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SEC Division of Corporation Finance Issues New C&DI on Safeguards for Electronic Delivery of Information under Rule 701

On November 6, the Division of Corporation Finance (Division) of the Securities and Exchange Commission issued Compliance and Disclosure Interpretation (C&DI) 271.25 to address permissible safeguards for protection of Rule 701(e) electronic disclosures. Rule 701 provides an exemption from registration under the Securities Act of 1933 for offers and sales of securities under written compensatory benefit plans and contracts to an issuer’s employees, directors, consultants and advisors. Rule 701(e) requires an issuer relying on the Rule 701 exemption to deliver to each investor a copy of the applicable benefit plan or contract. In addition, if the issuer sells securities with a value in excess of $5 million during any consecutive 12-month period, then, a reasonable period of time before the date of sale, the issuer must deliver additional information listed in Rule 701(e) (including financial statements and information about the risks associated with the investment), which requirement may be satisfied by an issuer delivering such information electronically.

As the disclosure required under Rule 701(e) is likely to include sensitive information, the Division acknowledged in C&DI 271.25 that issuers that deliver such information electronically are permitted to use “[s]tandard electronic safeguards, such as user-specific login requirements and related measures . . ..” The Division noted, however, that, if an issuer uses a particular “electronic disclosure medium” to deliver such information, either alone or in addition to other safeguards, the safeguards should not be so burdensome that intended recipients cannot effectively access the required disclosures.

The complete text of the new C&DI is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume VII, Number 335

TRENDING LEGAL ANALYSIS


About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm
Partner

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

312-902-5493
Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office
Partner

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

Shown below is a selection of Mark’s engagements.

  • Representation of hospitality company in connection with its initial public offering and listing on NYSE, as well as ongoing counseling with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed public company in the banking industry in connection with strategic transactions, capital raising transactions, compliance with securities laws and NYSE rules, disclosure and corporate governance matters, including strategic acquisitions, notes offering and at-the-market offering.
  • Representation of clean tech manufacturer for industrial equipment in connection with alternative public offering and listing on NASDAQ, as well as ongoing counseling with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed issuer in connection with selling stockholder block trades.
  • Representation of NYSE-listed industrial manufacturer with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed medical device company with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
312-902-5612
Associate

Alyse Sagalchik concentrates her practice on corporate matters, with an emphasis on mergers and acquisitions, joint ventures, private equity and securities transactions. Alyse also advises companies on a broad range of general corporate, federal securities laws and corporate governance matters, including Securities Exchange Act of 1934 reporting and disclosure matters. She has represented strategic and financial buyers and sellers in M&A transactions ranging in value from $10 million to more than $15 billion and spanning a wide variety of industries, including health...

312.902.5426