The U.S. Securities and Exchange Commission’s Investor Advisory Committee (the “Committee”) will meet March 6, 2025.  During this meeting, the Committee will present its recommendations to the SEC concerning traceability issues under Section 11 of the Securities Act of 1933.  The agenda also includes a panel on Artificial Intelligence (AI)-related disclosures and another on retail investor fraud in the United States.

The first panel will explore how the SEC can standardize AI-related disclosure requirements to provide investors with useful information.  It will focus on the impact of AI on corporate operations and financial reporting.  The second panel will assess the economic impact and methods of retail investor fraud in the United States and explain how bad actors leverage AI and other technologies.

Additionally, the Committee will discuss its recommendations to the SEC regarding traceability issues under Section 11 of the Securities Act.  In 2023, in the Slack Technologies case, the Supreme Court overturned a Ninth Circuit decision, ruling that investors must prove they purchased shares directly linked to the allegedly misleading registration statement in order to file a Section 11 claim.  More recently, the Ninth Circuit Court of Appeals ruled in favor of Slack, dismissing an investor class action lawsuit brought under Sections 11 and 12(a)(2) of the Securities Act.  Read our blog post for additional details.

The Committee’s Draft Recommendations:

  1. Implement a Lockup Period for Unregistered Shares:  Recommend that the SEC introduce a lockup period for unregistered shares following an IPO to preserve investors’ ability to bring Section 11 claims. The method of implementation is left to the SEC’s discretion.  For example, the Committee suggested linking the acceleration of registration under Rule 461 or Section 8(a) to maintaining Section 11 liability.  This approach would ensure that issuers structure offerings to safeguard investors’ rights to file claims.  Additionally, the Committee proposed amending Rule 144 to require holders of unregistered shares to retain them for a specified period post-IPO, thereby reducing the impact of unregistered shares on investors’ ability to trace their holdings.
  2. Determine the Appropriate Length for the Lockup Period:  Urge the SEC to establish an appropriate duration for the lockup period by seeking public comments, considering the pros and cons of both shorter and longer timeframes.
  3. Explore Technological Solutions for Tracking Share Origins:  Recommend that the SEC consider adopting technological solutions to trace share origins more effectively, potentially offering incentives such as reduced lockup durations. The recommendation highlights distributed ledger technology as a possible solution.

Read the full agenda and the draft recommendations.