All posts by George Wilson

CorpFin Issues Compliance and Disclosure Interpretations for Pay versus Performance and Executive Compensation Questions

Reporting

On September 27, 2023, CorpFin issued ten new Compliance and Disclosure Interpretations (C&DIs) addressing questions about Pay versus Performance (PvP) disclosures and the use of non-GAAP measures in executive compensation disclosures.

The nine new PvP C&DIs address a number of technical issues such as the treatment of pre-IPO equity awards in periods after a company’s IPO, vesting considerations for awards with market conditions, and how to treat awards that vest because the holder becomes retirement eligible.

The one new executive compensation C&DI addresses an exception to non-GAAP measure disclosure requirements when a non-GAAP measure is included as a target in S-K Item 402 disclosures.  It clarifies that a non-GAAP measure disclosed in executive compensation disclosures that does not relate to target levels is subject to the non-GAAP disclosure requirements in Regulation G and S-K Item 10(e).

As always, your thoughts and comments are welcome.

Yet One More Violation of Whistleblower Protection Rules

Enforcement, Hot Topic

In two recent posts we discussed enforcement actions against Monolith Resources and CBRE, Inc. for violating the SEC’s whistleblower protection rules.  On September 29, 2023, the SEC announced its latest such case, this one against D.E.Shaw and Co. L.P., for using employment agreements that violated the whistleblower protection rules.  This violation resulted in a $10,000,000 civil penalty along with a cease-and-desist order.

You can read more details in the related Order.

All these cases send direct and clear reminders to proactively review employment, termination and similar agreements to assure they do not run afoul of the whistleblower protection rules.

As always, your thoughts and comments are welcome!

Enforcement Sends an Emphatic Section 16 Reporting Reminder

Enforcement, Hot Topic

On September 27, 2023, the Enforcement Division announced settled enforcement orders against six individuals and five companies based on Section 16 and Forms 13D and 13G reporting failures.  The individuals and  companies paid fines ranging from $115,000 to $200,000.  Sanja Wadhwa, Deputy Director of the SEC’s Division of Enforcement, said:

“Today’s enforcement action should serve to remind SEC filers that reporting obligations under the securities laws are not optional, and there are consequences for failing to file required forms in a timely manner.”

This enforcement sweep is very similar to a September 2014 sweep.  You can read more in this Press Release, where you can find links to the individual orders.

As always, your thoughts and comments are welcome!

Yes, Violating Whistleblower Protection Rules Is an Enforcement Hot Topic!

Enforcement, Hot Topic

In a prior blog post, we reviewed a September 8, 2023, Enforcement Order against Monolith Resources, LLC based on the company violating the SEC’s whistleblower protection rules.

Less than two weeks later, on September 19, 2023, the Enforcement Division added to the growing list of these cases with an announcement that CBRE, Inc., a wholly-owned subsidiary of NYSE-listed CBRE Group, Inc., had also violated the whistleblower protection rules.   In its separation agreements CBRE Inc. had included language requiring employees to attest “that they had not filed a complaint against CBRE with any federal agency.”  After the SEC commenced its investigation, the company took strong remedial steps.  In settling the case CBRE, Inc. paid a civil penalty of $375,000.

You can read more in the related SEC Order.

As always, your thoughts and comments are welcome!

Another 12b-25 Enforcement Sweep

Hot Topic, Reporting

We’d like to again remind our readers that Form 12b-25 is not an automatic extension for quarterly and annual reports.  In a prior blog post, we discussed an enforcement sweep in which eight companies paid fines for failing to disclose “anticipated restatements” in Form 12b-25.

On August 22, 2023, the SEC announced another sweep that caught five companies for exactly the same issue, failing to disclose “anticipated restatements.”  These companies restated their financial statements within three to twenty-one days after filing Form 12b-25.

As a reminder, Part III of Form 12b-25 includes this instruction:

State below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-CEN, N-CSR, or the transition report or portion thereof, could not be filed within the prescribed time period.

(Attach extra Sheets if Needed)

As always, your thoughts and comments are welcome!

Another Violation of Whistleblower Protection Rules

Hot Topic, SEC News

The SEC has enforced against several companies for including clauses in separation or employment agreements that violate whistleblower protection laws.  You can read more in these releases about settled actions with KBR, Inc. and Brink’s Company.

In a settled enforcement announced on September 8, 2023, Monolith Resources, LLC entered into a cease-and-desist order and paid a civil money penalty of $225,000 because the company included provisions in separation agreements that required certain departing employees to waive rights to whistleblower awards.  What makes this case different, is that Monolith Resources, LLC is a privately held company.

You can read more in the related Press Release and SEC Order.

As always, your thoughts and comments are welcome!

Another 12b-25 Enforcement Sweep

Reporting, SEC Hot Topic

We’d like to again remind our readers that Form 12b-25 is not an automatic extension for quarterly and annual reports.  In a prior blog post, we discussed an enforcement sweep in which eight companies paid fines for failing to disclose “anticipated restatements” in Form 12b-25.

On August 22, 2023, the SEC announced another sweep that caught five companies for exactly the same issue, failing to disclose “anticipated restatements.”  These companies restated their financial statements within three to twenty-one days after filing Form 12b-25.

As a reminder, Part III of Form 12b-25 includes this instruction:

State below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-CEN, N-CSR, or the transition report or portion thereof, could not be filed within the prescribed time period.

(Attach extra Sheets if Needed)

As always, your thoughts and comments are welcome!

Chair Gensler Climate Disclosure Testimony Before the Senate Committee on Banking, Housing, and Urban Affairs

Reporting, SEC News

On September 12, 2023, SEC Chair Gary Gensler testified before the Senate Committee on Banking, Housing, and Urban Affairs.  His testimony touched on a wide range of issues including new rules affecting private funds, new cybersecurity disclosures and these comments about climate risk disclosures:

Climate Risk Disclosure

The SEC has no role as to climate risk itself. We, however, do have an important role in helping to ensure that public companies make full, fair, and truthful disclosure about the material risks they face.

Our federal securities laws lay out a basic bargain in our markets. Investors get to decide which risks to take, so long as public companies raising money from the public make what President Franklin Roosevelt called “complete and truthful disclosure.”

Under the securities laws, the SEC is merit neutral. Investors get to decide what investments they make and risks they take based upon those disclosures. The SEC focuses on the disclosures about, not the merits of, the investment.

Already today, issuers are making climate risk disclosures, and investors are making investment decisions based on those disclosures. Indeed, a majority of the top thousand issuers by market cap already make such disclosures, including what’s known as Scope 1 and Scope 2 greenhouse gas emissions.  Further, investors representing tens of trillions of dollars in assets are making decisions relying on those disclosures.

Thus, in fulfilling the Commission’s important role, we put out for comment a proposal about climate-related disclosure to bring consistency and comparability to such disclosures.

We are considering carefully the more than 15,000 comments we’ve received on the proposal. We greatly benefit from public input and, given the economics and the law, will consider adjustments to the proposed rule that the staff, and ultimately the Commission, think are appropriate in light of those comments.

As always, your thoughts and comments are welcome!

CorpFin Issues Sample Letter to Companies Focused on XBRL Disclosures

Reporting

On September 7, 2023, CorpFin issued a Sample Letter to Companies addressing several XBRL issues.  In the letter the staff states:

“The Commission has noted that investors and market participants have gained experience with XBRL and Inline XBRL and that there is increased evidence that data in these formats is useful to investors.”

The example comments in the letter address a broad variety of issues, including failing to include inline XBRL, inconsistencies in the common shares outstanding numbers between the cover page and balance sheet, and using inconsistent tags for particular financial statement line items from period to period.

You can review all the example comments in the Sample Letter.

As a reminder, you can find all the sample letters issued by CorpFin, along with other important disclosure guidance, here.

As always, your thoughts and comments are welcome!

More C&DIs From CorpFin – Form F-SR

Reporting

On August 30, 2023, CorpFin issued three Exchange Act Form C&DIs addressing questions arising from the new Form F-SR, which will be used by foreign private issuers (FPIs) to report share repurchases.  Form F-SR is the first formal quarterly reporting requirement for FPIs.  You can read more about these reporting requirements in the Share Repurchase Disclosure Modernization Final Rule, related Fact Sheet and Small Entity Compliance Guide.  The details of Form F-SR are on page 200 of the Final Rule.

The C&DIs address questions that arise about Form F-SR for a period where no repurchases are made and whether a Form F-SR is required for the fourth quarter of a fiscal year.

Section 113. Form F-SR

Question 113.01

Question: Is a Form F-SR required to be filed if, during the covered fiscal quarter, the foreign private issuer or affiliated purchaser did not repurchase any of its equity securities registered under Exchange Act Section 12?

Answer: No, a Form F-SR is not required to be filed under these circumstances. Note, however, there is no de minimis exception to the Form F-SR filing requirement; even the repurchase of a very small number of equity securities would trigger a Form F-SR filing. [August 30, 2023]

Question 113.02

Question: A foreign private issuer or affiliated purchaser did not conduct any repurchases that would trigger the requirement to file a Form F-SR. Is a Form F-SR nevertheless required solely to check the box under “Registrant Purchases of Equity Securities” section of Form F-SR for the covered purchases or sales of securities by a director or member of senior management who would be identified pursuant to Item 1 of Form 20-F?

Answer: No. [August 30, 2023]

Question 113.03

Question: Is a Form F-SR required to be filed for the final quarter of the fiscal year?

Answer: Yes, if a foreign private issuer or affiliated purchaser engaged in repurchases during the final quarter of the fiscal year, then a Form F-SR would be required for that final quarter and must be filed within 45 days after the end of the quarter. Foreign private issuers are not permitted to wait to report the repurchases during the final quarter of the fiscal year in the Form 20-F for that fiscal year. See Exchange Act Release No. 34-97424 (May 3, 2023) at fn. 185. [August 30, 2023]

As always, your thoughts and comments are welcome!