SEC - General - Page 2

Summary - The SEC has published a correction to its previously adopted recordkeeping, reporting, and notification requirements applicable to security-based swap dealers and major security-based swap participants, securities count requirements applicable to certain security-based swap dealers, and additional recordkeeping requirements applicable to broker-dealers to account for their security-based swap and swap activities. This document corrects a technical inaccuracy in that release.
This correction is effective upon publication in the Federal Register.

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SEC CF Disclosure Guidance Topic: Topic No.7: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its previously issued guidance in CF Disclosure Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. This guidance addresses how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act.

Corp Fin has updated this topic to provide guidance on options for when a confidential treatment order is about to expire. The guidance provides that companies that previously have obtained a confidential treatment order have three choices of what to do when the order is about to expire.

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Guarantor Financial Information – New Edition of GAAP Update Service Discusses New SEC Rules on Guarantor Financial Information

We have published a new edition of the GAAP Update Service that discusses the SEC’s new rules to further reduce the financial reporting requirements for guarantors of registered securities. These changes also reduce the financial information required for an affiliate whose securities collateralize registered debt or other securities. Under the new rules, more offerings are eligible for disclosure relief and the relief itself is more extensive.

The SEC expects the new rules to reduce the cost of raising capital through registered debt offerings and thus, potentially, increase the number of debt offerings that are registered. The new rules are effective January 4, 2021. However, public companies can voluntarily comply with them prior to that date.

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Broker-Dealers – SEC Adopts Rule on the Orderly Liquidation of Covered Broker-Dealers under Title II of the Dodd-Frank Act

The SEC and the Federal Deposit Insurance Corporation have adopted a final rule required by the Dodd-Frank Act clarifying and implementing provisions relating to the orderly liquidation of certain brokers or dealers (covered broker-dealers) in the event the FDIC is appointed receiver under Title II of the Dodd-Frank Act. The FDIC and SEC developed the final rule in consultation with the Securities Investor Protection Corporation (SIPC).

The SEC indicates that by statute, “the orderly liquidation of a covered broker-dealer must be accomplished in a manner that ensures that customers of the covered broker-dealer receive payments or property at least as beneficial to them as would have been the case had the covered broker-dealer been liquidated under the Securities Investor Protection Act of 1970 (SIPA).”

Among other things, the final rule clarifies how the relevant provisions of SIPA would be incorporated into a Title II proceeding. Upon the appointment of the FDIC as receiver, the FDIC would appoint SIPC to act as trustee for the broker-dealer. SIPC, as trustee, would determine and satisfy customer claims in the same manner as it would in a proceeding under SIPA. The treatment of the covered broker-dealer’s qualified financial contracts would be governed in accordance with Title II.

In addition, the final rule describes the claims process applicable to customers and other creditors of a covered broker-dealer and clarifies the FDIC’s powers as receiver with respect to the transfer of assets of a covered broker-dealer to a bridge broker-dealer.
The final rule is substantively identical to the proposed rule previously published in the Federal Register. It will be effective 60 days after publication in the Federal Register.

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Mining Property Disclosures – SEC Staff Provides Guidance on Mining Property Disclosures

Summary - The staff in the Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation (C&DI), Regulation S-K (Questions 155.01-155.03). Corp Fin has updated this C&DI to reflect guidance on compliance with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K.

The new questions provide guidance on the following questions:

For purposes of filing an Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?
For purposes of filing a Securities Act registration statement, may the registrant satisfy its obligation to include mining property disclosure pursuant to Subpart 1300 of Regulation S-K by incorporating such disclosure by reference to its Exchange Act annual report for the appropriate period, even if such annual report was not required to comply with the new mining property disclosure rules in Subpart 1300 of Regulation S-K?
For purposes of filing an Exchange Act or Securities Act registration statement that does not incorporate by reference mining property disclosure from a registrant’s Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?

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Fund Valuations – SEC Proposes to Modernize Framework for Fund Valuation Practices

Summary - The SEC has published for public comment a new rule that would establish a framework for fund valuation practices. The rule is designed to “clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.”

The SEC indicates that it last addressed valuation practices under the Investment Company Act of 1940 in a comprehensive manner in a pair of releases issued in 1969 and 1970. Since then, markets and fund investment practices have evolved considerably. Many funds now engage third-party pricing services to provide pricing information, particularly for thinly traded or more complex assets. In addition, significant regulatory developments have altered how boards, investment advisers, independent auditors, and other market participants address valuation under the federal securities laws. The proposal recognizes and reflects these changes, including the important role that funds’ investment advisers may play and the expertise they may provide.

The proposed rule would establish requirements for satisfying a fund board’s obligation to determine fair value in good faith for purposes of the Investment Company Act of 1940.

The rule would require a fund board to:

Assess and manage material risks associated with fair value determinations;
Select, apply and test fair value methodologies;
Oversee and evaluate any pricing services used;
Adopt and implement policies and procedures; and
Maintain certain records.

The comment period on the proposal will be open until July 21, 2020.

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SEC Adopts Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions

Summary - In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the definition of accelerated filers and large accelerated filers. As a result, more companies can qualify as a smaller reporting company (SRC), which reduces burdens and compliance costs. For more information about the advantages of SRC status, please visit SEC.gov. Among the changes are a revenue test for exiting from both accelerated and large accelerated filer status and the possible elimination of including an internal control over financial reporting (ICFR) auditor attestation in the filing of Forms 10-K, 20-F and 40-F. Another change is lengthening the due dates for annual and quarterly reports to 90 calendar days and 45 calendar days, respectively.

Important points to know about the amendments:

If an issuer has less than $100 million in revenue and qualifies for SRC status, an ICFR audit is not needed, regardless of market cap.
If an issuer was not previously eligible for SRC status but has less than $80 million in revenue, an ICFR audit may not be needed, regardless of market cap.

For more information about these amendments, please click here.

Topic No. 8: Intellectual Property and Technology Risks Associated with International Business Operations

Summary - Corp Fin has issued CF Disclosure Guidance: Topic No. 8, Intellectual Property and Technology Risks Associated with International Business Operations. This guidance provides Corp Fin’s views regarding disclosure obligations that companies should consider with respect to intellectual property and technology risks that may occur when they engage in international operations.

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CF Disclosure Guidance Topic: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued CF Disclosure Guidance: Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. This guidance addresses how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act. This guidance replaces and supersedes the guidance provided in Staff Legal Bulletins 1 and 1A.

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Entrepreneurship – SEC Advocate for Small Business Capital Formation Discusses Entrepreneurship

Summary - SEC Advocate for Small Business Capital Formation Martha Miller recently discussed entrepreneurship at a conference for military veteran business owners. Miller indicated that “small businesses and their investors are looking for the most efficient way to raise the capital they need. We also understand one size does not fit all.”

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Dual-Class Shares – SEC Investor Advocate Discusses Concerns of Dual-Class Shares

Summary - SEC Investor Advocate Rick Fleming recently expressed his concerns with the increased use of dual-class shares by companies that seek to go public. Fleming cautioned that “companies with dual-class structures tend to underperform companies with dispersed voting power.”

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Shareholder Proposals – SEC Staff Provides Guidance on Rule 14a-8 on Shareholder Proposals

Summary - The SEC staff has published Staff Legal Bulletin No. 14K. This bulletin provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934 (Exchange Act). This bulletin is part of a continuing effort by the SEC staff to provide guidance on important issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding:

The analytical framework of Rule 14a-8(i)(7);

Board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
The scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
Proof of ownership letters.

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Regulation S-K – SEC Staff Updates Regulation S-K Interpretation

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation (C&DI), Regulation S-K. This C&DI provides Corp Fin’s interpretations of various sections of Regulation S-K. Corp Fin has added new Questions 116.11 and 133.13. These questions include guidance on preparing Item 401 disclosure relating to director qualifications.

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Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding Certain Cyber-Related Frauds Perpetrated Against Public Companies and Related Internal Accounting Controls Requirements – Release No. 34-84429

Summary - The SEC issued an investigative report cautioning that public companies should consider cyber threats when implementing internal accounting controls. The report is based on the SEC Enforcement Division's investigations of nine public companies that fell victim to cyber fraud, losing millions of dollars in the process.

According to the SEC, the investigations focused on "business email compromises" (BECs) in which perpetrators posed as company executives or vendors and used emails to dupe company personnel into sending large sums to bank accounts controlled by the perpetrators. The frauds in some instances lasted months and often were detected only after intervention by law enforcement or other third parties. Each of the companies lost at least $1 million, two lost more than $30 million, and one lost more than $45 million. In total, the nine companies wired nearly $100 million as a result of the frauds, most of which was unrecoverable. No charges were brought against the companies or their personnel.

The companies, which each had securities listed on a national stock exchange, covered a range of sectors including technology, machinery, real estate, energy, financial, and consumer goods. Public issuers subject to the internal accounting controls requirements of Section 13(b)(2)(B) of the Securities Exchange Act of 1934 must calibrate their internal accounting controls to the current risk environment and assess and adjust policies and procedures accordingly. The SEC indicates that the “FBI estimates fraud involving BECs has cost companies more than $5 billion since 2013.”

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U. S. Securities and Exchange Commission Strategic Plan

Summary - The SEC announced a new strategic plan to guide the agency’s work over the next four years with a primary focus on investors, innovation, and performance. The plan’s goals reflect the agency’s commitment to its longstanding mission while leveraging the opportunities and addressing the challenges that come from fast-evolving markets, products and services. The strategic plan includes the following goals:

Focus on the long-term interests of our Main Street investors.
Recognize significant developments and trends in our evolving capital markets and adjust our efforts to ensure we are effectively allocating our resources.
Elevate the SEC’s performance by enhancing our analytical capabilities and human capital development.

The SEC’s new strategic plan was published in accordance with the Government Performance and Results Modernization Act of 2010, which requires federal agencies to outline their missions, planned initiatives, and strategic goals for a four-year period.

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SEC Staff Guidance on Non-GAAP Measures Updated

Summary - The staff in the SEC's Division of Corporation Finance has updated its Compliance and Disclosure Interpretation (C&DI), Non-GAAP Financial Measures. This C&DI provides staff interpretations of the rules and regulations on the use of non-GAAP financial measures.

The staff has added Questions 101.02 and 101.03 to provide guidance on business combination transactions, including information on providing non-GAAP financial measures in certain forecasts.

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Adjustments to Civil Monetary Penalty Amounts

Summary - The SEC has issued a notice, Adjustments to Civil Monetary Penalty Amounts. The SEC is publishing this notice pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the Act). This Act requires all agencies to annually adjust for inflation the civil monetary penalties that can be imposed under the statutes administered by the agency and publish the adjusted amounts in the Federal Register. This notice sets forth the annual inflation adjustment of the maximum amount of civil monetary penalties administered by the SEC under the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. These amounts are effective beginning on January 15, 2018, and will apply to all penalties imposed after that date for violations of the aforementioned statutes that occurred after November 2, 2015

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Staff Accounting Bulletin No. 118

Summary - The SEC staff published guidance for publicly traded companies, auditors, and others to help ensure timely public disclosures of the accounting impacts of the Tax Cuts and Jobs Act (the Act or the TCJA). Specifically, the SEC staff issued Staff Accounting Bulletin (SAB) No. 118. SAB 118 expresses views of the staff regarding application of U.S. GAAP when preparing an initial accounting of the income tax effects of the Act.

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Financial Reporting Manual -- SEC Staff Financial Reporting Manual Updated

Summary - The staff in the SEC's Division of Corporation Finance (Corp Fin) has updated certain guidance in its Financial Reporting Manual (Manual). Corp Fin has updated the FRM to:

Include revised guidance related to the pro forma impact of adopting new accounting standards;
Address adoption of new accounting standards after Emerging Growth Company status is lost; and
Clarify the effective dates for certain public business entities for FASB Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and ASU No. 2016-02, Leases.

The Manual was originally prepared by the Corp Fin staff to serve as internal guidance but later made public in an effort to increase transparency of informal staff interpretations. Because of its informal nature, the Manual does not necessarily contain a discussion of all material considerations necessary to reach an accounting or disclosure conclusion. Such conclusions about a particular transaction are very fact dependent and require careful analysis of the transaction and of the relevant authoritative accounting literature and SEC requirements. The information in the Manual is non-authoritative.

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