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Third and finally, one of the more interesting and challenging aspects of recent SPAC transactions is that the investors in the SPACs first public capital raise often redeem or sell their shares around the time of the business combination. [1]This statement represents the views of the Acting Director of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC or Commission). Its creation was accomplished by Presidential directive, subsequently approved by Congress in 1984. In contrast to the specific mentions of these other federal agencies, the authorizing document, Reorganization Plan No. Sixty percent of the Fortune 500 have announced climate targets, typically stated with reference to emissions data, including 17% with net-zero targets, yet 72% of investors lack confidence companies are serious about these targets. As stressed by Commissioner Peirce in her dissenting statement, the proposed disclosures called for by the rule are in line with prior Commission-required disclosures, as detailed in Annex A. 3d 1041, 1049-50 (N.D. Cal. John Coates has few regrets on his way out the AOC door Even as he steps down from 32 years in the top job, the knowledge and contacts of Australia's Olympic supremo will be tapped for years to. As the House Report accompanying the 1934 Act explained: The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of a security brings about a situation where the market price reflects as nearly as possible a just price. The context for the authorizing sections of those statutes supports the Commissions authority: Canons against ineffectiveness and in favor of validity, and the general terms canon all caution against courts making up their own limits on textual authority, particularly on grounds such as: For the Commission programmatically to refuse to protect investors due to concerns about politics would itself be a political and controversial policy position. He has been the . The rule proposes disclosures of information about financial risks and opportunities that are reasonably understood as appropriate for the protection of investors. Prior to joining the SEC, John was the John F. Cogan Professor of Law and Economics at Harvard University, where he also served as Vice Dean for Finance and Strategic Initiatives. Going forward, I believe SEC policy on ESG disclosures will need to be both adaptive and innovative. How might a different disclosure regime have elicited different disclosures? Letting companies determine for themselves what is material in a given context can be a reasonable way to implement Congresss choice of full and fair disclosure as a policysometimes, companies exercise such discretion well enough to generate enough information to protect investors; but particularly as applied to risks that are new, or which raise difficult management challenges, and where there are limited sources of external scrutiny relevant to the judgments, companies predictably fail to comply with their requirements. Companies either do or do not have property, plant and equipment in flood plains. . Therefore companies should ensure that any public disclosures of non-GAAP financial measures comply with applicable SEC rules and staff guidance. [8] Participants and their advisors are used and expect to prepare and disclose projections in acquisitions, including de-SPACs. In adopting mandatory risk factor disclosures, for example, which had previously been made by many companies, but not by all; in adopting disclosure requirements for derivative contracts, which many companies had disclosed in detail, but others had not; and in codifying thresholds for disclosure of environmental liabilities, which many companies had been previously disclosing, but not all, or consistently, or reliably. Feedback to SSRN. People often think of mandatory disclosure in a way that suggests that there is nothing more than an on/off switch between mandatory and voluntary disclosure. Indeed, the actual proposed rule requires disclosure about subject matters long covered by indisputably authorized disclosure requirementsthe first point made by Commissioner Peirce in her dissent. The rule builds on decades-long efforts by public companiessuch as 3M, Abbott Laboratories, Amazon, Apple, Chevron, Fujitsu, IBM, Johnson Controls, Michelin, P&G, Verizon and Walmartto develop practical, decision-useful, consistent, comparable and verifiable ways to report about climate risks and opportunities. Appropriate liability should attach to whatever claims it is making, or others are making on its behalf. PDF ISSN 1936-5349 (print) HARVARD - Harvard Law School [2] It permits significant differences in how companies respond to a variety of mandatory requirements, including in many cases disclosing items if and only if they are material. The creation of an entire new agency (the Commission) to implement and enforce the laws. But companies will not be limited by the rule itself in how they and their investors respond to climate change. 6LinkedIn 8 Email Updates, Accounting and Financial Reporting Guidance, Compliance and Disclosure Interpretations, No-Action, Interpretive and Exemptive Letters, Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs), SPACs, IPOs and Liability Risk under the Securities Laws, ESG Disclosure Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets. Financial Disclosure Reports include information about the source, type, amount, or value of the incomes of Members, officers, certain employees of the U.S. House of Representatives and related offices, and candidates for the U.S. House of Representatives. The Commission has not substantively amended the definition of blank check company since the passage of the PSLRA, but of course, it could consider doing so in the future. Each attorney is granted unlimited access to high quality, on-demand premium content from well-respected faculty in the legal industry along with administrative access to easily manage CLE for the entire team. This is perfect for attorneys licensed in multiple jurisdictions or for attorneys that have fulfilled their CLE requirement but need to access resourceful information for their practice areas. No offers may be made or accepted from any resident outside the specific states referenced. They point to a footnote in a 2016 Concept release to support this claim. Anyone who sees a role for law to require disclosure of comprehensive information about the sources of greenhouse gas emissions will not be satisfied by this rule. Duke Energy is investing $52 billion in transitioning to lower carbon resources. Articles by John Coates's Profile | Medium, The New York Times, Daily At the end of 2018, the US SIF Foundation identified $11.6 trillion in US-domiciled sustainable, responsible, and impact investment strategy assets, of which $8.6 trillion were managed on behalf of institutional investors and $3.0 trillion were managed on behalf of individual investors. Introduction. Often these requirements have been specific and prescriptive in nature. For example, many companies have no major facilities in flood plains, do not consume significant amounts of energy, and do not produce significant greenhouse gas emissions. If the person charged with reviewing an employee's report finds a conflict, he should impose a remedy immediately. First, while we should be mindful of the costs of new ESG disclosures, we must at the same time acknowledge the costs from the absence of a consensus ESG-focused disclosure system. As customary, and in keeping with the Division of Corporation Finances ordinary practices, staff are reviewing these filings, seeking clearer disclosure, and providing guidance to registrants and the public. Although climate change overall indisputably raises important policy questions, those remain for Congress. It is authorized by clear statutes, is consistent with settled understandings, and addresses disclosure topics covered by rules adopted long ago by the Commission and ratified by Congress. 1, 2021, 4:10 PM). 11, 2019) (refusing to apply deferential review where special conflict of interest procedures were not applied ab initio); FrontFour Capital Group LLC v. Taube, No. EPA has authority over private companies, while the Commissions proposed rule covers only public companies. The new law creates a process for immediate disclosure for death or serious bodily injury. John Coates bowed out as Australian Olympic Committee president at the Darling Harbour Sofitel in Sydney. Companies either do or do not engage in activities that result in the emission of greenhouse gases. To the extent that those who disfavor consideration of legislative history truly give primacy to legislative text and structure, there is no plausible basis on which to argue the Commission lacks authority to adopt the proposed rule. PDF Testimony of Professor John C - United States Senate Committee on If that risk drives choices about what information to present and how, it should not in my view be different in the de-SPAC process without clear and compelling reasons for and limits and conditions on any such difference. In sum, the text and context of the 1933 Act itself gives the Commission broad authority to require disclosures about financial risks and opportunities beyond the inevitably incomplete initial lists of information and documents included in the statute. Some but far from all practitioners and commentators have claimed that an advantage of SPACs over traditional IPOs is lesser securities law liability exposure for targets and the public company itself. The industry-leading media platform offering competitive intelligence to prepare for today and anticipate opportunities for future success. Companies in the defense industry report in their Commission-required filings using technical, specialized industry jargon on government procurement, budgets, military strategy, products and market dynamics about which staff at the Department of Defense have far more detailed knowledge than the Commission. John Coates does not need much of an introduction. If useful for the protection of investors, disclosure was not limited to the four corners of, or even commentary on, financial statements. [9] Indeed, in some ways, liability risks for those involved are higher, not lower, than in conventional IPOs, due in particular to the potential conflicts of interest in the SPAC structure.[10]. Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule. What disclosures do investors need to make informed investment and voting decisions? Courts have rejected attempts to deny application of the securities laws and the philosophy of full disclosure in cases involving the sale of a whole company, if effected through the sale of securities, or where conduct may violate both corporate law and the Commissions disclosure laws. Even if some may find resistance to the rule (or new regulation generally) to be appealing from a policy standpoint, doing that here has no basis whatsoever in the statutes text.. That is because it is true that the Commissions authority does not run so far as to require disclosures for any reason, or for reasons not specified in its organic statutes. John Coates, the vice-president of the International Olympic Committee and outgoing president of the Australian National Olympic Committee, said "to a large extent" that Sydney was awarded the. Disclosure reduces paranoia, and moderates reactions. All Rights Reserved. The World Meteorological Organization has tracked damage from weather events for the past fifty years; the top five most economically destructive events all occurred since 2005. The proposed rule is a rule that specifies details of disclosure requirements. Yet the Commission nonetheless has long protected investors in bank holding companies by requiring detailed disclosure beyond the financial statement for such companies, as noted in Annex A. US Steel abandoned plans to expand its Mon Valley Works in Pennsylvania, because it had expanded our understanding of steelmakings future in a rapidly decarbonizing world, resulting in $56 million write-off in 2021. As we address these questions, we should keep in mind some additional points. He is a former Research Fellow in Neuroscience and Finance at the University of Cambridge, and previously traded derivatives for Goldman Sachs and ran a trading desk for Deutsche Bank. Throughout I describe rather than argue for what the law should be. John Coates failed to apologise for his comments towards Annastacia Palaszczuk. No. Cost-Benefit Analysis of Financial Regulation: Case Studies and - SSRN He had been serving as the independent monitor for the U.S.. The Commission has always required information about a U.S. public companys consolidated subsidiarieswherever located. The law went beyond combating affirmative fraud, where intent, materiality, and damages had a role to play, and added to it a general philosophy of seller beware, in which all pertinent facts must be disclosed before a company sells stock, and liability could attach even without traditional hallmarks of fraud, albeit with separate limiting conditions. She received an undergraduate degree from Princeton University and a J.D. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. Would it have resulted in more timely, clear and useful information for investors about asbestos manufacturers, sellers and insurance companies? John CoatesActing Director, Division of Corporation Finance. Large asset managers are already having to comply with similar requirements in Europe (regardless of where their portfolio investments are located). Where and how can disclosures be aligned with information companies already use to make decisions. John Coates | Harvard Law School To be sure, an IPO is generally understood to be the initial offering of a companys securities to the public, and the SPAC shell company initially offers redeemable equity securities to the public when it first registers to raise funds in order to look for and later acquire a target. It proceeds in two stages. It is true that the subject matter of the financial risks and opportunities raised by climate change are complex, and climate experts have specialized knowledge about climate science. As John Coates steps down, two things make him 'very proud' Where and how should disclosures be globally comparable? If Congress had intended to displace Commission disclosure authority regarding environmental matters (including climate-related financial disclosures) when it gave EPA authority to require disclosure in 1970, it seems surprising (to put it mildly) that Congress did not respond after the Commission adopted environmental disclosure rules in the 1970s. They believe climate change is not primarily caused by human activity. Because (they claim) the fictional new rule reflects climate change policy, and because climate change is new and important, the plain text of the Commissions statutory authority cannot really mean what it says. STAY CONNECTED The Commission has neither approved nor disapproved its content. Some claim that the statutory limits on the Commissions disclosure authority have no real meaningbecause one can pretend that anything is for protection of investors, no real limiting principle exists in the 1933 and 1934 Acts on the Commissions authority, so either it impermissibly delegates or further limits need to be invented to make the statutes constitutional. The U.S. Supreme Court has repeatedly and recently emphasized that the fundamental purpose of the 1934 Act [was] to substitute a philosophy of full disclosure for the philosophy of caveat emptor . 2021 Financial Disclosure Statements. John Coates is a senior research fellow in neuroscience and finance at the University of Cambridge. Join Facebook to connect with John Coates and others you may know. Section 13(a)(2) of the 1934 Act goes further still, and requires companies to disclose, under rules the Commission: may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security such annual reports and such quarterly reports as the Commission may prescribe. Denise Coates, the quiet queen of online betting from Stoke | Financial But its basic statutory authority does not limit the level of generality at which an otherwise long-required disclosure topic may be addressed. Here, the proposal frames difficult, subsidiary choices, which divide reasonable observers. But the Commissions authorities go further, precisely because Congress recognized that investors need information beyond the moment of initial offer and sale, which are addressed by the 1933 Act. Aside from the elementary fact that the Commission has no authority to edit Congressionally adopted statutes, the concept release actually says precisely the opposite. Finally, even if the major questions doctrine were thought relevant here, the contents of the proposal areas discussed at length above and in Annex Adirectly in keeping with the way that the Commission has functioned since inception. License our industry-leading legal content to extend your thought leadership and build your brand.