KMK Law Corporate & Securities Blog

With 2018 behind us, it is time to look ahead to the 2019 reporting season. This advisory highlights some of the changes, new rules, and “best practices” from 2018 that SEC reporting companies will need to address in 2019.

On September 29, 2018, the Securities and Exchange Commission (the “SEC”) announced that CEO and Chairman of Tesla, Elon Musk, had agreed to settle securities fraud charges brought by the SEC and that Tesla had agreed to settle SEC charges that it failed to have required disclosure controls and procedures covering Mr. Musk’s tweets.

On August 17, 2018, the Securities and Exchange Commission (“SEC”) finalized a series of amendments to its rules and forms with the aim of reducing redundant and outdated disclosure requirements for public companies. Although many of the modifications simply “clean up” references and cross-references that have become outdated due to changes in accounting terminology or other revisions to the SEC’s forms and rules, several of the amendments do serve to remove certain disclosure requirements previously required by the SEC. The summary below outlines those modifications that may be of significance to public companies.

On March 7, 2018, the Securities and Exchange Commission (SEC) issued a public statement regarding the risk posed by online platforms that allow trading in digital assets to violate federal securities laws. This statement indicates that the SEC is increasing its focus on platforms that offer such trading and their compliance with applicable securities laws.

On February 20, 2018, the Securities and Exchange Commission (SEC) issued interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. This guidance indicates that the SEC is expecting more robust cybersecurity-related disclosures in the filings of public companies and encourages companies to implement comprehensive cybersecurity policies and procedures.

On September 21, 2017, the Securities and Exchange Commission (SEC) issued interpretive guidance on the CEO pay ratio rule. Simultaneously, the SEC’s Division of Corporation Finance issued guidance on calculation of the pay ratio and updated C&DIs related to the new guidance. Together, these issuances strongly suggest that the SEC is not modifying or deferring the effectiveness of the rule and that it will be in place for the upcoming 2018 proxy season.

The U.S. Securities and Exchange Commission (“SEC”) has adopted new rules making it easier for investors to find exhibits to an issuer’s public filings. Currently, issuers submit electronic filings to the SEC using the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”), which include exhibits that are incorporated by reference to earlier filings. Investors are therefore required to search through earlier filings in order to find these exhibits, such as material contracts, articles of incorporation, and other material documents.

Protecting and encouraging whistleblowers has been a priority for the U.S. Securities and Exchange Commission (“SEC”) and its enforcement division. The SEC recently announced enforcement actions against two companies for their use of restrictive language in severance agreements that required departing employees to waive their rights to any monetary recovery under Rule 21F-17 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The rule, promulgated under the Dodd-Frank Act, is part of the SEC’s whistleblower program and is intended to prohibit employers from interfering with an employee’s right to report potential securities law violations to the SEC.

On November 2, 2016, the Securities and Exchange Commission (“SEC”) published new guidance in the form of a Compliance and Disclosure Interpretation (“C&DI”) on the requirement that registrants submit copies of their annual report to the SEC for information purposes.

Many calendar year-end companies are beginning to prepare for annual meetings and related proxy soliciting activities. As part of that preparation, companies are turning to recent SEC rules, regulations, and policy updates. This advisory provides some reminders and updates for companies as they prepare for the 2017 proxy season.