Securities Snapshot: 1st Quarter 2025

Trimming Climate Rules, Bulking Up Guidance

As many spent the first quarter chasing their New Year’s fitness goals, so, too, did the SEC, resolving to trim down its climate rules and bulk up other key guidance. In this Snapshot, we review the agency’s decision to walk back its defense of the climate rules litigation, as well as a recent directive from the Trump administration that reshapes how independent agencies—including the SEC—operate. We also address updated guidance from the SEC on topics including non-public review of draft registration statements, Schedule 13G reporting eligibility, exempt solicitation filings, and verification of accredited investors in Rule 506(c) offerings.

SEC Abandons Climate Rules

In a predictable reversal, the SEC announced on March 27, 2025 that the agency would no longer defend its climate disclosure rules in an ongoing legal challenge before the Eighth Circuit Court of Appeals. Following a vote to cease its defense of the rules, Acting SEC Chair Mark Uyeda characterized the climate disclosure regulations as “costly and unnecessarily intrusive.”

While the SEC will no longer defend the climate rules, existing regulations continue to require disclosure of material information, events, and risks—regardless of subject matter.

Non-Public Review of Draft Registration Statements

On March 3, 2025, the staff of the SEC’s Division of Corporation Finance announced that it is extending the accommodations available for non-public review of draft registration statements to all issuers, including smaller reporting companies, non-accelerated filers, accelerated filers, well-known seasoned issuers, and emerging growth companies (“EGCs”).

Designed to facilitate capital formation while maintaining investor protection, the confidential review process enables companies to confidentially submit draft registration statements for review by SEC staff before the statements are publicly filed. This method allows issuers to refine their disclosures in response to regulatory feedback without facing immediate public scrutiny, helping to avoid disruptive market reactions during the early stages of the registration process. 

The SEC originally created the option for non-public review in 2012 as part of the JOBS Act, which allowed EGCs to submit draft registration statements on a confidential basis ahead of initial public offerings (“IPOs”). In 2017, the SEC expanded the process beyond EGCs to include all companies conducting IPOs and follow-on offerings within 12 months of the IPO.

With the SEC’s latest announcement, all issuers—not just first-time registrants—may utilize non-public review for Exchange Act registrations, including IPOs, follow-on offerings, and de-SPAC transactions. Issuers may also remove underwriter names in initial draft submissions as long as they include the names in later filings.

Additionally, companies may now submit draft registration statements for non-public review at any time—no matter how long the issuer has been a reporting company under Section 12(a) or Section 15(d) of the Exchange Act.

Executive Order 14215: Ensuring Accountability for All Agencies

Just over two months into his second term, President Trump has already issued over 100 wide-ranging executive orders. Among them is Executive Order 14215 (the “Order”), issued on February 18, 2025, which significantly expands presidential control of the SEC and other historically independent federal agencies. The Order requires all agencies to (1) submit proposed rules to the White House for review before publication in the Federal Register; and (2) regularly consult with White House personnel to ensure the agency’s activities align with “the President’s policies and priorities.”

The Order also grants the President and the U.S. Attorney General the authority to issue “controlling interpretations” of the law for the executive branch and forbids executive branch employees from adopting positions that contradict those interpretations—including in any regulations or guidance—unless previously authorized by the Attorney General.

Updated Schedule 13G Eligibility

On February 11, 2025, the SEC issued a new Compliance and Disclosure Interpretation (“C&DI”) regarding the eligibility of shareholders to file beneficial ownership reports on Schedule 13G.

Under Rule 13d-1(b) and Rule 13d-1(c) of the Exchange Act, a shareholder can report its beneficial ownership of securities on Schedule 13G if it certifies that the securities were not acquired or held with “the purpose or effect of changing or influencing the control” of the issuer. Any shareholder that intends to influence the control of a company must report its beneficial ownership information on Schedule 13D, which requires more detailed information from the shareholder, including its plans and proposals with respect to the company.

Previous guidance from the SEC stated that engagement with the issuer’s management—without more—on topics such as executive compensation and social or public issues would not mean the shareholder acquired or held the securities with a purpose or effect of “changing or influencing” control of the issuer.

New C&DI 103.12 alters the prior approach and adopts a much broader understanding of what amounts to a disqualifying “purpose or effect of changing or influencing control of the issuer.” In particular, the C&DI lists several topics on which a shareholder engages with management—such as the sale or restructuring of the issuer or a contested election of directors—that may be dispositive in determining whether the shareholder is precluded from reporting on Schedule 13G.

Further, the C&DI states that the context of the shareholder’s engagement with management is also highly relevant in determining whether the shareholder holds the securities with an impermissible purpose or effect of influencing the company. To be sure, it expressly states that in general, a shareholder who discusses with management its views on a certain topic and how its views may inform its voting decisions—without more—will not lose Schedule 13G eligibility. However, shareholders who “go beyond” mere discussions with management and “exert pressure” on the company to undertake certain actions, such as those related to environmental, social, governance (“ESG”) or political policy, may be seen as attempting to influence control over the issuer. Similarly, a shareholder who conditions its support—explicitly or implicitly—for a company’s director nominee(s) on the company’s adoption of the shareholder’s policy recommendation may be disqualified from reporting on Schedule 13G.

C&DI 103.12 represents a marked shift from past guidance and signals a more aggressive approach by the SEC to limit shareholder activism. In light of this change, institutional investors and other shareholders who file on Schedule 13G should reassess their engagement strategies to avoid an appearance that they are trying to exert control over the company or risk being required to file on Schedule 13D.

Exempt Solicitation Filings

On January 27, 2025, the SEC released three new C&DIs and updated two existing C&DIs that address the use of Notices of Exempt Solicitation—otherwise known as PX14A6G filings—under Rule 14a-6(g) of the Exchange Act.

Under Rule 14a-6(g), a shareholder who owns more than $5 million of a company’s securities must file a Notice of Exempt Solicitation whenever the shareholder solicits other shareholders by recommending or encouraging them to vote a certain way on a particular matter at a shareholder meeting. A Notice of Exempt Solicitation is a relatively low-cost method of publicly announcing a shareholder’s views and lobbying other shareholders on specific issues subject to an upcoming vote.

In recent years, exempt solicitation filings have dramatically increased—particularly among third parties that are not affiliated with shareholder proponents. These individuals have used the filings to merely air grievances—many of which go beyond the scope of the shareholder proposals themselves. The SEC’s revised guidance appears to be designed to curtail this abusive practice and limit the number of exempt solicitation filings.

The new (and revised) C&DIs address the following topics:

• Question 126.06 – Voluntary Filings Permitted With Appropriate Disclosure
• Question 126.07 – Required Cover Page
• Question 126.08 – Written Soliciting Materials Required
• Question 126.09 – Restriction on Use of Solicitations
• Question 126.10 – Reminder of Rule 14a-9 Liability

These new interpretations are a welcome development for public companies, as they address growing concerns that exempt solicitation filings have become unwieldly and misused. While many companies have historically disregarded problematic filings, issuers may now look to the SEC to ensure such filings comply with the revised interpretations and are appropriately tailored to relevant shareholder issues.

Updates to Rule 506(c) Accredited Investor Verification

On March 12, 2025, the SEC issued a no-action letter (the “Letter”) clarifying “reasonable steps” issuers can take to verify purchasers’ status as accredited investors as required by Rule 506(c) of Regulation D under the Securities Act.

Compliance with Rule 506(c)’s safe harbor, which exempts securities offerings from registration with the SEC when the issuer has engaged in general solicitation, has been relatively daunting because accredited investor verification requires sponsors to obtain and review extensive financial information from investors prior to sale or a written confirmation from third-party professionals attesting to the investor’s accreditation.

The Letter addresses this difficulty by confirming that a sponsor will be deemed to have taken reasonable steps to verify a prospective investor is an accredited investor under Rule 506(c) if:

1. The sponsor obtains written representations that the investor is (a) an accredited investor and (b) is not specifically financing—in whole or in part—the minimum investment amount;
2. The investor’s minimum investment amount, which may be in the form of a binding capital commitment, must be (a) at least $200,000 for natural persons or (b) at least $1,000,000 for legal entities; and
3. The sponsor does not have actual knowledge of any facts that indicate a prospective investor is not an accredited investor or that the prospective investor has used third-party financing to make their investment.

Updates to Shareholder Proposal Exclusions

In February, the staff of the SEC’s Division of Corporation Finance issued Staff Legal Bulletin 14M, giving companies greater flexibility to exclude certain shareholder proposals at annual meetings. For more details, please see KMK’s advisory that addresses the updated guidance and implications for future proxy seasons.

Future Changes to SEC Rules on the Horizon

Following the SEC’s rollback of the climate-related disclosures, the agency may turn its attention to withdrawing other rules, including the Pay versus Performance rules and Cybersecurity Disclosure. For more details, please see KMK’s latest blog that discusses actions the SEC may take going forward.

Should you have any questions or need assistance, please contact us.

F. Mark Reuter
513.579.6469
freuter@kmklaw.com

Allison A. Westfall
513.579.6987
awestfall@kmklaw.com

Olivia M. King
513.579.6988
oking@kmklaw.com

Christopher T. Colloton
513.579.6959
ccolloton@kmklaw.com