Since the Bass, Berry & Sims Corporate & Securities Practice hosted its 2nd Annual Corporate & Securities Counsel Public Company Forum in December 2020, the Biden Administration has proposed a new Securities and Exchange Commission (SEC) Chairman. Below is an update from our 2021 Financial Reporting & Disclosure Considerations panel discussion, in which Bass, Berry & Sims member Scott Holley reviews some potential areas of focus for the SEC under the new administration.
On January 18, then-President-elect Biden announced that he intended to nominate Gary Gensler to serve as chair of the SEC. Gensler, a former Goldman Sachs executive, served as the chairman of the Commodity Futures Trading Commission during a portion of the Obama administration. Under Gensler’s leadership, it is expected that the SEC’s efforts will include an increased focus on enforcement efforts as well as disclosures relating to climate change risk and diversity and inclusion efforts of boards of directors. Gensler’s recent service as a professor at MIT, where he taught courses on blockchain technology, digital currencies and financial technology, could also shape his agenda at the SEC.
The timing of when Gensler will be confirmed by the Senate is unclear as the Senate had been focused on working out a power-sharing agreement between Democrats and Republicans in the evenly divided Senate as well as more pressing confirmations and issues like the recently concluded trial of former President Trump. Once confirmed, it will be interesting to see how Gensler handles the issues seen in the recent market volatility around stocks like GameStop and AMC and the impact decisions made by online trading apps like Robinhood had on that volatility.
Now that the SEC’s rule changes related to how issuers measure significance for purposes of acquisitions and dispositions have become effective, one area of focus will be on how the investment test utilizing the worldwide market value of an issuer’s common stock is evaluated by issuers and the SEC. Issuers should not expect the Office of the Chief Accountant to have much flexibility on the application of the investment test under revised Regulation S-X as it relates to calculating the aggregate worldwide market value of the issuer’s common stock. If a company’s stock price is temporarily depressed because of some event outside the control of the company in the last five trading days of the month before the month that a deal is signed or announced, as was the case in the early days of the COVID-19 pandemic, it is not expected that the Office of the Chief Accountant will allow an issuer to use a different measurement period to calculate a more normalized worldwide market value. The SEC Staff will likely take the position that the company could control the timing on signing up the transaction so if it felt the stock price was depressed, it could have waited to sign the deal until the stock price returned to more normalized trading levels.
To view our full Public Company Forum on-demand, or to watch individual sessions from the program, please click here.
