On November 6, the Division of Corporation Finance (Division) of the Securities and Exchange Commission issued Compliance and Disclosure Interpretation (C&DI) 271.25 to address permissible safeguards for protection of Rule 701(e) electronic disclosures. Rule 701 provides an exemption from registration under the Securities Act of 1933 for offers and sales of securities under written compensatory benefit plans and contracts to an issuer’s employees, directors, consultants and advisors. Rule 701(e) requires an issuer relying on the Rule 701 exemption to deliver to each investor a copy of the applicable benefit plan or contract. In addition, if the issuer sells securities with a value in excess of $5 million during any consecutive 12-month period, then, a reasonable period of time before the date of sale, the issuer must deliver additional information listed in Rule 701(e) (including financial statements and information about the risks associated with the investment), which requirement may be satisfied by an issuer delivering such information electronically.
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On October 23, the Securities and Exchange Commission approved new audit reporting standard, AS 3101, proposed by the Public Company Accounting Oversight Board (PCAOB), which requires auditors to provide new information in public company audit reports, with the goal of making such reports more informative for investors and other financial statement users. The adoption of the PCAOB rule represents the first significant change to the auditor’s report in several decades and will fundamentally change the auditors’ report from a writing that consists entirely of boilerplate (in the vast majority of cases at least), into a document that contains disclosure specific to the particular filer, as discussed in more detail below. In a public statement on October 23, SEC Commissioner Kara Stein said she expects the PCAOB rule to result in auditor’s reports that “provide investors with more meaningful information about the audit, including significant estimates and judgments, significant unusual transactions and other areas of risk at a company,” which will “add to the total mix of information available to investors when making voting and capital allocation decisions.”
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As previously reported in the October 13, 2017 edition of Corporate & Financial Weekly Digest, on October 11, the Securities and Exchange Commission proposed amendments (the Proposal) to modernize and simplify disclosure requirements in Regulation S-K, and related rules and forms. The Proposal is intended to reduce registrants’ burden and costs to comply with the SEC’s disclosure requirements, while making public filings easier for investors to read, navigate and understand, including by discouraging repetitive disclosure and the disclosure of immaterial information.
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On October 11, the Securities and Exchange Commission issued a press release announcing that it voted to propose amendments to modernize and simplify disclosure requirements in Regulation S-K, and related rules and forms, by updating, streamlining or otherwise improving the SEC’s disclosure framework “in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors.” The proposed amendments are based on recommendations made in the staff of the SEC’s Report on Modernization and Simplification of Regulation S-K, as required by the Fixing America’s Surface Transportation Act (FAST Act). In the press release, SEC Chairman Jay Clayton noted that “an effective disclosure regime provides investors with the information necessary to make informed investment choices without imposing unnecessary burdens of time and money on issuers, and today’s action embodies that goal.”
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On September 21, the Securities and Exchange Commission (SEC) issued an interpretive release (available here) regarding compliance with Item 402(u) of Regulation S-K (the Pay Ratio Disclosure Rule), which sets forth the requirement that each registrant disclose the ratio of the compensation of its principal executive officer (PEO) to its median employee’s compensation. In the interpretive release, the SEC emphasized that the Pay Ratio Disclosure Rule is designed to provide registrants with the flexibility to determine appropriate methodologies to identify and calculate the compensation of the median employee and prepare the required disclosures. Significantly, the SEC indicated in the interpretive release that, if a registrant uses reasonable estimates, assumptions or methodologies to determine the pay ratio, the pay ratio and related disclosure would not provide the basis for an SEC enforcement action, unless such disclosure was made or reaffirmed without a reasonable basis or was provided other than in good faith.
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On September 15, at the ABA Business Law Section Annual Meeting, the Securities and Exchange Commission (SEC) Division of Corporation Finance (Division) Director Bill Hinman provided remarks on various matters, including the Division’s focus on capital formation-related matters. Of particular note, Director Hinman indicated that he expects that Item 402 of Regulation S-K (the Pay

The Securities and Exchange Commission’s (SEC) Division of Corporation Finance (Division) recently issued three new Compliance and Disclosure Interpretations (C&DIs) related to so-called “Regulation A+.”

The new C&DIs address the following issues (among others):

C&DI 182.21 provides that a Regulation A issuer that registers a class of its securities pursuant to the Securities Exchange Act of 1934 on a Form 8-A concurrently with (i.e., within five days after) the qualification of a post-qualification amendment to a Form 1-A must include in the post-qualification amendment financial statements that are current at the time the post-qualification amendment is qualified. The full text of this C&DI can be found here.
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Since the adoption of the Fixing America’s Surface Transportation Act (FAST Act) on December 4, 2015, the Division of Corporation Finance (the Division) of the Securities and Exchange Commission has issued six Compliance and Disclosure Interpretations (C&DIs) relating to the FAST Act, the first two of which were summarized in the Corporate and Financial Weekly Digest edition of December 18, 2015 and the remainder of which were summarized in the Corporate and Financial Weekly Digest edition of January 8, 2016. On August 17, the Division updated FAST Act C&DI #1 and issued new Securities Act Forms C&DI 101.05, which modified and supplemented the original guidance. The FAST Act provides that an emerging growth company (EGC) conducting an initial public offering (IPO) or a follow-on offering within one year of its IPO, or filing an initial registration under the Securities Exchange Act of 1934 (the Exchange Act) may file registration statements that omit historical financial information for a period the EGC reasonably believes would not be required in the filing at the time of the contemplated offering. The Division’s original guidance specified that an EGC would be required to include in its filings or confidential submissions interim financial statements for a period that will be part of a longer interim or annual period covered by financial statements required to be included in a subsequent public filing at the time of the offering.
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As previously reported in the July 7 edition of the Corporate and Financial Weekly Digest, the Division of Corporation Finance (the Division) of the Securities and Exchange Commission announced that, on July 10, the Division began to permit all issuers to confidentially submit to the Division, for nonpublic review, draft registration statements in connection with initial public offerings (IPOs) and in certain other cases. The nonpublic review process is available for Securities Act registration statements prior to and within one year, following an issuer’s initial public offering date. On August 17, the Division issued updated guidance to clarify that an issuer’s initial public offering date for this purpose will be determined pursuant to Section 101(c) of the JOBS Act, which defines “initial public offering date” as the “date of the first sale of common equity securities of an issuer pursuant to an effective registration statement under the Securities Act of 1933.”
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On June 29, the Division of Corporation Finance (Division) of the Securities and Exchange Commission announced that, beginning on July 10, the Division will permit all issuers to confidentially submit to the Division, for nonpublic review, draft registration statements in connection with initial public offerings (IPOs) and in certain other cases. This was previously only available to emerging growth companies (EGCs) under the Jumpstart Our Business Startups Act for their IPOs.
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