Hunton Retail Law Resource

On March 31, 2022, the staff of the Division of Corporation Finance and the Office of the Chief Accountant of the SEC issued Staff Accounting Bulletin (SAB) No. 121 (SAB 121), which “adds interpretive guidance for entities to consider when they have obligations to safeguard crypto-assets held for their platform users.” SAB 121 highlights the enhanced technological, legal and regulatory risks associated with safeguarding digital assets, as compared with more traditional asset classes. Specifically, SAB 121 asserts that a company is subject to “significant increased risks… including an increased risk of financial loss” when that company controls the cryptographic keys associated with a user’s digital assets. As a result, the staff believes that reporting companies should quantify and disclose that obligation, and record a liability and corresponding asset on their balance sheets at fair value.

Last week, the Securities and Exchange Commission (SEC) revealed its much-anticipated proposal to require that public companies disclose climate-related information. The proposed rule is significant because, for the first time, the SEC would mandate that companies (including foreign companies) publicly traded in the US disclose climate-related risk and greenhouse gas (GHG) emissions information beyond the information currently required by existing SEC rules applicable to registration statements and annual reports.

On March 9, 2022, the Securities and Exchange Commission (“SEC”) held an open meeting and proposed new cybersecurity disclosure rules for public companies by a 3-1 vote. If adopted, the new rules would impose substantial new reporting obligations with respect to material cybersecurity incidents and cybersecurity risk management, strategy, and governance for both domestic and foreign private issuers subject to the reporting requirements under the Securities Exchange Act of 1934.

A series of recent regulatory actions at the Securities and Exchange Commission (SEC) reaffirms the agency’s commitment to ESG (environmental-social-governance) issues under new Chair Gary Gensler. These actions, which affect shareholder proposals, contested director elections, and proxy advisory firms, will each impact publicly-traded retailers.

On August 6, 2021, the Securities and Exchange Commission (SEC) approved new Nasdaq rules (Rules 5605(f) and Rule 5606) aimed at advancing diversity among board members of Nasdaq-listed companies and increasing disclosure of diversity statistics. Nasdaq’s new rules underscore the increasing attention in recent years in addressing environmental, social and governance (ESG) issues at the board level and creating new compliance obligations for Nasdaq-listed companies.

Environmental, social and corporate governance (ESG) – like climate change and environmental justice – has been a hot topic of discussion in the early days of the Biden administration. Illustrating the interconnectedness of the trending issues, climate change and environmental justice are pillars of ESG.

COVID-19 has had an unprecedented effect on the retail industry across the United States, as many retailers grapple with government mandates that either require closure or impose stringent restrictions on being open, employment and supply chain disruptions, and an overall decline in consumer demand as market conditions remain volatile and unemployment rates continue to rise. The devastating consequences of the coronavirus began to come into focus at the same time many companies were preparing to issue quarterly or annual results and convene investor calls.

A recent successful effort by a public company to exclude an environmental proposal from its proxy statement may signal a new approach for boards of directors to consider when managing shareholder proposals. Because retailers and consumer products companies routinely receive shareholder proposals on environmental and sustainability issues, similar arguments for exclusion may be persuasive to the staff of the Securities and Exchange Commission (SEC) in the future.

On March 20, 2019, the Securities and Exchange Commission adopted amendments to simplify and modernize disclosure requirements. These amendments implement recommendations from the Fixing America’s Surface Transportation (FAST) Act and are intended to make disclosures easier to read and navigate and to reduce repetitive and immaterial information.

In a recent speech, Securities and Exchange Commission (“SEC”) Chairman Jay Clayton summarized a number of regulatory priorities for 2019 that may interest retailers.  Clayton began the speech looking back on 2018’s accomplishments, then spent the bulk of his time discussing planned rulemaking efforts in the coming year.

On October 23, 2018, the SEC Division of Corporation Finance issued Staff Legal Bulletin No. 14J (“SLB 14J”), which reiterated and expounded upon prior guidance regarding when companies may exclude shareholder proposals under the economic relevance exception of Rule 14a-8(i)(5), and the ordinary business exception of Rule 14a-8(i)(7).

On August 17, 2018, the Securities and Exchange Commission (“SEC”) voted to adopt amendments to duplicative, overlapping, outdated or superseded disclosure rules for public companies. The new rules take effect on November 5, 2018 and are effective for all SEC filings made on or after that date. 

As detailed in our recent client alert, the Securities and Exchange Commission (“SEC”) recently proposed or adopted several rules of interest to retailers, particularly those that are publicly traded. They concern (1) final rules modernizing the definition of “smaller reporting company” (“SRC”), (2) final rules implementing the use of Inline eXtensible Business Reporting Language (“XBRL”) and (3) proposed rules amending the SEC’s whistleblower program.

As the 2018 proxy season is winding down, some trends have begun to emerge regarding CEO pay ratio disclosure, shareholder proposals and virtual shareholder meetings.

In recent years, publicly traded retailers have experienced a significant uptick in interest from investors focused on Environmental, Social and Governance (“ESG”) issues. On April 23, 2018, the Department of Labor (“DOL”) released Field Assistance Bulletin 2018-01 (the “FAB”). The FAB applies to certain retirement plan fiduciaries who make investment and proxy voting decisions that derive from ESG concerns, and may impact investor behavior at public retailers.

Read our full alert.

At the end of February, the SEC staff issued a No-Action Letter to Dunkin’ Brands Group, Inc., permitting the company to exclude a shareholder proposal under Rule 14a-8(i)(5), often referred to as the economic relevance exception. This is the first no-action relief granted under the rule since the SEC issued Staff Legal Bulletin No. 14I (“SLB 14I”) on November 1, 2017, and it could have implications for other retailers seeking to exclude shareholder proposals under the rule in the future.

On January 18, 2018, Hunton & Williams LLP’s retail industry lawyers, composed of more than 100 lawyers across practices, released their annual Retail Year in Review publication. The Retail Year in Review includes many topics of interest to retailers including blockchain, antitrust enforcement in the Trump Administration, ransomware's impact on the retail industry, SEC and M&A activity in 2017, cyber insurance, vulnerability to class actions, and the reduced tax rate.

Read the full publication.

The Initial Coin Offering (“ICO”) market exploded in 2017 with almost $4 billion of investments. Securities regulators in the United States have responded first with a series of public warnings and, more recently, by bringing enforcement actions against promoters of ICOs and other digital currency investments. We survey some of the recent regulatory developments in this rapidly evolving field.

Recently, the Securities and Exchange Commission (“SEC”) allowed Apple Inc. to exclude a shareholder proposal from its proxy statement that requested that Apple “produce a report assessing the climate benefits and feasibility of adopting store-wide requirements for having all retail locations implement a policy on keeping entrance doors closed when climate control (especially air-conditioning during warm months) is in use.” 

On December 11, 2017, the SEC issued a cease-and-desist order against Munchee Inc. after finding that the company’s initial coin offering (“ICO”) constituted unregistered offers and sales of securities. Munchee sought to raise $15 million for its blockchain-based food review and social platform by selling digital tokens to users that could be used to buy and sell goods and services through an iPhone app. Munchee and others promoting the ICO told investors that the tokens could be expected to increase in value as the company implemented improvements to the app and said that the company would work to support a secondary market for the tokens. 

On November 1, 2017, the staff of the Securities and Exchange Commission (“SEC”) issued Staff Legal Bulletin No. 14I, which provides additional guidance for public companies (including retailers) seeking to exclude certain shareholder proposals from their proxy materials. Under this bulletin, the SEC staff now expects boards of directors to analyze shareholder proposals before companies make no-action requests to exclude such proposals from proxy materials under Rule 14a-8(i)(7) (the ordinary business exception) or Rule 14a-8(i)(5) (the economic relevance ...

On September 21, 2017, the Securities and Exchange Commission ("SEC") and the staff of the SEC’s Division of Corporation Finance issued interpretive guidance to assist public companies with complying with the “pay ratio” rule and to address compliance concerns with respect to the rule’s flexible framework. According to the SEC press release, “[the] guidance on pay ratio...encourages companies to use the flexibility incorporated in our prior rulemaking to reduce costs of compliance.” The new guidance provides some accommodations that publicly traded retailers ...

Development International, an NGO with affiliates around the world, recently published its third annual report (the “Report”) summarizing U.S. public company Conflict Minerals Reports ("CMRs") filed on Form SD for reporting year 2016. Although the Report advances a very narrow reading of the recent D.C. Circuit case striking down part of the SEC conflict minerals rule, it otherwise provides a wealth of statistical information about the most recent round of Form SD filings. This information can be useful to retailers benchmarking their own Form SD reporting as well as the Form SD reporting of key suppliers.

Last month, the Public Company Accounting Oversight Board (“PCAOB”) adopted a series of new audit standards that will impact the audit reporting model for public companies, including publicly traded retailers. The standards must still receive final approval from the Securities and Exchange Commission, but assuming the SEC approves them, the new standards will make substantial changes to the form of the annual auditor’s report, most notably by requiring a new discussion of “critical audit matters.”

Read our full alert.

On July 11, 2017, the Consumer Financial Protection Bureau (“CFPB”) adopted a final rule that bars financial firms from forcing consumers into mandatory arbitration clauses as a condition of opening an account.

As media outlets recently highlighted Equal Pay Day on April 4, 2017, publicly held retailers should be aware that the focus on pay equity is becoming increasingly popular among activist shareholders. This proxy season, more than 20 publicly traded companies are facing shareholder proposals at their annual meetings to vote on whether they should research and report on pay gaps by gender and race.

With less than two months before the May 31 deadline for public companies to report to the Securities and Exchange Commission (“SEC”) on the inclusion of conflict minerals in their products, the United States District Court for the District of Columbia entered a final judgment in National Association of Manufacturers v. Securities and Exchange Commission, the litigation surrounding the SEC conflict minerals rule. This alert provides a summary of legal developments over the past year on the topic of conflict minerals, including the SEC’s most recent action, and provides our ...

Since the beginning of 2017, the SEC has announced three enforcement actions charging companies, activist hedge funds and related individuals with violating the Securities Exchange Act of 1934. These enforcement actions targeted parties who allegedly failed to comply with disclosure obligations in the context of hostile takeovers and shareholder activism campaigns.

Read the full alert.

On March 1, 2017, the Securities and Exchange Commission (“SEC”) voted to approve final rules that will require public companies that file registration statements and reports subject to the exhibit requirements under Item 601 of Regulation S-K, or that file Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings. To enable the inclusion of such hyperlinks, the new rules also require that registrants submit all such filings in HyperText Markup Language (“HTML”) format. The new rules are effective for filings submitted on or ...

On February 6, 2017, Acting SEC Chairman Michael Piwowar issued a statement instructing the SEC staff to reconsider the implementation of the SEC’s “pay ratio” rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate. Chairman Piwowar also opened a 45-day public comment period seeking input on any unexpected challenges that public companies have experienced as they prepare for compliance with the rule and whether relief is needed.

On January 31, 2017, Acting SEC Chairman Michael Piwowar issued a statement instructing the SEC staff to reconsider whether its 2014 guidance on the conflict minerals disclosure rule is still appropriate and whether any additional relief for public companies is appropriate. Chairman Piwowar also opened a 45-day public comment period on all aspects of the SEC rule and subsequent guidance.

As with other areas of the law, the recent presidential election will present both challenges and opportunities for retailers concerned with financial and securities regulation. While President-elect Trump did not articulate his views on financial services regulation on the campaign trail in any detailed manner, he did suggest that the Dodd-Frank Act should be repealed as it has increased costs for businesses, impeded economic growth and severely reduced lending without any clear benefits to investors or consumers.

On October 11, 2016, the SEC announced its enforcement results for the fiscal year which ended on September 30, 2016. A total of 868 enforcement actions were filed, which set a new record for the most actions in a single year. The SEC filed 61 more actions in 2016 than in 2015, representing a year-over-year increase of almost 7.6 percent. The actions resulted in total disgorgements and penalties of over $4 billion, down slightly from last year’s $4.19 billion.

Earlier this month, the U.S. Securities and Exchange Commission ("SEC") charged publicly traded RPM International Inc. ("RPM") and its general counsel with violations of the antifraud provisions of the federal securities laws due to failures to disclose and account for material information related to an ongoing government investigation under the False Claims Act. The SEC alleges that the general counsel advised RPM’s CEO and audit committee of the investigation as early as April 2011, but in subsequent years, the general counsel allegedly failed to inform the company’s CEO, CFO, audit committee and external auditor of particular information known to him that showed RPM’s true financial exposure arising out of the investigation. As a result of the general counsel’s conduct, the SEC alleges that RPM filed various false and misleading reports with the SEC, thereby misleading investors about the company’s financial results, internal controls and the accuracy of its books and records. RPM ultimately restated its financial results. The SEC’s complaint seeks permanent injunctions, disgorgement and financial penalties.

The due date for the next Form SD filing for those public companies required to report to the Securities and Exchange Commission (“SEC”) on the inclusion of conflict minerals in their products is May 31, 2016.

Background

In response to a challenge of the SEC conflict minerals rule by a coalition of trade associations, the Court of Appeals for the D.C. Circuit issued an opinion in April 2014. That opinion upheld parts of the rule, but also effectively struck down on First Amendment grounds the portion of the rule that required companies to describe their products as “DRC Conflict Free,” “DRC conflict undeterminable” or “not found to be ‘DRC Conflict Free,’ ” as the case may be. On rehearing in August 2015, the D.C. Circuit reaffirmed its April 2014 decision. The D.C. Circuit then denied an SEC and NGO’s petition for rehearing en banc the following November. Finally, in March 2016, Attorney General Loretta Lynch notified Congress that the federal government would not petition for a writ of certiorari to the Supreme Court. The deadline to file the petition passed in April. Thus, the appellate process has been exhausted.

On April 13, 2016, the Securities and Exchange Commission (“SEC”) published its long-awaited concept release on the reform of Regulation S-K. Regulation S-K is the primary set of rules that establish disclosure requirements for public companies.

For the SEC, a “concept release” is an advance notice of proposed rulemaking under the Administrative Procedure Act. Thus, before taking any further action to amend its rulebook, the SEC will be required to issue a set of proposed rules, elicit further public comment and then adopt final rules in another release.

On April 4, 2016, the Commodity Futures Trading Commission (“CFTC”) announced a $10 million whistleblower bounty, its largest to date.

Similar to a program administered by the Securities and Exchange Commission (“SEC”), CFTC whistleblowers are eligible for an award worth 10 to 30 percent of an enforcement penalty if they bring original information to the CFTC which leads to an enforcement action that nets more than $1 million in sanctions.

As reported in the Hunton Employment and Labor Law Blog, on March 1, 2016, the Securities and Exchange Commission (“SEC”) settled administrative charges against a popular telecommunications equipment supplier, Qualcomm Incorporated, under the Foreign Corrupt Practices Act (“FCPA”). According to the SEC, in addition to unlawfully providing meals, gifts and entertainment to foreign officials in an effort to win new business, Qualcomm also offered full-time employment and paid internships to family members and friends of foreign government officials in an effort to curry favor. In some cases, it appears these friends and family members would not have otherwise qualified for employment at Qualcomm and special accommodations were made to hire them. To settle the case, Qualcomm agreed to cease and desist from future violations, paid a $7.5 million civil monetary penalty and agreed to other heightened compliance measures.

The Securities and Exchange Commission (“SEC”) recently announced it settled charges against the Monsanto Company (“Monsanto”) regarding its accounting practices surrounding the sale of its popular Roundup herbicide. Monsanto “agreed to pay an $80 million penalty and retain an independent compliance consultant to settle charges that it violated accounting rules and misstated company earnings.” Two Monsanto accounting executives and one sales executive also agreed to pay penalties to settle charges that were brought against them. The case underscores for both manufacturers and retailers that financial reporting and disclosures cases continue to be a high priority for the SEC.

On October 22, 2015, staff in the Division of Corporation Finance (the “Division”) at the Securities and Exchange Commission (the “Commission”) issued Staff Legal Bulletin 14H (the “Bulletin”). The Bulletin is the latest in a series of Division interpretations under Rule 14a-8 governing shareholder proposals. The Bulletin focuses specifically on circumstances in which the Division will grant no-action relief to exclude a shareholder proposal under two hot-button issues from last year’s proxy season: (1) Rule 14a-8(i)(7), for proposals dealing with a company’s ordinary business operations, and (2) Rule 14a-8(i)(9), for a proposal that directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting. We discuss the Bulletin below.

In a ruling of particular importance to the digital currency community, the US Commodity Futures Trading Commission (CFTC) for the first time has definitively ruled that Bitcoin and other digital currencies (also known as virtual currencies or cryptocurrencies) are commodities subject to the CFTC’s jurisdiction. Specifically, in an enforcement action announced on September 17, 2015, the CFTC issued an order against an online platform and its CEO for facilitating the trading of Bitcoin options contracts. We discuss some of the implications of this order below.