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Fintech SPACs Have Been Swimming Naked – and the Tide Is Going Out  

Acorns Grow Inc., the financial technology and investing startup, said last week that it was abandoning its $2.2 billion merger with SPAC Pioneer Merger Corp., putting itself on the hook for a $17.5 million termination fee. Coming almost eight months after the deal was first announced, the news surprised many in the fintech and SPAC worlds.  It shouldn’t have.

SPACs – a method of going public touted as faster, simpler, and cheaper than a traditional IPO – are proving to be a severely flawed way to finance fintechs and other technology companies. Their stock prices have almost invariably declined sharply … Read more

SEC Chair Gensler Speaks on Rules Covering Government Securities Alternative Trading Systems

Today [January 26], the Commission is considering amendments to include significant Treasury markets platforms within Regulation ATS. I support these amendments because, if adopted, they would help promote resiliency and greater access in the Treasury market. We’re also considering modernizing our rules related to the definition of an exchange. Over the decades since Congress put in place the definition of an exchange, there have been many changes to platforms — in particular, that they are increasingly electronified. I think it’s important that we revise the SEC’s rules to reflect those changes.

In 2020, the Commission put out a request for

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SEC Commissioner Peirce Dissents on Proposal to Amend Regulation ATS

Events in the U.S. Treasury market (as well as the related repo market) over the past several years strongly suggest that the market for government securities suffers from inadequate levels of intermediation, liquidity, and transparency that in times of stress can dramatically decrease its ability to function properly and significantly increase risks to market participants.[1]  Commentators have suggested a number of possible reforms,[2] and, although I am skeptical of some of these suggestions, I agree that the Commission should be considering carefully how it might use its authority to make changes that could relieve some of these pressures

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Do Companies Lobby Against Mandatory Disclosure to Protect Proprietary Information?

Critics of mandatory public disclosure often argue that it may put disclosing firms at a competitive disadvantage by requiring them to  reveal potentially proprietary information to rivals. For instance, when the Financial Accounting Standards Board (FASB) proposed to mandate more disaggregated disclosure of segment information, many firms lobbied vigorously against the new rule (SFAS No. 131), arguing that it would be “competitively harmful to the reporting enterprise” (FASB 1997).

However, there is little evidence that reporting mandates actually result in competitive harm. More importantly, it is unclear whether the expressed concerns about proprietary costs reflect the true lobbying motive. Research … Read more

SEC Chair Gensler Speaks on Cybersecurity and Securities Laws

Thank you. It’s good to be with the Annual Securities Regulation Institute. As is customary, I’d like to note that my remarks are my own, and I’m not speaking on behalf of the Commission or SEC staff.

As some of you may know, I often like to talk about the founding of our nation’s securities laws in the 1930s.

So again, today, I’d like to discuss the ‘30s — but this time, I actually mean the 1830s.

In 1834, exactly a century before the SEC was established, the Blanc brothers in Bordeaux, France, committed the world’s first hack. The

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Climate-Risk Disclosures and “Dirty Energy” Transfers: “Progress” Through Evasion

At first glance, recent progress towards transparency in corporate climate-risk disclosures seems exceptional. Over 2,000 companies now publish annual reports showing their carbon emissions data (although most self-interestedly omit Scope 3 data). Many (including most recently ExxonMobil) have made a pledge to move to “net zero” carbon emissions by a given date (usually 2050, but some much sooner). We are awaiting SEC rules that will make ESG disclosures mandatory and likely compel U.S. issuers to use common metrics (and thereby make issuer-specific reports relatively comparable). The Financial Stability Oversight Council’s October 2021 report stressed that climate risk represents a serious … Read more

Latham & Watkins Discusses Stricter SEC Requirements for the Rule 10b5-1 Affirmative Defense

On December 15, 2021, the Securities and Exchange Commission (SEC) issued a set of proposed amendments (the Proposal) regarding the adoption of trading plans that qualify for the affirmative defense against liability for trading on the basis of material non-public information (MNPI) under Rule 10b5-1 under the Securities Exchange Act of 1934 (the Exchange Act). These proposed changes would impose additional requirements on public companies and insiders.

Significantly, the Proposal would require a waiting period or “cooling off period” of 120 days for the director or officer of a company (or 30 days for the company itself) between the adoption … Read more

SEC Chair Gensler Speaks on How to Make Securities Regulation Dynamic

Thank you for the kind introduction. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or SEC staff.

I’d like to share with you all that we lost an SEC alum, Robert Birnbaum, this past December. Though I didn’t get to know Bob personally, he accomplished a lot in his remarkable life. After leaving the SEC, he went on to lead the New York Stock Exchange.[1]

While at our agency, though, Bob contributed to a seminal report called the Special Study. This report was published in

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It’s Time to Regulate Stablecoins as Deposits and Require Their Issuers to Be FDIC-Insured Banks

In November 2021, the President’s Working Group on Financial Markets (PWG) issued a report analyzing the rapid expansion and growing risks of the stablecoin market.[1]  Stablecoins are digital assets that claim to maintain a “stable” value with reference to a designated currency (typically the U.S. dollar) or some other asset, index, or formula.  PWG’s report concluded that stablecoins pose a wide range of potential dangers, including inflicting large losses on investors, destabilizing financial markets and the payments system, facilitating money laundering, tax evasion, and other forms of illicit finance, and promoting dangerous concentrations of economic and financial power.

PWG’s … Read more

Informed Options Trading Before FDA Approves Drugs May Be Growing Problem

The Food and Drug Administration (FDA) appoints drug experts to drug advisory committees (ACs) that make approval or rejection recommendations for about half of all new drugs (usually the unique ones, such as Covid vaccines). The experts receive nonpublic technical reports from drug firms and FDA staff a month or so before ACs meet. Our recent study is the first to examine potentially informed options trading around the report creation dates (not publicly known), as well as the AC meeting dates (publicly known).

The study is important because there could be relatively large amounts of informed trading months before the … Read more

Mandatory Corporate Climate Disclosures: Now, but How?

Climate change is one of today’s most salient policy challenges. Under the Paris Agreement, 195 governments agreed to limit temperature increases to well below 2, preferably 1.5, degrees centigrade relative to pre-industrial levels. Since the magnitude of global warming is roughly proportional to the amount of carbon in the atmosphere, the agreement in effect specified a “carbon budget.” To stay within that budget, emission reductions equivalent to what was forced upon us by the worst pandemic in 100 years need to occur every two years throughout the 2020s and beyond. Clearly, just “doing less” is not going to cut it … Read more

How Does Better Access to Public Firm Disclosures Affect IPO Firm Financing?

Financial markets affect the economy in a fundamental way by facilitating the creation of capital. The market for initial public offerings (IPO) – also known as the “primary market” – is especially important because it allows fast-growing and innovative companies to raise the capital needed to pursue business opportunities, develop new technologies, and create jobs – all of which contribute to economic growth. A significant challenge for those companies is that the capital they raise is on average substantially less than what they are worth, a phenomenon known as underpricing. Studies show that underpricing reflects an information problem: Primary market … Read more

Does SEC Scrutiny Improve Mutual Fund Disclosures?

Millions of investors rely on the disclosures of U.S. registered mutual funds in making their investment decisions, but some of the most influential industry opinion leaders and legal scholars have criticized the quality of those disclosures. Like public companies, mutual funds are subject to both internal and external oversight. In contrast to public companies, though, the funds have an acute agency conflict between their management companies and investors, while the internal governance for mutual funds, especially the board of directors, is often ineffective. With weak internal oversight, the role of external oversight becomes particularly important. The most important external oversight … Read more

Corporate Disclosure: Facts or Opinions?

When it comes to financial disclosure, headline numbers are not all that matters. Equally important are what company executives talk about – and even how they talk about it. A large and growing body of literature in finance and accounting establishes the usefulness of narrative disclosure for predicting a company’s future performance and returns. Many of these papers attempt to extract predictions from text using lexicon or machine learning approaches and, in general, interpret their results as capturing “sentiment.”

While it is clear that this sentiment, however measured, is useful, it is not clear why. One classic paper[1] interprets … Read more

ISS Discusses Shareholder Class Action Settlements in 2021

As the world will soon reflect on two full years of living through the COVID pandemic, the pace of shareholder-related class action settlements continue to bring significant recoveries back to harmed investors.

In fact, according to ISS Securities Class Action Services, 2021 U.S. class action settlements will outpace both 2019 and 2020 in terms of dollar amounts and quantity of settlements. (Note: 2021 numbers are preliminary – final calculations will be published in January 2022.)

Year Settlement Amount Quantity of Settlements
2021 $3.53 Billion 116
2020 $3.26 Billion 99
2019 $3.17 Billion 101

Note: U.S. Federal and State class actions

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Heightened Eligibility Thresholds for Shareholder Proposals: Modernization or Voter Suppression?

In September 2020, the Securities and Exchange Commission amended Rule 14a-8 of the Securities Exchange Act to increase the eligibility requirements for a shareholder to submit proposals.[1] Rule 14a-8, also called the shareholder proposal rule, governs when a company must include a shareholder proposal in its proxy statement.[2] Passed by a 3-2 vote, the amendments have led to contentious debates about their potential impact on corporate governance.

Recent Amendments

Among other things,[3] the September 2020 amendments make the following significant changes to the shareholder proposal process:

First, the SEC increases the ownership threshold for initial inclusion of … Read more

SEC Considers Amendments to Rule 10b5-1

It was a very busy day at the U.S. Securities and Exchange Commission yesterday, with the commission weighing in on several proposed rule changes. For starters, the commission considered proposed amendments to Rule 10b5-1 and new disclosure requirements designed to prevent insider trading. Several SEC commissioners expressed their views on the measures. Commission Chairman Gary Gensler’s statement in support is here. The statements of commissioners Caroline A. Crenshaw, Allison Herren Lee, Hester M. Peirce and Elad L. Roisman, also in support, are here, here, here, and here, respectively.… Read more

SEC Considers Proposed Money Market Fund Reforms

On December 15, the U.S. Securities and Exchange Commission considered amendments to rules that govern money market funds. Commission Chairman Gary Gensler’s statement in support is available here. The statements of commissioners Caroline A. Crenshaw and Allison Herren Lee, also in support, are here and here, respectively. The statements of commissioners Hester M. Peirce and Elad L. Roisman opposing the amendments are here and here, respectively.… Read more

SEC Considers Proposals to Enhance Buybacks Disclosure

On December 15, the U.S. Securities and Exchange Commission considered proposals to enhance disclosure about stock buybacks. Commission Chairman Gary Gensler’s statement supporting the proposals is available here. The statements of commissioners Caroline A. Crenshaw and Allison Herren Lee in support are here and here, respectively. The statements of commissioners Hester M. Peirce and Elad L. Roisman in opposition are here and here, respectively.… Read more

SEC Considers Proposed Rules About Security-Based Swaps

On December 15, the U.S. Securities and Exchange Commission considered three proposed rules about the security-based swaps market. Commission Chairman Gary Gensler’s statement in support of the rules is available here. The statements of commissioners Caroline A. Crenshaw and Allison Herren Lee, also in support, are here and here, respectively. The statements in opposition of commissioners Hester M. Peirce and Elad L. Roisman are here and here, respectively.… Read more