Weekly RoundUp June 10, 2021

SEC Considering Further Regulatory Action Regarding Proxy Voting Advice

Editor's Note
In This Issue. The Chairman of the U.S. Securities and Exchange Commission (the SEC), Gary Gensler, issued a statement on the application of the proxy rules to proxy voting advice directed to the SEC staff to consider whether to recommend further regulatory action; the Consumer Financial Protection Bureau (CFPB) released a set of frequently asked questions that provide an overview of the escrow account provisions under Regulation X; Freddie Mac released Guide Bulletin 2021-11, which updates its requirements regarding the purchase of mortgages secured by investment properties and second homes; and Chairman Gensler outlined four potential reforms that the SEC staff is considering to address “cracks” in its insider trading regime as a result of 10b5-1 trading plans. These and other developments are discussed in more detail below.
Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

SEC to Review Proxy Advisory Firm Interpretation and Guidance and Rule Amendments

On June 1, SEC Chairman Gary Gensler issued a statement directing the SEC staff  to consider whether to recommend further regulatory action regarding proxy voting advice. Specifically, he directed the staff to consider whether to recommend that the SEC revisit its proxy rule amendments that codified the definition of solicitation as encompassing proxy voting advice (the 2020 Rule Amendments), the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.

The SEC’s Division of Corporation Finance also issued a statement noting that, in light of Chairman Gensler’s directive, the staff has determined it will not recommend enforcement action to the SEC based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the SEC is considering further regulatory action in this area. In addition, in the event that new regulatory action leaves the 2020 exemption conditions in place with the current December 1, 2021 compliance date, the SEC staff will not recommend any enforcement action based on those conditions for a reasonable period of time after any resumption by Institutional Shareholder Services Inc. of its litigation challenging the 2020 Rule Amendments and the 2019 Interpretation and Guidance.

CFPB Issues FAQs on Reg X Escrow Accounts

On June 3, the CFPB released a set of frequently asked questions that provide an overview of the escrow account provisions under Regulation X. The FAQs address deficiencies, shortages and surpluses. 

Freddie Mac Announces Cap for Purchases of Single-Family Homes Secured by Investment Properties and Second Homes

On June 7, Freddie Mac released Guide Bulletin 2021-11, which updates its requirements regarding the purchase of mortgages secured by investment properties and second homes as follows: 

  • For the month of July 2021, if a seller sells more than five mortgages secured by second homes and/or investment properties, the seller’s deliveries of such mortgages may not, by measure of aggregate unpaid principal balance, exceed 6.5% of the total unpaid principal for all mortgages sold during that month. 
  • After July 2021, if, on a monthly basis, the seller delivers more than five mortgages secured by second homes and/or investment properties, deliveries of such mortgages may not exceed 6% of the total unpaid principal balance of all mortgages sold.

These limits were implemented to allow Freddie Mac to manage its compliance with the amended Senior Preferred Stock Purchase Agreement (PSPA) between Freddie Mac and the U.S. Department of the Treasury. The amended PSPA limits Freddie Mac’s purchase of single-family mortgages secured by investment properties and second homes to 7%, in aggregate, of total single-family mortgage acquisitions.

“We hope that today’s actions and whatever future actions the Commission takes with respect to [the 2020 Rule Amendments and the 2019 Interpretation and Guidance] will not deprive users of proxy voting advice of information they need to properly consider such advice or lead them to make decisions based on misinformation.”
– Commissioners Hester M. Pierce and Elad L. Roisman

SEC Chairman’s Comments Signal Likely Changes to Rule 10B5-1 Trading Plans

Rule 10b5-1 trading plans have faced increased scrutiny since the onset of the COVID-19 pandemic and the corresponding public focus on stock sales by executives of public life sciences companies. On June 7, SEC Chairman Gary Gensler continued that scrutiny when he delivered prepared remarks to the Wall Street Journal’s CFO Network Summit concerning Rule 10b5-1 trading plans and his view that “these plans have led to real cracks in our insider trading regime.” Read the client alert to learn more about the four potential reforms that the SEC staff is considering to address those “cracks.”

Goodwin is also conducting a survey for public life sciences companies on 10b5-1 Trading Plans and Practices. The purpose of this survey is to use the aggregated data to share trends and practices. The survey is open for life sciences companies from June 1 through July 2, after which we plan to analyze then share the findings anonymously, letting our clients know where they fall compared to their peers. 

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