Most securities fraud class actions under SEC Rule 10b-5 involve revelation of negative information about the defendant company that should have been disclosed earlier – bad news that (allegedly) has been covered up by company agents. The standard remedy in such cases is out-of-pocket damages (OOPs). But this measure of harm is inherently ambiguous. Some courts interpret it as price inflation at the time of purchase. Others interpret it as the difference between the price paid and the price at which a stock settles after corrective disclosure.
Although it might seem that these formulations are synonymous, the latter … Read more
The Securities and Exchange Commission (SEC) regularly reviews financial filings to ensure compliance with accounting standards and other disclosure requirements. The SEC review team analyzes firm’s financial filings and asks questions (in a comment letter) about perceived deficiencies. A comment letter may request clarification regarding an accounting or reporting issue and may ask a firm to revise or update its financial reports. According to the SEC, this comment process “deters fraud and facilitates investor access to information.”
Comment letters are publicly available on EDGAR, and both accounting and law firms monitor comment letters to ascertain where the SEC is directing … Read more
Following news reports about executives selling shares in their corporations to avoid losses due to the pandemic, we take a closer look at insider trades and find that net insider purchases have been positive in February and March, revealing corporate optimism, not pessimism. Our findings are a reminder that not all burning questions about the impact of the pandemic can or should be answered right now.
Accurate answers rely on good data, but good data are hard to come by. One reason is that we are measuring some things for the first time, such as the true death toll of … Read more
Good afternoon. This is an open meeting of the U.S. Securities and Exchange Commission on May 6, 2020, under the Government in the Sunshine Act. The Commission today will consider a staff recommendation to issue an Order that would direct the registered equities exchanges and the Financial Industry Regulatory Authority (“FINRA”) to propose a new, single national market system (“NMS”) plan to govern the public dissemination of real-time, consolidated market data for NMS stocks.
Throughout my tenure as Chairman, I have discussed the need for the Commission to focus additional analytical resources on our ever evolving market structure. U.S.
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Over the last two years, direct listings – in which companies list their stock on an exchange to enable insiders and early investors to sell their holdings to the public without issuing new shares – have received considerable attention as an alternative to traditional initial public offerings. Until now it has been assumed that claims under Section 11 of the Securities Act, which generally require plaintiffs to “trace” their purchases to a registration statement, would be difficult to pursue because many shares in a direct listing may be sold without using a registration statement.
On April 21, 2020, however, … Read more
In early 2020, State Street Global Advisors, BlackRock, and other investment firms announced their plans for persuading companies to address financially-material environmental, social, and governance (ESG) issues. The high-profile announcements followed moves in recent years by Wellington Management, CalPERS, and other institutional investors to integrate climate-related data into their processes and increase the pressure on companies to more deeply consider climate change risks and disclose how they are accounting for those risks in their operations. Companies have responded with a steady stream of climate-related goals, commitments to disclose in line with the Financial Stability Board’s Task-Force on Climate-Related Financial Disclosures … Read more
Upcoming first quarter earnings calls may be the most scrutinized in modern corporate history. How to handle these calls in light of the unprecedented social and economic impacts of COVID-19 is a question confronting every company that has not yet announced. Investors, the SEC and other stakeholders are clamoring for insight into what this extraordinary pandemic means for individual businesses, the private sector and the Nation at large. We believe that these upcoming earnings calls provide an opportunity for companies to show leadership and purpose by providing the critical insights that will help investors, analysts and other stakeholders grasp where … Read more
The application of the U.S. securities laws to blockchain tokens has been a controversial subject, with the Securities and Exchange Commission (SEC) taking an aggressive posture. On February 6, 2020, SEC Commissioner Hester Peirce proposed a non-exclusive safe harbor from certain of those laws for sales and other distributions of certain blockchain tokens (sometimes called token generation events, airdrops, SAFTs, ICOs or IEOs), as well as secondary trading in such tokens.
Token sales became a popular tool in 2016-17 for blockchain projects to seek initial traction for their network or platform by selling the digital item native to the platform … Read more
[Editor’s Note: This and the following piece offer a point/counterpoint on shareholder voting.] The SEC’s recently proposed rules on proxy advisers and shareholder proposals have made shareholder voting one of the most prominently debated corporate governance issues ever. In a new article, “The Risks and Rewards of Shareholder Voting,” I seek to shed more light on the role of shareholder voting in the governance of public companies.
Shareholders Are Notoriously Uninformed
Shareholder voting allows shareholders to participate in corporate decisions, but very few public company decisions are based on it. This is understandable, because shareholder voting suffers from a collective … Read more
The Securities and Exchange Commission and its senior staff have put out a succession of releases that combine some relief, some guidance and some warnings. The SEC Coronavirus (COVID-19) Response page is available here.
The latest in the series came on Wednesday, April 8, in the form of a long, forceful public statement published on the SEC’s website by Jay Clayton, the SEC Chair, and Bill Hinman, the Director of the Division of Corporation Finance. It focused on upcoming corporate disclosures – with a particular view to first-quarter earnings releases of calendar-year companies – and it contained some helpful guidance … Read more
Earlier this year, the Office of Management and Budget solicited suggestions for “regulatory reforms that will better safeguard due process in the regulatory enforcement and adjudication settings.” That invitation was a rare opportunity to comment on the procedures federal agencies use to investigate potential misconduct and to litigate charges in administrative proceedings.
My comments addressed several enforcement and adjudication procedures at the Securities and Exchange Commission:
(1) Partiality issues with the heads of certain agencies including the SEC and with initial SEC administrative proceedings before administrative law judges.
Due process prohibits the same person from charging a defendant and then … Read more
In recent podcasts, we addressed three themes, among other topics: how artificial intelligence and machine learning (AI/ML) can change how decisions get made; how blockchain can transform how we transact and how we record and communicate things; and how technology shapes how we trade stocks. We entered 2020 with a lot to watch. Perhaps this decade will be the “roaring ‘20s of FinTech.”
From Here to There for AI/ML. The promise of AI/ML is transformative, and companies (small and large, new and longstanding) are fast at work developing and deploying real-world applications, from autonomous driving to growing crops to detecting … Read more
Over 57 million American households are invested in our securities markets. The interests of these individuals—our long-term Main Street investors—are the lens through which we evaluate whether we are effectively advancing the SEC’s mission. The 4,500 women and men of the SEC are committed to these investors and the integrity of our markets. The uncertainties caused by COVID-19 have not changed our perspective or commitment.
Approach to Allocation of Resources, Oversight and Rulemaking
In recent weeks, the Commission has been assisting market participants in their efforts to continue business operations, including investor service operations, in the face of various challenges
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The coronavirus’ impact across the United States will make an epic, even Tolstoyan, saga, sweeping across all levels of American society and featuring brave heroes and tragic victims. But so far, this story has lacked one figure that every drama needs: a clear villain – someone the public can despise. No, President Trump cannot play this role. Reckless, ignorant, and delusional as he may be, he can only play the fool of the story, but not the villain, because he has not been profiting off the tragedies of others.
A true villain would be useful. In the 1930s, much of … Read more