[16] Debate in Senate to Override President's Veto, 141 Cong. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. A SPAC is a shell company with no operations. EPA is charged by Congress to have a concern for the environment, not for 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. License our industry-leading legal content to extend your thought leadership and build your brand. I thank Michael Conley for his service as Acting General Counsel, and I look forward to continuing to work with Michael and John on critical matters before the Commission., I am honored to continue to help advance the SECs mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, said Coates. In 2004 he returned to Cambridge to research the biology of More about John Coates As discussed in Point II, the proposed rule requires disclosures about financial risks and opportunities, so even if there were an explicit limit on the Commissions authority that disclosures under Section 7 be financial in nature, or related to the financial statements, or to the elements in the statute, the proposed rule would still be authorized. Statements about current valuation or operations have been viewed as outside the safe harbor by some courts, even if they are derived from or linked to forward-looking projections or statements. About John Coates. 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. 25, 2021); Jennifer Bennett, Canoo Faces Investor Suits Over Post-SPAC Deal Focus Changes, Bloomberg Law (Apr. This statement does not alter or amend applicable law and has no legal force or effect. This heightened scrutiny for a companys first introduction to the public market applies in other contexts as well such as a companys first registration of a class of securities under the Securities Exchange Act of 1934 or an A/B exchange offer. Moreover, is it appropriate that the choice of how to go public may determine or be determined by liability rules? In the National Environmental Policy Act (NEPA), Congress made environmental considerations part of the SECs substantive mission. That statutestill on the booksprovides (among other things): The Congress recognizes that each person should enjoy a healthful environment and that each person has a responsibility to contribute to the preservation and enhancement of the environment. [12] Given this legal landscape, SPAC sponsors and targets should already be hearing from their legal, accounting, and financial advisors that a de-SPAC transaction gives no one a free pass for material misstatements or omissions. John Coates Acting Director, Division of Corporation Finance March 11, 2021 Statement Published in Connection with Remarks at the 33rd Annual Tulane Corporate Law Institute [1] Not long ago, the title of this statement would have needed to unpack "ESG" into Environmental, Social and Governance. More specifically, any material misstatement in or omission from an effective Securities Act registration statement as part of a de-SPAC business combination is subject to Securities Act Section 11. 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. Statement (PDF) . John F. Cogan, Jr. Not a Bloomberg Law Subscriber?Subscribe Now. The Helpful Hand Guiding Brisbane's Olympic Victory. [4] With the unprecedented surge has come unprecedented scrutiny, and new issues with both standard and innovative SPAC structures keep surfacing. This rule would not transform even the portion of the American economy regulated by the Commissionwhich remains investments in and markets for securities of public companies, not privately held companies, and the proposal adds no new companies to its disclosure regime. Despite all of this, it may still be thought that the PSLRA offers something for SPACs not available to conventional IPOs. No. In part, that is because of one of the key limits on the Commissions authorityit is delegated the job of specifying information for disclosure, not the job of merits review, which would require it to have far more substantive expertise in those specialized areas. On April 12, 2021, the Staff of the U.S. Securities and Exchange Commission (SEC), under the signature of Acting Director of the Division of Corporate Finance John Coates and Acting Chief Accountant Paul Munter, released the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies As companies continue to disclose more in sustainability reports, they should already be evaluating those disclosures in light of existing anti-fraud obligations. [17] But it also is clear that investors at the time of the initial SPAC filing cannot understand all aspects of the long-term value proposition of the offering, precisely because a SPAC does not have operations or a business plan beyond a search for a target. Law.com Compass delivers you the full scope of information, from the rankings of the Am Law 200 and NLJ 500 to intricate details and comparisons of firms financials, staffing, clients, news and events. The proposed rule does not call for opinion or controversial speech of the kind that raises First Amendment concerns. First, and most directly, all involved in promoting, advising, processing, and investing in SPACs should understand the limits on any alleged liability difference between SPACs and conventional IPOs. In the budget rider, Congress made no mention of any other agency, nor can the text of that law be reasonably interpreted to displace any agencys authority. They point to a footnote in a 2016 Concept release to support this claim. He was in his eighties. [12] Cede & Co. v. Technicolor Inc., 634 A.2d 345, 361 (Del. [10] See infra note 12. . [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. As we think about structuring a disclosure system for ESG issues, one question that comes up is whether ESG disclosures should be the subject of mandatory versus voluntary disclosure provisions. Again, this difference is in keeping with the Commissions focus on investors. It is not a transformative surprising regulatory departure, raising such a major question as to justify interpretive methods other than those of a faithful agent of Congress. The president's financial disclosure reports are extensively reviewed for potential or actual conflicts of interest and compliance with applicable laws and policies by the Chief Compliance and Ethics Officer of the Bank, and the Chairman of the Bank's board of directors. If those emissions targets are serious, they will matter to investors by leading to major changes in corporate strategy and investment policy, and in the financial risks and returns companies will generate for investors. 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. Few of the requirements in Annex A directly involved current or even near-term financial cash flows of the kind required to be reflected in financial statements, such as reserves for contingent liabilities or non-cash commitments to invest in the future. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. Litig., 238 F. Supp. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. Coates has served as the SECs Acting Director of the Division of Corporation Finance since February 2021. It would not affect the way that property insurers underwrite, pool or reserve against climate risksthat is for insurance regulators. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. The institutions included both passive index funds and actively managed funds, as well as pension funds and other kinds of institutions. Introduction. Again, some may view this company-calibrated focus as distracting, because the rule is not limited (for example) to industries that have the greatest environmental impact, such as oil and gas, or energy. But forward-looking information can also be untested, speculative, misleading or even fraudulent, as reflected in the limitations on the PSLRAs liability protections, even when the safe harbor applies. 11, 2019) (refusing to apply deferential review where special conflict of interest procedures were not applied ab initio); FrontFour Capital Group LLC v. Taube, No. Only at that time did EPA take the position its 1970 authority over air pollution gave it authority to require climate-related disclosures. 2017) ([W]here defendants make mixed statements containing non-forward-looking statements as well as forward-looking statements, the non-forward-looking statements are not protected by the safe harbor of the PSLRA.). That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. It would not affect how mutual funds and other collective investment vehicles market themselves, even as to the climate risks in their portfoliosthat topic is within the Commissions authority, but it is not addressed in this proposed rule. Financial Disclosure Reports include information about the source, type, amount, or value of the incomes of Members, officers, certain employees of the U.S. House of Representatives and related offices, and candidates for the U.S. House of Representatives. The rule does not require them to use particular words, or characterize their own conduct in any controversial way. Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. John, Joel. It is not clear that claims about the application of securities law liability provisions to de-SPACs provide targets or anyone else with a reason to prefer SPACs over traditional IPOs. 30, 2021). 3 The sweep of regulatory change has reignited criticism for failure to base the changes . Not long after Denise Coates convinced her family to bet big on internet gambling, the first . The purpose of the disclosure was also to protect markets and market pricing, and improve the resulting allocation of capital. A movement is afoot to impose cost-benefit analysis (CBA) on financial regulation (CBA/FR). S190602 (daily ed. 6LinkedIn 8 Email Updates. The Securities and Exchange Commission won't wait long to act after the June 13 end of a public comment period on potential ESG regulations, John Coates, acting director of the SEC's Division of Corporation Finance, said Friday. A consortium of public energy companies is raising $1 billion for emissions reductions technology. What disclosures do investors need to make informed investment and voting decisions? Further reducing concerns about whether the rule is within the Commissions expertise, the proposed rule aligns with ways that companies and investors have jointly and voluntarily agreed to provide climate-related information. US public companies (e.g., the S&P 500) derive 40% of their revenues on average from non-US operations, and many have larger shares of their activities located offshore. Where do we go from here? The context of this authorizing language reinforces these conclusions. If a given climate risk or opportunity is large for a company, then its investors need and would under the rule obtain information about that risk or opportunity, even if (when compared to the overall impact of all human activity on the environment) the risk or opportunity is not large enough to require reporting under some other regime (such as the EPAs greenhouse gas reporting regime). The rule builds on decades-long efforts by public companiessuch as 3M, Abbott Laboratories, Amazon, Apple, Chevron, Fujitsu, IBM, Johnson Controls, Michelin, P&G, Verizon and Walmartto develop practical, decision-useful, consistent, comparable and verifiable ways to report about climate risks and opportunities. Citing to a 1975 release, the Commission in 2016 noted, non-controversially, that In [the 1975] release, the Commission concluded that, although it is generally not authorized to consider the promotion of social goals unrelated to the objectives of the federal securities laws, it is authorized and required by NEPA [the National Environmental Policy Act] to consider promotion of environmental protection as a factor in exercising its rulemaking authority. This statement denies authority only if disclosure is unrelated to investor protection, protection of market integrity, or the public interest more generally. That is true for companies being acquired, as well as for companies going public. SPAC use and popularity have soared over the past six months, John Coates, acting director of the Securities and Exchange Commission's Division of Corporation Finance, said in a note Thursday.. The major questions doctrine has no role to change the plain text of the 1933 and 1934 Acts. Coates was re-elected president at the AOC's annual general meeting in Sydney on Saturday morning, seeing off the challenge of hockey gold medallist Danni Roche by winning the vote count 58-35. Financial Disclosures - Other White House Officials . Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . In those rules and regulations we expected them, in drafting their forms, to go more into detail with regard to requirements. . 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. Even if one has a strong belief in the value of the major questions doctrine as an important tool for enforcing the constitutional principle of separation of powers, there is no role for a clear statement principle when the text and context of a statute are as clear and consistent as the 1933 and 1934 Acts are. Coates' Canons NC Local Government Law. Sixty percent of the Fortune 500 have announced climate targets, typically stated with reference to emissions data, including 17% with net-zero targets, yet 72% of investors lack confidence companies are serious about these targets. The fact that those areas are themselves specialized, with their own experts with far more knowledge than exists at the Commission, does not mean the Commission cannot adequately apply its disclosure regime to those risks. Even if some may find resistance to the rule (or new regulation generally) to be appealing from a policy standpoint, doing that here has no basis whatsoever in the statutes text.. 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. The question of whether the proposed disclosures would in fact be an all-in good idea, cost-justified, appropriately considering efficiency, competition and capital formation is not a legal question. It may be time to revisit these issues. Circuit Court of Appeals in 1979: the Commission has been vested by Congress with broad discretionary powers to promulgate (or not to promulgate) rules requiring disclosure of information beyond that specifically required by statute. 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). 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. As discussed in Point II, each attack is mistaken and misleading because the proposed rule is not the critics fictional new rule. Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule. The reason is simple: the public knows nothing about this private company. Renee brings deep expertise in corporate governance and securities law to the Division of Corporation Finance.
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