But it remains true that IPOs are understood as a distinct and challenging moment for disclosure. Litig., 238 F. Supp. I am unaware of any relevant case law on the application of the IPO exclusion. [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. MD&A: The 12-month period ended June 30, 2022, represents the first period in which companies were required to comply with the amended MD&A disclosure requirements adopted by the SEC in November 2020. EPA, by contrast, focuses on conduct in the United States. Voluntary, unassured disclosures are more likely to include greenwashing, impairing investors ability to assess and price risk, and undermining honest companies ability to communicate with investors and build confidence; some greenwashing rises to the level of fraud, while other disclosures or omissions may not rise to the level of actionable fraud with proof of scienter. It would have a relatively modest impact on the economy as a whole, and basically levels up disclosure requirements to disclosures already made by the majority of large companies. That does not make those rules unduly burdensome or costly. 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. (Jan. 14, 2021). From an environmental policy perspective, prioritizing based on environmental impact might make sense. The D.C. Its greenhouse gas emission disclosure elements are aligned with the EPAs existing requirements for US emission sources, which in turn are aligned with the widely used and privately developed Greenhouse Gas Protocol, which was a joint product of companies, investors and other organizations. [1],[2] Shareholder advocates as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves[3] are sounding alarms about the surge. The Commissions authority to adopt the actual proposed rule remains intact, and clear. John Coates has few regrets on his way out the AOC door Even as he steps down from 32 years in the top job, the knowledge and contacts of Australia's Olympic supremo will be tapped for years to. The PSLRA was passed by Congress in 1995 to stem what was considered to be a rising tide of frivolous or unwarranted securities lawsuits aimed at operating companies filing routine annual and quarterly reports under the Exchange Act. What lessons can we learn from earlier examples of evolving risks? Governance needs to ensure the independence and expertise of any individuals involved in the setting of ESG disclosure standards, and allow for a rigorous, inclusive and transparent process for developing standards. Protecting investors has been the Commissions job since 1934. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. It is also not a rule the EPA or any other regulatory agency has adopted or could legally adopt. 104-369, 43 (November 28, 1995) (Congress created the safe harbor provision to enhance market efficiency by encouraging companies to disclose forward-looking information.). It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. Statement (PDF) . . Modern finance and valuation techniques focus on risk and expected future cash flows. During his prior service on the SECs Investor Advisory Committee, he chaired the Investor-as-Owner Subcommittee. Multiple paths to dispersed ownership now exist, including not only SPACs, but also direct listings and dual-track IPO/M&A processes. As a result: As a result of these limits, climate advocates appropriately view the rule as incomplete, and from the point of view of environmental protection, the rule could not reasonably be viewed as complete or effective at addressing climate change. Finally, it is beyond argument that the Clean Air Act nowhere mentions the Commission much less modifies its disclosure authority. The statute refers to the Commissions rules defining blank check company and to the Exchange Acts definition of penny stock.[15], By contrast, however, the PSLRAs exclusion for initial public offering does not refer to any definition of initial public offering. No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. What is proposed is to not to add new subject matters to public company disclosures, but to refine the mode and detail of already-required disclosures. Where and how can disclosures be aligned with information companies already use to make decisions. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. Our Team Account subscription service is for legal teams of four or more attorneys. If the American people, through their representatives, wish to remediate climate change, or fulfill climate-related treaty obligations, this rule will not do those jobs. The Division plays an essential role in ensuring investors have the information they need to make informed investment decisions. Financial Reports. Specifically, Section 7 gives the Commission unambiguous authority to specify the contents of disclosure documents used to register securities for sale to the public. Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. This blog answers some questions about the changes. Those involved should be accountable to relevant constituencies, including investors and companies. As the proposing release notes, half of all public companies already make some climate disclosures in their SEC reports, and the Chamber of Commerce reports that more than half of surveyed companies publish sustainability reports. By seeking to address those considerations adequately and transparently, the SEC can and should play a leading role in the development of a baseline global framework that each jurisdiction can build upon to address its individual needs. The proposed rule does not itself restrict or limit environmentally harmful activity. As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. . https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. John Coates does not need much of an introduction. Some claim the Commission has acknowledged or adopted limits on its disclosure authorities, beyond limits in the text of the statutes. Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. Clear statement canons play no role when statutes speak clearly. The complete publication, including footnotes and annex, is available here. Feedback to SSRN. Large multinationalseven in the oil and gas or energy sectors, even actively emitting greenhouse gases in the USwould be unaffected if they list no securities in our markets. But companies will not be limited by the rule itself in how they and their investors respond to climate change. SPAC shareholders typically have a vote on the so-called de-SPAC transaction, and many investors who purchased securities in the first stage SPAC either sell on the secondary market or have their shares redeemed before or shortly after the de-SPAC. John Coates, acting director of the SEC's Division of Corporation Finance, similarly stated in a recent speech that the "SEC should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner," noting in particular the task of adapting existing rules and 2018) (CFO's statement about corporation's large deferred service, healthy product backlog, and consistent quarterly linearity, which was a statement made with another statement as to expected earnings for an upcoming quarter, were non-forward-looking statements and were not protected by the PSLRA's safe-harbor; statement included facts regarding the present state of the corporation, not assumptions); NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc., No. With the large pool of private capital available and the increase in Exchange Act Section 12(g) registration thresholds, a company can remain private and grow significantly without going through a traditional IPO. . President Thomas Bach. The rule would create a framework for reliable disclosures of climate-related information that is potentially positive for investors, such as opportunities, and is not limited to risks. No one at the time of NRDC v. SEC in 1979 argued that the creation of EPA in 1970 had overridden NEPA, or limited the 1933 or 1934 Acts, as the Commission itself would have done (because, recall, it was being sued in the 1970s for not doing enough to require environmental disclosure). These decisions show that the Commissions delegated power is limited, and that the statutory limits (protection of investors and markets) are intelligible and have bite. [7] This, such observers assert, is the reason that sponsors, targets, and others involved in a de-SPAC feel comfortable presenting projections and other valuation material of a kind that is not commonly found in conventional IPO prospectuses. View the profiles of people named John Coates. Regulation -- the Investment Company Act is one of the most successful disclosure laws . EPA has no authority over disclosures about physical risks, or the financial risks of climate change to companies (and investors). Congress provided a safe harbor for forward-looking statements made by established, publicly traded, reporting companies. This demonstrates that the broader direction was consciously added during the legislative process. They believe climate risks are minimal for the company, or for the world, for whatever reason, if that is their honest belief. Credit quality of loan portfolios requires expertise to understand in detail, which is typically found in bank regulatory agencies. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). Ch. 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. The United States Securities and Exchange Commission has focused increasingly on SPACs in recent months, and is particularly concerned with conflicts of interest that incentivize a SPAC's sponsors, directors, officers, and affiliates to close a de-SPAC transaction even when doing so is not in the best interests of SPAC shareholders, and whether If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. John M Coates Mark Gurnell Zoltan Sarnyai Little is known about the role of the endocrine system in financial decision-making. Anyone who sees a role for law to require disclosure of comprehensive information about the sources of greenhouse gas emissions will not be satisfied by this rule. In short, disclosure authority extends beyond what would constitute fraud at common law, and has long been used by the Commission to specify disclosure of what would not necessarily be material for that purpose. JOHN COATES, HARVARD LAW SCHOOL: Okay, thank you. Because, finally, the disclosures are financial and do not extend to the large part of the economy owned by private companies, they would not constitute general climate change policy, such as a carbon tax or emissions cap-and-trade scheme. Mar. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. The title of the 1933 Act states its purpose as creating a regime of full and fair disclosure.. Image: Getty. The financial effects of physical risks are large and growing. Women, Influence & Power in Law UK Awards honors women lawyers who have made a remarkable difference in the legal profession. Shareholder Litig. With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. 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. The proposal is well within the Commissions authority to adopt. Women, Influence & Power in Law UK Awards 2023, Legalweek Leaders in Tech Law Awards 2023, WORKERS COMPENSATION ATTORNEY - Hartford, CT, Offering an Opportunity of a Lifetime for Personal Injury Lawyers, What Does Your Business Agreement Really Mean? That information may play a role in affecting the kinds of opportunities and risks that public companies can pursue with other peoples (investors) money, and how investors price those opportunities and risks, and use whatever governance or liquidity rights they have to respond to corporate behavior. 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. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. Many contain materiality qualifiers, but many do not. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction.