On October 26, 2022, the Securities and Exchange Commission (the “SEC”) adopted a long-awaited rule that will require listed companies to adopt and publicly file so-called “clawback” policies. As we discuss in more detail in this alert, the rule requires listed companies to adopt clawback policies to recover, reasonably promptly, incentive-based compensation that proves
On October 26, 2022, the Securities and Exchange Commission (the “SEC”) adopted a long-awaited rule that will require listed companies to adopt and publicly file so-called “clawback” policies to recover erroneously awarded incentive-based compensation following accounting restatements. Companies with securities listed on national securities exchanges, including NYSE and Nasdaq, will be required to implement such policies within 60 days of the effective date of new listing standards, which the exchanges must adopt within 12 months of the new rule’s publication in the Federal Register. Companies who fail to comply will be subject to delisting.
The most significant deviation from the SEC’s initial proposal of the clawback rule in 2015 is that Rule 10D-1 will require companies to conduct a clawback analysis not only for “Big R” accounting restatements, which must be disclosed under Item 4.02(a) of Form 8-K, but also for “little r” accounting restatements, which involve the correction of errors in prior period financial statements when those financial statements are included in a current period filing.
Clawback Policy Requirements
Under the new rule, a listed company’s clawback policy must require the company to recover, reasonably promptly, erroneously awarded incentive-based compensation from persons who served as an executive officer at any time during the performance period for such incentive-based compensation and who received such compensation during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement. The compensation to be recovered is the amount in excess of what would have been paid based on the restated results.…
Last week Finance Ministers, Central Bank Governors and Development Ministers from around the world descended on Washington for the annual meetings of the International Monetary Fund (IMF) and the World Bank. What did they say, what did they do and what does it mean for international businesses?
Volatility was the word of the hour. In…
The U.S. Securities and Exchange Commission (“SEC”) last week announced settlements with four investment advisory firms regarding alleged violations of the SEC’s pay-to-play rule, illustrating that federal regulators continue to aggressively pursue such cases. The rule at issue, Rule 206(4)-5 (“the Rule”), prohibits investment advisors from, among other things, receiving compensation from certain government entities for two years after a person affiliated with the investment advisor makes a covered campaign contribution to an official of the government entity. While the involved firms did not admit or deny the allegations in the settlement orders, an examination of the cases is instructive in assessing the current landscape of SEC pay-to-play rule enforcement. Together, the four settlements are noteworthy in two major respects: (1) the circumstances of the underlying contributions that highlight the wide-reaching application of Rule 206(4)-5; and (2) the fact that one of the SEC Commissioners issued a sharp dissent that expressed deep concern about the breadth of the Rule.
The settlements involved covered associates at four different firms making contributions to four different recipients: an unsuccessful candidate for Mayor of New York City; the incumbent Governor of Hawaii ; an unsuccessful candidate for Governor of Massachusetts; and to a then-candidate for Governor of California. In two cases, the firms managed public pension money and, in the other two, the firms managed state university endowments, an often overlooked category of government entity investors.
While the SEC Rule is intended to prevent fraud, it seems highly unlikely that any of the contributions at issue in these four cases could have influenced state investment decisions:
- All four investment advisory firms had preexisting business relationships with the relevant government entities before the prohibited contributions were made and no new business was solicited after the contributions.
- One of the donors was not even a covered associate at the time of the contribution.
- Only one of the four prohibited recipients was an incumbent officeholder at the time of the contribution.
- Two of the four recipients failed to win election to the offices they sought.
- Two of the cases involved situations where the donor either received a refund or requested a refund.
- The contribution amounts were a drop in the bucket in proportion to the tens of millions of dollars raised in these elections – three cases involved a single $1,000 contribution and the fourth involved a contribution of $1,000 and another $400.
In the wake of rulings upholding federal regulators’ “valid when made” rules, a new lawsuit serves as a reminder that state regulators and class-action plaintiffs’ lawyers may continue to challenge the bank partnership lending model under the “true lender” doctrine.
In early March, the fintech OppFi filed suit to stop California’s banking commissioner from enforcing…
Sustainable Finance Package: Context and CommentThe Commission’s intention with its Sustainable Finance Package is twofold: (1) in the short term, to set a clear regulatory framework to encourage investments that will contribute to a sustainable and inclusive economic recovery from the COVID-19 pandemic; and (2) in the long term, to ensure the transition to a carbon neutral EU economy by 2050, in accordance with the 2020 European Climate Law. Following the adoption of the EU Taxonomy Regulation (explained further below), the Sustainable Finance Disclosure Regulation, and the Benchmark Regulation, which enhances the transparency of benchmark methodologies, the Commission has in this legislative package laid out the next building blocks for its envisioned sustainable finance ecosystem.
In addition to the impact on financial institutions and investors directly subject to the new laws, the Sustainable Finance Package may impact corporates in the following ways:
- Corporates may be more likely to receive requests for data on their environmental and other sustainability practices as upstream capital markets participants grapple with new obligations to distinguish between green, “light green,” and other investments;
- Corporates may be subject to direct requirements to report on activities relating to their environmental, social, and governance objectives;
- Longer-term, the package may form the basis of a “blueprint” for wider stakeholders, meaning that corporates may need to improve performance against the standards, not just to attract capital, but also to remain competitive; and
- On a global level, these EU sustainability measures have real potential to become gold standards and influence the investment market outside of the EU, a phenomenon known as the ‘Brussels Effect’.
With the EU-UK Trade and Cooperation Agreement signed and Brexit now becoming an increasingly settled fact, the areas of potential divergence between the UK and the EU are becoming clearer. The strategy appears to be to identify those areas in which the UK already enjoys a competitive edge over its rivals and then work out…
Given increasing public and investor focus on ESG disclosures and the growing recognition that managing ESG risks effectively can be effective in creating long-term value, there is significant and growing (internal and external) pressure on companies to make some form of ESG disclosure. Some companies already view voluntary comprehensive ESG disclosure as a way of…
The EU-UK Trade & Cooperation Agreement (‘TCA’), signed at the end of last year did not cover financial services. Commentators had been sanguine about the potential impact on the City of London as a global financial centre. Figures showing that only 7,500 jobs had been re-located to the EU (out of the approximately 1.1 million…