Securities Regulation and Corporate Governance


SEC Enforcement Action Highlights Importance of Non-GAAP Policies and Disclosure Controls and Procedures

​On March 14, 2023, the SEC charged DXC Technology Co. (“DXC") with making material misstatements with respect to its non-GAAP financial performance measures, stating that, DXC “negligently misclassif[ied] tens of millions of dollars of expenses as [transaction, separation and integration-related (“TSI")] costs and improperly exclude[ed] them in its reporting of non-GAAP measures." The SEC's order also found that DXC, and specifically its controllership function and disclosure committee, failed to maintain “adequate" disclosure controls and procedures relating to DXC's non-GAAP disclosures, citing the following shortcomings:

  • DXC had insufficient processes to ensure that proposed expenses were accurately classified as TSI costs, as described in its periodic reports and earnings releases.
  • DXC did not have “adequate" disclosure controls and procedures in place specific to its non-GAAP financial measures.
  • DXC did not have a formal non-GAAP policy.

The SEC stated that these shortcomings caused employees within the business units and financial planning & analysis to “make subjective determinations about whether expenses were related to an actual or contemplated transaction, regardless of whether the costs were actually consistent with the description of the adjustment included in the company's public disclosures." For example, although DXC's public description of TSI costs remained unchanged for two full years, “the company had no process by which its employees evaluated whether proposed TSI costs were consistent with the description of TSI costs included in its non-GAAP disclosure."

The SEC also cited several factors that prevented DXC's controllership from engaging in a meaningful review of proposed TSI costs, including the large number of line items contained in the TSI cost spreadsheet, the short time period within which to complete its review, and the lack of access to project and cost descriptions. Notably, when controllership employees questioned particular expenses or raised other concerns, they often received incomplete or inaccurate information, and no supporting documentation was provided.

Without admitting or denying the findings in the order, DXC consented to a cease-and-desist order, to pay an $8 million penalty, and to undertake to develop and implement appropriate non-GAAP policies and disclosure controls and procedures, including providing a certification of compliance with such undertakings.


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Updated Summary of Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of April 2023. A copy is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.  

This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.

Thank you to associates Mason Gauch and To Nhu Huynh from our Houston office for their assistance with this quarter's update.

SEC Publishes C&DIs Addressing Tender Offer Issues

​On March 17, 2023, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission released over thirty questions and answers in the form of Compliance and Disclosure Interpretations (“C&DIs") addressing various tender offer issues.

These new C&DIs consolidate and memorialize a variety of the Staff's long-standing interpretative positions documented in different places over the years.  Some of the more interesting C&DIs include reminders that:

  • an arrangement involving target company directors becoming directors of the acquiror (without an election) would not be subject to Rule 14f-1, while an arrangement involving the acquiror directors becoming members of the target company's board (without an election) would be subject to Rule 14f-1 (see Question 181.01);
  • a statutory merger (by itself) is not a tender offer, and thus not subject to Regulations 14D and 14E (see Question 101.13);
  • exchange offers by an investment vehicle (such as a SPAC) for the equity securities of a public company are generally considered tender offers, unless an affirmative statement is made in the offering materials noting that the amount of equity securities to be acquired, when added to the securities already beneficially owned by the offeror, will not exceed 5% (see Question 101.13);
  • an issuer conducting a tender offer subject to Rule 13e-4 may purchase some of the issuer's securities in the open market prior to commencement of the offer without violating Rule 14e-3, but consideration should be given to Rule 14e-5 (see Question 164.01); and
  • a target company subject to a third-party tender offer may satisfy its Rule 14e-2 dissemination obligations by including its Schedule 14D-9 solicitation / recommendation statement with the offering materials sent by the bidder (see
SEC Adopts New Final Rules for Clearance and Settlement; Proposes Changes for Investment Adviser Rules

On February 15, 2023, the Securities and Exchange Commission (the “SEC") adopted final rule changes intended to reduce risk in clearance and settlement for most broker-dealer securities transactions and proposed new rules designed to enhance safeguards for customer assets managed by investment advisers.

The new final rules amend Rule 15c6-1 under the Securities Exchange Act of 1934 (the “Exchange Act") to shorten the standard settlement cycle for broker-dealer transactions from two business days after the trade (“T+2") to one business day (“T+1").  The new rules also shorten the separate settlement cycle for firm commitment offerings, including initial public offerings, from T+4 to T+2, although most market participants already employ a T+2 settlement cycle for these offerings.


The rule amendments also adopt Rule 15c6-2, requiring a broker or dealer to establish, maintain and enforce written policies or enter into written agreements that ensure prompt completion of applicable allocation, confirmation or affirmation processes. To comply with the new rule, such agreements or policies must ensure that allocation, confirmation or affirmation processes be completed as soon as technologically practicable but in no case later than end of day on the trade date. Additionally, the new rules amend Rule 204-2 under the Investment Advisers Act of 1940 (the “Investment Advisers Act") to require investment advisers to keep records for transactions subject to Rule 15c6-2 above. Finally, the new final rules adopt Rule 17Ad-27 under the Exchange Act and amend Regulation S-T to require clearing agencies that provide a central matching service to facilitate straight-through processing and submit to the SEC via EDGAR an annual report regarding straight-through processing implementation. The compliance date for these rule changes is set for May 28, 2024.


These changes come in part as a response to the unprecedented volatility associated with the so-called “meme stock craze" of 2021. Commissioner Jaime Lizárraga supported the adoption of new rules,

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Updated Summary of Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of January 2023. A copy is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.

This update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.


Thank you to associate To Nhu Huynh from our Houston office for her assistance with this quarter's update.


SEC Updates Non-GAAP C&DIs


On December 13, 2022, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission announced an update to its Compliance and Disclosure Interpretations (“C&DIs") on Non-GAAP Financial Measures under Questions 100.01, 100.04 – 100.06, and 102.10(a)(b)(c).  Many of the changes memorialize positions the Staff has taken in comment letters or provide additional detail about those positions.

Significant changes are discussed below, and Appendix A (attached as a pdf) is a marked version of the impacted C&DIs showing all of the revisions and additions.

Question 100.01 – Misleading Adjustments

Question 100.01 was revised to emphasize that a company's individual facts and circumstances affect whether an adjustment makes a non-GAAP measure misleading. Using the pre-update example (i.e., a non-GAAP performance measure that excludes normal, recurring, cash operating expenses may be misleading), the updated C&DI illustrates this by noting that:

  • When evaluating what is a “normal, operating expense," the Staff considers the nature and effect of the non-GAAP adjustment and how it relates to the company's operations, revenue generating activities, business strategy, industry and regulatory environment.
  • The Staff would view an operating expense that occurs repeatedly or occasionally, including at irregular intervals, as “recurring."

Question 100.04 – Individually Tailored Accounting Principles

Question 100.04, which was completely re-written, continues to include a prohibition on individually tailored accounting principles, but has now been supplemented with the following additional examples of adjustments that would run afoul of this prohibition:

  • adjusting performance measures to accelerate revenue that GAAP requires to be recognized ratably over time as though revenue was earned when customers were billed;
  • presenting revenue on a net basis when GAAP requires it to be presented on a gross basis (and vice versa); and
  • changing the basis of accounting for revenue or expenses in a non-GAAP performance measure from an accrual basis in accordance with GAAP to a cash basis.

100.05 – Improper Labels and Descriptions

New Question 100.05 memorializes the Staff's position, often made clear through comment letters, that a non-GAAP measure can be misleading if it (or any adjustment ma...

Updated Summary of Select Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of October 2022 and is available at this link. Boards of Directors of public companies find this a useful resource as they look for high quality education opportunities.

This update includes a number of additional opportunities as well as updates to the programs offered by organizations that have been included in our prior summaries.

Thank you to associate To Nhu Huynh from our Houston office for her assistance with this quarter's update.

EDGAR Ready to Accept Online Form 144 Filings Ahead of Deadline for Electronic Filing Requirement

Since September 23, 2022, the Securities and Exchange Commission (the “SEC") Electronic Data Gathering, Analysis, and Retrieval (“EDGAR") system has been ready to accept electronic Form 144 filings, pursuant to the SEC's recent amendments requiring certain Forms 144 to be filed electronically. Filers have approximately six months from September 2022 to transition to electronic filing of Forms 144. The SEC's compliance date is April 13, 2023. 

Which Forms 144 Are Affected by the Amendments?

On June 2, 2022, the SEC adopted amendments that require certain Forms 144 to be filed electronically on the EDGAR system. The amendments seek to update and simplify Form 144, a notice form that must be filed with the SEC by an affiliate of an issuer who intends to resell restricted or control securities of such issuer in reliance upon Rule 144 (Our post from January 5, 2021 discussed the proposed amendments in more details).

The amendments will affect Forms 144 related to the sale of securities of an issuer subject to the reporting requirements under Section 13 or 15(d) of the Securities and Exchange Act of 1934. In contrast, Forms 144 related to the sale of the securities of non-reporting companies should continue to be reported exclusively in paper.

Online Fillable Form 144 or Filer-Constructed XML Submission, and Bulk Filing

Filers may comply with the electronic filing requirement by completing an online fillable Form 144 on EDGAR. The form is similar to other EDGAR online fillable forms, such as Forms D, 3, 4, and 5. Alternatively, filers may submit a filer-constructed XML Form 144 on EDGAR.

Multiple Forms 144 for different filers may be submitted on EDGAR through a bulk filing function. For example, a broker-dealer could bulk file Forms 144 simultaneously on EDGAR for multiple clients.

Links to detailed instructions on electronic filings of Form 144 are provided below:

SEC Raises Annual Gross Revenue Amount in the Definition of Emerging Growth Company

On September 9, 2022, the Securities and Exchange Commission (the “SEC”) amended its rules to implement inflation-adjusted amendments to Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 12b-2 of the Securities Exchange Act of 1932, as amended (the “Exchange Act”), and raised the annual gross revenue amount in the definition of “emerging growth company” (“EGC”) from $1,070,000,000 to $1,235,000,000. The final rule (available here) is effective as of September 20, 2022.

Title I of the Jumpstart Our Business Startups (“JOBS”) Act added Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80) to define the term “emerging growth company.” A qualified EGC may take advantage of certain exemptions from various compliance and reporting requirements that apply to other public companies that are not EGCs. Previously, an EGC was defined as an issuer with total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year. Effective as of September 20, 2022, this amount is raised to $1,235,000,000.

Under the JOBS Act, the SEC is required, every five years, to index to inflation the annual gross revenue amount used to determine EGC status to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics (as set forth in more detail in the final rule). The Commission last adopted inflation adjustments in 2017, previously raising the threshold amount from 1,000,000,000 to $1,070,000,000 (previous changes to the EGC definition were discussed here and here).

Additionally, the SEC’s inflation adjustments also affect certain crowdfunding transactions under Section 4(a)(6) and Section 4A of the Securities Act.​ ​

We would like to thank Rodrigo Surcan in our New York office and To Nhu Huynh in our Houston office for their work on this post.

Division of Corporation Finance Issues Interpretive Guidance on the SEC’s Universal Proxy Rules

On August 31, 2022, the universal proxy rules adopted late last year by the Securities and Exchange Commission (the “SEC") will become effective.  As discussed in our previous client alert, the rules require proxy cards distributed by both public companies and nominating shareholders in contested director elections to include both sides' director nominees, such that shareholders casting their vote can “mix-and-match" nominees from each of the company's and the dissident's slate of director nominees.  

In connection with the upcoming effectiveness of the rules, on August 25, 2022, the staff of the Division of Corporation Finance of the SEC (the “Staff") issued three new Compliance and Disclosure Interpretations (“C&DIs") focused on the mechanics associated with implementing these rules in practice.

The new C&DIs address the following issues related to the universal proxy rules:

1.       When a dissident shareholder provides the company with notice of the names of its director nominees (as required by Rule 14a-19(b)), the notice can only include the names of nominees the dissident actually intends to nominate (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.01);​

2.       In a contested director election where there is more than one dissident slate, the company is obligated to inform each of the dissident shareholders the names of both its own and the other dissident shareholder's director nominees (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.02); and

3.       If a company's advance notice bylaw provision imposes an earlier deadline than the 60-day deadline in Rule 14a-19(b)(1) and requires all of the information required under Rule 14a-19, the company's proxy statement only needs to disclose such earlier deadline; however, if Rule 14a-19(b) requires information that is not required by the advance notice bylaw, then the company's proxy statement must clearly inform potential dissidents that they must also comply with the additional requirements of Rule 14a-19(b) (see C&DI Proxy Rules and Schedules 14A/14C, Question 139.03).

1. Dissident can only include Names of Director Nominees for whom it Intends to Solicit Proxies.

Under Question 139.01, the Staff confirms that a dis...

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