The Securities and Exchange Commission has announced an open meeting on November 2, 2020 to consider amendments relating to the exempt offering framework.  The SEC had released proposed amendments for public comment in March 2020, which were well-received, and included proposed simplifications to the integration framework, as well as modifications to the offering thresholds for Regulation A, Rule 504 and Regulation Crowdfunding offerings. The proposal also included various recommendations that would harmonize or better align disclosure and other conditions for securities exemptions.  See the notice here.

Webinar
November 5, 2020 | 11:00am – 12:00pm EST
Register here.

The US federal election could have sweeping regulatory and legislative impacts across virtually every major sector of the economy. To help understand how government policy might change over the next four years and what that means for domestic and global businesses, we invite you to join the first of our post-election programs. In this webinar, our presenters will:

  • Provide an update on the outcome of the US presidential and congressional elections;
  • Explore how the projected election outcomes are likely to shape policy priorities with regard to financial services, taxation, trade, infrastructure, energy, and DOJ and regulatory enforcement; and
  • Discuss the significance of these priorities for multinational businesses, particularly regarding anticipated trade, regulatory policy changes and enforcement activity.

Howard Waltzman, a partner with Mayer Brown and former long-time senior congressional counsel, will moderate the discussion, joined by Mayer Brown panelists:

  • Andrew Olmem, former US National Economic Council (NEC) deputy director and a former chief counsel for the US Senate Banking Committee;
  • Warren Payne, former policy director for the US House of Representatives Committee on Ways and Means;
  • Philip Recht, former chief counsel and deputy administrator for the National Highway Traffic Safety Administration in the US Department of Transportation; and
  • Gina M. Parlovecchio, a former Assistant US Attorney in the US Attorney’s Office for the Eastern District of New York, where she served as the chief of the office’s International Narcotics and Money Laundering section.

More and more SPACs are choosing to undertake PIPE transactions in connection with their initial business combinations.  The capital raised in the PIPE transaction, which closes concurrent with the closing of the initial business combination, helps to mitigate the risks associated with potential SPAC stockholder redemptions.  In addition, as SPACs undertake larger initial business combinations, capital provided in the PIPE transactions helps provide additional growth capital for the combined company.  The PIPE transactions undertaken in connection with SPACs often raise some structuring and legal considerations that may not arise in your run-of-the-mill PIPE transaction.  We discuss these considerations in our article here.

The Securities and Exchange Commission has announced a virtual panel discussion on October 29, 2020, where panelists will discuss topics ranging from investor access to private markets to the SEC’s recent proposal to improve the retail investor experience through modernized fund shareholder reports and disclosures.  The panelists will include the Director of the SEC’s Division of Investment Management.  The webcast can be accessed from the SEC’s site here.

The Securities and Exchange Commission announced an open meeting will be held on October 28, 2020 during which the SEC will consider whether to adopt rules and related amendments designed to provide an updated approach to the regulation of funds’ use of derivatives.  The notice adds that the amendments the SEC will consider also would include new reporting requirements to enhance the SEC’s ability to effectively oversee funds’ use of derivatives. See the notice here.

 

The Securities and Exchange Commission will hold a roundtable discussion on October 26, 2020 that will focus on Regulation Best Interest and Form CRS.  The roundtable will discuss initial observations regarding implementation.  The published agenda, which is available here, includes various members of the SEC and FINRA staffs.  Interpretative questions may be submitted in advance to the SEC’s Inter-Divisional Standards of Conduct Implementation Committee at IABDQuestions@sec.gov.  Additional details regarding the webcast, which can be accessed from the SEC website, may be found here.

On October 7, 2020, the US Securities and Exchange Commission (“SEC”) adopted a new rule under the Investment Company Act of 1940 (the “Investment Company Act”) with respect to fund of fund arrangements. New Rule 12d1-4 would permit registered investment companies to invest in other registered investment companies beyond certain statutory limits set forth in Section 12(d)(1) and without obtaining an exemptive order, provided certain conditions are met. In light of this new rule, the SEC is rescinding most exemptive orders and certain no-action letters granting relief under Sections 12(d)(1)(A), (B), (C) and (G) of the Investment Company Act related to fund of funds arrangements that are within the scope of Rule 12d1-4; is rescinding Rule 12d1-2 under the Investment Company Act; and is adopting certain Form N-CEN and recordkeeping requirements associated with the new rule.

This Legal Update provides a high-level summary of new Rule 12d1-4 and also shares some initial takeaways with respect to this new rule.

As SPACs continue to barrel through 2020 at top speed, SEC has taken notice and we’ve already seen a number of remarks focusing on sufficient disclosure from Chair Clayton and Commissioner Lee. One area that does not seem to be getting full level of disclosure is the pricing of directors and officers (D&O) insurance coverage for the SPAC at its IPO. As I have written previously, at the IPO, the SPAC sponsor team obtains D&O coverage to protect itself from potential claims and to attract knowledgeable, well-recognized, independent directors. A typical, mid-size SPAC needs to decide between $10 million and $20 million of D&O coverage to be placed at the time of its IPO.

Recent D&O insurance environment, however, has become positively inhospitable. The contributing factors include the fact that there is only a handful of insurers who are willing to write D&O coverage for SPACs, that these same insurers have been inundated with requests for such coverage over the last few weeks and are running out of annual capacity, and that the number of SPACs out in the market has increased exponentially, thereby attracting additional risk. All of these factors do not only mean that it now takes insurers a lot longer to provide quotes, but also that it has driven SPAC D&O pricing to levels that are 100% to 200% higher than they were just a few weeks ago. As a result, the cost of a $20 million D&O policy has jumped from mid-$400,000s to between $900,000 and $1,100,000 just in the last month. Not surprisingly, this situation is creating serious tension in the market, with SPAC sponsors buckling under the pressure of hundreds of thousands of dollars in unplanned additional expenditures.

Very little of this, however, seems to be reflected or adequately disclosed in the estimated costs listed in the SPAC S-1 registration statements. Barring a few larger SPACs that filed in the last week or so, the costs of D&O coverage in a typical S-1 are estimated at around $100,000 to $200,000. These numbers may have been actionable several years ago but are wishful thinking in today’s D&O market. They are also presented on an annualized basis, which obscures the fact that they need to be doubled for a typical two-year D&O policy whose entire premium is payable at the time of the IPO, a fact that does not make it into the disclosure.

The premium numbers presented in this manner and estimated at levels that are significantly below current market pricing do not provide a true picture of the market and create unrealistic expectations for both future SPAC sponsors and their investors.

This guest post was written by Yelena Dunaevsky, Esq., a Transactional Insurance Executive at Woodruff Sawyer. 

Webinar Event
Wednesday, October 28, 2020 | 3:00pm  – 4:00pm EDT
Register here.

What are general counsel considering right now in the areas of data, digital, innovation and software?

Join Mayer Brown partner Michelle Ontiveros Gross for a virtual conversation with Erin Abrams, General Counsel of Via Transportation, Inc.; Louise Pentland, EVP, Chief Business Affairs and Legal Officer of PayPal; and Beth Stevens, Head of Legal at Opendoor. As the leading lawyers at technology-driven and innovation-focused companies, the GCs will discuss the issues and challenges that their businesses are facing, including those on the horizon.

 

On October 6, 2020, the New York Stock Exchange (“NYSE”) filed a proposed rule amendment in order to seek approval to amend certain of the shareholder approval requirements set forth in Section 312 of the NYSE Listed Company Manual.  Paragraphs (b) and (c) of Section 312 require NYSE-listed companies to obtain shareholder approval prior to certain equity issuances.  The proposed changes would bring the NYSE’s shareholder approval rules into closer alignment with those of Nasdaq and the NYSE American.

Section 312.03(b) requires shareholder approval for certain issuances of common stock to specified related parties.  This approval is required if the shares to be issued exceed 1% of the shares outstanding before the issuance.  However, a limited exception permits sales to related parties that are only substantial security holders of the issuer so long as no more than 5% of outstanding shares are issued and the shares are issued at no less than the minimum price.  The NYSE proposes to amend this rule to limit the class of related parties that would require shareholder approval.  Section 312.03(b) as amended would require prior shareholder approval only for sales to directors, officers and substantial security holders and would no longer require approval for sales to such related party’s subsidiaries, affiliates or other persons closely related or to entities in which a related party has a substantial interest.  Further, Section 312.03(b) as amended would no longer require shareholder approval of issuances of more than 5% of outstanding shares to a related party so long as they are issued at a minimum price.  Instead, the NYSE proposes to require that any listed company obtain shareholder approval for a transaction in which a director, officer or substantial security holder has a 5% or greater interest (or such persons collectively have a 10% or greater interest) in the company or assets to be acquired or in the consideration to be paid in the transaction and the issuance of shares could result in an increase in outstanding shares of 5% or more.

Section 312.03(c) requires shareholder approval of any issuance of 20% or more of outstanding shares before such issuance, excluding (i) any public offering; or (ii) any bona fide private financing (defined as no one purchaser acquiring more than 5% of outstanding shares) that complies with a minimum price requirement.  The NYSE proposes to replace the reference to “bona fide private financing” with “other financing in which the company is selling securities for cash.”   This change would effectively eliminate the 5% limit for any single purchaser but retain the minimum price requirement.  The NYSE has provided COVID relief for listed companies with respect to this rule, as discussed in our prior posts.

See the NYSE’s proposed rule set forth here.