SEC Staff Issues No-Action Letter on Form S-3 Eligibility for Temporary Voluntary Filers

On October 26, the SEC’s Division of Corporation Finance staff (the Staff) issued a no-action letter to Sumisho Air Lease Corporation. The no-action letter addresses the Form S-3 eligibility of a company that had been subject to reporting requirements of Securities Exchange Act of 1934 (Exchange Act) Section 15(d) but then had that Section 15(d) obligation suspended for a brief period of three months, making the issuer not “subject to” the reporting requirements of Exchange Act Section 13(a) or 15(d) for a portion of the 12-month period specified in General Instruction I.A.3 of Form S-3.

The Staff said that it will not object if Sumisho takes the position that it is eligible to use Form S-3. In its response, the Staff made clear that the decision was based, at least in part, on Sumisho’s representation that, during the voluntary reporting period, it will file all Exchange Act reports that otherwise would be required to be filed pursuant to Exchange Act Section 15(d).

The Staff also revised Securities Act Forms Corporation Finance Interpretations Question 115.05 to clarify its position and to reference the new Sumisho Air Lease Corporation no-action letter.

On October 27, the SEC’s Small Business Capital Formation Advisory Committee (the Committee) met in Washington. The Committee was established by the SEC Small Business Advocate Act of 2016 and is designed to provide a formal mechanism for the Commission to receive advice and recommendations on SEC rules, regulations and policy matters relating to small businesses, including smaller public companies.

SEC Chair Paul Atkins submitted remarks to the Committee that stress his emphasis on IPO modernization and the proposals the Commission is bringing forward to advance that goal:

• Optional semiannual reporting
• Simplification of filer status
• Registered offering reform

He also indicated that he has asked the Staff to consider revising rules related to gun-jumping prohibitions that limit communications during the IPO process. Potential changes could relate to:

• Reevaluating limitations on the content of communications and the types of persons to whom communications can be made
• Providing brighter lines as to when communications constitute “offers” subject to the Securities Act of 1933’s gun-jumping restrictions
• Reducing “foot fault” violations by issuers, including through cure provisions that are straightforward to apply

Commissioner Mark Uyeda addressed the Committee meeting and focused on potential changes to regulation crowdfunding, including increasing funding limits, exemptions that are based on number of investors and revisiting limits on resale avenues.

On November 2, SEC Commissioner Uyeda delivered remarks at the Practicing Law Institute’s 58th Annual Institute on Securities Regulation that centered on application of the SEC’s 2006 Statement Concerning Financial Penalties (the Corporate Penalty Statement). The statement, as described by Mr. Uyeda, is “a concise document with a specific mission: to provide an analytical framework so when the Commission imposes a civil penalty on a corporate issuer, it can explain why. And that explanation should rest on what Congress authorized and why it authorized it.” He goes on to note:

The Statement identifies two principal considerations. First, whether the corporation received a direct benefit from the violation, such as reduced expenses, increased revenues, or some other unjust enrichment. The strongest case for a penalty is one in which shareholders received an improper benefit due to the violation; the weakest is one in which shareholders are the principal victims of the securities law violation. Second, the degree to which the penalty will compensate or further harm injured shareholders.

After reviewing a set of seven concerns (e.g., constantly changing shareholder base of a public company, dual-class ownership structures), Mr. Uyeda expressed the view that “additional refinements need to be made to the application of the Corporate Penalty Statement. Its central thesis — that shareholders ultimately pay corporate penalties, which must be justified with that in mind — matters as much today as when it was first published... A civil penalty paid out of the corporate treasury is too often borne by shareholders, and rarely is it felt by the executives and other company insiders who caused it.”

He went on to discuss the importance of pursuing misconduct by individual officers and directors: “A framework that asks the Commission to think carefully before penalizing shareholders is credible only if the Commission is equally willing to pursue the people responsible... Corporations do not act on their own. Every misstatement in a filing was drafted, reviewed, and signed by someone. Every manipulated quarter reflects decisions made by people who likely understood what they were doing or chose not to. Corporate misconduct flows through people, and deterrence must flow back to them.”

Mr. Uyeda’s concluding message was that the Corporate Penalty Statement should be revisited such that the SEC’s approach reflects its original purpose: “minimizing the likelihood that innocent, harmed shareholders must pay twice and making sure that we hold those individuals responsible for the misconduct accountable.”

In October, the California Air Resources Board (CARB) issued an advisory to organizations it viewed as potentially subject to the California Greenhouse Gas Reporting Program (the Program). As noted in the advisory, the Program was established by California Senate Bill 253 and is codified in Health and Safety Code Section 38532. The statute requires business entities formed under the laws of the United States (including states or the District of Columbia) with annual revenues above $1,000,000,000 and that do business in California (defined as “reporting entities”) to annually disclose their greenhouse gas emissions. First-year disclosures in 2026 must address Scope 1 and Scope 2 emissions.

The document advises that first-year reports are due by November 10, 2026. Reporting entities should report fiscal year 2026 data if their fiscal year ends between January 1, 2026, and February 1, 2026, with both dates included; otherwise, entities should report fiscal year 2025 data.

CARB’s voluntary reporting intake platform, available at arb.ca.gov/ClimateDisclosure, is the agency’s preferred method for submitting required disclosures. While use of the intake platform is not required for first-year reporting, CARB believes that it is an efficient way to submit reports. Entities may also submit data by emailing climatedisclosure@arb.ca.gov.

Mandatory reporting for Scope 3 begins in 2027.

On November 3, the Public Company Accounting Oversight Board (PCAOB) announced that it is seeking public comment on proposed amendments to AS 6101, Letters for Underwriters and Certain Other Requesting Parties. The amendments center on the time period during which auditors can provide negative assurance during the comfort letter process.

Under current AS 6101, an auditor may provide negative assurance regarding subsequent changes in specified financial statement items as of a date less than 135 days after the end of the most recent period for which the auditor performed an audit or a review. After that period, the auditor may only report in a comfort letter the procedures performed and findings obtained, but not its conclusion.

As the proposal points out, some issuers may wish to raise capital 135 days or more after the end of the most recently audited or reviewed period and before filing their next required financial reports. The proposed targeted amendments would replace the fixed 135-day convention with an approach based on the date by which financial statements for the next annual or interim period are required to be filed. Under the proposed approach, an auditor could provide negative assurance regarding subsequent changes in specified financial statement items for a period up to the next applicable filing deadline.

The PCAOB is seeking comments on the proposed amendments, particularly on the economic considerations relating to its proposal, including potential costs. Written comments should be sent by email to comments@pcaobus.org or through the Board’s website at https://pcaobus.org/. Comments may also be sent to the Office of the Secretary, PCAOB, 1666 K Street, NW, Washington, DC 20006-2803. All comments should refer to PCAOB Rulemaking Docket Matter No. 058 in the subject or reference line and should be received by the Board no later than January 4, 2027.

On September 10, the PCAOB filed with the Commission a proposal to adopt amendments to certain provisions of Quality Control (QC) 1000, A Firm’s System of Quality Control (QC 1000). QC 1000 is a QC applicable to registered public accounting firms and designed to enable them to proactively identify, assess, and respond to risks that could affect audit quality.

The amendments were intended to “address concerns regarding the implementation challenges identified by firms and to better align certain provisions with other quality management standards, both internationally and in the United States.” As described by the PCAOB, the amendments are designed to reduce compliance costs while maintaining the investor protection benefits of QC 1000. Principal amendments include:

• Rescinding the “design-only” requirement so that QC 1000 imposes requirements only on firms that are required to comply with applicable professional and legal requirements with respect to any “engagement” as defined in QC 1000;
• Providing increased flexibility in filling certain specified roles in the QC system by permitting those roles to be assigned to non-firm personnel and divided among multiple individuals;
• Rescinding the requirement to have an external QC function;
• Narrowing and simplifying communication requirements relating to metrics that the firm communicates to external parties about its audit practice, firm personnel, or engagements;
• With respect to identified engagement deficiencies, requiring evaluation of whether similar engagement deficiencies exist on other engagements only if the identified deficiency resulted or could result in (i) a failure to obtain sufficient appropriate evidence to support the conclusion reached on an engagement or (ii) an inappropriate overall conclusion on the subject matter of an engagement; and
• Revising the definition of QC deficiency to make clear that, when firms have implemented more than one quality response to address the same quality risk, they can take those other quality responses (e.g., compensating responses) into account when determining whether a QC deficiency exists.

On November 2, the SEC approved the proposed amendments.