In Case You Missed It - Interesting Items for Corporate Counsel - April 2017

by Stoel Rives LLP

Stoel Rives LLP

  1. A host of things happened in the last few months regarding Conflict Minerals, although likely not much that will affect what a public company reports on its Form SD, due May 31. (Spoiler alert: The same thing companies have reported in the last two years, only maybe less.):
    • The SEC’s Division of Corporate Finance issued a statement, here, that confirms that the SEC won’t seek enforcement action against companies that don’t comply with the source and chain of custody due diligence requirements in Item 1.01(c) of Form SD because, as acting SEC Chair Piwowar says here, the only purpose of the “extensive and costly due diligence” was to make the disclosures that the D.C. District Court found unconstitutional. Commentary on the guidance is here and here.
    • The conflict minerals rule guidance followed Piwowar’s re-solicitation of comments on the rules, here, and he made no bones about his view, here, that the rules were a terrible idea and were doing more harm than good in Africa.
    • The D.C. District Court entered its final judgment that Section 1502 of the Dodd Frank Act, SEC Rule 13p-1 and specified sections of Form SD are unconstitutional, just recently. See here.
    • As reported here, the U.S. State Department is apparently getting into the Conflict Minerals game. A link to general materials at the Office of Threat Finance Countermeasures, which doesn’t really work as a title but certainly sounds cool, is here.
  2. Piwowar requested a similar review of pay equity disclosure rules, here, a move that raised the ire of Senate Democrats, who penned a letter (here) questioning whether Piwowar could actually do this. Although the disclosure of pay ratios may be silly and unhelpful, the rules were required by Congress and haven’t been ruled unconstitutional, and the SEC has already issued guidance that appears to make it fairly easy to comply with the disclosure rules at a reasonable cost, so it’s not clear what additional guidance might be forthcoming. In case you want to obsess about this, however, the comments received to date are here. Commentary on the unusually active role Piwowar has taken as an Acting Chair is here.
  3. Piwowar’s unbridled reign of terror is likely to end soon. Jay Clayton took a step closer to confirmation as the new SEC Chair, passing out of the Senate Banking Committee largely on a partisan vote (see here) on his way to confirmation by the full Senate likely later this month. Even with Clayton, the Commission will still be two (of five) commissioners light, and those slots likely won’t be filled by Hester Peirce or Lisa Fairfax, the two nominees left in limbo by Democrats last year. (And the expiration of Commissioner Stein’s term on June 5, 2017 may make it three commissioners light again.)
  4. Although it seems like much of the executive branch has been in limbo in the last three months, the rest of the SEC hasn’t been entirely inactive since Trump’s election in November, and did the following:
    • Amended Regulation Crowdfunding to inflation-adjust the maximum that can be raised from “not very much” to “not very much plus 7%” (see here) and published a pair of new CDIs about Regulation Crowdfunding (Question 201.02 and 202.01, available here). (Apropos of crowdfunding, although not directly related to Regulation Crowdfunding, an article that, gasp, suggests there is fraud risk when buying stock in startup companies over the internet, is here).
    • Adopted inflation adjustment rules for other self-executing provisions of the JOBS Act, including that revenues of “emerging growth companies ” now must not exceed $1.07 billion, a 7% increase.
    • Adopted new CDIs about Regulation A+, available here.
    • Adopted final rules, here, that require submission of exhibits in HTML format and the inclusion of hyperlinks to the filings in exhibit lists. The new filing requirements apply to filings made on or after September 1, 2017.
    • Adopted rules, here, changing the standard T+3 stock sale settlement period for most broker transactions to T+2 .
  5. On the accounting front:
    • A review of SEC actions on the use of non-GAAP numbers, which focus on the equal prominence of comparable GAAP numbers, is here.
    • A heads-up on the difficulty many will face when implementing FASB’s new revenue recognition rules is here and a summary of where companies stand on adoption is here.
  6. For whistleblowers, a few items of note in the last few months:
    • In Wadler v. Bio-Rad Laboratories, here, the federal court for the Northern District of California ruled that Sarbanes-Oxley whistleblower protections trump attorney-client privilege, which opened the door to a former general counsel’s recovery of $8 million in a jury trial for retaliatory firing.
    • A suggestion that the plaintiffs’ securities bar is noodling on how to spin the SEC’s crackdown on severance agreements that impede whistleblowing (see here) into litigation gold is here. (You can find our original post about the SEC crack-down, from April 15, 2015, here.)
  7. The D&O Diary reports, here, that the plaintiffs’ securities bar is also active in bringing class action securities lawsuits , which in the first quarter is on pace to set new litigation records.
  8. Grammar nerds rejoiced when the First Circuit issued an opinion, here, that suggested that the Oxford (aka “Harvard,” aka “serial”) comma always makes things clearer. At issue was the state of Maine’s wage law, which said that overtime pay was not required for the following activities:
    The canning, processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of:
    (1) Agricultural produce;
    (2) Meat and fish products; and
    (3) Perishable foods.
    Maine dairy workers argued that they should be paid overtime for distribution of dairy products because, without the serial comma, the exclusion from overtime pay should apply only to “packaging . . . for distribution” and not to distribution in its own right. The Circuit Court agreed, overturning the District Court’s ruling. Sharp-eyed readers may be thinking this: isn’t the Circuit Court dead wrong? For its reading, you must ignore the absence of a conjunction after the last comma. The Court would be right if the last clause read “, or packaging for shipment or distribution of,” but it doesn’t. The Court acknowledges this in its opinion, but notes the rare “asyndeton” technique in which conjunctions are omitted from a list (we’ve never heard of that either, but apparently it’s a thing). The Court then balances the omission of the conjunction against the consistent use of gerunds (nouns that end in “ing”) in the list and the plaintiffs’ argument that if “packaging” wasn’t meant to qualify “distribution,” the drafters would instead have used “distributing.” Ultimately, the Court throws up its hands and looks to statutory intent to reach its conclusion. If this entry still doesn’t sate your appetite, read more on the serial comma here.
  9. The White House issued guidance, here, on what it meant in its January 30 Executive Order (here), which requires that an agency that proposes a new regulation must identify two for repeal . (Hello regulations promoting the Ivanka Trump line of perfume, goodbye regulations on font size and margins on federal applications!) The interpretation adds some nuance, like in the way it talks about “regulatory actions” instead of regulations, but basically, new regulations are supposed to have a net zero cost effect. The guidance doesn’t answer the basic question: “effect on whom?”
  10. So far, the Trump Administration is most notable for the things it has failed to accomplish and for the spectacular way in which it has failed to accomplish them – health care, immigration, terrorism, you name it. (But if you’re a fan, chalk that statement up to fake news – he’s actually doing SUPER! Gorsuch got confirmed, after all.) Now we read, here, that a coherent reform of the Dodd-Frank Act is not in the near-term cards. To be fair to Trump, who knew financial regulation was so complicated? For those continuing to hope, at least take heart knowing that if meaningful Dodd-Frank reform fails, it will not be the fault of the President but rather, in this order:
    • Democrats;
    • the failed policies of the Obama Administration;
    • the Deep State;
    • the failing media which focuses way too much on policy failures and not enough on the fact that Trump won the election last November;
    • Republican factions in Congress;
    • Republicans;
    • Paul Ryan;
    • Steve Mnuchin, who unfairly misled Trump into thinking he was qualified (listen, I’m just repeating what a respected FOX News analyst said! Go talk to him!);
    • Other cabinet members; and
    • Nobody, reform a HUGE success. (Fake news!) Just watch Hannity!

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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