On April 21, 2025, Paul S. Atkins was sworn in as the next Chairman of the SEC. You can read his remarks and about his background in this Press Release.
You can also read Acting Chair Mark T. Uyeda’s thanks to the staff and welcome to the new Chairman in this Statement.
As always, your thoughts and comments are welcome!
Since the two clawback related check boxes were added to the Form 10-K cover page, there has been a fair amount of confusion concerning when companies should check the boxes. The wording for the check boxes involves interpreting phrases such as “the correction of an error” and a “required recovery analysis”:
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
While the staff made some comments about the check boxes in public forums, including PLI’s The SEC Speaks conference, there was no formal instruction about how to complete these two check boxes. On April 11, 2025, the staff addressed this situation with new Compliance and Disclosure Interpretations to provide clarity about when and how to use the check boxes.
Question 104.20 addresses the first check box concerning the correction of an error:
Question 104.20
Question: When a listed issuer reports a change to its previously issued financial statements in an annual report, how should the issuer determine whether “the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements” for purposes of determining whether the check box indicating such correction of an error should be marked on the cover of its annual report?
Answer: The listed issuer should look to the guidance under the generally accepted accounting principles applicable to its financial statements in determining whether the change represents the correction of an error. When the financial statements of the registrant included in the filing have been revised to reflect the correction of an error to previously issued financial statements, regardless of whether those restatements are required or not, the listed issuer must mark the check box.
A required restatement includes (1) an accounting restatement to correct an error in previously issued financial statements that is material to those financial statements (commonly referred to as a “Big R” restatement) and (2) an accounting restatement to correct an error that is immaterial to those financial statements but would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (commonly referred to as a “little r” restatement).
The correction of an immaterial prior period error that is recorded in the current year (commonly referred to as an “out-of-period adjustment”) does not require the listed issuer to mark the check box because the previously issued financial statements are not revised. [April 11, 2025]
Question 104.21 addresses the second check box concerning a required recovery analysis:
Question 104.21
Question: In 20X4, a listed issuer reports a “Big R” restatement to the 20X3 financial statements in an amendment to its 20X3 annual report and marks the check box on the cover to indicate that the financial statements reflect the correction of an error to previously issued financial statements. After applying its recovery policy pursuant to Exchange Act Rule 10D-1(b), the listed issuer determines that no recovery of erroneously awarded compensation is required.
Is the listed issuer also required to mark the check box on the cover of the amended 20X3 annual report to indicate that the restatement “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” pursuant to Exchange Act Rule 10D-1(b) and explain in that amended report why application of the recovery policy resulted in no recovery?
Answer: Yes, the listed issuer must mark the check box indicating that the restatement required the recovery analysis. This would include circumstances when:
Further, the listed issuer should briefly explain why application of its recovery policy resulted in no recovery. [April 11, 2025]
The remaining C&DIs address issues including whether the boxes should be checked in years after the restatement and the restatement of interim periods. One other C&DI addresses a SPAC issue related to co-registrant reporting.
As always, your thoughts and comments are welcome!
Following a February 11, 2025, Statement announcing that Acting Chairman Uyeda had directed the SEC staff to request that the Eighth Circuit not schedule arguments for the consolidated litigation challenging the SEC’s climate-related disclosure rules, on March 27, 2025, the Commission formally voted to end its defense of the rules.
In the Press Release announcing the Commission action, Acting Chairman Uyeda said, “The goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
Commissioner Crenshaw issued a Statement disagreeing with the Commission’s action.
As always, your thoughts and comments are welcome!
On March 20, 2025, CorpFin announced a number of C&DI updates. Several of the updates address registration issues, including the timing of filing a registration statement after a year end has passed but the related Form 10-K or Form 10-K Part III information has not been filed. All the C&DIs related to the now vacated daily share repurchase Form F-SR were withdrawn.
For foreign private issuers, new C&DI 110.10 states that an auditor change that has been reported on Form 6-K does not need to be reported in a subsequent Form 20-F so long as the Form 6-K includes all disclosures required by Form 20-F Item 16F(a).
As always, your thoughts and comments are welcome.
On February 21, 2025, Acting Chair Mark T. Uyeda delivered the R. Franklin Balotti Keynote Address at the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference. In his address Acting Chair Uyeda focused on “the Commission’s role in fostering innovation, job creation, and economic growth, by maintaining cost-effective regulations for every stage of a company’s lifecycle.”
The major sections of his address were:
His remarks address a number of areas, including crowdfunding regulations, tailoring the Commission’s regulations for newly public companies and whether the Commissions scaled disclosure requirements, including the definitions of large accelerated and accelerated filer and smaller reporting company, should be updated. He also raised the question of whether all smaller reporting companies should be exempt from the SOX 404 ICFR auditor attestation requirements.
As always, your thoughts and comments are welcome!
On March 6, 2025, CorpFin updated two C&DIs addressing lock-up agreements in Rule 145(a) transactions (i.e., business combinations) and provided five new C&DIs related to tender offers. You can find a list of the new and updated C&DIs here.
As always, your thoughts and comments are welcome!
As a step to facilitate capital formation, on March 3, 2025, the SEC announced that the Division of Corporation Finance will expand its confidential review process for draft registration statements. The confidential review process was established as part of the 2012 JOBS Act. CorpFin expanded the process to all issuers in 2017. According to the Announcement, this next group of changes includes:
In the Press Release announcing these changes Cicely LaMothe, Acting Director of CorpFin said:
“Over the years, staff have observed companies seeking to raise capital are taking advantage of the nonpublic review process when available. Expanding these popular accommodations will provide new and existing companies greater flexibility to explore and plan public offerings.”
As always, your thoughts and comments are welcome!
As companies prepare for their next proxy statement, the SEC Enforcement Division has sent a reminder to focus carefully on perks disclosures. In the latest of its on-going series of perks related enforcement actions, on December 17, 2024, Express, Inc. was charged with failure to disclose $979,269 worth of perks paid to its CEO. (You can read about earlier cases in this blog post.)
A majority of the undisclosed perks were related to the CEO’s authorized personal use of chartered aircraft. The company did not use the appropriate definition of perks when analyzing these costs, which resulted in the disclosure failure.
In the related Accounting and Auditing Enforcement Release, the SEC noted that its 2006 amendments to executive compensation disclosure requirements in S-K Item 402 clarify that:
“An item is not a perquisite or personal benefit, if it is integrally and directly related to the performance of the executive’s duties. Otherwise, an item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees.”
The 2006 amendments also state that the idea of a benefit that is “integrally and directly related” to job performance is intended to be very narrow and distinguishes between something provided because the executive needs it to do their job (thus making it integrally and directly related to the performance of duties), and something provided for some other reason, even where that other reason can involve “both company benefit and personal benefit.”
According to the SEC, Express “incorrectly applied a standard whereby a business purpose would be sufficient to determine that certain items were not perquisites or personal benefits that required disclosure.” This is very similar to the issue in an earlier case involving Dow Chemical.
Express self-reported and cooperated extensively with the Enforcement Division. Based on these actions the company was not fined but did enter into a cease-and-desist order. Express was delisted from the NYSE in March 2024 and in April 2024 filed for bankruptcy and terminated its registration.
As always, your thoughts and comments are welcome.
On February 12, 2025, the SEC issued Staff Legal Bulletin 14M, addressing several matters related to the shareholder proposal process. Staff Legal Bulletin 14M rescinds SLB 14L and addresses the scope and application of certain parts of Rule 14a-8, including the economic relevance exclusion in Rule 14a-8(i)(5), the ordinary business exclusion in Rule 14a-8(i)(7), and issues of micromanagement. It presents the SEC’s current views on several other issues, including proof of ownership letters and the use of email. It also includes a section of frequently asked questions.
As always, your thoughts and comments are welcome!
On January 27, 2025, SEC Commissioner Hester M. Peirce delivered the Alan B. Levenson Keynote Address at the Northwestern Securities Regulation Institute. Continuing her practice of devising engaging titles for her speeches, these remarks are titled Sheep in the Steep. She begins with a description of how the Sierra Nevada bighorn sheep “navigate the treacherous alpine terrains of their habitat.” She then compares “the bighorn—making their way in a terrain that is steep, varied, and fraught with danger, including predators, avalanches, and disease” to “public companies navigating the hazardous regulatory, political, and societal landscape of today.”
Commissioner Peirce suggests seven steps to “offer a path toward more level, predictable terrain” for public companies. Each of the seven steps, along with her thoughtful discussion behind each step, make for interesting reading. Her step six is particularly relevant for professionals involved in public company reporting:
“A sixth step in bringing companies back to normal is for the Commission staff in our Division of Corporation Finance and Office of the Chief Accountant to re-double efforts to provide guidance to companies about the many disclosure issues that arise in the normal course of business. In the registration statement review process, staff should communicate early and often so new and seasoned issuers alike can have increased confidence in offering timelines. Of course, engagement on timing alone is not enough. The Commission also should encourage the expert staff to engage with public companies and their lawyers and accountants on difficult questions about the application of new and existing rules. This engagement should be dynamic and interactive, not formulaic. Commission staff time is well spent on these fundamental functions of a disclosure regulator, which in recent years have languished due to other Commission priorities.”
As always, your thoughts and comments are welcome!