Category: Capital Markets

Capital Markets / General / Securities

SEC Reminds Companies of Disclosure Obligations Relating to Coronavirus

In connection with the order issued by the Securities and Exchange Commission on March 4 providing filing relief for companies that are affected by the coronavirus, the Commission reminded all companies to be vigilant regarding their disclosure obligations related to the evolving coronavirus scenario. A company’s assessment of, and plans for addressing, material risks to its business and operations resulting from the coronavirus can be material to investors, and companies are encouraged, to the fullest extent practicable, to keep investors and markets informed of material developments. As a reminder, under the federal securities laws: When a company has become aware of a risk related to the coronavirus that would be material to its...

Capital Markets / Securities

New Disclosure Requirements for OTCQB Quoted Issuers

Issuers quoted on the OTCQB are now required to promptly disclose the issuance of any promissory notes, convertible notes, convertible debentures, or any other debt instruments that may be converted into a class of the issuer’s equity securities. In addition, OTCQB issuers are now required to promptly post copies on the OTC Disclosure & News Service or, if an SEC reporting company, on the SEC’s EDGAR reporting system, of the securities purchase agreement(s) or similar agreement(s) setting forth the terms of such arrangement, any related promissory notes or similar evidence of indebtedness, and any irrevocable transfer agent instructions. These new listing requirements will apply to OTCQB issuers even if applicable Canadian and U.S....

Capital Markets / Securities

How to Avoid Being Required to Obtain Audit Partner Consents

SEC registration statements and certain annual reports require consents of experts (e.g., technical experts, audit firms, and investment banks that provide fairness opinions) named in the disclosure document. A recent development in Canada is that audit partners are now named in audit reports filed with audited financial statements. From an SEC perspective, the naming of both the audit partner and the audit firm in the audit report could require both parties to provide consent to the inclusion of the audit report in an SEC filing. The SEC has recently provided our firm informal guidance that in accordance with the principles of the multijurisdictional disclosure system (“MJDS”), the SEC will not require a separate...

Capital Markets / Securities

Stock Price Flexibility on the NYSE American

Many of our Canadian clients have decided to list their stock in the United States on the NYSE American exchange, instead of Nasdaq. Why? Stock price flexibility is a big factor. In Canada, it’s considered perfectly normal for a company to have stock with a price of $2, $1, $0.50 or even $0.10 per share. Not in the United States. Here, there is a long tradition of regulations and stock exchange rules disfavoring companies whose shares trade at low prices, regardless of their total market capitalization. Back in the 1990s, there were three main stock exchanges – Nasdaq, the American Stock Exchange, and for larger companies, the NYSE. While each of the exchanges...

Capital Markets / Corporate / Securities

SEC Proposes to Greatly Expand Exemption from SOX 404 Auditor Attestation Requirement

The SEC has proposed revisions to the definition of an “accelerated filer” that would exempt most companies that have both a public float of common equity of less than $700 million and annual revenues of less than $100 million from the requirements of Section 404 of the Sarbanes-Oxley Act (SOX 404). If adopted, these revisions would exempt many Canadian cross-reporting companies from the SOX 404 auditor attestation requirement, thereby reducing the cost of cross-border reporting. The proposal is subject to a 60-day public comment period. Additional information is available in the SEC’s press release regarding the proposed new amendments here: sec.gov/news/press-release/2019-68.

Capital Markets / M&A / Securities

What Cross-listed Canadian Companies Need to Know About the Impact of the U.S. Government Shutdown on SEC Operations

As a result of the partial U.S. government shutdown that began on December 22, 2018, the U.S. Securities and Exchange Commission (SEC), one of nine federal agencies affected, recently published its Operations Plan Under a Lapse in Appropriations and Government Shutdown (sec.gov/files/sec-plan-of-operations-during-lapse-in-appropriations-2018.pdf), which went into effect on December 27, 2018. The Operations Plan offers important guidance regarding the significant impacts of the shutdown on the agency’s activities. Additional guidance is also available from the SEC’s Divisions of Corporation Finance (here: sec.gov/page/corpfin-section-landing) and Investment Management (here: sec.gov/investment-management). Issuers and practitioners should make contingency plans to address the effects upon ongoing or planned securities offerings, filings, and requests for interpretive guidance, among other things. A few important highlights:...

Capital Markets / Corporate / Litigation / Securities

The SEC’s Recent Settlement with Tesla and Elon Musk Teaches Us a Valuable Corporate Governance Lesson

The SEC’s settlement with Tesla and Elon Musk teaches us some important corporate governance lessons on monitoring and vetting executive use of social media. As background, on August 7, 2018, the markets were surprised by a series of tweets initiated by Elon Musk, the CEO of Tesla, Inc., in which Musk mused about taking Tesla private at $420 per share (a significant premium to the then-market price), with funding secured. The stock price jumped, trading in Tesla stock was halted, and Tesla rushed to catch up with official announcements. The deal didn’t happen, and it was questioned whether Musk was really serious, and whether funding was really “secured.” The SEC commenced an investigation....

Capital Markets / Securities

What if You Miss the Deadline to File a Form D?

As a continuation of our August 9 post regarding the deadline for Canadian companies to file a Form D for a private placement in the United States, we now address the questions, “What if our company missed the deadline to file a Form D with the SEC?” And, more importantly, “Have we lost our ability to rely upon the exemption?” The good news is that the exemption provided by Regulation D is not dependent upon the filing of the Form D. So, an issuer that fails to file the Form, or files it late, need not be concerned about the liability associated with a non-exempt offering. However, the failure to file exposes the issuer...

Capital Markets / Securities

Could Your Form D Already be Late by the Date of Closing?

Canadian companies that sell securities to U.S. investors under Regulation D must file a Form D with the SEC within 15 days after “the date of first sale.” Most people would assume that the closing of the offering is the date of sale. However, in the instructions to Form D, the SEC explains that the date of first sale is “the date on which the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check.” Therefore, the deadline for the Form D will depend on the wording of the agreement...

Capital Markets / Natural Resources / Securities

Analysis of the 60 Most Recent SEC Comment Letters Issued to Canadian Form 40-F Filers

Since January 1, 2016, the SEC has publicly released its correspondence relating to 60 comment letters sent to Canadian issuers with respect to annual reports filed on Form 40-F pursuant to the Canada-U.S. Multi-Jurisdictional Disclosure System (MJDS). We have analyzed the content and key takeaways from these letters, including: The SEC’s most common areas of focus; Recent trends; and Common errors to be avoided. Background The MJDS system allows Canadian issuers that satisfy certain market capitalization and other requirements to file an annual report with the SEC on Form 40-F. Except for a few items, a Form 40-F does not impose U.S. disclosure requirements upon a Canadian issuer and, instead, includes and relies...