CURRENT MONTH (February 2022)

Securities Regulation

SEC Proposes Modernization of Beneficial Ownership Reporting: Amendments to Schedules 13D and 13G

By Anna T. Pinedo, Mayer Brown

On February 10, 2022, the Securities and Exchange Commission (SEC) proposed amendments to Schedules 13D and 13G relating to beneficial ownership reports. Section 13D requires disclosure by investors of the accumulation of significant positions in, or of certain increases in such positions in, the equity securities of public companies. Section 13G requires disclosures by certain passive or institutional investors that obtain a significant percentage of stock in a public company. The proposed amendments are intended to modernize Sections 13D and 13G by, among other things, making information available to the public in a more timely manner, deeming holders of certain cash-settled derivative securities beneficial owners of the reference equity securities, and clarifying the disclosure requirements in respect of derivative securities.

Since the Dodd-Frank Act provided the SEC with the authority to adopt rules to shorten the ten-day filing period for Schedule 13D and Schedule 13G filings, there has been discussion regarding whether the current time periods for reporting needed to be shortened. The Brokaw Act, originally introduced in the Senate in 2016, would have amended Sections 13(d) and (g) in certain respects and also would have directed the SEC to shorten the reporting period. While the proposed legislation ignited a lot of debate, it led to no action. SEC Chair Gary Gensler took up this issue, asserting that the delays in filing Schedules 13D and 13G resulted in information asymmetries.

The proposed amendments would require that Schedules 13D and 13G be filed using a structured, machine-readable data language. This would require that all disclosures be filed with XML-based language for ease of investor access. The SEC also is proposing changes to multiple filing deadlines for Schedules 13D and 13G, including, for example amending Rule 13d-1(a) regarding beneficial ownership, such that an investor that exceeds 5% of a covered class of equity would need to file within five days instead of ten days. Similar amendments would be made shortening the reporting periods in respect of 13G filing requirements. Proposed Rule 13d-3(e)(1) would provide that a holder of certain cash-settled derivative securities will be deemed a beneficial owner of the reference securities in a covered class if such person holds the derivative security with the purpose or effect of changing or influencing the control of the issuer of such class of equity securities, or in connection with or as a participant in any transaction having such purpose or effect. The SEC is also proposing a series of amendments to Rule 13d-5 to clarify and affirm its application to two or more persons who “act as” as a group under Exchange Act Sections 13(d)(3) and (g)(3).

See the press release here.
See the fact sheet here.
See the proposing release here.

SEC Proposes New Whistleblower Rule Amendments

By Thomas W. White, Retired Partner, WilmerHale

On February 10, 2022, the Securities and Exchange Commission (SEC), over Commissioner Hester Peirce’s dissent, voted to propose two amendments to the rules governing its whistleblower award program. The newly proposed amendments would modify provisions previously amended in 2020. The latest proposed amendments come on the heels of Chair Gary Gensler’s announcement in August 2021 that he had directed the staff to prepare potential revisions to two amended rules to address concerns that the 2020 amendments “would discourage whistleblowers from coming forward.” (See our previous note on this topic.)

The proposed rule changes are:

  • Awards for Recoveries in “Related Actions”—Amended Rule 21F-3(b)(3) restricts the circumstances in which a whistleblower can receive an award from the SEC based on monetary recoveries in “related actions” by certain other governmental agencies. Basically, the rule provides that a whistleblower cannot recover under the SEC’s program where another agency maintains a whistleblower award program covering the action, unless the SEC finds “that its whistleblower program has the more direct or relevant connection to the action.” The SEC proposes to modify the rule to allow the SEC in certain circumstances to make an award that might otherwise be covered by an alternative whistleblower program even where the alternative whistleblower program has the more direct or relevant connection to the related action. The proposal offers multiple potential approaches.
  • Consideration of Dollar Amount of Awards—Amended Rule 21F-6 provides that in all cases the SEC may consider the dollar amount of the award (as opposed to just the percentage of the monetary sanctions recovered), including, implicitly, adjusting the award downward based on its potential size. The proposed change would eliminate the SEC’s ability to consider the dollar amount of a potential award for the purpose of decreasing an award.

Commissioner Peirce objected principally on the basis that there was no new information that warranted changing rules that had been adopted after full administrative proceedings and had only been in effect since September 2020.

PCAOB Creates New Advisory Groups

By Thomas W. White, Retired Partner, WilmerHale

The now-fully-reconstituted Public Company Accounting Oversight Board (PCAOB) announced in late January that it will establish two new advisory groups. The two groups are:

  • Investor Advisory Group—The new IAG “will advise the PCAOB on matters concerning the PCAOB’s mission to oversee the audits of public companies, and related matters (such as the audits of broker-dealers), to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports, including providing investors’ perspectives on key areas of concern and potential emerging risks related to PCAOB oversight activities.”
  • Standards and Emerging Issues Advisory Group—The SEIAG will “advise the PCAOB on existing standards, proposed standards, potential new standards and, if requested by the Board, on matters other than standards that are of significance to the PCAOB, including emerging audit issues.”

Notably, the PCAOB determined to defer adoption of formal charters for these groups until it receives public input.

The IAG and SEIAG supersede the Standards Advisory Group, which was established in 2021 and replaced the Board’s former Investor Advisory Group and Standing Advisory Group. (See our prior note on this topic.) The Standards Advisory Group had been established under former Board Chairman William D. Duhnke III. It was put on hold after Mr. Duhnke was ousted by the SEC in June 2021.


Rani Doyle

Rani Doyle

Managing Editor, Securities Law

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