Capital Markets & Governance Insights: SEC Developments

SEC Climate Disclosure Rule Developments

In early March 2024, the Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. Less than a month later, the SEC voluntarily stayed the application of those rules pending completion of judicial review by the Eighth Circuit. That stay remains in effect.

On March 27, 2025, the SEC voted to end its defense of those rules in the ongoing litigation. Despite the SEC’s decision to no longer defend its climate disclosure rules, the litigation remains ongoing. On April 4, 2025, however, the District of Columbia, along with several states that intervened in the litigation, filed a motion seeking to put the litigation on hold considering the SEC’s withdrawal from defending the rules; the State of Iowa, one of the petitioners, has opposed that motion. Even if the Eighth Circuit denies the motion and goes on to rule in favor of the SEC’s climate disclosure rules, the current SEC could begin a new notice and comment rulemaking process to formally rescind those rules.

EDGAR Next Enrollment Period Kicks Off

On March 24, 2025, the amendments adopted by the SEC on September 27, 2024 regarding changes to access and management of filer accounts for EDGAR (referred to as “EDGAR Next”), the SEC’s electronic filing system, which we discuss in detail here, became effective, kicking off the transition period for existing filers to enroll in EDGAR Next. Also on March 24, 2025, the EDGAR Filer Management website dashboard, through which existing filers must enroll in EDGAR Next and new filers must file the amended Form ID (the application for EDGAR access), went live. As a reminder, although existing filers will have until December 19, 2025 to enroll in EDGAR Next, existing filers who have not enrolled by September 15, 2025, the day filing through the EDGAR Next process will begin, will not be able to file until they enroll. We, therefore, encourage existing filers to enroll early. To enroll in EDGAR Next, existing filers will need to authorize any individual with Login.gov credentials to enroll them in EDGAR Next and provide that individual with their CCC and passphrase EDGAR codes; the name, email (matching the email registered—or to be registered—with Login.gov), business address, and business telephone numbers of their initial account administrators; and the quarter-end date they plan to use for their annual EDGAR Next confirmations.

New SEC Staff Guidance Allows Effectiveness of Non-Automatically Effective Form S-3s Before Filing of Proxy Statement

The Bottom Line

• Form S-3 registration statements filed by issuers who are not well-known seasoned issuers may now be declared effective before the filing of the proxy statement containing Part III information that was properly omitted from the issuer’s timely filed Form 10-K.
• This relief will accelerate the SEC registration process for such issuers and should make it easier for these issuers to access the capital markets during the period between the filing of their Form 10-K and the filing of their proxy statement.

The Details

On March 20, 2025, staff of the SEC’s Division of Corporation Finance issued guidance allowing issuers filing non-automatically effective Form S-3 registration statements (that is, Form S-3s used by issuers who are not well-known seasoned issuers (WKSIs)) to have such registration statements declared effective after filing their Annual Report on Form 10-K but before filing information required by Part III of Form 10-K (“Part III Information”), which information issuers may, and often, opt to incorporate by reference from their forthcoming definitive proxy statement.

The new guidance, which is reflected in revised Question 114.05 and Question 198.05 of the SEC staff’s Compliance and Disclosure Interpretations (C&DIs) for Securities Act Forms, and Securities Act Rules, respectively, reverses the staff’s prior guidance (in effect since July 1997) that an issuer filing a non-automatic Form S-3 must file its definitive proxy statement or include the Part III Information in its Form 10-K (including by amendment) before such a Form S-3 can be declared effective. In adopting the new guidance, the SEC staff withdrew Question 123.01 of the Securities Act Forms C&DIs reflecting its prior guidance.

The new guidance aligns the SEC staff’s views with its longstanding guidance (in effect since 2009) applicable to automatically effective Form S-3s filed by WKSIs, putting all Form S-3 filers on equal footing in this regard. Under this guidance, the SEC staff reminds all Form S-3 filers that they remain responsible for ensuring that any prospectus used in connection with a registered offering contains the information required to be included in it by Securities Act Section 10(a) and related Schedule A. This means that issuers must still assess the completeness of a prospectus from a disclosure standpoint at the time of an offering. That assessment would often result in an issuer incorporating the prior year’s proxy statement into the prospectus by reference and requires an issuer to consider the potential materiality of its anticipated Part III Information.

This new relief will enable non-WKSI Form S-3 filers to accelerate the SEC registration process prior to filing a definitive proxy statement containing the necessary Part III Information and should facilitate capital raising transactions by these filers during the period between filing of a Form 10-K and filing the definitive proxy statement containing the Part III Information.

SEC Issues No-Action Letter Clarifying Rule 506(c) Accredited Investor Verification

The Bottom Line

• To verify investors’ “accredited investor” status in securities offerings under Rule 506(c) of Regulation D under the Securities Act of 1933 (the “Securities Act”), issuers may rely on minimum investment amounts—generally $200,000 for natural persons and $1 million for legal entities—and written representations regarding accredited investor status and non-third-party financing of the investments.

The Details

On March 12, 2025, the SEC Division of Corporate Finance issued a no-action letter clarifying “reasonable steps” issuers can take to verify purchasers’ accredited investor status, as required under Rule 506(c) of Regulation D under the Securities Act of 1933. The no-action letter provides an alternative path for compliance with Rule 506(c) and, thereby, additional flexibility for issuers conducting securities offerings intended to comply with the rule.

Rule 506(c) permits issuers to broadly solicit and generally advertise an offering (including making public statements) without having to register the offering and sale with the SEC, provided that the issuer “take[s] reasonable steps to verify that purchasers of securities sold in any offering … are accredited investors.” The rule also includes non-exclusive safe harbors pursuant to which an issuer will be deemed to have taken reasonable steps to verify accredited investor status if it uses certain specified methods that generally require the review of additional investor documentation or obtaining supplemental written confirmations from an investor’s external advisers. These methods have, however, posed a challenge to, and resulted in a chilling effect on, reliance on Rule 506(c) by some issuers.

In response to the incoming letter, the SEC staff, in the no-action letter, concurred that issuers may also satisfy Rule 506(c)’s verification requirements by relying on minimum investment amounts—generally $200,000 for natural persons and $1 million for legal entities—and related written representations from investors.

Reasonable Steps to Verify Accredited Investor Status: The no-action letter states that an issuer could reasonably conclude that it has taken reasonable steps to verify accredited investor status if:

• High Minimum Investment Amounts and Written Representations.
  • For natural persons, the issuer requires a minimum investment of at least $200,000 and obtains written representations that the purchaser is an accredited investor, and that the minimum investment amount is not financed by a third party;
  • For legal entities accredited by total assets, the issuer requires a minimum investment of at least $1,000,000 and obtains similar written representations;
  • For entities accredited solely by all equity owners’ accredited investor status, the issuer requires a minimum investment of at least $1,000,000, or $200,000 for each of the purchaser’s equity owners if all the purchaser’s equity owners are fewer than five natural persons. In this case, the issuer must not only obtain written representations as to the accredited investor status of the purchaser and the financing of the purchaser’s minimum investment amount, the issuer must also obtain written representations that each of the purchaser’s equity owners has a minimum investment obligation to the purchaser of at least $200,000 for natural persons and $1,000,000 for legal entities, and that the minimum investment amounts of such equity owners was not financed by a third party; and
• No Actual Knowledge of Contrary Facts. The issuer does not have any actual knowledge of facts indicating that a purchaser is not an accredited investor or that the investment is financed by a third party for the purpose of making the particular investment.

We discuss this guidance and other related considerations, including in relation to investment funds, here.

SEC Staff Enhances Its Confidential Review Program for Registration Statements

The Bottom Line

Under the SEC’s confidential review program for registration statements, issuers may now also submit the following for confidential review:

• Initial registrations of securities on Forms 10, 20-F, or 40-F under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”);
• Initial submissions of all their Securities Act and Exchange Act registration statement filings after becoming public companies; and
• Draft registration statements for de-SPAC transactions where the SPAC is the surviving entity as though they were IPO registration statements, so long as the target company has not previously undertaken an IPO.

The Details

On March 3, 2025, the SEC’s Division of Corporation Finance announced certain enhancements to its policy on the confidential, nonpublic review of draft registration statements. Prior to the announcement, the Division’s policy only applied to registration statements for initial public offerings (IPOs), initial registrations of listed securities on Forms 10, 20-F, or 40-F under Section 12(b) of the Securities Exchange Act of 1934, and Securities Act registration statements of new reporting companies (submitted within a year of IPO or Exchange Act Section 12(b) registration), and issuers were not permitted to omit the names of the underwriters from their draft registration statement submissions. Effective March 3, 2025, the Division’s policy was enhanced to:

• extend the availability of the confidential review process to the initial registration of a class of security on Forms 10, 20-F, or 40-F under Section 12(g) of the Exchange Act, which registration is triggered by specified assets and record holder thresholds or may be done on a voluntary basis;
• permit public companies to submit draft Securities Act registration statements, or Exchange Act Section 12(b) or 12(g) registration statements on Forms 10, 20-F, or 40-F for confidential review, without regard to how long they’ve been public—subject to confidential review only applying to their initial submissions and not to amendments;
• treat the draft registration statement for a de-SPAC transaction where the SPAC is the surviving entity (i.e., structures requiring the SPAC target to be a co-registrant) as though it were the target’s IPO registration statement, so long as the target has not previously undertaken an IPO—thereby permitting its confidential review on the same basis as an IPO registration statement; and
• permit issuers to omit underwriter names from their initial draft registration statement submissions, provided the names are included in subsequent submissions and public filings.

We expect that many issuers filing non-automatically effective Securities Act registration statements will take advantage of these enhancements to maintain the initial confidentiality of their registration statements, including for the purpose of determining whether the SEC staff will decide to review their registration statements.

“Meme Coins” Are Not Securities, Says SEC Staff

The SEC’s Division of Corporation Finance issued a statement on February 27, 2025, to clarify the application of the federal securities laws to “meme coins,” a type of crypto asset inspired by internet memes, characters, current events, or trends. Applying the Supreme Court’s Howey test for determining what constitutes a “security,” the Division determined that meme coins do not satisfy the test and are, therefore, not securities. Concluding its analysis of meme coins through the lens of the Howey test, which considers whether there is an investment in an enterprise with a reasonable expectation of profits derived from the efforts of others, the Division determined that meme coins fall short of the requirements for three reasons: first, they do not involve an investment in an enterprise because funds are not pooled together to be deployed by promoters or other third parties; second, the value of meme coins is derived from speculative trading and market sentiment rather than the efforts of others; and, third, promoters do not engage in or indicate that they intend to engage in “managerial and entrepreneurial efforts from which purchasers could reasonably expect to profit.” The Division goes on to provide that “hyping the meme coin on social media and online forums and getting the coin listed on crypto trading platforms . . . are not likely to be sufficient indicia to establish that purchasers had a reasonable expectation of profits based on the efforts of the promoters.”

The Division’s statement provides that transactions involving meme coins of the type described in the statement do not constitute the offer and sale of securities under federal securities laws, and, therefore, the offers and sales of such meme coins do not need to be registered with the SEC under the Securities Act or be exempt from registration. We discuss the Division’s statement in more detail here.

At Florida Bar Securities Conference, Then-Acting SEC Chair Offers Insights into Possible Regulatory Changes

On February 24, 2025, Mark T. Uyeda, the then-Acting Chair of the SEC delivered a keynote address at the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference, which highlighted the following steps the SEC will be taking toward improving the U.S. capital markets from startup through post-IPO:

• IPO Market: To make IPOs attractive again, the SEC staff has been asked to review the “emerging growth company” (EGC) definition and recommend changes, including as to qualification and duration of the status, and to consider how EGCs could benefit from on-ramp compliance with some existing disclosure obligations.
• Filer Category Reform: Noting that the financial thresholds for the SEC’s filer categories are outdated, having not changed since they were established in 2005, Mr. Uyeda stated that the SEC should consider whether to update those thresholds to reflect the size and makeup of today’s public companies.
  • Mr. Uyeda urged that, after updating its financial thresholds for filer categories, the SEC should review its disclosure requirements focusing on appropriately scaling those requirements by identifying rules that should apply only to the largest companies.
• Access to Capital by Startups and Other Early-Stage Companies:The SEC staff has been tasked with exploring ways to implement the recommendations of the SEC’s Office of the Advocate for Small Business Capital Formation for “targeted regulatory changes” to the SEC’s regulatory regime for exempt offerings, guided by the principle that regulations must be simple to comply with and cost-effective, yet protective of investors.

• Empowering Retail Investment in Private Companies: Given the pivotal role “accredited investor” status plays in private market investments due to its favored status under the SEC’s exempt offering regime, the SEC staff has also been directed to explore regulatory changes, including changes to the accredited investor definition, to empower retail investment in private companies.

Case-by-Case Analysis Required for Exclusion of Shareholder Proposals Raising Significant Policy Issues

The Bottom Line

• Under Exchange Act Rule 14a-8(i)(5) (the “economic relevance” exception) and Rule 14a-8(i)(7) (the “ordinary business” exception), the SEC staff will analyze shareholder proposals that raise significant policy issues on a company-specific, case-by-case basis that considers a particular company’s facts and circumstances:

• The staff will consider “whether a proposal is otherwise significantly related to a particular company’s business, in the case of Rule 14a-8(i)(5), or focuses on a significant policy issue that has a sufficient nexus to a particular company, in the case of Rule 14a-8(i)(7).” In essence, under both rules, significance will not be considered in abstract.

• The new guidance rescinds Staff Legal Bulletin No. 14L (“SLB 14L” or the “prior guidance”) that interpreted the two exceptions more liberally.

• The change in the staff’s interpretive position will likely make it easier for companies to exclude shareholder proposals that raise environmental or social policy issues from their proxy statements.

The Details

On February 12, 2025, the SEC’s Division of Corporation Finance issued Staff Legal Bulletin No. 14M (“SLB 14M” or the “new guidance”) to clarify its application of Exchange Act Rule 14a-8(i)(5) and Rule 14a-8(i)(7), two of the exceptions to Exchange Act Rule 14a-8’s requirement that companies include certain shareholder proposals in the proxy statements and proxy cards for their annual or special shareholder meetings.

Rule 14a-8(i)(5)

Under Rule 14a-8(i)(5) (the “economic relevance” exception), a company may exclude a shareholder proposal “if [it] relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” Under rescinded SLB 14L, the staff’s view was that proposals that are not within the rule’s economic thresholds but raise issues of broad social or ethical concern may not be excluded. Qualifying the prior guidance, SLB 14M provides that whether such proposals may be excluded depends on whether the social or ethical issue raised is significant to a company’s business. SLB 14M states that “proposals that raise issues of social or ethical significance may be excludable, notwithstanding their importance in the abstract, based on the application and analysis of each of the factors of Rule 14a-8(i)(5) in determining the proposal’s relevance to the company’s business.” Therefore, to overcome a company’s Rule 14a-8(i)(5) challenge to such a proposal, a proponent would need to tie any social or ethical issue raised by the proposal to a significant effect on the company’s business. The new guidance further states that “[t]he mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business.”

Rule 14a-8(i)(7)

Under Rule 14a-8(i)(7) (the “ordinary business” exception), a company may exclude a shareholder proposal “if [it] deals with a matter relating to the company’s ordinary business operations.” According to the SEC, the general underlying policy of the exception is “to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting.” The SEC has, however, long held the view that proposals relating to management’s ability to run a company on a day-to-day basis but focusing on significant social policy issues generally would not be considered to be excludable as “ordinary business.” This is “because [such] proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.” The prior guidance marked a departure from the staff’s prior practice of applying this significant policy exception on a case-by-case basis by evaluating the significance of a policy issue to a particular company, heralding instead the staff simply considering whether the proposal raises issues with a broad societal impact. In announcing this departure in the prior guidance, the staff noted that the prior practice complicated the application of SEC policy to proposals and that “focusing on the significance of a policy issue to a particular company has drawn the staff into factual considerations that do not advance the policy objectives behind the ordinary business exception.” The new guidance reverts the staff to the prior practice of a case-by-case analysis of significance and notes that a policy issue that is significant to one company may not be significant to another.

Board Analysis

The new guidance also notes that while a company may include in its no-action request a discussion reflecting its board’s analysis of the particular policy issue raised under Rule 14a-8(i)(5) or 14a-8(i)(7) and its significance to the company, the SEC staff will no longer expect that analysis to be included.

SEC Staff Updates Guidance on Shareholder Engagement and Schedule 13D Filings

The Bottom Line

• Schedule 13G may be unavailable to an investor that pressures management on an engagement topic by conditioning its support of the issuer’s director nominees on management’s alignment with its position on the topic.

• The updated guidance may make certain investors more hesitant to schedule meetings with or express strong views in meetings with public companies. Public companies that wish to obtain input from those investors may in some cases need to initiate communications and request meetings, rather than waiting for investors to reach out.

The Details

On February 11, 2025, the SEC staff updated its guidance on circumstances in which investors engaging with issuers on environmental, social, governance, and other matters can file a short-form Schedule 13G as a passive or institutional investor rather than a long-form Schedule 13D.

The updated guidance states that Schedule 13G may be unavailable to an investor who goes beyond just discussing a particular topic and exerts pressure on management to implement specific measures or changes to a policy, by, for example:

• recommending that the issuer remove its staggered board, switch to a majority voting standard in uncontested director elections, eliminate its poison pill plan, change its executive compensation practices, or undertake specific actions on a social, environmental, or political policy and, as a means of pressuring the issuer to adopt the recommendation, explicitly or implicitly conditions its support of one or more of the issuer’s director nominees at the next director election on the issuer’s adoption of its recommendation; or
• discussing with management its voting policy on a particular topic and how the issuer fails to meet its expectations on such topic, and, to apply pressure on management, states or implies during any such discussions that it will not support one or more of the issuer’s director nominees at the next director election unless management makes changes to align with its expectations.

We discuss the updated guidance in more detail here.

SEC Launches Crypto Task Force and Cyber and Emerging Technologies Unit

In January 2025, then-Acting SEC Chairman Mark Uyeda launched a crypto task force to develop a “comprehensive and clear regulatory framework for crypto assets.” The task force is being led by Commissioner Hester Peirce, who has long been critical of the SEC’s approach towards crypto regulation and the crypto industry, as we discuss here. In the release announcing the task force, the SEC acknowledged that their regulatory approach toward crypto has not been the hallmark of clarity, noting that “[t]o date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way . . . The result has been confusion about what is legal, which creates an environment hostile to innovation and conducive to fraud. The SEC can do better.” According to the release, the task force will focus on helping the SEC “draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously” and will seek input from a wide range of sources, including investors, industry participants, and academics. In line with this, the task force held its inaugural public roundtable, “How We Got Here and How We Get Out – Defining Security Status” in March and has scheduled four more roundtables through June 6, 2025.

In a related development, in February 2025, the SEC announced the creation of a Cyber and Emerging Technologies Unit under its Enforcement Division. The unit, which replaces the Crypto Assets and Cyber Unit and will complement the work of the crypto task force, will focus on combatting cyber-related misconduct and protecting retail investors from bad actors in the emerging technologies sector. Among other things, the unit will focus on crypto asset fraud, public issuer fraudulent disclosure relating to cybersecurity, regulated entities’ compliance with cybersecurity rules and regulations, and the hacking of material nonpublic information.