On September 26, 2012, the Securities and Exchange Commission announced that starting October 1, 2012, certain emerging growth companies and foreign private issuers would be able to submit to the SEC draft registration statements for non-public and confidential review via a modified EDGAR system instead of via the current secure e-mail submission process.  Once the EDGAR Filer Manual for EDGAR Release 12.2 becomes effective, eligible issuers desiring to take advantage of the confidential review process will be required to use the new EDGAR system. 

To assist issuers with the use of the new confidential filing procedures, the SEC posted a set of detailed instructions on how to prepare an electronic submission of a draft registration statement, or an amendment.  In addition, issuers that file via the new EDGAR system will no longer need to file copies of previously submitted draft registration statements as exhibits to their publicly-filed registration statements to comply with the JOBS Act’s mandate that the drafts become publicly available at least 21 days prior to the start of the road show.  The new EDGAR system will allow issuers to direct the EDGAR system to publicly file the drafts as individual documents on EDGAR.

The new EDGAR system is part of the SEC’s efforts to meet the requirements of Section 106(a) of the JOBS Act mandating that certain pre-IPO emerging growth companies be provided an opportunity to submit draft registration statements to the SEC for confidential review.  In addition, the new EDGAR system will support the SEC’s policies and procedures allowing certain foreign private issuers that are not emerging growth companies to submit registration statements to the SEC for non-public review.


On August 29, 2012, the Securities and Exchange Commission issued its proposed rules to eliminate the prohibition against general solicitation and general advertising in certain securities offerings made pursuant to Securities Act Rules 506 and 144A.  The rules were proposed pursuant to Section 201(a)(1) of the JOBS Act.  The SEC will seek public comment for 30 days after the publication of the rules in the Federal Register.

Under the proposed rules, issuers would be permitted to offer securities using general solicitation and advertising if:

  • The issuer takes reasonable steps to verify that the purchasers are accredited investors; and
  • All purchasers are accredited investors because either:
    • They come within one of the categories of persons who are accredited investors under Rule 501, or
    • The issuer reasonably believes they come within one of the categories at the time the securities are sold.

The proposed rules do not require specific methods to verify accredited investor status.  Instead, the proposed rules require issuers to consider the facts and circumstances of the transaction.  In its release proposing the new rules, the SEC enumerated certain factors issuers should consider and noted that “whether the steps taken are “reasonable” would be an objective determination, based on the particular facts and circumstances of each transaction.” 

For those issuers that do not want to engage in general solicitation and verification procedures, the proposed rules would preserve the existing portions of Rule 506 as a separate exemption so that companies conducting offerings without the use of general solicitation or advertising would not have to comply with the new verification provisions. 

In addition, under the proposed rules, securities sold pursuant to Rule 144A could be offered to persons other than “qualified institutional buyers,” including by means of general solicitation, if the securities are sold only to persons whom the seller and any person acting on the seller’s behalf reasonably believes to be qualified institutional buyers.

Last Minute Summer Reading Alert! SEC Adopts Rules Regarding Conflict Minerals and Resource Extraction Payments

           If you were concerned that you had finished all your summer reading with time to spare, worry no more.  The SEC has adopted a total of 588 pages of final rules regarding disclosures of the use of conflict minerals and payments by resource extraction issuers.

          The new rules were adopted on August 22, 2012.   Both rules were mandated by the Dodd-Frank Act and apply to all reporting companies (including foreign issuers and smaller reporting companies).  Congress enacted the conflict minerals requirement out of concerns that the exploitation and trade of “conflict minerals” by armed groups was helping to finance conflict in the Democratic Republic of the Congo (DRC) and adjoining countries.  Congress enacted the resource extraction payments disclosure to increase the transparency of payments made by oil, natural gas and mining companies to foreign governments so that, in theory, the citizens of those countries could hold their governments accountable for the wealth generated by those resources.

            The conflict minerals rule will require reporting companies that use certain minerals, including gold, tin, tungsten and tantalum, that are “necessary to the functionality or production” of a product manufactured or contracted to be manufactured by the company, to make disclosures on new Form SD (rather than as an exhibit to Form 10-K as originally proposed).  The rule requires that the company make a reasonable inquiry to determine whether any of the conflict minerals originated in the DRC or an adjourning country and, based on the results of that inquiry, make disclosures including, in some cases, a Conflict Minerals Report that will require an independent private sector audit.  There is no de minimis standard in the rule.   All issuers are required to use the same reporting period, the calendar year, regardless of fiscal year.  The first report is due on or before May 31, 2014 for the 2013 calendar year and no later than May 31st every year thereafter.

            The resource extraction payment rule will require reporting companies that are engaged in the commercial development of oil, natural gas or minerals to disclose certain payments (including taxes, royalties, fees, bonuses, dividends and costs of infrastructure improvements) made to foreign governments (including foreign local governments) or the U.S. government.  Payments (including a series of related payments) of less than $100,000 are considered de minimis under the rule and need not be disclosed.

            As with the conflict minerals rules, disclosure will be made on Form SD, but are required to be filed within 150 days after the end of the issuer’s fiscal year.  Issuers are required to comply with the new rules for fiscal years ending after September 30, 2013. For the first report, most resource extraction issuers may provide a partial report disclosing only those payments made after September 30, 2013.

            Both rules provide that the disclosures will be deemed “filed” and not “furnished” (as had originally been proposed), thereby imposing potential liability under the Securities Exchange Act, but no separate CEO and CFO certifications will be required.

SEC to hold Sunshine Act Meeting

The SEC announced yesterday that on August 22, 2012 at 10:00 a.m. it will hold an open meeting to consider:

  • whether to adopt rules regarding disclosure and reporting obligations with respect to the use of conflict minerals;
  • whether to adopt rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers; and
  • rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended and Rule 144A promulgated thereunder.

SEC Approves FINRA Rule Related to Private Placements

On June 7, 2012, the SEC approved, on an accelerated basis, new FINRA Rule 5123 “Private Placements of Securities”).  The new rule will require, subject to certain exceptions, FINRA member firms that sell securities in certain private placements to submit a notice filing with FINRA, including disclosure documents, if any, utilized in the offering.  FINRA has noted that the filing requirement is a notice filing only.  Therefore, issuers and member firms should not expect to receive FINRA comments or input before commencing an offering.

SEC Extends Compliance Date for Third-Party Solicitor Provisions of Advisers Act Pay-to-Play Rule

On June 8, 2012, the SEC extended the compliance date for the third-party solicitor provisions of Rule 206(4)-5 of the Advisers Act (the “Pay-to -Play Rule”). The Pay-to-Play Rule, among other things, prohibits an adviser from providing or agreeing to provide, directly or indirectly, compensation to any person to solicit a government entity for investment advisory services on behalf of such adviser unless the person is an executive officer, general partner, managing member or employee of the adviser, or such person is a registered investment adviser, a registered broker-dealer, or a registered municipal adviser. 

The SEC extended the compliance date for the third-party solicitor provisions of the Pay-to-Play Rule until nine months after the compliance date of a final rule adopted by the SEC related to the registration of municipal advisor firms. Once the final rule regarding the registration of municipal advisor firms is adopted, the SEC will issue the new compliance date for the ban on third-party solicitations.

SEC Updates Procedures for Non-Public Submission of Registration Statements by Foreign Private Issuers

On May 30th, the SEC updated its procedures for foreign private issuers wishing to make non-public submission to the SEC of draft registration statements for review by the SEC.  Prior to the enactment of the JOBS Act, domestic issuers filing initial registration statements with the SEC were required to file publicly through the EDGAR system.  Under certain limited circumstances, however, foreign private issuers had the option of submitting to the SEC registration statements and amendments on a non-public basis for SEC review in connection with their first-time registration of securities with the SEC.   

Pursuant to Section 106(a) of the JOBS Act, any emerging growth company (EGC), in connection with its initial public offering, may submit to the SEC a draft registration statement for confidential, non-public review.  Section 106(a) of the JOBS Act also requires that the EGC file publicly the initial confidential submission and all amendments at least 21 days prior to the date the company starts its road show.  In addition, SEC policy requires EGCs to submit on EDGAR all company responses to SEC comment letters on confidential draft registration statements at the time the EGC first files its registration statement publicly on EDGAR.  The SEC will then publicly release its comment letters and company responses no earlier than 20 business days following the effective date of the registration statement, which is the same time frame the SEC uses for non-confidential filings.

Pursuant to the updated procedures, the process for non-public submission of initial registration statements by foreign private issuers that are not EGCs now tracks the process applicable to EGCs.  When a foreign private issuer utilizing the SEC’s non-public submission policy first publicly files its registration statement, it is also required to file publicly all previously submitted draft registration statements and to resubmit all previously submitted responses to SEC comment letters.  Thereafter, the SEC will publicly release its comment letters and company responses in accordance with its policy described above.  A foreign private issuer that both qualifies as an EGC and meets the SEC’s requirements for non-public submission of registration statements by foreign private issuers can elect to submit its initial draft registration statement confidentially to the SEC as an EGC or non-publicly as a foreign private issuer.  The new filing and submission requirements set forth in the SEC’s May 30th update apply to foreign private issuers seeking non-public review (as opposed to confidential review as an EGC) only where the initial draft registration statement was submitted after May 30, 2012.

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.