Public companies will soon be required to include an active hyperlink to each exhibit to all registration statements filed under the Securities Act of 1933, as amended, and all periodic and current reports filed under the Securities Exchange Act of 1934, as amended, filed on or after September 1, 2017.

Under Regulation S-K Item 601, public companies are required to file their material agreements, certificates of incorporation, bylaws and other specified documents as exhibits to their SEC filings. Exhibits that are identified in the exhibit index to the filing may be attached to the filing or, in the case of previously-filed exhibits, may be incorporated by reference from the previous filing to the extent permitted by the SEC’s rules and forms. Currently, an investor seeking access to an exhibit that is incorporated by reference into a filing must first determine where the exhibit is located by reviewing the exhibit index and then search for and locate the filing which contains the exhibit, which can be time-consuming and cumbersome. The exhibit hyperlink rule, therefore, is intended to facilitate easier access to these exhibits for investors and other users of the information.

Key points to note about the exhibit hyperlink rule:

  • An active hyperlink will be required for each exhibit identified in the exhibit index of the filing, including exhibits that are incorporated by reference from a prior filing and exhibits that are attached to the new filing. The hyperlink rule, however, does not require the hyperlinking of any XBRL exhibits or exhibits filed with Form ABS-EE. The SEC also decided not to require companies to refile electronically any exhibits previously filed only in paper.
  • The requirement to include exhibit hyperlinks applies to Securities Act registration statements, including all pre-effective amendments; Exchange Act periodic and current reports; registration statements on Form F-10 and annual reports on Form 20-F; and does not apply to other forms under the multi-jurisdictional disclosure system used by certain Canadian issuers or to Form 6-K.
  • The exhibit hyperlink rule is effective for filings submitted on or after September 1, 2017. Smaller reporting companies or non-accelerated filers that submit filings in ASCII format will be required to file their registration statements and periodic reports that are subject to exhibit filing requirements in HTML format and to comply with the exhibit hyperlink rule for filings submitted on or after September 1, 2018. The hyperlink rule does not apply to exhibits filed in paper pursuant to a temporary or continuing hardship exemption under Rules 201 or 202 of Regulation S-T or pursuant to Rule 311 of Regulation S-T.
  • If a filing contains an inaccurate exhibit hyperlink, the inaccurate hyperlink alone would not render the filing materially deficient nor affect the company’s eligibility to use Form S-3. However, the company must correct a nonfunctioning or inaccurate hyperlink, in the case of a registration statement that is not yet effective, by filing a pre-effective amendment to the registration statement or, in the case of a registration statement that is effective or an Exchange Act report, by correcting the hyperlink in the next Exchange Act periodic report that requires or includes an exhibit pursuant to Item 601 of Regulation S-K (or, in the case of a foreign private issuer, pursuant to Form 20-F or Form F-10).

The IPO market in 2016 was abysmal, especially for the life sciences sector. Annual IPO proceeds fell to the lowest level since 2003. The IPO market forecast for 2017 is uncertain. Some life sciences companies that went public during the last IPO wave ending in 2015 still have plenty of cash yet they have “hit the wall” clinically, making them “fallen angels”. In this environment, the “fallen angel” reverse merger has emerged as an attractive way for many promising life sciences companies to raise capital and to go public.

In response to these trends, my colleague Matt Gardella and I have assembled a stellar panel of experts for a discussion about fallen angel reverse mergers as an alternative to the traditional IPO. Please join us at Mintz Levin on Monday, March 6th starting at 3:00 PM to learn whether this important approach to going public might be right for your company. Our panel will provide the perspectives of the deal lawyer, the private company, the fallen angel, the investor, the investment banker, and the Nasdaq listing consultant. You will gain insights into the key issues involved in evaluating a fallen angel reverse merger strategy, negotiating a deal, smoothly completing a transaction, and being ready for life as a public company.

Please note: This panel is an in-person event at our Boston offices with a networking period afterwards.

Click here for information and registration.

SEC Acting Chairman Michael S. Piwowar issued a public statement on February 6, 2017 requesting input on any unexpected challenges that companies have experienced as they prepare for compliance with the CEO pay ratio rule, which will become required disclosure in public company 2018 proxy statements. Piwowar also directed SEC staff to “reconsider the implementation of the rule” based on comments submitted.

This public statement and request for comments is a first step in considering changes to the rule, as part of the Republican Party’s effort to modify or roll back certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank). Any SEC modifications to the CEO pay ratio rule would take time to implement and may be challenged. The easiest route to prevent its implementation would be for Congress to repeal this provision of Dodd Frank.

A recent First Circuit decision raises the pleading bar for plaintiffs asserting violations of Section 11 of the Securities Act. Only would-be plaintiffs who acquired a security that is the direct subject of a prospectus and registration statement are entitled to sue under Section 11. That right to sue is limited to plaintiffs who either purchased their shares directly in the offering, or who otherwise can trace their shares back to the relevant offering. This has been referred to as the “traceability” requirement. Until now, Section 11 plaintiffs have generally sought to establish standing by pleading a simple statement to the effect that they “purchased shares of stock pursuant and/or traceable to the offering.” For companies whose stock is all traceable to a single offering, this pleading burden presents little burden, as all shares self-evidently derive from the offering. But when stock has been issued in multiple offerings, a plaintiff has to plead that his or her shares were issued under the allegedly false or misleading registration statement, and not some other registration statement.

Continue Reading First Circuit Strengthens “Traceability” Pleading Requirement for Section 11 Claims

By Sarita Malakar and Megan Gates

The Securities and Exchange Commission recently issued proposed amendments to increase the financial thresholds in the definition of a “smaller reporting company” that, if adopted, will increase the number of issuers that qualify as smaller reporting companies and thereby would benefit from the scaled disclosure requirements. The proposed amendments are intended to promote capital formation and reduce compliance costs for smaller issuers, while maintaining investor protections.

This advisory summarizes the proposed amendments issued by the SEC.

Read the full advisory >>

On July 13, 2016, the SEC announced its adoption of several amendments that update the SEC’s rules of practice governing its administrative proceedings.  The final amended rules are available here.

As SEC Chair Mary Jo White stated in the SEC’s announcement, “[t]he amendments to [the SEC’s] rules of practice provide parties with additional opportunities to conduct depositions and add flexibility to the timelines of [the SEC’s] administrative proceedings, while continuing to promote the fair and timely resolution of the proceedings.”  For example, under amended Rule 360, orders instituting proceedings would designate the time period for preparation of the initial decision as 30, 75, or 120 days from completion of post-hearing or dispositive motions.  Further, amended Rule 360 extends the length of the pre-hearing period from four months to a maximum of 10 months for cases designated as 120-day proceedings, a maximum of six months for 75-day cases, and a maximum of four months for 30-day cases.

Continue Reading SEC Adopts Amendments Updating its Rules of Practice for Administrative Proceedings

Every year at around this time, the Mintz Levin securities lawyers are busy collaborating with our December fiscal year-end clients to prepare for the annual year-end reporting season, involving a flurry of 10-Ks, proxy statements, governance review and upkeep, and related matters. Pam Greene and I have worked together for several years now (more than we would care to admit!) on what we fondly refer to as the “year-end kickoff memo,” which you can find here. Each year, we focus on a combination of new developments, reminders of things to keep in mind, and anticipated “hot topics” from the perspective of regulators, shareholders and companies themselves. We are pleased this year to have some terrific contributions to the memo from our partner Bret Leone-Quick, who focuses on securities litigation and related governance issues. We welcome your questions on the memo and look forward to working with all of you on this important annual process.

By Chip Phinney and Geoff Friedman

As we have discussed before, the SEC’s increased use of in-house administrative proceedings in enforcement actions involving allegations of fraud has been a subject of considerable debate. Commentators have questioned the fairness of proceedings where the SEC gains an automatic home field advantage by bringing claims before its own administrative law judges (ALJs), with appeals being heard by the SEC’s own commissioners. But a determined defense can still defeat the SEC by ensuring that it plays by the rules, as demonstrated by a decision issued last week by the U.S. Court of Appeals for First Circuit in a case where Mintz Levin attorneys Jack Sylvia, Andy Nathanson, Jess Sergi, McKenzie Webster, and Geoff Friedman represented one of the petitioners.

The First Circuit vindicated two former employees of State Street Global Advisors (SSgA) who had been targeted by the SEC for alleged securities violations during the 2007 subprime mortgage crisis. Despite applying the highly deferential “substantial evidence” standard of review for agency factfinding, the First Circuit concluded that the SEC abused its discretion in holding Mintz Levin’s client, former SSgA Vice President James Hopkins, liable under Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The First Circuit also vacated the Commission’s order holding Mr. Hopkins’ co-defendant, SSgA CIO John Flannery, liable under Section 17(a)(3) of the Securities Act.
Continue Reading First Circuit Overturns SEC Commissioners’ Sanctions Order

Our Venture Capital & Emerging Companies practice group analyzed the SEC’s recently released equity crowdfunding rules (referred to by the SEC as “Regulation Crowdfunding”) in a concise and easy-to-digest article authored by Sam Effron and Kristin Gerber.

The article does a great job of highlighting some of the regulation’s shortcomings, such as the limits it places on amounts that can be raised (at both the company and investor level); the requirement that companies complete and file a new Form C; and certain ongoing reporting obligations for companies.  In all, the added costs, burdens, and risks associated with complying with this regulation means that in most cases there are better alternatives (such as raises under Rule 506) for start-up companies looking to access the capital markets.

In her year and a half as Assistant Attorney General in charge of the Criminal Division, Leslie R. Caldwell has repeatedly emphasized the importance of a company having a compliance program fine-tuned to its specific risks to prevent fraud and corruption and to best position the company in the event that misconduct nonetheless occurs.

On November 2, 2015, AAG Caldwell spoke extensively on this topic at the SIFMA conference in New York.  She stated that when DOJ prosecutors are considering whether to charge a corporation criminally, they “look closely at whether compliance programs are simply ‘paper programs’ or whether the institution and its culture actually support compliance.  [They] look at pre-existing programs, as well as remedial measures a company took after discovering misconduct – including efforts to implement or improve a compliance program.”

On November 3, the Criminal Division added a resource for evaluating compliance programs with the hiring of Hui Chen as Compliance Counsel for the Fraud Section.  AAG Caldwell addressed this addition in her remarks at the SIFMA conference, noting that DOJ wanted “the benefit of the expertise of someone with significant high-level compliance experience across a variety of industries.”  (Ms. Chen reportedly was head of anti-bribery and corruption at Standard Chartered and an Assistant General Counsel at Pfizer focusing on compliance before that).  In the context of making charging decisions, Compliance Counsel “will help [DOJ] assess a company’s program, as well as test the validity of its claims about its program, such as whether the program truly is thoughtfully designed and sufficiently resourced to address the company’s compliance risks, or essentially window dressing.”  Additionally, Compliance Counsel “will help guide Fraud Section prosecutors when they are seeking remedial compliance measures as part of a resolution with a company.”  The idea is to require an effective program without being unduly burdensome.

AAG Caldwell specifically addressed speculation in the legal community that the hiring of compliance counsel was a precursor to a compliance defense.  She said it is not and that review of a company’s compliance program will remain one of the several factors considered when DOJ considers whether to charge a company.