As of May 5, 2020, the COVID-19 pandemic has accompanied a precipitous descent in the domestic securities markets, followed by a surprisingly sharp rebound. Such volatility may well give rise to several different types of potential liability against companies and their officers and directors, including:
Securities fraud claims under the Exchange Act of 1934 (the “Exchange Act”).
Claims related to offerings of securities under the Securities Act of 1933 (“Securities Act”).
Claims under the various state securities claims, i.e., the “Blue Sky” laws.
In response to the ill effects the coronavirus pandemic is having on business, the Securities and Exchange Commission on May 4, 2020 adopted a temporary final rule to make it easier for existing businesses to raise up to $250,000 through Regulation Crowdfunding.
Under the relaxed rules, which are in effect only until August 31, 2020, a business is excused from complying with the Regulation Crowdfunding requirement to have its financial statements reviewed by an independent public accountant. During this limited period, the SEC is requiring only certain information from the business’ Federal income tax returns certified by the principal executive officer. That represents a significant time and financial savings for companies – especially small businesses – that need a quick infusion of capital during rough times caused by the COVID-19 virus. Continue reading “SEC Offers an Elixir for Small Businesses Feeling the Financial Effects of COVID-19”
On March 26, 2020, the Securities and Exchange Commission (the “Commission”) announced that it would be providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (“COVID-19”). This relief addresses: (1) temporary relief from the notarization requirement for Form ID for certain filers who cannot secure a notarization because of COVID-19; (2) extending the filing deadline for specified Regulation A and Regulation Crowdfunding reports and forms from certain companies unable to file timely reports and forms because of COVID-19; and (3) extending the filing deadline for submitting annual update filings (“Form MA-A”) to Form MA for certain municipal advisors affected by COVID-19. Continue reading “Additional SEC Relief is Revealed”
Earlier this month, the U.S. Securities and Exchange Commission (the “SEC”) provided conditional regulatory relief to those public companies impacted by COVID-19 (novel coronavirus) with a 45-day extension to file certain SEC filings that would have been otherwise due between March 1, 2020 and April 30, 2020. The SEC announced today that it was modifying that prior relief to cover certain filings due on or before July 1, 2020. The SEC acknowledged that many companies’ operations continue to be significantly impacted by the ongoing COVID-19 pandemic, which may result in difficulties for those companies to meet their applicable SEC filing deadlines. Continue reading “COVID-19 Causes Coverage”
On March 25, 2020, the SEC’s Division of Corporation Finance provided disclosure guidance to public companies to assist in the evaluation of a company’s disclosure obligations with respect to the COVID-19 (novel coronavirus) pandemic and related business and market disruptions.
While it may be difficult for companies to assess or predict the exact impact of COVID-19 on individual companies or entire industries, the SEC explained that a company may have obligations to disclose certain risks and effects to the extent material to investment and voting decisions. Such risks and effects include the impact of COVID-19 on the current state of a company’s operations, management expectations regarding its future effects, a company’s response to the evolving pandemic and operational plans to address such uncertainties. The SEC noted that disclosure of these risks and COVID-19-related effects may be necessary or appropriate in various sections of SEC filings, including, but not limited to, management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and a company’s financial statements. Continue reading “SEC Sets Course on COVID-19 Disclosure”
With the recent “social distancing” measures that include the closure of schools, bars and restaurants, gyms, libraries, Broadway theaters, large retailers, and other businesses, many companies operating in New York City are being seriously impacted. Although some bigger companies may survive this economic crisis, small businesses likely face a grim future. Continue reading “Big Apple, Small Business”
On March 13, 2020, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) announced that they have adopted a series of temporary changes to their civil merger investigation processes, which will remain in place during the pendency of the Coronavirus (COVID-19) event.These changes will ensure that the DOJ and FTC will be able to continue operations as their employees carry out their duties under a mass telework directive in accordance with health guidance from the CDC, WHO, and other health authorities. These temporary measures include the following: Continue reading “Merger Modifications”
On March 13, 2020, the U.S. Securities and Exchange Commission (the “SEC”) published guidance to assist public companies, investment companies, shareholders and other market participants affected by COVID-19 in connection with their upcoming shareholder meetings. The SEC explained that this guidance was designed to allow these companies to continue to hold their meetings, including through the use of technology, and engage with shareholders under social distancing circumstances, while still complying with the federal securities laws.
Shareholder Meetings – The Impact of COVID-19 and the Natural Transition to Virtual Meetings
Generally, public companies and investment companies are required to hold annual meetings of security holders, with the federal securities laws requiring the delivery of proxy materials to the voting shareholders.Over the past few years, more and more companies have been transitioning to either complete “virtual” shareholder meetings or “hybrid” meetings, which avoid the need for in-person shareholder attendance. Continue reading “Shareholder Distancing”
In an unusual and courageous move last week, SEC Commissioner Hester Peirce (aka “Crypto Mom”) urged the Securities and Exchange Commission to adopt a rule that would exempt the sale of tokens or cryptocurrencies from most provisions of the federal securities laws. It’s courageous in its scope and unusual because she (and her staff) drafted the proposed rule leaving the SEC few excuses to avoid considering it.
If adopted by the SEC, the rule will allow anyone to conduct initial coin offerings (ICOs) of tokens intended to be used to develop a decentralized or functional network, provided, that “Network Maturity” occurs within three-years. “Network Maturity” is defined by the proposed rule as when the network is either (i) no longer controlled by a single group or (ii) is functional, as demonstrated by the ability of token holders to use tokens for the transmission and storage of value, to prove control over the tokens, to participate in an application running on the network or in a manner consistent with the utility of the network. Continue reading “SEC Commissioner Hester Peirce’s Provocative Crypto Proposal”
One of the main benefits afforded to a corporate structure is the limited liability protection for its owners. This means that the corporation and its shareholders are treated as separate legal entities and it is the corporation’s assets, and not the assets of its individual shareholders, that are available to pay for judgments and claims of creditors.
In certain limited circumstances such as fraud, disregard for corporate formalities, and inadequate capitalization, the limited liability shield can be “pierced” by the courts to hold the corporation’s shareholders personally liable for the corporation’s debts and other obligations. Such “piercing” of the corporate limited liability shield is a prevalent practice in most if not all states. Continue reading “Unlimited Liability for New York Business Owners”