SEC Chairman Atkins Focuses on Wells Process: "Make Sure That We Get it Right"

Keynote Address at the 25th Annual A.A. Sommer, Jr. Lecture on Corporate, Securities, and Financial Law

For the Wells process to achieve its ideals, both sides must engage in good faith. My expectation is that the enforcement staff, in giving a Wells notice, will provide sufficient information for potential respondents or defendants to understand the potential charges and the evidentiary basis for those charges, such as testimony transcripts and key documents.

The staff must be forthcoming about material in the investigative file. Some materials in the file will not be available to potential respondents or defendants, and the staff must make every effort to share information that it has gathered, while scrupulously adhering to statutory and programmatic limitations—for example, information the Commission needs to keep confidential, including whistleblower-identifying information, and matters that would implicate a parallel criminal investigation.

The staff must also be realistic about time periods for submissions, especially in long, complicated cases. Going forward, the staff will provide the other side with at least four weeks to make Wells submissions. Potential respondents and defendants should be reasonable with their requests and recognize that the staff is seeking to meet time deadlines and reach conclusions within reasonable time periods.

Both sides should engage with each other in a courteous, professional manner.

To those who would object to the government’s sharing evidence with potential respondents or defendants, I ask, “Why should we not?” Our objective is to get to the truth of the matter and hold people accountable in major, federal cases for significant violations. Ours should not be a “gotcha” game.

First Brands Collapse Blindsides Wall Street, Exposing Cracks in a Hot Corner of Finance

In hindsight, the telltale signs of trouble were piling up: the Zoom calls where the owner kept his camera off; the angry pushback from his brother when investors asked for invoices to back up their loans; the frequent late payments to suppliers; and the whispers of large off-the-books financing arrangements.

That so few outside of First Brands had a full view of all the red flags around the auto-parts supplier before it imploded spectacularly late last month, stands as a stark example of the growing risks of money flooding into the opaque world of private financing. How it operated, where it got its money and even the people running it were largely a mystery.

By the time it all came crashing down, the company’s sprawling network of auto-parts factories and distribution centers was on the hook for over $10 billion to some of the biggest firms on Wall Street: Jefferies, UBS and Millennium, among others.

While the full extent of the damage — and what exactly went wrong — remains unclear 11 days after First Brands declared bankruptcy, the stakes were raised on Wednesday night when one of First Brands’ financial partners made an emergency court filing calling for an independent investigation into $2.3 billion tied to the company it said had “simply vanished.”

In the meantime, the repercussions are rippling through the financial industry and beyond.

SEC Chair Says Agency Aims to Curb Shareholder ESG Proposals

The Securities and Exchange Commission will rethink a federal regulation that requires companies to include ESG-related shareholder proposals in their proxy filings, chairman Paul Atkins said late Thursday.

Atkins, speaking at the University of Delaware, said the SEC’s previous position had driven the “politicization of shareholder meetings.”

Eight decades after the rule on shareholder proxy access was first promulgated, changing circumstances—including the falling number of publicly traded US corporations—call for a fresh look at “the rule’s fundamental premise,” he said, specifically criticizing investor initiatives tied to environmental, social and governance goals.

The agency is now set to reevaluate whether investors should “be able to force companies to solicit for their proposals—to the extent that shareholder proposal is a proper subject under state law—at little or no expense to the shareholder,” he said. “I think it’s only prudent for the commission to reassess the original intent.”

Wall Street regulator eases IPO path during government shutdown

Wall Street’s top regulator on Thursday eased the way for companies to proceed with initial public offerings during the federal government’s shutdown, according to an announcement on its website.

Companies are normally prevented from debuting on Wall Street during periods when Congress has not approved funding for government operations, because officials are unable to review and approve registration statements. That has prompted investor concerns that partisan gridlock in Washington could dent the IPO market.

However, companies can allow their statements to become effective automatically, which involves setting their IPO pricing 20 days before the listing instead of finalizing it the night before after a U.S. Securities and Exchange Commission review.

In an announcement posted on its website on Thursday, the SEC said because officials were unavailable to review registration statements, the regulator would not seek to punish companies that omit pricing information from prospectuses filed during the shutdown and then go public either during the shutdown or afterwards.

SEC Forms Cross-Border Fraud Task Force | Key Risks for Global Companies

TAKEAWAYS

Public companies with a global presence should take note of the SEC’s announcement regarding the formation of the cross-border task force. An international company with US headquarters, US subsidiaries that roll up in the financial statements of the international parent, or public reporting of any sort to the SEC may be sufficient to raise SEC interest. Even if a company does not check any of these boxes, it may still trigger SEC attention through securities that trade in the United States, including ADRs.

It would be prudent for companies to take a fresh look at policies and procedures around financial reporting, insider trading, and cybersecurity and review for current risks, business operations, and implications for US investors.

If companies receive whistleblower complaints that touch on these subjects or that otherwise may relate to disclosures to US investors, they should consider carefully reviewing these submissions with an eye toward federal securities laws.

Companies may also want to review their training programs for both employees in the United States and those located outside of the United States to assess whether any updates or enhancements may be prudent depending on employees’ roles relating to financial reporting, handling of sensitive information, and/or investor relations.