In its first enforcement action against a public company for misleading disclosures regarding COVID-19’s business impact, the SEC released a December 4 Order Instituting Proceedings against The Cheesecake Factory Inc. and accepted its offer of settlement for a civil penalty of $125,000. The charges arose from conduct in the period as the COVID-19 pandemic was first spreading across the United States.
As recounted in the SEC’s Order, Cheesecake Factory repeatedly made 8-K current report filings in March and April 2020. Those disclosures presented a misleading optimistic assessment that its restaurants were “operating sustainably at present” under an off-premises (takeout and delivery) dining model. The Order further detailed that the restaurant chain’s “operating sustainably” assessment failed to account for corporate expenses, and its misleadingly positive portrayal was contrary to the reality that Cheesecake Factory was losing $6 million cash per week and its cash on hand could support only a few more months of operations. Finally, in the latest iteration of “you cannot characterize as a possibility that which has already occurred,” Cheesecake Factory was penalized for the March disclosure that it was “evaluating additional measures to further preserve financial flexibility.” This omitted that the company had already determined to take some measures, as exemplified by its late March notification to landlords that it would not be making April rent payments.
While just the first of its kind, this action is consistent with the Division of Corporation Finance’s March 25, 2020 Disclosure Guidance that cautioned reporting companies regarding disclosure
The SEC recently voted to approve proposed amendments to Rule 701 and Form S-8 governing the offer or sale of securities to employees through compensation programs. The proposed amendments provide for a temporary, five-year expansion of Rule 701 and Form S-8 to permit public and private companies to issue securities as compensation to certain “platform,” or “gig” workers, subject to various conditions.
Rule 701 provides an exemption from registration under the Securities Act of 1933, as amended, for the sale of securities by privately held companies to compensate employees, consultants, advisors and certain others under written compensatory benefit plans or written agreements. Form S-8 is used by SEC reporting companies to register the sale of public company securities to employees, consultants and advisors. Neither Rule 701 nor Form S-8 currently covers issuances to platform workers.
The proposed amendments to Rule 701 would allow a non-reporting company to offer and sell securities to “platform workers,” who are defined in the amended rules as workers who, pursuant to a written contract or agreement, provide services to an issuer or a third party through the issuer’s “internet-based marketplace platform or through another widespread, technology-based marketplace platform or system.” The proposed amendments to Form S-8 would permit a reporting issuer to include that same category of workers in compensatory offerings registered on Form S-8. The proposed amendments also include conditions that are designed to limit the possibility that the amended rules could result in offers and sales of securities for capital-raising, rather than
Nasdaq yesterday announced a proposed new listing rule that would require all Nasdaq-listed companies to publicly disclose consistent, transparent board diversity statistics in a specified form of matrix. In addition, the proposed rule would require Nasdaq-listed companies to have, or explain why they do not have, at least two diverse directors: one woman and one person who self-identifies as either an underrepresented minority or LGBTQ.
Nasdaq believes its proposal would benefit investors and the public interest, citing in its SEC filing numerous empirical studies as support for its finding that diverse boards “are positively associated with improved corporate governance and financial performance.” It also noted calls for diversity from institutional investors, corporate stakeholders and legislators.
If the rule is approved by the SEC, companies would be required to disclose board-level diversity statistics within one year of the SEC’s approval of the listing rule. In addition:
The SEC recently approved proposed amendments to rules governing the offer or sale of securities to employees through compensation programs. The proposed changes to Rule 701 — which exempts sales of securities by privately held companies made to compensate employees, consultants and advisors — and Form S-8 – which is the form used to register the sale of public company securities to employees and others — are designed to modernize the framework for compensatory securities offerings in light of the significant evolution in such offerings and the composition of today’s workforce.
We have prepared a client alert describing the amendments that can be found here.
The SEC recently approved amendments to Rule 302(b) of Regulation S-T, which governs the signing of “authentication documents” relating to typewritten signatures included in documents that are filed with the SEC electronically via EDGAR. Current Rule 302(b) requires that, prior to or at the time of such a filing, each signatory manually sign a signature page (or other document) “authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing.” Rule 302(b), as amended, will for the first time allow a signatory to use an electronic signature (as an alternative to a manual signature) on any such authentication document, provided certain requirements are met, as described below.
Effective Date. The amendments will become effective upon publication in the Federal Register. Following approval of the amendments, however, the SEC staff issued a statement indicating that, in light of COVID-19 concerns, early reliance on and compliance with amended Rule 302(b) is permitted.
Attestation Document (New). Before using an electronic signature in an authentication document for the first time, a signatory will be required to manually sign a document attesting that he or she agrees that the use of an electronic signature in any authentication document will be the legal equivalent of such individual’s manual signature.
Electronic Signature Procedures. In connection with the amendments, the SEC updated the EDGAR Filer Manual to set out the procedures that are required to be followed before an electronic signature may be used in an authentication document. The electronic signing
In yet another 3-2 vote, on November 19, 2020, the SEC adopted significant amendments to MD&A and related financial disclosures in order to streamline disclosures and move to a more “principles-based approach.” Among other things, the amendments:
We have prepared a client alert describing the amendments that can be found here.
As covered in our blog post dated August 26, 2020, the SEC recently adopted amendments to Regulation S-K Items 101 (business description), 103 (legal proceedings), and 105 (risk factors) aimed at modernizing disclosure requirements. The amended rules became effective on November 9, 2020.
The SEC Staff (the “Staff”) recently published three transitional FAQs addressing questions that have arisen regarding the amendments:
FAQ (1) – Applicability of Amended Items 101, 103 and 105 to Form S-3 Prospectus Supplements Filed on or after November 9, 2020.
BCLP Washington Partner Ashley Ebersole was quoted Nov. 13 by Compliance Week regarding possible new enforcement priorities at the Securities and Exchange Commission under a Biden administration. Much will hinge on selection of a new SEC chairman, as current Chairman Jay Clayton has announced his intent to step down at year end before his term officially is scheduled to end in June 2021. “Selection of the new SEC chair, whether from inside the agency or outside, will signal much in terms of the likely approach,” said Ebersole, a former SEC attorney. He also noted that compliance officers “should be prepared for a continued SEC enforcement focus on pursuing fraud involving Main Street investors, but also a likely redoubling of efforts to sanction conduct by financial institutions.”
Glass Lewis (“GL”) recently issued its 2020 Proxy Season Review (U.S.) (the “Report”) covering the U.S. 2020 Proxy Season (i.e., January 1, 2020 through June 30, 2020). GL reported on certain 2020 shareholder voting trends and results, as well as certain of GL’s voting recommendations. The statistics and information included below (1) cover only a portion of the Report and (2) refer to the U.S. 2020 Proxy Season and to the U.S. companies covered by GL, unless otherwise indicated.
Governance and Disclosure