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.
California Requires Public Companies Headquartered in California to Have Minimum Number of Women Directors on Board
On September 30, 2018, Governor Jerry Brown signed SB 826 into law (effective January 1, 2019), requiring a minimum number of female directors on the boards of publicly traded corporations with principal executive offices in California. Under this new Section 301.3 to the California Corporation Code, the location of a corporation’s principal executive office will be determined by the corporations’ Annual Report on Form 10-K, and publicly traded corporation means any “corporation with outstanding shares listed on a major United States stock exchange."
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
EDNY Rejects Motion to Dismiss in First ICO Criminal Securities Fraud Trial
On September 11, 2018, Judge Raymond Dearie of the Eastern District of New York rejected a motion to dismiss in U.S. v. Zaslavskiy, the first criminal securities fraud prosecution relating to an initial coin offering. The motion to dismiss challenged the prosecution’s characterization of two virtual currencies promoted by Maxim Zaslavskiy as “securities” under the federal securities law.
SEC Streamlines Disclosure Requirements as Part of its Overall Disclosure Effectiveness Review
On August 17, 2018, the Securities and Exchange Commission (the “Commission") adopted several dozen amendments (available here) to “simplify compliance without significantly altering the total mix of information" (the “Final Rules"). In Release No. 33-10532, the Commission characterized the amended requirements as redundant, duplicative, overlapping, outdated or superseded, in light of subsequent changes to Commission disclosure requirements, U.S. GAAP, IFRS and technology developments.
The PCAOB’s Draft Strategic Plan: Overview and Outlook
On August 10, 2018, the Public Company Accounting Oversight Board (PCAOB or Board) released a draft of its five-year strategic plan and sought public comment on the plan through September 10, 2018. This represents the first time that the Board has solicited public input to a draft strategic plan, and follows the Board’s announcement in April of a public survey to permit stakeholder input on the strategic plan even in advance of the draft’s release. In a speech on May 17, 2018, at the Deloitte/University of Kansas Auditing Symposium (Kansas Speech), PCAOB Chairman William D. Duhnke III announced that after the public comment period, the Board plans to finalize the strategic plan in November 2018.[1]
SEC Modifies XBRL Filing Requirements
On June 28, 2018, the Securities and Exchange Commission (the “SEC") adopted a final rule, Inline XBRL Filing of Tagged Data, which substantially alters requirements related to the use of the eXentsible Business Reporting Language (“XBRL") format in operating companies’ financial statement information and funds’[1] risk/return summary information. The rule was published in the Federal Register on August 16, 2018, available here, and will be effective on September 17, 2018.
SEC Proposes to Substantially Lighten Financial Disclosures for Issuers and Guarantors of Registered Debt
On July 24, 2018, the Securities and Exchange Commission (the “Commission") proposed amendments to Rules 3-10 and 3-16 of Regulation S-X (available here) in an effort to “simplify and streamline" the financial disclosures required in offerings of certain guaranteed debt and debt-like securities (collectively referred to as “debt securities"), as well as offerings of securities collateralized by securities of an affiliate of the registrant, registered under the Securities Act of 1933, as amended (the “Securities Act"). These proposed changes would, if implemented, facilitate greater speed to market for such public offerings, significantly reducing the Securities Act disclosure burdens for such registrants, as well as reducing the registrant’s disclosure obligations in its subsequent annual and interim reports required under Securities Exchange Act of 1934, as amended (the “Exchange Act"). Taken together, the proposed changes represent a significant liberalization of the current disclosure requirements.
SEC’s Division of Corporation Finance Issues Guidance Regarding the Voluntary Filing of Notices of Exempt Solicitation under Exchange Act Rule 14a-6(g)
As we first noted in our March 2018 blog post, available here, and further discussed in our July 2018 client alert discussing shareholder proposals submitted to public companies during the 2018 proxy season, available here, both institutional and individual investors increasingly have used Notices of Exempt Solicitations under Exchange Act Rule 14a-6(g) as a means of publicizing shareholder proposals or addressing other matters being voted on at annual meetings. Rule 14a-6(g) requires a person who owns more than $5 million of a company’s stock and who conducts an exempt solicitation of the company’s shareholders (in which the person does not seek to have proxies granted to them) to file with the Securities and Exchange Commission (the “Commission") all written materials used in the solicitation.