At today’s meeting of the American Bar Association, the Director of the Division of the SEC’s Corporation Finance provided some comments regarding the Division’s work and priorities. Mr. Hinman reiterated the Division’s focus on capital formation related matters. Mr. Hinman echoed concerns voiced by SEC Chair Clayton regarding the decline in the number of U.S. listed companies in recent years. Mr. Hinman noted that there have been many reasons offered to explain the decline in the number of public companies and the increasing tendency of companies to remain private longer. For example, he noted that there are many more types of investors in the private markets, private investors are being more innovative in how they provide capital, and there are new ways to provide liquidity for employees of private companies with stock-based compensation. Mr. Hinman noted that there have been concerns expressed about valuations but that many articles, reports and studies noting the attractive private valuations (compared to IPO valuations) may fail to appropriately reflect the fact that valuations in private rounds relate to preferred stock with liquidation and other preferences, and not to common stock. In any event, Mr. Hinman noted the Division’s interest in understanding the regulatory burdens placed on companies seeking to undertake IPOs and on public reporting companies. He noted that a recent DERA report to Congress reiterated the difficulties associated with unwinding the effects of any particular regulatory requirement on capital raising.
Mr. Hinman discussed the Division’s policy of extending the confidential review process to non-EGCs and underscored the Division’s invitation to have companies and their counsel consult with the SEC on financial statement requirements. He noted that the Staff would be responding very promptly to requests for waivers.
In a wide-ranging discussion, Mr. Hinman addressed a number of other topics, including the resource extraction rule. He noted that the Congressional Review Act nullified the rule, but that the SEC still has a statutory mandate to act although there is a CRA requirement that the new rule cannot be substantially similar to the rule that was struck down. The SEC will have to propose a new rule for comment in the near future. Mr. Hinman also addressed other rules that had been proposed by the SEC, including proposed updates to Industry Guide 7 on mining disclosures, and amendments to the smaller reporting company definition. While he noted that the there was a final rule under development regarding the SRC definition, there was ongoing discussion related to SOX 404 attestation requirements. He noted that the SEC was seeking more information on the costs directly attributable to 404 attestation and was considering other tests, including revenue-based and market cap-based tests, as possible alternatives. Mr. Hinman noted that there were very few comments submitted in response to the request for comment on Industry Guide 3 disclosures. In response to questions, Mr. Hinman noted that the SEC expected to comply with the FAST Act-mandated timelines regarding the modernization of Regulation S-K and that the SEC’s changes to Regulation S-K are likely to be quite consistent with those discussed in the November 2016 report to Congress. Again, in response to a question, Mr. Hinman noted that there may be some opportunity for clarifying guidance on integration issues.