Christmas came early for many in the digital asset community by way of a statement from the U.S. Securities and Exchange Commission (“SEC” or “Commission”) on December 23, 2020 that grants relief in the area of broker “custody” of digital asset securities. The framework laid out by the SEC will operate somewhat like a hybrid no-action letter/safe harbor/pilot program, pursuant to which “special purpose” brokers may follow certain, specific steps and custody digital asset securities during a five-year program period without the risk of facing an enforcement action.
U.S. broker-dealers are subject to a multitude of laws and rules, … Read more
Disclosure and internal governance regulations are, along with accounting rules, distinguishing features of the public firm. Deregulation agendas such as those of the Trump administration typically assume that many regulations on public firms have imposed high compliance costs. Such arguments are at the center of the debate surrounding the decline in the number of public firms, changes in firm-size distribution and the growth of private equity markets.
Researchers and policy makers have extensively studied the costs and the impact of disclosure and internal governance rules (e.g., SEC, 2011; Coates and Srinivasan, 2014). However, as Leuz and Wysocki (2016) write in … Read more
What constitutes a “current market condition” that mutual funds are required by SEC regulations to disclose? Current market condition risks arise because of changing market conditions that can affect investment performance. For some U.S.-registered funds, Covid-19 is prompting new event-specific disclosures. In 2020 Q1-Q3, we see a dramatic increase in public health-related disclosures overall, and the emergence of new Covid-19 and quarantine risk disclosures.
While the SEC hasn’t mandated Covid-19 disclosures or provided guidance to funds (as it has with operating companies), it is clear that funds are not immune to the effects of Covid-19. … Read more
The Staff of the Division of Corporation Finance recently issued CF Disclosure Guidance: Topic 11 – Special Purpose Acquisition Companies (available here). This guidance highlights disclosure considerations for SPACs at both the IPO and business combination stages, with a focus on disclosures around conflicts of interest and the differing economic interests of SPAC sponsors, directors, officers and their affiliates (collectively, “SPAC Insiders”) as compared to the interests of the SPAC’s public shareholders.
IPO Disclosure Considerations
In an effort to elicit better disclosures when a SPAC goes public, the guidance poses questions for SPACs to address in the IPO registration … Read more
Rapid technological innovation over the past five years has created unprecedented opportunities for entrepreneurs – often outside the world of traditional finance and capital markets. Cryptoassets, for example, may prove to be socially beneficial tools for enabling entrepreneurs to more efficiently raise capital, and making sure those and other welfare-maximizing financial innovations succeed has become paramount for researchers and policymakers. In a recent paper, The Leviathan of Securities Regulation in Cryptoasset Markets, I aim to assist U.S. capital market regulators in determining how best to achieve this goal.
Unlike many foreign countries, the U.S. does not have regulations tailored … Read more
Direct listings, the most promising disruptor of IPOs, received a significant boost this week, thanks to the U.S. Securities and Exchange Commission (SEC) ruling on a petition from the Council of Institutional Investors.
Most common in the tech industry, direct listings have been put to the test four times in the last two years. Spotify and Slack paved the early path with their direct listings in 2018 and 2019, respectively. Earlier this year, Palantir and Asana used direct listings as an alternative to the traditional underwritten IPO and have continued to generate an enormous amount of media attention in their … Read more
On December 11, 2020, Congress passed the National Defense Authorization Act for Fiscal Year 2021, H.R. 6395 (the “NDAA”). The $740.5 billion bill includes language amending the Securities Exchange Act of 1934 (the “Exchange Act”) to provide the SEC with express statutory authority to seek disgorgement in civil enforcement actions pending in federal court. The amendments to the Exchange Act—which also double the statute of limitations for disgorgement from 5 to 10 years—are a direct Congressional response to limitations imposed by the Supreme Court in Liu v. SEC, 140 S. Ct. 1936 (2020) and Kokesh v. SEC, 137 … Read more
On Friday night, December 11, 2020, tucked below its order denying Texas’s bid to overturn the results of the Presidential election, the U.S. Supreme Court agreed to review what petitioners Goldman Sachs Group, Inc. and its former top executives (“Goldman”) billed as “the most important securities case to come before the Court since Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (Halliburton II).” That the Supreme Court granted Goldman’s petition in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System without a well-developed circuit split suggests that some members of the Court are … Read more
The SEC has proposed amendments that would permit, for a temporary five-year trial period, companies to offer equity compensation to “platform workers” (gig economy workers who provide services by means of an internet or other technology based marketplace platform) under the same regulatory framework available for offerings to employees (available here). The amendments would expand Rule 701 (by which non-reporting companies may issue equity-based compensation without a registration statement) by adding a new subsection, Rule 701(h), and Form S-8 (by which reporting companies issue equity-based compensation) by adding a new General Instruction A.1.(b), to permit these offerings.
The proposed … Read more
The Dodd-Frank Act of 2010 allows the Securities and Exchange Commission (SEC) to bring enforcement actions and impose civil penalties in administrative proceedings as alternatives to federal district courts. Some argue that this gives the SEC a “home-court” advantage. For example, the SEC serves as both prosecutor and, through the administrative judges it appoints, adjudicator in an administrative proceeding, and no jury trials are allowed. The SEC argues, though, that administrative proceedings can process cases more efficiently than federal courts. Yet the opacity of administrative proceedings and the SEC’s discretion over the choice of venue have prompted criticism and challenges … Read more
With COVID-19 cases rising rapidly around the world, Pfizer’s announcement on November 9, 2020, that its coronavirus vaccine was highly effective in early trials offered a rare bright spot for the coming winter. But the news was soon dampened by word that the company’s CEO, Albert Bourla, sold some 60 percent of his Pfizer shares on the day of the announcement. According to Pfizer, Bourla’s sales occurred under a preset arrangement known as a 10b5-1 plan – so named for an obscure SEC rule designed to shield executives from spurious insider-trading accusations. The rule gives an affirmative defense … Read more
On Wednesday, November 18, 2020, the staff of the Division of Corporation Finance (the “Division”) of the Securities and Exchange Commission (“SEC” or the “Commission”) took another step forward for crypto regulation by granting a no-action letter to IMVU, Inc. (“IMVU”), a software development company that offers virtual world platforms, to sell its Ethereum-based token, VCOIN. The relief provides that the Division will not recommend enforcement action to the Commission if IMVU offers and sells VCOIN, which is transferable both on and off of IMVU’s platform, without registration under Section 5 of the Securities Act of 1933 (the “Securities Act”) … Read more
The SEC Division of Corporation Finance has provided its views regarding certain disclosure considerations for companies based in or with the majority of their operations in the People’s Republic of China.
The US Securities and Exchange Commission (SEC) recognizes the increased exposure of US investors to companies based in or with the majority of their operations in the People’s Republic of China (China-based Issuers) and the SEC’s limited ability to promote and enforce high-quality disclosure standards for China-based Issuers. The Division of Corporation Finance (Corp Fin) published CF Disclosure Guidance: Topic No. 10, Disclosure Considerations for China-Based Issuers (Guidance), on … Read more
This is the gossip season, and almost everyone has heard a rumor about who will be the next chair of the SEC. Although I was interviewed by the Biden transition team (for my views, not as a candidate), my sources are no better than those of others. Nonetheless, they all tell me that the next chair will be Gary Gensler, the former chair of the Commodity Futures Trading Commission and current chair of the Transition Taskforce for Financial Regulation for President-elect Biden. In my view, he is probably the optimal choice — experienced, tough at enforcement, and well versed in … Read more
The market for cryptoassets is burgeoning, as distributed ledger technology transforms capital and financial markets. With the extraordinary growth in the crypto-markets comes the need for regulation to promote efficiency, capital formation, and innovation while protecting investors. With the need for regulation comes enforcement.
In a new article, Crypto-Enforcement Around the World, we elaborate on these issues and report on the results of an international enforcement survey conducted by our Blockchain and Fintech Research Program. Our analysis also builds on the results of the research by one of the co-authors, Prof. Guseva, in her article, The SEC, Cryptoassets, and … Read more