1| JOBS Act: SEC Offers “Comment Letter” Field Day

Akin to what it did nearly two years ago in the wake of Dodd-Frank, the SEC announced in early April that it would accept comments ahead of proposing any rulemaking under the JOBS Act. Here’s the SEC’s new “JOBS Act Comments Page.”

And here is Broc’s blog from two years ago when the SEC did this for Dodd-Frank, as most of his commentary from then still applies. Looking back at the “Dodd-Frank Comment Page,” it does appear that some folks did take advantage of pre-rulingmaking commenting – although we have no idea how useful those comments were for the SEC ahead of drafting proposals.

Our gut feeling is that the JOBS Act will not be quite so “popular” in attracting advance comments as the topics tend to be little “technical” for the general public and many of the rulemakings won’t impact a vast majority of existing public companies.

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In early April, Corp Fin announced these procedures by which emerging growth companies can furnish a confidential IPO registration statement to the Staff. Section 106 of the JOBS Act provides that an EGC may submit its IPO registration statement to the Corp Fin Staff in draft form for confidential review – conditioned on the furnishing of the confidential submission and all amendments publicly with the SEC no later than 21 days prior to the date the company first conducts a road show for its IPO. Here’s more about this guidance culled from this O’Melveny & Myers memo:

Under this guidance, one copy of the draft registration statement should be sent to the following address:

Draft Registration Statement
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

The Division also announced the following with regard to the submission of draft registration statements for IPOs of emerging growth companies:

• the submission should include a transmittal letter confirming the issuer’s status as an emerging growth company;
• the draft registration statement should be submitted either as a text-searchable PDF file supplied on a CD/DVD or, alternatively, on paper (it may not be stapled or bound if submitted on paper); and
• there is no requirement to provide a registration fee at the time a confidential submission is made.

Following its receipt of a confidential submission, the Division will contact the emerging growth company to confirm receipt of the submission and to advise it of the office assigned to review the submission.

Emerging growth companies with questions regarding the draft registration statement submission and review process should call (202) 551-5867.

• Confidential Submissions by Foreign Private Issuers – In addition to the confidential submission process for emerging growth companies, the Division has long had a confidential submission process for certain foreign private issuers. This process is described in our Client Alert here. In its guidance, the Division announced that, going forward, any foreign private issuer that is permitted to submit a draft registration statement (either as an emerging growth company or under the Division’s foreign private issuer confidential submission policy) must now submit that draft registration statement in the same format and to the same address discussed above. In connection with this requirement, foreign private issuers may no longer use the e-mail address that the Division had provided for confidential submissions.
• Application of Section 5 to Confidential Submissions – The Division took the opportunity in the guidance to make clear that the confidential submission of a draft registration statement is not a public filing. Accordingly, a registration statement submitted through this process is not considered “filed” for purposes of Section 5 of the Securities Act.

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In early April, Corp Fin issued 13 FAQs relating to the confidential submission process for draft registration statements by emerging growth companies. This new guidance is in addition to last week’s announcement about the confidential submission process.

As noted in this O’Melveny & Myers alert, key Staff pronouncements include:

• The Staff will not object if an emerging growth company does not treat “test-the-waters” communications conducted in reliance on Section 5(d) as a road show for purposes of Section 6(e). Section 5(d) test-the-waters communications are limited to communications with qualified institutional buyers (“QIBs”) and institutional accredited investors.
• An issuer currently in registration at the time of enactment of the JOBS Act that qualifies as an emerging growth company may switch to the confidential submission process for future amendments.
• A foreign private issuer that qualifies as an emerging growth company may use the confidential submission process to the same extent as a domestic company.
• Draft registration statements submitted confidentiality must be “substantially complete,” including a signed audit report of the registered public accounting firm and exhibits consistent with the existing requirements for non-public submissions by foreign private issuers.

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In mid April, Corp Fin issued 17 FAQs helping to interpret a bunch of issues regarding “emerging growth companies” under Title I of the JOBS Act – including scaled disclosure – ahead of the SEC’s rulemaking in this area. Here’s a Cooley alert describing these FAQs. We continue to post oodles of memos, etc. in our “JOBS Act” Practice Area, including this redline of how the ‘33 and ‘34 Acts have been altered...

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In mid April, Corp Fin issued 5 FAQs regarding Section 12(g) registration triggers and, for banks and bank holding companies, the Section 12(g) and Section 15(d) deregistration and cessation of reporting triggers.

We have to hand it to the Corp Fin Staff. We’ve never seen a new set of guidance come out every single day, not an easy thing to do and it definitely helps those of us navigating uncharted waters. Broc already has JOBS Act fatigue just watching from the sidelines (with a related case of JOBS Act carpal tunnel posting so many memos in our “JOBS Act” Practice Area). . .

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In early April, 14 law firms joined together to issue this white paper to address questions about private offerings during the transition period until the SEC adopts the required revisions to Rule 144A and Rule 506 under Regulation D. Under the JOBS Act, the SEC has 90 days – by July 4th – to eliminate certain existing prohibitions on general solicitation or general advertising. As noted in this Morrison & Foerster memo, the white paper “concludes that, until the SEC adopts final rules as directed by Title II of the JOBS Act, market participants relying on the Rule 506 and Rule 144A safe harbors will generally continue to implement customary procedures for these offerings. The report also concludes that market participants will continue to satisfy conditions of applicable safe harbors such as Securities Act Rules 135c, 152 and 155, as well as comply with applicable SEC and staff guidance regarding the integration of concurrent private and public offerings.”

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In late April, the SEC issued this warning:

On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law. The Act requires the Commission to adopt rules to implement a new exemption that will allow crowdfunding. Until then, we are reminding issuers that any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.

Note that the SEC brought this enforcement case the week after the JOBS act was signed. In that case, the SEC charged a Silicon Valley man who raised millions for two Internet start-ups by falsely promising investors that his companies were on the verge of undergoing successful IPOs and were well on their way to becoming the “next Google.” With crowdfunding, look for these types of cases to swamp the SEC. . . .

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In mid April, Corp Fin posted this sample letter – courtesy of the Office of Capital Markets Trends – that has been sent to certain financial institutions in connection with their structured note offerings. The letter provides comments applicable to prospectus supplements and ‘34 Act reports after the Staff’s review of takedowns of structured notes from shelf registration statements.

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In late April, Corp Fin issued the latest in its “CF Disclosure Guidance Topic” series with “Topic No. 5: Smaller Financial Institutions.” This guidance provides a long laundry list of what the Staff is seeking from small financial institutions in MD&A

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As noted in this announcement, the SEC will ensure that stop orders will appear in a company’s Edgar stream rather than just show up on the agency’s “administrative orders” page

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In mid April, Corp Fin updated its Financial Reporting Manual for issues related to scaled disclosure for smaller reporting companies, filing requirements for reverse acquisitions, the treatment of related businesses in significance testing, revisions pursuant to ASU 2011-12, as well as other changes.

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Last year, Broc blogged about how Section 13(h) of the ‘34 Act was amended by Dodd-Frank to include “large trader” reporting requirements and that the SEC’s final rules to implement this Section didn’t include an exception for operating companies that trade as part of ordinary course balance sheet management activities. As noted in this Davis Polk memo, the SEC adopted a permanent exemption in late April to provide companies (and underwriters) with some relief. . .

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In mid April, the SEC issued its 106-page study of cross-border private securities litigation as required by Section 929Y of Dodd-Frank. At the same time, Commissioner Aguilar issued this statement to note his disappointment with the study, mainly because it doesn’t provide recommendations and because “I am particularly astonished that the Study states (at pages 58-59) that an option ‘would be for Congress to take no action’ and, thus, would continue to deny American investors who have been harmed by fraud the ability to seek redress in court.” Pretty unusual for a Commissioner to dissent from a study.

Before the study was released, the SEC received 72 comments on the topic. In his “D&O Diary” Blog, Kevin LaCroix provides some analysis of the study, which considers possible alternative approaches to the question of cross-border private securities litigation and provides a detailed overview of the ways in which the lower courts have been approaching these issues in the wake of the Supreme Court’s decision in the Morrison v. National Australia Bank.

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In mid April, the SEC’s Risk Fin Division issued a 9-page report entitled “Capital Raising in the U.S.: the Significance of Unregistered Offerings Using the Regulation D Exemption” that crunches numbers extracted from Form D filings since early ‘09 with goal of understanding the amount and nature of capital raised through Reg D unregistered offerings and to provide a perspective on the state of competition and regulatory burden in capital markets.

As far as we can tell, it’s Risk Fin’s first report dealing with a Corp Fin topic (hard to tell as reports are not listed on RiskFin’s webpage) – and it’s formatted in a style that we haven’t seen the SEC use before (has more of an academic feel). Oddly, the report is dated February 2012 even though it was just posted.

In his blog, Steve Quinlivan notes that some highlights of the report include:

• The median Reg D offering is modest in size: approximately $1 million.
• Both Rule 505 and Rule 506 (the most frequently used exemption in the Reg D filings) allow an issuer to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. The average amount of non-accredited investors in the Reg D offerings over the entire period is 0.1, while the median is 0. In fact, in approximately 90% of the offerings there are no non-accredited investors.
• Capital raised through Reg D offerings is more than twice as large as public equity offerings as well as each other category of unregistered offerings.
• Less than one-third (29%) of issuers are pooled investment funds (i.e. hedge funds, private equity funds and the like), of which a little more than half (55%) are hedge funds (i.e., 16% of all Reg D offerings are by self-reported hedge funds).
• Excluding hedge funds and other investment funds, issuers of private offerings tend to be small. Although a significant number of issuers decline to disclose their sizes (50%), for those that do, most have revenue of less than $1 million. Only 1.8% of all new offerings are by issuers that report more than $100 million in revenues.

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For many of you, the news that Evelyn Y. Davis is slowing down at age 82 will come as a mid-proxy season boost. As noted in this Chicago Tribune article, Evelyn has been skipping annual meetings this year – and even has halted production of her 47-year-old self-published newsletter “Highlights & Lowlights,” a $600-an-issue review of her governance battles that regularly features photos of her with bemused CEOs. Although Evelyn still has been submitting shareholder proposals to companies, Broc hasn’t heard of her actually attending a meeting for the past two years.

For those of you who have never had the pleasure, go ahead and ask an old-timer for their favorite EYD story. Many of them are unsuitable for print in this family blog. Broc notes that she is partial to men, particularly if they are CEOs of a Fortune 50 company. Evelyn always had remarkable success with access to the powers that be – and making the CEO available to her often was a wise decision as it made it more likely that she wouldn’t turn your shareholders meeting into a complete spectacle. One day Broc will collect stories to post (including his own). He notes that Evelyn has been quite a philanthropist over the years, particularly in the effort to preserve Chicago history. Until Broc posts some stories, you’ll have to live with this great WaPo piece from ‘03.

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In mid-April, Citigroup (45%), KB Home (46%) and FirstMerit Bank (47%) joined the club of those failing to gain majority support for its say-on-pay. A list of the Form 8-Ks filed by the “failed” companies is posted in our “Say-on-Pay” Practice Area. Citi addressed the failure in its “Citi Blog“ (which oddly has no comments after this CEO pay entry). The Citi failure was front-page news for the WSJ, NY Times, etc. and when Broc spoke at an event in NYC the day after and it was the hot topic (besides the JOBS Act).

Here’s something that Mark Borges blogged: The shock waves from yesterday’s Citigroup “Say on Pay” vote continue to reverberate. For an insightful analysis of how to interpret the vote, see Professor J. Robert Brown’s latest post at his website “The Race of the Bottom.”

This turns out to be Citigroup’s fourth “Say on Pay” vote since 2009 – the first two were as a participant in the Troubled Asset Relief Program. I took at look at the support for the company’s executive compensation program over this entire period, which went from 82% in 2009, 89% in 2010, and 93% in 2011 to just 45% in 2012. So it appears that there was a fairly consistent level of support for the program, which spiked in 2011 (the second consecutive year in which the company’s CEO received essentially nominal compensation – $1 in 2010 and $128,000 in 2009) before the bottom fell out.

Still, it’s difficult to understand how this happened – or whether the company saw it coming, particularly when you look back on its Item 402(b)(1)(vii) disclosure from this year’s Compensation Discussion and Analysis:

As part of the process for making incentive awards to the named executive officers for 2011, the committee considered the most recent “say on pay” non-binding stockholder advisory vote held in April 2011 regarding the named executive officers’ 2010 compensation. The resolution approving 2010 executive compensation received a 92.9% favorable vote. Several key features of the 2010 program for named executive officers are carried forward to this year, such as substantial deferred amounts, performance-based vesting of certain deferred incentive awards, a four-year deferral period, significant stock awards that are subject to clawbacks and a stock ownership commitment, and limitations on perks. To better understand the reasons for the favorable say-on-pay vote and potential stockholder concerns for 2011, management engaged in stockholder outreach at various times during 2011 to discuss executive compensation in the context of Citi’s sustained profitability. In particular, management sought a better understanding of stockholder views on Citi’s disclosure and compensation processes and the priorities of our investors. The committee considered the outcome of the most recent say-on-pay vote and stockholder perspectives generally as factors in the 2011 compensation process in addition to currently applicable regulatory requirements, market considerations, and company and individual performance.

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As the bloggers on CompensationStandards.com were quick to point out, Citigroup was hit with a say-on-pay lawsuit within two days of the revelation that it had failed to garner majority support for say-on-pay at its annual shareholders meeting last week. In fact, Citi’s Form 8-K reporting the vote results was filed on Friday, April 20th – and the complaint was filed in the US District Ct. – SDNY on Thursday, April 19th. The lawsuit was filed before the 8-K!

Here are pieces on this topic from:

• Mike Melbinger’s “Copycat Say on Pay Lawsuits Quickly Follow Unfavorable Votes“
• Mark Borges’ “More on Citigroup“
• Mark Borges’ “More on the Citigroup Vote“
• Mark Borges’ “Citigroup Loses Say-on-Pay Vote“
• William Tysse’s “Citigroup sued after say-on-pay failure – more will be coming“
• Reuters’ “Citigroup CEO, Directors Sued For Outsized Executive Pay Packages“

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In mid April, Glass Lewis announced it had launched a new “Issuer Engagement Portal.” As folks have complained about a lack of transparency regarding Glass Lewis’ voting policies over the years, this should be a positive development. Among the other things in the Portal are Glass Lewis’ “US Abridged Guidelines“ and “Continental Europe Abridged Guidelines.” See Davis Polk’s blog on this development. . .

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Spanking brand new. Posted in our “Board Composition” Practice Area, this comprehensive “D&O Biographical/Director Qualifications & Skills Disclosure Handbook” provides a heap of practical guidance – including a sample board resolution to designate executive officers and sample D&O questionnaire language. In particular, the Handbook focuses on disclosure obligations under Item 401(a) through (e) of Regulation S-K.

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Spanking brand new. Posted in various Practice Areas on the site, this comprehensive “Disclosure Deadlines Handbook“ is 103 pages long and addresses these subject areas:

• Form 8-K
• Periodic Reports
• Proxy Materials & Annual Meetings
• Smaller Reporting Company Status
• Confidential Treatment Requests
• Regulation FD
• Exchange Act Registration
• Public Offerings
• Deregistration
• Schedule 13D & Schedule 13G
• Dividends, Stock Splits & Other Related Corporate Actions

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At the SEC, Matthew Solomon has been appointed Deputy Chief Litigation Counsel of the Division of Enforcement, joining the SEC from serving as an Assistant US Attorney in the District of Columbia. And Diane Blizzard has been promoted to Associate Director for Regulatory Policy and Investment Adviser Regulation in the Division of Investment Management as Robert Plaze moves up to Deputy Director.

The SEC announced the formation of the new “Investor Advisory Committee“ that was mandated by Section 911 of Dodd-Frank. Among the 21 members of the new committee is Steve Wallman – the tech guru that doubled as a SEC Commissioner in the ‘90s who hasn’t been heard from much during the past decade. . .

In Corp Fin, Will Hines has departed to join hedge fund Alphadyne.

Chamber Blankets DC Subway Station Closest to SEC HQ with Ads: In what has to be a certain waste of money, according to this Bloomberg article, the Chamber of Commerce hopes to influence the SEC in a money-market fund rulemaking by the use of a “so-called station domination ad buy consisting of more than 30 posters, banners and ‘backlit dioramas’ on the train platforms, above fare card machines and even on the floor.” Maybe the money would have been better off spent renting a giant Foghorn Leghorn suit for someone to hand out flyers in. . .

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• TheCorporateCounsel.net’s webcast – “The New World of IPOs: Dissecting the JOBS Act“ (5/2)
• DealLawyers.com’s webcast – “LLCs: Understanding Capital Account and Allocation Concepts for M&A“ (5/3)
• TheCorporateCounsel.net’s webcast – “Looking Out for #1: How to Manage Your Career“ (5/30)
• TheCorporateCounsel.net’s webcast – “NASDAQ Speaks ‘12: Latest Developments and Interpretations“ (6/7)
• DealLawyers.com’s webcast – “How to Cope with the M&A Litigation Explosion“ (6/14)
• Northwestern’s “32nd Annual Ray Garrett Institute“ – Chicago (5/3-4)
• Society of Corporate Secretaries “Annual Conference“ (7/11-14) in Washington DC
• NASPP’s “20th Annual NASPP Conference“ – New Orleans (10/8-11)
• TheCorporateCounsel.net and CompensationStandards.com’s “7th Annual Proxy Disclosure Conference“ – New Orleans and Video Webcast (10/8)
• TheCorporateCounsel.net and CompensationStandards.com’s “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference“ – New Orleans and Video Webcast (10/9)

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Among other new additions, during the last month we have:

• Interviewed a number of experts for Inside Track on TheCorporateCounsel.net, CompensationStandards.com and DealLawyers.com, including:
• Jordan Thomas on Whistleblower Advocacy (4/19/12)
• Dave & Marty on More JOBS Act Guidance (4/16/12)
• Doug Chia & Mark Schlegel on Companies Leveraging Moxy Vote (4/13/12)
• Jim Gauss on Diversity Tone at the Top (4/12/12)
• Tommy Galan on Learning Thru Improv (4/3/12)
• Dave & Marty on the JOBS Act (3/27/12)


• Posted the following:
• Memos: Jumpstart Our Business Startups Act
• “White Paper: General Solicitation/General Advertising” 14 Law Firms (4/5/12)
• Final JOBS Act (3/27/12)
• “California Transparency in Supply Chains Act: 1st 90 Days,” K&L Gates (4/12)

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