On January 6, 2012, the SEC’s Division of Corporation Finance (the “Division”) issued “CF Disclosure Guidance: Topic No. 4” regarding companies’ disclosures about exposures to European sovereign debt holdings. The Division provided the guidance to bring about “greater clarity and comparability” in companies’ disclosures.
Securities Regulation
SEC Codifies Change in “Net Worth Test” for Accredited Investor Definition
On December 21, 2011, the Securities and Exchange Commission has codified the Dodd-Frank Act’s change to the net worth test for “accredited investors,” a definition used in SEC rules adopted under the Securities Act of 1933, as amended. The accredited investor test is set forth in Securities Act Rule 501(a) and can be met by a natural person with a net worth in excess of $1,000,000. Since its enactment on July 21, 2010, Section 413(a) of the Dodd-Frank Act has excluded primary residences from “accredited investor” net worth calculations. The new SEC amendment clarifies that mortgage debt on an investor’s primary residence generally will not be treated as a liability for the purposes of the net worth qualification, except to the extent that the debt is higher than the estimated fair market value of the residence, thus avoiding double deduction of the residence and the mortgage debt. However, any increase in the amount of mortgage debt secured by a primary residence in the 60 days prior to a sale of securities will count as a liability in an investor’s net worth calculation when the increase is not related to the purchase of that primary residence. The SEC intends this to prevent investors from borrowing against their primary residence and using the proceeds of the newly incurred debt to inflate net worth calculations in order to qualify as an “accredited investor,” while not penalizing individuals who purchase a primary residence prior to the purchase of a security. The revised rule also includes a grandfathering clause providing that the old net worth test will apply to a securityholder’s right to purchase additional securities of the issuer, if such right existed prior to July 20, 2010 and the individual qualified as an accredited investor on the basis of net worth as of the time such right was acquired.
Chamber of Commerce calls for “Transformational Reform” of the SEC
On December 20, 2011, the US Chamber of Commerce published a report entitled “U.S. Securities and Exchange Commission: A Roadmap for Transformational Reform.” The 135-page report, authored by former SEC Secretary Jonathan Katz, was commissioned and released in response to what the Chamber referred to as a need for a “comprehensive transformation of the SEC,” and addresses the SEC’s leadership, management, organization, and enforcement and rulemaking processes, among other matters. This is not the first time the Chamber has proposed reforms of the Commission. In 2009, the Chamber released its first such report, entitled “Examining the Efficiency and Effectiveness of the U.S. Securities and Exchange Commission.” The Chamber now describes that report as calling only for “incremental change”, and notes in its 2011 report that “incremental change will no longer do.” The Chamber’s 2011 report can be accessed at http://www.uschamber.com/sites/default/files/reports/16967_SECReport_FullReport_final.pdf.
SEC Staff to Release Filing Review Correspondence Earlier
Last Thursday the staff of the Securities and Exchange Commission announced [http://www.sec.gov/divisions/corpfin/cfannouncements/edgarcorrespondence.htm] that filing review correspondence with the Divisions of Corporation Finance and Investment Management now will be made public earlier. Currently, these Divisions release through EDGAR their comment letters related to disclosure filings that they have reviewed and the response letters “no earlier than 45 days after the review of the disclosure filing is complete.” Beginning January 1, 2012, these Divisions will release this review correspondence “”no earlier than 20 days after the review of the disclosure filing is complete.”
Webcast: Risk Factors and Disclosure Issues for Retail and Consumer Product Companies
Retailers and consumer product companies face unique risks and disclosure issues. Global economic uncertainty, changes in consumer buying habits and the use of social media and e-commerce present challenges which should be assessed and appropriately disclosed. This webcast focuses on the key risks and other factors that companies in the retail and consumer product industries need to consider when preparing disclosure documents.
New Rule 13h-1: The SEC Adopts a Large Trader Reporting System
Washington, D.C. of counsel K. Susan Grafton is the author of "New Rule 13h-1: The SEC Adopts a Large Trader Reporting System" [PDF] published in the October 31, 2011 issue of BNA’s Securities Regulation & Law Report.
SEC Hosts Roundtable on Conflict Minerals
On October 18, 2011, the Securities and Exchange Commission ("SEC" or "Commission") held a public roundtable (the "Roundtable") to address the agency’s required conflict minerals rulemaking under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
SEC’s Division of Corporation Finance Releases Legal Bulletin Clarifying Expectations with Respect to Registered Offering Opinions
Registration statements under the U.S. Securities Act of 1933, as amended, generally require a signed opinion of counsel regarding the legality of the securities being offered and sold. These opinions must be filed as an exhibit to the registration statement, typically before it becomes effective, and are commonly referred to as “Exhibit 5” opinions.
SEC Issues Interpretive Guidance on Cybersecurity Disclosures Under U.S. Securities Laws
On October 13, 2011, the staff of the Securities and Exchange Commission ("SEC") released disclosure guidance regarding public company disclosure obligations relating to cybersecurity risks and cyber incidents (the "Disclosure Guidance")."[1] The Disclosure Guidance reviews specific SEC disclosure rules that may require public companies to describe cybersecurity matters and provides SEC staff guidance on what type of disclosure, if any, may be necessary in light of a company’s particular facts and circumstances. The Disclosure Guidance is available at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm. Cybersecurity is only the second topic to be addressed in the Division of Corporation Finance’s new Disclosure Guidance publications.Background
Public Company Accounting Oversight Board Considers Mandatory Audit Firm Rotation
On August 16, 2011, the Public Company Accounting Oversight Board (“PCAOB”) issued a Concept Release on Auditor Independence and Audit Firm Rotation (“Concept Release”). The Concept Release, available at http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf, solicits public comment on steps it could take under its existing authority to enhance auditor independence, objectivity, and professional skepticism, including, most notably, imposing for the first time mandatory audit firm rotation on public companies.