1. As anyone even vaguely familiar with how legislative sausage is made might suspect, interesting changes to U.S. securities laws are embedded in the casing of the recently enacted FAST Act (Fixing America’s Surface Transportation), here, which started its journey through Congress as the Hire More Heroes Act and the DRIVE (Developing a Reliable and Innovative Vision for the Economy) Act. See here. Among the various provisions carefully and coherently designed to whisk you more swiftly to your domestic U.S. destination, the Act includes:
   • Some gifts for emerging growth companies (EGCs), including reducing from 21 to 15 days the minimum pre-road show public filing of confidential registration statements, a grace period to allow those who start an IPO as an EGC but then cease to qualify as an EGC to complete the IPO (subject to time limits) under the more relaxed EGC rules (Section 71002) and potential omission of some financial information from confidential filings (Section 71003).
   • Permission for filers to include a “summary page” for Form 10-K (Section 72001) and a mandate for the SEC to make Regulation S-K better in the next 180 days (Section 72002) and also to complete a study of how to make Regulation S-K better in the next 360 days and implement study recommendations in the 360 days after that (Section 72003).
   • Amendments to Section 4 of the Securities Act of 1933 (Section 76001) to codify, sort of, the 4(a)(1-1/2) exemption that securities law practitioners made up. (Seriously! Section 4 amendments! Just shoehorned into a transportation bill!) This one really is interesting, so we’re showcasing it below in Item 2.
   • A Mandate that the SEC revise Form S-1 to permit a smaller reporting company to incorporate by reference in a registration statement any documents the company files with the SEC after the effective date of the registration statement (Section 84001).

Other summaries of these FAST Act provisions are here and here.

2. The FAST Act amends Section 4 of the Securities Act of 1933 to add subsections (a)(7), (d) and (e), which codify the “4(a)(1-1/2)” exemption developed through case law and SEC no-action letters. Section 4 as amended is here. Before describing the new law, some background:
   • Section 4(a)(1) of the Securities Act exempts from registration sales of stock by anyone other than an issuer, underwriter or dealer. Sellers typically rely on the safe harbor of SEC Rule 144 to confirm they are not an “underwriter”; in addition, the SEC adopted Rule 144A to allow non-registered resales by underwriters to qualified institutional buyers (QIBs), and resales by QIBs to other QIBs, and subsequently allowed general solicitation under Rule 144A as long as ultimate sales are made to QIBs. (The SEC apparently considered codifying the 4(a)(1-1/2) exemption more broadly way back when, but settled on adopting Rule 144A instead to address the need for this specific transaction by underwriters.)
   • Section 4(a)(2) of the Securities Act exempts from registration offers and sales of securities by the issuer not involving a public offering. Only an issuer can rely on this exemption, and practitioners typically look to the safe-harbor requirements in Regulation D to determine when offers and sales are private.
   • Many characterize the “4(a)(1-1/2)” exemption as living somewhere between these two statutory exemptions. According to the SEC, the exemption is “a hybrid exemption not specifically provided for in the 1933 Act but clearly within its intended purpose . . . so long as some of the established criteria for sale under both Section 4[(a)](1) and Section 4[(a)](2) . . . are satisfied.” (See footnote 178, here.) Generally, the issue resolved by the 4(a)(1-1/2) exemption is that a recipient of shares may look like an underwriter, either because he recently purchased the shares or is an affiliate of the issuer, but a truly private resale doesn’t look like a “distribution” that defines an underwriter (per Section 2(a)(11) of the Securities Act, “the term 'underwriter' means any person who has purchased from an issuer with a view to…distribution”). Although the Securities Act doesn’t define “distribution,” law and lore equate it with “public offering.”
   • The SEC says “some” of the 4(a)(1) and 4(a)(2) criteria must be satisfied for a 4(a)(1-1/2) exemption to be valid, but determining which criteria of the exemptions must be satisfied is the rub, and this has generally been developed through no-action letters, when the SEC has deigned to issue them, and by guessing.
   • The SEC’s Advisory Committee on Small and Emerging Companies recommended in June 2015, here, that the SEC formalize the 4(a)(1-1/2) exemption in part because of the expense involved in getting legal opinions that cover it, which, the Committee claims, typically require that the purchaser be accredited and that there be no general solicitation. Congress didn’t wait for SEC action and instead amended the law.

New subsection 4(a)(7) of the Securities Act exempts from registration resales of securities if (a) the buyer is accredited, (b) the seller doesn’t engage in general solicitation, and (c) for non-public companies, buyer and seller get specified information from the issuer. The exemption is not available for some, including if the seller is a subsidiary of the issuer or a “bad actor.” (Again, check out the amended text here).The FAST Act also amends Section 18 of the Securities Act to define securities sold under the exemption as “covered securities” not subject to state regulation.

The new safe-harbor requirements in 4(d) are somewhat restrictive in that they allow sales only to accredited investors, require delivery to sellers and buyers of issuer financial statements that may not be readily available, and block sales by some sellers and sales of some types of issuer’s stock. Sellers might have preferred no safe harbor, since it describes circumstances that everyone already knew qualified for the exemption and because courts may pull the contours of the exemption toward what has now been established as safe. (To its partial credit, Congress recognized this possibility in its awkwardly-phrased addition of subsection 4(e), which tells us that “subsection (a)(7) shall not be the exclusive means for establishing an exemption from the registration requirements of section 5.”)

3. The SEC announced, see here, that voluntary disclosure of FCPA violations is now a sine qua non, but not the ne plus ultra, for deferred prosecution and non-prosecution agreements. SEC Enforcement Division Director Ceresney’s speech unveiling the policy, here, leaves many asking: Res ipsa loquitur, sed quid in infernos dicet.
4. Proxy advisers released a host of stuff in the last few weeks, including:
   • ISS QuickScore 3.0, here;
   • 2016 Proxy Voting Guidelines, here (ISS) and here (Glass Lewis)
   • FAQs on ISS’s Equity Plan Scorecard, here.

Summaries of ISS and Glass Lewis actions are here, here, here, here, here and here.

Recall that proxy advisers offer the opportunity to verify data and update peer groups, including:

• Data used to calculate the ISS QuickScore (see here).
• Data about equity plans (see here).
• Updates to peer groups for executive compensation comparisons (see here and here).

If your board cares about ISS and Glass Lewis ratings, it’s worth taking time to verify the data they use.

5. As the end of 2015 draws near, we begin to get questions about 2016 proxy disclosure and whether new disclosures are required in 2016. The short answer is no. But for those who crave more, and as a useful reminder about the status of various SEC rules:
   • We expect no D&O Questionnaire updates, unless your auditor insists on ferreting out more information about related party transactions under PCAOB Auditing Standard No. 18 (here).
   • Final pay ratio disclosure rules (here) cover 2017 compensation, so disclosure isn’t required until your proxy statement filed in 2018.
   • Proposed SEC clawback rules (here) are not yet final, and clawback requirements will be implemented through exchange listing standards, which will take time to propose and implement even after the SEC adopts final rules.
   • Proposed SEC pay versus performance disclosures (here), which would require companies to disclose the relationship between executive pay and the total shareholder return of the company and its peer group, are not yet final.
   • Proposed SEC hedging disclosure rules (here), which would require that a company disclose whether it permits its directors, officers and employees to engage in hedging transactions, are not yet final. (Most already disclose hedging transactions and this additional disclosure isn’t a big deal.)
6. The SEC released its fourth annual whistleblower report to Congress, here. The Office of the Whistleblower received more than 3,900 whistleblower tips in 2015, a 30% increase since 2012, which the SEC attributes to increased public awareness of the program due to Dodd Frank’s implementing rule awarding 10 to 30 percent of a securities violation when the penalty is greater than $1 million.
7. Nasdaq solicited general comments, here, on its shareholder approval rules. The comments may lead to future proposals to modify the rules but nothing specific is proposed.
8. Cast us as climate change disclosure skeptics (go ahead, we can take it), but we groan whenever interest renews in forcing public disclosures about the potential effects of climate change. (As opposed to, say, adopting substantive laws.) The latest comes from the New York Attorney General’s use of the Martin Act against Exxon Mobile, which he claims misled the public about the perils of climate change. See here, here, and here. Recall that, unlike federal securities laws, the Martin Act does not require a showing that a company intended to defraud investors, just that it misrepresented material information to investors. The Exxon investigation follows the NY AG’s settlement with coal company Peabody Energy, see here, which agreed to disclose projections of long-term coal use from the International Energy Agency, enhance disclosures about the impact on its business of more strict regulation of coal use, and stop saying it can’t reasonably predict the economic effect of potential new regulation. Peabody’s updated disclosures are here. Recall that the SEC issued climate change disclosure guidance way back in 2010, here; more recently, congressional Democrats asked the SEC to report how it has ensured compliance with the guidance here.
9. We aren’t sure whether to feel validated or marginalized that colleagues are tumbling to our view on crowdfunding (generally, a loser) after publication of the Wall Street Journal article here.