Current Developments in Sustainability Assurance: Impact of Emerging Regulations

Purpose – To explain a recent enforcement action by the USA Securities and Exchange Commission (SEC) whereby the SEC brought its first enforcement action for retaliation against a whistleblower under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Design/methodology/approach – Explains the SEC’s recent enforcement action under Dodd-Frank, highlighting the efforts that a company undertook with respect to continuing to employ a whistleblower after potentially fraudulent activity was reported and discusses practical problems faced by such companies when trying to simultaneously investigate potential wrong-doing without being seen as retaliating against a whistleblower. Findings – Through this enforcement action, the SEC has demonstrated a willingness to bring cases to enforce Dodd-Frank’s anti-retaliation provisions even though Dodd-Frank does not expressly grant it such enforcement authority. Practical implications – Companies must have a strong culture of compliance and a strong policy encouraging whistleblowers to report concerns internally if at all possible. Once the whistleblower has reported to the SEC, a company will need to maintain the status quo with respect to the whistleblower. Originality/value – Practical guidance from attorneys with experience with the SEC and whistleblower actions.

The SEC and Climate Risk

Purpose – To explain proposed rules and amendments recently issued by the USA Securities and Exchange Commission (SEC) that would impose more detailed reporting requirements for investment advisers that file Form ADV. A companion article describes the SEC’s proposed registered investment company reporting rules which were issued simultaneously. Design/methodology/approach – Describes the SEC’s reasoning for collecting more detailed data, introduces the proposed separate account reporting requirements for SEC-registered investment advisers, explains proposed amendments to Part 1A of Form ADV, describes a proposed codification of SEC staff positions that provide for so-called “umbrella registrations” by closely related advisory firms, and details two proposed amendments to Advisers Act Rule 204-2, the books and records rule, which would require investment advisers to maintain additional materials related to the calculation and distribution of performance information. Findings – Many questions still remain as to how the final rules will eventually take shape; however, it is evident that investment advisers will be subject to a wider array of reporting requirements. Investment advisors are likely to incur increased costs as a result of the proposed rules and amendments, and production of the reports could necessitate a revamp of their various internal procedures. Also, access to additional and enhanced information will have consequences for investment companies with respect to SEC examinations and enforcement activity. Practical implications – Investment advisers should understand that detailed new regulatory reporting is coming and, more specifically, separately managed account clients of investment advisers should be made aware of the proposed reporting requirements. Originality/value – Practical guidance from experienced investment funds lawyer.

Summary A key element in determining a project's commercial maturity is the evidence of a firm intent to proceed with development within a reasonable time frame. The Petroleum Resource Management System (PRMS) (SPE 2007) recommends 5 years as a benchmark, although a longer time can be applied in some cases. The U.S. Securities and Exchange Commission (SEC) also provides specific guidance and requirements on undeveloped reserves and the 5-year-maturation time limit. Despite the apparent clarity in the PRMS and SEC regulations regarding project maturity, this paper describes actual examples in the public domain in which different levels of commercial maturity were introduced within a project for proved and probable reserves as a result of the 5-year time limit. This has resulted in projects with their proved reserves reclassified as probable reserves because they will not be developed within the 5-year time limit. This paper reviews SPE standards and SEC wording on commercial maturity requirements and the 5-year time limit, providing clarity on whether a project's recoverable volumes should be classified as reserves or contingent resources if its undeveloped reserves are not matured into developed reserves within 5 years of their first reporting, and specific circumstances for a longer maturation time frame do not exist. When referring to projects with proved undeveloped reserves falling outside the 5-year time limit, the SEC uses different wording throughout the Final Rule document issued in January 2009 (NARA 2009). This has resulted in apparently different interpretations of the requirements for projects to meet this criterion. On the basis of the wording used in SEC forms 10-K and 20-F, public disclosures seem to range from reporting only the projects with undeveloped reserves that have been continuously disclosed for 5 years or more in the annual filings, to reporting all projects that have been or will remain undeveloped for 5 years or more from the time of their first disclosure date. Given the wording in the SEC Final Rule, it is understandable that different interpretations of the regulations may emerge. This paper presents an analysis of the SEC language used in the Final Rule and related wording used in SEC comment letters from the last few years. Failing further clarity from the SEC, this analysis provides the authors' opinion on the clarity required to ensure consistency in the way the SEC 5-year rule should be interpreted and in the spirit of comparability among companies that provides the basis for the SEC requirement to report these undeveloped reserves as a separate item. Another area discussed in this paper relates to the wording used by the SEC regarding a project's undeveloped-reserves volumes (i.e., its undeveloped reserves in barrels of oil equivalent) and the potential different interpretations that the industry may give to the SEC Final Rule. A simple example is presented to provide clarity on the option that is most likely to meet the SEC requirements. Potential inconsistencies resulting from different interpretation are highlighted. The analysis and recommendations presented in this paper aim at creating consistent approaches leading to better comparability among oil and gas companies by use of an aligned interpretation of standards and requirements for reserves estimation, classification, categorization, and disclosure.

Regulatory Path Dependency in Securities Regulation: Evidence from Israel and U.S.

The Rise and Fall of the SEC in Bankruptcy

Purpose – To alert companies and individuals subject to regulation and investigation by the US Securities and Exchange Commission (SEC) of potential arguments to enforce time limits on enforcement actions that have heretofore commonly been ignored. Design/methodology/approach – Analyzes two cases - one recently decided and one pending - in US Courts of Appeals, explains significance of issues at stake. Findings – The Courts of Appeals for District of Columbia Circuit has recently reviewed, and the Court of Appeals for the 11th Circuit will soon decide whether statutory timing provisions effectively remove SEC power to bring enforcement actions past their deadlines, at least in some circumstances. Practical implications – Depending on the outcomes of the cases, companies and individuals may gain a new procedural defense or two against SEC enforcement actions. They may also expect the SEC to respond by more actively seeking tolling agreements, and/or being more cautious in issuing Wells notices. Originality/value – Guidance based on pending decisions interpreting US securities law, may bring regulatory adjustments to agency practice and procedure.

Purpose – To explain proposed rules recently issued by the US Securities and Exchange Commission (SEC) that would dramatically expand both public and non-public reporting of portfolios and other data by US registered investment companies. A companion article covers new reports proposed at the same time for investment advisers that file Form ADV with the SEC. Design/methodology/approach – Explains how the proposed rules intend to rescind Form N-Q and adopt a new portfolio holding form, Form N-PORT, which would require expansive monthly portfolio and risk reporting; describes amendments to Regulation S-X which would both enhance and standardize derivatives disclosures in fund financial statements; and details the reporting requirements for a new annual ‘census-style’ reporting form, Form N-CEN, which would replace an obsolete existing SEC form, Form N-SAR. Findings – While it still remains to be seen how the final rules will be written, it is clear that US registered investment companies will be subject to broader reporting requirements. Investment companies are likely to incur increased costs due to the detailed nature of the information being requested and the frequency with which they will be required to file. Access to additional and enhanced information will have consequences for investment companies with respect to SEC examinations and enforcement activity. Practical implications – Senior management and boards of investment companies should understand the basic framework of the proposed requirements. An operations and finance working group may need to be established by companies in order to coordinate the planning and preparation process for the requirements. Firms also should determine whether their service providers have the necessary resources to assist in complying with the proposed filing requirements. Originality/value – Practical guidance from experienced investment funds lawyer.

On the Decision to Regulate Hedge Funds: The SEC's Regulatory Philosophy, Style, and Mission

Private Fund Disclosures Under the Dodd-Frank Act

The Sixth Commissioner

Using the SEC's Edgar Portal

Solving the Congressional Review Act’s Conundrum

Purpose – The purpose of this paper is to review the enforcement initiative announced by the US Securities and Exchange Commission (SEC) in September 2014 directed at reporting violations of the Securities Exchange Act of 1934 (Exchange Act) by public company officers, directors and significant stockholders. The paper considers the notable features of the first round of SEC enforcement actions pursuant to that initiative and proposes measures public companies and their insiders can adopt to enhance compliance with their reporting and related disclosure obligations under the Exchange Act. Design/methodology/approach – The paper examines the SEC’s enforcement initiative against the backdrop of the agency’s enforcement activity since 1990 for violations by public company insiders of the reporting provisions of Sections 13 and 16 of the Exchange Act. The paper summarizes the features of the reporting violations that attracted SEC enforcement interest in the recent proceedings and identifies the factors apparently weighed by the SEC in determining the amount of the penalties sought against those charged with the violations. Findings – The SEC’s latest enforcement actions are unprecedented for insider reporting violations. The new enforcement initiative represents an abandonment by the SEC of its largely passive approach of the past dozen years in which it charged insider reporting violations only when they related to fraud or other major violations of the securities laws. If reporting violations are flagrant, the SEC now promises to target the offenders for enforcement on a stand-alone basis without regard to other possible wrongdoing. The SEC also cautions that, as it did in some of the recent enforcement actions, it may charge companies that promise to assist their insiders in the preparation and filing of their reports, but do not to make the filings in a timely manner, with contributing to the filing failures. Originality/value – The paper provides expert guidance from experienced securities lawyers.

The Role of Academic Research in SEC Rulemaking: Evidence from Business Roundtable v. SEC