March 2020 has been like no other month in history as the deadly COVID-19 pandemic firmly established itself on U.S. shores sending shockwaves through the healthcare system, the financial markets and the whole of society as millions of people around the world have been directed to shelter in place and adopt the most stringent of social distancing practices. These mandates infused and informed the relief provided across the financial industry landscape by the SEC, the CFTC and other regulatory bodies.
For its part, Securities Regulation Daily captured the full sweep of the remarkable and unprecedented regulatory and legislative developments which culminated with the passage of The Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation, a $2 trillion economic aid package for businesses and workers, is intended to sustain the economy during the pandemic. The historic legislation was assembled against a backdrop of financial industry associations and self-regulatory organization imploring federal regulators to keep the financial markets open, warning of the devasting consequences for the economy if they were closed.
For their parts, the SEC and CFTC focused their resources on the orderly functioning of the securities markets and derivative markets, respectively, which involved providing granular regulatory relief across a wide spectrum of regulated activities. In particular, the SEC relaxed shareholder meeting requirements, provided exemptive relief to transfer agents, extended the deadline for issuer filings under Regulations A and Crowdfunding, and advised certain registrants that its Office of Compliance, Investigations and Examinations (OCIE) would conduct its business remotely except under the most extraordinary of circumstances. Meanwhile, the CFTC and the National Futures Association worked in tandem to address a plethora of supervisory requirements in connection with branch offices and working from remote locations.
While the COVID-19 crisis prompted state and federal courts to re-work their upcoming schedules in order to protect court personnel, litigants, and the public, two important court opinions addressing securities law matters were issued during March. In Salzberg v. Blue Apron Holdings, Inc., the Delaware Supreme Court held that a company’s charter provisions requiring Securities Act claims to be brought in federal court were facially valid under Delaware law.
For its part, Securities Regulation Daily captured the full sweep of the remarkable and unprecedented regulatory and legislative developments which culminated with the passage of The Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation, a $2 trillion economic aid package for businesses and workers, is intended to sustain the economy during the pandemic. The historic legislation was assembled against a backdrop of financial industry associations and self-regulatory organization imploring federal regulators to keep the financial markets open, warning of the devasting consequences for the economy if they were closed.
For their parts, the SEC and CFTC focused their resources on the orderly functioning of the securities markets and derivative markets, respectively, which involved providing granular regulatory relief across a wide spectrum of regulated activities. In particular, the SEC relaxed shareholder meeting requirements, provided exemptive relief to transfer agents, extended the deadline for issuer filings under Regulations A and Crowdfunding, and advised certain registrants that its Office of Compliance, Investigations and Examinations (OCIE) would conduct its business remotely except under the most extraordinary of circumstances. Meanwhile, the CFTC and the National Futures Association worked in tandem to address a plethora of supervisory requirements in connection with branch offices and working from remote locations.
While the COVID-19 crisis prompted state and federal courts to re-work their upcoming schedules in order to protect court personnel, litigants, and the public, two important court opinions addressing securities law matters were issued during March. In Salzberg v. Blue Apron Holdings, Inc., the Delaware Supreme Court held that a company’s charter provisions requiring Securities Act claims to be brought in federal court were facially valid under Delaware law.
In the second case, the SEC scored a significant victory in its ongoing litigation against the Telegram Group as the Southern District of New York court granted the agency’s request for a preliminary injunction thereby prohibiting the delivery of Telegram’s tokens to initial purchasers. The court ruled that the company violated the registration provisions of the federal securities law with the sale of those tokens to U.S. persons.
March 2020 was an extraordinary month by any measure as the financial markets and the world confronted the massive disruptions and dislocations stemming from the COVID-19 pandemic. The absence of normalcy is likely to continue in the months ahead as market participants, regulators and the global community maintain an ongoing battle against this unprecedented pandemic and its consequences. Stay tuned…but more importantly, stay safe!
1. LEGISLATIVE ACTIVITY
What the $2T CARES Act means for the securities industry
Congress passed a massive economic aid package for businesses and workers that is intended to sustain the economy during the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748) includes provisions on a variety of topics that can touch upon securities markets, including executive compensation limits and restrictions on share buybacks and the payment of dividends. The Senate passed the aid bill by a vote of 96-0 while the House approved the bill by voice vote. The White House announced that President Trump had signed the bill. See our full coverage.
2. REGULATORY ACTIVITY
Industry groups, SROs to regulators: Keep markets open during COVID-19 outbreak
A number of securities industry groups and self-regulatory organizations including SIFMA, ICI, ISDA, FIA, MFA, and Nasdaq sent a joint letter to regulators urging them to keep the financial markets open during the coronavirus outbreak. In the letter to Steven Mnuchin, Jerome Powell, Heath Tarbert, and Jay Clayton, the groups stressed the "devastating impact" that closing the markets would have on the economy and warned that even rumors about market closures are causing market participants to take steps they otherwise would not. See our full coverage.
3. CORPORATE GOVERANCE
SEC relaxes shareholder meeting requirements in light of COVID-19
SEC staff published guidance on the upcoming proxy season given coronavirus-related issues that may make in-person meetings impracticable and preclude travel by participants, including shareholder proponents. The guidance allows public companies and investment companies more flexibility to reschedule their upcoming meetings and to conduct virtual or part-virtual meetings. It also encourages issuers to allow shareholder proponents to present their proposals by phone or other remote means.
SEC Chairman Jay Clayton encouraged market participants to reach out to the agency with requests for guidance or relief. He added that the SEC itself remains fully operational after having moved to teleworking and virtual meetings. See our full coverage.
4. REGULATORY ACTIVITY
SEC issues temporary exemptive relief for transfer agents affected by COVID-19
In its latest effort to extend relief to market participants affected by the coronavirus (COVID-19), the SEC has provided conditional regulatory relief for registered transfer agents. The Commission recognized that the need to comply with Exchange Act regulations pertaining to transfer agents under Section 17A and Section 17(f) may present compliance issues by those affected by COVID-19 (Order Under Section 17A and Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder, Release No. 34-88448, March 20, 2020). See our full coverage.
5. ACCOUNTING AND AUDITING
COVID-19 sparks more SEC, PCAOB regulatory updates
The SEC’s Divisions of Enforcement and Investment Management and the Office of Compliance Inspections and Examinations (OCIE) provided updates on the impact of the coronavirus (COVID-19) on their operations. Enforcement reminded insiders of their duty not to communicate or trade on material nonpublic information, while OCIE assured that registrants that use relief provided by the SEC will not be targeted for examinations. IM provided conditional regulatory relief to affiliates of money market funds related to a short-term dislocation in the market for money market securities due to the coronavirus. In addition, the PCAOB stated that it will be conducting its domestic firm inspections remotely while suspending international travel for inspections of overseas firms. See our full coverage.
6. PUBLIC COMPANY REPORTING AND DISCLOSURE
SEC grants COVID-19 relief to small offering issuers, muni advisers, and new EDGAR filers
The SEC has announced the granting of additional temporary relief to market participants whose operations may be affected by the rapid spreading of the coronavirus disease (COVID-19). The Commission adopted temporary final rules that extend the filing deadlines for specified reports and forms that companies must file under Regulation A and Regulation Crowdfunding and lift the notarization requirement for new EDGAR filers. In a separate order, the SEC provided municipal advisers with an additional 45 days to file their annual updates on Form MA (Relief for Form ID Filers and Regulation Crowdfunding and Regulation A Issuers Related to Coronavirus Disease 2019 (COVID-19), Release No. 33-10768; Order Under Section 15B of the Securities Exchange Act of 1934 Granting an Exemption for Municipal Advisors from Specified Provisions of the Securities Exchange Act and Rule 15Ba1-5(A)(1) Thereunder, Release No. 34-88491, March 26, 2020). See our full coverage.
7. COMMODITY FUTURES
Business Not as Usual: regulators and top attorneys provide guidance on COVID-19 related issues
Long-time futures industry attorney Gary DeWaal recently moderated a webinar titled Business Not as Usual: Practical and Regulatory Responses to COVID-19 for the US Financial Services Industry. DeWaal was joined by Carol Wooding, Senior Vice President, General Counsel, National Futures Association (NFA) and Bill Wollman, Executive Vice President, Office of Financial and Operational Risk Policy, Financial Industry Regulatory Authority (FINRA), together with Katten Muchin Rosenman subject area specialists, Carl Kennedy (futures and derivatives), Susan Light (securities), and Julie Gottshall (labor and employment). The panel discussed and explored a number of timely and urgent issues related to the COVID-19 crisis and its impact on regulated companies. See our full coverage.
8. SEC NEWS AND SPEECHES
Regulators, courts adapt to the challenges of COVID-19
The global spread of the novel coronavirus (COVID-19) has already prompted securities regulators to issue significant relief focused on filing deadlines and in-person meetings. Some of these same regulators have followed-up that relief with their own COVID-19 webpages and courts have begun to re-work their upcoming schedules in order to protect court personnel, litigants, and the public. See our full coverage.
9. LITIGATION AND ENFORCEMENT
Delaware corporations may restrict ’33 Act claims to federal court
Reversing the Court of Chancery, the Delaware Supreme Court held that charter provisions requiring that Securities Act claims be brought in federal court are facially valid under Delaware law. While mindful of concerns that other states may not enforce the decision, the court rejected chancery’s construction of a dichotomy between internal and external affairs. Instead, federal-forum provisions lie between these extremes on a continuum (Salzberg v. Blue Apron Holdings, Inc., March 18, 2020, Valihura, K.). See full coverage.
10. ENFORCEMENT
SEC’s request for injunction against Telegram granted
The Southern District of New York has granted the SEC’s request for a preliminary injunction again Telegram Group prohibiting the delivery of its tokens (Grams) to initial purchasers in violation of registration provisions of the federal securities laws. According to the court, Gram purchasers possessed a reasonable expectation of profit based upon the efforts of Telegram in terms of gains from the resale of the tokens in the post-launch period. Under the test set forth in SEC v. W.J. Howey Co., the SEC has sufficiently alleged that the series of contracts and understandings related to Grams are securities, the court found (SEC v. Telegram Group Inc., March 24, 2020, Castel, K.). See our full coverage.