I’m attorney Laura Anthony founding partner of Legal & Compliance, a full service corporate,
securities, and business transactions law firm.
Today is the continuation in a LawCast series talking about the SEC’s division of corporation
finances disclosure review and comment process.
In September 2017, the SEC Office of Inspector General published an Evaluation of the Division
of Corporation Finance’s Disclosure Review and Comment Letter Process.
The Division of Corporation Finance is commonly called “CorpFin” The purpose of the Inspector
General’s examination and report was to review CorpFin’s process for issuing, tracking
and facilitating public access to comment letters and related correspondence.
The September 2017 Report reveals that CorpFin is developing a new system to improve and
streamline certain aspects of the disclosure review process.
The new system is called the System for Workflow Activity Tracking, which is referred to as
SWAT.
SWAT will automate certain aspects of the review process such as providing notifications
of filing review status to other review team members.
In addition, SWAT will generate a draft comment letter based on comments inputted into and
approved within the system.
The reviewer or another designated member of the relevant assistant director’s staff
will review and revise the draft letter to ensure that it meets CorpFin’s policies
for format, tone, and content.
Once the draft letter is approved, a final comment letter will be generated within SWAT.
In its examination, the Office of Inspector General found that: examiners and reviewers
did not always properly document comments before issuing comment letters to companies;
some case files were incomplete as of the date CorpFin its comment letter to a company;
and examiners and reviewers inconsistently documented oral comments to companies.
As a result, the Office of Inspector General made three recommendations for CorpFin to
improve its internal process.
In particular, CorpFin should: establish a mechanism or control for staff members to
trace all comments provided to companies for inclusion in examiner and reviewer reports
before issuing comment letters; establish a mechanism or control that ensures the staff
follows policies to upload all examiner and reviewer reports to the internal workstation
before issuing comment letters; and establish detailed guidance on how examiners and reviewers
should document oral comments provided to companies during disclosure reviews.
The recommendations were agreed to and will be closed upon verification that the corrective
measures have been implemented.
It is anticipated that the full implementation of the SWAT process will effectively resolve
these issues as well.
A company can stay prepared for comment letters, and responses, by making sure it has adequate
internal controls and procedures for reporting.
The company should also stay on top of SEC guidance on disclosure matters, which can
be accomplished by ensuring that the company has experienced SEC counsel that, in turn,
stays up to date on all SEC rules, regulations and guidance.
Likewise, the company should retain an accountant that monitors up-to-date accounting pronouncements
and guidance.
The company should maintain a file with backup materials for any disclosures made, including
copies of reference materials for third-party disclosure items.
In responding to comments, it is helpful to review other companies’ comment response
letters and disclosures on particular issues.
Where the SEC has requested changes in future filings, the company and its counsel must
be sure to continuously monitor to be sure those changes are implemented and included
in those feature filings.
As mentioned, the SEC reviews public information on the company, including websites and press
releases and accordingly, these materials should be reviewed for consistency in SEC
reports.
Finally, a company may seek confidential treatment of materials and responses to comments under
Rule 83.
Rule 83 requires the company to respond to comments with two separate letters: one containing
the confidential information, and the other not.
Unlike confidential treatment requests under Rules 406 and 24b-2, a confidential treatment
request for a comment response letter does not require that the company provide a justification
for such confidential treatment.
However, if a Freedom of Information Act, or FOIA request is submitted by a third party
related to such comment letter responses, the SEC will inform the company and request
justification for continued confidential treatment.
Confidential treatment under Rule 83 expires after 10 years unless a renewal is requested.
Both Rule 83 and other confidential treatment rules require very specific transmittal procedures,
and the documents must all clearly indicate that confidential treatment is requested.
I’m securities attorney Laura Anthony, founding partner of Legal & Compliance, and producer
of LawCast.
Should you have any questions about today’s topic, please visit SecuritiesLawBlog.com
and LawCast.com, or contact me directly.
Inquiries of a technical nature are always encouraged.