Blog Posts Tagged With Securities Exchange

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SEC Continues Enforcement Actions Based on Nondisparagement Language in Severance Agreements

Late last year, the SEC issued two orders after finding companies violated its whistleblower rules due to certain language in their severance agreements, including clauses that prohibit employees from disparaging the companies in communications with regulators unless authorized in writing or otherwise required by law.  See our client memo > Continue Reading

A Snapshot of the SEC Whistleblower Office

Andrew Ceresney, the director of the Division of Enforcement at the SEC, gave a speech recently about the success of the SEC whistleblower program. It contained some interesting data that provides a sense of the SEC’s efforts:

  • The SEC has paid out over $107 million to 33 whistleblowers involving case with more than $550 million ordered in sanctions.
  • 18 dedicated staff members at the SEC are responsible for the initial review and intake of tips, as well as tracking them and evaluating award claims.
  • There has been a 30% increase in tips since inception, from 3,001 in fiscal 2012 to nearly 4,000 last year.
Continue Reading

SEC Proposes Requiring Hyperlinks to Exhibits Filed with Registration Statements and Exchange Act Reports

Yesterday, the SEC proposed rules that would require companies to include a hyperlink to each exhibit listed in registration statements and periodic and current reports, including among others Forms S-1, S-3, S-4, S-8, S-11, 8-K, 10-Q and 10-K. The rules would also apply to filings by foreign private issuers made on Forms F-1, F-3, F-4 and 20-F, but not Form 6-K. Since ASCII cannot support functional hyperlinks, exhibits must be submitted in HTML format. 99% of filings made in 2015 were in HTML format.

Currently, anyone trying to access an exhibit that has been incorporated by reference instead of filed with the document must first review the exhibit index to determine which company filing includes a particular exhibit, and then search through the company’s Edgar history to find the exhibit. Continue Reading

SEC Staff Issues FAQ on Naming Shareholder Proposals in Proxy Cards

The SEC Division of Corporation Finance issued a rare FAQ on a proxy rule yesterday, making clear that companies must provide details when listing shareholder proposals on proxy cards. The FAQ cites Rule 14a-4(a)(3), which requires that the form of proxy must “identify clearly and impartially” each matter to be voted on, “whether proposed by the registrant or by security holders.”

The SEC staff appears to believe that companies are being too general in naming proposals on proxy cards. According to the FAQ, just as it would not be appropriate to describe a management proposal to amend a company’s charter to increase the number of authorized shares as “a proposal to amend our articles of incorporation,” it is also not permissible for a company to describe a shareholder proposal to amend a company’s bylaws to allow for 10% or more shareholders to call a special meeting as “a shareholder proposal on special meetings.”

The FAQ provides several examples of descriptions of shareholder proposals that would not satisfy the rule, including:

  •  A shareholder proposal on executive compensation;
  •  A shareholder proposal on the environment;
  •  A shareholder proposal, if properly presented; and
  • Shareholder proposal #3.
Continue Reading

Corp Fin Considers Universal Proxies and Warns Companies to Be Clear About the Voting Standards for Director Elections

This is the first of a multipart series on SEC updates related to corporate governance areas discussed during the recent SEC Speaks conference.

The SEC Staff in Corporation Finance is considering recommending rulemaking on universal proxies. A universal proxy means that both management and dissident candidates would be named on the same proxy card. It would allow shareholders to vote the way they could if they actually attend the annual meeting.

The Staff emphasized that the goal is to view the issue from the shareholder’s perspective, not to provide companies or dissident candidates with any advantages. It is unclear which party would benefit in any case, and it may depend on individual situations. Continue Reading

Climate-Related Disclosure Less of an SEC Priority

A recent GAO report concluded that the SEC has no plans to require more climate-related disclosure.

In guidance issued in 2010, the SEC staff identified four categories of climate-related topics that could cause disclosure: impacts of legislation and regulation; the impact of international accords; indirect consequences of regulation or business trends and physical changes, such as the effect of severe weather. The guidance was issued when Congress was considering legislation that would have limited greenhouse gas emissions by establishing a cap-and-trade program, but it was never enacted.

At the time the guidance was issued, the SEC and its Investor Advisory Committee indicated that they would determine whether further guidance or rulemaking was necessary by monitoring the impact of the guidance, holding a roundtable and putting it on the agenda for the Investor Advisory Committee. Continue Reading

Court Dismisses Suit to Compel SEC to Adopt Political Spending Rule

A complaint to force the SEC to adopt rules requiring public companies to disclose the use of corporate funds for political activities was dismissed by the U.S. District Court for the District of Columbia. The Plaintiff and Citizens for Responsibility and Ethics in Washington (CREW) submitted a petition for rulemaking to the SEC in May 2014, and about a year later sued the SEC under the Administrative Procedure Act (APA) to challenge the agency’s inaction as arbitrary, capricious, and contrary to law, as well as to compel the SEC to act.

The Plaintiff claims that without regulation to provide transparency, he cannot determine whether corporate political contributions are in the best interest of companies and therefore is unable to fulfill his duties as a shareholder. Continue Reading

NYSE Proposes Expansion of Listed Companies’ Requirements to Provide Notification of Material News and Circumstances When It Can Halt Trading

NYSE listed companies are currently required to notify the Exchange before disseminating material news so that it can halt trading if needed. Now the NYSE has proposed, in a rule filing with the SEC, to expand the pre-market hours during which companies are required to notify the Exchange, the circumstances under which it can stop trading and also provide guidance related to the release of material news after the close of trading.

Currently, Section 202.06 requires listed companies to notify the Exchange at least ten minutes in advance of releasing material news shortly before trading opens or during trading hours (9:30 a.m. Continue Reading

SEC Whistleblower Office Makes Additional Award, Denies Others

An SEC press release announced that a whistleblower who had already attained an award in 2012 received an additional $150,000, for a total of $200,000, after the SEC collected more money from one of the defendants in the case. The award represents 30% of the amount collected by SEC enforcement, the maximum allowed. The press release noted that the SEC is barred from providing information which could expose the identity of the whistleblower.

This announcement is interesting because it obscures the fact that so far in 2014, this is the only award the SEC has allowed after denying three other claims. Continue Reading

SEC Announces Agenda and Panelists for Roundtable on Cybersecurity

The SEC has announced its agenda and panelists for the roundtable on cybersecurity to be held on Wednesday, March 26 at 9:30 a.m. EST. The event will be webcast live as well as archived.  

The proceedings will likely be followed with great interest by Senator John D. Rockefeller IV, who in late January sent a letter to Target asking why the company has not yet reported its well-publicized security breach to the SEC (presumably on Form 8-K although the letter does not specify), given the SEC’s 2011 guidance regarding disclosure of material cybersecurity risks and incidents. Target had previously issued several press releases at the end of 2013. Continue Reading

SEC Staff Seeks More Succinct Disclosure on Stock Valuation for IPO Registration Statements

At the recent Securities Regulation Institute, Keith Higgins, the head of the SEC Division of Corporation Finance, indicated that the SEC staff will be looking for less detailed disclosure in the S-1 regarding a company’s historical practice and grant by grant valuation description for establishing the fair value of the company’s common stock in connection with stock-based compensation in IPO registration statements.

Currently, companies provide lengthy discussions of how stock was valued and ultimately the difference between the estimated IPO price and the historical fair value of stock at various points in time as private companies. Companies disclose in MD&A the analysis to support their judgments and estimates regarding the valuations. Continue Reading

Auditor Independence in the Spotlight

The Enforcement Division recently settled with KPMG for its actions involving three companies, none of which were identified. In one case, the firm hired an employee who had just retired from a senior position at the company and then loaned him back to the company to do the same work he had previously done as an employee. Working with the company was his sole responsibility during the term of KPMG’s engagement related to his service. The Enforcement Division determined that this caused the loaned employee “acting as a manager, employee and advocate” for the company.

The SEC also found that KPMG provided prohibited non-audit services at another company, including restructuring, corporate finance and expert services. Continue Reading

SEC Reports Record Enforcement Actions and Other Activities in Its Past Year

Recognizing the particular interest in the performance of its enforcement division, the Commission issued a press release in December announcing its enforcement results for fiscal 2013; in a small footnote, the release indicated that this information is part of the Agency Financial Report, of which enforcement makes up only one part.

The first number touted in the press release is $3.4 billion in monetary sanctions from disgorgement and penalties, an increase of 10% over 2012 and 22% over 2011, when the agency filed the highest number of actions in its history. The SEC filed 686 enforcement actions for 2013, although another footnote indicates that in future years certain categories will be excluded so that number will be 676. Continue Reading

Commissioner Gallagher Promotes Changes to SEC Disclosure

Commissioner Gallagher recently echoed Chair White’s comments regarding the possibility of modifying public company disclosure requirements, which we previously discussed here, noting that under her leadership, “the Commission will begin to make real headway on disclosure reform.” While intensely critical of the mandates under the Dodd-Frank Act as “needlessly clutter[ing] disclosure documents,” he indicated that the soon-to-be-released Regulation S-K study called for under the JOBS Act will be important to these reform initiatives.

Commissioner Gallagher criticized several types of SEC filings and provided specific suggestions. Proxy statements need to be “streamlined,” such as by allowing tables, other than the summary compensation table, to be included in an appendix. Continue Reading

SEC Explains Denial of Whistleblower Award

The SEC’s recent denial of a request for a whistleblower award reinforces its earlier decision in a separate proceeding this past July that claims made for tips submitted before the enactment of the Dodd-Frank Act do not constitute “original information,” but also, for the first time, addresses whether the rules afford claimants fair proceedings. 

In this case, the claimant provided information to, and met with, the SEC staff until July 2009. The staff opened an investigation regarding an allegation of sales of unregistered non-exempt securities in March 2009, and filed an action in June 2010. Dodd-Frank was enacted a month later.  Continue Reading

SEC To Hold Roundtable On Proxy Advisory Services

The SEC today announced that its staff will host a public roundtable on December 5 to discuss the use of proxy advisory firm services by institutional investors and investment advisers. The roundtable will be open to the public and webcast live on the SEC’s website. No word yet on the agenda and participants.

The press release noted that the role of proxy advisory firms was among the issues explored in the 2010 proxy plumbing release, including the services provided by proxy advisory firms and potential conflicts of interest and transparency in the proxy advisory industry. The release is brief, but includes the statement that “[S]ome proxy advisory firms also provide consulting services, including to publicly traded companies that may use these services to help develop proposals to be put to a shareholder vote or to improve their corporate governance ratings.”

This will be the fourth roundtable that the SEC hosts in 2013. Continue Reading

Frequently Asked Questions Regarding the SEC’s Proposed Pay Ratio Rule

As companies begin digesting the SEC’s proposed pay ratio rule (which we discuss here) and analyzing its impact, here are answers to some frequently asked questions. Final rules may affect the responses. 

Is there a safe harbor for the use of any particular method to identify the median employee?

No, the SEC specifically declined to establish any “safe harbor methodologies” or a “menu of alternatives” for determining the median employee.

Do the compensation measures used to identify the median employee need to meet any requirements?

The proposal requires the use of “any consistently applied compensation measure” and mentions several possibilities, such as total direct compensation (salary or wages and performance-based pay); annual cash compensation; or amounts reported in payroll or tax records such as W-2s. Continue Reading

SEC Operating Status UPDATED – No SEC Shutdown

As we indicated in this memo, the SEC “will remain open and operational in the event the federal government undergoes a lapse in appropriations on October 1,” and we understand that this means SEC operations will continue in the ordinary course until further notice.

The operational plan which describes possible shutdown operations that we previously described here is only effective in the event of an SEC shutdown. Continue Reading

SEC Plans for Possible Government Shutdown

The SEC posted on its website its intention to remain open and operational in the event the federal government undergoes a lapse in appropriations on October 1.  

Detailed plans announced indicate that the SEC will be able to continue only certain types of functions that qualify as exceptions, including those law enforcement functions. Otherwise, the SEC must initiate the orderly shutdown of agency activities not considered essential. 

Edgar and other filing systems will remain functional but review and acceleration of effectiveness of registration statements by issuers for securities offerings; review of periodic reports and other filings; and “non-emergency support to registrants” will be discontinued. Continue Reading

CII Petitions Stock Exchanges for Majority Voting and Focuses on Director Tenure and Universal Ballots in Contests

The Council of Institutional Investors in June petitioned the NYSE and Nasdaq to require majority voting for the election of directors in uncontested elections. CII also wants the exchanges to mandate that incumbent directors who do not receive majority support to promptly resign from the board. 

While 78% of S&P 500 companies have adopted majority voting, that percentage falls to 52% for mid-cap companies and only 19% for small-caps. CII’s petition goes far beyond the majority voting policies that companies have adopted, however, as those boards would not immediately require the resignation of a director who did not receive the requisite support. Continue Reading

Practical Advice on How Companies Can Use Social Media to Comply with Regulation FD

When the SEC began an investigation of whether a Facebook post by the Netflix CEO violated Regulation FD, companies became alarmed that it represented the regulator’s views that social media should not be used to disclose important information to the market. As we explain in our memo, the SEC has recently issued a report that affirmed the availability of social media as an appropriate channel of dissemination, but only in accordance with specific principles that builds on its prior guidance from 2008. Joe Hall, a partner in our capital markets group, explains the key aspects of how companies can avail themselves of this benefit without tripping the regulatory requirements. Continue Reading

Amicus Submission to SEC Questions Regulation FD Case Against Netflix

Professor Joseph Grundfest at Stanford Law School and The Rock Center for Corporate Governance suggests that the SEC should not initiate enforcement action against Netflix in his article, “Regulation FD in the Age of Facebook and Twitter,” which was sent to the SEC as an Amicus Wells Submission. At issue is whether Netflix violated Regulation FD because of a posting made by the CEO to his Facebook page that claimed monthly viewing exceeded 1 billion hours for the first time. 

The article contends that the posting contained no material information as the market was already aware at the time that the company was delivering close to a billion hours for the month as evidenced by several press reports. Continue Reading

SEC Issues Report on Dodd-Frank Whistleblower Program

3,001 whistleblower tips from all 50 states and 49 countries were provided to the SEC in the 2012 fiscal year, according to its annual report on the whistleblower program. The annual report is required to be issued to Congress by the Office of the Whistleblower under Dodd-Frank. 

The report indicates that the most common complaints related to corporate disclosures and financials (18%), offering fraud (16%) and manipulation (15%). Other types of issues, including insider trading and FCPA, accounted for much smaller categories of reporting. The bulk of the tips inside the U.S. came from California (17.4%) with New York and Florida following at about 10% and 8%, respectively. Continue Reading

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