At an open meeting yesterday, May 25, 2022, the US Securities and Exchange Commission (SEC) approved two new proposals that will impact the fund and investment management industry. One of the proposals is directed solely at registered funds and business development companies (BDCs), while the other applies to registered funds, BDCs, registered investment advisers (RIAs) and exempt reporting advisers (ERAs). This Legal Update provides a brief summary of each proposal. A more in-depth analysis of these proposals in a separate publication will be provided in the coming days.

What do bankruptcy, mine safety violations, change in control and asset acquisition have in common?  Each may trigger a public company’s obligation to file a Form 8-K.  All U.S. reporting companies are responsible for filing Forms 8-K with the SEC to disclose recent material transactions or occurrences.  What reportable events trigger a Form 8-K filing?  What should be disclosed in the Form 8-K?  How and when is the filing made?  Find the answers in our new What’s the Deal? – Form 8-K, where we provide an overview of the types of events that trigger a Form 8-K, filing procedures and consequences for non-compliance.

In a little over a month’s time, the Superior Court of California (the “Superior Court”) struck down both AB 979 and SB 826, California’s two board diversity statutes. SB 826 required that a public company whose principal executive offices are located in California have a certain number of female directors on its board of directors. Similarly, AB 979 required that a public company whose principal executive offices are located in California have a certain number of directors from an underrepresented community on its board of directors.

On April 1, 2022, the Superior Court granted a motion for summary judgment in favor of a group of California taxpayers represented by Judicial Watch, who sued the California Secretary of State to prevent the state from using taxpayer funds to enforce AB 979 and to have the statute declared unconstitutional. The Superior Court’s order did not provide the reasoning for its decision.

Then, on May 13, 2022, the Superior Court held that SB 826 violates the Equal Protection Clause of the California Constitution. This case was also brought by Judicial Watch on behalf of California taxpayers. The Superior Court explained in its decision that “[t]he State must have a strong basis in evidence to conclude that remedial action is necessary before it embarks on a program to remedy discrimination, and the discrimination cannot merely be conceded.” The Superior Court decided that in this case, “[t]here is no Compelling Governmental Interest in remedying discrimination in the board selection process because neither the Legislature nor Defendant could identify any specific, purposeful, intentional and unlawful discrimination to be remedied.”

As a result of the Superior Court’s rulings, the statutes are both presently enjoined, but the state of California may appeal the decisions.

April 2022 marked the ten-year anniversary of the JOBS Act.  My former partner and friend, Dave Lynn, co-editor of and The Corporate Counsel, invited me to join him on his podcast, Deep Dive with Dave.  We discussed the anniversary, and genesis of the JOBS Act, as well as some of the changes to the exempt offering framework that came about as a result of the Act.  We also gave our views on what worked and what maybe didn’t work as well as we had hoped, and why a JOBS Act 4.0 might be in order.

Here’s a link to the podcast.

Structured certificates of deposit – they look and feel like structured notes, but there are important differences, and traps for the unwary. Are they securities, or not? How does a structured CD program differ from a medium-term note program? Read our new What’s the Deal? – Structured Certificates of Deposit guide to find the answers to these questions and for some helpful practice points.

May 18, 2022 Webinar
1pm – 2pm EDT
Register here

Join Mayer Brown partners Claire Ragen and Adam Kanter to hear diverse perspectives on the potential impact of the US Securities and Exchange Commission’s (SEC) recent proposed rules on private fund investors and sponsors. Topics will include potential considerations for investors and sponsors on due diligence, side letters, and fund structures. Panelists will lead a discussion with industry experts representing viewpoints of investors and sponsors.

Guest speakers representing the investor viewpoint include:

  • Christopher Hayes: Advisor, Alumni, Head of Government Relations, Celo Foundation and former Senior Policy Counsel, ILPA
  • Heather Harlan: Associate General Counsel, Northwestern University
  • Igor Rozenblit: Managing Partner, Iron Road Partners and former Co-Head of the SEC’s Private Funds Unit

Our speakers representing the sponsor viewpoint include:

  • Troy Paredes: Founder, Paredes Strategies LLC and former Commissioner of the SEC
  • George Chang: General Counsel and Chief Compliance Officer, The Voleon Group
  • Teale Long: Senior Vice President and Associate General Counsel, Neuberger Berman
  • Minh Ta: Vice President for Global Government Affairs, The Carlyle Group

On May 5, 2022, Congressman McHenry, the senior Republican on the House Financial Services Committee, and Congressman Huizenga, the senior Republican on the Investor Protection, Entrepreneurship, and Capital Markets Subcommittee sent a letter to Chairwoman Maxine Waters reiterating their demand for a hearing with the full US Securities and Exchange Commission (SEC). The House Financial Services Committee Republicans previously called on Chair Waters to schedule a hearing with the full SEC no later than April 2022 to discuss the SEC’s expansive rulemaking agenda and to hear the views of each Commissioner. In the letter, the Congressmen note that, “the SEC has taken several actions outside the scope of its authority and jurisdiction, and it has done so without giving stakeholders a fair chance to provide input. It is imperative that our full Committee convene to discuss the SEC’s unprecedented rulemaking agenda and hear the full range of views on the Commission.”

Read the full letter to Chair Waters here.

The US Securities and Exchange Commission (SEC) rulemaking process has received much attention under Chair Gensler’s leadership not only because of the volume and substance of proposed rules, but also because of the relatively short comment periods allotted for the public to respond pursuant to the Administrative Procedure Act process. As just one example of the reaction from market participants and others, see here an earlier Mayer Brown post summarizing a letter to the SEC from 25 trade associations seeking longer comment periods.

The SEC published a press release on May 9, 2022, announcing that it has extended the comment period for its proposed rule mandating climate-related disclosures by public companies. In addition, the SEC has reopened the comment periods for rule proposals related to private fund advisers and the inclusion of certain Treasury markets platforms within Regulation ATS.

Chair Gensler stated the following with respect to this action: “Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders. The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.”

As a result of this action, the comment period for the proposed rules on climate-related disclosures will close on June 17, 2022 (not May 20, 2022, as originally anticipated). The comment periods for the rule proposals affecting private fund advisers and Regulation ATS will be reopened for 30 days following publication of the reopening release in the Federal Register.

The Staff of the US Securities and Exchange Commission’s Division of Corporation Finance released a sample comment letter that provides guidance regarding the types of disclosures that reporting companies should consider in connection with the direct or indirect that Russia’s invasion of Ukraine and the international response it may have on their businesses. Among other things, the letter identifies as possible areas of disclosure impacts suffered by companies on their business, operations, or prospects due to changes in their employee base, disruptions to their supply chain, changes in their business relationships, heightened cybersecurity risks or threats, increased volatility in the trading prices of commodities, etc.

This practice note provides 10 practice points to consider in drafting and negotiating lock-up agreements. In connection with securities offerings, the underwriters or placement agents generally negotiate a lock-up agreement with the issuer, as well as with the issuer’s directors, officers, and, in the case of initial public offerings, control persons and other stockholders. Lock-up agreements provide the underwriters or placement agents with some assurance that new issuer securities will not be sold immediately following the proposed offering, which might disrupt the trading market for the offered securities.

Read the complete article here.