Amid Virus, SEC Vows Public-Comment Deadline Flexibility

By Tom Zanki
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Law360 (March 17, 2020, 8:19 PM EDT) -- The U.S. Securities and Exchange Commission has said it will be flexible when enforcing public-comment deadlines on pending rule proposals given the coronavirus pandemic, providing breathing room that lawyers navigating an already busy rulemaking agenda may find welcome.

The SEC said on its website on Monday that it will not take action on five specific proposals — including expanding the definition of an accredited investor and loosening auditor independence rules — until April 24. While it did not announce deadline extensions to receive comments on these proposals per se, the agency noted that it has historically considered comments submitted after a deadline but before adoption of a final rule or order.

In the case of the five pending proposals, the comment periods were set to expire on various dates in March, including several on Monday. The SEC said it is not taking action on these items until April 24 "to allow commenters additional time if needed."

"The commission is operational and we encourage market participants to submit comments on the most reasonable possible timeframe," the SEC's website said.

Asked whether regulators will extend deadlines for pending matters that may be taken up after April 24, an SEC spokesperson on Tuesday declined to comment beyond the agency's website.

"The chairman will continue to consult with fellow commissioners and staff and make adjustments to the list above as necessary," the SEC's website states.

Dechert LLP partner Julien Bourgeois, who advises investment companies and their directors on regulatory matters, said he has found the SEC to be "proactive and helpful in responding to the crisis."

"This goes in the same direction," Bourgeois told Law360 on Tuesday. "I find they are very willing to engage to understand the impacts of the crisis on market participants, and they are trying to go above and beyond to find pragmatic solutions to regulatory hurdles, for example with regard to certain time constraints." 

One of the five proposals at issue is an SEC effort to expand the definition of an accredited investor, which determines who is eligible to invest in riskier private securities that are not publicly registered. Current rules limit that definition based on wealth and income, but the SEC wants to add individuals with certain professional credentials, such as broker's licenses.

Another affected SEC proposal would require certain companies to disclose payments made to the U.S. or foreign governments for the commercial development of oil, natural gas or minerals. The rule is mandated by the Dodd-Frank Act as a means of preventing bribery and corruption, but previous iterations have been rejected in court or repealed by President Donald Trump.

The SEC also has a pending proposal that would loosen auditor independence rules by allowing auditing firms more latitude in assessing conflicts of interest regarding the companies they audit.

Comments on the accredited investor, payments disclosure and auditor independence rule proposals were officially set to expire on Monday, March 16.

The public was also facing a March 20 deadline regarding an SEC order that directs the Financial Industry Regulatory Authority and major stock exchanges to propose a unified plan governing the dissemination of equity market data to market participants.

The SEC is also accepting comments, originally supposed to be submitted by March 24, on a proposal to regulate how mutual funds and other investment companies use derivatives.

Some market participants have called on the SEC to be more flexible with imminent comment deadlines, which coincide with market volatility and unprecedented nationwide and local efforts to limit the spread of the novel coronavirus.

"Hey, @SEC_News, can you all please extend comment deadlines on the massive proposals that are otherwise due this week? We can't get them in," Tyler Gellasch, the CEO of Healthy Markets Association, an investor group that advocates for asset managers, wrote Sunday on Twitter.

In addition to extended comment deadlines, the SEC announced several measures in recent weeks to provide market participants with more flexibility amid current conditions. The agency has extended filing deadlines regarding certain disclosures for companies affected by the coronavirus as well as relaxed rules for in-person events by allowing companies to change their annual meetings to virtual gatherings.

The SEC entered 2020 with a busy agenda of its own, made urgent given the looming November presidential election and the potential that a change in administration could affect the future makeup of the commission.

Regulators are mulling additional proposals that could be voted on later this year, including plans to more closely scrutinize the practices of proxy advisory firms and a related attempt to revise shareholder voting rules. The deadline for those two proposals expired in February.

Earlier this month, the SEC proposed expanding investor access to certain private offerings, including crowdfunding campaigns. Comments for that proposal will expire 60 days after it is published in the Federal Register, which has yet to happen.

The SEC has also issued a request for comment regarding potential changes to rules designed to prevent investment funds from using misleading names. Those comments are due May 5.

--Additional reporting by Elise Hansen and Jack Queen. Editing by Alanna Weissman.

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