Securities Law Blog

On March 25, 2020, the SEC issued an updated executive order granting extended filing relief and disclosure guidance as publicly traded companies address the COVID‑19 pandemic and its effect on operations and financial condition. The SEC Staff also recently issued a statement regarding the manual signature requirement for electronic filings with the SEC. This post summarizes the significant aspects of the SEC’s recent pronouncements.

Despite the continuing coronavirus global pandemic, business marches on, including compliance with applicable regulatory requirements. Regulatory bodies recognize that the reduced staffing, “social distancing” and other factors could hamper efforts to comply with various regulations. The U.S. Securities and Exchange Commission (“SEC”) has acted to ameliorate certain of the burdens publicly traded companies are currently facing. In addition, companies need to take into account the effects of COVID-19 on their businesses and regulatory disclosures, and we have highlighted certain significant considerations in this client alert.

On January 30, 2020, the Securities and Exchange Commission (“SEC”) proposed a series of new amendments to the Regulation S-K requirements. The proposed amendments seek to modernize, simplify, and enhance certain financial disclosure requirements primarily by reducing duplicative disclosure and focusing issuers’ efforts on material information. The proposal would eliminate Items 301 and 302, which deal with selected financial data and supplementary financial data, respectively. The SEC’s primary focus is on Item 303. This item addresses disclosure requirements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section of issuers’ periodic reports (i.e., Forms 10-K and 10-Q) and registration statements.

In Casper Sleep’s initial public offering prospectus, the company states that the use of third-party paid marketing programs to promote its products presents the possibility of negatively affecting its reputation and subjecting it to fines and other penalties.

On February 3, 2020, Olshan’s Shareholder Activism Group issued a letter of comment to the Securities and Exchange Commission in response to its proposed amendments to the federal proxy rules released on November 5, 2019 that would condition the availability of certain existing exemptions from the information and filing requirements of the proxy rules for proxy voting advice businesses upon compliance with additional disclosure and procedural requirements.  The scope of our comments is limited to the severe shortcomings of the proposed rules in terms of their practical application in the “real world” of a proxy contest.  We have drawn upon our vast experience in advising on hundreds of contested solicitations to highlight the flaws inherent to the proposed rules. 

The SEC proposes rules to add a new category for individuals to qualify as accredited investors based on professional certifications and designations or credentials that show “financial sophistication.”  The SEC requests public input on exactly which industry exams, academic degrees and levels of job experience should be considered.   

Institutional Shareholder Services (“ISS”), the leading proxy voting advisory firm, recently released its 2020 proxy voting guidelines updates for the U.S. and other jurisdictions (effective for meetings on or after February 1, 2020) following its annual global benchmark policy survey and comment period that ran from July 22, 2019 to October 18, 2019. ISS addressed various topics in its updated guidelines, which included three guideline revisions that are relevant to shareholder activism in the U.S. and are the focus of this client alert.

This article was originally published by Bloomberg Law, October 2019.

On August 21, 2019, the Securities and Exchange Commission (the “SEC”) (i) approved new guidance (the “Guidance”) regarding the proxy voting responsibilities of investment advisers under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and (ii) issued an interpretation and related guidance (the “Interpretation”) regarding the applicability of the federal proxy rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to proxy voting advice provided by proxy advisory firms. The Guidance discusses, among other things, the ability of investment advisers to establish a variety of different voting arrangements with their clients and matters they should consider when they utilize the services of a proxy advisory firm. Specifically, the Guidance clarifies how an investment adviser’s fiduciary duties to its clients and Rule 206(4)-6 of the Advisers Act relate to an investment adviser’s voting authority on behalf of clients, particularly where the investment adviser retains a proxy advisory firm. The Interpretation confirms the SEC’s historical position that proxy voting advice generally constitutes a “solicitation” under Rule 14a-1(l) of the Exchange Act and, as such, falls under the purview of the antifraud provisions of Rule 14a-9 of the Exchange Act. The Guidance and Interpretation will become effective upon publication in the Federal Register. The Guidance and Interpretation were issued after years of advocacy by members of Congress, corporations and others claiming that proxy advisory firms such as Institutional Shareholder Services and Glass Lewis & Co. wield too much power and a regulatory framework should be put in place to address issues related to the services provided by these firms such as conflicts of interest, accuracy of reports, transparency and oversight.

While the SEC favors a more flexible principles-based approach to disclosure of business descriptions and risk factors as determined by a company’s management, a lack of bright-line, quantitative rules to specify when disclosure is required may lead to second guessing by regulators, among others.