SEC Staff Issues New CFIs Concerning Schedule 13G Eligibility

On Sept. 2, the Staff of the SEC’s Division of Corporation Finance issued three new Corporate Finance Interpretations (CFIs) addressing the extent to which specified communications undertaken by a shareholder might affect the shareholder’s eligibility to continue reporting on Schedule 13G in lieu of Schedule 13D. The background and content of the new CFIs are summarized below.

Background

Each new CFI is phrased in terms of the ability of a shareholder that reports its beneficial ownership on Schedule 13G “in reliance on Rule 13d-1(b) or Rule 13d-1(c)” to continue reporting on Schedule 13G after engaging in certain communications with an issuer or a third party. Each of those rules requires the shareholder reporting on Schedule 13G to certify that it does not hold its securities “for the purpose or with the effect of changing or influencing the control of the issuer.” ¹ 

In February 2025, the SEC Staff issued CFI 103.12. That guidance set forth examples of a shareholder’s engagement with an issuer that might call into question continued Schedule 13G eligibility, including in particular a shareholder discussing its corporate governance recommendations or proxy voting policy with management in the context of upcoming director elections. The Staff’s evident point was that to the extent the shareholder could be seen as conditioning its support for the issuer’s director nominees on the issuer adopting the shareholder’s recommendations or policy views, the engagement might reflect a control purpose that was inconsistent with Rule 13d-1(b) or (c). The apparent impact CFI 103.12 was to chill the willingness of certain institutional investors to engage with management on corporate governance matters, at least until those investors had developed protocols (such as tightly written advance meeting agendas and the use of disclaimers) designed to limit the risk of losing Schedule 13G eligibility. 

Content of New CFIs

The new CFIs describe three shareholder communication scenarios that, without more, should not disqualify the shareholder from continued reporting on Schedule 13G. In this sense, the new CFIs can be seen as the Staff’s attempt to provide helpful clarity to investors who wish to engage in governance-related conversations.

Issuer Requests Meeting to Discuss Shareholder’s Views on Matters Subject to Vote 

CFI 103.13 posits a scenario in which an issuer requests a meeting with a shareholder to discuss either the shareholder’s views on matters that will be submitted for a vote at an upcoming shareholder meeting, or the shareholder’s voting decisions on matters that were considered at a past meeting. The CFI states that while “the determination is based on all the relevant facts and circumstances,” as a general matter the shareholder’s participation in such an issuer-initiated discussion would not, by itself, compromise the shareholder’s ability to continue reporting on Schedule 13G. 

The CFI explains that “[t]he context in which an engagement occurs is highly relevant to the determination of whether a shareholder is holding securities with a disqualifying purpose or effect of ‘influencing’ control of the issuer. Generally, (1) an engagement initiated by the issuer itself or (2) a response to an issuer’s request to understand why the shareholder voted in a certain manner at a past shareholder meeting is less likely to be viewed as an attempt by the shareholder to ‘influence’ control of the issuer.” 

Shareholder Speaks with Person Engaged in Proxy Solicitation

CFI 103.14 considers whether a shareholder can participate in discussions with a person engaged in a proxy solicitation with respect to a particular issuer without losing Schedule 13G eligibility. The CFI advises that “[t]he fact that a shareholder discusses its views on a particular topic and how those views could inform its voting decisions with a person engaged in a proxy solicitation would not, by itself, disqualify the shareholder” from use of Schedule 13G.

Shareholder Seeks Clarification from Issuer about its SEC Disclosures

Lastly, CFI 103.15 postulates that an investor reviews an issuer’s SEC filings, such as its proxy statement, and then seeks clarification from the issuer about particular facts or statements asserted in a filing. The CFI states that the shareholder “would not be disqualified from reporting on a Schedule 13G solely because it engages with an issuer to better understand the issuer’s disclosures or other public communications.”

Footnote

1. By contrast, Rule 13d-1(d) — the third basis for reporting on Schedule 13G, commonly known as the “grandfathering” provision for shareholders who acquired their stock prior to the issuer registering the class under Section 12 of the Securities Exchange Act — does not require such a non-control certification. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.