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

On February 3, 2017, President Donald Trump signed an executive order to roll back certain parts of the Dodd-Frank Act.  We will continue to monitor news relating to the executive order and report developments on this blog.

UPDATE:  The White House released the official text of the Presidential Executive Order on Core Principles for Regulating the United States Financial System later in the afternoon on February 3.  See the executive order here: https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states.

Likely, this is only the beginning. Senator Inhofe and Representative Huizenga filed Congressional Review Act Resolution relating to the Securities and Exchange Commission’s final rule regarding the disclosure of certain payments made by resource extraction issuers. The rule was required by Section 1504 of the Dodd-Frank Act. In the statement regarding the CRA, Senator Inhofe claimed that the rule “would put [U.S.] companies at a disadvantage by forcing them to disclose confidential business information to their private and international competitors.”

On September 13, 2016, the House Financial Services Committee of the United States House of Representatives (the “FSC”) formally released H.R. 5983, the “Financial CHOICE Act” (the “CHOICE Act”). While the CHOICE Act has largely been viewed through a financial regulatory lens, as the first major concerted effort to provide an alternative to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) as a way to end “Too Big to Fail,” the CHOICE Act, as currently drafted, would also repeal a number of the specialized disclosure provisions that were contained in the Dodd-Frank Act and subsume “JOBS Act 2.0” capital formation measures that have largely been presented to date as standalone bills.

This alert provides an overview of the sections of the CHOICE Act that would impact U.S. securities laws, which are contained in Title IV and Title X of the CHOICE Act.

Read our client alert.

Click here to view our chart entitled “Capital Formation Bills Reflected in the CHOICE Act.”

On June 14, 2016, the SEC issued an order (the “Order”) to increase the net worth threshold for “qualified clients” under Rule 205-3 of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), from $2 million to $2.1 million.  Rule 205-3 currently allows an investment adviser to charge a client (a “qualified client”) performance fees if:

  • the client has at least a certain dollar amount in assets under management (currently, $1,000,000) with the investment adviser immediately after entering into the advisory contract;
  • if the investment adviser reasonably believes, immediately prior to entering into the advisory contract, that the client either (A) had a net worth of more than a certain dollar amount (currently, $2,000,000) (the “net worth test”) or (B) is a “qualified purchaser” as defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended, at the time the advisory contract is entered into; or
  • the client is (A) an executive officer, director, trustee, general partner, or person serving in a similar capacity, of the investment adviser or (B) is a “knowledgeable employee” of the investor adviser.

The adjustment to the net worth threshold is being made pursuant to a five-year indexing adjustment required by Section 205(e) of the Advisers Act and Section 419 of the Dodd-Frank Act.  The effective date of the increase to the net worth threshold is August 15, 2016.  Qualified clients that enter into advisory contracts in reliance on the net worth test prior to the effective date will be “grandfathered” in under the prior net worth threshold.

A copy of the Order is available at: http://www.sec.gov/rules/other/2016/ia-4421.pdf

On June 7, in a speech to the Economic Club of New York, House Financial Services Committee Chairman Jeb Hensarling announced the Republican plan to replace the Dodd-Frank Act.  The Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act is set to be introduced as legislation later this month.  The Financial CHOICE Act proposes to end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from, what Hensarling called, “growth-strangling regulation”; impose tougher penalties on those who commit fraud; and hold Washington regulators more accountable.

An executive summary, made available on the House Financial Services Committee webpage, outlines the various components of the Financial CHOICE Act.  Included in the proposal for the Financial CHOICE Act is the incorporation of various pending legislation focused on reducing regulatory burden on capital formation for small businesses.  These bills would include: H.R. 1090 (Retail Investor Protection Act), H.R. 4168 (Small Business Capital Formation Enhancement Act), H.R. 4498 (Helping Angels Lead Our Startups “HALOS” Act) and H.R. 5019 (Fair Access to Investment Research Act).

In his speech, Hensarling called the Financial CHOICE Act “the foundation of the Republican plan to reignite growth…with real reforms that work.”  We will continue to monitor developments of the Financial CHOICE Act on this blog.

Chair White, addressing the Investor Advisory Committee, provided an update on SEC rulemaking.  Chair White identified the following initiatives:

  • the disclosure effectiveness initiative;
  • the review of the “accredited investor” definition;
  • action on the tick size pilot; and
  • the adoption of final crowdfunding rules.

Chair White also noted that the Commission must complete its required rulemakings under Dodd-Frank, including the Title VII and the executive compensation related rulemakings.  See her remarks here: https://www.sec.gov/news/statement/opening-remarks-to-the-investor-advisory-committee.html.

In testimony today, Chair White provided a brief update on various rulemaking initiatives.  She noted that, in connection with the Dodd-Frank Act mandates, the Division of Corporation Finance continues to work to implement provisions of the Dodd-Frank Act relating to executive compensation matters and payments by resource extraction issuers, and is currently conducting the review of the accredited investor definition.  On the JOBS Act, Chair White noted that tomorrow the Commission will meet to consider a final rule implementing Regulation A+ (Title IV of the Act).  She did not comment on Title III, crowdfunding.  She noted that the Division of Corporation Finance is developing recommendations for updating disclosure requirements in furtherance of the work done on the JOBS Act-mandated Regulation S-K study.  She noted that the Commission intends to continue evaluating the tick size pilot program.  The text of the testimony is available here:  http://www.sec.gov/news/testimony/2015-ts032415mjw.html#.VRGymU10yFg.

On March 24th, the U.S. Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance and Investment will hold a hearing on “Capital Formation and Reducing Small Business Burdens.”  Information about the hearing is available here: https://www.banking.senate.gov/hearings/capital-formation-and-reducing-small-business-burdens.

Also on March 24th, the U.S. House Committee on Financial Services will hold a hearing, “Examining the SEC’s Agenda, Operations and FY 2016 Budget Request.”  Chair White is the only witness testifying at the hearing and is expected to address the SEC’s rulemaking progress toward implementation of the Dodd-Frank Act and the JOBS Act.