by T. GormanPosted on Posted in SECActions

The Commission issued its final rules on environmental issues last week. The rules are the most comprehensive set of regulations issued by the agency dealing with environmental issues. The Commission also filed two enforcement actions. One centered inadequate filings. The other was based on violations of Rule 13d.

Be careful, be safe this week.

SEC

Rules: The Commission published its final rules focused on environmental issues last week (here). An article discussing these rules is available here.

SEC Enforcement – Filed and Settled Actions

Statistics: This week the Commission filed no new civil injunctive actions and 2 new administrative proceedings, excluding tag-along actions and those that present a conflict for the author.

Inadequate filings: In the Matter of Skechers U.S.A., Inc., Adm. Proc. File No. 99693 (March 7, 2024) is a proceeding which names as respondent the well-known footwear company. The Order alleges violations of Exchange Act Sections 13(a) and 14(a) and Rules 13(a)-1 and 14a-3. The order alleges that in three instances, beginning in 2019 and continuing through 2022, the company filed a Form 10-K and claimed that certain information required by Item 404 was incorporated in a forthcoming proxy statement when it fact it was not. To resolve the proceedings Respondent, after taking remedial actions to correct the issue, consented to the entry of a cease-and-desist order based on the provisions cited in the Order. In addition, Respondent will pay a penalty of $1.25 million.

Section 13d: In the Matter of HG Vora Capital Management, LLC, Adm. Proc. File No. 3-21881 (March 1, 2024). The proceedings center on the acquisition of shares in a large, publicly traded Truck Rental firm. At the end of December 2021 Vora Capital held about 5.6% of Truck Rental. The adviser filed a Schedule 13G in February 2022, disclosing its holdings. From January through mid-April 2022 the adviser purchased another 2,050,000 shares of Truck Rental. This brought the adviser’s holdings to 5,050,000 or about 9.9%. By late April the adviser altered its purpose for holding the shares from passive investor to one with the intent to change or influence control of the issuer. The change of intent was not reported, however, until May 13, 2022, about one week after the Schedule was required to be amended under the then applicable 10 day period. The filing was made the same date HG Vora provided to Truck Rental a notice to acquire all of its shares at a 20% premium to market. By delaying the filing, the advisor violated Exchange Act Section 13(f)(1) and Rule 13d-1 thereunder. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Section and Rule cited. The firm also agreed to pay a penalty in the amount of $950,000.

Australia

Rules: The Australian Securities and Investment Commission, together with the Australian Prudential Regulation Authority, released final rules and additional guidance to support the financial services industry in implementing the Financial Accountability Regime on March 8, 2024 (here).

BaFin

Study: The Federal Financial Supervisory Authority published a report titled We need lasting Transparency on February 28, 2024. The study reveals that asset managers are not satisfied with ESG data and ESG ratings currently available. The report discussed the reason reliable sustainability data is important for green investments (here).

ESMA

Solicitation: The European Securities and Markets regulator is seeking new members for its Securities and Markers Stakeholder Group. They welcome candidates representing interests of all types of financial markets stakeholder (here).

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by T. GormanPosted on Posted in SECActions

The Commission published its Rule on climate related disclosures earlier this week. This is the most comprehensive set of rules dealing with environmental issues promulgated by the agency. The proposals were first published about two years ago. The Commission received about 24,000 comments on the proposals. Following modifications based on the comments, the agency passed the proposals by at 3-2 vote at a meeting held on March 6, 2024.

The new rules apply to issuers and foreign private issues. Portions of the new rules will be phased in. While the Commission likes to note that rules have been on the books for decades that impacted environmental issues, the new rules are its the most comprehensive dealing with the topic

The new rules focus on disclosure in a number of key areas which include:

 Business: Risks that have, or may have, a material impact on the business or operations of the issuer:

 Mitigation: A description of actions taken to mitigate or adopt the issuer to material climate related risk;

 Oversite: A description of the oversight of the board of directors and any role by management with regard to environmental issues;

 Processes: Any processes the registrant has for identifying, assessing and managing material climate-related risks;

 Goals: Information regarding the registrant’s climate-related targets;

 Scope 1 &2: For large, accelerated filers, and those not otherwise exempted, information about these material emissions;

 Costs

: Capitalized costs, expenditures and charges incurred as a result of severe weather; and

 Estimates & Assumptions: If the estimates and assumptions used to produce the financial statements were materially impacted by risks and uncertainties associated with sever weather.

Comment

The rules adopted on March 6 are the most comprehensive on environmental issues adopted to date by the Commission. While the rules do require extensive disclosures, in many ways they center on issuers telling shareholders and investors what, if anything, the company has been doing in the environmental area. Viewed in this context, the rules should not be the generator of huge controversy. The number of comment letters alone brings that claim to a quick halt.

Despite the considerable effort made by the Commission in writing the rules, challenges to their implementation are no doubt being prepared. Those will range from if the SEC can write rules about the environment (e.g. Doesn’t the EPA do that?) to the inadequacy of them (e.g. Why drop Scope 3?) and on every topic in-between. Those challenges, however, should not obscure the accomplishment of crafting rules for all issuer that should provide not just investors but all a flow of important information about the impact of climate on us and the planet. Well Done!

 

 

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