Open in Who Shared Wrong byline? Getting The Talent Balance Right: From Layoffs to Laterals to Mergers, How Can Firms Staff for Success? 1 Twitter 2 Facebook 3RSS 4YouTube [2] See Ben Scent, Wall Streets $100 Billion SPAC Boom Upends the League Table, Bloomberg Law (Apr. They argue that the disclosures required by the fictional new rule would be opinions, not facts, so it would violate the First Amendment. For EPA, those emissions may not be a priority. 6LinkedIn 8 Email Updates, Accounting and Financial Reporting Guidance, Compliance and Disclosure Interpretations, No-Action, Interpretive and Exemptive Letters, Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs), SPACs, IPOs and Liability Risk under the Securities Laws, ESG Disclosure Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets. It specifies disclosure of facts, in neutral language. A company in possession of multiple sets of projections that are based on reasonable assumptions, reflecting different scenarios of how the company's 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 [3] E.g., Andrew Ross Sorkin et al., What a SPAC Believer Thinks of SPAC Mania, N.Y. Times (Mar. Three points about this text are worth emphasizing. The safe harbor only applies in private litigation, and does not prevent the Commission from taking appropriate action to enforce the federal securities laws. [5] For studies of SPACs, see, e.g., Michael Klausner, Michael Ohlrogge and Emily Ruan, A Sober Look at SPACs, Yale J. Reg. Aircraft manufacturers essentially have their own specialized program accounting, due to the unusually long and complex capital investment process they follow. They believe climate change is not primarily caused by human activity. Law.com Compass includes access to our exclusive industry reports, combining the unmatched expertise of our analyst team with ALMs deep bench of proprietary information to provide insights that cant be found anywhere else. US public companies (e.g., the S&P 500) derive 40% of their revenues on average from non-US operations, and many have larger shares of their activities located offshore. The National Law Journal Elite Trial Lawyers recognizes U.S.-based law firms performing exemplary work on behalf of plaintiffs. . S190602 (daily ed. 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. 14, 2014) (setting forth special procedures required in mergers involving control shareholders, without which heightened entire fairness must be shown by interested fiduciaries); Olenik v. Lodzinski, 208 A.3d 704 (Del. The statute refers to the Commissions rules defining blank check company and to the Exchange Acts definition of penny stock.[15], By contrast, however, the PSLRAs exclusion for initial public offering does not refer to any definition of initial public offering. No definition can be found in the PSLRA, nor (for purposes of the PSLRA) in any SEC rule. The D.C. Professor of Law and Economics Harvard Law School 1875 Cambridge Street Cambridge, MA 02138, United States phone: 617-496-4420 e-mail: jcoates@law.harvard.edu *Corresponding Author Electronic copy available at : http ://ssrn.com /abstract = 2375396 COST-BENEFIT ANALYSIS OF FINANCIAL REGULATION: CASE STUDIES AND IMPLICATIONS The ways investors may use the information are not predetermined by the rule, nor would the rule itself limit how companies speak about whether (for example) climate risks are currently being overestimated or producing excessive disinvestment. Without such confidence, Congress astutely observed: Easy liquidity of the resources in which wealth is invested is a danger rather than a prop to the stability of [the market] system. LONDON, Oct 10 (Reuters) - When John Coates was on a winning streak during his days as a trader at Deutsche Bank and Goldman Sachs, the narcotic-like "high" he experienced was so powerful he was determined to find out more. 51283 (Mar. If Congress had intended to displace Commission disclosure authority regarding environmental matters (including climate-related financial disclosures) when it gave EPA authority to require disclosure in 1970, it seems surprising (to put it mildly) that Congress did not respond after the Commission adopted environmental disclosure rules in the 1970s. About John Coates. The Biden administrations new acting head of a key component of the U.S. Securities and Exchange Commission reported earning more than $2.5 million in law school income and consulting fees paid by financial firms and major U.S. companies, according to a newly released financial statement. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf. Forum on Corp. Gov. When Congress passed the PSLRA, the path to becoming a public company was fairly simple and standardized. Contact Us| EPA has authority over private companies, while the Commissions proposed rule covers only public companies. If the Commission or staff pursue that route, however, it would be important to keep the practicalities of SPACs in mind, in addition to other aspects of SPAC structures, relative to conventional IPOs as well as to other forms of achieving dispersed ownership, such as direct listings. Congress did not direct the Commission to protect investors through disclosure only when it is politically non-controversial to do so. These reports are filed with the Clerk of the House as required by Title I of the Ethics . To be sure, some elements of the SECs regulatory regime reflect a recognition that small or new public companies may not be as able to shoulder the costs of all disclosure requirements as older, larger companies. John Coates had copped further backlash for his comments towards . Apr. : John Dowling Coates 1950 57 - . E.g., In re Tesla Motors, Inc. Over the past six months, the U.S. securities markets have seen an unprecedented surge in the use and popularity of Special Purpose Acquisition Companies (or SPACs). He had been serving as the independent monitor for the U.S.. Still another study finds that mutual fund managers are misestimating climate risks based on current, inconsistent and unreliable disclosures. Contrary to some critics, letters from individuals also supported climate-related disclosures and were cited several times in the proposing release. Its creation was accomplished by Presidential directive, subsequently approved by Congress in 1984. More specifically, any material misstatement in or omission from an effective Securities Act registration statement as part of a de-SPAC business combination is subject to Securities Act Section 11. If the American people, through their representatives, wish to remediate climate change, or fulfill climate-related treaty obligations, this rule will not do those jobs. But companies will not be limited by the rule itself in how they and their investors respond to climate change. Duke Energy is investing $52 billion in transitioning to lower carbon resources. The focus of the actual rule is the impact of climate change on companies, and not vice versa. ESG issues are global issues. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. On balance, research on the Act's net . [1] This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). As a result, it would not intrude into topics or company-investor relationships that are markedly different from other authorized and long-standing rules. This list contains the names for all officeholders. Moreover, the landscape is changing rapidly so issues that yesterday were only peripheral today are taking on greater importance. It only specifies disclosures, and does not regulate climate change, or regulate climate emissions. 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, they point to the broader ESG movement and claim the fictional new rule requires disclosure about ESG, or about environmental impacts not relevant to investors. Private companies that combine with SPACs to enter the public markets have no more of a track record of publicly-disclosed historical information than private companies that are going through a conventional IPO. That legal questionwhether the proposed disclosures could reasonably be viewed in good faith by the Commission as beneficial for investor protectionis easy to answer in the affirmative, based on the record before the Commission when it voted to propose them. The release cites a number of studies to this effect. EPA, by contrast, focuses on conduct in the United States. By contrast, the focus of traditional environmental regulationincluding EPA reporting rulesis solely the reversethe impact of companies on climate change. Reflected in the PSLRAs clear exclusion of initial public offerings from its safe harbor is a sensible difference in how liability rules created by Congress differentiate between offering contexts. It is not a rule, regulation, or statement of the SEC. It is true that the subject matter of the financial risks and opportunities raised by climate change are complex, and climate experts have specialized knowledge about climate science. Mar. Recognition of the need for exercises of delegated disclosure authority can be found in other court decisions. Any answer to that question should note the limits of the safe harbor in the PSLRA. New investors buy these shares in the aftermarket or participate in a new offering by the combined entity. The specific reliance throughout the statutes on disclosure as an instrument. If markets are currently overly negative about a companys physical risks (e.g., to floods), such disclosures would facilitate a reduction in that companys cost of capital. To recap what is discussed above, EPAs authority is both materially broader and narrower than the Commissions, even as to the subpart of the Commissions rule addressing greenhouse gas emissions: In sum, EPA could not duplicate (or even approximate) the proposed investor-oriented rule, and the Commission could not duplicate (or even approximate) EPAs greenhouse gas disclosure rules. Coates, Lindsey. About Us| Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. Congress wanted and authorized the Commission to require disclosure to protect investors despite these limits, based on its expert judgment about what its experience and qualitative evidence showed it, supplemented by whatever science can add. Rather, I hope to highlight some of the issues that in my view policymakers should consider as the debate over ESG disclosures continues. But for investors in that company, they reasonably could be, because the transition risks (in the form of higher energy costs or potential need for capital expenditures to mitigate their impacts) could be large for that company, depending on its size, capital, liquidity and financial resources. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. Rec. John Coates has few regrets on his way out the AOC door Even as he steps down from 32 years in the top job, the knowledge and contacts of Australia's Olympic supremo will be tapped for years to. One need not be a strong believer in the efficient market hypothesis to believe that disclosure often aligns market prices with investment risk and returns, albeit sometimes with delays and errors, which makes ongoing refinements in disclosure requirements all the more important to healthy markets. The legal authorities cited by the Commission in the proposing release are the conventional authorities for disclosure rules over nearly a century. The rule does not require them to use particular words, or characterize their own conduct in any controversial way. The status quo is costly for companies, and increasingly so over time. What lessons can we learn from earlier examples of evolving risks? Consistent with the long tradition of disclosure requirements sketched above and in Annex A, the proposed rule specifies disclosure of climate-related financial risks to and opportunities for public companies. Rep. No. Economically, and practically, the private target of a SPAC is a different organization than the SPAC itself. 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. 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. The proposal is both narrower and broader than the critics fictional rule because it calls for and is limited to investor-focused information from public companiestraditional and long-standing hallmarks of U.S. securities laws and regulations. [11] See, e.g., Beck v. Dobrowski, 559 F.3d 680, 682 (7th Cir. This is exactly how the Commission has taken on similar issues in the past, as detailed in Annex A. The context of this authorizing language reinforces these conclusions. De-SPAC transactions also may give rise to liability under state law. If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday. Coates has served as the SECs Acting Director of the Division of Corporation Finance since February 2021. Renee brings deep expertise in corporate governance and securities law to the Division of Corporation Finance. Both appointments are effective June 21, 2021. Aside from the elementary fact that the Commission has no authority to edit Congressionally adopted statutes, the concept release actually says precisely the opposite. 6LinkedIn 8 Email Updates. Companies could comply with the rule and say: No debate over the level of risk created by climate change is predetermined or purported to be resolved by the rule. Asbestos-related disclosure is a great example. And to be yet more clear, the Commission has not simply expanded or added to required disclosures over timeit has cut, compressed, and consolidated as well, in step with the needs of investors over time. But most SPACs since 2009 have gone on to identify acquisition candidates. John Coates Acting Director, Division of Corporation Finance March 11, 2021 Statement Published in Connection with Remarks at the 33rd Annual Tulane Corporate Law Institute [1] Not long ago, the title of this statement would have needed to unpack "ESG" into Environmental, Social and Governance. The legislative history includes statements that the safe harbor was meant for seasoned issuers with an established track-record.[16]. The creation of an entire new agency (the Commission) to implement and enforce the laws. He also served on the SECs Investor Advisory Committee, for which he chaired the Investor-as-Owner Subcommittee. But the proposing release goes beyond the numerous supportive investor comments in the March comment file to note at length many kinds of additional evidence showing ways in which more, more comparable, and more reliable information would protect investors by improving their ability to assess and price climate-related financial risks and opportunities, both at the time of initial stock investments and in secondary market trading. That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. In addressing this research, it is insufficient for critics to gesture generically at the fact that correlation is not necessarily causation, or that no single such study can definitively prove a causal effect of climate on financial returns. Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. For years, asbestos-related risks were invisible, and information about asbestos would likely have been called non-financial. Over time, those risks went from invisible to visible to extremely clear, and clearly financial. The major questions doctrine has no role to change the plain text of the 1933 and 1934 Acts. I write to comment on legal authority. [1],[2] Shareholder advocates as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves[3] are sounding alarms about the surge. Letter to the Stakeholders of the Olympic Movement - Olympic News 2 years ago | By John Coates | Olympics.com The law went beyond combating affirmative fraud, where intent, materiality, and damages had a role to play, and added to it a general philosophy of seller beware, in which all pertinent facts must be disclosed before a company sells stock, and liability could attach even without traditional hallmarks of fraud, albeit with separate limiting conditions. That is, the rules perspective of that of investors and companiestheir strategies, risk management, governance and metricswithout regard to whether a given company independently creates a climate impact that is large or small for the overall environment, or whether it is more or less exposed than other companies to physical risks of climate change. Donilon - 278.pdf Robert Downing - 278.pdf Travis Dredd - 278.pdf Anita Dunn - 278.pdf Stacy Eichner - 278.pdf John Elias . 2021 Financial Disclosure Statements. Supporting statements were also overwhelmingly filed directly by investors of all kinds (not just or even primarily from socially activist or impact investors). Important and challenging questions must be addressed, such as: These are questions that the SEC should be a key part of answering. Empirical studies of financial markets and regulation have always had strong and inherent methodological limits, well-known and not seriously disputed, as well as data limitations. 'What Are We Fixing? 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. As companies continue to disclose more in sustainability reports, they should already be evaluating those disclosures in light of existing anti-fraud obligations. Join Facebook to connect with John Coates and others you may know. As noted in the Commissions 2010 climate guidance, A 2007 [GAO] report states that 88% of all property losses paid insurers between 1980 and 2005 were weather-related. Since 1980, the US alone has experienced 323 severe weather events causing more than $1 billion of damage each. https://www.law.com/nationallawjournal/2021/03/25/harvard-laws-john-coates-now-at-sec-reveals-consulting-income-clients/. Delaware corporate law, in particular, conventionally applies both a duty of candor and fiduciary duties more strictly in conflict of interest settings, absent special procedural steps, which themselves may be a source of liability risk. These data, again, are thus directly relevant to financial risks and opportunities for public companies. Regardless, as long as the disclosures are fairly designed for the protection of investors, a factual assessment of the kind commonly delegated by Congress to regulatory agencies, they would fall within the clear limiting principle of that law. As a result, depending on current capital market pricing, the rule could increase climate-impacting activities. For example, the famous phrase full and fair disclosure is in the full title to the 1933 Act, and so part of its statutory meaning. STAY CONNECTED [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. 11, 2019) (refusing to apply deferential review where special conflict of interest procedures were not applied ab initio); FrontFour Capital Group LLC v. Taube, No. Financial risks importantly include physical risks, such as those arising from severe weather events, such as floods, hurricanes, and wildfires. 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. A process to create such standards is not likely to be simple, quick or easy. No case is the contrary, and critics of the Commissions proposed rule cite none. 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. The Commissions authority, to reiterate, includes discretion to promulgate rules governing corporate disclosure. Recognizing innovation in the legal technology sector for working on precedent-setting, game-changing projects and initiatives. The basics of a typical SPAC are complex, but can be simplified as follows. In its overall framework, the proposed rule builds on the Task Force on Climate Related Financial Disclosure (TCFD), whose leadership includes the CFO of Unilever, the General Manager of Mitsubishi, and the former CAO of HSBC, and whose work has been supported by Bank of America, Barrick Gold, Dupont, Hewlett Packard, and Pepsico, among scores of other companies. John C. Coates is the Acting Director of the SECs Division of Corporation Finance. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. But critics claim that EPA authority repealed the Commissions authority is even more basically addressed by noting the significant differences in the two agencies organic statutes as applied to climate-related financial risk. "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. A movement is afoot to impose cost-benefit analysis (CBA) on financial regulation (CBA/FR). The safe harbor is also not available if the statements in question are not forward-looking. First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. But its basic statutory authority does not limit the level of generality at which an otherwise long-required disclosure topic may be addressed. But nothing in the 1933 Act or the 1934 Act imposes limits on the Commissions authority to refine the mode, detail, format, method, or specificity of required disclosures. Often these requirements have been specific and prescriptive in nature. But for purposes of assessing the legal issues raised by the proposed rule, this limit underscores how the rule is investor-oriented and tailored, consistent with the securities laws. Climate-affecting companies owned by individuals, governments, families, or private equity funds would not be directly affected. . 6LinkedIn 8 Email Updates. Companies either do or do not engage in activities that result in the emission of greenhouse gases. But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. [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. As we think about structuring a disclosure system for ESG issues, one question that comes up is whether ESG disclosures should be the subject of mandatory versus voluntary disclosure provisions. Circuit affirmatively held that the Commission had authority to do that, and, in its judgment, to potentially go further. 12 January, 2022 By John Coates John Coates, interim chief executive of Local Authority Recycling Advisory Committee (LARAC), looks at the development of the sector in 2022 This area is reserved. It does not suggest any limit other than what is in the statutes themselves, including NEPA. President Thomas Bach. Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. Rather, as long as the Commission considers that question in good faith and follows appropriate process, Congress has directed that the Commission make that decision, not the courts. [1]This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). [4] SPACs What You Need To Know, Investor.gov (Dec. 10, 2020). As a result, the rule will minimize costs and maximize benefits of compliance. 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. Striking down regulations adopted pursuant to clear and limited delegated authority would turn the doctrines purpose against itself, prevent Congress from assigning traditional fact-finding and implementation roles to agencies, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. The safe harbor was intended to provide a defense against such suits and provide grounds for summary dismissal. The Commission does, but has no investor-protection authority over climate impacts more generally, such as those on communities or habitats, beyond impacts that are important to investors decision-making. These investors included individuals and institutions. Moreover, is it appropriate that the choice of how to go public may determine or be determined by liability rules? In closing, I want to make three final points. The PSLRA was passed by Congress in 1995 to stem what was considered to be a rising tide of frivolous or unwarranted securities lawsuits aimed at operating companies filing routine annual and quarterly reports under the Exchange Act. It requires no disclosure from privately held unlisted companies. Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? What is proposed is to not to add new subject matters to public company disclosures, but to refine the mode and detail of already-required disclosures. These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. Copyright 2023 ALM Global, LLC. It is the first time that public investors see the business and financial information about a company. 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 complete publication, including footnotes and annex, is available here. 22, 2019) (enjoining two cross-conditioned mergers due to disclosure inadequacies concerning special procedures used to mitigate conflict of interest). Biography. Starting with the costs, critics of ESG disclosure requirements often point to the costs associated with preparing the disclosures. She received an undergraduate degree from Princeton University and a J.D. Professor Coates served as General Counsel and as Acting Director for the Division of Corporation Finance for the SEC. Dec. 21, 1995) (statement of Sen. Diane Feinstein, The provisions [of the PSLRA] are only available to companies with an established track record. and I understand the safe harbor does not apply to a new company, but only applies to seasoned issuers.).

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