SEC Votes on Accredited Investor, “Say on Pay”

SEC Votes on Accredited Investor, “Say on Pay”


 The Securities and Exchange Commission was very busy today in their latest work implementing the Dodd-Frank bill. In addition to proposing new rules relating to registration of investment firms (and unveiling a new proposed form to do so), they acted on the "accredited investor" definition in Regulation D, as well as the "say on pay" proposals allowing shareholders to have their voices heard on executive compensation.

The SEC followed Section 413(a) of Dodd-Frank on accredited investor. The bill immediately changed the definition so that the value of one's primary residence does not count towards the $1 million net worth standard to be accredited. The proposed rules announced today would also make clear that the mortgage debt on the property does not count as a negative in determining net worth, which makes sense if the property is also excluded. If your debt exceeds value, however, that amount should be counted. Who determines value? Not clear.

Regarding say on pay, final rules were adopted today. Again we don't have the language but companies may ask their shareholders to determine the frequency with which they get to vote on compensation, whether every 1, 2 or 3 years. The vote on comp can be non-binding. They must vote as to what the frequency will be at least once every 6 years. Good news: smaller reporting companies are temporarily exempt from the say on pay stuff for the next 2 years. SEC Chairman Shapiro hinted they might consider a permanent exemption after they see what happens. What happens if you're on the OTC Bulletin Board and not required to hold annual meetings and choose not to? Unclear.

When the actual proposals and rules are published (probably in a few days) if there are any surprises we will let you know.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP. David is considered one of the leading experts on reverse mergers and is the author of Reverse Mergers and Other Alternatives to a Traditional IPO: Second Edition (Bloomberg Press 2006). His practice focuses on corporate and securities matters and general representation of public and private companies, investment banks, private equity firms and high net worth individuals.