On the heels of the SEC staff rescinding the letters to proxy advisory firms, Commissioner Jackson decried the influence of “corporate lobbyists” on the issue in his statement.

It is corporate lobbyists who have made regulating proxy advisors a top priority, as they complain that those advisors have too much power, he said.  Commissioner Jackson does not believe there is proof to that effect, citing academic studies, he said.  In his view, “rigorous review” of the evidence shows that lobbyists are mistaking causation by observing the correlation between recommendations and vote outcomes.

He is concerned that the “corporate lobbyists’ priorities” will “sidetrack” the Commission’s work of “fixing the American system of corporate voting.”  He blames “entrenched interests” in the voting systems for the Commission’s failure to take any action, eight years after the proxy plumbing concept release.
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In a recent speech, SEC Chairman Jay Clayton said “To sum up my remarks in a sentence, we have taken a lot of steps intended to promote capital formation, and we have an ambitious capital formation agenda ahead of us.”  Here’s what may be next:

Thresholds for SOX 404 reporting.  The SEC has heard that the costs associated with providing auditor attestation reports on internal control over financial reporting can be a burden for smaller companies.  Currently, companies with a public float of less than $75 million or no public float have relief from these auditor attestation requirements.  Clayton has directed the Commission staff to formulate recommendations for possible amendments that would reduce the number of companies that need to provide the auditor attestation report.
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Please see our client memo on the SEC’s recent enforcement action against Yahoo!’s lack of disclosure about its cybersecurity breach. Read the Full Memo.

 
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The SEC’s 2016 report to Congress on its whistleblower program announced that it paid out $57 million in fiscal 2016, more than the total amount awarded during the entire first five years of the program. Since its inception, 35 whistleblowers have received more than $130 million by helping originate or contribute to enforcement actions that resulted in $584 million in financial sanctions. The number of tips have increased yearly, with more than 4,000 in fiscal 2016.

One section of the report describes the four actions that the Commission took this year related to severance agreements, two of which we previously discussed here.
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At SEC Speaks 2016, the SEC Enforcement Division indicated that they are interested in investigating public companies’ failure to disclose cyber breaches.

No such case has been brought yet. The SEC’s enforcement actions on cyber incidents have been limited to the failure of registered firms to have policies and procedures to protect customer information accounts and hackers who steal material non-public information to gain market advantages.

The Staff recognizes that a company’s first response to a cyber intrusion is to assess the situation and minimize the damage. In their view, a critical part of this process is contacting law enforcement. They have heard anecdotally that companies may be reluctant to report cyber breaches to law enforcement because they do not want to be subject to possible government investigations.
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At an open meeting yesterday, the Commission voted to propose broad rules directing the national exchanges and associations to establish listing standards requiring companies to develop and implement clawback policies.  We will issue a client memo on the proposal shortly.  The key provisions are complex and are set forth below, based on the fact sheet released by the SEC:

Companies covered:  all listed companies, including foreign private issuers, emerging growth companies and controlled companies

Applicable executives:  current and former executive officers modeled on Section 16 of the Exchange Act

Incentive-based compensation subject to recovery:  any incentive-based compensation that is granted, earned or vested, based wholly or in part on the attainment of any “financial reporting measure”

Financial reporting measure:  measures based on the accounting principles used in preparing a company’s financial statements, any measures derived wholly or in part from such financial information, and stock price and total shareholder return 

No-fault clawback trigger:  The trigger for a clawback is an accounting restatement to correct a material error. 
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According to a recent speech by Chair White, one of the key decision points in nearly every enforcement action is who will be charged as a defendant. She disputed the notion that the SEC fails to charge individuals enough, since a recent internal analysis by the SEC staff showed that individuals were charged in 83% of SEC actions since the 2011 fiscal year. 

She indicated that one new approach will be to start using Section 20(b) of the Exchange Act, which imposes primary liability on a person who does anything “by means of any other person” that would be unlawful for that person to do on his or her own.
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The SEC staff recently issued a report, as mandated under the JOBS Act, on its review of the disclosure provisions under Regulation S-K.  Chair White and Commissioner Gallagher had previously referred to the report in their speeches criticizing the existing disclosure regime and alluding to possible changes.

While over 100 pages, the bulk of the report is a historical accounting of the evolution of the current requirements.  The staff recommendations do not begin until page 92 and comprise less than 12% of the entire document.  According to the report, the overarching issues to be addressed include the possibility of principle-based disclosure rather than increasing static imperatives, scaling disclosure in accordance with different categories of issuers, a framework that distinguishes between “core” disclosure vs.
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The end of summer is being marked by expectations of a busy month. First, several rules come into effect. On September 9, swap clearing is required under the Dodd-Frank Act unless an exception is available. Public companies often use swaps to mitigate risks, such as interest rate or foreign currency fluctuations. A company would be eligible for an exception to the clearing and trade execution requirements if it is not a financial entity, uses the particular swap to hedge or mitigate commercial risk, and notifies the CFTC as to how it meets its financial obligations associated with entering into non-cleared swaps.
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