SEC Issues Guidance on Use of Social Media 04/03/2013
Posted by Morse, Barnes-Brown Pendleton in Client News, Legal Developments.Tags: Reg. FD, SEC, social media
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By: Daniele Levy
Yesterday the Securities and Exchange Commission (SEC) issued guidance to clarify how public companies and executives may use social media to disseminate company information in compliance with Reg. FD. Reg. FD was adopted in 2000 to prohibit selective disclosure of material non-public information by public companies. Reg. FD provides that when a public company discloses material non-public information to securities analysts or stockholders it must also simultaneously disclose such information through a recognized channel of distribution in order to achieve broad distribution of the information.
The SEC has stated that it encourages the use of electronic communications to disseminate information and promote transparency in the trading markets. In its guidance on the use of social media, the SEC emphasized two points. First, company communications – whether from the company or its executives – distributed through social media channels require a careful Reg. FD analysis. Second, in order to meet the requirements of Reg. FD a company must alert the investing public in advance of the social media channels it intends to use to communicate company information.
Action Items: Public companies should consider (1) adopting a policy identifying the social media channels the company and its executives intend to use to disseminate material information regarding the company, and (2) disclosing such channels on their corporate website in order to give the investing public the ability to take action in order to receive such disclosures.
For more information on this topic, please contact Daniele Levy.
Action Items for Smaller Reporting Companies: Nasdaq Changes Compensation Committee Requirements 01/31/2013
Posted by Morse, Barnes-Brown Pendleton in Legal Developments, Public Companies.Tags: compensation committee, corporate governance, nasdaq, SEC
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The SEC recently approved changes to Nasdaq’s corporate governance requirements regarding compensation committees. These changes apply to any company whose stock is listed on Nasdaq – with certain significant exceptions. Smaller reporting companies, or SRCs, are exempt from many, but not all, of the new requirements. Here is a brief summary of how the changes will affect SRCs.
All Nasdaq listed companies, including SRCs, are now required to have a compensation committee consisting of at least two members each of whom qualify as independent under Nasdaq’s current listing standards. The compensation committee must adopt a formal written charter which includes specific provisions noted here:
- the scope of the compensation committee’s responsibilities, and how it carries out those responsibilities, including structure, processes and membership requirements;
- the compensation committee’s responsibility for determining, or recommending to the board for determination, the compensation of the chief executive officer and all other Executive Officers of the Company; and
- that the chief executive officer may not be present during voting or deliberations on his or her compensation.
Alternatively, in the absence of a compensation committee charter, a SRC may have the Board adopt resolutions specifying the committee’s responsibilities and authority. The compensation committee is required to review and reassess its charter on an annual basis.
Action Item: SRCs that do not have a compensation committee should begin identifying potential compensation committee members.
Action Item: SRCs who do not have a compensation committee charter should begin drafting a charter. SRCs who already have a charter in place should review their charter to determine whether modifications are required.
SRCs have until the earlier of their first annual meeting after January 14, 2014, or October 31, 2014 to comply with the provisions set forth above, Each listed company must certify to Nasdaq that it has met the requirements described above no later than 30 days after such date.
For more information on this topic, please contact Daniele Levy.
Expanded Thresholds for Registration under the Exchange Act 05/08/2012
Posted by Morse, Barnes-Brown Pendleton in Legal Developments.Tags: exchange act, JOBS Act, SEC
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By: Joe Marrow
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act) which, among other things, increases the existing metrics pursuant to which a private company is required to register a class of equity securities under the Exchange Act of 1934. The provisions of the JOBS Act described below take effect immediately.
Previously, the ’34 Act required a company to register a particular class of equity securities with the SEC and commence periodic reporting within 120 days following the last day of any fiscal year in which the company had total assets in excess of $10 million and a class of equity securities held of record by 500 or more shareholders. To provide some flexibility to private companies that have begun to bump up against the requirement for ’34 Act registration, the JOBS Act amends Section 12(g) of the ’34 Act by requiring that a company must register a particular class of equity securities when the company has more than $10 million in assets and has a class of equity securities either held of record by 2,000 persons or more or 500 or more persons that are not accredited investors. Additionally, in calculating the number of shareholders of record listed above, companies may exclude equity securities held of record by persons who received the securities pursuant to exempt transactions under employee compensation plans.
The new provisions should alleviate problems facing developing companies that have been required to finance themselves through multiple private offerings while granting stock options to numerous employees pursuant to compensation plans by delaying the requirement to commence periodic reporting under the ’34 Act.
For more information on the increases to the thresholds for registration under the 1934 Act pursuant to the JOBS Act, please contact Joe Marrow.
Send in the Crowds? Crowdfunding Bill Becomes Law 04/06/2012
Posted by Morse, Barnes-Brown Pendleton in Legal Developments, New Resources.Tags: crowdfunding, JOBS Act, SEC
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By: Carl F. Barnes
Crowdfunding – in which entrepreneurs and start-ups raise capital in small amounts from large numbers of ordinary investors – became a reality on April 5, as President Obama signed the Jumpstart Our Business Startups Act, known as the JOBS Act. Well, almost – the Securities and Exchange Commission has been given until the end of the year to write the regulations necessary to implement the Act.
Once those regulations are adopted, entrepreneurs will be permitted to raise up to $1,000,000 in any 12-month period from ordinary investors. The amount any one person can invest in any one company will be limited to the greater of $2,000 or 5% of the investor’s income or net worth – or up to 10% of the investor’s income or net worth (subject to a cap of $10,000) if the investor’s income or net worth equals or exceeds $100,000.
Companies taking advantage of the crowdfunding rules must use either a securities broker or a “funding portal” to find investors. Companies won’t be permitted to advertise the terms of their offering, but they will be permitted to publish notices and use the internet to direct prospective investors to the intermediary. Both the company and the intermediary will be required to make significant disclosures to prospective investors and to the SEC, both before and after the offering. And both companies and their directors and officers had better be careful, because they will all be liable for material misstatements and omissions in their disclosures.
Whether the JOBS Act will satisfy the dreams of the entrepreneurial community by providing efficient and low-cost access to capital or whether the burdens of complying with the Act and the forthcoming regulations will mean that the crowdfunding rules are little-used remains to be seen. Even without the regulations in hand, though, there is much that entrepreneurs who think they will want to try crowdfunding should consider. For a detailed description of the Act and a discussion of those considerations, please click here.
For more information on crowdfunding and private placements generally, please contact Carl Barnes.
Regulation D Accredited Investor Definition Change 01/11/2012
Posted by Morse, Barnes-Brown Pendleton in Legal Developments.Tags: Dodd-Frank Act, regulation d, SEC
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By: Jeffrey Somers
Dodd-Frank recently amended the $1 million net worth accredited investor test for individuals under Regulation D (Reg D) to exclude the value of the investor’s primary residence. Dodd-Frank required the U.S. Securities and Exchange Commission (SEC) to adopt rule amendments to effect this change, which the SEC did on December 21, 2011. The rule amendments are effective February 27, 2012. You can find the final rule here.
Under the amended definition the value of an investor’s primary residence may not be included in calculating the investor’s net worth for purposes of Reg D. Likewise, debt (any mortgages and home equity loans) secured by an investor’s primary residence is ignored unless the debt exceeds the estimated fair value of the residence (an underwater mortgage), in which case excess of the mortgage debt over the fair value is included as a liability in calculating net worth. In addition, any increase in the amount of an investor’s mortgage debt within 60 days prior to the investor making the investment in question must be treated as a liability for purposes of calculating net worth (the theory being that the investor has taken value out of the residence, which is supposed to excluded, to raise cash to make the investment). This latter provision is not part of Dodd-Frank.
The amended rule does not define “primary residence” but the SEC adopting release refers to the common understanding that it is the home where the investor lives most of the time.
There is limited grandfathering for an investor’s exercise of rights to acquire securities provided (i) the right was held by the investor on July 20, 2010 (the enactment date of Dodd-Frank), (ii) the investor was an accredited investor at the time the rights were acquired, and (iii) the investor held securities of the same issuer, other than the rights, on July 21, 2010.
A capital call on a commitment made prior to July 21, 2010, is generally not subject to the amended definition. However, the definition would apply in the case of new purchases in a private fund unless the grandfathering provision applies.
Unless they have been already in response to Dodd-Frank, all subscription agreements that we use should be appropriately modified to reflect the new definition.
For more information, please contact Jeffrey Somers.
Action Item for Public Companies: Disclosing Cybersecurity Risks 11/14/2011
Posted by Morse, Barnes-Brown Pendleton in Attorney News, Legal Developments, Public Companies.Tags: cybersecurities, public companies, SEC
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By: Daniele Levy
The U.S. Securities and Exchange Commission (SEC) recently issued guidance to help public companies assess what, if any, disclosure should be provided regarding cybersecurity risks or incidents. While federal securities laws do not specifically require companies to disclose cybersecurity risks, the SEC’s guidance makes it clear that a number of existing disclosure requirements may impose obligations to disclose cybersecurity matters.
The SEC specifically stated that its guidance and the federal securities laws should not be interpreted to require disclosure that would compromise a company’s cybersecurity efforts.
As an action item, companies should consider whether cybersecurity risks and incidents may affect their risk factor disclosure, MD&A, description of the company’s business and operations, legal proceedings disclosure and financial statements.
Disclosure committees, in their periodic review of the effectiveness of disclosure controls and procedures, will want to consider cybersecurity matters as well.
For more information on this topic, please feel free to contact Daniele Levy.
MassChallenge Awards Therapeutic Systems with $50,000 Gold Prize 11/14/2011
Posted by Morse, Barnes-Brown Pendleton in Client News.Tags: cybersecurities, public companies, SEC
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On October 24th, MassChallenge held a ceremony to announce the winners of the $1 million 2011 MassChallenge Startup Competition and Accelerator. Three companies were awarded the $100K Diamond Prize and fourteen were awarded the $50K Gold Prize. MBBP client Therapeutic Systems, LLC were selected as one of the $50K Gold Prize winners for the design and development of their product, the Vayu Vest, which is a new and innovative medical device that uses deep pressure to adderss the unique sensory needs of people with autism and related disorders.
Congratulations Therapeutic Systems!
Please visit MassChallenge for more information on the competition.
Judge in Mark Cuban Case Sets Standards 08/04/2011
Posted by Morse, Barnes-Brown Pendleton in Attorney News.Tags: civil complaint, Mark Cuban, SEC
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By Mark Tarallo
In June 2011, Mark Cuban’s Dallas Mavericks pushed aside the Miami Heat to win the NBA Championship, four games to two. Unfortunately for Cuban and his long-running battle with the United States Securities and Exchange Commission (the “SEC”), the SEC is proving to be a much tougher opponent than the Heat, and recently won a procedural ruling against Cuban striking down an affirmative defense raised by Cuban.
The SEC filed a civil complaint against Cuban in 2008, alleging insider trading in connection with his sale of shares in Mamma.com, Inc. (now called Copernic, Inc.). The case was dismissed in 2009, and Cuban moved for sanctions against the SEC, which were denied. An appellate court reinstated the case against Cuban in 2011. In his pleadings, Cuban raised “unclean hands” on the part of the SEC as an affirmative defense. The SEC moved to strike the affirmative defense, and in a ruling dated July 18, 2011, US District Court Judge Sidney Fitzwater granted the SEC’s motion to strike.
To learn more on Mark Cuban’s defense, please visit our Resources page for the full article.
Federal Proxy Access Rule Vacated by D.C. Circuit Court 08/02/2011
Posted by Morse, Barnes-Brown Pendleton in Legal Developments, New Resources.Tags: Dodd-Frank Act, proxy access, SEC
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On July 22, 2011, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously struck down Securities and Exchange Commission Rule 14a-11, also known as the Proxy Access Rule. The court vacated the Proxy Access Rule holding that the SEC failed to adequately consider the rule’s effect on efficiency, competition and capital formation as required by both the Securities Exchange Act of 1934 and the Investment Company Act of 1940.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (enacted July 2010), the SEC was authorized but not required to establish rules governing access to proxy statements. On August 25, 2010 the Proxy Access Rule was adopted by the SEC. The proposed Proxy Access Rule would have required a company, subject to proxy rules under the Securities Exchange Act of 1934, to include in its proxy materials, the name of a person or persons nominated by a qualifying shareholder or group of shareholders for election to the board of directors.
To learn more, please see the full article.
Proxy Access May Weigh Heavy on Smaller Reporting Companies 09/13/2010
Posted by Morse, Barnes-Brown Pendleton in Legal Developments.Tags: proxy access, SEC
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By Daniele Levy
In late August the SEC adopted long awaited proxy access rules. The rules provide 3% (or greater) stockholders who have held the interest for at least three years with the right to include director nominees in the company’s proxy statement for up to 25% of the seats on the Board of Directors. While the rules will affect the 2011 proxy season for most companies, the SEC has stated that the rules will not apply to smaller reporting companies for the first three years.
The SEC’s stated goal was to provide significant long-term shareholders with access to a company’s proxy statement in order to solicit votes for director nominees. However, the rules may have an unintended consequence in that it is likely the affect of the rules will be felt more strongly by smaller reporting companies. The reason is simple. Because the rules require a shareholder to hold a 3% stake in a company for a period of three years, it will be much easier for stockholders looking to include director nominees in company proxy statements to meet the 3% threshold in a smaller reporting company (defined as a company with less than $75M in public float) than in a company with a larger market cap.
Stay tuned during the 2011 proxy season and beyond to see how proxy access works in practice.
For more information on the new proxy access rules, please contact Daniele Levy.
SEC Issues New Proxy Disclosure Rules 04/14/2010
Posted by Morse, Barnes-Brown Pendleton in Client News, Legal Developments.Tags: proxy disclosure, SEC
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By: Mark Tarallo
On Dec. 16, 2009, the U.S. Securities and Exchange Commission issued a set of final rules relating to enhanced proxy disclosures, which require reporting companies to provide greater and more detailed disclosures in their proxy filings. The Proxy Disclosure Enhancements were issued with an effective date of Feb. 28, 2010. However, because of some confusion as to how they would be applied, the SEC issued interpretive guidance on Dec. 22, 2009.
For more information on the new proxy disclosure rules, please see the full article.
Delay in SEC Proxy Access Rules 12/30/2009
Posted by Morse, Barnes-Brown Pendleton in Client News.Tags: proxy, SEC, shareholder
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On December 14, 2009, the Securities and Exchange Commission re-opened for 30 additional days the comment period for its proposed proxy access rules. Since the rules were proposed in May, SEC Chairman Mary Schapiro has been signaling that she expected the Commission to act on the rules in early January, making them effective for the 2010 proxy season. With the re-opening of the comment period, it now seems likely that the Commission will not take final action on the rules until March. That would mean that the rules would kick in for the 2011 proxy season for calendar year companies (perhaps sooner for non-calendar year companies). While final action may be delayed for the time being, new rules are likely, so public companies should be planning for them.
For more information on this subject, please see our article “Shareholder Access to Director Elections Changes Are Likely”, or contact Jeffrey P. Somers.
Securities Regulation and the Use of Social Media by Public Companies 09/10/2009
Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments, Public Companies.Tags: public companies, SEC, securities, social media
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Public companies today, more than ever, disseminate corporate communications to their constituents (shareholders, customers, prospective investors) by means of a variety of social media platforms (corporate web sites, blogs, Twitter). In so doing, companies should consider whether the disclosure of corporate information runs afoul of the federal securities laws. To guard against federal securities law violations, public companies should implement policies to regulate such disclosures by company representatives.
To read more, click on: SEC’s Regulation FD on Fair Disclosure.
