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Eighth Circuit Establishes Briefing Schedule for SEC Climate Disclosure Rules Litigation

​On May 20, 2024, the U.S. Court of Appeals for the Eighth Circuit issued an order establishing the briefing schedule for the consolidated litigation challenging the Securities and Exchange Commission's (“SEC") final climate disclosure rules.

The order set the following deadlines for the upcoming summer and early fall:

  • June 14, 2024: Petitioners' opening brief
  • June 24, 2024: Briefs by supporting intervenors or amici
  • August 5, 2024: Respondent's consolidated response brief
  • August 15, 2024: Briefs by supporting intervenors or amici
  • September 3, 2024: Petitioners' reply brief

Oral arguments could occur before the end of 2024.

The climate disclosure rules, described in more detail in our client alert, are not currently in force. As we previously reported, in response to lawsuits by the U.S. Chamber of Commerce and others, the SEC voluntarily stayed implementation of the final rules in April 2024 pending the completion of judicial review of the consolidated Eighth Circuit cases. In addition, the SEC stated in a subsequent court filing that its voluntary stay eliminates the harms challengers had asserted that compliance with the rule would impose, including in the form of costs incurred to prepare for compliance with the rule,  and that “[t]he Commission will publish a document in the Federal Register at the conclusion of the stay addressing a new effective date for the [final climate disclosure rules]." While the SEC has not specified the duration of the further implementation period if the rules survive the litigation, it thus has confirmed that a new implementation period will be provided.

In the interim, companies may prefer to monitor the litigation and delay significant compliance investments until the litigation is resolved. A complete delay in preparing for climate-reporting may not be feasible, however, for companies who are additionally preparing to address climate and other sustainability-related disclosure obligations under other reporting regimes, such as the European Union's Corporate Sustainability Reporting Directive.

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Thank you to associates Lauren Assaf-Holmes and Antony Nguyen from our Orange County office for their assistance with this update.


SEC Division of Corporation Finance Director Erik Gerding Offers Guidance on Form 8-K Disclosure of Cybersecurity Incidents

​As detailed in our client alert, the SEC adopted cybersecurity disclosure rules on July 26, 2023 that require disclosure of material cybersecurity incidents under new Item 1.05 of Form 8-K. If a company determines that a cybersecurity incident is material, it is required to disclose the incident within four (4) business days of such determination. In addition, such determination is required to be made “without unreasonable delay after discovery of the incident."  Item 1.05 states companies must describe the material aspects of the nature, scope, and timing of the incident, and the material impact or reasonably likely material impact on the company, including on its financial condition and results of operations. If any of the required information is not determinable or unavailable at the time of the initial filing, companies must provide updated disclosure in a Form 8-K amendment.   

Companies have often encountered challenges in reaching a materiality determination with respect to cybersecurity incidents due to the often tedious process of evaluating the nature and scope of an incident, the extent of unknown information, and the difficulty of assessing future consequences, particularly in the context of an evolving situation. Since the new rules went into effect, companies now must conduct an on-going reassessment of whether the incident has crossed the tipping point to become, in some aspect, material to investors, based on the known state of information and assessment of potential impacts.  As such, companies facing potential scrutiny for not making timely disclosure have opted to voluntarily disclose cybersecurity incidents before reaching a definitive materiality determination, with many disclosing under Item 1.05 and others under Item 8.01 or 7.01. In fact, as of May 22, 2024, 17 companies have disclosed cybersecurity incidents under Item 1.05 over the course of 26 filings (inclusive of 8-K amendments) whereas 7 companies reported cybersecurity incidents under Item 7.01 or 8.01.  Of those 17 companies reporting events under Item 1.05, with some companies disclosing material operational impact while the incident was ongoing or material impact on financial quarterly results, most of these companies disclosed no material impact on their operations and also generally disclosed (either as part of original filing or by amendment) that the cyber incidents have not had, or were not expected to have, a material impact on such companies' overall financial condition or results of operations (or that companies have not yet made a materiality determination).

On May 21, 2024, Division of Corporation Finance Director Erik Gerding released a

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Reminder: Securities Settlement Cycle Transitions to T+1 on May 28, 2024

​​As previously reported on our Securities Regulation and Corporate Governance Monitor (available here and here), on May 28, 2024, the standard settlement cycle for most broker-dealer transactions will be shortened from “T+2" to “T+1," subject to certain exceptions.  The SEC approved this change in its rule amendments to Rule 15c6-1(a) under the Exchange Act adopted on February 15, 2023.  SEC Chair Gary Gensler today issued a statement (available here) noting that the amendments will “make our market plumbing more resilient, timely, and orderly."  Similar amendments have been approved by the Canadian Securities Administrators and will come into effect in Canada on May 27, 2024. 

What is T+1?

  • Under the new “T+1" settlement cycle, all applicable securities transactions from U.S. financial institutions will settle within one business day of their transaction date. 
  • For example, trades subject to the “T+2" settlement cycle made on Friday, May 24, 2024 and the “T+1" settlement cycle made on Tuesday, May 28, 2024 will both settle on Wednesday, May 29, 2024.

What Securities Will This Impact?

  • The “T+1" settlement cycle will apply to the same securities transactions currently covered by the “T+2" settlement cycle prior to the amendments. 
  • These include transactions for stocks, bonds, exchange-traded funds, certain mutual funds and limited partnerships that trade on an exchange.

Certain Exceptions

  • For a firm commitment underwritten registered offering priced after 4:30 p.m. Eastern Time, the standard settlement cycle will be “T+2," unless the parties agree to a longer settlement cycle (Rule 15c6-1(c)).  For example, a trade subject to this exception made on Tuesday, May 28, 2024 after 4:30 p.m. Eastern Time will settle on Thursday, May 30, 2024.
  • The issuer and the managing underwriter in a firm commitment offering may expressly agree to an alternate date for settlement (Rule 15c6-1(d)).
  • Additional exceptions include exempted securities, government securities, municipal securities, commercial paper, bankers' acceptances, commercial bills, contracts to purchase limited partnership interests that are not listed on an exchange and security-based swaps.
  • ...
Reminder For Resource Extraction Issuers: Form SD Due September 2024

​As previously reported on our Securities Regulation and Corporate Governance Monitor on December 16, 2020 (available here), the Securities and Exchange Commission (the “SEC") adopted the final rule (available here) requiring additional disclosures by public companies that engage in the commercial development of oil, natural gas or minerals. Under the final rule, domestic or foreign “resource extraction issuers" are required to annually disclose information about certain payments made to foreign governments or the U.S. federal government on Form SD.

The final rule became effective on March 16, 2021 allowing for a two-year transition period after the effective date, with initial Form SD filings due no later than 270 calendar days after the end of an issuer's next completed fiscal year (e.g., September 26, 2024 for issuers with a December 31, 2023 fiscal year end). While the adopting release specifically referred to September 30, 2024 as the due date for a company with a fiscal year end of December 31, 2023 (274 days after year end), we recommend filing the Form SD by September 26, 2024 to ensure timely compliance with the rule's deadline. We note that for 2025, 2026 and 2027, the form will be due by September 27 for companies with a December 31 fiscal year end (270 days after the fiscal year end in non-leap years), unless September 27 is a Saturday, Sunday or holiday, in which case the deadline is the next business day.

What kind of information is required to be disclosed?

The final rule implements Section 13(q) of the Securities Exchange Act of 1934, as amended, which requires disclosure of company-specific, project-level information on Form SD (available here and on page 212 of the adopting release), including the:

  • type and total amount of payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas or minerals;
  • type and total amount of such payments for all projects made to a government, as well as the country in which each such government is located;
     
  • currency used and the fiscal year in which the payments were made;
     
  • fiscal year in which the payments were made;
     
  • business segment of the issuer that made the payments;
     
  • specific projects to which such payments relate and the resources that are being developed;
     
  • method of extraction used in the project and the major subnational political jurisdiction of each project; and
     
  • payments made...
Updated Summary of Director Education Opportunities Available

Gibson Dunn's summary of director education opportunities has been updated as of April 2024. A copy is available at this link.

Boards of Directors of public and pre-IPO companies find this a useful resource as they look for high quality education opportunities.

This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates.

Thank you to associates Ben Blefeld, Caroline Bakewell and Mariana Lozano from our Houston office for their assistance with this quarter's update.


SEC Stays Climate Disclosure Rule Following Consolidation of Litigation in the Eighth Circuit

On March 21, 2024, the Judicial Panel on Multidistrict Litigation randomly selected the U.S. Court of Appeals for the Eighth Circuit to hear all cases challenging the Securities and Exchange Commission's final climate disclosure rule.  Within the first ten days after the rule's issuance, nine petitions were filed, in six different circuits, challenging the rule.  The Second, Fifth, Sixth, Eighth, Eleventh, and D.C. Circuits received at least one petition each.  Pursuant to 28 U.S.C. § 2112, the Judicial Panel on Multidistrict Litigation randomly selected the one circuit in which all cases will be consolidated.

On March 22, 2024, the courts of appeals began to transfer the challenges to the Eighth Circuit.  In its transfer order, the Fifth Circuit dissolved the administrative stay it had previously issued.  All future proceedings, including any litigation regarding a stay, will occur in the Eighth Circuit.

Subsequently, on April 4, 2024, the SEC issued an Order pausing the implementation of its rules available here. The Order notes the stay is limited to the final rules challenged in the litigation consolidated in the Eighth Circuit and does not stay any other Commission rules or guidance.  

Our March 8 client alert on the new rule is available here.

  


Recent SEC Enforcement Action Underscores Importance of Timely Filing of 13D/G Beneficial Ownership Reports

On March 1, 2024, the SEC announced an enforcement action against an investment advisory firm (“Investor"), stemming from its failure to promptly convert from a Schedule 13G to 13D after forming  a “control" purpose within the meaning of Section 13(d) of the Exchange Act and Rule 13d-1 thereunder.[1]

Investor initially reported its holdings on Schedule 13G on February 14, 2022, disclosing beneficial ownership of 5.6% of the outstanding common stock of a logistics company (the “Company").  Between January 1 and April 18, 2022, Investor purchased an additional 2 million shares, increasing  its position to 9.9% of the Company's outstanding common stock. Investor also entered into cash-settled swaps with financial counterparties between April 27 and May 12, 2022, providing economic exposure to another 1% of the Company's shares.   

According to the SEC's Cease-and-Desist Order, between February and April 2022 Investor engaged in discussions with a large private equity firm regarding its investment in the Company centered around obtaining financing for a potential go-private transaction.  During this time Investor also shared its proprietary valuation models and analyses with the firm.  On April 26, 2022, Investor prepared a draft offer letter specifying $85 per share as a placeholder price and noting that financing would come from a private equity firm.  Investor contacted legal counsel the next day to advise on its Schedule 13D filing obligations and was provided a copy of the draft offer letter.  On May 12, 2022, Investor first met with Company management to discuss whether the Company might be receptive to an acquisition bid.  The next day Investor sent a letter to the Company proposing to acquire all outstanding shares at a price of $86 per share.

The SEC notes in its Order that as of April 26, 2022—the date of the draft offer letter—Investor had formed a “control" purpose, and thus could no longer satisfy the “passive investment" certification required by Schedule 13G.  As such, Investor was requi...

Summary of Director Education Opportunities - Updated

Gibson Dunn's summary of director education opportunities has been updated as of January 2024. A copy is available at this link - https://www.gibsondunn.com/wp-content/uploads/2024/01/Board-Education-Opportunities-January-2024.pdf

Boards of Directors of public and pre-IPO companies find this a useful resource as they look for high quality education opportunities.  

This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities include unique events for members of private boards.

Thank you to associates Ben Blefeld, Caroline Bakewell and Mariana Lozano from our Houston office for their assistance with this quarter's update.




Fifth Circut Strikes Down SEC's New Buyback Disclosure Rule

​On December 19, 2023, the Fifth Circuit vacated the SEC's Share Repurchase Disclosure Modernization rule (the “Repurchase Rule") in its entirety. The Repurchase Rule, discussed further in our Client Alert, would have required companies to disclose objectives or rationales and certain additional information for all share repurchases conducted during the quarter on Form 10-Q and Form 10-K and required quarterly disclosure regarding a company's adoption or termination of any Rule 10b5-1 trading plans. The Repurchase Rule was scheduled to go into effect beginning with the Form 10-K or Form 10-Q filed for the first full fiscal quarter beginning on or after October 1, 2023, meaning that for calendar year-end companies, these disclosure requirements would have applied to the 2023 Form 10-K.

In vacating the Repurchase Rule, the court stated “[t]he rule remains no less flawed – and no less unlawful – than it was on October 31, 2023" and that “[t]he SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to petitioners' comments and failed to conduct a proper cost-benefit analysis." As a result, if the SEC determines to pursue rulemaking to require additional disclosures around share repurchases, it will need to begin a new rulemaking process and issue a proposed rule for notice and comment.

Now that the Fifth Circuit has vacated the Repurchase Rule, the pre-existing share repurchase disclosure rules (found in Regulation S-K Item 703, available at https://www.ecfr.gov/on/2023-06-01/title-17/chapter-II/part-229#229.703), which require information on share repurchase programs and quarterly repurchase disclosures presented on an aggregate, monthly basis, will remain in effect.  Companies will not be required to provide quarterly disclosure regarding the adoption or termination of any Rule 10b5-1 trading plans by the companies themselves, but must continue to provide disclosure of any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements (as defined in Regulation S-K Item 408(c)) for Section 16 officers and directors.

The Fifth Circuit's decision to vacate the Repurchase Rule marks the culmination of the lawsuit brought by the U.S. Chamber of Commerce and several other business groups (“Petitioners") challenging the Repurchase Rule. The lawsuit, filed in May 2023, alleged that:

  1. the requirement for companies to disclose the rationale behind their repurchases violates the First Amendment by impermissibly compelling companies' speech;

  2. the SEC acted arbitrarily and capriciously in adopting the Repurchase Rule by not considering the P...
SEC Stays Effectiveness of New Buyback Disclosure Rule; Fifth Circuit Denies SEC's Request for Additional Time to Correct Rules

​On November 22, 2023, the SEC announced that it had issued an order indefinitely postponing the effectiveness of the Share Repurchase Disclosure Modernization rule (the “Repurchase Rule"), pending further SEC action. At the same time, the SEC asked the Fifth Circuit for additional time to respond to the court's order that the SEC correct deficiencies in the Repurchase Rule by November 30. The court denied that motion on November 26. As a result, the SEC has until November 30 to correct the deficiencies the court had found with the SEC's rulemaking, after which we expect the court will consider a renewed motion from the petitioners to vacate the Repurchase Rule.

The Repurchase Rule, discussed in our Client Alert, requires companies to: (i) disclose daily company share repurchase data in a new table filed as an exhibit to reports on Form 10-Q and Form 10-K, (ii) provide narrative disclosure in those filings about the company's share repurchase program, including its objectives and rationale, and referencing the particular repurchases that correspond to that narrative, (iii) indicate by a check box whether any executives or directors traded in the company's equity securities within four business days before or after the public announcement of the repurchase plan or program or the announcement of an increase of an existing share repurchase plan or program, and (iv) provide quarterly disclosure regarding the company's adoption or termination of any Rule 10b5-1 trading arrangements. The Repurchase Rule was scheduled to go into effect beginning with the Form 10-K or Form 10-Q filed for the first full fiscal quarter beginning on or after October 1, 2023, meaning that for calendar year-end companies, these disclosure requirements would have applied to the 2023 Form 10-K. While the Repurchase Rule is stayed, the pre-existing share repurchase disclosure rules, requiring information on share repurchase programs and quarterly repurchase disclosures presented on an aggregated, monthly basis, remain in effect.  

 As noted above, the SEC's action staying effectiveness of the Repurchase Rule occurred in connection with a motion filed by the SEC in the lawsuit brought by the U.S. Chamber of Commerce and several other business groups in the Fifth Circuit challenging the Re...

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