CURRENT MONTH (December 2024)
Investment Adviser and Private Companies Penalized for Failing to Timely File Form D
By Karen Liu, Reid & Wise LLC
On December 20, 2024, the U.S. Securities and Exchange Commission (the “SEC”) announced charges against a registered investment adviser and two private companies for failing to timely file Forms D with respect to unregistered securities offerings.
Pursuant to Rule 503 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), any issuer relying on Rule 504 or Rule 506 of Regulation D must file with the SEC a Form D for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.
The three cases share similar fact patterns. For the case against the investment adviser, the securities issuers are the private funds under the adviser’s management. For the other two cases against private companies, the securities issuers are the two private companies themselves. In all the three cases, the issuers conducted unregistered offerings under Regulation D and also engaged in certain communications that constituted general solicitation for such offerings. The SEC reasoned that because the issuers “engaged in general solicitation, the offerings could not have been conducted as exempt offerings under Section 4(a)(2) of the Securities Act and therefore could not have been conducted without reliance on Rule 504 or Rule 506(c) of Regulation D,” which necessitates timely Form D filing with the SEC.
Private companies usually rely on Section 4(a)(2) of the Securities Act or Regulation D thereunder in onshore securities offerings. The SEC reiterates through the three cases that, if a private company engages in any general solicitation (such as through YouTube videos, social media posts, newspaper or online ads, and radio or TV broadcasts) in an onshore securities offering, it will automatically lose legal basis to rely on Section 4(a)(2) of the Securities Act and will have to file a Form D with the SEC no later than 15 calendar days after the first sale of securities in the offering. To avoid missing the deadline, an issuer is allowed to file a Form D at any time before that if it has determined to make the offering.
In the three orders, the SEC emphasized multiple negative effects that could result from Form D filing delays or failures:
- Impeding the SEC’s ability to fully assess the scope of the Regulation D market;
- Harming the SEC’s ability to monitor and enforce compliance with the requirements of Regulation D;
- Hindering state securities regulators’ and self-regulatory organizations’ ability to monitor and enforce other securities laws and the rules of securities self-regulatory organizations; and
- Impacting investors’ and other market participants’ ability to understand whether companies are complying with federal securities laws in their offerings, to do research and analysis on the Regulation D market, and to report on capital-raising in industries that use Regulation D.
The three cases highlight the significance of complying with the Form D filing requirements, especially for private companies, which are often less regulated and sometimes less sophisticated than public companies. The case against the investment adviser also signals the important role of fund managers in keeping private funds they manage complying with securities laws.
EDGAR Next!
By: Jason Parsont, Michelle Stasny & Fatima Carillo, Mayer Brown
In September 2024, the SEC adopted amendments that will change the way filers – public companies, directors, officers, certain beneficial owners, etc. – access and manage their accounts on EDGAR (changes collectively referred to as “EDGAR Next” by the SEC). Among other things, EDGAR Next will phase out and ultimately eliminate the EDGAR access codes that filers (and financial printers and other filing agents) currently use to log in to EDGAR and make filings.
EDGAR Next requires filers to take action to understand and then decide how to meet the new requirements. More details, including important transition dates and FAQs, are included in this Legal Update.
NASDAQ Diversity Rule Struck Down by Fifth Circuit Court of Appeals
By: Rani Doyle
In August 2021, the SEC approved Nasdaq’s rule calling for Nasdaq-listed companies to (i) disclose certain dimensions of diversity represented on its board and (ii) have or disclose why they did not have a certain number of diverse directors on their board. By a 9-8 majority ruling on December 11, 2024, the court found that the SEC exceeded its authority in approving Nasdaq’s rule after concluding that the rule was “far removed” from the primary purposes of the Exchange Act, which it characterized as preventing fraud, market manipulation, and excessive speculation; promoting just and equitable markets; and generally protecting investors.
Many companies, including those not listed on Nasdaq, already provide some level of board diversity disclosures. And many Nasdaq companies “complied” with the rule, even though its enforcement was suspended due to legal challenges made promptly after the SEC’s approval. Before omitting any such disclosure in their next proxy statements, companies should consider investor priorities and any continuing demands for such disclosure. They should also note that the voting guidelines of proxy advisors ISS and Glass Lewis continue to reflect expectations for board diversity disclosures.
Some commenters suggest that the court applied a narrow interpretation of the SEC’s authority that, if followed broadly, would add another potential constriction on the scope of SEC rulemaking.
ISS Updates 2025 Benchmark Policy Updates and FAQs on Executive Compensation Policies
By: Rani Doyle
On December 17, 2024, ISS issued updates to its global proxy voting guidelines. The updates are effective for shareholder meetings on or after February 1, 2025. Of the 41 global policy updates, three are relevant for US companies. Two of those three updates pertain to ISS’s consideration of poison pills and SPAC extensions. The third is to modify the term “General Environmental” shareholder proposals to “Natural Capital-Related and/or Community Impact Assessment Proposals.” The Executive Summary of the global policy updates is linked here.
On December 13, 2024, ISS published FAQs on its executive compensation policies. The update highlights new and materially updated FAQs.
