On August 18, 2015, following a panel rehearing, the U.S. Court of Appeals for the D.C. Circuit issued an opinion affirming its April 2014 decision in National Association of Manufacturers, et al. v. SEC, et al. (“NAM”) that the conflict minerals disclosure rule violates the First Amendment to the extent it requires companies to report that any of their products have “not been found to be ‘DRC conflict free.’” The NAM panel had granted a petition for rehearing in light of a July 2014 ruling in American Meat Institute v. U.S. Department of Agriculture (“AMI”), in which an en banc panel of the D.C. Circuit upheld the constitutionality of compelled speech in the form of Department of Agriculture rules requiring country-of-origin labeling for meat products and raised issues regarding the standard of review to be applied by the court in reviewing the First Amendment challenge in NAM. Because the opinion also addressed the appropriate standard of review to be applied by courts in reviewing compelled speech in the regulatory arena, the NAM panel saw fit to reconsider its decision in light of AMI.
Securities Regulation
FINRA FAQs on Research Conflict of Interest Rules
On May 27, 2015, FINRA issued a set of FAQs on its research conflict of interest rules. These FAQs further expand upon views expressed by FINRA in settlement agreements entered into by FINRA in December 2014 with ten investment banks in connection with the 2010 proposed IPO by Toys “R” Us (the “Settlement Agreements”).
SEC Publishes Interpretations regarding “Regulation A+”
On June 23, 2015, the Staff (the “Staff”) of the Securities and Exchange Commission (the “SEC”) published several new Compliance and Disclosure Interpretations (“Interpretations”) relating to rules and forms under the Securities Act of 1933, as amended (the “Securities Act”). These Interpretations address questions and considerations relating to “Regulation A+”, which was adopted by the SEC on March 25, and became effective last Friday, June 19.
New Investor Guide on Engaging With Public Companies and Others on ESG Issues
On May 28, 2015, BlackRock and Ceres released a guide for investors on engaging with public companies, asset managers and policymakers on environmental, social and governance (“ESG”) sustainability matters. The guide, titled “21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions,” includes sections written by BlackRock and Ceres as well as AFL-CIO, California Public Employees Retirement System (“CalPERS”), California State Teachers Retirement System (“CalSTRS”), Council of Institutional Investors (“CII”), International Corporate Governance Network (“ICGN”), the Office of New York City Comptroller, New York State Common Retirement Fund, North Carolina Department of State Treasurer, PGGM, State Board of Administration of Florida, TIAA-CREF, T. Rowe Price and UAW Retiree Medical Benefits Trust.
SEC Votes Unanimously to Overhaul and Expand Regulation A; “Regulation A+” to Serve as an Exemption for Offerings up to $50 Million
The Securities and Exchange Commission (SEC) voted unanimously on March 25, 2015 to expand significantly the ability of certain issuers to raise capital in transactions exempt from the registration requirements of the Securities Act of 1933. This new regime, commonly referred to as “Regulation A+,” is intended to create additional opportunities for companies to raise capital without having to comply with the more burdensome aspects of the traditional registration process. The adopting release, including text of the final rules, is available at https://www.sec.gov/rules/final/2015/33-9741.pdf.
Another SEC Sweep? – More Enforcement Actions for Failure to Update 13D Disclosures – This Time In Connection With Going Private Transactions
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.
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.