Securities and Exchange Commission Working to Provide Relief During COVID-19 Crisis

Washington, D.C. - April 13, 2020 - (The Ponder News) -- The Securities and Exchange Commission announced on Wednesday that it is providing temporary, conditional exemptive relief for business development companies (BDCs) to enable them to make additional investments in small and medium-sized businesses, including those with operations affected by COVID-19. BDCs were created to provide capital to smaller domestic operating companies that otherwise may not be able to readily access the capital markets. Today’s relief will provide additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies, and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. Today’s relief is subject to investor protection conditions, including specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members.

“Many small and medium-sized businesses across the country are struggling due to the effect of COVID-19, and today’s temporary, targeted action will enable BDCs to provide their businesses with additional financial support during these times,” said Chairman Jay Clayton. “The method for calculating the level of permitted financing and the other important conditions included in the order are designed to ensure that this temporary relief will both protect and benefit investors in the BDCs.”

This relief is the latest in a series of steps the Commission has taken to assist financial market participants in addressing the impacts of the coronavirus. The Commission’s website provides additional information regarding its response. The Commission and its staff continue to assess impacts relating to the coronavirus on investors and market participants, and will consider additional relief from other regulatory requirements where necessary or appropriate. Firms and financial professionals affected by the coronavirus are encouraged to contact the staff with questions and concerns.

The Securities and Exchange Commission voted to adopt rule amendments to implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act relating to business development companies and other closed-end funds.

Business development companies—or BDCs—are a type of closed-end fund established by statute that primarily invest in small and developing companies. As directed by Congress, the rules will allow business development companies and other closed-end funds to use the securities offering rules that are already available to operating companies. The amendments are designed to streamline the registration, offering and investor communications processes for BDCs and registered closed-end funds and will provide important benefits to market participants and investors, including advancing capital formation and modernizing and streamlining disclosures. The Commission’s reforms will allow eligible funds to engage in a streamlined registration process that has long been available to operating companies, including modernized communications and prospectus delivery procedures and requirements. As a result, they will be better able to respond to market opportunities.

“The amendments we are adopting will modernize the offering process for eligible funds in a way that, as borne out by our experience with operating companies, will benefit both investors in these funds and the companies in which they invest,” said SEC Chairman Jay Clayton. “This is another example of our staff’s laudable efforts to modernize our rules in a manner that furthers all aspects of our mission. It is my hope, particularly when many of our small and medium sized businesses are facing profound challenges not of their own making, that these and other modernization efforts will provide those businesses more efficient access to financing.”

The reforms include changes that supplement the specific amendments mandated by Congress. These changes are designed to better align the modern immediately-effective or automatically effective offering process long available to other types of funds with the structures of the newly eligible funds. They also include disclosure requirements and new structured data requirements that will make it easier for investors and others to analyze fund data.

Most of the amendments will become effective on Aug. 1, 2020.

Representative Trey Hollingsworth (R-IN) released the following statement after the Securities and Exchange Commission (SEC) voted to adopt amendments to provide relief to small public companies with less than $100 million in annual revenue from Sarbanes-Oxley 404(b) requirements.

“Last Congress we passed a bipartisan bill to ensure smaller companies can invest in cures, not excessive compliance; I’m happy to see the SEC is carrying this forward and enabling American firms to continue leading the world in groundbreaking research,” said Rep. Hollingsworth.

Rep. Hollingsworth and Rep. Ben McAdams (D-UT) introduced the Fostering Innovation Act in 2019 to allow small emerging growth companies to keep capital working to fund business needs, rather than on costly and unnecessary regulatory filings. The bill would extend the Sarbanes-Oxley Section 404(b) exemption for an additional five years for a small subset of emerging growth companies with an annual average revenue less than $50 million and less than $700 million in public float. The House previously passed the Fostering Innovation Act in the 115th Congress in both the CHOICE Act and the JOBS Act.

“This timely action by the SEC comes at a critical time for many growing companies, including those in the bioscience sector, to keep vital capital working in research and development, rather than costly regulatory requirements. America has long been a leader in scientific and medical innovation, and this move by the SEC helps ensure that will continue,” said McAdams.

“These amendments allow small biotech companies in Indiana and across the country to focus their scarce resources on developing life-saving therapies. We are grateful to Rep. Hollingsworth for his leadership on the “Fostering Innovation Act” and to the SEC for adopting these changes, which will positively impact patients,” said Kristin Jones, President of the Indiana Health Industry Forum.

The SEC adopted amendments to the “accelerated filer” and “large accelerated filer” definitions. This action tailors regulatory issues for these start-ups that had no revenues or low annual revenues in the most recent fiscal year. The amendments adopted by the SEC do not change key protections from the Sarbanes-Oxley Act of 2002.

Reed Introduces Legislation to Hold Corporate Executives Accountable for Fraudulent Actions

Washington, D.C. - October 5, 2017 (The Ponder News) -- In an effort to prevent fraudulent and negligent behavior at large financial institutions and hold senior executives accountable, U.S. Senator Jack Reed has introduced the Corporate Management Accountability Act, which asks publicly traded companies to disclose policies on whether senior executives or shareholders bear the costs of paying the company’s fines and penalties.

Reed is introducing the legislation in the wake of several notable instances of negligent behavior by financial institutions - including Wells Fargo’s exploitation of its customers by opening unauthorized accounts and Equifax’s endangering millions of consumers by compromising critical personal information - that continue to undermine public confidence in the financial marketplace.

“Senior executives, many of whom are eager to take credit for a company’s good news, must also take more responsibility for the bad news, especially if it is true that the buck stops with them,” said Senator Reed, a senior member of the Senate Banking Committee. “For example, the Financial Crisis Inquiry Commission concluded ‘the financial crisis reached cataclysmic proportions with the collapse of Lehman Brothers,’ and yet, according to the Congressional Research Service, not a single senior executive officer at Lehman Brothers at the federal level was charged, went to jail, or personally paid a federal fine or penalty for the damage caused at Lehman Brothers that rippled through our economy in 2008. Companies must do a better job of aligning executive incentives so that they are motivated to put their shareholders, and not themselves, first.”

According to Professor Peter J. Henning, who writes for the White Collar Watch column for the New York Times: “A problem in holding individuals accountable for misconduct in an organization is the disconnect between the actual decisions and those charged with overseeing the company, so that executives and corporate boards usually plead ignorance about an issue until it is too late.”

The Corporate Management Accountability Act is one attempt at helping to solve this problem by asking publicly traded companies to disclose whether they expect senior executives or shareholders to pay the cost of corporate fines or penalties.

In the wake of the Wells Fargo scandal, Senator Reed questioned former Wells Fargo CEO John Stumpf during a Banking Committee hearing and pushed for answers as to why the bank opened up millions of fake bank accounts for customers. In August, after it was revealed that as many as 570,000 Wells Fargo customers may have been charged premiums for unwanted auto insurance they did not need, he joined his fellow committee members (Ranking Member) Sherrod Brown, Elizabeth Warren, and others in leading the call for a public hearing to review consumer rights violations by Wells Fargo.

In September, after Equifax revealed that unauthorized parties had obtained sensitive information such as Social Security numbers, addresses, and driver’s license numbers for as many as 143 million people, Senator Reed led a bipartisan group of 37 senators asking the Securities & Exchange Commission (SEC), the Department of Justice (DOJ), and the Federal Trade Commission (FTC) to investigate the sale of nearly $2 million in Equifax securities held by high-level Equifax executives shortly after the company learned of the massive cybersecurity breach. According to the New York Times, Equifax “increased its estimate on the number of Americans whose personal information was potentially exposed to 145.5 million, some 2.5 million more than it had previously disclosed.”