These understandings help explain Congresss decision to direct the Commission to specify additional disclosures under the 1934 Act, to adapt the statute to emerging financial risks and opportunities and maintain efficient capital market pricing and investor confidence over time. Cost-Benefit Analysis of Financial Regulation: Case Studies and To do so would turn the doctrines purpose against itself, turn courts into unelected mini-legislatures, and subvert rather than reinforce the separation of powers. Rather, I hope to highlight some of the issues that in my view policymakers should consider as the debate over ESG disclosures continues. To be clear, in the initial offering by a SPAC, when the shell company is first raising funds to finance all (or more commonly a portion) of its hoped-for acquisition of the yet-to-be-named target, disclosures clearly have a role to play under the federal securities laws. It is true that many companies are spending money to do thisfurther evidence of the importance of the information. Congressional support for the Commissions clear (but statutorily limited) disclosure authority is shown by the fact that over time, in the face of repeated Congressional amendments and annual budget laws (in which Congress can and has inserted riders further limiting Commission discretion), the Commissions requirements ranged far beyond the limited lists of information in the 1933 and 1934 Acts themselves. The Commission has neither approved nor disapproved its content. Information should be cost-effective and reliable, and not materially misleading, in every securities transaction. Previously, she represented private and public companies on corporate and securities matters at Hill & Barlow law firm. In the National Environmental Policy Act (NEPA), Congress made environmental considerations part of the SECs substantive mission. That statutestill on the booksprovides (among other things): The Congress recognizes that each person should enjoy a healthful environment and that each person has a responsibility to contribute to the preservation and enhancement of the environment. Nor has the major questions doctrine ever been used to overturn authority unambiguously granted by the plain text of a statute. But Congress has never cut back on the Commissions general obligation to specify the contents of its disclosure regime, such as by editing or reversing prior disclosure specifications. He previously worked for Goldman Sachs and ran a trading desk for Deutsche Bank in New York. 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. This blog answers some questions about the changes. Feedback to SSRN. Companies objectively do or do not have strategies that reflect transition risk or physical risks of climate change. Public companies have a strong incentive to keep abreast of what information their investors would reasonably value. With that overview, I would like to focus on legal liability that attaches to disclosures in the de-SPAC transaction. Volkswagen announced $180 billion of investments in electronic vehicles. SPAC use and popularity have soared over the past six months, John Coates, acting director of the Securities and Exchange Commission's Division of Corporation Finance, said in a note Thursday.. Multiple paths to dispersed ownership now exist, including not only SPACs, but also direct listings and dual-track IPO/M&A processes. They of course help sell the deal, but they can also be a key component for boards and other participants in negotiating and understanding the economics indeed, the fairness of the transaction. 2017) ([W]here defendants make mixed statements containing non-forward-looking statements as well as forward-looking statements, the non-forward-looking statements are not protected by the safe harbor of the PSLRA.). Many ESG-related issues are similar to ones we have faced before. Still another study finds that mutual fund managers are misestimating climate risks based on current, inconsistent and unreliable disclosures. 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. This statement does not alter or amend applicable law and has no legal force or effect. Supporting statements were also overwhelmingly filed directly by investors of all kinds (not just or even primarily from socially activist or impact investors). Annex A contains just a samplingmany more additions and refinements have been adopted in the decades since 1933. About John Coates. The focus of the actual rule is the impact of climate change on companies, and not vice versa. How three decades of pain for John Coates drove Brisbane's bid for 2032 It proceeds in two stages. The result is a continuously adjusted, detailed system of disclosure specifications, reflecting the Commissions fact-finding and expertise. (Sept. 30, 2020). Despite this clear authority, critics argue the Commission lacks authority to move forward with the proposal. EPA, for example, exempts from reporting emission sources below source-specific thresholds. Consistent with the long tradition of disclosure requirements sketched above and in Annex A, the proposed rule specifies disclosure of climate-related financial risks to and opportunities for public companies. Before joining the SEC, he served as the John F. Cogan Professor of Law and Economics at Harvard University, where he also was Vice Dean for Finance and Strategic Initiatives. In the nature of corporate investment, investors in multinational US public companies bear climate-related financial risks and have opportunities to profit from their global activities. That possibility further calls into question any sweeping claims about liability risk being more favorable for SPACs than for conventional IPOs. Although climate change overall indisputably raises important policy questions, those remain for Congress. Funding, governance and public accountability are all critical elements of a reliable, trusted disclosure system. The status quo is costly for companies, and increasingly so over time. To make their case, they distort the proposed rule beyond any fair reading, into a new, fictional rule that addresses environmental concerns rather than investor concerns. A movement is afoot to impose cost-benefit analysis (CBA) on financial regulation (CBA/FR). Those choices I do not here address. [1],[2] Shareholder advocates as well as business journalists and legal and banking practitioners, and even SPAC enthusiasts themselves[3] are sounding alarms about the surge. 2d 613, 629 (S.D.N.Y. Changes came as part of an omnibus criminal law Session Law 2021-138, Part XXI. The National Law Journal Elite Trial Lawyers recognizes U.S.-based law firms performing exemplary work on behalf of plaintiffs. Many contain materiality qualifiers, but many do not. Again, this language is not limited to what is necessary to protect investors, but gives the Commission discretion to specify what information is appropriate to protect investors and markets, based on its fact-finding and expert application of the statutes goals to evolving investor needs. Advocates make their voices heard on mandatory climate disclosure . The Biden administrations new acting head of a key component of the U.S. Securities and Exchange Commission reported earning more than $2.5 million in law school income and consulting fees paid by financial firms and major U.S. companies, according to a newly released financial statement. All those sources here align with the 1933 Acts plain, ordinary meaning, and so confirm the above conclusions. These data, again, are thus directly relevant to financial risks and opportunities for public companies. Proposal on Climate-Related Disclosures Falls Within the SEC's Authority Posted by John C. Coates (Harvard Law School), on Wednesday, June 22, 2022 Comments Off Print E-Mail Tweet Climate change, ESG, Investor protection, Legal history, Materiality, SEC, SEC rulemaking, Securities regulation, Sustainability More from: John Coates I am pleased to welcome Renee to the SEC and look forward to working with her., I am excited to join the Division of Corporation Finances team of experienced and dedicated public servants, said Jones. Law.com Compass delivers you the full scope of information, from the rankings of the Am Law 200 and NLJ 500 to intricate details and comparisons of firms financials, staffing, clients, news and events. The long-recognized fact the statutes were remedial laws following the Crash of 29. The United States Securities and Exchange Commission has focused increasingly on SPACs in recent months, and is particularly concerned with conflicts of interest that incentivize a SPAC's sponsors, directors, officers, and affiliates to close a de-SPAC transaction even when doing so is not in the best interests of SPAC shareholders, and whether Myriam Robin is a Rear Window columnist based in the Financial Review's Melbourne . Coates received his Bachelor of Arts with highest distinction from the University of Virginia and his law degree from New York University Law School. Some claim the Commission has acknowledged or adopted limits on its disclosure authorities, beyond limits in the text of the statutes. The secondemissions datais widely used as measures of transition risk, that is, the risk that energy costs and policy responses by other lawmaking bodies (not the Commission) (some of which are already reflected in treaty commitments or other enacted policies of the US and other countries in which US public companies do business) will force companies to expend money to reduce their emissions or mitigate their impacts. I write to comment on legal authority. About ten percent of SPACs have liquidated between 2009 and now.[6]. Mar. Financial Disclosure - United States Department of Justice 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. Overturning this rule as unauthorized on that basis would wipe out most of the Commissions disclosure rulebook. Disclosure means: "To . Regardless, as long as the disclosures are fairly designed for the protection of investors, a factual assessment of the kind commonly delegated by Congress to regulatory agencies, they would fall within the clear limiting principle of that law. Mr Coates told Channel 7's Sunrise he "overruled" Ms Palaszczuk after she initially said she would not be among the 1000 or so VIPs to attend the Opening Ceremony, which - like most of the . John Coates Profiles | Facebook If comprehensive, economy-wide disclosure of climate impacts of all types of business is to be required by regulation, doing so will require more than the Commissions authority. 3:09-CV-01740 VLB, 2013 WL 1188050 (D. Conn. Mar. ESG Disclosures - A Continued Discussion | LawCast.com 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. As we think about structuring a disclosure system for ESG issues, one question that comes up is whether ESG disclosures should be the subject of mandatory versus voluntary disclosure provisions. It is not a rule, regulation, or statement of the SEC. 300+ "John Coates" profiles | LinkedIn Open in Who Shared Wrong byline? Second, the 1933 Act makes clear that Congress expected and directed the Commission to go beyond content specified in the Act, and granted authority to go beyond what is necessary to include what the Commission concludes is appropriate for the protection of investors. As discussed in Point I, critics of the rule cannot plausibly attack premise one. Snowman producer John Coates dies - BBC News 1, 2005) (Where the failure to make such disclosure is negligent, an issuer would violate Section 14(a) of the Exchange Act and Rule 14a-9 thereunder). You can see John Rubin's blog on this here. A topic of a disclosure is political, or controversial, or is not uncontroversially for investor protection, any of which would only invite interest groups to politicize a topic in the hopes of later arguing it should be off limits for the Commission to address. LONDON, Oct 10 (Reuters) - When John Coates was on a winning streak during his days as a trader at Deutsche Bank and Goldman Sachs, the narcotic-like "high" he experienced was so powerful he was determined to find out more. First, the 1933 Act itself required disclosure not only of specified financial items, but also qualitative, open-ended information, such as the general character of the companys business, compensation, and material contracts, and reinforced its breadth by referring not only to opinions of accountants and appraisers but also engineers and other professionals, such as lawyers oras under the present proposalexperts on greenhouse gas accounting. In Delaware, as under SEC Rule 405, control can be found to exist raising the corporate law standard in state court review of conflict of interest transactions where a shareholder owns less than 50% of the stock, but exercises control over the business affairs of the corporation. It means thoughtful engagement by trusted specialists seeking consensus among investors and companies about useful, reliable and comparable disclosures under standards flexible enough to remain relevant. The safe harbor was intended to provide a defense against such suits and provide grounds for summary dismissal. Should the SEC reconsider the concept of underwriter in these new transactional paths? During the hearings, it was explicitly noted by a former FTC Commissioner and an advisor to President Roosevelt that: We are trying not to have this bill be too long. 2021; 2020; 2019; 2018; 2017; 2016; 2015; 2014; 2013; Don't miss the crucial news and insights you need to make informed legal decisions. SEC to Move 'Promptly' on ESG Rulemaking in 2021, Official Says He observed first-hand the powerful emotions driving traders. The proposed rule is a rule that specifies details of disclosure requirements. John C. Coates is the John F. Cogan, Jr. The safe harbor is also not available if the statements in question are not forward-looking. It would have a relatively modest impact on the economy as a whole, and basically levels up disclosure requirements to disclosures already made by the majority of large companies. It would not affect the way that property insurers underwrite, pool or reserve against climate risksthat is for insurance regulators. 3 of 1970, nowhere mentions the Securities and Exchange Commission. He steps down from the AOC on Saturday, less than 12 months after helping Australia win its third Games bid, this time in Brisbane in 2032, but retains his exalted IOC status. Not long after Denise Coates convinced her family to bet big on internet gambling, the first . These decisions underscore the need for the Commission to have broad rulemaking authority to protect investors on the disclosure side of the firebreak between federal securities law and state corporate law. 'Horrendous enemy, terrific friend': What drives AOC head John Coates? A SPAC Curveball | Publications | Kirkland & Ellis LLP Consideration of such costs is important, as is getting clear about their causes. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors. There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. The 2023 Reporting Season: Recent SEC Guidance Yet no one has ever successfully argued that the Commission should not develop, adapt or apply disclosure rules to banks, mining companies, asset-backed issuers, airlines or defense contractors, despite the specialized knowledge that a full understanding of those companies would require, and despite the fact that the Commission does not have full-time staff who are themselves experts of the same kind that other regulators may have, or which companies hire to provide them with advice about such topics. She received an undergraduate degree from Princeton University and a J.D. 5, 2021); Priya Cherian Huskins, Why More SPACs Could Lead to More Litigation (and How to Prepare), A.B.A. .. The Court has stressed the structure and design of the 1933 and 1934 Acts reflect an understood need for regulatory flexibility, even in decisions limiting the reach of Commission rules where the precise limits of its authority are less clear, such as Rule 10b-5: Congress recognized that efficient regulation of securities trading could not be accomplished under a rigid statutory program. In numerous cases, the Court and lower courts have held that the federal securities laws are to be construed broadly, not technically and restrictively, but flexibly to effectuate its remedial purposes.. In plain unambiguous text, they encompass financial risks and opportunities related to any source. One of the primary purposes of the 1934 Act was to augment the 1933 Act by giving the Commission authority to require ongoing reports by companies whose securities were traded on stock exchanges. LexisNexis and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. Our Team Account subscription service is for legal teams of four or more attorneys. They argue that because the fictional new rule requires disclosure of environmental impact, the Commissions authority was silently removed when Congress authorized the Environmental Protection Agency (EPA) to address that impact. 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. 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. [12] Given this legal landscape, SPAC sponsors and targets should already be hearing from their legal, accounting, and financial advisors that a de-SPAC transaction gives no one a free pass for material misstatements or omissions. That does not make those rules unduly burdensome or costly. SPAC sponsors and targets and their affiliates and advisors should already be providing the public with the information material to the investment opportunities a de-SPAC represents, regardless of how the liability analyses ultimately play out. Congress also recognized that full and fair disclosure would enhance investor confidence. Even if the safe harbor clearly applies, its procedural and substantive provisions do not protect against false or misleading statements made with actual knowledge that the statement was false or misleading. Those authorities are general in nature, not limited to specific topics. (IOC) (AOC) 2020IOC ICAS . Throughout I describe rather than argue for what the law should be. If the public wants comprehensive disclosures of climate impact that extend beyond impacts on investors, legal authorities other than those used here may need to be usedperhaps by other agencies or Congress itself. John Coates may be the most influential figure in the Olympic movement after I.O.C. SEC Focuses on Potential Updates to U.S. Climate Change Disclosure As regards climate change, environmental agencies might do well to focus on global activities as well, but it is unclear how EPA could with its existing legal authority impose requirements on companies not operating in the US. 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. The focus of those amendments, however, was the creation of national air quality standardswhat we generally call pollutionand the enforcement of those standards on a set schedule. 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. Financial Disclosures - Other White House Officials . Neither EPA nor any other federal agency has authority to elicit the full range of information about financial risks that would be provided to investors under this rule. President Thomas Bach. Private equity fund investors are already and increasingly demanding climate-related information and commitments from the funds or their advisors. S190602 (daily ed. Governance needs to ensure the independence and expertise of any individuals involved in the setting of ESG disclosure standards, and allow for a rigorous, inclusive and transparent process for developing standards. This discretion continues to be sensible, in light of the fact that: The Commissions task [is] a peculiarly difficult one, requiring it to find a path between the views of the parties to the rulemaking polarized in support of the broadest disclosure or in opposition to any disclosure, to interpret novel statutory commands, and to make decisions against the background of rapidly changing conditions . For example, the Commission could use the rulemaking process to reconsider and recalibrate the applicable definitions, or the staff could provide guidance explaining its views on how or if at all the PSLRA safe harbor should apply to de-SPACs. The specific reliance throughout the statutes on disclosure as an instrument. 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. Both options are priced the same. 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. In the first stage, it registers the offer and sale of redeemable securities for cash through a conventional underwriting, sells them primarily to hedge funds and other institutions, and places the proceeds in a trust for a future acquisition of a private operating company. 6LinkedIn 8 Email Updates. To be sure, projections are woven into the fabric of business combinations. 1 Twitter 2 Facebook 3RSS 4YouTube SEC Signals ESG Initiatives with Two Picks for Senior Positions Instead, basic principles of statutory interpretation support the Commissions authority to adopt the proposed rule.

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