Acting Chair Piwowar made remarks at the the Dialogue on Crowdfunding hosted by the Securities and Exchange Commission and the Salomon Center for the Study of Financial Institutions at New York University.  In his remarks, Acting Chair Piwowar shared the following statistics regarding crowdfunding, noting that:  163 U.S. securities-based crowdfunding deals have been initiated, of which 33 have completed their fundraising.  Over $10 million has been raised since the regulation went into effect, with most offerings still ongoing.  There are currently 21 registered funding portals in the United States.  He also expressed concern as to whether the final rules are too restrictive or too burdensome and raised the possibility that the Commission consider steps to improve the regulations, including through the use of the Commission’s exemptive authority.

Commissioner Stein closed the session by noting some challenges.  Stein addressed the role of funding portals, noting that from May 2016 to January 2017, 27 crowdfunded offerings were withdrawn and of these 16 were hosted by the funding portal that was recently expelled by FINRA.  Along these lines, Commissioner Stein suggested revisiting the role of funding portals as gatekeepers for these transactions.  Stein also commented on the types of securities offered to date in crowdfunded offerings, which were predominantly equity (36%) and 26% of which were for SAFE securities.  She raised the possibility that the Commission should review whether SAFE securities are appropriate for retail investors.  Stein also noted concentration with the top five federal crowdfunding states accounting for 60% of offerings and over 90% of the total amount raised from completed offerings. The location of registered portals is heavily concentrated in California, Texas, and along the East Coast.

At today’s Practising Law Institute SEC Speaks annual program, Acting Chair Piwowar made opening remarks.  During his wide-ranging discussion, Acting Chair Piwowar, inspired by William Graham Sumner’s the “forgotten man” referred throughout to the Securities and Exchange Commission’s investor protection mission and the objective of keeping in mind the interests of the “forgotten investor.”  Piwowar commented on the Commission’s focus on effective disclosure requirements and the need to be guided by the concept of materiality in formulating disclosure requirements.  He pointed to various specialized disclosure requirements introduced by the Dodd-Frank Act, including the resource extraction, conflict minerals and related matters.  Piwowar noted the importance of avoiding disclosure overload.  Piwowar also commented on Regulation D and questioned the utility of applying the “accredited investor” standard as a means of identifying individual investors that do not require the protection of the disclosures associated with registered offerings.

Providing a glimpse into upcoming actions, Piwowar noted that the Commission will consider whether to propose a request to comment on the requirements of Industry Guide 3 for offerings by financial services companies, consideration of a final rule requiring registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings and in order to enable the inclusion of such hyperlinks, to require that registrants submit all such filings in HTML format (see the proposed rule:  https://www.sec.gov/rules/proposed/2016/33-10201.pdf), a proposed rule relating to the use of inline XBRL data in filings, and amendments to Rule 15c2-12 relating to muni disclosures.

The use of non-GAAP financial measures by public companies continues to be an area of growing concern for the Securities and Exchange Commission (“SEC”). Since the staff of the SEC’s Division of Corporation Finance (the “Staff”) released its updated Compliance and Disclosure Interpretations on May 17, 2016, on the use of non-GAAP financial measures (the “Updated C&DIs”), the Staff has issued more than 200 comment letters related to non-GAAP financial measures that have become publicly available.

In this alert, we look at common themes or areas of concern identified by the Staff in these comment letters, as well as responses given by registrants. We also highlight pronouncements by senior members of the Staff on the important “critical gatekeeper” role audit committee members play in ensuring credible and reliable financial reporting, including compliance with the Updated C&DIs. Finally, we look at industry initiatives aimed at improving the dialogue among management, audit committee members, external auditors and other stakeholders with respect to the use and disclosure of non-GAAP financial measures.

Read our Practice Pointers: Anticipating and Addressing SEC Comments on Non-GAAP Financial Measures.

On February 14, 2017, President Trump approved Congress’ joint resolution to repeal the SEC’s resource extraction disclosure rule. That action effectively brings to a conclusion the SEC’s efforts to implement a resource extraction disclosure rule mandated more than six years ago by the Dodd-Frank Act.

Read our client alert here:  https://www.mofo.com/resources/publications/170222-repeal-of-resource-extraction-disclosure-rule.html

In a recent letter, the Chamber commented to the SEC’s Advisory Committee on Small and Emerging Companies about the Committee’s consideration of the factors affecting the trend of companies remaining private and deferring their IPOs.  The Chamber’s letter attributes some of the “hurdles” of becoming a public company to the SEC’s complex disclosure requirements, recent specialized disclosure requirements, and the influence of proxy advisory firms on governance in U.S. public companies.  The Chamber recently published a white paper, Essential Information:  Modernizing Our Corporate Disclosure System, which addresses materiality as a guiding principle for securities disclosures and cautions against “special interest disclosure” requirements.  Presumably, the SEC will continue to advance the disclosure effectiveness initiative, which had been undertaken under former Chair White’s leadership.

The Chamber’s letter is available here:  http://www.centerforcapitalmarkets.com/wp-content/uploads/2017/02/2017.2.15-US-Chamber-Letter-to-SEC-re-advisory-cmte-meeting-on-companies-staying-private.pdf?x48633

The Chamber’s white paper is available here:  http://www.centerforcapitalmarkets.com/wp-content/uploads/2013/08/U.S.-Chamber-Essential-Information_Materiality-Report-W_FINAL.pdf?x48633

The Investor Responsibility Research Center (IRRC) Institute and Institutional Shareholders Services (ISS) recently issued a joint study titled “Board Refreshment Trends at S&P 1500 Firms,” which analyzes demographic trends from 2008 through 2016 for corporate boards of companies in the S&P 1500 Composite Index (“S&P 1500 Companies”). Highlights of the study include the following:

  • Board Tenure. Director tenure is steadily rising.  Average and median director tenure were 8.7 years and 7 years, respectively.
    • Gender Tenure Gap. However, a notable gender tenure gap persists. Average tenure for female directors in 2016 was 6.4 years, compared to 9.2 years for male directors.
  • Age of Directors. As of 2016, the average age of directors was 62.5 years old, which was the highest level during the study period.
    • Widening of Gender Age Gap. Like tenure, the study found a notable age gap regarding gender. The average age of male directors was 63.1 years old, while the average age of female directors was 59.8 years old.
    • Age Distribution. The number of “older” directors (i.e., those in their seventies and eighties) was the only age group to increase from 2008 through 2016 in headcount; as of 2016, this group occupied 20.4% of all board seats.
  • Renewal and Retention Rates.
    • Increase in New Directors. The rate of “new” directors nearly doubled from 2008 to 2016—in 2016, almost one out of every 10 directors had no prior board experience.
    • Changes to Board Composition. For the first time since 2008, more than 50% of S&P 1500 Companies added at least one new director to their boards in 2015. From 2012 to 2016, the prevalence of “zero change” boards steadily decreased.
    • Demographics of New Directors. From 2008 to 2016, women and persons aged 50 to 59 years old made up the majority of the incoming class of “new” directors.
  • Ethnicity and Race.
    • Slow, Steady, Increases in Gender Diversity. Gains in gender diversity were gradual among S&P 1500 Companies, as the number of female board members increased from 11.9% (in 2008) to 17.8% (in 2016). In 2008, 33% of all boards were all male—however, this number dropped to 13.8% in 2016.
    • Low Minority Representation. As of 2016, minority directors filled slightly more than 10% of all board seats. While S&P 1500 Companies with larger capitalizations typically had at least one minority director, S&P 1500 Companies with smaller capitalizations typically had no minority representation.

A copy of the study is available at: https://irrcinstitute.org/wp-content/uploads/2017/01/IRRCI-Board-Refreshment-Trends-FINAL.pdf.

Because they can….  This was the conclusion of the discussion at the SEC Advisory Committee on Small and Emerging Companies earlier in the week (see our prior post regarding the meeting).  The Committee discussed statistics relating to the number of companies that are undertaking IPOs, the number of venture-backed companies receiving substantial private investments, trends relating to acquisitions of venture-backed companies (presumably instead of IPOs), and the various factors contributing to this noticeable trend.  The Committee hosted various speakers, including a representative of E&Y.  The E&Y presentation contains interesting market data and may be accessed here:  https://www.sec.gov/info/smallbus/acsec/giovannetti-presentation-acsec-021517.pdf.

Bloomberg BNA announced the recently updated SEC Reporting Issues for Foreign Private Issuers (Portfolio 5507) authored by Morrison & Foerster partners Anna T. Pinedo and James R. Tanenbaum.

This portfolio serves as a practical resource for both practitioners and foreign private issuers.  This new edition explains in detail various SEC proposed and finalized rules and regulations issued in 2016. It analyzes how those regulations would affect foreign private issuers–including the updated SEC staff guidance on how foreign private issuers should disclose the use of non-GAAP financial measures.

The SEC’s Investor Advisory Committee will hold a public meeting on March 9, 2017, from 9:00 a.m. to 11:55 a.m. The meeting’s agenda includes a discussion regarding SEC investor research initiatives, the FINRA 2016 Financial Capability Study and academic research on financial literacy; and a discussion regarding unequal voting rights of common stock. The meeting will be held at the SEC’s headquarters and will also be webcast live on the SEC’s website.

During 2016, there were relatively few companies that completed initial public offerings (“IPOs”). Some commentators attribute the dearth of IPOs in 2016 to volatility arising from, among other things, Brexit and the U.S. Presidential election. Others point to the continuing trend of successful companies remaining private longer and continuing to benefit from attractive valuations in private financing rounds without facing the burdens associated with becoming Securities and Exchange Commission (“SEC”)-reporting companies.

In this year’s survey, we consider the characteristics of the emerging growth companies (“EGCs”) that completed IPOs and the corporate governance, compensation and other practices adopted by them. Specifically, we examined the filings of (i) the approximately 680 EGCs (on an aggregated basis) that completed their IPOs in the period from January 1, 2013, through December 31, 2016, and (ii) the 100 EGCs (on a standalone basis) that completed their IPOs during the year ended December 31, 2016. The survey focuses on EGCs that have availed themselves of the provisions of Title I of the Jumpstart Our Business Startups Act (“JOBS Act”). This year is anticipated to be a more active year for IPOs. Our objective is to provide data that will be useful to you in assessing whether your company’s current or proposed corporate governance practices are consistent with EGC market practice.

Read the 2017 review.