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:

• • “Expanding the availability of the nonpublic review process for the initial registration of a class of securities under the Exchange Act to include both Section 12(b) and Section 12(g) registration statements on Forms 10, 20-F, or 40-F.
  • Permitting issuers to submit draft registration statements regardless of how much time has passed since they became subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act.
  • Expanding the availability of the nonpublic review process for a de-SPAC transaction in situations where the SPAC is the surviving entity (i.e., SPAC-on-top structure) as long as the target is eligible to submit a draft registration statement.
  • Permitting issuers to omit the name of the underwriter(s) from their initial draft registration statement submissions, when otherwise required by Items 501 and 508 of Regulation S-K, provided that they include the name of the underwriter(s) in subsequent submissions and public filings.”

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!

On February 11, 2025, Acting SEC Chairman Mark T. Uyeda issued a Statement announcing that he has 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.  According to the Statement this will “provide time for the Commission to deliberate and determine the appropriate next steps in these cases.”

You can read more, including concerns about the lack of statutory authority for the Commission to promulgate these rules, in the Statement.

As always, your thoughts and comments are welcome!

Recent U.S Supreme Court decisions have addressed how the SEC can use its administrative court processes for fraud cases and ended the Chevron doctrine, which had created a presumption that courts must rely on an agency’s interpretations of ambiguous statutes.  In this episode of the inSecurities podcast, hosts Chris Ekimoff and Kurt Wolfe provide an understandable, inciteful and thorough discussion of the issues in both these areas and how the Court’s decisions may affect practice.

As always, your thoughts and comments are welcome!

In a long-anticipated development, on March 6, 2024, the SEC adopted final rules requiring climate-related disclosures.  The rules add:

• • Non-financial disclosures about climate-related risks, how such risks are managed and related board oversight;

• • Scope 1 and Scope 2 greenhouse gas (GHG) emission disclosures along with phased-in attestation requirements for large-accelerated and accelerated filers;

• • Financial statement disclosures about “capitalized costs, expenditures expensed, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds”;

• • Disclosures about carbon offsets and renewable energy credits or certificates (RECs) if material; and

• • Information about the impact on the estimates and assumptions used to produce the financialstatements from risks and uncertainties associated with severe weather events and other natural conditions and other related issues, if material.

To help companies and advisors implement these new requirements, PLI’s SEC Institute will offer several programs.

We will present two One-Hour Briefings delving into the final rules at 1 p.m. and 3 p.m. on April 18, 2024.  The first briefing will focus on governance related disclosures and the second briefing will focus on GHG emission and financial statement disclosures.  We will put links to the briefings in this blog as soon as they are available.

Our Midyear Forums will include in-depth discussion of the details of the rules.

We will also have a special conference in the early fall focused on understanding and implementing these extensive new disclosures.  We will put a link to this conference in this blog as soon as it is available.

You can read more in the related Fact Sheet and the Final Rule Release.

As always, your thoughts and comments are welcome.

On February 5, 2024, SEC Chief Accountant Dr. Paul Munter issued a Statement titled “An Investor Protection Call for a Commitment to Professional Skepticism and Audit Quality.”  The Statement reminds auditors and audit committees that their ultimate responsibility is to investors.

In the introduction to the Statement Dr. Munter notes that the PCAOB inspection process has found an increase in audit deficiencies over the last several years:

“The Public Company Accounting Oversight Board (“PCAOB”) reported a troubling increase in deficiency rates found in its recent inspections.  In its 2022 inspections of audits performed in 2021, the PCAOB inspections program found that insufficient audit evidence was obtained to support the auditor’s opinion in 40% of inspected audits. In its 2021 inspections, this same deficiency rate was 34%, up from 29% in its 2020 inspections. This is a troubling trendline in PCAOB inspections results.”

He then goes on to state:

“While we believe strongly that most auditors are talented professionals, dedicated to performing high-quality audits, the issues and trends identified in PCAOB inspections in recent years demand the attention and renewed commitment of the entire profession to deliver on its mission of protecting investors.”

The Statement then focuses on two principal areas:

Management’s Role and Auditors’ Exercise of Professional Skepticism in Response to Changing Conditions 

After a discussion focused on several audit issues, including frequent inspection findings and the importance of professional skepticism, the Statement emphasizes that audits are not like other business services:

“Applying professional skepticism can sometimes come at a cost, whether it is budget overruns, conflicts with management, or pressure from within the audit firm to maintain client relationships. But the audit engagement is not a standard business relationship between service provider and client, with profit as the primary goal and indicator of success. Instead, as the Supreme Court recognized, the auditor’s ultimate responsibility is to the investing public.”

The Importance of the Audit Committee in Prioritizing and Promoting Audit Quality

In this section of the Statement Dr. Munter focuses on important aspects of audit committee oversight of the audit process:

“Academic studies highlight the risk that, in some cases, in executing their mandate, audit committees may look to protect the interests of the issuer and its management over the interests of investors.  This risk can arise out of an audit committee’s association or coziness with the issuer or its management or through management’s influence over the audit committee’s supervision of the auditor. We remind audit committees of their role as critical gatekeepers for investor protection through oversight of a high-quality audit and the benefit of having an audit committee that is independent of management.”

As always, your thoughts and comments are welcome.

On January 24, 2024, the SEC adopted final rules that create substantial reporting and process changes for SPACs.  The rules were originally proposed on March 30, 2022.  The new rules affect both SPAC IPO and de-SPAC  transactions.  (A de-SPAC transaction occurs when a SPAC merges with an operating company.)  In his Statement on the final rules, Chair Gary Gensler said that the new rules would “better align the protections investors receive when investing in SPACs with those provided to them when investing in traditional IPOs.”

You can find an overview of the voluminous new rules, which create a new Subpart 1600 in Regulation S-K, in this Press Release and the related Fact Sheet.  Highlights of the changes for SPAC IPOs include additional disclosures about SPAC sponsors, SPAC sponsor compensation, conflicts of interest and dilution.  For de-SPAC transactions, new disclosures include additional details about the target company and information about whether the board of the SPAC determined the transaction was advisable for the company and shareholders.  The new rules provide that the 1995 Private Securities Litigation Reform Act safe harbors for forward-looking statements will not be available for SPACs and also change underwriter liability in de-SPAC transactions.

The rules will be effective 125 days after publication in the Federal Register.  Certain information will be tagged with Inline XBRL, but this requirement is not effective until 490 days after publication in the Federal Register.

On January 25, 2024, the day after adopting the new rules, the SEC announced settled charges against Northern Star Investment Corp II, a SPAC, for failing to disclose discussions with a potential acquisition target in its IPO registration statement and de-SPAC transaction Form S-4.  As you can read in the SEC’s Order, the company entered into a cease and desist order and paid a fine of $1.5 million.

You can learn more about the new rules and SPACs in general at two upcoming programs:

A One-Hour Briefing about the final rules on February 14, 2024 – SPAC Developments: SEC Amendments to SPAC IPO and de-SPAC Related Rules, and

Our SPAC Life Cycle: Business, Legal, and Accounting Considerations Forum on April 15, 2024, will discuss the new rules in depth.

As always, your thoughts and comments are welcome.