In the midst of the chaos of the presidential election, vicious attacks from Senator Warren, and goodness knows what else, the SEC continues to crank out requests for comment, rules and interpretations.
It’s the latter category that has attracted our attention lately, as the Staff has focused on some technical matters that securities counsel have been pondering for a while.
401(k) plans with a self-directed “brokerage window”
First, in September, the SEC published updated Compliance and Disclosure Interpretations, including one on 401(k) plans that feature a so-called “brokerage window”. It’s been generally assumed that if a plan does not include an employer stock fund in which employee funds can be invested, Securities Act registration is not required. This CDI says “maybe not” – if the plan (a) permits employer and employee contributions to be invested through a self-directed “brokerage window”, and (b) the plan does not prohibit investments in employer stock through the window, registration may be required.
Illustration by Tyler Letkeman
As reported by Broc Romanek in his recent blog post, the SEC recently posted five new CDIs related to the CEO pay ratio rules contained in Item 402(u) of Regulation S-K. In order to provide a very brief summary in a fun way, I’ve composed five haikus addressing the substance of each of the newly released interpretations. Enjoy!
That reasonably reflects pay
Can be utilized
Hourly pay rates
Can we use to calculate?
No! These will not work
To calculate it
You must use recent data
You must include them too, but
Use annualized pay
What about ICs?
If you set their pay
Photo by Kai Schreiber
We are pleased to provide a posting from our colleague, Holly L. Griffin, an attorney in Gunster’s Labor and Employment practice group.
Within the course of one week, the SEC took administrative action against two companies for language contained within severance agreements which restricted employee rights to obtain a monetary award for reports of potential law violations to the SEC. The SEC took aim at two types of provisions which commonly appear in severance agreements: the confidentiality clause and the waiver of rights.
In one of the cases, the company required all employees accepting severance pay to sign an agreement that contained a clause prohibiting disclosure of company confidential information and trade secrets, except when the employee is compelled by law to disclose the information. In the event the employee was required to disclose company confidential information, the agreement required the employee to provide notice to the company. The SEC determined that the confidentiality agreement put former employees between a rock and a hard place if they wanted to report potential law violations; they could either identify themselves as a whistleblower to the company by providing notice, or risk breaching the agreement and forfeiting severance by disclosing confidential information.
In both matters, the companies required all employees accepting severance to sign an agreement that contained a waiver of rights. Although the severance agreements did not prohibit the employees from reporting or participating in an investigation into a potential law violation, they explicitly prohibited the employees from receiving monetary compensation for such reports. The SEC found both companies in violation of an SEC Rule which prohibits public companies from taking action which impede a whistleblower from communicating with the SEC regarding possible law violations. Congress enacted the “Dodd-Frank Act with the stated purpose of encouraging whistleblowers to report potential law violations to the SEC, by offering financial incentives or awards for reports. The SEC determined that requiring employees to waive their right to financial recovery undermines the public policy purpose behind the Dodd-Frank Act and violates SEC rules.
Both companies were required to notify former employees of the ruling and to pay monetary civil penalties, totaling hundreds of thousands of dollars each. One company was also required to amend its severance agreements to include a section titled “Protected Rights,” which notified employees of the right to report any suspected law violation to a governmental agency and to receive an award for providing such information.
What it means Continue Reading
If you’ve been reading our posts (and probably even if you haven’t), you should know by now that the SEC has launched a “disclosure effectiveness” initiative and has already taken actions to make some disclosures more “effective”. One such action was the publication of a 341-page “concept” release asking hundreds of questions about whether and how to address a wide range of disclosure issues. More recently, the SEC has proposed rule changes that would eliminate some particularly pesky disclosure burdens.
This posting is a reprint of an article, co-authored by Bob Lamm and David Scileppi, that appeared in the Daily Business Review on July 15, 2016.
Recent months have been difficult for the initial public offering market. In fact, year-to-date, IPOs are down nearly 60 percent compared to last year. One of the bright spots in this IPO down market has been Sensus Healthcare Inc., a Boca Raton-based medical device company.
We are proud to have worked with Sensus Healthcare on its IPO, which priced on June 2; Sensus is now listed on NASDAQ under the SRTSU symbol.
Though we’ve worked on numerous offerings over the course of our careers, the Sensus transaction reminded us of some key things that companies should consider as they proceed toward an IPO. Continue Reading
Photo by Oblivious Dude
The SEC’s Division of Corporation Finance recently issued new Compliance and Disclosure Interpretations (“C&DIs”) for Securities Act Rule 701 which clarify application of the Rule in the context of mergers. In a nutshell, Rule 701 provides an exemption from SEC registration requirements for private companies, private subsidiaries of public companies and foreign private issuers to offer their own securities, including stock options, restricted stock and stock purchase plan interests, as part of written compensation plans or agreements, to employees, directors, officers, general partners and certain consultants and advisors.
Under Rule 701, the aggregate sales price or amount of securities sold in reliance on Rule 701 during any consecutive 12-month period must not exceed the greatest of $1 million, 15% of the total assets of the issuer (measured as of the issuer’s most recent balance sheet date, if no older than its last fiscal year end), or 15% of the outstanding amount of the class of securities being offered and sold in reliance on Rule 701, (again, measured at the issuer’s most recent balance sheet date, if no older than its last fiscal year end). If the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $5 million, the issuer must deliver specific written disclosures a reasonable period of time before the date of sale, including a copy of the summary plan description under ERISA or, if the plan is not subject to ERISA, a summary of the material terms of the plan, information about the risks associated with investment in the company’s securities, and financial statements meeting the requirements of the SEC’s Regulation A as of a date no more than 180 days before the date of the sale.
In the context of a merger transaction, the newly issued C&DIs provide the following guidance: Continue Reading
Photo by Ryan Smith
On July 14, the SEC Staff published a new Compliance and Disclosure Interpretation clarifying when an investor who may not be entirely passive may nonetheless remain eligible to file a beneficial ownership report on Schedule 13G rather than Schedule 13D. Anyone who has tried to dance on the head of that pin will be relieved, particularly given the far greater disclosure burdens associated with the latter filing.
All other things being equal, the rules specify that a shareholder may file on the less burdensome Schedule 13G only if it acquired or is holding the subject equity securities with neither the purpose nor effect of changing or influencing control of the issuer. However, the rules are not clear as to whether some actions (or an intent to engage in those actions) may make the 13G unavailable.
The United Kingdom has a new Prime Minister. Her name is Theresa May, and she’s a member of the
Photo by Scott P
Conservative Party. Remember that, because what you are about to read will probably lead you to think otherwise.
In a speech made a couple of days before Ms. May became Prime Minister, she said that she would pursue the following actions if she were to become Prime Minister: Continue Reading
Photo by brennahRO
In recent years, the SEC – frequently due to Congressional mandates – has reduced the amount of disclosure that smaller public companies must provide. Most recently, on June 27, the SEC proposed yet another rule that would reduce disclosure burdens by enabling more companies to qualify as “smaller reporting companies,” or “SRCs.”
The proposal would expand the definition of SRCs to cover registrants with less than $250 million in public float and registrants with zero public float if their revenues were below $100 million in the previous year.
If your company is not currently an SRC and you are wondering what relief you might get if you were, the proposing release lays it out in an easy-to-read table: Continue Reading
In a June 27 speech to the International Corporate Governance Network, SEC Chair Mary Jo White engaged in a bit of full disclosure herself:
“I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.”
As noted in her remarks, the SEC adopted the current disclosure requirements on board diversity in 2009. However, the requirements were added to other board-related disclosure requirements at the last minute, when it was reported that Commissioner Aguilar refused to support the other requirements unless diversity disclosure was also mandated. As a result, the diversity requirements were never subjected to public comment, did not define “diversity,” and seemed to require disclosure only if the company had a diversity “policy”. When companies failed to provide the disclosure because they had no policy, the SEC clarified that if diversity was a factor in director selection then, in fact, the company would be deemed to have a policy, thus requiring disclosure.