{"id":10210,"date":"2022-02-14T18:10:43","date_gmt":"2022-02-14T18:10:43","guid":{"rendered":"https:\/\/www.rimonlaw.com\/?p=10210"},"modified":"2022-02-16T18:33:58","modified_gmt":"2022-02-16T18:33:58","slug":"sec-is-weighing-50-new-rules-which-affect-spacs-esg-matters-private-companies-and-private-funds-some-could-arrive-by-this-spring","status":"publish","type":"post","link":"https:\/\/www.rimonlaw.com\/sec-is-weighing-50-new-rules-which-affect-spacs-esg-matters-private-companies-and-private-funds-some-could-arrive-by-this-spring\/","title":{"rendered":"SEC is Weighing 50+ New Rules which Affect SPACs, ESG Matters, Private Companies and Private Funds \u2026 Some Could Arrive by this Spring"},"content":{"rendered":"

The financial news since the start of 2022 has contained numerous articles concerning the Securities and Exchange Commission\u2019s (\u201cSEC\u201d) more than 50 proposed rules that Chairman Gary Gensler is considering, representing one of the largest regulatory initiatives by the SEC in decades. \u00a0Particularly of note, Gensler emphasized his desire for greater competition and efficiency in the private funds space, as \u201cthese are the funds that raise money \u2014 the total number is about $17 trillion \u2014 raise money from pension funds and also from wealthy individuals,\u201d according to Chairman Gensler.[1]<\/a>\u00a0 The SEC\u2019s ambitious regulatory agenda seems to include key measures focused on hedge funds and private equity as well.[2]<\/a><\/p>\n

The sizable list of proposed rule changes can be grouped loosely into several categories including environmental, social and government (ESG) matters; buybacks; insider trading and executive compensation; trading activities (including who is shorting stock, and the loaning or borrowing of stock); and disclosure and investor protection.<\/p>\n

The SEC is preparing for greater transparency from large private companies, as Chairman Gensler has grown concerned about the apparent lack of oversight of the private fundraising that has fueled such companies\u2019 growth.[3]<\/a>\u00a0 On January 10, 2022, he mentioned on CNBC\u2019s \u201cSquawk Box\u201d that he seeks more transparency from the country\u2019s largest private companies and the private firms that fund them, to ensure that large private companies and private equity firms are disclosing enough information.[4]<\/a><\/p>\n

On the topic of short sale disclosure, Chairman <\/em>Gensler would consider mandating monthly disclosure of short sales. The Dodd\u2013Frank Wall Street Reform and Consumer Protection Act Dodd-Frank Act of 2010 (\u201cDodd Frank Act\u201d) mandated the SEC create rules for the monthly disclosure of short sales, which was never implemented.\u00a0 Regarding loans or borrowing of securities, the proposal c<\/em>ould require lenders of securities to disclose details of the lending transactions and make them available to the public, another mandate from the Dodd Frank Act that was never implemented.<\/p>\n

Proposed ESG Rule Changes<\/strong><\/p>\n

ESG matters are expected to be part of the SEC\u2019s intensive focus in 2022. ESG matters include environmental concerns including greenhouse gas emissions and emissions of other air and water pollutants, waste management; social factors such as labor and human rights, working conditions, health and safety of employees, employment equity, gender diversity and pay gaps, anti-corruption, and impact on local communities; and governance that involves ownership and structural transparency, shareholder rights, board of directors\u2019 diversity as well as independence and oversight, business ethics, executive compensation fairness and data transparency.<\/p>\n

The SEC is reportedly focused on three issues presently as several dozen mutual funds and exchange-traded funds now offer ESG-focused investments, including:<\/p>\n

    \n
  1. Climate change<\/em>:\u00a0 enhanced disclosures on climate-related risks and opportunities.<\/li>\n
  2. Board diversity<\/em>:\u00a0 disclosure about the diversity of board members and nominees.<\/li>\n
  3. Human capital management<\/em>:\u00a0\u00a0additional disclosure on how companies manage their workforce.<\/li>\n<\/ol>\n

    Perhaps as a foreshadowing of the SEC\u2019s ESG-related proposals to come, the SEC has (i) increased its scrutiny of climate-related pronouncements and forward-looking statements, and (ii) brought actions for noncompliance with previously-made ESG commitments. In August 2021, by way of example, the SEC and the U.S. Attorney\u2019s Office for the Eastern District of New York commenced an investigation of statements made by asset management firms advertising their use of sustainable investing criteria to determine whether they overstated their sustainable-investing efforts. [5]<\/a> \u00a0This enforcement action reinforces the need for fund sponsors to be precise in their preparation of their investment criteria, investment policies and their due diligence of investment targets.<\/p>\n

    Potential New SPAC Rules<\/strong>\u00a0<\/em><\/p>\n

    Chairman Gensler seeks more information about special purpose acquisition companies (SPACs), likely including three areas of interest:<\/p>\n