Regardless of whether you are new to the practice or just new to an in-house role, this article provides a general overview of the practice of United States (US) securities law from a public company in-house counsel perspective. It encourages in-house counsel to expand their knowledge of the federal securities laws and the areas that are integral to the practice – including governance and compliance. The article also stresses the importance of being a trusted partner to your business clients by learning all that you can about your company, its businesses, and the industries in which it competes.
Specifically, this article provides a framework for the US federal securities laws, compliance, disclosure, and transactions regulated by the US Securities and Exchange Commission (SEC) and the stock exchanges. It also addresses challenges for dual-listed companies on stock exchanges in foreign jurisdictions, considerations when releasing information to the public, and “materiality” as it relates to your company. Additionally, you will find practice tips below. State securities laws (Blue Sky laws) are beyond the scope of this article.
1. Key US Securities Laws and Guidance
The practice of securities law begins with the fundamentals of US federal securities law compliance and disclosure set forth in the Securities Act of 1933, as amended (1933 Act), and the Securities Exchange Act of 1934, as amended (1934 Act), and, depending on the type of public company you represent, a host of other governing laws, such as the following ones (collectively, “securities laws”):
- the Trust Indenture Act of 1939,
- the Investment Company Act of 1940,
- the Investment Advisers Act of 1940,
- the Sarbanes-Oxley Act of 2002,
- the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
- the Jumpstart Our Business Startups Act of 2012, and
- the rules and regulations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended – particularly Regulation S-K and Regulation S-X.
It is critical that in-house counsel is knowledgeable in these securities laws. In-house counsel is typically involved in the company’s day-to-day securities matters and has the ability to influence the decision-making process to help ensure proper compliance with the securities laws.
Other, more nuanced laws also exist that are applicable, or available, to certain companies such as small businesses or investment companies. These areas require that you develop additional subject matter expertise, or rely on trusted external subject matter specialists. Further, it is vital that in-house counsel understand the insider trading laws and establish and implement an effective insider trading policy for the company.
Securities laws change or are amended from time-to-time, so it is important to follow developments in the law by using the resources made available by the SEC on its website; particularly, SEC Staff Guidance and Interpretations like the Financial Reporting Manual, Compliance and Disclosure Interpretations and no-action, interpretive, and exemptive letters.
If your company is a bank holding company, property casualty underwriter or engaged in mining operations, you should be familiar with the related SEC Industry Guides. Other resources include business industry groups and filings by other similarly situated SEC filers, commonly referred to as “precedents.” For example, if you work in the natural gas industry, you might refer to the American Gas Association (AGA) for resources. Your business clients will often point to precedents. Be prepared to explain that precedents should only be used as examples of disclosure by SEC filers and should not be used as examples of what is required to be disclosed under the securities laws.
If your company is a domestic issuer or a foreign private issuer, you will be responsible for ensuring that your company’s SEC filings are timely and in compliance with the securities laws.
2. Common Filings, Capital Raising Transactions and Other Rules
The most common filings for domestic issuers are:
- Current Reports on Form 8-K,
- Quarterly Reports on Form 10-Q,
- the Annual Report on Form 10-K,
- the Proxy Statement on Schedule 14A for the annual meeting and
- Section 16 filings for insiders on Forms 3, 4 and 5.
Common filings for foreign private issuers are: Reports on Form 6-K and the Annual Report on Form 20-F.
It is important that you familiarize yourself with the SEC forms, their instructions and disclosure requirements for each item on the form, and refer to SEC Staff Guidance and Interpretations regularly.
Capital raising transactions require thorough knowledge of the 1933 Act, Regulations S-K and S-X, and the registration and private placement requirements and rules for equity and debt offerings, including filings on Forms S-1, S-3 and S-8 for domestic issuers, and Forms F-1 and F-3 for foreign private issuers.
Securities offerings often involve prospectuses and prospectus supplements as well. And, separate rules exist with respect to going private transactions, proxy solicitations or tender offers; not to mention the dynamics of ensuring that proxy advisory firms like Institutional Shareholder Services (ISS) and Glass Lewis & Co. recommend votes in favor of your company’s proxy proposals.
3. Responding to SEC Comment Letters
From time-to-time, your company will receive a comment letter from the SEC relating to one or more of your company’s periodic filings. Your company’s response to a comment letter often requires the involvement of the board, executive management, finance, internal accounting, SEC reporting, the company’s independent registered accounting firm, and outside SEC counsel, all of which must be carefully coordinated and can be time-consuming. While the SEC will request a response within 10 business days, it is quite common for a company to request more time if 10 business days is not enough time for a company to prepare a thorough and thoughtful response. Consequently, it is incumbent upon in-house counsel to manage the substantive response and procedural process to ensure the company timely and adequately complies with the comments raised by the SEC.
4. Working with Stock Exchanges
In-house counsel must also be familiar with the listing rules and requirements of the New York Stock Exchange (NYSE) or NASDAQ, Inc. (NASDAQ), as well as any changes or amendments. Each stock exchange has initial listing and continued listing requirements. These relate to financial, reporting, and corporate governance requirements that control: board independence, committee composition and obligations, conduct of your company, annual meetings, solicitation of proxies, shareholder approvals, voting rights, and other matters.
It is essential that in-house counsel, along with the company’s communications or investor relations function, coordinate with the stock exchange when issuing press releases, equity, dividends and setting record dates, among other corporate events. The stock exchanges have online platforms for filings; Listing Manager for NYSE and the Listing Center for NASDAQ. You should be familiar with them as well as the timing requirements for compliance with the stock exchange rules. The staff at the stock exchanges will contact your company, sometimes immediately, to notify it of infractions.
Working with stock exchanges is even more challenging for dual-listed issuers who need to comply with multiple stock exchanges across time zones, sometimes simultaneously, when announcing material non-public information in compliance with Regulation FD (Fair Disclosure) in the United States. You will need to work together with your counterparts in foreign jurisdictions, in order to ensure global compliance with securities laws and stock exchange rules and regulations. Moreover, if your company is a broker-dealer, during public securities offerings or if there are securities transactions in question, you will need to be aware of Financial Industry Regulatory Authority (FINRA), a self-regulatory organization, and its role.
5. Learn Your Company’s Business
While a successful in-house practice rests on developing expertise in the securities laws and the applicable stock exchange rules discussed above, it is essential to develop deep knowledge about your company’s business and its functions. The more you know about your company and the securities laws, the better.
It is crucial that in-house counsel partner with the business to review, comment and approve internal and external communications such as press releases and company presentations. These often have securities law implications, including the use of forward-looking statements and non-GAAP (Generally Accepted Accounting Principles) financial information subject to Regulation G, which require certain disclosures and disclaimers. With some persistence and repetitive legal advice, your business clients may even start flagging such securities law issues for you.
Working as in-house counsel, you also may have responsibility for supporting other business areas, which will accelerate your knowledge about the company, and its businesses and the industries in which it competes. It will also be helpful when drafting SEC disclosures and assessing – and facilitating management’s assessment of – questions of materiality as it relates to your company’s disclosures.
A securities lawyer should have a deep understanding of, and involvement in, governance and compliance functions. The practice of securities law involves a constant flow and analysis of information, compliance and disclosure obligations, as well as management, committee and board approvals, certifications, and consents.
The practice of securities laws is nuanced and constantly evolving. It requires legal expertise and deep business knowledge. Given the expansive nature of securities laws, it is necessary to keep current on the areas impacting your company. To do so, in-house counsel may consult some of the resources referenced in this article, peruse regular updates from legal news sources, and research tools and materials published by law firms on relevant subject matter within the securities laws. Be sure to share relevant new developments with your counterparts and business clients. This not only will ingrain a culture of compliance at your company, it will help your company to comply with changes in the securities laws and stock exchange rules.
Author: Alex Gonzalez, Esq., Assistant General Counsel, New Jersey Resources
Related Websites and ACC Resources
- Legal news in ACC Newsstand powered by Lexology
- ACC Corporate and Securities Law Network (for ACC members only)
- SEC Industry Guides
- SEC’s EDGAR – Company Filings
- SEC Staff Interpretations
- SEC Forms List
- NASDAQ Listing Center
- NYSE Listing Manager
- NYSE Rules
- “Financial Statement Requirements in US Securities Offerings: What You Need To Know”, by Latham & Watkins LLP (Alexander F. Cohen, Paul M. Dudek, Joel H. Trotter) and KPMG LLP (Jonathan R. Guthart, Timothy D. Brown, Erin L. McCloskey), October 2020
- “Acquired Business Financial Disclosure Requirements for Securities Offerings”, by Latham & Watkins LLP and KPMG LLP (2020)
- Securities Filings in a Changing Environment, ACC Webcast (September 24, 2019)
- "Decoding the US Federal Securities Laws" ACC Docket, June 6, 2018 by Chris Chase, Larissa Powell