Recent SEC Developments For Foreign Private Issuers Paul Dudek

Transcription

1 11 December 2017 Tel Aviv Recent SEC Developments For Foreign Private Issuers Paul Dudek Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins operates in Seoul as a Foreign Legal Consultant Office. The Law Office of Salman M. Al-Sudairi is Latham & Watkins associated office in the Kingdom of Saudi Arabia. Copyright 2017 Latham & Watkins. All Rights Reserved.

2 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 1

3 SEC Personnel Changes Chairman William J ( Jay ) Clayton Sullivan & Cromwell LLP partner for 20 years. Expertise in securities offerings, mergers and acquisitions, corporate governance, and regulatory and enforcement proceedings. Experience includes counseling companies in various industries and advising market participants on capital raising and trading matters in the United States and abroad, including while resident in Europe for five years. Nominee for Republican Commissioner Hester Peirce (approved by Senate Banking Committee 1 November) Senior Research Fellow at the Mercatus Center at George Mason University and director of the Financial Markets Working Group. Served on Senator Richard Shelby s staff on the Senate Committee on Banking, Housing, and Urban Affairs, working on financial regulatory reform following the financial crisis of 2008 and oversight of the regulatory implementation of the Dodd-Frank Act. Served as SEC staff attorney and as counsel to Commissioner Paul S. Atkins. Nominee for Democratic Commissioner Robert J Jackson Jr (approved by Senate Banking Committee 1 November) Professor at Columbia Law School and Director of its Program on Corporate Law and Policy, focusing on corporate governance and the use of advanced data science techniques to improve transparency in securities markets. Served as a senior advisor at the Department of the Treasury during the financial crisis, assisting Kenneth Feinberg in his work as Special Master for TARP Executive Compensation, and previously worked as a lawyer at Wachtell Lipton Rosen and Katz. Director Division of Corporation Finance William Hinman Recently retired partner from Silicon Valley office of Simpson Thacher & Bartlett LLP. Practiced in corporate finance, including in the technology, e- commerce, health care, and biopharmaceutical areas. Advised public companies and their boards on public reporting, governance, and other corporate matters. Has significant experience regarding derivatives, novel securities, and private placements. Managing partner of Shearman & Sterling s San Francisco and Menlo Park offices. Co-Director Division of Enforcement Steven Peikin Managing Partner of Sullivan & Cromwell s Criminal Defense and Investigations Group. Focused on white-collar criminal defense, regulatory enforcement, and internal investigations. Has represented institutions and individual clients in numerous high-profile matters, including those involving alleged violations of the federal securities and commodities laws, FCPA matters, price fixing, violations of economic sanctions, and tax and money laundering offenses. Co-Director Division of Enforcement Stephanie Avakian Named Acting Director in December 2016, after serving as Deputy Director since June Previously a partner at Wilmer Cutler Pickering Hale and Dorr LLP. Served as a vice chair of the firm s securities practice and focused on representing financial institutions, public companies, boards, and individuals. Worked in the SEC Division of Enforcement as a branch chief in the SEC s New York Regional Office. Served as counsel to former SEC Commissioner Paul Carey. 2 2

4 SEC Personnel Changes Director Division of Trading and Markets Brett Redfearn Was Global Head of Market Structure for the Corporate & Investment Bank at JP Morgan. Started his career at the American Stock Exchange, where he ran Business Strategy and Equity Order Flow. Has served on the boards of Bats Global Markets, the Chicago Stock Exchange, BIDS Trading, and the National Organization of Investment Professionals. Earned his M.A. in Political Science from the New School for Social Research and his B.A. from the Evergreen State College in Olympia, Washington.. Director Division of Investment Management Dalia Blass Returned to the SEC after having previously served in a number of leadership roles in the Division of Investment Management, most recently as Assistant Chief Counsel. Joined from Ropes & Gray LLP, where she advised on investment fund, private equity, and regulatory matters. Previously practiced law at O'Melveny & Myers LLP,. Began career in the London office of Shearman & Sterling LLP. Director Division of Economic and Risk Analysis Jeffrey Harris Was professor and Chair in Finance at Kogod School of Business at American University in Washington, D.C. Extensive background in market microstructure and regulatory issues. Served as Chief Economist at the CFTC. Prior experience as Visiting Academic at the Nasdaq Stock Market and at the SEC. Deputy Director Division of Corporation Finance Robert Evans III Partner at Shearman & Sterling LLP in capital markets practice. Experience in public and private offerings, securities law compliance, and corporate governance. Frequent speaker and writer on securities law, compliance, and legal ethics. Member of the TriBar Opinion Committee, the Working Group on Legal Opinions, the American Law Institute, and Co-Chair of Shearman & Sterling s Opinion Committee. Chief Accountant Wesley R. Bricker Appointed in 2016 after career of more than 15 years of experience in public accounting. Joined the SEC in 2015 from PricewaterhouseCoopers LLP, where he was a partner responsible for clients in the banking, capital markets, financial technology, and investment management sectors. Served as a professional accounting fellow in Office of the Chief Accountant from 2009 to 2011, returning to PwC in General Counsel Robert B. Stebbins Partner at Willkie Farr & Gallagher LLP. Focused on mergers and acquisitions, private equity and venture capital, investment funds, and capital markets transactions. Also advised clients on SEC compliance issues and corporate governance matters. 3

5 Jay Clayton s Guiding Principles Remarks at Economic Club of New York 12 July 2017 The SEC s mission is the touchstone. The SEC s analysis starts and ends with the long-term interests of the Main Street investor. The SEC s historic approach to regulation is sound. Regulatory actions drive change, and change can have lasting effects. As markets evolve, so must the SEC. Effective rulemaking does not end with rule adoption. The costs of a rule now often include cost of demonstrating compliance. Coordination is key. How these principles impact reporting companies 4

6 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 5

7 Disclosure Effectiveness Initiative SEC rule proposals to revise Regulation S-K and Form 20-F SEC Release No October 2017 Comment deadline 2 January 2018 Proposed changes to requirements relating to MD&A, property disclosure, confidential treatment requests, and other matters Other rule proposals Disclosure Update and Simplification July 2016 Mining Disclosure (Guide 7) June 2016 Concept releases Financial Statements of Other Entities September 2015 Regulation S-K April 2016 Bank Holding Company Disclosure (Guide 3) April

8 Other SEC Developments Exhibit Hyperlinks and HTML Format Effective September 2017 Foreign Private Issuer Guidance November 2016 Dual-class shares Voting power or number of shares Residency status of individuals Location of assets US GAAP, IFRS, another reasonable methodology Administration of business 7

9 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 8

10 Cybersecurity Disclosure Possible new SEC Guidance coming Important enough Wide-ranging enough Focus on disclosure controls Focus on escalation procedures Existing Guidance October 2011 SEC Roundtable March

11 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 10

12 Eligibility Ability to confidentially submit draft and amended registration statements for SEC review expanded to all first-time filers including non-egcs and Section 12(b) Exchange Act filers (e.g., spin-offs and direct listings). Issuer able to confidentially submit initial draft of follow-on registration statements for 12 months following effective date of the IPO or Exchange Act registration statement Foreign private issuers may choose to use the 2017 accommodation or the procedures from 2012 (narrower eligibility) Must publicly file the initial confidential submission and all confidentially submitted amendments at least 15 days before commencing IPO road show (or going effective if no road show) or 48 hours before going effective on follow-on Ineligible first-time registrants: filers under Exchange Act Section 12(g), unless foreign-listed FPI 11

13 Practical Issues Maintaining confidentiality JOBS Act confidential submissions exempted from Freedom of Information Act All others should use Rule 83 to request confidential treatment FOIA requests are theoretically possible but long lead time and Staff discretion should afford similar protection Naming underwriters EGCS may omit underwriters on initial submission, but Staff will typically not continue review if underwriters not named by second submission Unclear if this policy will apply to other filers Several options for foreign private issuers 12

14 Content A confidential submission must be substantially complete, but is not a filing so does not need to be signed and can omit consent of auditors and other experts Can omit: financial information that An EGC reasonably believes will not be required at the time of the offering A non-egc reasonably believes will not required at the time the issuer files publicly financial statements of an acquired business required by Regulation S-X Rule 3-05 if the issuer reasonably believes those financial statements will not be required at the time of the offering 13

15 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 14

16 What is XBRL? Tagging of financial data by filers creates fully searchable database of asreported, line-item detail from financial reports Allows financial analysis over time and across companies and industries Detailed segment breakouts, schedules, and roll forwards can be searched, compiled, and compared over time and across companies and segments Revenue growth over prior quarter Amount of overseas profits firms X, Y, and Z are not repatriating into the United States How net operating loss tax loss carry forwards affect the balance sheets of the pharmaceuticals industry 15

17 When Is It Coming? IFRS filers may file XBRL information in 2017 IFRS filers must include XBRL information beginning with fiscal periods ending on or after 15 December 2017 For example, an FPI with a calendar fiscal year would be required to include XBRL financial statements with its Annual Report on Form 20-F filed in

18 What Is Required? Full detail-tagged XBRL financials will be required immediately In first year, XBRL information can be filed with an amendment to the Annual Report on Form 20-F up to 30 days after the filing of the Annual Report or the due date for the Annual Report, whichever is earlier All XBRL filers are immediately subject to all applicable liability provisions with respect to their XBRL information Issuers must post their XBRL information on their corporate websites on same day as SEC filing and maintain the posting for 12 months Simply including a hyperlink to the SEC website for this purpose is insufficient 17

19 Which Filings Are Covered? Annual Reports on Forms 20-F for fiscal years ending on or after 15 December 2017 Some (but not all) submissions on Form 6-K containing interim financial statements that are incorporated into an FPI s shelf registration statement on Form F-3 Certain registration statements under the Securities Act if the registration statements: are filed after the FPI makes its first XBRL filing contain financial statements contain a price or price range 18

20 Which Filings Aren t? An IPO registration statement on Form F-1 for an FPI that is not currently an SEC reporting company An Exchange Act registration statement on Form 20-F for an initial listing on a US stock exchange A new shelf registration statement on Form F-3, unless it is a long-form Form F-3 that physically includes financial statements A new registration statement for employee equity compensation on Form S-8 A Form 6-K submission for FPIs that do not have an F-3 shelf registration statement 19

21 Overview SEC Personnel Changes Disclosure Effectiveness Initiative Cybersecurity Disclosure Expansion of Confidential Submissions extensible Business Reporting Language SEC Enforcement Update 20

22 SEC Enforcement Update Core Principles Focus on the Main Street investor Focus on individual accountability Keep pace with technological change Impose sanctions most effectively further enforcement goals Constantly the assess the allocation of Division resources 21

23 SEC Enforcement Update Enforcement Priorities Two new units Cyber Unit Market manipulation via social media, trading on hacked information, ICOs and DLT, dark web, intrusions into retail brokerage accounts Retail Strategy Task Force Misconduct in microcap market, Ponzi schemes, and offering fraud Misconduct of investment professionals (suitability, churning, excessive trading) SEC Financial Reporting Cases Revenue recognition, overstating assets, improper accounting Non-GAAP metrics Internal controls Individual liability 22

24 SEC Enforcement Actions Source: Annual Report: A Look Back at Fiscal Year 2017, US Securities and Exchange Commission, Division of Enforcement (15 November 2017). 23

25 Types of Actions Brought Source: Annual Report: A Look Back at Fiscal Year 2017, US Securities and Exchange Commission, Division of Enforcement (15 November 2017). 24

26 SEC Actions Against Public Companies Source: New York University Pollack Center for Law & Business and Cornerstone Research, published in SEC Enforcement Activity Plunged with Dawn of Trump Era, Law360 (14 November 2017) 25

27 Questions? 26

28 Contact Paul Dudek joined Latham as counsel in the Washington, DC office after 23 years as Chief of the Office of International Corporate Finance in the US Securities Exchange Commission s (SEC) Division of Corporation Finance. At the SEC, Mr. Dudek oversaw efforts to develop and implement rulemaking initiatives and interpretive policies pertaining to US public and private offerings, listings, and other transactions and periodic reporting by foreign private issuers in the US and multinational offerings by foreign and domestic issuers, especially with respect to Regulation S, Rule 144A, Form 20-F and Securities Act and Exchange Act filings by foreign private issuers, the Multijurisdictional Disclosure System, American depositary receipts, and International Financial Reporting Standards. His practice covers all aspects of cross-border capital market transactions involving non-us companies and sovereigns, as well as related regulatory matters. Counsel, Washington, D.C. T M E paul.dudek@lw.com Education JD, New York University School of Law, cum laude, Order of the Coif BA, Fordham University, Phi Beta Kappa, summa cum laude Bar Qualifications District of Columbia, New York Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins operates in Seoul as a Foreign Legal Consultant Office. The Law Office of Salman M. Al-Sudairi is Latham & Watkins associated office in the Kingdom of Saudi Arabia. Copyright 2017 Latham & Watkins. All Rights Reserved. In connection with this document, you agree not to share with Latham & Watkins any confidential information regarding this potential engagement unless and until an attorney/client relationship is established and agreed-upon in writing. 27