Securities Regulation Daily Wrap Up, STRATEGIC PERSPECTIVES—Securities Regulation Daily’s top 10 developments for October 2016, (Nov. 3, 2016)
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Thursday, November 3, 2016

Securities Regulation Daily Wrap Up, STRATEGIC PERSPECTIVES—Securities Regulation Daily’s top 10 developments for October 2016, (Nov. 3, 2016)

By Mark S. Nelson, J.D.

In October, the SEC held two open meetings at which it adopted rules on intrastate offerings and investment companies, while also issuing a proposal on the use of the universal proxy card. The CFTC also extended a critical swaps deadline. But the month began with oral arguments before the Supreme Court in Salman v. U.S., an insider trading case in which an eight-member Supreme Court may further explain its Dirks opinion.

The month also saw a bold demand from a key senator, a D.C. Circuit opinion on the CFPB that may impact court challenges to the SEC’s administrative law judges, and regulators’ comments on proxy access, non-GAAP financials, whistleblowers, and "Tandy" representations. Securities Regulation Daily looks back at the top 10 stories from October.

1. FRAUD AND MANIPULATION

Justices grill Salman attorneys on the line between innocent and criminal tipping

Can insider trading liability be predicated on a gift of information with no pecuniary benefit to the tipper? The Supreme Court’s answer to that question could rewrite the law of insider trading. At oral argument on the Salman case, all eight justices grilled the attorneys with questions and hypotheticals intended to reveal the contours of when trading becomes criminal. See our full coverage.

2. PROXIES

SEC proposes universal proxy requirement; adopts rules to facilitate intrastate offerings

SEC Chair Mary Jo White and Commissioner Kara Stein voted to move forward with a proposal to require the use of a universal proxy card in all contested board elections that are subject to the Exchange Act, over the objection of Commissioner Michael Piwowar. The commissioners unanimously approved a separate initiative to provide exemptions to help facilitate intrastate and regional securities offerings. See our full coverage.

3. INVESTMENT COMPANIES

SEC okays reporting modernization, liquidity management and swing-pricing changes

The SEC has approved three sets of final rules and form amendments affecting investment companies’ reporting and operations. The Commission unanimously authorized changes to require mutual funds and other open-end management investment companies to adopt liquidity risk management programs, but, in the meeting, Commissioner Michael Piwowar declined to support a rule permitting funds to use swing pricing in connection with redemptions and also voted against changes to modernize investment company reporting, citing the removal of a provision to allow for implied consent for electronic delivery of shareholder reports. See our full coverage.

4. SWAPS

CFTC extends date for swap dealer registration de minimis threshold phase-in

The CFTC announced that it has approved an order establishing December 31, 2018, as the swap dealer registration de minimis threshold phase-in termination date. With the approval, the de minimis threshold will remain at $8 billion. See our full coverage.

5. PROXIES

SEC says Microsoft’s proxy access bylaw does not substantially implement shareholder proposal

Microsoft Corporation may not omit from its proxy materials a proxy access shareholder proposal based on the staff’s conclusion that the company’s bylaw does not compare favorably with the guidelines in the proposal. Microsoft’s bylaw has a 20 shareholder limit for forming a nominating group while the proposal has no limits on the size of the group. Shareholders want proxy access bylaws that can actually be implemented, the proponent explained. Their goal is not to obtain a watered down version of proxy access. See our full coverage.

6. PUBLIC COMPANY REPORTING AND DISCLOSURE

Warren calls for Chair White’s demotion

Senator Elizabeth Warren (D-Mass) sent President Obama a 12-page letter calling on him to demote SEC Chair Mary Jo White to commissioner from her current role as Chair of the federal securities regulator. Warren said the president should take this "uncommon act" in order to kick start the agency’s investor protection mandate after years of what the senator characterized as White’s "anti-disclosure agenda." See our full coverage.

7. ENFORCEMENT

Attorneys challenging SEC’s use of ALJs invoke recent CFPB decision

Attorneys for Raymond Lucia, a former investment adviser who lost his challenge to the SEC’s administrative enforcement regime, have submitted to the U.S. Court of Appeals for the D.C. Circuit a letter invoking language found in the court’s recent decision that held the Consumer Financial Protection Bureau’s single director structure was unconstitutional in an attempt to bolster Lucia’s request for a rehearing. The Lucia letter urges the court to bring its Appointment Clause jurisprudence into line with the Constitution, Supreme Court precedent, and historical practice. See our full coverage.

8. ACCOUNTING AND AUDITING

PCAOB’s Investor Advisory Group offers recommendations on use of non-GAAP financial measures

PCAOB Chair James Doty said the Investor Advisory Group’s discussion on non-GAAP financial measures was perhaps the single most productive session the Board has held. He took note of IAG member Gary Walsh’s warning that a day of reckoning will come as the gap between generally accepted accounting principles and non-GAAP numbers grows. Doty said it is the PCAOB’s charge to determine whether auditors are giving non-GAAP numbers sufficient attention. Non-GAAP numbers are not subject to the audit, but auditors are required to read and consider information outside of the financial statements to determine whether it is consistent with the financial reporting and does not reflect a material misstatement. See our full coverage.

9. WHISTLEBLOWER NEWS

OCIE issues risk alert on compliance with whistleblower rule

The SEC’s Office of Compliance Inspections and Examinations has issued a Risk Alert for registered broker-dealers and investment advisers on registrants’ compliance with the Dodd-Frank Act’s whistleblower protection rule. The alert identifies several documents that OCIE staff will analyze for compliance with the rule, including compliance manuals, codes of ethics, employment agreements, and severance agreements. The alert comes on the heels of recent SEC enforcement actions against companies that had included whistleblower "chilling" language in severance and other employment agreements. See our full coverage.

10. PUBLIC COMPANY REPORTING AND DISCLOSURE

‘Tandy’ text recedes from filing review process

The SEC’s Division of Corporation Finance announced that companies responding to staff comment letters as part of the agency’s filing review process will no longer need to include the so-called "Tandy" language in their replies. Perhaps the inclusion in recent years of similar language in SEC-generated letters that often signal the end of a review dialog presaged the decision to let companies drop the representation from their replies. The Tandy update is effective now and even applies to companies that have yet to provide Tandy representations. See our full coverage.

Companies: Microsoft Corporation

MainStory: AccountingAuditing CFTCNews CommodityFutures CorporateGovernance CorpGovNews Derivatives DirectorsOfficers DoddFrankAct Enforcement FraudManipulation InvestmentAdvisers InvestmentCompanies PCAOBNews Proxies PublicCompanyReportingDisclosure RiskManagement SECNewsSpeeches ShareholderActivismNews Swaps WhistleblowerNews SupremeCtNews

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