions
Earlier this week the SEC approved, without amendment, the PCAOB’s new auditing standards that expand audit procedures required to be performed with respect to three important areas: (1) related party transactions; (2) significant unusual transactions; and (3) a company’s financial relationships and transactions with its executive officers (including executive compensation). The standards also expand the required communications that an auditor must make to the audit committee related to these three areas and amend the standard governing management representations that the auditor is required to periodically obtain. See SEC Release No. 34-73396, Order Granting Approval of PCAOB’s Proposed Rules on Auditing Standard No. 18, Related Parties, Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions (October 21, 2014), available at http://www.sec.gov/rules/pcaob.shtml.
House Financial Services Committee Approves Eight Bills Affecting Securities Regulation
Earlier this summer, on May 22, 2014, the Financial Services Committee of the House of Representatives approved eight bills relating to issuer disclosures, public and private capital raising, the liquidity of restricted securities and SEC regulations generally. These bills, if enacted into law, would incrementally ease the many burdens imposed by the current securities regulatory regime.
SEC Issues Guidance on the Use of Social Media and the Intrastate Offering Exemption
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:
PCAOB Adopts Auditing Standards Governing Related Parties, Significant Unusual Transactions And Financial Relationships With Executive Officers
The Public Company Accounting Oversight Board (“PCAOB”) yesterday adopted new and amended auditing standards that expand audit procedures required to be performed with respect to three important areas: (1) related party transactions; (2) significant unusual transactions; and (3) a company’s financial relationships and transactions with its executive officers. The standards also expand the required communications that an auditor must make to the audit committee related to these three areas. They also amend the standard governing representations that the auditor is required to periodically obtain from management.
PCAOB Public Meeting on Proposed Changes to the Auditor’s Reporting Model
Last week, the Public Company Accounting Oversight Board (the “PCAOB”) convened a series of ten panels as part of a two-day public meeting regarding proposed changes to the auditor’s reporting model. The proposed changes have elicited a range of opinions from various stakeholders and commentators, a majority of which have been critical of the proposals. Individuals invited to appear as panelists at last week’s meeting, however, were generally supportive of the proposed changes and offered various recommendations for ways in which the PCAOB could modify its proposals in order to move forward.
The Council of Institutional Investors Presses SEC Staff for Guidance on Interim Vote Tallies
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.
SEC Issues Second Set of FAQs on Conflict Minerals Rules
On April 7, 2014 the SEC’s Division of Corporation Finance issued a second set of Frequently Asked Questions (“FAQs”) on its conflict minerals rules (Exchange Act Section 13(p), Rule 13p-1 and Item 1.01 of Form SD). The full set of FAQs, including the nine new FAQs and the 12 FAQs issued in May 2013, is available at http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm. For more information about the conflict minerals rules, please see our client alert available at https://www.gibsondunn.com/publications/pages/ConflictMinerals-UnderstandingFinalSECRules.aspx, and for a discussion of the first set of FAQs, please see our client alert available at https://www.gibsondunn.com/publications/pages/SEC-Issues-FAQs-On-Conflict-Minerals.aspx.