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The SEC adopted today amendments that will, among other things:

  • shorten the deadline for initial Schedule 13D filings from 10 days to five business days;
  • require that Schedule 13D amendments be filed within two business days (rather than “promptly,” which had been interpreted by many practitioners as within one business day in most cases involving ownership changes under Rule 13d-2(a) that trigger the amendment requirement);
  • shorten the initial Schedule 13G filing deadline for qualified institutional investors and exempt investors from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which the investor beneficially owns more than 5% of the covered class;
  • shorten the initial Schedule 13G filing deadline for passive investors from 10 days to 5 business days;
  • revise the Schedule 13G amendment deadline for all 13G filers from 45 days after the end of a calendar year in which any change occurs (other than those exempted under Rule 13d-2(b)) to 45 days after the end of the calendar quarter in which a material change occurs;
  • revise from “promptly” to two business days the Schedule 13G amendment obligations under Rule 13d-2(d) for qualified institutional investors and passive investors when their beneficial ownership exceeds 10% or increases or decreases by 5%;
  • extends the EDGAR filing cut-off time for Schedules 13D and 13G from 5:30 pm to 10:00 pm Eastern time;
  • clarify the Schedule 13D disclosure requirements with respect to derivative securities; and
  • require that Schedule 13D and 13G filings be made using a structured, machine-readable data language.

Pages 10-11 of the adopting release contains a table summarizing the changes.  The adopting release also provides guidance regarding the current legal standard governing when two or more persons may be considered a group for the purposes of determining whether the beneficial ownership threshold has been met, as well as how, under the current beneficial ownership reporting rules, an investor’s use of certain cash-settled derivative securities may result in the person being treated as a beneficial owner of the class of the reference equity securities.

The amendments will become effective 90 days after publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on Sept. 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on Dec. 18, 2024. Compliance with the other rule amendments will be required upon their effectiveness.

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In today’s press release, the Securities and Exchange Commission announced the adoption of rules and amendments to require certain documents, including Form ADV-NR, filed by investment advisers, institutional investment managers, and certain other entities to be filed or submitted electronically.  Form ADV-NR is the appointment of agent for service of process by a non-resident general partner or a non-resident managing agent of any investment adviser (domestic or non-resident), including exempt reporting advisers.  The amendments also make technical amendments to modernize Form 13F and enhance the information provided.  The new rules and form amendments will be effective 60 days after publication in the Federal Register. The amendments to Form 13F will be effective on January 3, 2023.

The press release is available HERE and text of the Final Rules is available HERE.

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Enhanced Focus on Private Funds, ESG, and Operational Resiliency

The Securities and Exchange Commission’s Division of Examinations today announced its 2022 examination priorities.  The Division will focus on private funds, environmental, social and governance (ESG) investing, retail investor protections, information security and operational resiliency, emerging technologies, and crypto-assets.

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The SEC today proposed rule amendments to update beneficial ownership reporting under 1934 Act Sections 13(d) and 13(g).

The proposed amendments to Regulation 13D-G would:

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The Securities and Exchange Commission today voted to propose amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds. The proposed amendments are designed to enhance the Financial Stability Oversight Council’s (FSOC) ability to assess systemic risk as well as to bolster the Commission’s regulatory oversight of private fund advisers and its investor protection efforts in light of the growth of the private fund industry.

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Recent enforcement action could signal expanding the boundaries of misappropriation theory, with significant implications for SEC-regulated entities and other market participants.

TAKEAWAYS

  • With Chair Gensler at the helm, an emboldened SEC Enforcement Division will continue to take aggressive positions in insider trading enforcement actions and is willing to test the contours of insider trading law in litigation.
  • The Panuwat enforcement action advances the novel theory that possessing confidential information about one issuer may preclude trading in the securities of competitors and other companies in a business sector.
  • In light of the increased risk posed by the Panuwat matter, regulated entities and other market participants should review their policies and procedures to ensure that they are reasonably designed and tailored to
    prevent the misuse of material nonpublic information.

On August 17, 2021, the U.S. Securities and Exchange Commission (SEC) charged a former pharmaceutical company executive with insider trading for purchasing the securities of a rival company based on confidential information he learned about his own employer’s contemplated merger with another pharmaceutical company. The SEC’s enforcement action, which is being litigated in the United States District Court for the Northern District of California, appears to confirm early predictions that the SEC, with Chair Gary Gensler at the helm, would aggressively police the securities markets for insider trading.

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Read this article and additional Pillsbury publications at Pillsbury Insights.

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Most 3(c)(1) private equity and hedge funds are impacted; exempt venture capital funds are not impacted.

Effective August 16, 2021, the dollar thresholds specified in the definition of “qualified client” under Rule 205-3 of the Investment Advisers Act of 1940, as amended (“Advisers Act”) will increase (i) from $2.1 million to $2.2 million (net worth test) and (ii) from $1 million to $1.1 million (assets under management (AUM) test).  Clients that enter into investment advisory agreements (and existing fund investors that make additional fund investments) in reliance on the net worth test prior to the effective date will be “grandfathered” in under the prior net worth threshold.  The increases are made pursuant to a five-year inflation adjustment required by section 205(e) of the Advisers Act (section 419 of the Dodd-Frank Act).  (The most recent prior change was effective August 15, 2016.)

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Today, the Securities and Exchange Commission announced it had finalized reforms under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The amendments create a single rule that replaces the current advertising and cash solicitation rules. The final rule is designed to comprehensively and efficiently regulate investment advisers’ marketing communications.

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The Commodity Futures Trading Commission at its open meeting on Tuesday, October 6, unanimously approved a final rule adopting amendments to Form CPO-PQR for commodity pool operators (CPOs).

The amendments to Form CPO-PQR (1) eliminate existing Schedules B and C of the form, except for the Pool Schedule of Investments; (2) amend the information requirements and instructions to request Legal Entity Identifiers (LEIs) for commodity pool operators and their operated pools that have them, and to delete questions regarding pool auditors and marketers; and (3) make certain other changes due to the rescission of Schedules B and C, including the elimination of all existing reporting thresholds. Click here for the full press release.

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An expanded universe of individuals and entities will be able to participate as “accredited investors” in securities offerings as a result of recent SEC rulemaking.

TAKEAWAYS

  • The SEC has expanded its definition of “Accredited Investor” to additional individuals and entities, including individuals with certain professional certifications and knowledgeable employees of private funds.
  • The amendments may provide additional regulatory certainty for issuers, investors and counsel.

On August 26, 2020, the Securities and Exchange Commission (the SEC) adopted amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act of 1933 (the Amendments). The Amendments, which will become effective 60 days after they are published in the Federal Register, expand the pool of individuals and entities that qualify as accredited investors. The definition of accredited investor is relevant, among other things, to the operation of Rule 506 of Regulation D, which is a safe harbor under Section 4(a)(2) of the Securities Act. Rule 506 is the most commonly-used exemption for private offerings, accounting for the vast majority of the trillions of dollars raised through unregistered offerings every year. Unregistered, private offerings of securities have supplanted public offerings as the dominant form of capital-raising in the United States. Since regulatory requirements are much greater for offerings that include non-accredited investors, an overwhelming majority of Rule 506 offerings are offered only to accredited investors.

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Read this article and additional Pillsbury publications at Pillsbury Insights.

More of this will be covered at an ALI CLE webinar, sponsored by Pillsbury, later this month that focuses on Regulation D Offerings and Private Placements.  To find out more about this webinar and to register, please visit https://www.ali-cle.org/course/Regulation-D-Offerings-Private-Placements-2020-VCCP0922