Letter to SEC Chairman Atkins with recommendations for rulemaking and guidance

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SUMMARY

The Securities Regulation Committee submitted a letter to SEC Chairman Paul Atkins offering recommendations to support capital formation, streamline regulations, and enhance transparency, while maintaining investor protection. The letter advocates for easing restrictions on small and mid-sized public companies such as by modifying Form S-3 eligibility, expanding WKSI status, and modernizing rules around non-GAAP disclosures and executive compensation. It urges the SEC to adopt long-pending amendments to Form S-8 and Rule 701, increase Regulation A offering limits, and align the definitions of “bad actors” across exemptions. The Committee also recommends revisiting outdated thresholds and definitions for filer status, making EDGAR filing deadlines more practical, and simplifying complex rules like Rule 144 and deregistration in bankruptcy. Regarding SPACs, the letter criticizes recent SEC actions that it views as unduly punitive and calls for equal treatment of de-SPACed companies compared to traditional IPOs. Lastly, the Committee calls for improved SEC staff practices, including greater predictability in the review process and more consistent public dissemination of informal guidance.

REPORT

By Email
The Honorable Paul S. Atkins
Chairman
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549 

RE: RECOMMENDATIONS FOR RULEMAKING AND GUIDANCE

Dear Chairman Atkins:

Congratulations on your appointment as Chairman of the U.S. Securities and Exchange Commission (the “Commission”). This letter is submitted on behalf of the New York City Bar Association (the “City Bar”) through its Securities Regulation Committee (“the Committee”).

Members of the Committee include a wide range of practitioners whose areas of interest and expertise include securities laws and the regulation of the U.S. capital markets, and who are employed by or advise public companies, both domestic and foreign private issuers (“FPIs”). The Committee does not represent any client and the views expressed by the City Bar are those of the City Bar and not necessarily the views of any of its individual members or their respective firms or institutions.

The City Bar writes to provide recommendations for rulemaking and guidance that we hope you will consider as you further the Commission’s mission to protect investors, facilitate capital formation, and maintain fair, orderly, and efficient markets.

Capital Formation

In your testimony before the United States Senate Committee on Banking, Housing, and Urban Affairs on March 27, 2025, you stated that “complicated, and burdensome regulations are stifling capital formation.”[1] We agree. We have formulated the below recommendations based on our vast experience advising companies and underwriters in capital markets transactions. While there is much that can be done to promote capital formation, we believe the following actions would have the greatest impact.

• Registered Offerings and Registration Statements. Consider issuing a concept release on registered offerings that seeks input regarding improvements that could be made with respect to registered offerings. The City Bar recommends prioritizing certain actions that we believe will promote capital formation without sacrificing investor protections:
  • Amend General Instruction I.B.6 of Form S-3 relating to the eligibility requirements for primary offerings for cash applicable to certain smaller public companies (e., companies with a public float of less than $75 million that are subject to the “baby shelf requirements” are limited to selling securities equivalent to only one-third of their public float during the 12 calendar months immediately prior to such sale on Form S-3, excluding any sales prior to the issuer becoming subject to the baby shelf requirements) to modify the one-third public float limitation. We recommend that the Commission eliminate or increase the one-third public float limitation in General Instruction I.B.6 of Form S-3 or exempt issuers after some period of time (e.g., one-year after the company becomes eligible to file on Form S-3).
  • Expand the availability of well-known seasoned issuer (“WKSI”) status without affecting accelerated filer status by updating the WKSI definition to apply to all companies that otherwise satisfy the WKSI definition with a public float of $250 million, rather than the current public float of $700 million.
  • In light of the fact that all required information is provided electronically on SEC EDGAR, incorporation by reference should generally be liberated so as not to burden smaller public companies. We ask that the Commission allow forward incorporation by reference on Form S-1 for companies that are not Smaller Reporting Companies and eliminate the need for “stickering” later filings that must be incorporated by reference into a registration statement.
  • Review the disclosure requirements in Form 20-F, paying close attention to recently adopted, expanded disclosure obligations, to determine whether additional accommodations may be appropriate to ensure FPIs consider the United States an attractive market for their public offerings.
  • In 2020, the Commission proposed amendments to Form S-8 and Rule 701 promulgated under the Securities Act of 1933, as amended (the “Securities Act”) designed to modernize the framework for compensatory securities offerings in light of the significant evolution in compensatory offerings and composition of the workforce since the Commission last substantively amended these regulations, allowing employees and other workers to receive equity compensation from companies while maintaining important investor protections. The proposed amendments were generally well received and would help modernize and facilitate compensatory offerings. We ask that the Commission adopt the proposed amendments to Form S-8 and to Rule 701.
  • The staff of the Commission (the “Staff”) has communicated the position that for issuers not eligible to conduct a primary offering on Form S-3 pursuant to Securities Act Rule 415, the Staff will analyze secondary offerings made on Form S-3 on a deal-by-deal basis to determine whether any secondary offering is a “disguised primary offering.” We ask that the Staff issue guidance that includes a bright line interpretation that will provide the market with clarity and certainty in registering secondary offerings on Form S-3.
  • Although issuers may submit filings to SEC EDGAR until 10:00 p.m. Eastern Time, most filings received after 5:30 p.m. Eastern Time are considered by the Commission to be late if required to be filed that same day. Late filings have had major consequences for companies trying to raise capital. For example, the current EDGAR filing deadline can become a major obstacle if a Form 8-K is deemed to be filed late, causing a company to lose S-3 eligibility. In addition, companies may technically have stale financial statements that the Staff will not review, even though the company actually filed them on the correct date. We believe that the requirement to file by 5:30 p.m. Eastern Time is outdated, particularly in light of increased remote work and the fact that many companies and practitioners are based in locations within different time zones. We recommend that all EDGAR filings made before 10:00 p.m. ET receive the same filing date.
• Accredited Investor Definition. Staff recommendations and recent bills proposed in Congress demonstrate that amendments to the accredited investor definition to expand eligibility would be welcome. We recommend amending the definition to include: additional knowledge components or other sophistication criteria, including individuals advised by a registered broker-dealer or investment adviser, and individuals who have passed an exam administered by the Commission or FINRA (or a foreign equivalent).
• Regulation A. Raise the Regulation A offering limits in order to attract a larger and potentially more seasoned pool of issuers and intermediaries or institutional investors to the Regulation A market. We also ask that you work with Congress to the extent Congressional action is required to provide for preemption of state “blue sky” laws.
• “Bad Actor” Status. Section 4(a)(7) of the Securities Act provides a registration exemption for private resales of securities. This exemption contains a prohibition that overlaps with, but diverges from, the “bad actor” provisions in Rule 506(d) of Regulation D. For example, Rule 506(d) defines a “covered person” as “any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with such sale of securities.” By comparison, Section 4(a)(7) refers to “any person that has been or will be paid (directly or indirectly) remuneration or a commission for their participation in the offer or sale of the securities, including solicitation of purchasers for the seller.” Because Section 4(a)(7) is drafted more broadly to capture “participation in the offer or sale” rather than “solicitation of purchasers,” one may interpret the statute to mean that a bank may be scoped in even if it is not engaging with investors and merely providing administrative assistance in connection with a sale of securities. To increase the availability of Section 4(a)(7), we request interpretive guidance that will help align the bad actor framework in Section 4(a)(7) with Rule 506(d) of Regulation D.

Reporting Requirements

Your recent testimony also states that “American investors are flooded with disclosures that do the opposite of helping them understand the true risks of an investment.”[2] We believe there is room for improvement in this respect. Our recommendations below are intended to decrease the reporting obligations of public companies while ensuring investors continue to receive material information.

• Filer and Reporting Status. Review filer status and reporting status definitions with a focus on adjusting thresholds to account for growth in public company market capitalization since the thresholds were last amended, and with a goal of maximizing scaled disclosure requirements and minimizing independent auditor attestation requirements for smaller companies.
• Non-GAAP and KPI Disclosures. Reevaluate the existing rules and guidance related to non-GAAP financial measures and key performance indicator (“KPI”) disclosures. For example, the Staff should revisit existing Compliance and Disclosure Interpretations (“C&DIs”) and consider rescinding those C&DIs that have expanded the prohibitions outlined in Regulation S-K. We recommend that the Staff reassess its approach to support a more nuanced, case-by-case evaluation of non-GAAP measures and KPIs. Address common areas where there is a disconnect between companies, investors, and the Staff, such as (1) adjustments intended to remove volatility that, although inherent to the company’s operations, hinder the understanding of core performance during a period, and (2) adjustments that align with how management runs the business and makes decisions, by possibly requiring enhanced disclosure in these scenarios. For example, instead of prohibiting measures that adjust for “normal” operating costs, mandate clear, separate disclosure in the reconciliation for those costs, along with an explanation highlighting the usefulness of such measures despite being recurring business expenses. As another example, the Staff in recent years has forced pharmaceutical companies to cease backing out acquired In-Process Research and Development charges. We believe that it may result in misleading disclosure if management is not allowed to present information to investors that management uses to evaluate the business and that clear disclosure from registrants should be sufficient to prevent the disclosure itself from being misleading (as opposed to the Staff deeming certain non-GAAP measures to be inherently misleading such that they may never be presented).
• Acquisitions by Up-C Companies. Many companies choose to enter the public markets structured as an umbrella partnership C corporation (an “Up-C Company”). Up-C Companies typically have Class A common stock listed on an exchange and LLC units outstanding that are exchangeable on a one-for-one basis for Class A common stock. For purposes of Rule 3-05 of Regulation S-X, the Up-C Company can only rely on the total Class A common stock outstanding in calculating its total worldwide market value, rather than accounting for both the Class A common stock currently outstanding plus the Class A common stock issuable upon conversion of the LLC units. This creates a situation where the market values the Up-C Company by taking into account those LLC units, but the Rule 3-05 test is artificially low and triggers Rule 3-05 financial statements, which are time consuming and expensive to produce. This is problematic because, for Up-C Companies that regularly acquire other companies, there is a great burden to providing financial statements that would not otherwise be required given the size of the acquisitions. We request that the Staff provide guidance or no-action relief regarding the calculation applicable to Up-C Companies to alleviate this burden by allowing Class A common stock issuable upon the conversion of LLC units to be included in the calculation for purposes of Rule 3-05.
• Executive Compensation and Perquisite Disclosures. Personal security for executives has become a necessary business expense for certain companies, and we believe it is inappropriate to categorize such expenses in all instances as “perquisites.” Item 402 of Regulation S-K should be revisited to clarify that personal security expenditures that a registrant determines are integrally and directly related to an executive’s ability to do his or her job is not a disclosable perquisite. In addition, we ask that Item 402 of Regulation S-K be reviewed more generally to streamline disclosure requirements and provide greater exemptive relief to Smaller Reporting Companies.
• Significant Equity Investees. To address the many challenges that arise for companies required to provide audited financial statements for significant equity investees, we ask that the Commission revisit Regulation S-X Rule 3-09 and Rule 4-08(g) to either eliminate the requirement for audited financial statements for significant equity investees (ASC 323 in U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) requires information about equity investees today) or change the thresholds of significance (g., The Commission could require Rule 4-08(g) disclosures only when the registrant reaches a 40% threshold and that would supplement ASC 323. Note that 40% is the threshold for two years of financial statements under Rule 3-05 and so this change would be consistent and familiar to registrants).
• Disclosure Update and Simplification. In 2018, the Commission adopted amendments to certain disclosure requirements that had become redundant, duplicative, overlapping, outdated, or superseded, in light of other Commission disclosure requirements, U.S. GAAP, or changes in the information environment. We believe such an exercise should be undertaken again and ask that the Commission review and update disclosure requirements to (1) eliminate requirements that overlap with or are similar to U.S. GAAP or International Financial Reporting Standards disclosure requirements; (2) eliminate requirements that are no longer applicable or relevant, such as due to the passage of time; and (3) address technical amendments or errors in prior rulemakings.

Rules That Require Updating or Drastic Simplification

There are several rules and regulations promulgated by the Commission that have become unnecessarily complicated and unwieldy, sometimes requiring references to treatises and expensive subscription-based websites for even the most seasoned securities law attorneys to answer questions. Because the Commission’s policy divisions do not have much involvement in these areas of the law, available guidance is minimal and most likely derived from the Commission’s enforcement actions.

• Rule 144. Many investors must rely on Rule 144 promulgated under the Securities Act in order to resell securities. Even when a resale registration statement is available for control securities, broker-dealers typically require that sales be made pursuant to Rule 144. Conducting sales pursuant to Rule 144 can raise many complicated questions and unduly restrict investors who wish to sell their securities. We recommend that the Commission consider amendments that would simplify the requirements for reliance on Rule 144. In fact, an entire concept release and rulemaking on resale exemptions would be welcome.
  • Rule 144 requires that any company that was ever a shell company be current with all required Commission filings for 12 months before investors can resell restricted or control securities. This requirement applies indefinitely and regardless of whether the company is currently a shell company. We suggest removing this requirement or having it fall away after a certain time following the time a company ceases to be a shell company.
  • If retained at all, we would recommend that the holding periods for Rule 144 be reduced and the Rule 144 volume limitation be increased.
• De-Registration of Securities in Bankruptcy. The rules and guidance relating to the de-registration process for companies that file for bankruptcy make it extremely difficult, if not impossible, for well meaning, but distressed registrants to comply with the securities laws. For instance, many companies that file for bankruptcy have experienced high levels of employee attrition and resignation of the company’s independent auditor. In such cases, a company simply cannot become current in its periodic reporting obligations if it has fallen behind. In order to address the reality of bankruptcy scenarios and the fact that treatment of shareholders will be determined by the bankruptcy laws and bankruptcy court, we request that the Staff update Staff Legal Bulletin No. 18 to expand the “going dark” fact patterns that do not require no-action relief to provide that:
  • Registrants may go dark upon emergence from a Chapter 11 bankruptcy proceeding where the confirmed plan states that the listed securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are being extinguished.
  • Registrants may go dark in a year when a Form S-8 (or other registration statement) is made effective by the filing of a Form 10-K if no securities have been issued pursuant to the Form S-8 or any other registration statement during that year and the registrant otherwise meets the requirements under Exchange Act Rule 12h-3.

Special Purpose Acquisition Companies (“SPACs”)

The proposal and adoption of the rules relating specifically to SPACs and their business combinations belies a view that such transactions are undesirable and should be eliminated.[3]  As the capital markets have borne out over several years, restricting the pathways by which companies can become publicly traded does not benefit retail investors.  Rather, the investing public is harmed when access to viable investment opportunities is limited to a subset of sophisticated investors.  We urge the Commission to re-assess its view that private companies should access public markets by means of an initial public offering (“IPO”) only and re-instill trust in the retail investor as a competent consumer of disclosure. In particular, we urge the Commission to consider the following recommendations:

• Shell Company Restrictions. Eliminate restrictions on predecessor shell companies designed to preclude shell companies from enjoying the same benefits as a regular-way IPO.
• Eliminate Unhelpful Disclosures. As a result of the new disclosure rules, the cover page of the IPO prospectus extends over several pages and has become unwieldy. Certain disclosures, such as potential dilution in connection with a hypothetical de-SPAC transaction, is unhelpful and confusing to investors at the time of the SPAC IPO. We urge the Commission to consider streamlining such disclosure rules.
• “Treat Like-For-Like.” In adopting the SPAC rules, the Commission’s professed intention was to “treat like-for-like.” However, the newly adopted rules reflect an exercise of cherry-picking the punitive aspects of the federal securities laws while denying de-SPACed companies the benefits of regular-way IPOs. We urge the Commission to apply this mantra of “like-for-like” to better align the treatment of IPO companies and de-SPACed companies under the following regulations:
  • Rule 144. Exclude de-SPAC transactions from the one-year seasoning rule of Securities Act Rule 144 to remove the implication that de-SPACed companies are of a different class than companies that entered the public markets via IPO.
  • Rule 145(c). In light of the adoption of Rule 145a under the Securities Act and the unavailability of the most likely exemptions from registration under Section 3(a)(9) of the Securities Act, exclude de-SPAC transactions from the application of Securities Act Rule 145(c). Practically, the applicability of Rule 145(c) handicaps the ability of affiliates of de-SPACed companies to sell their securities in the public markets.
  • Research Coverage. Align rules related to publications or distributions of research reports by brokers or dealers with the rules applicable to IPO companies and exclude de-SPACed companies from the category of shell companies for which the publications or distributions of research reports is not covered by the safe harbors provided by Securities Act Rules 137, 138, and 139.
  • Ineligible Issuer Status. Align a company that completes a de-SPAC transaction with a company that consummates an IPO; exclude de-SPACed companies from the category of former shell companies that are “ineligible issuers” under Securities Act Rule 405.
• Underwriter status of de-SPAC participants. Although the Commission declined to adopt proposed Rule 140a, the SPAC Adopting Release created sufficient ambiguity and confusion on the Commission’s position with respect to the underwriter liability of participants in de-SPAC transactions, including capital markets advisors, M&A advisors, private placement agents, and investors, with the aim of chilling the market for these transactions. We urge the Commission to review its position and clarify by means of interpretive guidance.
• Eliminating Objections to the Ability of National Securities Exchanges to Exercise Discretion in De-listing SPACs that have executed definitive agreements for a De-SPAC Transaction. We urge the Commission to reconsider its objection to rules proposed by the New York Stock Exchange to apply its discretion in de-listing SPACs that have executive definitive agreements and are completing business combinations beyond the three-year mark. Market conditions and lengthy regulatory reviews impact the timeline on which de-SPAC transactions can be completed. Allowing the exchanges discretion in the delisting decisions does not adversely affect investor protection because investors may sell their SPAC securities if they decide to exit their investment while a de-SPAC is pending.

Division of Corporation Finance Review Policies

In recent years, decreased transparency and communication between the Staff and issuers (including issuers’ representatives) has created challenges to capital formation. Specifically, issuers cannot anticipate review timelines or whether comments have been cleared by the Staff prior to filing acceleration requests. In addition, there have been instances where information was communicated by the Staff orally to one or a few individuals where all market participants would have benefitted from the information. We believe that minor changes to Staff policies could correct these issues:

• Establish a policy not to review (absent extreme extenuating circumstances) registration statements for follow-on offerings within one year of an IPO. Alternatively, the Staff could establish a policy to notify registrants within two business days if there will be any comments.
• With respect to follow-on offerings conducted within one year of an IPO, allow for the confidential submission of draft registration statements, but without a requirement to wait two days before pricing following the public filing of the registration statement. Instead, a registrant could provide notice in its IPO registration statement that it may conduct a follow-on offering within one year of effectiveness.
• Endeavor to publish oral advice on a regular basis to alert the public to the Staff’s views on a variety of matters for which practitioners call the Staff for guidance. The resulting increased transparency would be welcome.

*           *           *

We thank you for the opportunity to express our views and recommendations. Members of the Securities Regulation Committee would be happy to discuss any aspect of this letter with the members of the Commission or the Staff.

Respectfully submitted,

Christian O. Nagler
Securities Regulation Committee, Chair

cc:
Commissioner Hester M. Peirce
Commissioner Caroline A. Crenshaw
Commissioner Mark T. Uyeda