With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. 3d 1041, 1049-50 (N.D. Cal. Second, there may be advantages to providing greater clarity on the scope of the safe harbor in the PSLRA. To be effective, he said, new SEC rules "must produce results that are useful, consistent, and comparable." Previously, she represented private and public companies on corporate and securities matters at Hill & Barlow law firm. Coates, Lindsey. In their second stage, SPACs complete a business combination transaction, in which the SPAC, the target (i.e., the private company to be acquired), or a new shell holdco issues equity to target owners, and sometimes to other investors. Open in Who Shared Wrong byline? SEC is scrutinizing SPAC projections, seeks clearer disclosures - CNBC Claims that disclosure would incentivize companies only to reduce or mitigate climate change impacts are not well considered. Rec. Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. Coates' Canons NC Local Government Law. On balance, research on the Act's net . Read fairly and dispassionatelynon-politically, one might saydisclosures specified by the rule are not about environmental impact, or climate change, but about financial risks and opportunities related to climate change. It is also not a rule the EPA or any other regulatory agency has adopted or could legally adopt. PDF ISSN 1936-5349 (print) HARVARD - Harvard Law School For questions call 1-877-256-2472 or contact us at [emailprotected], Shearman and Hogan Lovells Call Off Merger Talks, Early Reports: 2023 Am Law 200 Financials, Beyond Excess Capacity, Pooled Services and Automation Expedite Staff Layoffs, Dozens of Law Firms Grew Their Equity Partner Tier, Even as Profits and Demand Plummeted. They will go unresolved by this proposed rule. That ESG no longer needs to be explained illustrates how important these issues have become to todays investors, public companies and capital markets. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. 'Horrendous enemy, terrific friend': What drives AOC head John Coates? Before joining the faculty at Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. ESG Disclosure - Keeping Pace with Developments Affecting Investors ESG problems are global problems that need global solutions for our global markets. As noted above, this claim is wrong because the securities laws already limit the Commissions power in two ways, to the use of disclosure (versus merits review) as a regulatory tool, and to the use disclosure for the protection of investors. These claims are further belied by a string of decisions in which courts have rejected attempts by the Commission to rely on disclosure and anti-fraud authority to engage in substantive regulation of corporate transactions or corporate mismanagement. Statement (PDF) . Most large public companies report much climate information, albeit in a non-comparable and inconsistent way. Key points: Coates was a key figure in Brisbane's 1992 Summer Olympics bid, which lost out to Barcelona The IOC has designated Brisbane as the preferred candidate city to host the 2032 Olympics Coates says he is confident Brisbane can keep costs down if it does host the Games I will work tirelessly to execute our rules and make sound recommendations that will help the SEC realize its mission.. To make their case, they distort the proposed rule beyond any fair reading, into a new, fictional rule that addresses environmental concerns rather than investor concerns. Thousands more have been filed since the release was proposed, including many from self-identified individual investors. First, I am not pro- or anti-SPAC. No court has ever found that this long line of exercises of the basic authorities on which the current rule relies were beyond the Commissions authority. The idea that the SEC can go out and do more research on these issues, however, was dismissed by former SEC general counsel John Coates, now a professor at Harvard Law School, who wrote in his. The institutions included both passive index funds and actively managed funds, as well as pension funds and other kinds of institutions. Congress wanted and authorized the Commission to require disclosure to protect investors despite these limits, based on its expert judgment about what its experience and qualitative evidence showed it, supplemented by whatever science can add. [15] The PSLRAs exclusion for blank check companies overlaps the exclusion for penny stock issuers. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets. Rep. No. Earnings statements, analyst call scripts, investor presentations, and the regular flows of press releases, investor relations communications and other ways companies supplement disclosure requirements are commonly longer or more complex than anything required by the Commissions rules. Apr. But to develop and apply a disclosure rule of the kind proposed here does not require the same level of climate expertise as held by EPA (or, for climate changes impact on weather, the National Oceanic and Atmospheric Administration), and those agencies lack the expertise in finance, accounting and investment that is also necessary for any investor-oriented disclosure rule that addresses climate-related financial risk. From a legal authority point of view, company- and investor-based calibration is in keeping with the Commission focusing on investors, rather than on environmental priorities. Because the items listed in the statutes themselves could not reasonably be understood to cover all pertinent facts, the final language in the statute also reflected an expectation that Commission regulations would be needed to augment the statute itself. The Commissions proposed rule relies upon a traditional role for regulatory agenciesto find facts and use the facts so found to implement Congresss direction to require disclosures for a stated purposethe protection of investors. Circuit concluded in 1979 that based on the record before it at that time, the Commission was not required to adopt environmental disclosure obligations beyond what it had already adopted, the Court also concluded that it was authorized to and could do so, if the Commission itself came to an expert judgment that doing so was in service of its statutory missions of protecting investors and promoting the public interest. To be sure, an IPO is generally understood to be the initial offering of a companys securities to the public, and the SPAC shell company initially offers redeemable equity securities to the public when it first registers to raise funds in order to look for and later acquire a target. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. The Commissions authority is plain in its organic statutes, legislative history, in long-standing precedent, in both court decisions and its own rules, and repeatedly accepted by Congress through amendments of the statutory bases for those rules. The result is a continuously adjusted, detailed system of disclosure specifications, reflecting the Commissions fact-finding and expertise. SEC to Move 'Promptly' on ESG Rulemaking in 2021, Official Says Fund v. KCG Holdings, Inc., No. Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. And thank you very much for the invitation to be in a place I don't usually go, right? Some claim the Commission has acknowledged or adopted limits on its disclosure authorities, beyond limits in the text of the statutes. Contrary to some critics, letters from individuals also supported climate-related disclosures and were cited several times in the proposing release. 5-min read. The creation of an entire new agency (the Commission) to implement and enforce the laws. The D.C. SEC.gov | John Coates Named Acting Director of the Division of To recap what is discussed above, EPAs authority is both materially broader and narrower than the Commissions, even as to the subpart of the Commissions rule addressing greenhouse gas emissions: In sum, EPA could not duplicate (or even approximate) the proposed investor-oriented rule, and the Commission could not duplicate (or even approximate) EPAs greenhouse gas disclosure rules. To be sure, some elements of the SECs regulatory regime reflect a recognition that small or new public companies may not be as able to shoulder the costs of all disclosure requirements as older, larger companies. 2019-0100-KSJM, 2019 WL 1313408 (Del.Ch. The proposed rule does not call for opinion or controversial speech of the kind that raises First Amendment concerns. Changes came as part of an omnibus criminal law Session Law 2021-138, Part XXI. In those rules and regulations we expected them, in drafting their forms, to go more into detail with regard to requirements. Join National Law Journal now! Said plainly, many investors in the SPACs own initial offering are not the investors in the ultimate public companys ongoing business operations. Companies could comply with the rule and say: No debate over the level of risk created by climate change is predetermined or purported to be resolved by the rule. If there are risks to the use of cost-effective, complete, and reliable forward-looking information in any setting, those risks should be carefully evaluated in light of the goals of the federal securities laws. Supporting statements were also overwhelmingly filed directly by investors of all kinds (not just or even primarily from socially activist or impact investors). (Jan. 14, 2021). But nothing in the 1933 Act or the 1934 Act imposes limits on the Commissions authority to refine the mode, detail, format, method, or specificity of required disclosures. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. 14, 2014) (setting forth special procedures required in mergers involving control shareholders, without which heightened entire fairness must be shown by interested fiduciaries); Olenik v. Lodzinski, 208 A.3d 704 (Del. John Coates Financial Services Professional at NYLIFE Securities LLC Not a Bloomberg Law Subscriber?Subscribe Now. Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. As the House Report accompanying the 1934 Act explained: The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings about a situation where the market price reflects as nearly as possible a just price. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the companys future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework later used by courts to assess the disclosures. 23, 2013) (citing Sawant v. Ramsey, 3:07-CV-980 VLB, 2010 WL 3937403 (D. Conn. Sept. 28, 2010) (holding that otherwise forward-looking statements that contain misrepresentations of current facts are not protected by the safe harbor provision of the PSLRA or the bespeaks caution doctrine); In re Nortel Networks Corp. Sec. Cost-Benefit Analysis of Financial Regulation: Case Studies and These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. It is true that the subject matter of the financial risks and opportunities raised by climate change are complex, and climate experts have specialized knowledge about climate science. It does not even address new topics for purposes of disclosure, but instead (as discussed above) changes the specificity and mode of disclosure about long-regulated topics. Therefore companies should ensure that any public disclosures of non-GAAP financial measures comply with applicable SEC rules and staff guidance. The 2023 Reporting Season: Recent SEC Guidance On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. They sometimes specifically point to the Private Securities Litigation Reform Act (PSLRA) safe harbor for forward-looking statements, and suggest or assert that the safe harbor applies in the context of de-SPAC transactions but not in conventional IPOs. The Helpful Hand Guiding Brisbane's Olympic Victory. One of the primary purposes of the 1934 Act was to augment the 1933 Act by giving the Commission authority to require ongoing reports by companies whose securities were traded on stock exchanges. Although courts have increasingly applied the First Amendment to disclosure obligations over time, critics are able to cite no case law supporting the notion that simply because facts may inform or be relevant to a political debate, requirements calling for disclosure of those facts are subject to heightened scrutiny, much less violate the First Amendment. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. This statement does not alter or amend applicable law and has no legal force or effect. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to climate-related financial risk. In adopting mandatory risk factor disclosures, for example, which had previously been made by many companies, but not by all; in adopting disclosure requirements for derivative contracts, which many companies had disclosed in detail, but others had not; and in codifying thresholds for disclosure of environmental liabilities, which many companies had been previously disclosing, but not all, or consistently, or reliably.
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