A. Confidential Treatment Requests:  THE DIVISION OF CORPORATE FinANCE  WILL NOT Directly Inform You If Granted CTRs Had “No Review”

On April 9th, 2014, the Division of Corporation Finance announced that, in cases where it has determined to grant a request for confidential treatment (CTR) without providing comments, it will no longer separately notify the applicant. Instead, the applicant must keep an eye on the company’s filing history on Edgar to look for an order indicating that the CTR was granted. The applicant still will receive a call or letter if there are comments to a CTR or if the CTR is denied.

B. SEC ISSUES REVISED CD&Is on INTRASTATE CROWDFUNDING

On April 10th, 2014 the SEC’s Division of Corporation Finance issued new compliance and disclosure interpretations on intrastate crowdfunding. In summary, the C&DIs advised that:

  1. Rule 147 does not prohibit general advertising or general solicitation. (See Question 141.03)
  2. Use of a third-party internet portal to promote an intrastate offering does not preclude reliance on Rule 147 if the portal implements measure to ensure that offers of securities are made only to persons resident in the relevant state or territory. (See Question 141.04)
  3. An issuer’s use of its own website or social media presence to offer securities would likely involve offers to residents outside the state making the offering inconsistent with Rule 147. (See Questions 141.05)

C. DOJ & FTC: Joint Antitrust Statement Encouraging Companies to Share Cyber Threats

In a joint policy statement issued on April 10th, 2014, the DOJ and FTC officially encouraged companies, including direct competitors, to share cyber threat information with one another. The latest announcement makes clear that, from the government’s perspective, sharing of cyber-related threat information should generally not implicate antitrust concerns.

 D.    D.C. Circuit Court Finds SEC’s Conflict Mineral Disclosure Rule Violates First Amendment

On April 14th, 2014, the U.S. Court of Appeals for the District of Columbia Circuit found that the SEC rule requiring issuers to disclose whether they use “conflict minerals” in their products is unconstitutional because it compels speech in violation of the First Amendment.

The court concluded that compelled disclosures of commercial information are subject to the same level of First Amendment scrutiny as are other regulations of commercial speech.

The conflict minerals disclosure rule, mandated by the Dodd-Frank Act, requires public companies to disclose whether they use conflict minerals (tantalum, tin, tungsten, and gold) and whether the minerals originated in the DRC or adjoining countries. It responds to concerns that conflict minerals mined in these “covered countries” help finance armed groups that are responsible for violence in the region.

E. Corp Fin Issues Conflict Minerals Guidance

On April 29th, 2014 the SEC issued a Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule to help guide companies in their compliance with Conflict Minerals Disclosures.

The statement notes that:

  • The June 2nd Deadline Remains the same – Companies are still required to file initial Form SDs by June 2nd
  • Companies are not required to characterize any products as “DRC conflict free” if they have not been found to be “DRC conflict free” or “DRC conflict undeterminable.”
  • For products that otherwise would have merited a label other than “DRC conflict free,” disclosure is required for the facilities used to produce the conflict minerals, country of origin and efforts to determine the mine or location of origin.
  • For companies that voluntarily decide to use “DRC conflict free” label, they must obtain a private sector audit.

F. Corp Fin Revises WKSI Waiver Policy Statement Again

On March 12th, 2014, the Division of Corporation Finance of the SEC issued revised guidance on well- known  seasoned issuer (WKSI) waivers. On April 24, 2014 the Division of Corporate Finance issued an additional Revised Statement on Well-Known Seasoned Issuer Waivers.

The newest April 2014 guidance clarifies the framework for determining whether a showing of good cause has been established in a WKSI ineligibility waiver request, specifying that:

“Where there is a criminal conviction or a scienter based violation involving disclosure for which  the issuer or any of its subsidiaries was responsible, the issuer’s burden to show good cause that  a waiver is justified would be significantly greater.”

This addition suggests that it will be more difficult to obtain a waiver where a criminal conviction or scienter-based disclosure violation is the underlying cause of ineligibility.

G. Heartbleed and Disclosure Requirements

As noted in this WSJ blog, companies may face liability in the wake of data security incidents that result from weak control and oversight. The recent “Heartbleed” flaw should serve as motivation for companies to implement comprehensive data security compliance programs.

The Division of Corporation Finance’s Guidance regarding disclosure obligations relating to cybersecurity risks notes that “cyber incidents can result from … unintentional events,” which might include prolonged exposure from security flaws such as Heartbleed, which remained undetected by companies for years. The guidance also notes that “[c]onsistent with the Regulation S-K Item 503(c) requirements for risk factor disclosures generally, cybersecurity risk disclosure provided must adequately describe the nature of the material risks and specify how each risk affects the registrant.”

H. Corp Fin Issues New “Legend for Twitter” & “Retweeting” Guidance

On April 21st, 2014 the Division of Corporation Finance issued 2 new Compliance & Disclosure Interpretations dealing with social media. The first CDI deals with how to affix legends to tweets and other social media communications where a limit exists to the number of characters or amount of text that can be included in a communication. (see Question 110.01). In short, an issuer does not have to include the entire legend if the communication includes an active hyperlink to the required legend and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

The second CDI deals with retweeting or otherwise repeating another social media communication (see Question 110.02). In short, an issuer is not responsible for third party re-tweets. (“If the third party is neither an offering participant nor acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party’s re-transmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer.”)

I. the SEC’s Disclosure Reform Project

On April 11th, at the ABA Spring Meeting, the Division of Corporation Finance Director Keith Higgins delivered a speech outlining the SEC’s efforts on disclosure reform. In the speech, he noted that efforts to reduce the volume of disclosure is not the “sole end game”, particularly given that many investors have expressed an appetite for more information, not less. A new webpage created for this initiative solicits public “input and comments on how to improve disclosure and make it more effective.”

J. NYSE Proposal: Relaxation of Director Independence for Spin-Offs

On April 9th, 2014, Oliver Rust of Duane Morris explained how the NYSE has proposed to relax its bright-line director independence tests in limited circumstances, so that “a director may be deemed independent of a company that has been the subject of a spin-off transaction regardless of the fact that such director or his employer had a relationship with the former parent of such spun-off company.” The new interpretation is reflected in a rule filing that the NYSE has submitted to the SEC for approval.

K. European Commission proposes to strengthen shareholder engagement and introduce a “say on pay” for Europe’s largest companies

On April 9th, 2014, The European Commission published a proposal to amend the Shareholder Rights Directive  to improve corporate governance in EU companies traded on regulated markets. Some of the key elements include a “say on pay” policy, an annual remuneration report and improving shareholder oversight on related party transactions.

L. SEC Names David Gottesman as Deputy Chief Litigation Counsel

On April 15th, 2014, the Securities and Exchange Commission announced the appointment of David J. Gottesman as deputy chief litigation counsel in the Division of Enforcement.