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For example, the Commission could use the rulemaking process to reconsider and recalibrate the applicable definitions, or the staff could provide guidance explaining its views on how or if at all the PSLRA safe harbor should apply to de-SPACs. Congress created the Commission as an expert agency with the capacity to address significant problems affecting the nations securities markets. In fact, its basic disclosure authorities (in Section 7 of the 1933 Act and Sections 12 and 13 of the 1934 Act) are augmented by additional specific authority to to prescribe the form or forms in which required information shall be set forth. If the Commission after fact-finding reasonably believes more detail is needed to protect investors about a concededly authorized topic, it is legally authorized to require more detail, as it has done through both rules and disclosure review since 1933. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. Shareholders stunned virtually everyone, including ExxonMobils management, when they elected dissident directors pledged to change the companys climate policy with 62% of the vote, while shareholders voted for emissions disclosure proposals at ConocoPhillips and Chevron. In contrast, proposals to give the Commission discretion to approve or disapprove of the soundness of stock offerings was rejected by Congressthe 1933 Act in the end embraced full and fair disclosure as the method to protect investors. Although the rule is more limited than what an impact advocate would want, it is in one important way broader than anything EPA has adopted or is likely to have to power to implement: its geographic reach. Coates, Lindsey. Does that provide de-SPAC participants with protections in private litigation that are not available in a conventional IPO? Those involved should be accountable to relevant constituencies, including investors and companies. Harvard Law School Professor John C. Coates spoke at a briefing on Oct. 30 in Washington, D.C., to urge the Securities and Exchange Commission to require publicly traded companies to disclose their political spending. We will also need to be open to and supportive of innovation in both institutions and policies on the content, format and process for developing ESG disclosures. Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. Some critics argue that investor demand should not be equated with investor protection, and it is true that the Commission has not (for good reason) attempted to survey investors in setting its own rulemaking agenda. Copyright 2023 ALM Global, LLC. The rest of this post details Points I and II. John Coates does not need much of an introduction. 14, 2014) (setting forth special procedures required in mergers involving control shareholders, without which heightened entire fairness must be shown by interested fiduciaries); Olenik v. Lodzinski, 208 A.3d 704 (Del. No one at the time of NRDC v. SEC in 1979 argued that the creation of EPA in 1970 had overridden NEPA, or limited the 1933 or 1934 Acts, as the Commission itself would have done (because, recall, it was being sued in the 1970s for not doing enough to require environmental disclosure). He had been serving as the independent monitor for the U.S.. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. Bloomberg reports that, according to Coates, the new disclosure requirements will focus on three topics: diversity, equity and inclusion; climate change; and human capital management. In simple terms, the PSLRA excludes from its safe harbor initial public offerings, and that phrase may include de-SPAC transactions. Under federal securities law, the touchstones for all securities offerings remain what they have long been. Yet no one has ever successfully argued that the Commission should not develop, adapt or apply disclosure rules to banks, mining companies, asset-backed issuers, airlines or defense contractors, despite the specialized knowledge that a full understanding of those companies would require, and despite the fact that the Commission does not have full-time staff who are themselves experts of the same kind that other regulators may have, or which companies hire to provide them with advice about such topics. John Coates Financial Services Professional at NYLIFE Securities LLC The safe harbor only applies in private litigation, and does not prevent the Commission from taking appropriate action to enforce the federal securities laws. Although courts have increasingly applied the First Amendment to disclosure obligations over time, critics are able to cite no case law supporting the notion that simply because facts may inform or be relevant to a political debate, requirements calling for disclosure of those facts are subject to heightened scrutiny, much less violate the First Amendment. John Jenkins, SPACs: Is the PSLRA Safe Harbor Driving the Boom?, Deal Lawyers.com (Feb. 3, 2021); Bruce A. Ericson, Ari M. Berman and Stephen B. Amdur, The SPAC Explosion: Beware the Litigation and Enforcement Risk, Harv. 23, 2013) (citing Sawant v. Ramsey, 3:07-CV-980 VLB, 2010 WL 3937403 (D. Conn. Sept. 28, 2010) (holding that otherwise forward-looking statements that contain misrepresentations of current facts are not protected by the safe harbor provision of the PSLRA or the bespeaks caution doctrine); In re Nortel Networks Corp. Sec. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. The SEC should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner. P.C. She received an undergraduate degree from Princeton University and a J.D. As a result: As a result of these limits, climate advocates appropriately view the rule as incomplete, and from the point of view of environmental protection, the rule could not reasonably be viewed as complete or effective at addressing climate change. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. VIA EMAIL: [email protected] John Coates, Acting Director Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street NE Washington, DC 20549 April 14, 2021 Re: Guidance Needed to Issuers on the Presentation of Shareholder Proposals Dear Director Coates: I am writing to urge the Division of Corporation Finance to issue And earlier this month, Bloomberg reported that John Coates, the SEC's Acting Director of the Division of Corporation Finance, indicated that new disclosure requirements would focus on three areas: diversity, equity and inclusion; climate change; and human capital management. But that, too, is uncertain at best. The Biden administrations new acting head of a key component of the U.S. Securities and Exchange Commission reported earning more than $2.5 million in law school income and consulting fees paid by financial firms and major U.S. companies, according to a newly released financial statement. But companies will not be limited by the rule itself in how they and their investors respond to climate change. Rather than casting disclosure rules in stone, Congress opted to rely on the discretion and expertise of the SEC for a determination of what types of additional disclosure would be desirable. Said plainly, many investors in the SPACs own initial offering are not the investors in the ultimate public companys ongoing business operations. The Commission has authority over disclosure about all activities of a consolidated multinational if it is a US public company, including the 40+% or more of those activities that are located outside the US, as noted above. Investors need to know about sponsors and their financial arrangements, the procedural protections of the SPAC structure, and what kinds of returns the SPAC is likely to generate for investors absent a de-SPAC transaction or for those who choose to exit before the de-SPAC is completed. Third, the 1933 Act includes a specific limit to this authority, that it be for the protection of investorsbut no further qualifier. A SPAC is a shell company with no operations. The fact that those areas are themselves specialized, with their own experts with far more knowledge than exists at the Commission, does not mean the Commission cannot adequately apply its disclosure regime to those risks. About John Coates. Financial risks importantly include physical risks, such as those arising from severe weather events, such as floods, hurricanes, and wildfires. Site Map, Advertise| In their second stage, SPACs complete a business combination transaction, in which the SPAC, the target (i.e., the private company to be acquired), or a new shell holdco issues equity to target owners, and sometimes to other investors. Importantly, supporting letters came from many public companies (e.g., Adobe; Bank of America; BNP Paribas; Chevron; Dow Credit Suisse; Etsy; Microsoft; Paypal; Salesforce.com). It is also not a rule the EPA or any other regulatory agency has adopted or could legally adopt. They will go unresolved by this proposed rule. If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. Three of those exclusions are of note: those made in connection with an offering of securities by a blank check company, those made by a penny stock issuer, and those made in connection with an initial public offering. The brief historical review in Annexes A and B (and much more detail could be added) shows that nothing about the current proposed rules contents (discussed more below) should be legally surprising in any meaningful way, to Congress or to companies or their investors. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. At the time, companies were thought by some to be reluctant to provide forward-looking information at least in part due to the prevalence of so-called strike suits which, irrespective of the merits of the claim, were usually less costly to settle than to fight in court. For example, they point to the broader ESG movement and claim the fictional new rule requires disclosure about ESG, or about environmental impacts not relevant to investors. What about the Private Securities Litigation Reform Act? The Commission is charged with protecting investors generally, and even if a subset of investors believe that they do not (or do) want or need particular information, their views should not necessarily control the Commission in the exercise of its expert judgment. Circuit affirmatively held that the Commission had authority to do that, and, in its judgment, to potentially go further. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. The Commission has neither approved nor disapproved its content. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public.