Today, the SEC (by a 3-2 vote among commissioners) proposed rules, as required under the Dodd-Frank Act, that would direct the stock exchanges to adopt clawback listing standards. Under the proposed new Rule 10D-1, listed companies would be required to develop and enforce recovery policies that in the event of an accounting restatement, “claw back” from current and former executive officers incentive-based compensation they would not have received based on the restatement. Recovery would be required without regard to fault. The proposed rules would also require disclosure of listed companies’ recovery policies, and their actions under those policies.

Under the proposed rules, the listing standards would apply to incentive-based compensation that is tied to accounting-related metrics, stock price or total shareholder return. Recovery would apply to excess incentive-based compensation received by executive officers in the three fiscal years preceding the date a listed company is required to prepare an accounting restatement. Companies would have discretion not to recover the excess incentive-based compensation received by executive officers if the direct expense of enforcing recovery would exceed the amount to be recovered or, for foreign private issuers, in specified circumstances where recovery would violate home country law.

Each listed company would be required to file its recovery policy as an exhibit to its annual report under the Securities Exchange Act of 1934. In addition, a listed company would be required to disclose its actions to recover in its annual reports and any proxy statement that requires executive compensation disclosure if, during its last fiscal year, a restatement requiring recovery of excess incentive-based compensation was completed, or there was an outstanding balance of excess incentive-based compensation from a prior restatement. Under the proposed rules, a company would be subject to delisting if it does not adopt a compensation recovery policy that complies with the applicable listing standard, disclose the policy in accordance with SEC rules or comply with the policy’s recovery provisions.

Additional facts can be found here, and the full proposing release can be found here.

Comments on the proposal are due 60 days from publication in the Federal Register (presumably that means early September). Once adopted, the stock exchanges would then have 90 days to propose their listing rules under Rule 10D-1, which would be effective sometime in the ensuing year. Once the listing rules are effective, companies would have 60 days to adopt a clawback policy. Recoveries would be required after the effective date of the new rule for excess incentive-based compensation received by current and former executive officers that results from attaining a financial reporting measure based on financial information for any fiscal period ending on or after the effective date of Rule 10D-1. Listed companies would be required to comply with the new disclosures in proxy or information statements and Exchange Act annual reports filed on or after the effective date of the listing exchange’s rule.

The SEC today voted to publish a concept release seeking public comment on current audit committee disclosure requirements, focusing on the committee’s oversight of independent auditors. The SEC is interested in receiving information about the audit committee and auditor relationship and whether improvements can be made to enhance the information provided to investors about the audit committee’s responsibilities and activities. In addition to seeking views about audit committee disclosures, the concept release invites comment on whether SEC disclosure requirements should be refined to provide more insight into the information the audit committee used and the factors it considered in overseeing the independent auditor. This includes considerations related to the process for appointing or retaining the auditor and the qualifications of the auditor and certain members of the engagement team, among others.

The staff of the SEC’s Division of Corporation Finance has made an announcement that it will begin releasing through the EDGAR system correspondence with issuers relating to Securities Act registration statements that are not selected for review.

Next Wednesday, April 27, the SEC will consider whether to propose amendments to the Securities Exchange Act, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring public companies to disclose in a clear manner the relationship between executive compensation actually paid and the financial performance of the company. Any rules proposed will be subject to a comment period, following which further action will be required by the SEC to finalize the rules.

Here’s the SEC’s press release about today’s rule proposals.

The SEC has adopted new rules that provide for an additional category of offerings exempt from registration under the Securities Act. This new “Regulation A+” restatement of the Regulation A exemption was mandated by the JOBS Act and is intended to make the previously underutilized Regulation A more useful to smaller companies engaged in capital-raising offerings.

Click below to read the complete Client Advisory, co-authored by Sullivan attorneys Howard Berkenblit, Ed Miller and Will Hanson.

The SEC today adopted final rules to update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act. The updated exemption will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements. 

The final rules, often referred to as Regulation A+, provide for two tiers of offerings: Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.

The final rules also provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to "qualified purchasers" in Tier 2 offerings. Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association (NASAA).

This rule is required under the Dodd-Frank Act. Here is the proposing release.   

The proposals will be open for comments for 60 days.