Form PF Filing Fees

The SEC has approved filing fees for investment advisers registered with the SEC filing Form PF.  Fees are charged for Annual Reports and Quarterly Reports to Form PF ($150 for each Annual Report and Quarterly Report). Fees must be credited to the firm’s IARD Daily Account before the filing can be submitted. No fee is charged for filing an electronic amendment to Form PF, a final Form PF filing, or a transition to annual reporting filing.

Social Media and Regulation FD

Given the role that social media is playing in our lives now, would a tweet or a message posted on LinkedIn or Facebook qualify as “public disclosure” under Regulation FD? 

Regulation FD states that dissemination of information through a method (or combination of methods) of disclosure that is “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” would qualify as public disclosure of previously conveyed material nonpublic information regarding the company.

To follow the SEC’s logic described in its 2008 interpretative release regarding the use of company web sites, it seems that company tweets or LinkedIn/Facebook disclosure would qualify as broad and non-exclusionary distribution of information only if: (i) a company’s presence on these social media web sites is viewed as a recognized channel of distribution for information about the company, its business, financial condition and operations, and (ii) disclosure of information through social media tools disseminates the information in a manner making it available to the securities marketplace in general.  It remains to be seen whether social media web sites will become an appropriate FD disclosure vehicle.   


SEC Issues New FAQs Related to Form ADV


The SEC recently issued two new FAQs clarifying certain reporting requirements in Form ADV.  The first new FAQ explains how assets are defined for purposes of responding to Form ADV’s question as to whether an adviser had $1 billion or more in assets as of the last day of the adviser’s most recent fiscal year end. The other new FAQ explains that an investment adviser registered with the SEC that files an annual updating amendment reporting that the adviser is not eligible for SEC registration must withdraw from registration within 180 days of its fiscal year end, unless the adviser then is eligible for SEC registration. Therefore, if a firm is registered with the SEC and reports having regulatory assets under management of less than $90 million on its annual updating amendment, but subsequently obtains $90 million or more in regulatory assets under management during the 180 day period, such adviser does not need to withdraw from SEC registration.


SEC Provides Updated Instructions for Submitting Confidential, Non Public Review Registration Statements by Emerging Growth Companies and Foreign Private Issuers

The SEC published new instructions for the submission of draft registration statements by emerging growth companies (as permitted under the JOBS Act) and by foreign private issuers (under the SEC’s policy) for confidential, non-public review by the SEC.  Such registration statements, exhibits and correspondence must be submitted to the SEC via a secure e-mail system.  Users will be required to create an e-mail account.  All draft submissions must be in text searchable PDF format and should include a transmittal letter identifying the issuer and the type of submission. Emerging growth companies should confirm their status as an EGC in their transmittal letters. The registration statement, correspondence and exhibits should each be in a separate file, using simple names to identify them, such as DRAFTS.pdf for the registration statements, LETTER.pdf for the transmittal letter and EXHIBIT10.1.pdf for each exhibit (numbered to correspond to the exhibit number).  All SEC comment letters and other correspondence also will be sent via the secure email system.  These procedures are effective May 14, 2012 and replace the SEC‘s prior announcement of April 5, 2012.

SEC Launches New Website

The SEC has launched a new website. The website looks fresh and modern.  At first, I found myself at a loss as to where to look for familiar links, but the website seems to be user friendly and easy to navigate.  It is interesting to note some of the topics that the SEC has chosen to cover prominently on the main page as they reflect the SEC’s current focus: initiatives under the Dodd-Frank Act, insider trading, Foreign Corrupt Practices Act, and whistleblower complaints.  In addition, the SEC has kept on its main page a link to the notice reminding investors that any offers or sales of securities relying on the crowdfunding exemption would be unlawful under the federal securities laws until the SEC adopts rules implementing such exemption.

Margin Call Sales May Violate Insider Trading Policies or Wake Up and Smell the Coffee (Burning)

            The chairman (and founder) and the lead independent director of Green Mountain Coffee Roaster (GMCR) both have been removed from their leadership positions as a result of margin call sales of company stock last Friday that were “inconsistent with” the company’s insider trading policy, GMCR announced yesterday.  According to the company’s press release, Mr. Robert P. Stiller no longer serves as Chairman of the Board and Mr. William D. Davis no longer serves as independent lead director because they had margin call-related stock sales totaling 5.548 million shares.  These forced sales were related to margin loans, which were secured by pledges of Mr. Stiller’s and Mr. Davis’ GMCR stock and triggered by recent GMCR stock price declines (the stock dropped almost 50% after the company released quarterly results and lowered its fiscal year forecast).  The sales occurred at a time when the trading window in GMCR stock was closed under the company’s internal trading policy.  Also, it was discovered that Mr. Davis pledged shares after the internal trading policy had been amended to prohibit pledges of company stock (other existing pledges were grandfathered).  

            These actions serve as a reminder that public companies should periodically review their insider trading policies to ensure that they are current and that management and others subject to the policies understand their operation.  We will address this topic further in the next issue of Up to Date.

SEC Issues Additional FAQs on JOBS Act

The SEC today issued additional Jumpstart Our Business Startups Act (JOBS Act) frequently asked questions (FAQs 18-41).  These FAQs address questions relating to emerging growth company status,  treatment of comment letters on confidential submissions of draft registration statements and issuer responses to such comment letters, financial accounting standards and restatement of financial statements, foreign private issuers’ compliance with the JOBS Act, and disclosures required in registration statements and periodic reports filed by emerging growth companies.  The new FAQs represent helpful additional guidance for emerging growth companies considering whether to take advantage of “IPO on Ramp” provisions of the JOBS Act.


Don’t Forget About Your FCPA Risk Factor

The Foreign Corrupt Practices Act (FCPA) is back in the news.  The Securities and Exchange Commission has a specialized unit established to enhance the SEC’s enforcement of the FCPA, and the SEC reports that it has brought more than 30 FCPA enforcement actions since the start of 2010.  Moreover, as my colleagues Shawn M. Wright and James R. Billings-Kang recently wrote in The National Law Journal, the United States Department of Justice has over 150 open FCPA investigations and together the SEC and the DOJ netted approximately $1.8 billion in fines, penalties and disgorgement of profits in 2010 alone for FCPA violations. 

Generally, the FCPA covers, among others, any company with securities registered under the Securities Exchange Act of 1934 and any company that is required to file reports under the Exchange Act or has its principal place of business in the United States.  The anti-bribery provisions of the FCPA prohibit corrupt payments to foreign officials for the purpose of procuring or maintaining business.  The FCPA is extremely broad in its scope and determining exactly what is prohibited by the FCPA can be very difficult.  Because the FCPA makes illegal many payments that individuals working in countries other than the United States may consider ordinary or customary, it can be particularly difficult to put a stop to the sorts of payments that may be covered by the FCPA, even where a company has a robust training and compliance program. 

If your company has significant operations outside the United States, especially where those operations are in countries where unofficial payments or gifts are a regular part of the business culture, a risk factor about your company’s FCPA exposure is likely to be warranted.    


SEC Tells Those Waiting to Crowdfund to Settle Down

On April 23, 2012, the SEC posed a release reminding issuers that capital raising via crowdfunding is not yet a reality:

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.

There is a lot of excitement in the securities and business worlds about the potential for crowdfunding to allow smaller companies to raise capital.  But, I think much of that excitement is premature.

First, under Section 301(c) of the JOBS Act, the SEC has 270 days (yes, about 9 months) to issue rules implementing the crowdfunding provisions of the JOBS Act and the SEC may be unable to meet that deadline.  Wave after wave of regulatory reform hitting the SEC has resulted in the SEC falling behind on its rule making activities under the Dodd-Frank Act.  In addition, the JOBS Act requires the SEC to consult with any state securities commission and national securities association that that wants to provide input, which has the potential to consume a lot of time.

Second, the JOBS Act provides the SEC with a great deal of discretion on how to implement the crowdfunding provisions.  While the JOBS Act received broad bipartisan and Presidential support, it is no secret that the SEC is not a fan of the crowdfunding.  As such, it is difficult to predict the ultimate outcome of the SEC’s rulemaking activities with respect to crowdfunding or how those rules will be perceived by companies and the securities industry. 


SEC Issued Guidance on MD&A and Accounting Policy Disclosures of Smaller Financial Institutions

On April 20, 2012, the SEC issued CF Disclosure Guidance: Topic No. 5, providing examples of comments it may issue to smaller financial institutions on Management’s Discussion and Analysis and accounting policy disclosures related to asset quality and loan accounting issues (for example, allowance for loan losses, charge-off and nonaccrual policies, commercial real estate loans, loans measured for impairment based on collateral value, credit risk concentrations, troubled debt restructurings and modifications, and other real estate owned).  In addition, the SEC provided examples of comments that may be issued to companies that acquired material assets in FDIC – Assisted Transactions.  This guidance is very timely for the current 10-Q season.