A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the companys future may unfold, would be on shaky ground if it only disclosed favorable projections and omitted disclosure of equally reliable but unfavorable projections, regardless of the liability framework later used by courts to assess the disclosures. SPACs, IPOs and Liability Risk under the Securities Laws If a company would benefit from climate-mitigation policies adopted by other agencies, that information would be no less useful to investors than information about transition risk. The rest of this post details Points I and II. The World Meteorological Organization has tracked damage from weather events for the past fifty years; the top five most economically destructive events all occurred since 2005. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. The new law creates a process for immediate disclosure for death or serious bodily injury. As the proposing release notes, half of all public companies already make some climate disclosures in their SEC reports, and the Chamber of Commerce reports that more than half of surveyed companies publish sustainability reports. The caption to Section 7Information required in registration statementcontains no qualifiers on information. The authorizing language in Section 7(a)(1) is limited by Section 7(a)(2), but only for a designated class of emerging growth companies, and not as to content. Most public companies could go dark today, if they were prepared to surrender their stock exchange listings. General Motors announced it plans to sell only electric passenger vehicles by 2035. What is the right balance between principles and metrics? It would not itself force any company to shut down greenhouse-gas-emitting factories. 2018) (CFO's statement about corporation's large deferred service, healthy product backlog, and consistent quarterly linearity, which was a statement made with another statement as to expected earnings for an upcoming quarter, were non-forward-looking statements and were not protected by the PSLRA's safe-harbor; statement included facts regarding the present state of the corporation, not assumptions); NECA-IBEW Health & Welfare Fund v. Pitney Bowes Inc., No. The Constitution, and Congress, have given the Commissionand not the courtsauthority to make those judgments. Thousands more have been filed since the release was proposed, including many from self-identified individual investors. No. A process to create such standards is not likely to be simple, quick or easy. Before joining the faculty at Harvard, he was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. . The plain language could not be clearer in directing the Commission to do what it is proposing to do: specify the details of disclosure appropriate to protect investors, based on its fact-finding and expert judgment. The brief historical review in Annexes A and B (and much more detail could be added) shows that nothing about the current proposed rules contents (discussed more below) should be legally surprising in any meaningful way, to Congress or to companies or their investors. But its basic statutory authority does not limit the level of generality at which an otherwise long-required disclosure topic may be addressed. John C. Coates | Professional and Lifelong Learning Because the rule is an investor-oriented disclosure rule, it is within the Commissions expertise. Only at that time did EPA take the position its 1970 authority over air pollution gave it authority to require climate-related disclosures. It would be unhelpful for multiple standards to apply to the same risks faced by the same companies that happen to raise capital or operate in multiple markets. But it is also clear that companies are not doing so consistently, comparably, or reliably. This statement creates no new or additional obligations for any person. Jones is a member of the American Law Institute and has served as the Co-Chair of the Securities Law Committee of the Boston Bar Association. 2003) (holding that statements encompassing forward-looking and present or historical components were not entitled to safe harbor protection where the [c]omplaint alleges that the Defendants had no basis for their optimistic statements and already knew (allegedly) that certain risks had become reality and notably where plaintiffs adequately pled scienter). The D.C. SEC's Coates Calls for "Adaptive and Innovative" Policy on ESG Disclosure John Coates is the John F. Cogan, Jr. "He has spent the last three decades deeply engaged with our capital markets as a scholar, practitioner, and member of the SEC's Investor Advisory Committee. The financial disclosure that John Coates filed also offered a rare public peek into the costs of corporate compliance monitors. As noted above, the JOBS Act, for example, limited the full requirements in Section 7 for emerging growth companies, but left the Commissions overall authority to require disclosure for other public companies intact. Do current liability provisions give those involved such as sponsors, private investors, and target managers sufficient incentives to do appropriate due diligence on the target and its disclosures to public investors, especially since SPACs are designed not to include a conventional underwriter at the de-SPAC stage? 6LinkedIn 8 Email Updates. The proposed rule is a rule that specifies details of disclosure requirements. John Coates, named acting director of the SEC's Division of Corporation Finance on Feb. 1, made the remarks on Thursday during a conference on climate finance hosted by the Institute of. VIA EMAIL: coatesjo@sec.gov John Coates, Acting Director Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street NE Washington, DC 20549 April 14, 2021 Re: Guidance Needed to Issuers on the Presentation of Shareholder Proposals Dear Director Coates: I am writing to urge the Division of Corporation Finance to issue Ch. Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. From an environmental policy perspective, prioritizing based on environmental impact might make sense. I fear, though, that participants may not have thought through all the legal implications of these statements under the circumstances of these transactions. Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. The same could be said of most existing disclosure requirements. It requires no disclosure from privately held unlisted companies. It does not say, for example, annual financial reports, but simply annual reports. As with the 1933 Act, the authority is not unboundedit is limited by the phrase appropriate for the proper protection of investors, with the gloss that the rules also be appropriate to insure fair dealing in the security, a reflection of the fact that the 1934 Act was designed to govern securities that were already trading on securities markets. 2, 2021). This demonstrates that the broader direction was consciously added during the legislative process. I am unaware of any relevant case law on the application of the IPO exclusion. 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. It does not embody a general policy to address climate change, or engage the range of social and economic issues that climate change raises. New Corp Fin Director John Coates is fully on-board, making speeches and otherwise being vocal in his support of ESG centered disclosures. It does not regulate climate activity itself (e.g., greenhouse gas emissions) and would have modest effects on the economy as a whole. Although climate change overall indisputably raises important policy questions, those remain for Congress. Under federal securities law, the touchstones for all securities offerings remain what they have long been. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. Both options are priced the same. Surveys of institutional investors published in peer-reviewed financial journals confirm this evidence. John M Coates Mark Gurnell Zoltan Sarnyai Little is known about the role of the endocrine system in financial decision-making. As noted above, subsequent to the initial passage of the securities laws, but after the passage of the initial Clean Air Act and in the same year EPA was created (1970), Congress directed the Commission (along with all other agencies of the federal government) to consider environmental protection in its rulemakings. Congress in 2012 thus ratified long-standing Commission exercises of the unambiguous authority in 7(a)(1). Congress also recognized that full and fair disclosure would enhance investor confidence. Financial Disclosure - United States Department of Justice The proposed rule does not itself restrict or limit environmentally harmful activity. No court has ever found that this long line of exercises of the basic authorities on which the current rule relies were beyond the Commissions authority. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. Implied repeals occur only when two statutes are in irreconcilable conflict or when a later act covers the whole subject of the earlier one and is clearly intended as a substitute. In either case, the intention of the legislature to repeal must be clear and manifest. Nothing about the Clean Air Act is in irreconcilable conflict with the securities laws, and as just discussed, the Clean Air Act and subsequent EPA rulemaking address and could address only a part of what the proposed rule would address, even focusing narrowly on greenhouse gas emissions disclosure alone. Coates, recently finished work on a follow-up to the 1982 film to celebrate its . What is the upshot of this? The Commission has neither approved nor disapproved its content. This blog answers some questions about the changes. Of course, as Commissioner Peirce does not do much to dispute, and as the proposing release makes clear, existing disclosures are spotty, inconsistent, incomplete and unverified under existing Commission rules. In the context of legislation that does not implicate fundamental rights or a suspect class, faithful enforcement of the Constitution requires a court to hew as closely as possible to the norm of faithful agency by enforcing the text unadulterated by judicial tweaking.. Where and how can disclosures be aligned with information companies already use to make decisions. Prior to joining the SEC, John was the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. Facebook gives people the power to. Feedback to SSRN. Disclosure means: "To . Authority for disclosure under the 1934 Act addressed more than the need for protection of the initial investor acquiring securities. When everything everyone owns can be sold at once, there must be confidence not to sell. Rather, it calls for specific disclosures that investors in US public companies need to evaluate and price climate-related financial risks and opportunities. 23, 2013) (citing Sawant v. Ramsey, 3:07-CV-980 VLB, 2010 WL 3937403 (D. Conn. Sept. 28, 2010) (holding that otherwise forward-looking statements that contain misrepresentations of current facts are not protected by the safe harbor provision of the PSLRA or the bespeaks caution doctrine); In re Nortel Networks Corp. Sec. Previously, Coates was a partner at Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and financial institutions. SEC.gov | John Coates Named Acting Director of the Division of [14] See generally, H.R. Any answer to that question should note the limits of the safe harbor in the PSLRA. For example, it does not call for disclosure of a companys climate-related impacts on employees or customers or communities, except to the extent those impacts result in overall financial or business risks or opportunities (which do impact investors). E.g., In re Tesla Motors, Inc. A SPAC Curveball | Publications | Kirkland & Ellis LLP We will also need to be open to and supportive of innovation in both institutions and policies on the content, format and process for developing ESG disclosures. 12711-VCS, 2018 WL 1560293 (Del.Ch. Just as artificial manipulation tends to upset the true function of an open market, so the hiding and secreting of important information obstructs the operation of the markets as indices of real valueThe disclosure of information materially important to investors may not instantaneously be reflected in market value, but despite the intricacies of securities values truth does find relatively quick acceptance on the market. John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the . This legislative choicedisclosure, but not merit reviewis an important and real intelligible principle limiting the Commissions general authority, along with the specific, and limited purpose for those disclosures, that they be those appropriate for the protection of investors. These limits explain why further restrictions on the Commissions authority to specify disclosures to protect investors were not needed to constitutionally cabin Congresss delegation to the Commission under the 1933 Act. 2009) (There is no required state of mind for a violation of section 14(a); a proxy solicitation that contains a misleading misrepresentation or omission violates the section even if the issuer believed in perfect good faith that there was nothing misleading in the proxy materials); Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on Potential Exchange Act Section 10(b) and Section 14(a) Liability, Exchange Act Release No. If arguments of that kind could limit rulemaking authority, the Commission could never have adopted any disclosure rules. SPAC shareholders typically have a vote on the so-called de-SPAC transaction, and many investors who purchased securities in the first stage SPAC either sell on the secondary market or have their shares redeemed before or shortly after the de-SPAC. The context for the authorizing sections of those statutes supports the Commissions authority: Canons against ineffectiveness and in favor of validity, and the general terms canon all caution against courts making up their own limits on textual authority, particularly on grounds such as: For the Commission programmatically to refuse to protect investors due to concerns about politics would itself be a political and controversial policy position. The rule would create a framework for reliable disclosures of climate-related information that is potentially positive for investors, such as opportunities, and is not limited to risks. Congressional ratification has been repeated and affirmativenot mere inaction. Those important topics remain for Congress, and the proposal on its own does not raise new major questions warranting a deviation from standard statutory interpretation. Instead, as summarized by the D.C. He served as a Department of Justice-appointed independent monitor for a large, systemically important financial institution and as an independent consultant to the SEC in one of the first Fair Fund distributions. Mr Coates told Channel 7's Sunrise he "overruled" Ms Palaszczuk after she initially said she would not be among the 1000 or so VIPs to attend the Opening Ceremony, which - like most of the . For example, many companies have no major facilities in flood plains, do not consume significant amounts of energy, and do not produce significant greenhouse gas emissions. If these facts about economic and information substance drive our understanding of what an IPO is, they point toward a conclusion that the PSLRA safe harbor should not be available for any unknown private company introducing itself to the public markets. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. John CoatesActing Director, Division of Corporation Finance. The subject of a disclosure is new, when the nature of business and investment is dynamic. Voluntary, unassured disclosures are more likely to include greenwashing, impairing investors ability to assess and price risk, and undermining honest companies ability to communicate with investors and build confidence; some greenwashing rises to the level of fraud, while other disclosures or omissions may not rise to the level of actionable fraud with proof of scienter. To be sure, projections are woven into the fabric of business combinations. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. Supporting statements were also overwhelmingly filed directly by investors of all kinds (not just or even primarily from socially activist or impact investors). To be clear, in the initial offering by a SPAC, when the shell company is first raising funds to finance all (or more commonly a portion) of its hoped-for acquisition of the yet-to-be-named target, disclosures clearly have a role to play under the federal securities laws. As stressed by Justice Alito, when he was a Judge on the Third Circuit: Because the materiality standards for Rule 10b-5 [the Commissions primary anti-fraud rule] and SK-303 [an affirmative disclosure requirement for known trends and uncertainties, among other things] differ significantly, the demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b-5.. S190602 (daily ed. The directive consolidated authorities and activities spread across six different departments and agencies, ranging from the Department of Agriculture to the Atomic Energy Commission. John C. Coates, Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications, 124 Yale Law Journal 882 (2014-2015). Image: Getty. I will work tirelessly to execute our rules and make sound recommendations that will help the SEC realize its mission.. Indeed, the texts are so clear thatin contrast to the many times the Commission has been challenged on anti-fraud rulemakings, where authority has been interpreted as limited by common law anti-fraud principlesfew attempts have been made to challenge the Commissions use of its basic disclosure authorities to require disclosure. Throughout I describe rather than argue for what the law should be. In other words, the delegation to the Commission was deliberate, was specifically intended to apply to required disclosures, and was sensible, reflecting an anticipation that the Congress itself could not reasonably work out in detail the kinds of choices necessary to develop and keep up to date an appropriate disclosure regime. The release cites a number of studies to this effect. We'll send you a myFT Daily Digest email rounding up the latest Denise Coates news every morning. Women, Influence & Power in Law UK Awards honors women lawyers who have made a remarkable difference in the legal profession. The SEC is well equipped to lead and facilitate a discussion on when and how ESG risks and data must be disclosed, and how to create and maintain an effective ESG-disclosure system that would promote the disclosure of decision-useful, reliable and, where appropriate, globally comparable ESG information. One need not believe any of these studies is the final word on the subject to believe that collectively, they provide sufficient evidence to believe, reasonably, that verified, consistent climate-related financial disclosures would be useful to protect investors. Clear statement canons play no role when statutes speak clearly. John F. Cogan, Jr. Often these requirements have been specific and prescriptive in nature. Do particular disclosures, procedures, and liability rules reduce the all-in costs of capital? That request elicited massive amounts of public input on potential climate-related disclosure, and gave anyone skeptical about the project ample notice that it was on the Commissions agenda, and ample time to adduce evidence against it. Investors need to know about sponsors and their financial arrangements, the procedural protections of the SPAC structure, and what kinds of returns the SPAC is likely to generate for investors absent a de-SPAC transaction or for those who choose to exit before the de-SPAC is completed. Coates received his Bachelor of Arts with highest distinction from the University of Virginia and his law degree from New York University Law School. Over time, the Commission has used its authorities under the 1933 Act and the 1934 Act to specify the details of required disclosures about a range of matters, both in and outside corporate financial statements, as illustrated in detail in Annex A to this post. An effective ESG disclosure system does not imply a rigid and soon-to-be outdated set of limited disclosures. (forthcoming 2021); Minmo Gahng, Jay R. Ritter and Donghang Zhang, SPACs, Working Paper (Mar. I am pleased to welcome Renee to the SEC and look forward to working with her., I am excited to join the Division of Corporation Finances team of experienced and dedicated public servants, said Jones. For EPA, those emissions may not be a priority. The basics of a typical SPAC are complex, but can be simplified as follows. 2020) (breach of duty of candor due to failure to disclose conflict of interest in merger); Chester County Emp.s Ret. Consideration of such costs is important, as is getting clear about their causes. 6LinkedIn 8 Email Updates. If an officeholder has filed their annual financial disclosure statement, then a pdf of the filing will be posted. Where and how should disclosures be globally comparable? I write to comment on legal authority. 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. Financial Disclosures | The White House [14], But, lest the safe harbor swallow the entire securities disclosure regime, the PSLRA specifically excludes from the safe harbor statements made in connection with specified types of securities offerings. Quinn Emanuel Discusses SPAC Litigation Risks | CLS Blue Sky Blog (Sept. 30, 2020). The commentary distinguishes between the full disclosure purpose of the 1933 Act from its separate, anti-fraud purpose. Reporting requirements regarding emissions of all kinds were a subsidiary authority given to EPA to supplement the more direct, substantive power to regulate the amount and type of emissions. . Posted by John C. Coates (Harvard Law School), on, Harvard Law School Forum on Corporate Governance, on Proposal on Climate-Related Disclosures Falls Within the SECs Authority, The Illusory Promise of Stakeholder Governance, by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum, Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy A Reply to Professor Rock, Stakeholder Capitalism in the Time of COVID, Corporate Purpose and Corporate Competition, Congress created and in plain words authorized the Commission to protect investors by specifying public company disclosures of information about financial risks and. These include (for example) asbestos and other sources of tort liability, contract and other kinds of commercial litigation, and cybersecurity and other kinds of technology risks. Nothing at stake in this proposed rule justifies such judicial lawmaking. It is the first time that public investors see the business and financial information about a company. Volkswagen announced $180 billion of investments in electronic vehicles. Join Facebook to connect with John Coates and others you may know. The Hour Between Dog and Wolf by John Coates: 9780143123408 What is the best way to verify or provide assurance about disclosures? With the large pool of private capital available and the increase in Exchange Act Section 12(g) registration thresholds, a company can remain private and grow significantly without going through a traditional IPO. Sydney Olympics 'bought to a large extent' said organiser John Coates With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. Protecting investors has been the Commissions job since 1934. . Securities Act Rule 419 (which predated passage of the PSLRA) limits its definition of blank check company to one that issues penny stock. Most SPACs, however, avoid meeting the definition of penny stock issuer and are therefore neither a blank check company nor a penny stock issuer as those terms are defined. 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.. Not long ago, the title of this statement would have needed to unpack ESG into Environmental, Social and Governance. On the issue of global comparability, in the first instance, arguments in favor of a single global ESG reporting framework are persuasive. .. The Court has stressed the structure and design of the 1933 and 1934 Acts reflect an understood need for regulatory flexibility, even in decisions limiting the reach of Commission rules where the precise limits of its authority are less clear, such as Rule 10b-5: Congress recognized that efficient regulation of securities trading could not be accomplished under a rigid statutory program. In numerous cases, the Court and lower courts have held that the federal securities laws are to be construed broadly, not technically and restrictively, but flexibly to effectuate its remedial purposes.. One study worth highlighting, now published in a leading finance journal, finds that climate disclosures are already actively if imperfectly priced in the capital markets, effects confirmed in other published articles.
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