We always emphasize at our Workshops that all SEC filings require manual signatures.  Regulation S-T, the electronic filing rules, contains this provision:

• 232.302   Signatures.

……….

(b) Each signatory to an electronic filing (including, without limitation, each signatory to the certifications required by §§240.13a-14, 240.15d-14 and 270.30a-2 of this chapter) shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years. Upon request, an electronic filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.

If you would like to see a case where a company got in trouble for not obtaining manual signatures, amongst other issues, check out this enforcement case.

In the current COVID-19 chaos the SEC does not want to expose people to more risk because of this requirement.  On March 25, 2020, CorpFin, along with the Divisions of Investment Management and Trading and Markets, issued a Statement to provide relief.  The statement provides:

“In light of these difficulties, the staff will not recommend the Commission take enforcement action with respect to the requirements of Rule 302(b) if:

• a signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);

• such document indicates the date and time when the signature was executed; and

• the filer establishes and maintains policies and procedures governing this process.

The signatory may also provide to the filer an electronic record (such as a photograph or pdf) of such document when it is signed.”

As always, your thoughts and comments are welcome!

On March 25, 2020 the SEC extended its March 4 Order granting deadline and annual meeting relief.  The relief period now includes reports due on or before July 1, 2020.

In addition CorpFin also issued Disclosure Guidance Topic No. 9 –  Coronavirus (COVID-19).

Both will be discussed in depth along with related disclosure and communication considerations in our complimentary One Hour Briefing on March 26, 2019 – COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings.

As always, your thoughts and comments are welcome.

Coming to grips with SEC reporting and other legal implications of COVID-19 is crucial in this period of uncertainty and disruption.  PLI, together with our volunteer faculty, has developed a number of programs to help in dealing with these implications, with more programs being added regularly. Also, all of these programs are being provided without charge.

This Thursday, March 26, 2020, we are presenting a complimentary One-Hour Briefing at 3:00 PM EDT titled “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings”.  Leading the discussion will be SEC Institute workshop leader Gary Brown and his colleague from Nelson Mullins, Charles Vaughn, along with George Wilson from SEC Institute.  This briefing will:

• Review the SEC’s guidance for COVID-19 disclosure considerations
• Discuss the details of the SEC’s deadline and reporting accommodations relating to COVID-19
• Outline risk factor disclosure requirements as applied to COVID-19
• Identify the need for known trend disclosures in MD&A about COVID-19’s possible impact
• List where COVID-19 may create disclosure issues in other items in Form 10-Q
• Analyze the impact of COVID-19 on the annual meeting process
• Review the SEC’s guidance for virtual annual meetings

On the next day, March 27, 2020, we are presenting another One-Hour Briefing “Coronavirus Considerations: SEC Disclosure, Labor & Employment, Insurance, Litigation, Breach of Contract and Force Majeure Issues”.

You can find all of PLI’s COVID-19 related programs here.  New programs are being added on a regular basis so you might want to bookmark this webpage.

As always, your thoughts and comments are welcome.

On March 26, 2020 SEC Institute will present a complimentary One-Hour Briefing titled “COVID-19 Challenges for First Quarter 2020 Form 10-Q and Annual Meetings”.

In this briefing participants will:

• Review the SEC’s guidance for COVID-19 disclosure considerations
• Discuss the details of the SEC’s deadline and reporting accommodations relating to COVID-19
• Outline risk factor disclosure requirements as applied to COVID-19
• Identify the need for known trend disclosures in MD&A about COVID-19’s possible impact
• List where COVID-19 may create disclosure issues in other items in Form 10-Q
• Analyze the impact of COVID-19 on the annual meeting process
• Review the SEC’s guidance for virtual annual meetings

Each participant will be able to ask questions of the presenters.  You can register for this complimentary program here.

As always, your thoughts and comments are welcome.

On March 13, 2020 the SEC issued guidance to “assist public companies, investment companies, shareholders, and other market participants affected by COVID-19 with their upcoming annual shareholder meetings”.  The staff guidance addresses changing meeting dates and locations as well as the use of technology for “virtual” meetings.  The guidance provides processes to make changes without the expense of an additional paper mailing to shareholders.

You can find a comprehensive review of the SEC’s guidance and related state law considerations in this Nelson Mullins Securities Alert.

As always, your thoughts and comments are welcome!

Even with the disruption of the coronavirus the SEC is moving forward with its regulatory agenda.  On March 12, 2020 the SEC finalized a significant part of this agenda by changing the definition of Accelerated Filer.  The rule finalized a proposal made on May 9, 2019.

The Final Rule will be effective 30 days after publication in the Federal Register and applies to all filings due on or after the effective date.

The major change in the Final Rule is that companies with public float of over $75 million but less than $700 million AND less than $100 million in revenues will now be Non-Accelerated Filers.  These companies, which had been Accelerated Filers, will be able to use the longer 90 day and 45 day deadlines for Forms 10-K and 10-Q, respectively, and will not be required to obtain an auditors attestation report on their ICFR.  (As in the existing rules public float will be measured on the last business day of the company’s second fiscal quarter.)

This table from page 53 of the Final Rule summarizes how the definitions of  Non-Accelerated Filer, Accelerated Filer, Large Accelerated Filer and Smaller Reporting Company will fit together:

The Final Rule will also add a check box to the cover page of Form 10-K to indicate if the report includes an auditors attestation report on ICFR.

In the press release accompanying the Final Rule the SEC makes a very important point about ICFR for the population of Non-Accelerated Filers:

 Following the adoption of the amendments, smaller reporting companies with less than $100 million in revenues will continue to be required to establish and maintain effective internal control over financial reporting (ICFR). Their principal executive and financial officers must continue to certify that, among other things, they are responsible for establishing and maintaining ICFR and have evaluated and reported on the effectiveness of the company’s disclosure controls and procedures. In addition, these smaller companies will continue to be subject to a financial statement audit by an independent auditor, who is required to consider ICFR in the performance of that audit. As a result of these amendments, and unlike larger issuers, these smaller companies will no longer be required to obtain a separate attestation of their ICFR from an outside auditor. These smaller issuers will be able to redirect the associated cost savings into growing their businesses. Business development companies will receive analogous treatment as a result of the amendments.

 The Final Rule, on page 81, also provides these estimates of the number of companies expected to be affected:

We estimate that the amendments will result in 527 additional issuers being classified as non-accelerated filers, and therefore no longer subject to the filing deadlines and ICFR auditor attestation requirement applicable to accelerated filers.  Of these, an estimated 154 issuers are EGCs and are thereby already exempt from the ICFR auditor attestation requirement.

Among the total 527 affected issuers, an estimated 492 issuers are accelerated filers (or large accelerated filers that have public float of less than $560 million) that will be newly classified as non-accelerated filers because they have annual revenues of less than $100 million and are eligible to be SRCs.

The Final Rule also changes the public float thresholds to change from Accelerated Filer to Non-Accelerated Filer to $60 million and the threshold to change from Large Accelerated Filer to Accelerated Filer to $560 million.  The Final Rule also adds that a company can exit Accelerated or Large Accelerated Filer status if it meets the definition of a smaller reporting company based on the revenue test in that definition.

As always, your thoughts and comments are welcome!

As you can read in this Announcement it is business as usual for CorpFin, as many staff members are teleworking.  The staff anticipates being able to meet normal time frames for filing reviews and inquires.

As always, your thoughts and comments are welcome!

On March 27, 2020 PLI will present a One-Hour Briefing titled “Coronavirus Considerations: SEC Disclosure, Labor & Employment, Insurance, Litigation, Breach of Contract and Force Majeure Issues”.  The briefing will be conducted by Adele Hogan of Nelson Mullins who is also an SECI workshop leader and speaker at several other PLI programs.  You can get all the details and register here.

As always, your thoughts and comments are welcome!

As we discussed in this post, the Coronavirus 2019 or COVID-19 continues to impact public companies.  On March 4, 2020 the SEC provided conditional relief for companies affected by COVID-19.  The Order  provides an additional 45 days to file certain reports, including Forms 10-K, 10-Q and 20-F.

If companies need to use this regulatory relief, they must file a current report on Form 8-K or Form 6-K by the later of March 16 or the original deadline for the filing.  This current report must include details of why the affected report cannot be filed on time.  The relief includes other requirements such as consideration of a risk factor explaining the impact of COVID-19 on the company and, if other parties are contributing to the delay, a statement from that other party.  The Order provides details about how use of the relief generally will not affect S-3 eligibility and WKSI status.

The Order also includes relief for furnishing proxy statements to shareholders in areas affected by COVID-19.

The SEC is continuing to monitor this situation and may provide additional relief as events unfold.

You can read all the details in this announcement and the related Order.

As always, your thoughts and comments are welcome!

In this post we explored an SEC enforcement case related to ICFR.  In that case MetLife reported that they had two material weaknesses and that as a result their ICFR was not effective.  The relevant section of their December 31, 2017 Form 10-K ICFR report said:

 Management evaluated the design and operating effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). Solely because of the material weaknesses in internal control over financial reporting described below, in the opinion of management, MetLife, Inc. did not maintain effective internal control over financial reporting as of December 31, 2017.

 A related question that must be addressed when there is a material weakness in ICFR is whether or not the company’s Disclosure Controls and Procedures (DCP) are effective.  As a reminder, Exchange Act Rule 13a-15 defines DCP:

(e) For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

DCP clearly applies to an entire report.  In a Form 10-K or 10-Q DCP applies to all the non-financial statement disclosures but also to the financial statements.  This means that ICFR is essentially a subset of DCP.  If a company has a material weakness in ICFR, and ICFR is a subset of DCP, how does that material weakness affect the effectiveness of DCP?  Most likely, unless you can demonstrate otherwise with compensating controls or other factors, the company’s DCP are not effective either.  Hence, this was MetLife’s DCP report in their December 31, 2017 Form 10-K:

 Evaluation of Disclosure Controls and Procedures

 The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, and that such information is accumulated and communicated to Company management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 Company management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2017, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the CEO and CFO concluded that the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

As always, your thoughts and comments are welcome!