This week’s corporate law news roundup includes discussions of the SEC’s suspended enforcement of some of the conflict minerals rule’s most onerous provisions; the SEC’s action to increase the JOBS Act caps to adjust for the inflation that resulted in a $1.07 million crowdfunding cap and $1.07 billion cap on revenues of “emerging growth companies”; and the SEC’s newly released Compliance and Disclosure Interpretations (C&DIs) on Regulation A offerings.
SEC SUSPENDS ENFORCEMENT OF PART OF CONFLICT MINERALS RULE
On April 7, 2017, just weeks before 2017′s conflict minerals disclosure deadline, the SEC suspended the enforcement of Item 1.01(c) of Form SD, the most onerous and costly due diligence requirement under the Conflict Minerals Rule (Securities Exchange Act Section 13(p)(1) and Rule 13p-1 thereunder), in response to the April 3, 2017 judgment issued by the U.S. District Court for the District of Columbia in a case where the Court found that the Rule violated the First Amendment. Due to the suspension of Item 1.01(c), public companies will not be required to conduct an independent private sector audit (IPSA) and disclose the audit findings on their websites when their reasonable country of origin inquiry (RCOI) shows that they know or have reason to believe that their conflict minerals may have originated in Democratic Republic of Congo or an adjoining country and are not from recycled or scrapped sources. However, public companies must still comply with Items 1.01(a) and (b), requiring them to conduct RCOIs and if they conclude based on the RCOIs that their conflict materials do not come from a covered country or from recycled or scrapped sources, they must disclose such conclusions on Form SD and on their websites. For more information, see https://www.sec.gov/news/public-statement/piwowar-statement-court-decision-conflict-minerals-rule and https://www.sec.gov/news/public-statement/corpfin-updated-statement-court-decision-conflict-minerals-rule.
SEC INCREASES JOBS ACT CAPS TO ADJUST FOR INFLATION, RESULTING IN A $1.07 MILLION CROWDFUNDING CAP AND A $1.07 BILLION EGC REVENUE CAP
On April 5, 2017, the SEC amended JOBS Act thresholds to increase the amount of money companies may raise through crowdfunding, raising the cap from the $1 million original amount to $1.07 million. The SEC also approved amendments that increase the threshold for determining the eligibility for benefits offered to “emerging growth companies” (EGCs) to adjust for inflation, raising the threshold from $1 billion to $1.07 billion. EGCs are eligible for several exemptions from a number of disclosure, shareholder voting and other regulatory requirements. For more information, see https://www.sec.gov/news/press-release/2017-78 and https://www.sec.gov/rules/final/2017/33-10332.pdf.
SEC RELEASES COMPLIANCE AND DISCLOSURE INTERPRETATIONS (C&DIs) ON REGULATION A OFFERINGS
On March 31, 2017, the SEC issued six Compliance and Disclosure Interpretations (C&DIs) related to Securities Act Regulation A. These C&DIs clarify, among other things, that (i) an issuer may file a Form 1-Z to suspend its Tier 2 reporting obligation where the Tier 2 offering is validly withdrawn in a timely manner, (ii) a Tier 2 offering issuer may follow the age of financial statements requirements in Part F/S paragraphs (b)(3)ï¿½(4) for financial statements covering both the fiscal year and interim periods, (iii) an issuer does not need to file a tax opinion as a Form 1-A exhibit , (iv) the SEC staff will not object if an issuer with an ongoing Regulation A reporting obligation omits auditor consent to using an audit report for financial statements included in a Form 1-K as a Form 1-K exhibit and (v) Securities Act Industry Guide 5′s Item 19.D does not require an issuer to submit its sales materials supplementally to the SEC staff prior to use if the materials are used in connection with a Regulation A offering. For more information, see https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm