On August 20, 2019, the SEC charged a pharmaceutical company with violations of Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts on two separate occasions without also disclosing the same information to the public.

The SEC found that on two separate occasions in June 2017, the company selectively disclosed material information to analysts regarding its correspondence with the U.S. Food and Drug Administration (FDA) about the pending approval of a drug the company was developing. According to the SEC, one day after a publicly-announced meeting with the FDA regarding the new drug, the company sent private messages to sell-side analysts describing the meeting as “very positive and productive.” The company’s stock price closed up to 19.4% on heavy trading volume the next day prompting an inquiry from the New York Stock Exchange (NYSE) about whether any material information might be causing the sudden rise in a company’s stock price. At that time, the company had not issued a press release or made any other market-wide disclosure about the meeting.

According to the SEC, prior to the market open the following morning, the company issued a press release announcing that it had provided additional information to the FDA regarding the new drug, but did not yet have a clear path forward regarding the approval of the drug. The company’s stock price declined approximately 16% in pre-market trading following the announcement. The SEC found that in a call and email to sell-side analysts after the press release was issued but before the market opened, the company once again selectively disclosed previously undisclosed details about its meeting with the FDA and the information it had subsequently submitted to the FDA. The analysts then published research notes containing these details, and the company’s stock rebounded, closing down only 6.6% for the day. The SEC found that at the time of these selective disclosures, the company did not have policies or procedures regarding compliance with Regulation FD.

The company consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. The company agreed to pay a monetary penalty.

The SEC has brought a number of enforcement actions for violations of Regulation FD, although it has been some time since the SEC’s last enforcement action relating to selective disclosure.

At an open meeting today, the Securities and Exchange Commission issued guidance to assist investment advisers in fulfilling their proxy voting responsibilities in using the services of a proxy advisory firm, and provided guidance on proxy voting disclosures under Investment Company Act forms.  The Commission also issued an interpretation of Exchange Act Rule 14a-1(l) that proxy voting advice generally constitutes a solicitation under the federal proxy rules and related guidance regarding the application of the antifraud provisions in Exchange Act Rule 14a-9 to proxy voting advice.

The guidance and interpretation will be effective upon publication in the Federal Register.  The Commission’s press release can be found here.  The Commission’s Interpretation and Guidance Regarding the Applicability of the Proxy Rules can be accessed here, and the Commission’s Guidance Regarding Proxy Voting Responsibilities of Investment Advisers is available here.

A Legal Update will follow.

In this Lexis Practice Advisor® Practice Note, we discuss the proposed amendments issued by the Securities and Exchange Commission (SEC) on May 9, 2019 to the accelerated filer and large accelerated filer definitions in Rule 12b-2 (Rule 12b-2) (17 C.F.R. § 240.12b-2) under the Securities Exchange Act of 1934, as amended (the Exchange Act). The proposed amendments: (i) exclude from the accelerated and large accelerated filer definitions any issuer that qualifies as a smaller reporting company (SRC) under the SRC revenue test (i.e., no revenues or annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available); (ii) revise the transition thresholds for accelerated and large accelerated filers becoming non-accelerated filers and for exiting large accelerated filer status; and (iii) add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.

September 10 and October 3, 2019

Please join us in either Chicago or New York for our 2nd Annual Executive Compensation University.

During this half-day program, we will explore tax, employment and securities issues impacting executive compensation and hear from leading Mayer Brown lawyers about the changing regulatory landscape as they provide practical, business-focused guidance on dealing with these challenges. The program will cover such areas as:

  • Common executive compensation mistakes to avoid
  • Disclosure issues
  • Hot topics and current trends in executive compensation
  • Employment disputes and executive compensation

We look forward to open dialogues with our guests. We encourage you to share this invitation with other colleagues but not with regulators or the press as this event is closed to them.

To register for either the New York or Chicago event, please click here.

New York
Tuesday, September 10, 2019
Registration & Lunch:  12:00 p.m. – 12:30 p.m.
Program:  12:30 p.m. – 5:00 p.m.
Cocktail reception will follow.
Location: Mayer Brown
1221 Avenue of the Americas
New York, NY 10020
New York Agenda

Chicago
Thursday, October 3, 2019
Registration & Breakfast: 8:00 a.m. – 8:30 a.m.
Program: 8:30 a.m. – 1:00 p.m.
Lunch will be served.
Location: Mayer Brown
71 South Wacker Drive
Chicago, IL 60606
Chicago Agenda

On August 8, 2019, the US Securities and Exchange Commission proposed amendments to Regulation S-K that are intended to modernize business, legal proceedings and risk factor disclosures. According to the SEC, the proposed amendments are designed to update rules to account for developments since they were first adopted or last amended and to improve the readability of disclosures for investors while discouraging repetition and disclosure of immaterial information and simplifying compliance for reporting companies. This Legal Update summarizes the proposed amendments and notes related practical considerations for public companies.

The Securities and Exchange Commission announced an open meeting for August 21st in order to consider: guidance regarding the proxy voting responsibilities of investment advisers under Rule 206(4)-6 under the Investment Advisers Act of 1940, as well as to consider whether to publish an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice.  See the notice here.

Earlier this spring, the Nasdaq Stock Exchange (the “Nasdaq”) filed a proposed amendment (the “Amendment”) of its initial listing standards with the Securities and Exchange Commission (the “SEC”).  The SEC approved the changes to Nasdaq’s initial listing standards in July 2019, and these changes became effective this week, on August 5, 2019.

The Nasdaq amended the requirements for entry onto its exchange based on the characterization of a security as “unrestricted” or “restricted.” Previously, securities subject to resale restrictions were included in the Nasdaq’s liquidity calculations, but such securities were not freely transferrable or purchasable on the exchange.  The Nasdaq had some concerns that restricted securities did not accurately contribute to a listed security’s liquidity. The Amendment also changed the definition of “restricted securities” under the Nasdaq rules to include any securities subject to resale restrictions for any reason, including those acquired in unregistered offerings, employee stock benefit plans, offshore Regulation S offerings, lockup agreements or those within the ambit of Rule 144.

Nasdaq’s definition disqualifies restricted securities from certain listing requirements. Most significantly, the change excludes restricted securities from the definition of “publicly held shares” for the purpose of calculating eligibility for all tiers of the Nasdaq. The change also excludes restricted securities from the calculations of the “minimum market value” and the “minimum number of round lot holders” required to list securities on the Nasdaq.

Furthermore, the Amendment imposes additional requirements on lot holders and on primary equity securities for Nasdaq eligibility, including changing the “minimum value requirement” for lot holders, so as to require at least 50% of a company’s round lot holders to hold unrestricted securities with a market value of at least $2,500 for entry onto the exchange, and imposing an “average daily trading volume” requirement so as to mandate primary equity securities to have a minimum average volume of trade for over half of the 30 trading days prior to the listing of at least 2,000 shares. The Nasdaq stated that there would be an exemption for securities listed in connection with a firm commitment underwritten public offering of at least $4 million from this average daily trading volume requirement.

The text granting approval for the rule change can be found here.

Despite the cancellation of the open meeting, the Securities and Exchange Commission proceeded to vote to propose amendments to certain Regulation S-K disclosure requirements.

The proposed amendments relate only to Items 101 (description of business), 103 (legal proceedings) and 105 (risk factors).  This does not fully address all of the aspects of Regulation S-K that were part of the Commission’s Concept Release.

Here is a link to the Fact Sheet and to the proposing release.

An alert will follow.

The Securities and Exchange Commission announced an open meeting for August 8th to consider whether to propose rule amendments to modernize the description of business, legal proceedings, and risk factor disclosures required by Regulation S-K.  Readers will recall that the Commission had published a concept release (see: https://bit.ly/1Y52Baz) a little over three years ago seeking comment on Regulation S-K business and financial statement requirements.  The concept release followed on the heels of the Commission’s Regulation S-K study, which had been required to be undertaken by the JOBS Act.  Might these be more than the technical changes that we’ve seen implemented pursuant to the FAST Act?  We will be following developments in the area in future posts.