SEC CORNER

SEC UNANIMOUSLY ADOPTS CHANGES TO RULE 10b5-1

The U.S. Securities and Exchange Commission (“SEC”) adopted significant amendments to Rule 10b5-1 under the Securities Exchange Act of 1934. The rules will become effective 60 days after their publication in the Federal Register. The changes seek to enhance investor protections regarding insider trading. Moreover, the amendments aim to foster shareholders’ general understanding of how insiders are permitted to trade in securities while possessing material non-public information. Some of the amendments altered the subsection which provides an affirmative defense to insider trading liability.

Specifically, the amendments adopted varying cooling-off periods for directors, officers, and other insiders, as well as good faith requirements concerning the trading plan. For example, the amendments require a certification of non-awareness from directors and officers. Under the certification requirement, directors and officers would need to represent that: (a) they have no knowledge of any material non-public information about the issuer or securities; and (b) that they are acting in good faith, as opposed to acting as a part of a scheme to violate the Rule 10b-5. Another key change to the provision prohibits overlapping trading plans and discourages dependence on the affirmative defense for more than one single-trade plan for twelve months for everyone other than issuers.

Finally, the amendments demand that issuers provide quarterly disclosures on the use of Rule 10b5-1 plans as well as other trading arrangements by a public company’s directors and officers for securities trading.

The Takeaway

Considering the above amendments, companies should review existing 10b5-1 plans to ensure compliance with the new rules.

SEC ISSUES NEW GUIDANCE ON DISCLOSURES FOLLOWING THE COLLAPSE OF CRYPTO CURRENCY EXCHANGE

In the past decade, we have seen a significant rise in the use of crypto asset markets. One such crypto currency exchange collapsed in December of 2022 after facing a liquidity crisis and has since filed for bankruptcy. This has caused widespread disruption in those markets. Shortly thereafter, the U.S. Securities and Exchange Commission (“SEC”) issued new guidance asking public companies to include exposure and risk to the cryptocurrency market in their disclosures to investors. The Division of Corporation Finance believes that companies should provide investors with specific, tailored disclosures about crypto market events and conditions, the company’s exposure to those events and conditions, and the potential impact on investors.

Specifically, companies should consider updating their existing disclosures and, moving forward, will need to address crypto asset market developments in their fillings generally. This should be included in their business description, risk factors, and management’s decision and analysis sections of their filings. In the SEC’s statement, it is further clarified that there is a “…need to clear disclosure about the material impacts of crypto asset market developments, which may include a company’s exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.” Also included in the SEC’s statement is a letter that lists sample comments that the division may issue to companies depending on their particular facts or circumstances.

DECEMBER 2022 NOTEWORTHY ENFORCEMENT ACTIONS FILED

Director/Officer	Role	Company
Adam Rogas	CEO	NS8, Inc.
Anthony Michael Hernandez	CEO	Oi2Go Media Technologies, Inc.

DECEMBER 2022 NOTEWORTHY SETTLEMENTS AND JUDGMENTS