Worldwide: Governance & Securities Law Focus: Latin American Edition

This newsletter provides a snapshot of the principal US and selected global governance and securities law developments during the fourth quarter of 2015 and the first quarter of 2016 that may be of interest to Latin American corporations and financial institutions.


SEC and NYSE/Nasdaq Developments

FAST Act Amends JOBS Act and Creates New Exemption for Resales of Restricted Securities

On 4 December 2015, the Fixing America's Surface Transportation Act, or FAST Act, was signed into law. The FAST Act includes a number of provisions affecting US securities law, including changes to the Jumpstart Our Business Startups Act ("JOBS Act"), changes to US Securities and Exchange Commission ("SEC") disclosure requirements and a new statutory exemption for private resales of securities.

The FAST Act relaxes certain provisions of the JOBS Act to facilitate initial public offerings by emerging growth companies ("EGCs"). EGCs can now commence roadshows within 15 calendar days of publicly filing the registration statement with the SEC, as opposed to the previous 21-calendar day waiting period, and can rely on continued treatment as an EGC for certain purposes during a grace period if they lose EGC status during the SEC review process. Further, EGCs can start the SEC review process without having to include financial information for periods that will not be required to be included at the time the IPO is expected to go on the road.

  • For example, an issuer that expects to market its IPO during 2016 on the basis of audited financial statements for 2015 could commence the SEC review process in 2015 or early 2016 without ever having to prepare audited financial statements for 2013. However, the SEC will still require interim financial information, even if the issuer reasonably expects such interim financial information to be superseded by annual or interim financial information that will be included in the registration statement at the time of the contemplated offering.
  • In addition, the statutory change permitting the omission of financial information relating to periods that are not expected to be included at the time of the offering also applies to Regulation S-X Rule 3-05 financial statements of an acquired business. An EGC may omit such acquired business financial statements if the EGC reasonably believes those financial statements will not be required at the time of the contemplated offering. Specifically, such separate financial statements would not be required at the time of the offering if sufficient time has elapsed since the acquisition and such acquired business has been part of the issuer's financial statements for a sufficient amount of time.

The legislation further directs the SEC to simplify, for all filers, Regulation S-K and eliminate duplicative, overlapping or otherwise unnecessary disclosure requirements.

The FAST Act also amends the US Securities Act of 1933 (the "Securities Act") to add a new Section 4(a)(7) based on the so-called 4(a)(1½) exemption for resales of restricted securities by persons other than the issuer. The Section 4(a)(1½) exemption, which is based on case law and has been recognized by the SEC in no-action letters and interpretative releases, but which has not previously been formally adopted in statute, has been interpreted to permit, in certain circumstances, the resale of restricted securities in a private placement by persons other than the issuer.

  • The exemption created by new Section 4(a)(7) requires that purchasers of the restricted securities must be "accredited investors" as defined in Rule 501(a) under the Securities Act. In addition, Section 4(a)(7) prohibits general solicitation and general advertising by the seller and any person acting on the seller's behalf. If the issuer is not subject to reporting requirements under the US Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, Section 4(a)(7) requires the seller to make available reasonably current information about the issuer, including the issuer's most recent balance sheet and income statement.
  • The legislation expressly provides that Section 4(a)(7) is not the exclusive means for establishing an exemption from SEC registration. This should give market participants some comfort that the traditional Section 4(a)(1½) exemption continues to be available, and that it is not necessary to comply with all of the requirements of Section 4(a)(7) in every resale that relies on a private placement exemption

Our related client publications are available at: ; and

SEC Proposes New "Publish What You Pay" Rule for Resource Extraction Issuers

Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was signed into law in 2010, directed the SEC to issue rules requiring resource extraction issuers to report annually on payments made to governments. In August 2012, the SEC adopted a final rule implementing Section 1504 of the Dodd-Frank Act, but in July 2013 the SEC rule was vacated by US federal courts.

On 11 December 2015, the SEC issued a new proposed rule to implement Section 1504 of the Dodd-Frank Act. In the newly proposed rule, the SEC addresses the findings of the court that vacated its prior rule. In addition, the SEC indicates that it is endeavoring to more closely align its reporting regime with developments in extractive industry transparency in the European Union and Canada since its original rulemaking, with a view to enhancing the consistency and comparability of the SEC rules with the disclosure requirements of these key jurisdictions.

Under the new proposed rule, SEC reporting issuers that are engaged in the commercial development (including exploration, extraction, processing, export and the acquisition of a license for any such activity) of oil, natural gas or minerals would be required to file annually on Form SD certain information regarding payments made to governments, including subnational governments and state-owned companies. Information regarding such payments would need to be reported at the level of each project and only payments above $100,000 would be required to be included. The SEC is proposing to recognize the equivalency of other jurisdictions' "publish what you pay" reporting regimes that the SEC determines are substantially similar to its rules—this could ultimately include the European Union and Canada.

The SEC will adopt a final rule implementing Section 1504 of the Dodd-Frank Act after considering comments received on the proposed rule. The SEC expects to adopt a final rule by June 2016. If it meets this timetable, the first government payments report would be for the first fiscal year ended on or after 30 June 2017. Until a new final SEC rule becomes effective, 20-F filers are not subject to "publish what you pay" reporting under Section 1504 of the Dodd-Frank Act and need only comply with any applicable home country reporting requirements.

Initial comments on the proposed rule were due on 25 January 2016. A second round of comments, responding to issues raised in the initial comment period, will be due on 16 February 2016.

Our related client publication is available at:

Climate Change – The Peabody Settlement and Exxon Mobil Investigation

In 2007, the New York Attorney General served subpoenas on five companies (Peabody Energy, the world's largest private sector coal producer, and four coal-intensive power generating companies) requesting information on investigations those companies had conducted in the past and the conclusions those companies had made at the time regarding the effects of climate change on their businesses, in order to determine whether those companies' disclosures to investors about such effects were inadequate. The subpoenas were issued under state law at a time of increasing media and investor interest in climate change disclosure, but before the SEC published its climate change interpretive guidance in 2010. Since then, the SEC guidance has significantly increased climate change reporting by public energy companies in the United States.

In November 2015, Peabody Energy entered into a settlement agreement with the New York Attorney General, which focused on two allegations:

  • Statements in Peabody's public disclosures that it could not reasonably predict the future impact of any climate change regulation were inconsistent with the fact that Peabody and its consultants had looked into this issue at some length and had projected material and severe impacts from certain potential regulations;
  • The International Energy Agency ("IEA") projections included in Peabody's public disclosures showing the impact of climate change developments on the future of the coal market were "cherry picked." Peabody discussed demand under the IEA's "current policies scenario," which is the high case for coal usage, rather than its "new policies scenario," which assumes the implementation of announced government carbon commitments and policies and which the IEA considers its baseline scenario.

The New York Attorney General recently served a subpoena on Exxon Mobil, which similarly seeks information from as far back as 1977, in order to assess Exxon Mobil's climate change disclosures.

The Peabody settlement and the investigation of Exxon Mobil have recast a spotlight on the sufficiency of climate change disclosure by energy companies. In drafting, reviewing and updating their climate change disclosure, including risk factors, companies should take into consideration any investigations the company has made into the effects of climate change on the company's business, including on the markets for the company's products. To the extent a company's disclosure includes projections as to the market or demand for a product, companies should ensure that such disclosure is balanced and reflects a range of conventional scenarios on the impact of climate change regulation.

Our client publication surveying recent developments in corporate climate change reporting is available at:

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