SEC seeks comments on proposed amendments to Regulation S-K disclosure requirements. The SEC voted unanimously at an Open Meeting to propose amendments to modernize and simplify certain disclosure requirements under Regulation S-K, as mandated by the Fixing America’s Surface Transportation Act and recommended by the SEC staff’s FAST Act Report. Comments are due within 60 days of publication in the Federal Register. (10/11/2017) SEC press release. In a statement, SEC Commissioner Kara M. Stein maintained that the proposal could do more “to truly modernize both how companies provide disclosure and how investors receive it,” especially by requiring legal entity identifiers for all registrants and subsidiaries. See also statements by SEC Chairman Jay Clayton and SEC Commissioner Michael S. Piwowar in support of the proposal.
Updates to C&DIs on non-GAAP financial measures. The Division of Corporation Finance updated the Business Combination Transactions section of its C&DIs on non-GAAP financial measures. (10/17/2017)
SEC approves PCAOB’s new standard on the auditor’s report. The SEC approved the Public Company Accounting Oversight Board’s proposal to adopt a new auditing standard that would require auditors to disclose additional information in the auditor’s report, including any critical audit matters communicated to the audit committee and a statement of the auditor’s tenure. (10/23/2017) SEC order. SEC Chairman Jay Clayton maintained that the new rules would “provide investors with meaningful insights into the audit,” but acknowledged concerns raised by commenters that the requirements have the potential to impair the work of audit committees if not implemented properly. See also supporting statements from SEC Commissioners Michael S. Piwowar and Kara M. Stein.
Selected Enforcement Actions
Medical device company charged with misleading investors about product’s FDA clearance. The SEC instituted settled administrative proceedings against a medical device company and three of its employees for misleading investors and prospective investors about the Food and Drug Administration’s clearance of one of its products. The SEC alleged that the company, its co-founders, and a public relations employee represented in the company’s private placement memoranda and accompanying marketing materials that the FDA had already cleared the company’s respiratory device. In fact, the FDA deemed the clearance application for the device to be withdrawn. The PPMs and other materials also made misrepresentations about projected sales for the device. Without admitting or denying the allegations, the company and the employees settled the charges. The company and its co-founders consented to the entry of a cease-and-desist order. The co-founders and the public relations employee agreed to pay civil penalties of US$60,000, US$60,000, and US$50,000, respectively. (10/16/2017) In the Matter of Mergenet Medical Inc., Bruce Matthew Sher, Shara Anne Hernandez, and Peter Anthony DeCicco Jr., SEC Release No. 33-10426.
Technology company executives settle charges of misleading investors. The SEC reached a settlement with the former CEO and the former CFO of a technology company in connection with charges that they misled investors about the production status and license agreements relating to the company’s key touchscreen sensor product. Without admitting or denying the allegations, the former CEO and the former CFO consented to the entry of permanent injunctions and agreed to pay civil penalties of US$100,000 and US$50,000, respectively. The CEO also consented to a four-year officer-and-director bar, and the CFO consented to a four-year suspension from appearing before the SEC as an accountant. (10/16/2016) Securities and Exchange Commission v. Reed J. Killion, Jeffrey W. Tomz, and Uni-Pixel, Inc., SEC Lit. Release No. 23968.
Senior executives implicated in homebuilding company’s accounting fraud. The SEC brought contested civil charges against five senior executives of a Mexico-based homebuilding company for their roles in the company’s US$3.3 billion accounting fraud. The SEC alleged that the executives masterminded a scheme to hide the company’s financial problems and boost its revenues by reporting false sales of over 100,000 homes, many of which had not yet been built. The company’s former CEO and former CFO allegedly certified the company’s annual reports, which falsely portrayed the company as thriving and financially sound. The SEC alleged that the former CEO and former CFO caused the company to enter into loan agreements with at least 13 Mexican banks, which the company was able to repay only by additional bank borrowing, hiding the nature of these loans from investors and the company’s auditors. The controller allegedly directed the operations manager to create a false second set of books to hide the fraud. (10/11/2017) SEC v. Gerardo de Nicolás et al., SEC Lit. Release No. 23964.
Speeches and Statements
Clayton, Stein deliver remarks at Investor Advisory Committee meeting. At the SEC’s Investor Advisory Committee meeting, SEC Chairman Jay Clayton discussedthe SEC’s efforts to gauge the impact of blockchain technology and other technological innovations on securities markets. Commissioner Kara M. Stein considered the importance of viewing technological innovations, such as blockchain and the electronic delivery of information, from the investor’s point of view. (10/12/2017)
DERA staff offer analysis of investor confidence. Staff in the SEC’s Division of Economic and Risk Analysis published an economics note that establishes a framework for understanding investor confidence by analyzing investors’ optimism regarding risk and expected return intrinsic to investments in securities, as well as investors’ trust in protections against potential losses. (10/23/2017) DERA note.
Money market fund statistics. The SEC’s Division of Investment Management updated its money market fund statistics to reflect data as of September 30, 2017. (10/19/2017) Money market fund statistics.
Staff announcements. The SEC has named Brett Redfearn as Director of the SEC’s Division of Trading and Markets. (10/18/2017) Also, Walter E. Jospin, Regional Director of the SEC’s Atlanta office, announced that he will leave the agency. (10/10/2017)
SEC to host small business forum in Texas. The SEC will hold its annual Government-Business Forum on Small Business Capital Formation, which will focus on ways to improve capital formation options for small businesses, on November 30, 2017, at the University of Texas at Austin. (10/18/2017) SEC press release.
SEC announces US$1 million whistleblower award. The SEC awarded more than US$1 million to a whistleblower who provided the SEC with information and evidence of a securities law violation by a registered entity that impacted retail customers. (10/12/2017) SEC press release.
SEC approves semiannual regulatory agenda. The SEC has approved the agenda of its rulemaking actions, pursuant to the Regulatory Flexibility Act. Comments on the agenda, which the SEC has submitted for publication in the Unified Agenda of Federal Regulatory and Deregulatory Actions, are due within 30 days of publication in the Federal Register. (10/10/2017) SEC notice.