On September 17, 2019, the Securities and Exchange Commission (SEC) proposed rules to update the statistical disclosures that bank and savings and loan registrants provide to investors. The proposed rules would rescind Industry Guide 3, Statistical Disclosure by Bank Holding Companies (Guide 3), codify certain Guide 3 disclosures into a new Subpart 1400 of Regulation S-K, eliminate other Guide 3 disclosures that overlap with other SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), and add certain credit ratio disclosure requirements.

For more, read our Legal Update.


On September 25, 2019, the Securities and Exchange Commission will hold an open meeting to consider a number of topics.  The first item on the meeting agenda relates to consideration of whether to propose amendments to Rule 15c2-11 of the Securities Exchange Act relating to the publication of quotes for securities in a medium other than a national securities exchange.  This has been a topic of interest in connection with private secondary markets and trading in microcap and small cap stocks.  The second item relates to the consideration of a final rule allowing for testing-the-waters communications in a broader range of offerings.  The other two items on the agenda relate to the regulation of exchange-traded funds.

This past week, the House Financial Services Committee considered and passed a few bills that would, if passed by the House, result in changes to the securities laws. These include:

The Investor Protection and Capital Markets Fairness Act (H.R.4344), a bill by Representative Ben McAdams (D-UT), would substantially strengthen the authority of the Securities and Exchange Commission (SEC) to recover the wrongful gains of securities law violators for investors. The bill passed the Committee by a bipartisan vote of 49-5. This would overturn the recent Supreme Court decision in Kokesh v. SEC, which held that disgorgement is a penalty and is therefore subject to a five-year statute of limitations. As a result of that case, the SEC may only bring cases for disgorgement within five years of the date of the violation, regardless of whether the SEC was able to detect it within five years of the violation.

The Greater Accountability in Pay Act (H.R. 4242), a bill by Representative Nydia Velázquez (D-NY), would require public companies to disclose the pay raise percentage of their executives and of their median-pay employees over the past year and compare these percentages to the rate of inflation. The bill passed the Committee by a vote of 32-21.

The 8-K Trading Gap Act (H.R. 4335), a bill by Representative Carolyn Maloney (D-NY), Chair of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, would fix a supposed loophole to prevent corporate insiders from profiting based on nonpublic information. The bill passed the Committee by a unanimous, bipartisan vote of 52-0. The bill would address the 4-day “gap” that may exist between the occurrence of a material event and its disclosure on a Form 8-K and the possibility that insiders may trade on material nonpublic information.

The ESG Disclosure Simplification Act (H.R. 4329), a bill by Representative Juan Vargas (D-CA), would require public companies to disclose information on their environmental, social and governance (ESG) practices. The bill passed the Committee by a vote of 31-22. The bill would require the SEC to engage in rulemaking to identify ESG information that would be required to be disclosed by public companies in their proxy statements.

The Corporate Management Accountability Act (H.R. 4320), a bill by Representative Katie Porter (D-CA), would require public companies to disclose their policies on whether senior executives or shareholders bear the costs of paying the company’s fines and penalties, in order to help prevent the cost of fines being passed off to investors. The bill passed the Committee by a vote of 31-22.

The House of Representatives passed H.R. 3625, the PCAOB Whistleblower Protection Act of 2019, a bill that would protect individuals who blow the whistle on violations and bad actors by establishing a whistleblower program at the Public Company Accounting Oversight Board (PCAOB) similar to the program at the SEC. This bill was introduced by Rep. Sylvia Garcia (D-TX). It was passed by a voice vote.

On September 17, 2019, the Securities and Exchange Commission proposed rules to update the statistical disclosures that banks and loan registrants provide to investors, and eliminate disclosures that overlap with SEC rules, U.S. GAAP or IFRS.  The proposed rules would replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure in a new subpart of Regulation S-K.  SEC Chairman Jay Clayton noted that Industry Guide 3 has not been substantively updated for more than 30 years.

The SEC’s proposed rules, which would apply to bank holding companies, banks, savings and loan holding companies, and savings and loan associations, would update disclosures that investors receive, codify certain Guide 3 disclosure and eliminate other Guide 3 disclosure.  The proposed rules would require disclosure about the following:

  • Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • Weighted average yield of investments in debt securities by maturity;
  • Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • An allocation of the allowance for credit losses and certain credit ratios; and
  • Information about bank deposits including amounts that are uninsured.

The proposal will have a 60-day public comment period following its publication in the Federal Register.

Here are links to the SEC’s Fact Sheet and the proposing release.

A Legal Update will follow.

CB Insights recently published its Q2 2019 Global Fintech Report. Although there were 838 deals worth $15.1 billion completed during the first half of 2019, this represents a significant decline from 2018 levels, both in number and deal value.

In Q2 2019, the number of VC-backed fintech deals fell to the lowest number since Q4 2016. However, mega-rounds, or rounds in which $100 million or more in proceeds were raised, served to boost the percentage of late-stage fintech deals completed during the first half of 2019. There were 25 mega-rounds completed, raising a total of $5 billion during Q2 2019. In the US, there were 14 mega-rounds completed in the second quarter of 2019, worth $3.3 billion, bringing funding to a new quarterly high of $5.1 billion.

Globally, as of the date of the report, there are now 48 fintech unicorns with a total aggregate value of $187 billion, with 28 unicorns based in the United States. There were seven new fintech unicorn “births” in Q2 2019 and two in Q3 2019, including Markets, Bill.com, Carta, Lemonade, Checkout.com, Value, and Liquid in Q2 2019, and Hippo and Judo in Q3 2019. U.S. fintech VC-based equity funding in Q2 2019 amounted to $5.1 billion across 143 deals. Although the number of deals has declined from 2018, the funding level may top 2018 levels. During the first half of 2019, the largest deals included funding transactions for SoFi, Affirm, Lemonade and Carta.

Within the fintech sector, the report also covered various sub-sectors worth mentioning. Digital banking companies have raised over $2.5 billion in funding year-to-date. Since the emergence of these mobile and digital-based banking apps, these companies have amassed over 230 million user accounts. Capital markets-tech companies had a number of mega rounds, raising almost $2 billion in funding to date. Among these companies focused on providing services to financial institutions, we find startups poised to disrupt traditional IPOs, such as a new, seed-stage, SEC-approved stock exchange, and a capitalization table (or “cap table”) management startup, which has leveraged the trend of companies staying private longer to gain traction. Alternative and direct lending companies have raised $3.2 billion over 90 deals in the second half of 2019. Finally, insurance tech (or “insurtech”) companies raised almost $5 billion in funding over 108 deals in the first half of 2019.

SEC Chair Clayton has noted in many public remarks that the growth of the private capital markets have outpaced the U.S. public markets.  Many of the most promising companies now choose to defer their IPOs and remain private, raising capital in successive exempt offerings.  While the JOBS Act brought about a number of changes to, and additions to, the exempt offering framework, that may only have increased complexity.  Earlier this year, the SEC issued a Concept Release on Harmonization of Securities Offering Exemptions that raises a number of fundamental questions for market participants.  Do we have too many exempt offering choices?  Is harmonization required?  How will retail investors participate in the growing private markets?  During this session, Anna T. Pinedo and Michael Hermsen will discuss:

  • Traditional private placements conducted under Section 4(a)(2) and Rule 506(b),
  • The evolution of general solicitation and Rule 506(c),
  • The motivations for using one of these approaches over another,
  • Integration of offerings in close proximity to one another and the changes in integration analyses over the years,
  • Choosing among a Regulation A, a crowdfunded, and a Rule 506(c) offering,
  • Investor qualifications, sophistication and disclosure, and
  • Resale exemptions.

For more information, visit the event’s website.

September 23–24, 2019

PLI California Center
685 Market Street
San Francisco, CA 94105

This program is specifically designed for in-house and law firm attorneys and other professionals who work with financial information. It will enhance understanding of business strategies, accounting fundamentals and vocabulary used by management, investors, auditors and bankers. Practical advice and application of information to actual situations and financial reports will provide participants with opportunities to immediately implement growth and broaden capabilities.

Partner Anna T. Pinedo will participate in a panel discussion titled, “Investment Banking Basics: Fundamentals of Capital Structures” on Day Two of the conference. Topics will include:

  • Common financing alternatives — debt, equity and hybrids
  • Sources of funding — public and private markets
  • Liquidity — raising and deploying capital
  • Finding the Optimal Capital Structure
  • Current marketplace developments

PLI will provide CLE credit. For more information, or to register, please visit the event website.

In this Lexis Practice Advisor® Practice Note, we discuss the amendments proposed by the U.S. Securities and Exchange Commission (SEC) on May 3, 2019 in connection with financial statement disclosures on business acquisitions and dispositions as required by Regulation S-X’s (17 C.F.R. §§ 210.1-01 – 12-29) Rule 3-05 (Financial Statements of Businesses Acquired or to be Acquired (Rule 3-05), Rule 3-14 (Special Instructions for Real Estate Operations to be Acquired (Rule 3-14)), Article 11 on Pro Forma Financial Information (Article 11), and other related rules and forms.

In this article published in The Review of Securities & Commodities Regulation, we discuss the implications of the SEC’s recent actions to modernize and simplify disclosure requirements applicable to foreign private issuers (“FPIs”).

See full article here.

Thursday, October 24, 2019

Please join Mayer Brown at IFR’s US ECM Roundtable 2019. Now in its eighth year, the event will bring together a panel of the most senior ECM practitioners to assess the current state of the market, discuss the latest trends and developments and provide an outlook for the remainder of the year and beyond. Topics for discussion will include:

• State of the IPO market
• Transformative industries and companies
• Direct Listings as an alternative to IPO
• SPACs: Financial Engineering in bull market or durable funding vehicle?
• Market Outlook

For more information, or to register, please visit the event website.