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Recent SEC Developments
For Foreign Private IssuersPaul Dudek
11 December 2017 | Tel Aviv
Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting
the practice in Hong Kong and Japan. Latham & Watkins operates in Seoul as a Foreign Legal Consultant Office. The Law Office of Salman M. Al-Sudairi is Latham & Watkins’ associated office in the Kingdom of Saudi Arabia. © Copyright 2017 Latham & Watkins. All Rights Reserved.
Overview
SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
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SEC Personnel Changes
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Chairman – William J (“Jay”) ClaytonSullivan & Cromwell LLP partner for 20 years. Expertise in securities offerings, mergers and acquisitions, corporate governance, and regulatory and
enforcement proceedings. Experience includes counseling companies in various industries and advising market participants on capital raising and
trading matters in the United States and abroad, including while resident in Europe for five years.
Nominee for Republican Commissioner – Hester Peirce (approved by Senate Banking Committee 1 November)Senior Research Fellow at the Mercatus Center at George Mason University and director of the Financial Markets Working Group. Served on Senator
Richard Shelby’s staff on the Senate Committee on Banking, Housing, and Urban Affairs, working on financial regulatory reform following the financial
crisis of 2008 and oversight of the regulatory implementation of the Dodd-Frank Act. Served as SEC staff attorney and as counsel to Commissioner
Paul S. Atkins.
Nominee for Democratic Commissioner – Robert J Jackson Jr (approved by Senate Banking Committee 1 November)Professor at Columbia Law School and Director of its Program on Corporate Law and Policy, focusing on corporate governance and the use of
advanced data science techniques to improve transparency in securities markets. Served as a senior advisor at the Department of the Treasury during
the financial crisis, assisting Kenneth Feinberg in his work as Special Master for TARP Executive Compensation, and previously worked as a lawyer at
Wachtell Lipton Rosen and Katz.
Director Division of Corporation Finance – William HinmanRecently retired partner from Silicon Valley office of Simpson Thacher & Bartlett LLP. Practiced in corporate finance, including in the technology, e-
commerce, health care, and biopharmaceutical areas. Advised public companies and their boards on public reporting, governance, and other
corporate matters. Has significant experience regarding derivatives, novel securities, and private placements. Managing partner of Shearman &
Sterling’s San Francisco and Menlo Park offices.
Co-Director – Division of Enforcement – Steven PeikinManaging Partner of Sullivan & Cromwell’s Criminal Defense and Investigations Group. Focused on white-collar criminal defense, regulatory
enforcement, and internal investigations. Has represented institutions and individual clients in numerous high-profile matters, including those involving
alleged violations of the federal securities and commodities laws, FCPA matters, price fixing, violations of economic sanctions, and tax and money
laundering offenses.
Co-Director – Division of Enforcement – Stephanie AvakianNamed Acting Director in December 2016, after serving as Deputy Director since June 2014. Previously a partner at Wilmer Cutler Pickering Hale and
Dorr LLP. Served as a vice chair of the firm’s securities practice and focused on representing financial institutions, public companies, boards, and
individuals. Worked in the SEC Division of Enforcement as a branch chief in the SEC’s New York Regional Office. Served as counsel to former SEC
Commissioner Paul Carey.
Director Division of Trading and Markets – Brett RedfearnWas Global Head of Market Structure for the Corporate & Investment Bank at JP Morgan. Started his career at the American Stock Exchange, where
he ran Business Strategy and Equity Order Flow. Has served on the boards of Bats Global Markets, the Chicago Stock Exchange, BIDS Trading, and
the National Organization of Investment Professionals. Earned his M.A. in Political Science from the New School for Social Research and his B.A. from
the Evergreen State College in Olympia, Washington. .
Director Division of Investment Management – Dalia BlassReturned to the SEC after having previously served in a number of leadership roles in the Division of Investment Management, most recently as
Assistant Chief Counsel. Joined from Ropes & Gray LLP, where she advised on investment fund, private equity, and regulatory matters. Previously
practiced law at O'Melveny & Myers LLP,. Began career in the London office of Shearman & Sterling LLP.
Director Division of Economic and Risk Analysis – Jeffrey HarrisWas professor and Chair in Finance at Kogod School of Business at American University in Washington, D.C. Extensive background in market
microstructure and regulatory issues. Served as Chief Economist at the CFTC. Prior experience as Visiting Academic at the Nasdaq Stock Market and
at the SEC.
Deputy Director Division of Corporation Finance – Robert Evans IIIPartner at Shearman & Sterling LLP in capital markets practice. Experience in public and private offerings, securities law compliance, and corporate
governance. Frequent speaker and writer on securities law, compliance, and legal ethics. Member of the TriBar Opinion Committee, the Working
Group on Legal Opinions, the American Law Institute, and Co-Chair of Shearman & Sterling’s Opinion Committee.
Chief Accountant – Wesley R. BrickerAppointed in 2016 after career of more than 15 years of experience in public accounting. Joined the SEC in 2015 from PricewaterhouseCoopers LLP,
where he was a partner responsible for clients in the banking, capital markets, financial technology, and investment management sectors. Served as a
professional accounting fellow in Office of the Chief Accountant from 2009 to 2011, returning to PwC in 2011.
General Counsel – Robert B. StebbinsPartner at Willkie Farr & Gallagher LLP. Focused on mergers and acquisitions, private equity and venture capital, investment funds, and capital
markets transactions. Also advised clients on SEC compliance issues and corporate governance matters.
SEC Personnel Changes
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• Remarks at Economic Club of New York – 12 July 2017
• The SEC’s mission is the touchstone.
• The SEC’s analysis starts and ends with the long-term interests of the
Main Street investor.
• The SEC’s historic approach to regulation is sound.
• Regulatory actions drive change, and change can have lasting effects.
• As markets evolve, so must the SEC.
• Effective rulemaking does not end with rule adoption.
• The costs of a rule now often include cost of demonstrating
compliance.
• Coordination is key.
• How these principles impact reporting companies
Jay Clayton’s Guiding Principles
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Overview
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SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
• SEC rule proposals to revise Regulation S-K and Form 20-F
• SEC Release No. 33-10425 – 11 October 2017
• Comment deadline – 2 January 2018
• Proposed changes to requirements relating to MD&A, property disclosure,
confidential treatment requests, and other matters
• Other rule proposals
• Disclosure Update and Simplification – July 2016
• Mining Disclosure (Guide 7) – June 2016
• Concept releases
• Financial Statements of Other Entities – September 2015
• Regulation S-K – April 2016
• Bank Holding Company Disclosure (Guide 3) – April 2017
Disclosure Effectiveness Initiative
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• Exhibit Hyperlinks and HTML Format – Effective
September 2017
• Foreign Private Issuer Guidance
• November 2016
• Dual-class shares
• Voting power or number of shares
• Residency status of individuals
• Location of assets
• US GAAP, IFRS, another reasonable methodology
• Administration of business
Other SEC Developments
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Overview
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SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
• Possible new SEC Guidance coming
• Important enough
• Wide-ranging enough
• Focus on disclosure controls
• Focus on escalation procedures
• Existing Guidance – October 2011
• SEC Roundtable – March 2014
Cybersecurity Disclosure
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Overview
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SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
• Ability to confidentially submit draft and amended registration statements
for SEC review expanded to all first-time filers including non-EGCs and
Section 12(b) Exchange Act filers (e.g., spin-offs and direct listings).
• Issuer able to confidentially submit initial draft of follow-on registration
statements for 12 months following effective date of the IPO or Exchange
Act registration statement
• Foreign private issuers may choose to use the 2017 accommodation or the
procedures from 2012 (narrower eligibility)
• Must publicly file the initial confidential submission and all confidentially
submitted amendments at least 15 days before commencing IPO road
show (or going effective if no road show) or 48 hours before going effective
on follow-on
• Ineligible first-time registrants: filers under Exchange Act Section 12(g),
unless foreign-listed FPI
Eligibility
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• Maintaining confidentiality
• JOBS Act confidential submissions exempted from Freedom of Information Act
• All others should use Rule 83 to request confidential treatment – FOIA requests
are theoretically possible but long lead time and Staff discretion should afford
similar protection
• Naming underwriters
• EGCS may omit underwriters on initial submission, but Staff will typically not
continue review if underwriters not named by second submission
• Unclear if this policy will apply to other filers
• Several options for foreign private issuers
Practical Issues
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• A confidential submission must be substantially complete, but is not a filing
so does not need to be signed and can omit consent of auditors and other
experts
• Can omit:
• financial information that
• An EGC reasonably believes will not be required at the time of the offering
• A non-EGC reasonably believes will not required at the time the issuer files
publicly
• financial statements of an acquired business required by Regulation S-X Rule 3-
05 if the issuer reasonably believes those financial statements will not be
required at the time of the offering
Content
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Overview
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SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
• Tagging of financial data by filers creates fully searchable database of as-
reported, line-item detail from financial reports
• Allows financial analysis over time and across companies and industries
• Detailed segment breakouts, schedules, and roll forwards can be searched,
compiled, and compared over time and across companies and segments
• Revenue growth over prior quarter
• Amount of overseas profits firms X, Y, and Z are not repatriating into the
United States
• How net operating loss tax loss carry forwards affect the balance sheets of
the pharmaceuticals industry
What is XBRL?
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• IFRS filers may file XBRL information in 2017
• IFRS filers must include XBRL information beginning with fiscal periods
ending on or after 15 December 2017
• For example, an FPI with a calendar fiscal year would be required to
include XBRL financial statements with its Annual Report on Form 20-F
filed in 2018
When Is It Coming?
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• Full detail-tagged XBRL financials will be required immediately
• In first year, XBRL information can be filed with an amendment to the
Annual Report on Form 20-F up to 30 days after the filing of the Annual
Report or the due date for the Annual Report, whichever is earlier
• All XBRL filers are immediately subject to all applicable liability provisions
with respect to their XBRL information
• Issuers must post their XBRL information on their corporate websites on
same day as SEC filing and maintain the posting for 12 months
• Simply including a hyperlink to the SEC website for this purpose is
insufficient
What Is Required?
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• Annual Reports on Forms 20-F for fiscal years ending on or after 15
December 2017
• Some (but not all) submissions on Form 6-K containing interim financial
statements that are incorporated into an FPI’s shelf registration statement
on Form F-3
• Certain registration statements under the Securities Act if the registration
statements:
• are filed after the FPI makes its first XBRL filing
• contain financial statements
• contain a price or price range
Which Filings Are Covered?
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• An IPO registration statement on Form F-1 for an FPI that is not currently
an SEC reporting company
• An Exchange Act registration statement on Form 20-F for an initial listing
on a US stock exchange
• A new shelf registration statement on Form F-3, unless it is a “long-form”
Form F-3 that physically includes financial statements
• A new registration statement for employee equity compensation on Form
S-8
• A Form 6-K submission for FPIs that do not have an F-3 shelf registration
statement
Which Filings Aren’t?
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Overview
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SEC Personnel Changes
Disclosure Effectiveness Initiative
Cybersecurity Disclosure
Expansion of Confidential Submissions
eXtensible Business Reporting Language
SEC Enforcement Update
• Core Principles
• Focus on the Main Street investor
• Focus on individual accountability
• Keep pace with technological change
• Impose sanctions most effectively further enforcement goals
• Constantly the assess the allocation of Division resources
SEC Enforcement Update
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• Enforcement Priorities
• Two new units
• Cyber Unit
• Market manipulation via social media, trading on hacked information, ICOs and
DLT, dark web, “intrusions” into retail brokerage accounts
• Retail Strategy Task Force
• Misconduct in microcap market, Ponzi schemes, and offering fraud
• Misconduct of investment professionals (suitability, churning, excessive trading)
• SEC Financial Reporting Cases
• Revenue recognition, overstating assets, improper accounting
• Non-GAAP metrics
• Internal controls
• Individual liability
SEC Enforcement Update
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SEC Enforcement Actions
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Source: Annual Report: A Look Back at Fiscal Year 2017, US Securities and Exchange Commission, Division of Enforcement (15 November 2017).
Types of Actions Brought
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Source: Annual Report: A Look Back at Fiscal Year 2017, US Securities and Exchange Commission, Division of Enforcement (15 November 2017).
SEC Actions Against Public Companies
Source: New York University Pollack Center for Law & Business and Cornerstone Research,
published in SEC Enforcement Activity Plunged with Dawn of Trump Era, Law360 (14 November 2017)
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Questions?
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Contact
Paul Dudek joined Latham as counsel in the Washington, DC office after 23 years as
Chief of the Office of International Corporate Finance in the US Securities Exchange
Commission’s (SEC) Division of Corporation Finance.
At the SEC, Mr. Dudek oversaw efforts to develop and implement rulemaking
initiatives and interpretive policies pertaining to US public and private offerings,
listings, and other transactions and periodic reporting by foreign private issuers in the
US and multinational offerings by foreign and domestic issuers, especially with
respect to Regulation S, Rule 144A, Form 20-F and Securities Act and Exchange Act
filings by foreign private issuers, the Multijurisdictional Disclosure System, American
depositary receipts, and International Financial Reporting Standards.
His practice covers all aspects of cross-border capital market transactions involving
non-US companies and sovereigns, as well as related regulatory matters.
Counsel, Washington, D.C.
T +1.202.637.2377M +1.301.646.4610E [email protected]
Education
JD, New York University School of Law, cum laude, Order of the Coif
BA, Fordham University, Phi Beta Kappa, summa cum laude
Bar Qualifications
District of Columbia, New York
Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and
Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins operates in Seoul as a Foreign Legal Consultant Office. The Law Office of Salman M. Al-Sudairi is Latham & Watkins’
associated office in the Kingdom of Saudi Arabia. © Copyright 2017 Latham & Watkins. All Rights Reserved. In connection with this document, you agree not to share with Latham & Watkins any confidential information regarding this
potential engagement unless and until an attorney/client relationship is established and agreed-upon in writing.
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