Securities Regulation and Corporate Governance


Considerations for Preparing Your 2019 10-K

In a client alert published today (available here)we offer our observations on new developments and recommended practices to consider in preparing the Annual Report on Form 10-K.  In particular, given the U.S. Securities and Exchange Commission’s latest enforcement actions and recent adoption of amendments impacting disclosures in Form 10-K, there are a number of important substantive and technical considerations that registrants should keep in mind when preparing their 2019 Forms 10-K.


Our thanks to Jonathan Sapp in Dallas and David Korvin in Washington D.C. for their assistance in preparing the client alert.


SEC Releases Statement on Key Reminders for Audit Committees
On December 30, 2019, the Securities and Exchange Commission (the “SEC”) released a statement (the “Statement”) from Chairman Jay Clayton, Chief Accountant Sagar Teotia and the Director of the Division of Corporation Finance, William Hinman, addressing the role of the audit committee in financial reporting and highlighting key reminders regarding oversight responsibilities (available here).  The Statement is intended to “assist audit committees [in] carrying out their year-end work, including promoting efficient and constructive dialogue among audit committees, management and independent auditors.” 
The observations included in the Statement do not introduce new requirements for audit committees, but the Statement is a helpful reminder for audit committees, management and outside auditors about audit committee practices that help to promote healthy oversight over financial reporting.  Although the Statement covers a range of topics, a theme that runs through the observations is an emphasis on active engagement by the audit committee and on the benefits of clear communication among the audit committee, management and the outside auditor.
Below are the observations and reminders highlighted in the Statement.  The Statement styles the first five topics as “general observations" and the last three as “more specific observations."  Although most of the observations in the Statement speak for themselves in terms of next steps and practice pointers, we have provided some additional commentary in italicized text below on a few of the topics.
  • Tone at the Top:  The Statement emphasizes the role of the audit committee in “setting the tone for the company's financial reporting and the relationship with the independent auditor."  As part of this, the Statement notes that it is important for the audit committee to “set an expectation for clear and candid communications to and from the auditor" and an expectation with management and the auditor that the audit committee will engage as financial reporting and control issues arise.  Additionally, the Statement highlights the audit committee should proactively communicate with the independent auditor to understand the audit strategy and status, and raise questions regarding issues identified and understand the resolution of such issues. 
Although “tone at the top” is an amorphous concept, this is a helpful reminder for audit committees to consider the steps they are taking to reinforce effective messaging about the need to have an environment that supports integrity in the financial reporting process.  For example...
SEC Proposes Revised Resource Extraction Rules, Again!

[Updated January 18, 2020]

On December 18, 2019, the Securities and Exchange Commission (the “SEC”) released proposed rules (available here) relating to the disclosure of payments by resource extraction issuers. The SEC’s release sets forth the tortured more-than-seven-year history of this rulemaking (see previous Gibson Dunn posts regarding this topic in 2015, 2013 and 2010). The SEC is proposing these rules by mandate pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) after having earlier adopted versions of the rules vacated in 2012 by the U.S. District Court for the District of Columbia, a ruling which the SEC declined to appeal, and disapproved in 2016 by Congress pursuant to its authority under the Congressional Review Act. While Congress disapproved of the adopted rules in 2016, it did not repeal Section 1504 of the Dodd-Frank Act, so the SEC’s rulemaking mandate remained in place. Revised rules cannot be substantially similar to the ones disapproved by Congress under the Congressional Review Act. As such, the newly proposed rules substantially differ from the previously adopted rules, and the differences are discussed in more detail below.​

Under the proposed rules implementing Section 13(q) of the Securities Exchange Act of 1934, as amended, domestic or foreign “resource extraction issuers” (the definition of which is discussed below) would have to file a Form SD on an annual basis that includes information about payments related to the commercial development of oil, natural gas or minerals that are made to a foreign government or the U.S. federal government.

The proposed rules would require disclosure of company-specific, project-level information, including the following:

Direct Listing Update: Revised Proposal for Primary Offerings

On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) by the New York Stock Exchange (NYSE)that would permit a privately-held company to conduct a direct listing in connection with a primary offering. On December 6, 2019, the NYSE withdrew its proposal (as reported in An Interim Update on Direct Listing Rules) and was expected t...

An Interim Update on Direct Listing Rules

On December 3, 2019, Gibson Dunn published A Current Guide to Direct Listings discussing, among other things, a proposal submitted to the U.S. Securities and Exchange Commission (SEC) on November 26, 2019 by the New York Stock Exchange (NYSE) that would permit a privately held company to conduct a direct listing in connection with a primary offering, potentially creating a new on-r...

A Current Guide to Direct Listings

Direct listings have increasingly been gaining attention as a means for a private company to go public. In our most recent memo available here, we provide a summary of the current requirements for direct listings on the NYSE and Nasdaq and of NYSE’s recent proposal to amend its direct listing rules to allow primary offerings through the NYSE in conjunction with direct listings. We also explore the potential benefits and risks associated with direct listings.

A direct listing refers to the listing of a privately held company’s stock for trading on a national stock exchange (either the NYSE or Nasdaq) without conducting an underwritten offering, spin-off or transfer quotation from another regulated stock exchange. Under current stock exchange rules, direct listings involve a company effectively going public through the registration of a secondary offering with, the SEC. Existing shareholders, such as employees and early-stage investors, whose shares are registered for resale are able to sell their shares on the applicable exchange, but are not ...

Division of Corporation Finance Unveils Further Details on Its Process for Responding to Shareholder Proposal No-Action Requests

​On November 21, 2019, the Division of Corporation Finance (the “Division" or “Staff") of the Securities and Exchange Commission (“SEC") provided additional detail on how it will process responses to shareholder proposal no-action requests under Rule 14a-8.  As discussed in our prior posts, available here and here, in September 2019 the Division announced that, starting with the 2019-2020 shareholder proposal season, it may respond orally instead of in writing to some no-action requests, and in some cases its response may indicate that it is declining to state a view on whether a proposal satisfies the requirements of Rule 14a-8 or is properly excludable.

On November 21, the Division updated its Rule 14a-8 landing page, providing additional clarity around the first aspect of the September announcement; namely, the Staff's process for responding to no-action requests.[1]  The updated landing page, available here,[2] now links to a new document entitled the 2019-2020 Shareholder Proposal No-Action Response chart (the “Response Chart")[3], which will list the no-action requests to which the Division has responded, in reverse chronological order (with the most recent responses listed first).  The Response Chart presents:
(i)         the name of the company that submitted the no-action request,
(ii)        the name of the shareholder proponent,
(iii)      the date the company initially submitted the no-action request, which will include a hyperlink to all correspondence submitted by the company and the proponent,
(iv)      the regulatory bases asserted by the company to exclude the proposal,
(v)       whether or not the Staff concurred that the shareholder proposal may be excluded and, if applicable, the basis on which the Staff concurred, or whether the Staff declined to state a view on the no-action request,
(vi)      the date of the Staff's response, and
(vii)     whether or not the Staff has set forth its view in a written response (in which case, the response will be linked).[4]

The Response Chart does much to alleviate concerns over the Division's new approach for responding to no-action reques...

Developments Regarding Changes to SEC Staff’s Shareholder Proposal No-Action Responses

Several noteworthy developments have occurred following the September 6, 2019 announcement by the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (“SEC") regarding two significant procedural changes for responding to Exchange Act Rule 14a-8 no-action requests that will be applicable to no-action requests regarding shareholder proposals submitted for annual meeting to be held in 2020.  That announcement indicated that the Staff may now respond orally instead of in writing to shareholder proposal no-action requests and that the Staff may now more frequently respond by declining to state a view on whether or not it concurs that a company may properly exclude a shareholder proposal under Rule 14a-8.

Following the Staff's announcement, a coalition of investor-related organizations sent William Hinman, Director of the SEC's Division of Corporation Finance, a letter on September 19, 2019 criticizing the change in process.[1]  The letter asked that the Staff “rescind this change in process" or, if it does not, at least take certain steps “to reduce the level of uncertainty and conflict resulting from the new approaches."  The steps requested in the letter include using the new response options sparingly “until the implications are better understood," describing the criteria for when the Staff will use the new response options, signaling early in the process if the Staff will use one of the new response options (and clarifying if the Staff will wait until after the proponent has responded to make that decision), and maintaining visibility when the Staff uses one of the new response options (for example, indicating on the SEC's website any oral decisions and providing the same information to both parties).    

Subsequent remarks by the Staff have begun to provide additional specificity regarding these shareholder proposal no-action request procedural changes and the Staff's rationale for implementing the changes.  For example, in late September, Mr. Hinman indicated that the changes were driven by the Staff trying to think of “a new and creative approach" in responding to no-action requests.[2] 

With respect to oral responses, he indicated that they generally will be used for more routine matters (such as failure to provide ownership proof) and confirmed that the Staff will reflect those responses on the SEC's website in “real time" showing whether or not the Staff concurs that a shareholder proposal may be excluded.  With respect to no-action requests where the Staff declines to state a view, he commented that the Staff may t...

EDGAR Updates Change Filer Password Requirements and Increase Character Length of Certain Cover Page Tags

​On September 30, 2019, the Securities and Exchange Commission (the “SEC") went live with EDGAR Release 19.3 (announcement available here) and made related changes to the EDGAR Filer Manual (announcement available here).  Two notable changes are summarized below. 

Change to EDGAR Password Requirements

Filers, including Section 16 filers, will now be requested to provide twelve character passwords instead of eight character passwords when logging into both the EDGAR Filing Website and the EDGAR Online Forms Management Website.  Current filers who do not update their password to twelve characters will be prompted to update it each time they log in.  We have confirmed with the staff of EDGAR Filer Support that current filers who do not update their password when prompted will not be prevented from logging in successfully.  However, EDGAR passwords expire annually and should be changed before the expiration date.  Any filers who have not already updated their password by the time they otherwise expire will be required to create a password that satisfies the new requirements before being permitted to log in to EDGAR.

To change their password, filers will need to be logged into the EDGAR Filing Website or the EDGAR Online Forms Management Website and follow the procedure described in Section 4.1.3 of Volume 1 of the EDGAR Filer Manual.  This procedure requires filers to enter their CIK number and Password Modification Authorization Code (“PMAC").  If filers do not know their PMAC, they must generate a new set of EDGAR access codes using the EDGAR Filer Management Website.

This update will not impact the requirements for other EDGAR access codes (e.g., the PMAC, passphrase, CIK Confirmation Code (“CCC")).[1]  

Update Allowing for More Characters in Security Titles

Companies subject to cover page tagging requirements must tag certain information relating to their securities that are registered pursuant to Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, including the title of such securities.  When making their most recent Form 10-Q filings, many compan...

Everyone Jump In! All Issuers Will Be Allowed to “Test-the-Waters”

On September 26, 2019, the SEC announced (available here) that it has adopted a new rule, Rule 163B (available here) under the Securities Act of 1933, that allows all issuers to “test-the-waters." This accommodation, which had previously been available only to emerging growth companies (EGCs), allows issuers and authorized persons (e.g., underwriters) to engage in discussions with, and provide written offering material to, certain institutional investors prior to, or following, the filing of a registration statement, to determine market interest in potential registered securities offerings. Rule 163B will become effective 60 days after publication in the Federal Register.

In connection with the adoption of Rule 163B, SEC Chairman Jay Clayton noted in a public statement (available here) that Rule 163B will provide “both Main Street and institutional investors with more opportunities to invest in public companies." This is consistent with one of the tenets of the SEC's current Strategic Plan (discussed in our prior blog post available here) to increase the number of public companies for the benefit of Main Street investors.

The SEC initially proposed a new rule allowing all issuers to test-the-waters (the “Proposed Rule") on February 19, 2019 (available here, and discussed in our prior blog post available here). Rule 163B in the form adopted by the SEC is largely consistent with the Proposed Rule, with few exceptions.  

Among other things, the SEC noted the following:

  • All issuers – including non-reporting issuers, EGCs, non-EGCs, well-known seasoned issuers and investment companies (including registered investment companies and business development companies) – and “persons authorized to act on behalf of" the issuers – including issuers' investment bankers and other advisors – are eligible to engage in oral or written communications with potential investors that the issuers reasonably believe are qualified institutional buyers or institutional accredited investors.
  • 163B communications will be c...
1 - 10 Next
Current thoughts on development and trends in securities regulation, corporate governance and executive compensation published by Gibson Dunn.

© Copyright 2018 Gibson, Dunn & Crutcher LLP.
Attorney Advertising. Prior results do not guarantee a similar outcome. All information provided on this site is for informational purposes only, does not constitute legal advice, is not confidential, and does not create an attorney-client relationship. Statements and content posted to this site do not represent the opinion of Gibson Dunn & Crutcher LLP ("Gibson Dunn"). Gibson Dunn makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors or omissions therein, nor for any losses, injuries, or damages arising from its display or use.