Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The CFTC has proposed amendments to its whistleblower rules that reinterpret its anti-retaliation authority and proposes appropriate rule amendments to implement that authority.

When the CFTC initially adopted its whistleblower rules, the CFTC was asked to clarify its enforcement authority over retaliation against whistleblowers. Citing the private right of action for whistleblowers created by Commodity Exchange Act Section 23(h)(1)(B), the CFTC stated that it lacked “the statutory authority to conclude that any entity that retaliates against a whistleblower” could be subject to enforcement action “as a separate and independent violation of the CEA.” The CFTC stated that CEA Section 23(h)(1)(B)(i) “clearly states only an individual who alleges retaliation in violation of being a whistleblower may bring such a cause of action.”

Questions have been raised, however, about the inconsistency between this interpretation and the SEC’s interpretation of its own authority to take enforcement actions against violators of the anti-retaliation provisions of the SEC’s whistleblower protection rules. Accordingly, the CFTC is revisiting this issue. The CFTC proposes to set aside its earlier interpretation because it fails to adequately take into full consideration the statutory context of CEA Section 23 and other CEA provisions. According to the CFTC, there are several CEA sections that empower the CFTC to take action for the violation of “any” CEA provision or rule or regulation thereunder.

The CFTC believes the SEC’s statutory authority in this area is nearly identical to the CFTC’s, and that the SEC took a different path when the SEC whistleblower rules were adopted. When commenters asked the SEC to clarify protections against retaliation, it did so by adopting a rule that made any rules promulgated under the protections against retaliation provisions enforceable in an action or proceeding brought by the SEC. Upon reconsideration of its statutory authority on this issue, and noting that harmonization between the SEC’s and the CFTC’s whistleblower programs would be beneficial to the public by making the consequences of illegal retaliation more uniform, the CFTC has decided to join the SEC on that path.

The CFTC’s proposal also removes any question about a gap in statutory whistleblower protection under the securities laws and the CEA. Consistent with the SEC’s approach in its rule, the CFTC proposes to add new rules to implement its enforcement authority. The rule proposal prohibits the enforcement of confidentiality and pre-dispute arbitration clauses respecting actions by potential whistleblowers in any pre-employment, employment or post-employment agreements.  The proposed rules also prohibit employers from threatening or harassing or retaliating against individuals who participate in the CFTC’s whistleblower program, irrespective of whether those individuals qualify for an award, or report internally before providing the CFTC with information.

The proposed amendments also enhance the process for reviewing whistleblower claims and make related changes to clarify staff authority to administer the whistleblower program. The amendments make changes in key areas such as: eligibility requirements; award claims review; contents of record for award determinations; whistleblower identifying information; clarify the CFTC’s position on awards for related actions; replace the Whistleblower Award Determination Panel with a Claims Review Staff; and provide the CFTC with the opportunity to review Proposed Final Determinations.

For those who want to start preparing for the 2017 proxy season, our preliminary list of important considerations is set forth below:

Directors’ and Officer’s Questionnaire

Nasdaq has adopted a rule requiring disclosure of director “golden leash” compensation arrangements. Nasdaq listed issuers may wish to revise their directors’ and officers’ questionnaires to elicit relevant information, and NYSE listed issuers may wish to do so as a best practice.  A suggested modification is as follows:

Disclose below the terms of all agreements, arrangements or understandings between you and any person or entity other than the company relating to compensation or other payment in connection with your candidacy or service as a director. If there are no such agreements or arrangements, please state “None.”

The rule requires Nasdaq-listed companies to disclose this information either on or through the company’ website or in the definitive proxy or information statement for the next shareholders’ meeting at which directors are elected (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F).

Say-on-Pay Frequency Vote

Rule 14a-21(b) requires a say-on- pay frequency vote every six years. Many issuers will have to include a frequency vote in their 2017 proxy because the initial rules became effective for an issuers first annual or other meeting of the shareholders occurring on or after January 21, 2011 (see the transition section of the adopting release).  However, companies that qualified as “smaller reporting companies” as of January 21, 2011, including newly public companies that qualify as smaller reporting companies after January 21, 2011, were not required to hold a frequency vote until the first meeting occurring on or after January 21, 2013. Thus for many smaller reporting companies the date is pushed out until the 2019 proxy season.

Issuers that formerly qualified as “emerging growth companies” (EGCs) under the JOBS Act should also remain mindful of say-on-pay requirements as such issuers lose their exemption from the requirements under Exchange Act Sections 14A(a) and (b).  Former EGCs are required to begin providing say-on-pay votes within one year of losing EGC status (or no later than three years after selling securities under an effective registration statement if an issuer was an EGC for less than two years).  Typically, such companies will also hold say-on-pay frequency votes when they hold their first say-on-pay vote as a non-EGC.

Note that as of this date, ISS’s position on the upcoming frequency vote is as yet unknown. ISS solicited information in its 2017 Global Benchmark Policy Survey released in early August.

And if you hold a frequency vote, do not forget the requirement to amend your Form 8-Ks that disclose voting results to “disclose the company’s decision in light of such vote as to how frequently the company will include a shareholder vote on the compensation of executives in its proxy materials until the next required vote on the frequency of shareholder votes on the compensation of executives.” The amendment must be made “no later than one hundred fifty calendar days after the end of the annual or other meeting of shareholders at which shareholders voted on the frequency of shareholder votes on the compensation of executives.”

Non-GAAP Financial Measures

Issuers should also be mindful of non-GAAP financial measures included in annual reports and proxy statements as a result of new and revised interpretations issued by the SEC. Key takeaways include:

  • Confirming that non-GAAP financial measure are presented with comparable GAAP measures and that the GAAP financial measure is presented with equal or greater prominence;
  • Omitting non-GAAP per share liquidity measures; and,
  • Reviewing all non-GAAP adjustments to ensure they will not be viewed as misleading and revise or eliminate adjustments, as necessary.

Pay Ratio Disclosures

The pay ratio disclosure need not be made in annual reports or proxy statements that include information for the calendar year ended December 31, 2016 (i.e., this proxy season). The disclosures must be included in annual reports and proxy statements which include information for the first fiscal year beginning on or after January 1, 2017.  The finalized rules require disclosure of:

  • the median of the annual total compensation for all employees (except a CEO);
  • the annual total compensation of the registrant’s CEO; and
  • the ratio between median annual total compensation and the CEO’s annual total compensation.

Description of Shareholder Proposals on Proxy Cards

Issuers who include shareholder proposals in their proxy statements should be mindful of recent SEC guidance on what constitutes an “appropriate” description of shareholder proposals included on proxy cards in compliance with the “clear and impartial” identification requirements of Rule 14a-4(a)(3).

Form 10-K Summary

New rules permit the inclusion of a summary in Form 10-K, which merits some advance thinking about whether one will be used or not. One factor to consider is that adopters of the voluntary rules are unlikely to achieve any appreciable workload reduction in preparing Form 10-K disclosure due to the rules’ express requirement to include cross-reference to a full-discussion provided elsewhere Form 10-K for any summary disclosures.

Inline XBRL

The SEC now permits the use of “Inline XBRL,” which also merits some advance thinking about whether it will be used or not. We recommend checking with your auditors if you are thinking about going down this path.  As this Compliance Week article (subscription required) notes, auditors are wondering if the new format requires them to audit the XBRL data tagging as well.

Audit Committee Report

Due to a reorganization of PCAOB standards, the old reference to PCAOB Auditing Standard No. 16 in audit committee reports should be changed to Auditing Standard No. 1301.

Identification of Audit Partner

Registered public accounting firms will have to file with the PCAOB a report on Form AP that identifies the audit engagement partner and information about other firms involved in the engagement. The audit firm is responsible for the filing, not the issuer, but it is a change to be aware of.  The disclosure with respect to audit partners is effective for auditors’ reports issued on or after January 31, 2017.

Resource Extraction Issuers

New rules require an issuer to disclose payments made to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the Commission under the Securities Exchange Act. The rules become effective September 26, 2016.

Conflict Minerals

There have been no developments in the continuing conflict minerals saga after a rehearing let the original Court of Appeals ruling stand, other than an en banc rehearing was denied and the government determined not to appeal to the Supreme Court.

Pay versus Performance Disclosures

While proposed rules have been issued, final rules have not been adopted.

Compensation Clawbacks

While proposed rules have been issued, final rules have not been adopted.

Hedging Disclosures

While proposed rules have been issued, final rules have not been adopted.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has proposed rule and form amendments that would require registrants to include a hyperlink to exhibits in their filings.

The proposed amendments would require registrants that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of the filings. The only exception identified by the SEC is Form ABS-EE. Form ABS-EE is excepted because the form is used solely to facilitate the filing of tagged data and related information that must be filed as exhibits to the form.

The amendments would also require that registrants submit all of these filings in HyperText Markup Language (HTML) format as opposed to American Standard Code for Information Interchange (ASCII) format. The reason is ASCII documents do not support hyperlinks. The SEC does not believe this is a burden because over 99% of documents are currently filed in HTML format.

If the filing is a periodic or current report under the Exchange Act, a registrant would be required to include an active hyperlink to each exhibit listed in the exhibit index when the report is filed. If the filing is a registration statement, the registrant would only be required to include an active hyperlink to each exhibit in the version of the registration statement that becomes effective.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The recent settlement of SEC enforcement actions concerning the Dodd Frank Act’s whistleblower provisions are prompting companies and their counsels to evaluate current and prospective severance and confidentiality agreements for language that could be viewed as restricting an individual’s ability to communicate with the SEC about possible securities law violations and/or receive monetary awards in connection with such communications.

One case, settled August 10th, involved the addition of a monetary recovery prohibition to certain severance agreements (entered into nearly two years after the adoption of the whistleblower rules) that were alleged to have violated the SEC’s prohibition on attempts to impede an individual’s communications with the SEC about possible securities law violations. The SEC appears to have been particularly concerned with restrictive language that forced employees leaving the company to waive possible whistleblower awards or risk losing their severance payments and other post-employment benefits.

As part of the settlement, the company agreed to amend its severance agreements to make clear that employees may report possible securities law violations to the SEC and other federal agencies without prior approval and without having to forfeit any resulting whistleblower award, and make reasonable efforts to contact former employees who had executed severance agreements, following the adoption of the whistleblower rules, to notify them that former employees are not prohibited from providing information to the SEC staff or from accepting SEC whistleblower awards. The defendant did not admit or deny the SEC findings in the enforcement action.

The terms of recent settlements should serve as reminder to any company that falls within the SEC’s enforcement jurisdiction (a significantly broader group that just public companies) to consider including provisions in severance and confidentiality agreements to explicitly provide that an employee may communicate with the SEC (and other federal agencies) about potential securities law violations without company approval (notwithstanding other confidentiality and disclosure obligations in the agreement). Likewise, for pre-existing severance and confidentiality agreements with employees, companies should consider broad communications highlighting that any agreements with former employees will not be interpreted as restricting such former employee’s ability to provide information to the SEC or accept SEC whistleblower awards.

The SEC announced the award of more than $22 million to a whistleblower whose detailed tip and extensive assistance helped the agency halt a well-hidden fraud at the company where the whistleblower worked.

The $22 million-plus award is the second-largest total the SEC has awarded a whistleblower. The largest, $30 million, was awarded in 2014.

There apparently is more to the story however. Footnote 1 to the related order states “Several other factors mitigating the Claimant’s culpability were also considered” but all the detail has been redacted.  So it appears the award recipient somehow engaged in culpable conduct, which the SEC took into account when determining the award.  One factor the SEC considered was that the recipient “did not financially benefit from the misconduct.”

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC is requesting public comment on certain disclosure requirements in Regulation S-K relating to management, certain security holders, and corporate governance matters contained in Subpart 400. This request is part of the Division of Corporation Finance’s disclosure effectiveness initiative. Comments received in response to the request for comment will also be used in the SEC’s study on Regulation S-K, which is required by Section 72003 of the Fixing America’s Surface Transportation Act, or FAST Act.

The request is short, and does not ask for a lot of specifics. The request notes “[T]he purpose of this request for comment is to solicit public input on Subpart 400 of Regulation S-K, which requires certain disclosures about a registrant’s management, certain security holders, and corporate governance matters. The input can include comments on existing requirements in these rules as well as on potential disclosure issues that commenters believe the rules should address.”

John Jenkins holds the pen at TheCorporateCounsel.net while Broc Romanek is on an email free vacation. John notes “As Broc has blogged before, we have no idea why this is a “request for comment” – and not a “concept release” – but given the short length of the “request for comment,” the difference must allow the SEC to avoid the regulatory trappings of a full-blown concept release.”

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

GAO noted in a recent report that as a result of country-of-origin inquiries, an estimated 19 percent more companies that filed Form SD with the SEC reported that they knew or had reason to believe they knew the source of the conflict minerals in their products in 2015 than in 2014, based on a generalizable sample of filings GAO reviewed. However, after an estimated 79 percent of the companies that filed a Form SD performed due diligence, an estimated 67 percent of them reported they were unable to confirm the source of the conflict minerals in their products, and about 97 percent of them reported that they could not determine whether the conflict minerals financed or benefited armed groups in the Democratic Republic of the Congo (DRC) and adjoining countries.

According to GAO facilities that process conflict minerals pose challenges to the disclosure efforts of companies filing a Form SD because:

  • these facilities generally rely on documentary evidence about the origin of conflict minerals, which may be susceptible to fraud; and
  • multiple levels of processing operations introduce fraud risk and may increase the cost associated with disclosures.

Industry and other stakeholders have developed or are pursuing efforts to mitigate these risks, such as chemical “fingerprinting” to verify documentary evidence.

The GAO reported highlighted that as of July 2016, the Department of Commerce had not submitted a report that was required in January 2013, assessing the accuracy of the Independent Private Sector Audits, referred to as an IPSA, filed by some companies that filed a Form SD, nor had it developed a plan to do so.  Ten companies filed the audits between 2014 and 2015 as part of their Conflict Minerals Reports, none of which Commerce has assessed. Commerce officials said they established a team in March 2016, but they noted that they did not have the knowledge, skills, or expertise to conduct IPSA reviews or to establish best practices. As a result, Congress lacks information on the accuracy of the IPSAs and other due diligence processes used by filing companies.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP  provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has adopted final rules requiring investment advisers to provide additional information on Form ADV and other matters. You can find our analysis on the proposed rules here.

The final rules:

  • require information about an investment adviser’s separately managed account business and other matters;
  • incorporate a method for private fund adviser entities operating a single advisory business to register using a single Form ADV;
  • make clarifying, technical and other amendments to certain Form ADV items and instructions;
  • make technical amendments to the Investment Advisers Act books and records rule; and
  • remove transition provisions that are no longer necessary.

In particular, the final rules amend Advisers Act Rule 204-2 to require advisers to maintain additional records related to the calculation and distribution of performance information. The SEC believes these records will be useful to the Commission’s examinations staff in evaluating adviser performance claims, and could reduce the incidence of misleading or fraudulent advertising and communications by advisers.

The amendments to Part 1A of Form ADV are intended to provide a more efficient method for the registration on one Form ADV of multiple private fund adviser entities operating a single advisory business, which the SEC refers to as umbrella registration. While the SEC staff has provided guidance to private fund advisers regarding umbrella registration, the SEC believes the amendments to incorporate umbrella registration into Form ADV will make the availability of umbrella registration more widely known to advisers. The SEC also believes uniform filing requirements for umbrella registration in Form ADV will provide more consistent data about, and create a clearer picture of, groups of private fund advisers that operate as a single business.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The SEC charged four private equity fund advisers affiliated with Apollo Global Management for misleading fund investors about fees and a loan agreement and failing to supervise a senior partner who charged personal expenses to the funds. Apollo did not admit or deny the SEC’s findings.  According to the SEC:

Apollo entered into certain monitoring agreements with portfolio companies that were owned by Apollo-advised funds. Pursuant to the terms of the monitoring agreements, Apollo charged each portfolio company an annual monitoring fee in exchange for rendering certain consulting and advisory services to the portfolio company concerning its financial and business affairs. From at least December 2011 through May 2015, upon either the private sale or an IPO of a portfolio company, Apollo terminated certain portfolio company monitoring agreements and accelerated the payment of future monitoring fees provided for in the agreements. Although Apollo disclosed that it may receive monitoring fees from portfolio companies held by the funds it advised, and disclosed the amount of monitoring fees that had been accelerated following the acceleration, Apollo failed adequately to disclose to its funds, and to the funds’ limited partners prior to their commitment of capital, that it may accelerate future monitoring fees upon termination of the monitoring agreements. Because of its conflict of interest as the recipient of the accelerated monitoring fees, the SEC believes Apollo could not effectively consent to this practice on behalf of the funds it advised.

Also, in June 2008, Apollo Advisors VI, L.P. (“Advisors VI”) – the general partner of Apollo Investment Fund VI, L.P. (“Fund VI”) – entered into a loan agreement with Fund VI and four parallel funds (collectively, the “Lending Funds”). Pursuant to the terms of the loan agreement, Advisors VI borrowed approximately $19 million from the Lending Funds, which was equal to the amount of carried interest then due to Advisors VI from the Lending Funds. The loan had the effect of deferring taxes that the limited partners of Advisors VI would owe on their respective share of the carried interest until the loan was extinguished. Accordingly, the loan agreement obligated Advisors VI to pay interest to the Lending Funds until the loan was repaid. From June 2008 through August 2013, when the loan was terminated, the Lending Funds’ financial statements disclosed the amount of interest that had accrued on the loan and included such interest as an asset of the Lending Funds. The Lending Funds’ financial statements, however, did not disclose that the accrued interest would be allocated solely to the capital account of Advisors VI. The SEC believes the failure by Apollo Management VI, L.P. (“AM VI”), the Fund VI investment adviser, to disclose that the accrued interest would be allocated solely to the account of Advisors VI rendered the disclosures in the Lending Funds’ financial statements concerning the loan interest materially misleading.

In addition, from at least January 2010 through June 2013, a former senior partner at Apollo improperly charged personal items and services to Apollo-advised funds and the funds’ portfolio companies. According to the SEC, Apollo failed reasonably to supervise the Partner, with a view to preventing violations of the federal securities laws within the meaning of Section 203(e)(6) of the Advisers Act.

And, as always, there is the related tag along charge that Apollo failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act arising from the undisclosed receipt of accelerated monitoring fees and failed to implement its policies and procedure concerning employees’ reimbursement of expenses.

In connection with the enforcement action, the SEC granted Apollo a waiver from ineligible issuer status under Rule 405 of the Securities Act.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has approved a series of FINRA rules that are meant to simplify regulation of firms engaged as M&A brokers and those who conduct other limited activities. While the rules may be simpler, it still looks like a regulatory morass to me.

The relaxed rules apply to capital acquisition brokers, or CABs. A CAB is any broker that solely engages in one or more of the following activities:

  • advising an issuer, including a private fund, concerning its securities offerings or other capital raising activities;
  • advising a company regarding its purchase or sale of a business or assets or regarding its corporate restructuring, including a going-private transaction, divestiture or merger;
  • advising a company regarding its selection of an investment banker;
  • assisting in the preparation of offering materials on behalf of an issuer;
  • providing fairness opinions, valuation services, expert testimony, litigation support, and negotiation and structuring services;
  • qualifying, identifying, soliciting, or acting as a placement agent or finder (i) on behalf of an issuer in connection with a sale of newly-issued, unregistered securities to institutional investors or (ii) on behalf of an issuer or control person in connection with a change of control of a privately-held company. For purposes of this part, a “control person” is a person who has the power to direct the management or policies of a company through ownership of securities, by contract, or otherwise. Control will be presumed to exist if, before the transaction, the person has the right to vote or the power to sell or direct the sale of 25% or more of a class of voting securities or in the case of a partnership or limited liability company has the right to receive upon dissolution or has contributed 25% or more of the capital. Also, for purposes of this part, a “privately-held company” is a company that does not have any class of securities registered, or required to be registered, with the SEC under Section 12 of the Exchange Act or with respect to which the company files, or is required to file, periodic information, documents, or reports under Section 15(d) of the Exchange Act;
  • effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company, in accordance with the terms and conditions of an SEC rule, release, interpretation or “no-action” letter that permits a person to engage in such activities without having to register as a broker or dealer pursuant to Section 15(b) of the Exchange Act.

CAB firm principals and representatives are subject to the same registration, qualification examination, and continuing education requirements as principals and representatives of other FINRA firms. FINRA believes that it is providing CABs with flexibility to tailor their supervisory structures to their business model, which is geared toward acting as a consultant in capital acquisition transactions.  CABs must designate and identify one or more principals to serve as a firm’s chief compliance officer.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.