In Case You Missed It - Interesting Items for Corporate Counsel - April 2019

by Stoel Rives LLP
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  1. The SEC adopted final rules, here, to implement “FAST Act” disclosure modifications and improvements. Cynics might view the SEC’s efforts to simplify disclosure as a losing battle, as Congress lards more and more mandatory disclosures onto public companies (pay-ratio disclosure, anyone?), but, well, there you go. Some parts of the rule are already effective, but most are effective May 2, 2019. The changes:
    • Update the cover pages of Forms 8-K, 10-Q and 10-K to require disclosure of the company’s trading symbol and the exchange where its securities are listed for trading. Companies also must now present cover page data with XBRL tags. After May 1, check on the SEC’s website, here, for the most current form of cover page.
    • Allow companies to exclude discussion of the earliest of the three years in MD&A if they covered that year in a prior report.
    • Eliminate the requirement to file immaterial attachments to material agreements.
    • Eliminate the two-year look-back for material contracts that must be filed, except for newly public companies, on the theory that investors can just look at last year’s filings if they care.
    • Allow companies to omit confidential information from exhibits without submitting a confidential treatment request as long as the material is not material and would cause competitive harm. (Generally, this is a shift in process. A company must justify the redaction upon SEC request, which presumably it would do if anyone files a FOIA request for the information.) The SEC published, here, guidance on the new rules.
    • Allow companies to link to information incorporated by reference, rather than file it.
    • Allow companies to provide disclosure about physical property only to the extent it is material to the company.
    A smattering of law firm summaries of the new rules are here, here and here.
  2. The SEC also proposed rules, here, to make the public offering process for investment companies easier by giving them the same advantages available to operating companies, including well-known seasoned issuer status.
  3. In the midst of proxy season . . .
    • CalPers, which administers the pensions of California state employees and is, as you might imagine, therefore an investment juggernaut, released a recap of 2018 proxy season outcomes and its voting guidelines for next year, here. Among other things, CalPers says it will start voting “no” not just on say-on-pay proposals (it voted against 43% of such proposals), but also eventually against Compensation Committee members if pay fails under CalPers’ model.
    • Glass Lewis announced a pilot Report Feedback Statement service through which targets of GL reports can pay to have their views of GL reports delivered to GL investor clients. The program is intended to facilitate “informed dialogue among all stakeholders” and not, certainly, to build an additional revenue stream for GL. To participate, you must buy the GL report on the company and pay a fee to distribute your feedback. The merits of the RFS are extolled by GL’s CEO here.
    • The Wall Street Journal reports, here, that the SEC is gearing up to regulate proxy advisory firms, which many public companies believe have too much sway over shareholder voting. The WSJ doesn’t exactly win an award for investigative journalism on this one--proxy advisory firms were the subject of roundtable discussions at the SEC last year (see here) and SEC Chair Clayton foreshadowed forthcoming regulation in testimony to the U.S. Senate Banking Committee here. A plea from target companies to require proxy advisory firms to address conflicts of interest, accuracy and transparency of standards is here. Additional commentary is here, here and here.
  4. The U.S. Supreme Court recently endorsed a broad view of “scheme liability” in Lorenzo v. SEC, here, finding that an investment banker could be liable for securities fraud under Rule 10b-5 for sending emails that contained false statements copied and pasted from his boss’s email. The decision resolves uncertainty in the application of securities liability, and, by holding that Rule 10b-5 subsections (a) and (c) create liability even if a person only “disseminates” and does not “make” a misleading statement, gives a whiff of aider and abettor liability that the Court, in Janus Capital v. First Derivative Traders and in Central Bank of Denver v. First Interstate Bank of Denver, suggested did not exist in a private right of action. (More than a whiff, according to the two dissenting Justices.) Roughly one billion law firm memos have summarized the case and its effect. A few summaries are here, here and here. Commentators generally dive into the nuance of the potential effect of the Court’s “shift,” and how in particular the decision may affect civil lawsuits. When the dust settles, though, the case may simply stand for the proposition that repeating a lie is still lying. And in a securities law context, that’s what we lawyers refer to as “bad.”
  5. Deloitte’s Board Practices Report, which offers insights into what some boards are worried about these days, is here.
  6. Elon Musk’s ongoing battle with the SEC, and with securities laws generally, has long-since devolved into the People’s Magazine of securities law news. And it would be reasonable to assume a high-brow publication like ours would refrain from commenting, since nothing useful has happened since our entry last month, and since most readers don’t need the lesson (but again, see here). We are disappointed to foil those expectations. The SEC’s response to Musk’s response to the SEC’s original filing is here. A few articles about the latest are here, here and here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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