News & Insights
Apr 24, 2020
As discussed on this blog, the Securities and Exchange Commission (SEC) has issued a number of orders providing conditional regulatory relief for certain publicly traded company filing obligations as a result of the challenges created by the spread of the coronavirus (COVID-19).
More specifically, one of the key items of relief was an extension of filing deadlines for public companies’ proxy statements, annual reports and periodic reports, based on an exemption from certain provisions under the Securities Exchange Act of 1934, as amended (Exchange Act), similar to the relief normally granted under Rule 12b-25 of the Exchange Act.
On March 26, the SEC issued a temporary final rule offering additional relief for certain market participants that are directly or indirectly impacted by COVID-19. In particular, the relief granted in the temporary final rule extended filing deadlines for Regulation Crowdfunding and Regulation A issuers, similar to the orders discussed above. As further discussed below, the temporary final rule also alleviated the notarization requirement associated with Form ID.
Interestingly, the relief for Regulation Crowdfunding and Regulation A issuers was provided through a temporary final rule, but all prior relief stemming from COVID-19 issues has been provided through SEC orders, most commonly pursuant to the authority granted under Section 36 of the Exchange Act. It is the only temporary final rule that the SEC has issued in 2020, and only one of five such temporary final rules issued by the SEC in the last three years. In contrast, the SEC issued nine orders in the first quarter of 2020 alone, and a total of 36 orders in the last three years. Orders are issued more commonly in large part because they do not amend SEC rules or regulations, and instead, typically provide for exemptions from or extensions to pre-existing rules. On the other hand, temporary final rules actually amend SEC rules or regulations as soon as they are issued (albeit temporarily), and are therefore generally only issued in extreme circumstances, as they circumvent several steps in the SEC’s typical rulemaking process.
Indeed, the SEC’s rulemaking process normally involves several steps that are designed to give members of the public an opportunity to provide their opinions on whether the agency should reject, approve, or approve with modifications a rule proposal. There are three steps in the SEC’s normal rulemaking process:
In a departure from the rulemaking process detailed above, which can last months or sometimes even years, a temporary final rule behaves more like an order in that it does not invite commentary from the public, it usually takes effect immediately, and does not include any phase-in period. To provide an example of how severe an emergency must be before the SEC utilizes its temporary final rulemaking authority, we believe that it is telling that the last year that the SEC issued more than one such temporary final rule was in 2018, when two of the three temporary final rules issued were in response to Hurricanes Michael and Florence. Those two temporary final rules also extended reporting obligations for Regulation Crowdfunding and Regulation A issuers that had been previously provided to publicly traded companies, by amending Rule 202 of Regulation Crowdfunding and Rule 257 of Regulation A. Perhaps the SEC feels that it must use temporary final orders in relation to Regulation Crowdfunding and Regulation A issuers as they do not have access to relief under Rule 12b-25 like public companies. Ultimately, the SEC is treating the COVID-19 pandemic as it has treated very serious natural disasters in the past.
Additionally, according to our discussion with the SEC’s staff, one of the primary reasons the SEC chose to use a temporary final rule was the inclusion of the relief relating to Form ID. The relief granted in response to Hurricanes Michael and Florence did not include any references to Form ID (or the statutory provisions surrounding Form ID, Regulation S-T). However, under the current circumstances, the Staff felt it needed to amend Rule 10 of Regulation S-T under the Exchange Act immediately by adding an entire new paragraph (c), so as to allow filers to gain access to the SEC’s online filing system called EDGAR without interruptions that might arise from the need to provide the required notarization to the manually signed Form ID document.
Form ID Notarization Relief
Prior to the challenges of social distancing created by COVID-19, in order for a new filer to gain access to EDGAR, the filer would have to complete a Form ID application. One of the most vexing requirements of the Form ID application is that the signature on the form had to be notarized. It can be an administrative headache to chase down appropriately notarized signatures under normal circumstances and is an even less satisfying conclusion in these turbulent times.
Thankfully, pursuant to the temporary relief granted by the SEC, through July 1, 2020, filers will be issued EDGAR access codes without the requisite notarization, as long as the filer indicates on the face of the signed document that the failure to obtain notarization was due to circumstances relating to COVID-19. The notarized manually signed document must be provided within 90 days of the issuance of the access code; otherwise, the SEC may inactivate the filer’s EDGAR access codes.
Regulation Crowdfunding and Regulation A Filing Extensions
An issuer subject to the reporting obligations of Regulation Crowdfunding or Regulation A is exempt from filing any reports or forms due from and including March 26, 2020 to May 31, 2020 if the issuer:
This relief applies to all forms and reports, except Form C and Form C/A under Regulation Crowdfunding and a Form 1-A that has not been qualified under Regulation A.
Reminder to Evaluate Information in Offering Documents
In the temporary final order, the SEC also emphasized that the temporary relief granted thereunder does not change an issuer’s obligation to make materially accurate and complete disclosures in accordance with the anti-fraud provisions of the federal securities laws. In particular, an issuer relying on the temporary final rules that is conducting a continuous Regulation A offering should consider whether the delayed filing results in incomplete offering materials such that it should avoid selling any securities until its reporting obligations are current.
 This discussion omits Regulation A issuers that conducted a Tier 2 offering and subsequently filed a Form 8-A Exchange Act registration statement, as such issuers are thereby effectively treated by the SEC as regular public, periodic reporting companies are, including the ability to utilize the relief set forth under Rule 12b-25 of the Exchange Act.
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