On July 13, 2021, the Securities and Exchange Commission (“SEC”) announced a major enforcement action related to a proposed merger between a special purpose acquisition company (“SPAC”) and a privately held target company (“Target”). This followed numerous warnings by the SEC staff over several months of enhanced scrutiny of such transactions under the federal securities laws.[1] The respondents, except for the Target’s CEO, settled the action by collectively agreeing to civil penalties of approximately $8 million and to certain equitable relief described below. [2]
Continue Reading SEC Brings SPAC Enforcement Action and Signals More to Come
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SEC Charges Eight Companies and Signals Need for Better Disclosures About Delayed Filings
By Nick Grabar, David Lopez, Matthew C. Solomon, Alex Janghorbani & Fernando A. Martinez on
On April 29, 2021, the Securities and Exchange Commission (the “SEC”) announced settled charges against eight public companies that filed notifications of late filings on Form 12b-25 (more commonly known as “Form NT”) without disclosing in those filings a pending restatement or correction of financial statements.
These settlements are a reminder that filing a Form…
Acting Director of SEC’s Corp Fin Issues Statement on Disclosure Risks Arising from De-SPAC Transactions
By Nick Grabar, Giovanni P. Prezioso, Jared Gerber, Rahul Mukhi & Adam Brenneman on
Last week, John Coates, the Acting Director of the SEC’s Division of Corporation Finance (“Corp Fin”), released a statement discussing liability risks in de-SPAC transactions.
The statement focused in particular on the concern that companies may be providing overly optimistic projections in their de-SPAC disclosures, in part based on the assumption that such disclosures are protected by a statutory safe harbor for forward-looking statements (which is not available for traditional IPOs). Director Coates’s statement questions whether that assumption is correct, arguing that de-SPAC transactions may be considered IPOs for the purposes of the statute (and thus fall outside the protection offered by the statutory safe harbor). He therefore encourages SPACs to exercise caution in disclosing projections, including by not withholding unfavorable projections while disclosing more favorable projections.
Continue Reading Acting Director of SEC’s Corp Fin Issues Statement on Disclosure Risks Arising from De-SPAC Transactions
SEC Brings Rare Litigated Enforcement Action for Violation of Regulation FD
On March 5, 2021, the Securities and Exchange Commission (“SEC”) filed a lawsuit in federal court against AT&T, Inc. (“AT&T”) for violating Regulation FD, and also charged three of AT&T’s Investor Relations executives with aiding and abetting this violation.[1] Reg FD (which stands for “Fair Disclosure”) prohibits companies from selectively disclosing material nonpublic information to certain categories of individuals, including analysts and investors, and is intended to promote full and fair disclosure of such information in order to ensure that all investors have equal access to potential market-moving information.[2]
Continue Reading SEC Brings Rare Litigated Enforcement Action for Violation of Regulation FD
SEC Brings Enforcement Action Against Global Brokerage Company, Finding False and Misleading Statements In Connection With Non-GAAP Financial Measures
On September 30, 2020, amidst a blizzard of cases filed at the end of the Securities and Exchange Commission’s fiscal year, the SEC announced a settlement with BGC Partners, Inc. (“BGC”) involving allegedly misleading disclosures concerning how it calculated a key non-GAAP financial measure (“NGFM”).[1] This settlement is the latest in a string of enforcement actions relating to what the SEC views as improper uses of NGFMs. In advance of year-end reporting, this action is a useful reminder to companies to carefully consider the SEC guidance and recent enforcement actions related to NGFMs. At least 95% of all Fortune 500 companies publish NGFMs, and the SEC has indicated that it will be reviewing NGFMs with particular scrutiny this year-end in light of the challenges of reporting on performance during the COVID-19 pandemic.
Continue Reading SEC Brings Enforcement Action Against Global Brokerage Company, Finding False and Misleading Statements In Connection With Non-GAAP Financial Measures
SEC Internal Controls Case Demonstrates Agency’s Focus On MNPI Issues In The Stock Buyback Context
By Matthew P. Salerno, James E. Langston, Jeffrey D. Karpf, Nick Grabar, Francesca L. Odell & Matthew C. Solomon on
Late last week – for the first time in 40 years – the SEC announced a settlement of an internal controls case against an issuer arising from its repurchase of its own shares. The SEC found that Andeavor bought back $250 million of stock without first engaging in an adequate process to ensure that the…
SEC Chief Accountant Weighs in on Accounting Issues During the COVID-19 Outbreak
By Robin M. Bergen, Sandra Flow, Nick Grabar, Abena Mainoo & Matthew C. Solomon on
On April 3, 2020, the SEC’s Chief Accountant, Sagar Teotia, issued a Statement on the Importance of High-Quality Financial Reporting in Light of the Significant Impacts of COVID-19 (the “OCA Statement”). The OCA Statement emphasizes that while the SEC Office of the Chief Accountant (“OCA”) appreciates the challenging environment that companies and their auditors face in attempting to comply with their financial reporting obligations due to COVID-19[1], and will not second-guess their reasonable judgments, OCA expects financial reporting to continue to “provide investors with high-quality financial information.” The OCA Statement also reaffirms OCA’s views on the importance of gatekeepers by pointing out the critical need for auditor independence in this uncertain economic environment. In addition to this general theme, the OCA Statement contains several notable points that will have implications for companies in the current situation, both in preparing their financial statements, and in taking steps to mitigate litigation and enforcement risk.
Continue Reading SEC Chief Accountant Weighs in on Accounting Issues During the COVID-19 Outbreak
SEC Maintains the Status Quo on Climate Change Disclosures
By Sandra Flow, Nick Grabar, Jeffrey D. Karpf & Rosa Parmose on
Last week the Securities and Exchange Commission Chair Clayton and Commissioners Lee and Peirce each issued statements on climate-related disclosures in SEC filings. The statements were prompted by the concurrent SEC’s proposal to amend the MD&A rules and evidence some debate within the SEC on this topic, which has attracted considerable recent attention among investors,…
SEC Zeroes in on MD&A Disclosures
By Sandra Flow, Nick Grabar, Jeffrey D. Karpf, Julian Cardona & Elena Vespoli on
Yesterday the Securities and Exchange Commission took two significant actions relating to the MD&A disclosures in annual and quarterly reports of public companies.
First, it proposed amendments to MD&A requirements that would, if adopted, make significant and long-overdue improvements to a central disclosure requirement of the U.S. securities laws. Second, it issued guidance on the…
SEC Announces Enforcement Cases on Public Company Internal Controls
By Alejandro Canelas Fernandez, Sandra Flow, Nick Grabar, Alex Janghorbani & Tapan R. Oza on
On January 29, 2019, the SEC announced four settlements with publicly-traded companies for failure to maintain adequate internal control over financial reporting.
None of the companies was charged with making false or inaccurate statements, either about its ICFR or otherwise; indeed, each had repeatedly disclosed material weaknesses in ICFR over many years.
These cases are…