The FAST Act required the Securities and Exchange Commission to deliver to Congress a report detailing its recommendations regarding the modernization and simplification of the disclosure requirements contained in Regulation S-K.  Much of the work entailed by such a review of the Regulation S-K disclosure requirements already was reflected in the SEC’s Concept Release, as well as in the request for comment on the 400 rules, the proposed revised disclosures for mining registrations and the proposal regarding the definition of “smaller reporting company.”  Nonetheless the Report contains a few specific recommendations, including, among others, the following:

  • Permitting the incorporation by reference of documents filed more than five years prior on EDGAR,
  • Allowing hyperlinking of exhibits,
  • Consolidating the rules relating to incorporation by reference,
  • Revising the item 102 requirement relating to descriptions of properties,
  • Revising the MD&A disclosure requirements to eliminate repetition, and
  • Permitting the omission of attachments and schedules filed with exhibits (unless they contain material information that is not otherwise disclosed).

Here is a link to the Report:  https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf.

To learn more, read our client alert:  https://media2.mofo.com/documents/161129-section-72003-fast-act.pdf.

On October 26, 2016, the SEC adopted final rules (1) amending Rule 147 and Rule 504 under the Securities Act of 1933, as amended (the “Securities Act”), (2) establishing a new Securities Act exemption designated Rule 147A, and (3) repealing Rule 505 under the Securities Act.  Amended Rule 147 and new Rule 147A will take effect on April 20, 2017, amended Rule 504 will take effect on January 20, 2017, and the repeal of Rule 505 will take effect on May 20, 2017.  Amended Rule 147 facilitates offerings relying upon recently adopted intrastate crowdfunding exemptions under state securities laws, new Rule 147A further accommodates offers accessible to out-of-state residents and companies that are incorporated or organized out-of-state, and amended Rule 504 increases the aggregate amount of securities that may be offered and sold in any twelve-month period from $1 million to $5 million and disqualifies certain bad actors from participating in Rule 504 offerings.

For more information regarding amended Rule 147, new Rule 147A and amended Rule 504, read our client alert.

On November 17, 2016, the staff of the SEC’s Division of Corporation Finance (the “Staff”) issued four new compliance and disclosure interpretations (“C&DIs”) addressing aspects of offerings under Regulation A and Regulation D.  Highlights of the C&DIs include, among other things, the following guidance:

  • An issuer that seeks to qualify an additional class of securities by a post-qualification amendment to a previously qualified offering statement under Regulation A must satisfy the requirements of Item 4 to Part I of Form 1-A by providing responses that relate only to the additional class of securities.
  • A change of 20% or less in the aggregate offering price, which is permitted under the Note to Rule 253(b) of Regulation A without a post-qualification amendment, may be measured from either the high end (in the case of an increase in the offering price) or the low end (in the case of a decrease in the offering price) of that range.  However, a change of 20% or less is not permitted where the maximum aggregate offering price would result in the offering exceeding the relevant offering limit ($20 million for Tier 1 offerings and $50 million for Tier 2 offerings) or if the change would result in a Tier 1 offering becoming a Tier 2 offering.
  • Consistent with the treatment of EGCs under Section 71003 of the FAST Act, a company filing or confidentially submitting an offering statement under Regulation A may omit financial information for historical periods otherwise required by Part F/S of the Form 1-A, including financial information of other entities required to be included in Part F/S.  However, the company must reasonably believe that the omitted information will not be required to be included in the offering statement at the time of qualification.
  • Offers and sales of securities made in reliance on Rule 506(b) prior to the use of general solicitation in a subsequent Rule 506(c) offering will not be integrated with the offers and sales of securities made in reliance on Rule 506(c).

A copy of the C&DIs is available at: https://media2.mofo.com/documents/161118-question-182-12.pdf

At the American Bar Association’s Fall Meeting, Keith Higgins, Director of the SEC’s Division of Corporation Finance (the “Division”), gave his last “Dialogue with the Director” given the upcoming change in administration.  Mr. Higgins presented his views on a broad range of areas, including the following:

  • Amended Rule 147 and Rule 504 and new Rule 147A.  The Federal Register should be publishing soon the final rules adopting amended Rule 147 and Rule 504 and new Rule 147A so that the effective dates will be early in 2017.  We have commented on these rules in our client alert, available here.
  • The FAST Act.  All of the required rulemakings related to the Fixing America’s Surface Transportation (FAST) Act have been completed.  The SEC must deliver on November 28, 2016 its report to Congress on recommendations to simplify the Regulation S-K disclosure rules.  These recommendations are likely to take into account comments received with respect to the “400 Series” of Regulation S-K.
  • Diversity Disclosures.  The Division completed its disclosure recommendations relating to disclosures regarding board of director diversity.  However, SEC Chair Mary Jo White has noted she does not expect the SEC to act on the recommendations before January 2017.
  • At-the-Market Offerings.  Mr. Higgins noted the Division’s review relating to disclosures available to investors in connection with at-the-market (“ATM”) sales by issuers.  Mr. Higgins indicated that there has been continuing discussion with market participants regarding disclosure practices for plan of distribution sections of ATM prospectuses, including disclosures regarding “negotiated” sales and periodic sales.  Mr. Higgins noted that there may be SEC Staff guidance forthcoming on these types of disclosures.
  • Rule 701 and Form S-8.  Given that companies are staying private longer, the SEC Staff has been receiving more questions on Securities Act Rule 701 and the use of registration statements on Form S-8, and the SEC Staff has issued C&DIs in response.  For more information, see our blog post, available here.
  • Looking into the Future.  Mr. Higgins commented on the provisions of the proposed Financial CHOICE Act (the “CHOICE Act”), which may receive renewed interest and support by the new administration next year.  For a summary of the securities law related provisions of the CHOICE Act, see our client alert, available here.
  • Integration C&DI.  The SEC Staff issued new guidance on Rule 506(b) and Rule 506(c) of Regulation D that treats Rule 506(c) offerings as “public offerings” for purposes of analogizing to Securities Act Rule 152.
  • Shareholder Proposals.  Mr. Higgins also addressed a number of shareholder proposal matters and pay ratio guidance.

On November 14, 2016, the SEC hosted a panel discussion entitled the “Impact of Recent Innovation in Capital Formation,” as part of its public forum on financial technology (Fintech) innovation held in Washington, D.C., and webcast over the SEC’s website.  Mr. Sebastian Gomez Abero, Head of the Office of Small Business Policy of the SEC’s Division of Corporation Finance, moderated the panel.

Panelists discussed the relationship between financial innovation and capital formation, the dynamic between Fintech and investor protection, and the risks, challenges and opportunities facing borrowers, lenders, intermediaries and regulators engaged in the online marketplace lending and crowdfunding spaces.  The panelists said that, overall, they see the recent growth in peer-to-peer online lending and crowdfunding technologies as positive developments, particularly in expanding the availability of and access to affordable credit and capital to traditionally underserved markets, including small business owners and entrepreneurs.  Another common theme identified by the panel is the need for greater clarity, standardization and consolidation in the regulatory structure.  A panelist commented that, at the moment, there were about 25 federal agencies involved in consumer finance and much more at the state level, with overlapping jurisdictions.  Oftentimes, borrowers who wish to tap into the online marketplace lending and crowdfunding spaces are confronted with the daunting task of navigating through a complex and overlapping regulatory landscape, with multiple regulators to deal with.  Notwithstanding these challenges, the panel expressed confidence that online marketplace lending and crowdfunding are poised to grow and develop in the coming years.  The SEC has also reported that in less than six months since the regulations became effective, more than 140 companies have started an offering using the new Regulation Crowdfunding.

Today the Securities and Exchange Commission issued a press release noting that Chair White intends to leave her post at the end of the Obama Administration.  Chair White has served since April 2013.  See the Commission’s press release here:  https://www.sec.gov/news/pressrelease/2016-238.html, as well as Treasury Secretary Lew’s statement regarding Chair White’s contributions:  https://www.treasury.gov/press-center/press-releases/Pages/jl0610.aspx.

On November 9, 2016, the SEC’s Division of Corporation Finance  issued revised Question 240.11 and new Questions 240.15 and 240.16 of its Compliance and Disclosure Interpretations (the “C&DIs”), pertaining to Securities Act Rule 457(p) and Form S-8 registration statements.  Rule 457(p) allows an issuer to utilize previously-paid filing fees relating to unsold securities under an earlier registration statement to offset against the filing fees due for a subsequent registration statement filed within five years of the filing of the earlier registration statement. Within the context of shares of common stock being registered under Form S-8 that are issuable upon the exercise of outstanding options granted under an issuer’s equity compensation plan, the main takeaways of the C&DIs are as follows:

  • Rule 457(p) permits filing fees to be transferred only after the registered offering has been completed or terminated or the registration statement has been withdrawn.
  • An offering registered on Form S-8 is only completed or terminated when no additional securities will be issued pursuant to the plan covered by the Form S-8, including through the exercise of any outstanding awards.
  • An issuer that wishes to: (i) roll over, from one equity compensation plan to a new plan, (a) shares remaining under the earlier plan that are not subject to outstanding options and (b) shares subject to outstanding options under the earlier plan that would expire, be terminated or canceled under the new plan, and (ii) register shares newly authorized for issuance under the new plan, can register all these shares on a new Form S-8.  However, because the offering is not yet completed under the earlier plan, Rule 457(p) does not permit the issuer to claim the filing fees associated with the shares from the earlier plan as an offset against the filing fees due for the new Form S-8.  Alternatively, the issuer can file (without the need to pay new filing fees), a post-effective amendment to the earlier Form S-8 for the early plan, indicating that such Form S-8 will also cover the issuance of shares under the new plan once they are no longer issuable pursuant to the old plan and instead become authorized for issuance under the new plan, but a new and separate S-8 covering the new shares to be issued under the new plan must be filed.

A copy of the C&DIs is available at: https://media2.mofo.com/documents/161111-new-cdis-on-rule457p.pdf

Today the SEC announced the agenda and the panelists for its first ever fintech forum on November 14th.  As noted in the announcement, the session, which will begin at 9 a.m. ET, will be divided into four panels. Participants on the first panel will discuss the impact of recent innovation in investment advisory services. The second panel will discuss the impact of recent innovation on trading, settlements, and clearance activities. Participants on the third panel will discuss the impact of recent innovation in capital formation. The final panel will discuss investor protection in the fintech era.  The session is open to the public and also will be webcast.

Learn more here:   https://www.sec.gov/news/pressrelease/2016-234.html