The SEC Pulse

ISS Annual Proxy Voting Updates

Posted by Howard Berkenblit on November 20, 2018 at 11:44 AM

ISS has announced its 2019 updates to its proxy voting policies, which are generally applicable to shareholder meetings to be held on or after February 1, 2019.


Most notably, starting in 2020, for Russell 3000 and S&P 1500 companies, ISS will generally recommend (subject to mitigating factors) a vote against or withhold from the chair of the nominating committee at companies where there are no women on the board of directors.

Also of note, ISS will now recommend a vote against or withhold from the chair of the nominating committee at companies with three years of poor director attendance (generally any directors attending less than 75% of meetings without certain excused reasons).

The full updates can be found here.

Topics: Institutional Shareholder Services, Proxy Voting Policies

SEC amends Rule 701 and solicits comments on ways to modernize offerings pursuant to compensatory arrangements

Posted by Howard Berkenblit on July 18, 2018 at 1:52 PM

The SEC today issued final rules to amend Securities Act Rule 701, which provides an exemption from registration for securities issued by private companies pursuant to compensatory arrangements, such as equity plans. As mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, the amendment increases from $5 million to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which a company is required to deliver additional disclosures to investors/grantees. This will allow private companies to make more grants without having to meet more extensive disclosure requirements.

In addition, the SEC approved a "concept release" soliciting comment on possible ways to modernize rules related to compensatory arrangements in light of the significant evolution in both the types of compensatory offerings and the composition of the workforce since the SEC last substantively amended these rules in 1999. The SEC is soliciting comment on possible ways to update the requirements of Rule 701 and Form S-8 (which provides a simplified registration form for companies to use to issue securities pursuant to employee equity plans). Among other things, the concept release solicits comment on:

  • "Gig economy" relationships, in light of issuers using internet platforms to provide workers the opportunity to sell goods and services, to better understand how they work and determine what attributes of these relationships potentially may provide a basis for extending eligibility for the Rule 701 exemption;
  • Whether the SEC should further revise the disclosure content and timing requirements of Rule 701(e); and
  • Whether the use of Form S-8 to register the offering of securities pursuant to employee benefit plans should be further streamlined.

The amendment to Rule 701 to increase the threshold will be immediately effective. The Concept Release is merely soliciting comments, and further action by the SEC will depend on many factors, including comments received and competing items on its regulatory agenda.

Topics: Securities Act, Rule 701, Concept Release

SEC expands "smaller reporting company" definition

Posted by Howard Berkenblit on June 28, 2018 at 4:55 PM

The SEC today approved amendments to the "smaller reporting company" definition to expand the number of companies that qualify for certain existing scaled disclosure accommodations. The new smaller reporting company definition enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The scaled disclosures for smaller reporting companies include, among other things, fewer disclosure requirements regarding executive compensation and financial statements.

The final rules also expand the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million. This reflects a change from the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues. The $700 million threshold in particular may help biotech and other development companies developing new drugs and products that have significant public floats but have not yet recognized significant revenues.

Notably, the amendments do not change the threshold in the somewhat overlapping "accelerated filer" definition that requires, among other things, that filers provide the auditor's attestation of management's assessment of internal control over financial reporting. So companies between the $75 million and $250 million threshold will still need to provide a SOX 404 audit report even if they take advantage of the scaled disclosures in other areas. However, the SEC has begun to formulate recommendations for possible additional changes to the "accelerated filer" definition, so stay tuned.

The rules will become effective 60 days after publication in the Federal Register.


Topics: scaled disclosure accommodations, smaller reporting company, public float, accelerated filer

SEC Requires "Inline XBRL"

Posted by Howard Berkenblit on June 28, 2018 at 4:52 PM

Today the SEC adopted amendments to eXtensible Business Reporting Language (XBRL) requirements for operating companies and funds. The amendments are intended to improve the quality and accessibility of XBRL data by replacing the existing requirements for tagged data to be filed as exhibits to certain SEC filings and posted as separate files on companies’ websites. The amendments, which will go into effect in phases, require the use of Inline XBRL for financial statement information and risk/return summaries.    

While the amendments modify existing XBRL requirements, they do not change the categories of filers or scope of disclosures subject to XBRL requirements, nor do they change the relevant liability standards.

Operating companies that are currently required to submit financial statement information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2019, accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2020, and all other filers being required to comply beginning with fiscal periods ending on or after June 15, 2021. Filers will be required to comply beginning with their first Form 10-Q (not 10-K) filed for a fiscal period ending on or after the applicable compliance date.

Funds that are currently required to submit risk/return summary information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large fund groups (net assets of $1 billion or more as of the end of their most recent fiscal year) being required to comply two years after the effective date of the amendments and all other funds being required to comply three years after the effective date of the amendments. The amendments also eliminate the 15 business day filing period for risk/return summary XBRL data, so that the data will be more timely available to the public.

Topics: Securities and Exchange Commission, SEC, Inline XBRL, eXtensible Business Reporting Language, GAAP

Form BE-12 – Affirmative BEA Reporting Obligation for Foreign Owned Entities

Posted by Will Hanson on April 20, 2018 at 4:45 PM

By Will Hanson and Sam Bombaugh


The Bureau of Economic Analysis (the “BEA”) is a branch of the U.S. Department of Commerce that collects statistical information about the American economy. One function of the BEA is to record statistics for all foreign direct investment in the United States, as authorized by the International Investment and Trade in Services Survey Act. 

Ongoing Reporting Obligation          

The BEA requires U.S. business enterprises to report foreign direct investment in the United States on Form BE-13. As a general rule, Form BE-13 must be filed by any U.S. business enterprise within 45 days after:

(i)  the acquisition by a foreign parent of at least a 10% direct or indirect voting interest in such U.S. business enterprise;

(ii)  the establishment of such U.S. business enterprise by a foreign parent with at least a 10% direct or indirect voting interest therein; or

(iii)  an expansion of a foreign parent’s business in the United States (each, a “Reportable Event”).

If a Reportable Event in which a foreign parent invests less than $3 million in the United States occurs, the affected U.S. business enterprise may file a Form BE-13 Claim for Exemption. No filing is required upon the occurrence of a Reportable Event if there is no foreign parent who holds at least a 10% direct or indirect voting interest in the U.S. business enterprise.

Periodic Reporting Obligations

In addition to the ongoing reporting obligations imposed by the BEA, U.S. business enterprises in which a foreign parent holds at least a 10% direct or indirect voting interest may be required to file quarterly reports on Form BE-605 or annual reports on Form BE-15 in order to update their earlier filings. Fortunately, no U.S. business enterprises have quarterly or annual BEA filing obligations unless they are specifically requested by the BEA.

Finally, the BEA also conducts a five-year benchmark survey of all foreign direct investment in the United States. Unlike the BEA’s quarterly and annual surveys, each U.S. business enterprise in which at least a 10% voting interest could be traced to a foreign parent at the end of fiscal year 2017, regardless of whether such entity was contacted by the BEA, has an affirmative obligation to complete and file the benchmark survey on Form BE-12. 

Form BE-12

Filing Deadline

Form BE-12 must be filed with the BEA by May 31, 2018, however the filing deadline is automatically extended to June 30, 2018 for respondents who use the BEA’s eFile system.


Similar to the ongoing Form BE-13 filing obligations, any U.S. business entity in which a foreign parent owned at least a 10% voting interest (directly or indirectly) at the end of fiscal year 2017 must file Form BE-12. 

The BEA only tracks the control of a U.S. business enterprise by a foreign parent, not in a foreign parent’s beneficial interest therein. In determining voting interest, the BEA deems that (i) voting interest in a corporation is apportioned based on voting securities; (ii) voting interest in a limited liability company is apportioned based on membership interests; and (iii) voting interest in a partnership is apportioned 100% with the General Partner unless the Partnership Agreement specifically gives voting control to the Limited Partners. 

A private fund is exempt from reporting as long as (i) it does not own, directly or indirectly through another business enterprise, an operating company in which a foreign parent owns at least 10% of the voting interest therein, and (ii) if the foreign parent owns a private fund indirectly (through one or more other U.S. business enterprises), there are no U.S. operating companies between the foreign parent and the indirectly-owned private fund.

Form BE-12 must be filed on a consolidated basis by the highest U.S. affiliate of a foreign parent that cannot be consolidated into another U.S. affiliate of such foreign parent.  Each U.S. business enterprise will need to file a different Form BE-12 based on its size and ownership structure. The most basic Form BE-12C may be filed by any U.S. business enterprise that is an affiliate of a foreign parent and has total assets, sales or gross operating revenues, or net income of $60 million or less. The more in-depth Form BE-12B must be filed by affiliates of foreign parents with total assets, sales or gross operating revenues, or net income between $60 million and $300 million, and the most burdensome Form BE-12A must be filed by U.S. business enterprises that are majority owned by foreign parents and which have total assets, sales or gross operating revenues, or net income of more than $300 million.

A Form BE-12 Claim for Not Filing may only be filed by a U.S. business enterprise who is asked by the BEA to file Form BE-12 but who is not at least 10% directly or indirectly owned by a foreign parent, or who is otherwise not subject to Form BE-12 filing requirements. Unlike with respect to Form BE-13, there is no de minimis $3 million investment below which an exemption from filing may be claimed.


Any failure to report shall be subject to a civil penalty of not less than $4,527 and not more than $45,268, and to injunctive relief commanding such person to comply, or both. Whoever willfully fails to report shall be fined not more than $10,000 and, if an individual, may be imprisoned for not more than one year, or both. Any officer, director, employee, or agent of any corporation who knowingly participates in such violations, upon conviction, may be punished by a like fine, imprisonment or both.


Survey data collected by the BEA is confidential and may only be used for statistical and analytical purposes, and the BEA is prohibited from granting other agencies access to its data for tax, investigative, or other regulatory purposes. Statistical data reported on Form BE-12 is not subject to Freedom of Information Act requests.

For more information on Form BE-12 or other BEA reporting obligations, please visit the BEA’s website at

Topics: BEA, Form BE-12, foreign entity, Department of Commerce

SEC issues guidance on cybersecurity disclosures

Posted by Howard Berkenblit on February 21, 2018 at 3:07 PM

The SEC posted today an interpretive release regarding its latest guidance public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents. It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context.

The timing of the release was a bit unusual. Initially, the SEC was scheduled to consider the guidance at an open meeting on February 21st. It abruptly cancelled the meeting and instead put out a press release saying the interpretive guidance had been approved on February 20th. Sounds like the SEC may be having its own issues with disclosure controls and procedures!

Topics: Securities and Exchange Commission, cybersecurity, SEC, Regulation FD

NYSE Rule Change: Material News at End of the Day

Posted by Howard Berkenblit on December 6, 2017 at 11:11 AM

The SEC has approved a NYSE rule that will prohibit listed companies from issuing material news after the official closing time of trading until at least 5 minutes after closing (unless the company’s official closing price is published sooner).

Topics: NYSE, New York Stock Exchange, SEC, Securities and Exchange Commission

Simplification of Regulation S-K - Proposed Rules

Posted by Jeffrey Morlend on October 12, 2017 at 3:59 PM

The SEC has proposed a series of amendments to modernize and simplify disclosure requirements for public companies, investment advisers and investment companies, particularly those disclosure requirements under Regulation S-K. Such amendments include proposed changes to, among others, Item 102 (Description of Property), Item 303 (Management’s Discussion and Analysis), Item 401 (Directors, Executive Officers, Promoters, and Control Persons), Item 405 (Compliance with Section 16(a) of the Exchange Act), Item 501(b) (Outside Front Cover Page of the Prospectus), Item 503(c) (Risk Factors), Item 508 (Plan of Distribution), Item 601(b)(10) (Material Contracts) and various rules related to incorporation by reference. 

Among the most impactful proposed changes are:

  1. Limiting the period-to-period comparison required by Item 303 (Management’s Discussion and Analysis) to only the two most recent fiscal years rather than the currently required three most recent fiscal years. The comparison to the third fiscal year would still be required if material to the understanding of the company’s financial statements and if not included in the company’s Form 10-K for the previous year.
  1. Limiting the disclosure required by Item 102 (Description of Property) to only those properties that are material.
  1. With respect to exhibits to SEC filings (Item 601):

 - Allowing companies to omit schedules that don't contain material information from all 
   exhibits, rather than only from acquisition agreements.

- Eliminating the requirement (other than for newly reporting companies) under Item
  601(b)(10) to file as exhibits material contracts that were entered into less than two
  years before that filing but that have been fully performed at the time of the filing.

- Permitting companies to omit or redact from material agreements filed as exhibits to
  SEC filings confidential information that is not material and would cause competitive
  harm if made public, without requiring companies to first file a confidential treatment
  request. Companies would be required to mark their filings to indicate omitted items.

  1. Permitting companies to omit disclosure about Section 16 reports if all reports have been timely filed (and eliminating the box on the cover of Form 10-Ks regarding Section 16 disclosure).

In contrast, the proposals would add a few requirements regarding descriptions of securities and XBRL tagging of cover pages, among others.

In addition, the proposals would eliminate certain other outdated disclosure requirements and make various conforming updates to forms and rules with outdated references.

The proposals, which can be found here, are subject to a public comment period, following which time, the SEC will further consider whether or not to approve them as final rules.

Insider Trading and Equifax

Posted by Howard Berkenblit on October 2, 2017 at 5:00 PM

We regularly have conversations with our clients about whether particular non-public information is "material," who at the company knows about such information and whether certain individuals should be allowed to engage in securities transactions while such information remains non-public. Very often these conversations revolve around who knows what and when, how developed the facts are, etc. As a rule of thumb we advise clients to think about how things would look in hindsight if they came to light in a front page story on the cover of the Wall Street Journal.

Well, the General Counsel of Equifax is dealing with exactly that situation (see article from today's cover of The Wall Street Journal).  As outsiders, we don’t know what exactly the general counsel (or outside counsel if they were involved) said to the insiders whose trades are being investigated, what the insiders knew or for that matter what the GC knew. We don’t know how Equifax’s insider trading policy operated in practice. All we currently know is that trades were made after the cyber-breach was known to at least some individuals – and that doesn’t look so good on the cover of the Wall Street Journal.  Whether and how this will make our advice and our clients’ actions regarding allowing trades, time will tell, but it’s a good reminder that the conversations around these topics are not just theoretical.

Topics: Equifax

SEC fees to increase on October 1st

Posted by Howard Berkenblit on August 25, 2017 at 2:44 PM

Yesterday, the SEC announced that in fiscal year 2018 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $124.50 per million dollars. This is an increase from the current rate of $115.90/million. The new higher rate goes into effect on October 1, 2017.

Topics: public companies, U.S. Securities Laws

About the Blog

The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters. 

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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