On December 14, 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 and added related new disclosure requirements. Rule 10b5-1 provides an affirmative defense to insider trading liability for individuals and companies in circumstances where, subject to certain conditions, the trade was pursuant to
The Court of Appeals for the Second Circuit yesterday reversed the dismissal of a securities class action alleging fraud based on the defendants’ failure to disclose an SEC investigation into the company’s disclosed financial-control weaknesses. The May 24, 2022 ruling in Noto v. 22nd Century Group, Inc. (No. 21-0347) is fact-specific, requiring disclosure of the investigation because the defendants (i) had disclosed the accounting deficiencies that had led to the investigation, (ii) had said they were working on the problem, and (iii) eventually had said they had resolved it, even though the SEC investigation had been pending during that entire period.
The Noto decision could affect disclosure assessments where issuers disclose an underlying accounting problem or other deficiency but are debating whether they must also disclose a pending SEC or other governmental investigation related to that specific problem. Depending on the facts and circumstances of the particular situation, a court might hold that failure to disclose the governmental investigation makes the disclosure of the underlying problem materially misleading because nondisclosure of the investigation could cause reasonable investors to make “an overly optimistic assessment of the risk” posed by the underlying problem.
Last week, the U.S. Securities and Exchange Commission proposed a set of sweeping new rules requiring public companies to disclose climate-related risks in their registration statements and periodic reports. Under the proposed rules, public companies would have to disclose the actual and potential impacts of climate change on their business,…
In an era where TikTok stars outearn scores of CEOs of top earning publicly traded companies, executive compensation is no less important to the investing public or to companies striving to attract and retain top talent. Indeed, just this year the CEO of Starbucks received a 39% pay increase. Such soaring executive compensation has not escaped the notice of the SEC.
The Securities and Exchange Commission’s Investor Advisory Committee (the “IAC”) is considering recommendations from its Owner Subcommittee urging the Commission to tighten the affirmative defense and disclosure requirements for SEC Rule 10b5-1 trading plans. These recommendations follow recent statements by SEC Chair Gary Gensler signaling the agency’s intention to review and toughen rules governing those plans.
The SEC’s Climate and ESG Task Force has been criticized by Republican commissioners who believe enforcement in the area would be premature. But Kelly L. Gibson, acting deputy director of the enforcement and head of the agency-wide ESG Task Force, stated that the task force is necessary to recognize evolving investor priorities and that it will continue to operate. And new SEC Chairman Gary Gensler has echoed her sentiments, telling Congress that investors “measured in the trillions of dollars” seek to better understand climate risk issues.
While the SEC staff tends to be of the broad view that ESG warrants serious consideration, there are a breadth of different opinions regarding what ultimate disclosure requirements should look like. This discord came to a head during a virtual SEC panel last Friday.
The panelists included both SEC staff and industry leaders. One-by-one, the panelists provided their views on the SEC’s ESG subcommittee’s December recommendation of new standards for issuers to disclose “material ESG risks.” In particular, the ESG subcommittee recommended that material ESG risks be disclosed pursuant to “standard setters’ frameworks,” and “in a manner consistent with the presentation of other financial disclosures.”