The Securities and Exchange Commission (SEC) recently awarded $3 million to joint whistleblowers despite concluding that the whistleblowers did not satisfy the technical eligibility requirements for receiving an award. See SEC Exchange Act Release No. 86010. The SEC Whistleblower Program has ramped up significantly the past few years, with record numbers of complaints being filed
If you missed our teleconference earlier this week related to the recent SEC rule changes (see here and here for prior blog posts about the rule changes effective today), we are pleased to provide an audio recording available for download.
Have more questions about the amendments that are effective today, May 2, 2019? Email…
Note: We updated this post (originally posted last week) to add a new frequently asked question about expanded hyperlinking.
The questions and answers below address certain interpretive issues on the SEC’s new hyperlink requirements effective May 2, 2019. For more on the SEC’s amendments, see our previous post that details the rule changes.
Question: The new rules will require registrants to include an active hyperlink to information incorporated by reference into a registration statement or report if such information is publicly available on EDGAR “at the time the registration statement or form is filed.”
How does this new requirement apply to information incorporated by reference from one item to another within the same filing?
On March 20, 2019, nearly a year and a half after proposing them, the SEC adopted amendments to disclosure requirements for reporting companies, as mandated by the 2015 Fixing America’s Surface Transportation Act (the “FAST Act”). The amendments are a part of an ongoing effort by the SEC to simplify and modernize disclosure obligations. According to the SEC’s press release, the amendments are expected “to benefit investors by eliminating outdated and unnecessary disclosure and making it easier for them to access and analyze material information.”
Among many other items, the amendments address the following topics:
- Greater Flexibility When Filing Under Item 601 of Regulation S-K
- Omission of Immaterial Schedules and Exhibits—The amendments revise Item 601 of Regulation S-K to expand the ability of registrants to omit immaterial schedules and similar attachments to required exhibits, which previously was only available to schedules and exhibits to acquisitions agreements being filed under Item 601(b)(2).
This week the SEC proposed to expand the “test-the-waters” accommodation—currently available to emerging growth companies (EGCs)—to all issuers, including investment company issuers. The proposed rule and related amendments under the Securities Act of 1933 would enable all issuers (and its authorized representatives, including underwriters) to engage in test-the-waters communications with certain institutional investors regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering. These communications would be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement and would be limited to qualified institutional buyers (QIBs) and institutional accredited investors (IAIs).
In the SEC’s press release announcing the action, SEC Chairman Jay Clayton said, “Extending the test-the-waters reform to a broader range of issuers is designed to enhance their ability to conduct successful public securities offerings and lower their cost of capital, and ultimately to provide investors with more opportunities to invest in public companies.” Chairman Clayton added, “I have seen first-hand how the modernization reforms of the JOBS Act have helped companies and investors. The proposed rules would allow companies to more effectively consult with investors and better identify information that is important to them in advance of a public offering.”
Under proposed Securities Act Rule 163B:
In response to the mandate of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the Securities and Exchange Commission recently issued final rule amendments permitting companies reporting under Section 13 or 15(d) of the Securities Exchange Act to offer securities pursuant to the registration exemption Regulation A. Previously, offerings pursuant to Regulation A were expressly limited to non-reporting companies. The rule amendments also provide that, so long as the reporting company is current in its Exchange Act periodic reports, the reporting company has no additional periodic reporting obligations under Regulation A. These amendments became effective on January 31, 2019, upon publication in the Federal Register.
On December 18, 2018, the SEC issued a request for public comment soliciting input on the nature, content and timing of earnings releases and quarterly reports of companies that are obligated to file reports with the SEC as well as the relationship between the periodic reports that reporting companies must provide and the earnings releases that they choose to distribute. With this request for comment, the SEC is seeking to continue the ongoing dialogue about whether the current reporting regime and practices of reporting companies is overly burdensome or contributing to “short-termism”.
Commenting on the matter, SEC Chairman, Jay Clayton, said “[t]here is ongoing public debate regarding the effects of mandated quarterly reports and the prevalence of optional quarterly guidance.” “Our markets thirst for high-quality, timely information regarding company performance and material corporate events. We recognize the importance of this information to well-functioning and fair capital markets. We also recognize the need for companies and investors to plan for the long term. Our rules should reflect these realities. I look forward to receiving thoughtful comments as we think about ways to encourage long-term investment in our country.”
On August 17, the SEC adopted amendments intended to simplify and update the disclosure of information to investors and reduce compliance burdens for companies without significantly altering the total mix of information available to investors. The amendments are effective 30 days after their publication in the Federal Register.
The amendments eliminate certain:
- Redundant and duplicative requirements, which require substantially similar disclosures as GAAP, International Financial Reporting Standards (IFRS) or other SEC disclosure requirements.
- Overlapping requirements, which are related to, but not the same as GAAP, IFRS or other SEC disclosure requirements.
- Outdated requirements, which have become obsolete as a result of the passage of time or changes in the regulatory, business or technological environment.
- Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements, or more recently updated GAAP.
On July 24, the SEC proposed amendments to Rule 3-10 of Regulation S-X for guarantors and issuers of guaranteed securities registered or being registered, as well as the financial disclosure requirements in Rule 3-16 of Regulation S-X for affiliates whose securities collateralize securities registered or being registered. Here is the proposing release. The proposed changes are intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants. The proposal will be subject to a 60-day public comment period.
On May 29, 2018, President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”) into law. While much of the Act centers on regulatory relief for smaller financial institutions and community banks, Section 508 of the Act adopts a major change to Regulation A+. Prior to the Act, Regulation A+ was not available to an existing public company (i.e., a company reporting under Section 13 or 15(d) of the Securities Exchange Act of 1934). Section 508 of the Act directs the SEC to amend Regulation A+ to allow a public company to use Regulation A+ to offer its securities. However, Section 508 of the Act is not self-effecting, which means that, until the SEC adopts rules implementing Section 508, only non-public companies may use Regulation A+. In addition to allowing public companies to use Regulation A+, the Act also directs the SEC to amend its rules to say that a public company that conducts a Tier 2 offering will satisfy its Regulation A+’s periodic reporting obligations by complying with its existing reporting obligations under Section 13 or Section 15(d).