Halloween came early to the SEC as the Division of Corporation Finance announced that it has decided to deal publicly with a creepy-crawly issue of sorts by posting ‘bedbug’ letters on EDGAR. Letters the SEC staff issues to companies with grossly deficient filings have come to be known as “bedbug” letters, a missive no company wants to receive. The SEC will begin publishing letters regarding companies’ seriously deficient filings on EDGAR beginning June 15, according to CorpFin’s announcement.
Transparency. CorpFin said seriously deficient filings letters would be made available on EDGAR as part of the agency’s effort to improve the transparency of its filing review process. That process includes making determinations not to review certain filings that fail to meet even minimal standards of completeness. “This will make it clear that the Division believes the filing under consideration is not minimally compliant with statutory or regulatory requirements,” said CorpFin.
At present, SEC staff comment letter dialogs with companies are released on EDGAR no earlier than 20 business days following the completion of the filing review process. By contrast, letters regarding seriously deficient filings will be available on EDGAR within 10 calendar days after they are issued to a company.
Filing review process. The SEC’s filing review process swings into action when companies file registration statements. Beginning with the Jumpstart Our Business Startups (JOBS) Act, staff reviews of registrations filed by emerging growth companies can be done on a confidential, nonpublic basis, with the company publicly filing its registration (including amendments) on EDGAR at least 15 days before conducting a road show (See, Securities Act Section 6(e)). The confidential, nonpublic review option has since been extended to other types of issuers (See, CorpFin announcement and FAQ) and is the subject of legislation that would codify the process for all issuers (See, H.R. 3903, which passed the House 419-0, the Financial CHOICE Act (H.R. 10, Section 499), which passed the House 233-186, and S. 2347).
The Sarbanes Oxley Act also brought changes to the SEC’s filing review process by directing SEC staff to regularly and systematically review the filings of issuers who report under Exchange Act Section 13(a) and who have a class of securities listed on a national securities exchange or association. Reviews mandated by SOX Section 408 must occur at least once every three years, although the SEC sometimes reviews selected companies more frequently.
In recent years, CorpFin also announced that it was discontinuing the practice of having companies state in reply to staff comments that a company understands that it is responsible for the adequacy and accuracy of its filings and will not raise staff comment letters as a defense in any legal proceeding. The prior requirement, called “Tandy” language, was an outgrowth of a comment letter dialog between the SEC and Tandy Corporation. The SEC now includes similar language in its letters to companies.
The Sarbanes Oxley Act also brought changes to the SEC’s filing review process by directing SEC staff to regularly and systematically review the filings of issuers who report under Exchange Act Section 13(a) and who have a class of securities listed on a national securities exchange or association. Reviews mandated by SOX Section 408 must occur at least once every three years, although the SEC sometimes reviews selected companies more frequently.
In recent years, CorpFin also announced that it was discontinuing the practice of having companies state in reply to staff comments that a company understands that it is responsible for the adequacy and accuracy of its filings and will not raise staff comment letters as a defense in any legal proceeding. The prior requirement, called “Tandy” language, was an outgrowth of a comment letter dialog between the SEC and Tandy Corporation. The SEC now includes similar language in its letters to companies.