On October 8, 2020, the staff of the SEC’s Division of Corporation Finance spoke at PLI’s The SEC Speaks in 2020 program, providing insights on recent developments, rulemakings, guidance and initiatives.
Among the developments over the past year that Division Director William Hinman highlighted was the recognition that digital assets can be registered in compliance with the Securities Act of 1933. Addressing another current topic of interest, Mr. Hinman emphasized that the use of SPACs does not offer a shortcut to the SEC review process, noting that the ultimate merger proxy/Form S-4 will be subject to an SEC review comparable to a traditional IPO review.
Mr. Hinman also focused on the importance of matters he characterized as “corporate hygiene,” urging companies to consider whether they have trading policies effective to prevent management from trading in company securities when they have inside knowledge, such as during the time shortly before a Form 8-K is filed to report a material development. Similarly, he expressed concerns about insiders stopping and starting Rule 10b5-1 trading plans to facilitate their trading in company securities. In addition, Mr. Hinman raised concerns about companies issuing options just before releasing material information, suggesting that this practice may be inconsistent with the concept of fair market value.
The presentation discussed guidance and interpretations arising from the COVID-19 pandemic. For example, forward-looking statements with respect to the impact of COVID-19 in public filings are encouraged in public statements and are more likely to be viewed by the SEC as being made in good faith to the extent that they are consistent with statements the company may be making to landlords and suppliers. The presentation also cautioned against making COVID-19 adjustments to financial measures to paint a rosy picture.
In addition to describing rulemaking that has already been finalized, the Division discussed upcoming developments. The Division is in the process of preparing recommendations to finalize the proposal to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K, such as MD&A. In the employee benefit context, the Division also indicated there will be an upcoming proposal to streamline Rule 701 and Form S-8. In the proxy area, the Division suggested that some “proxy plumbing” enhancements would be proposed, such as providing a method for a company to communicate effectively with all shareholders, even objecting beneficial shareholders, perhaps by using an anonymous block chain.
The Division adopted a new procedure for the 2020 proxy season to review and respond to no-action requests for exclusion of shareholder proposals from company proxy statements, with most responses being noted on a chart rather than being the subject of a formal no-action letter. In the future, the Division would like to make this chart more interactive and sortable.