COVID-19 and the Federal Securities Laws Timeline

As Covid-19 continues to ravage the economy of the United States, the U.S. Securities and Exchange Commission (“SEC”) has issued several releases and made a number of public statements to guide both public companies and emerging businesses. Those actions are referenced below.

Initial Steps

In a public statement issued on January 30, 2020, SEC Chairman Jay Clayton announced that he had requested the SEC staff to monitor disclosures related to the current and potential effects of the coronavirus outbreak, and, to the extent necessary or appropriate, to provide guidance or other assistance to issuers and market participants regarding disclosures related to the current and potential effects of the coronavirus. At that time, Chairman Clayton acknowledged that the impact of coronavirus may be difficult to assess or predict with meaningful precision, and the actual effects will depend on many factors beyond the control and knowledge of issuers. Clayton stated that how issuers prepare for and respond to events as they unfold nevertheless can be material to an investment decision.

On February 19, 2020, the SEC Chairman, PCAOB Chairman and other SEC representatives issued a public statement addressing U.S. companies (including companies based in China, companies based outside of the U.S. but not based in China, and companies not based in China but which depend on companies that have operations in those jurisdictions, such as suppliers, distributors and/or customers). The statement urged issuers to work with their audit committees and auditors to “ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.”

Delayed Filings

On March 4, 2020, in Release No. 34-88318, the SEC issued an order that provided filing relief for companies that were not able to satisfy a filing deadline under the Securities Exchange Act of 1934 due COVID-19. Reporting companies received an additional 45 days to file reports due between March 1, 2020 and April 30, 2020, upon satisfaction of the following conditions:

(a) The company is unable to meet a filing deadline due to circumstances related to COVID-19.

(b) The company furnishes a Form 8-K (or Form 6-K or a foreign private issuer) by the later of March 16 or the original filing deadline that includes:

(i) a statement that it is relying on the SEC's order.

(ii) a brief description of the reasons why it could not file the required report, schedule, or form on a timely basis;

(iii) the estimated date that it expects to file the report, schedule, or form;

(iv) if appropriate, a risk factor explaining any material impact of COVID-19 on the its business; and

(v) if the company's report cannot be timely filed because of any third party person's inability to furnish a required opinion, report, or certification, the Form 8-K or 6-K must have attached as an exhibit a statement signed by that third party, stating why that person is not able to furnish the required opinion, report, or certification before the original deadline.

(c)   The company files its report, schedule or form within 45 days of the original filing deadline.

(d)  In the report, schedule, or form, the registrant must disclose that it is relying on the SEC's order and state the reasons why it could not file the report, schedule, or form on a timely basis.

The SEC order also exempted companies from Exchange Act requirements to furnish proxy statements, annual reports and other materials to certain security holders where:

(a)   The company’s security holder has a mailing address in an area where the common carrier used by the company has suspended deliveries due to COVID-19.

(b)  The company has made a good faith effort to furnish the solicitation materials to the security holder, as required by the applicable rules.

On March 25, 2020, in Release No. 34-88465, the SEC issued an order modifying and superseding its March 4, 2020 order to provide companies with an additional 45 days to file certain Exchange Act reports otherwise due between March 1, 2020 and July 1, 2020, subject to the same conditions as set forth in the SEC’s March 4, 2020 order. The Commission will continue to monitor the situation and may elect to further extend the time period to which relief applies.

Working Remotely

On Tuesday, March 10, 2020, the SEC staff commenced working remotely. The SEC had prepared for this transition, and all indications are that the remote or “telework” process allows the staff to retain its effectiveness. 

Shareholder Meetings

On April 7, 2020, the SEC staff announced that some issuers are contemplating possible changes in the date, time, or location of their annual or special shareholder meetings due to the difficulties arising from COVID-19.  In light of these issues,  an issuer that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of its shareholder meeting without sending additional soliciting materials or amending its proxy materials if it:

(a)  issues a press release announcing the change;

(b)  files the announcement as definitive additional soliciting material on EDGAR; and

(c)  takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of the change.

Companies should take these actions promptly after making a decision to change the date, time, or location of the meeting and sufficiently in advance of the meeting so the market is alerted to the change in a timely manner. To the extent that issuers have not yet mailed and filed their definitive proxy materials, they should consider whether to include disclosures regarding the possibility that the date, time, or location of the meeting will change due to COVID-19. This determination should be made based on each Company’s particular facts and circumstances and the reasonable likelihood of a change.

Virtual Shareholder Meetings

Certain companies are contemplating the possibility of conducting a “virtual” shareholder meeting through the internet or other electronic means in lieu of an in-person meeting.  State law and the company’s governing documents regulate the ability to conduct a “virtual” meeting, where authorized.  Disclosures that facilitate informed shareholder voting are just as important for a “virtual” meeting or “hybrid” meeting (i.e., an in-person meeting that also permits shareholder participation through electronic means) as for an in-person meeting.

A company that intends to conduct a “virtual” or “hybrid” meeting must notify its shareholders, intermediaries in the proxy process, and other market participants of those plans on a timely basis and provide directions as to the logistical details of the “virtual” or “hybrid” meeting that include instructions for remote access to the meeting, participation in the meeting, and voting at the meeting. If a company has not yet filed proxy materials, applicable disclosures should be included in the definitive proxy statement and related materials. If a company has already filed and mailed its proxy materials, it is not required to mail additional proxy materials solely for the purpose of switching to a “virtual” or “hybrid” meeting.

Presentation of Shareholder Proposals

Exchange Act Rule 14a-8(h) requires shareholder proponents to present their proposals at the annual meeting. The SEC staff encourages companies, in a manner consistent with state law, to provide shareholder proponents or their representatives with the ability to present their proposals through other means during the 2020 proxy season.

If a shareholder proponent is not able to attend the annual meeting to present the proposal due to COVID-19 issues, the SEC staff will consider this to be “good cause” under Rule 14a-8(h) if a company utilizes Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.

Delays in Printing and Mailing of Full Set of Proxy Materials

Companies may be encountering delays in the printing and physical mailing of their proxy materials for their shareholder meetings due to the impact of COVID-19 on their proxy service providers or transfer agents. As a result, certain companies desire to furnish their proxy materials through the “notice-only” delivery option permitted by Exchange Act Rule 14a-16, but are concerned about their ability to comply with certain provisions of the rule.  

Companies affected by printing and mailing delays caused by COVID-19 may use all reasonable efforts to achieve this goal without jeopardizing the health or safety of anyone. This may mean delaying a meeting in accordance with state law requirements to provide materials on a timely basis. Where delays are unavoidable due to COVID-19 issues, a company may use the “notice-only” delivery option in a way that, while not satisfying all aspects of the notice requirements of Rule 14a-16, will provide shareholders with proxy materials sufficiently in advance of the meeting to review the materials and vote under state law in an informed manner as long as the company conveys the change in the delivery method by following the steps described above for announcing a change in the meeting date, time, or location. Companies and intermediaries also should continue to use their best efforts to distribute paper copies of proxy materials and annual reports to requesting shareholders despite delays in deliveries of those materials.

COVID-19 Market Monitoring Group 

On April 24, 2020, the SEC announced the formation of an internal, cross-divisional COVID-19 Market Monitoring Group. This group will assist the SEC in (1) actions and analysis related to the effects of COVID-19 on markets, issuers, and investors—including Main Street investors, and (2) responding to requests for information, analysis and assistance from other regulators and public sector partners. The Market Monitoring Group also will bolster the SEC’s efforts to support the COVID-19-related efforts of other federal financial agencies and bodies, including, among others, the President’s Working Group on Financial Markets, Financial Stability Oversight Council and the Financial Stability Board. 

Relief for Small Businesses under Regulation Crowdfunding

On May 4, 2020, the SEC provided relief for established smaller companies impacted by COVID-19 that seek to utilize Regulation Crowdfunding to raise funds. The Rules, which were suggested by members of the SEC’s Small Business Capital Formation Advisory Committee, provide flexibility for issuers that satisfy certain eligibility criteria to evaluate interest in a Regulation Crowdfunding offering before preparing full offering materials. The rules allow for an offering to close and have access to funds earlier than in the absence of the temporary relief. In addition, the rules exempt from certain financial review requirements issuers offering more than $107,000 up to $250,000 in securities under Regulation Crowdfunding within a 12-month period. For example, Temporary Rule 201(z)(2) allows an issuer that satisfies certain eligibility requirements to omit the financial statements required by Rule 201(t) in its initial Form C filed with the SEC, to the extent those financial statements are not otherwise available, and to commence its securities offering through an intermediary’s platform. The financial statements must be included in an amendment to the Form C and provided to investors prior to the intermediary’s acceptance of any investment commitments in the offering. 

National Market System Data

On May 6, 2020, the SEC issued an order directing the equity exchanges and FINRA to submit a new National Market System plan with a modernized governance structure for the production of public consolidated equity market data and the dissemination of trade and quote data from trading venues. The action is focused on modernizing and improving access to equity market data.

National Market System Plan

On May 15, 2020, the SEC adopted amendments to the national market system plan governing the consolidated audit trail (the “CAT NMS Plan”) to “bring additional transparency, governance, oversight, and financial accountability to its implementation.” The amendments mandate that FINRA and the exchanges, the self-regulatory organizations that are participants to the CAT NMS Plan (the “Participants”), to file with the SEC an implementation plan for the Consolidated Audit Trail (“CAT”) and quarterly progress reports. The reports must be approved by the Operating Committee established by the CAT NMS Plan and submitted to a senior officer at each Participant. The amendments include financial accountability provisions that create target deadlines for important implementation milestones and reduce the amount of fee recovery available to the Participants if the target deadlines are missed.

Small Business Forum to be Virtual

On May 20, 2020, the SEC announced that it will virtually host its 39th annual Government-Business Forum on Small Business Capital Formation during the afternoon of June 18, 2020. The Forum allows members of the public and private sectors to develop recommendations for policies impacting emerging businesses and their investors. The Forum will address challenges to small businesses in the current environment as well as success stories from startups to small cap businesses. The event will include discussions about women-owned, minority-owned, and rural businesses and their investors, as well as opportunities for the next generation of publicly-owned companies.

Financial Disclosures for Acquisitions and Dispositions

On May 21, 2020, the SEC adopted amendments to its rules and forms to improve financial information regarding acquired or disposed businesses, facilitate access to capital, and reduce the complexity and costs to prepare the disclosure. The amendments update rules which have not been comprehensively addressed since their adoption, including some over 30 years ago. The amendments are intended to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the financial disclosure requirements applicable to acquisitions and dispositions of businesses. The amendments will be effective January 1, 2021, but voluntary compliance will be allowed prior to that date.

Virtual Meeting on Municipal Securities Disclosure

On May 22, 2020, the SEC announced that it has rescheduled its conference entitled “Spotlight on Transparency: A Discussion of Secondary Market Municipal Securities Disclosure Practices” to June 16, 2020. The conference is open to the public via live webcast from 1 p.m. to 4 p.m. ET at www.sec.gov.

Milestone Whistleblower Award

On June 4, 2020, the SEC announced a nearly $50 million whistleblower award to an individual who provided information regarding misconduct by a company, which resulted in a successful enforcement action that returned a significant amount of money to injured investors. This is the largest award ever to an individual under the SEC’s whistleblower program. The next largest was a $39 million award to an individual in 2018. Two individuals shared a nearly $50 million whistleblower award in 2015.