Moody’s Investor Service has issued a report saying that a just-approved Nasdaq rule, requiring its listed companies to adopt gender diversity quotas on its boards, will prove “credit positive” for those companies.
The report came a week after the SEC approved Nasdaq’s proposal that mandates its more than 3,800 issuers to include on their Boards at least “one woman director, a racial minority, or an individual who identifies as lesbian, gay, bisexual, transgender or queer.”
Under the new Nasdaq rule, companies are required to regularly report on the composition of their boards. Those companies that don’t comply, or can’t justify non-compliance, will face de-listing by the exchange.
In issuing its report, Moody’s said, “The SEC’s approval of Nasdaq’s listing rules is “credit positive” for Nasdaq and its listed firms because the rules will improve transparency and disclosure, as well as encourage board-level diversity and inclusive representation.”
Not everyone, however, agrees.
SEC Commissioner Hester Peirce in an August 6 statement said that while the “proposal attempts to expand opportunity, a goal I share, it does so in a way that improperly leverages authority that Congress has entrusted to it under the Exchange Act.” She added, “Because the proposal is in fact outside the scope of the Act and contrary to the fundamental Constitutional principles, I cannot support its approval.”
When the rule was proposed in February, a dozen Republican members of the Senate Banking Committee wrote to the SEC’s acting chair warning that adoption “harms economic growth by imposing costs on public corporations and discouraging private corporations from going public.” They added, “…the arbitrary diversity requirement does not demonstrably improve corporate performance and could sometimes harm it.”
The Heritage Foundation’s Senior Fellow in Economic Policy, David Burton in his report, entitled Nasdaq’s Proposed Board-Diversity Rule Is Immoral and Has No Basis in Economics, asserted that: “The actual empirical, peer-reviewed economics literature is highly inconclusive—with most studies showing little or no discernible effect on financial performance due to the sexual, racial, or ethnic composition of corporate boards. All serious surveys of the literature reach this conclusion.”
Moody’s noted that as of June, Nasdaq’s 3,800 issuers represented a combined market cap of $25.8 trillion, representing approximately 48 percent of total U.S. market cap.
SPAC Restatements Soar
Financial restatements dominated the Special Purpose Acquisition (SPAC) market during the last three months, with a total of 571 blank check companies issuing some form of correction to their financial statements, four times the number of restatements seen in 2020.
Audit Analytics is reporting that more than 340 SPACs issued financial restatements, with an additional 231 companies making smaller financial statement corrections via revisions. In total this represented 86 percent of the SPAC market.
The restatements were triggered by the SEC’s April ruling stating that warrants, typically issued as deal incentives, needed to be accounted for as Liabilities, and not Equity. Historically, SPACs treated warrants, which allowed investors to buy shares in the future at a set price, as Equity. But when the SEC suddenly issued new guidance, a surge of SPAC financials needed fixing.
In addition to creating a massive accounting and paperwork headache as companies, accounting professionals and consultants hurried to comply, the SEC ruling effectively pushed the pause-button on what had been a hot and frenzied SPAC market with ancillary impact on M&As.
Before the SEC’s action, SPACs raised $35 billion in March alone. That figure plummeted to $3 billion in April after the SEC’s new guidance. Dealogic reports that the SPAC market has yet to return to its earlier robust levels, with $3.9 billion raised in May, and $3.2 billion in June.
Traditional IPOs Take Back Lead in Q2
The traditional Initial Public Offering returned as the major going public instrument in Q2 2021, representing 65 percent (118 of the total 181) of public offerings completed. This pushed SPACs into the number two position, representing 33 percent, or 60 of the offerings filed.
This was a significant change from the previous quarter, when 73 percent of IPOs were dominated by SPACs. Direct listings completed the Q2 story, with a total of 3 offerings completed.
Together, traditional IPOs, SPACs and Direct Listings raised a total of $85.7 billion, a decrease of $48 billion from Q1 2021, but an increase of over $67 billion from Q2 2020, according to Audit Analytics.
The 118 traditional IPOs raised a total of $43.74 billion. And although there were only 3 Direct Listings, those companies raised a total of $30.3 billion, far exceeding the $11.7 billion raised by the 60 SPACs.
Audit Analysts also reported that 166, or 91.7 percent of the companies decided to register as an Emerging Growth Company, which is defined as an issuer with a total gross revenue of less than $1 billion during its most recently completed fiscal year.
Thirteen IPOs netted proceeds of $1 billion or more, with Coinbase Global, Inc. (COIN) alone raising $28.7 billion in its Direct Offering. With this capital raise, COIN, a cryptocurrency company, took the number one spot in terms of proceeds raised in Q2, and the highest dollars raised in an IPO since 2000.
The Taxman Cometh for NY Remote Workers
You may not have stepped a foot onto New York soil since the pandemic started, but if you did any bit of work that the state considers to be within its borders, the taxman is coming for you.
The New York Tax and Finance Department has mailed thousands of notices to individuals who have claimed they left the state during the COVID pandemic.
The State of New York taxes the income of nonresidents if they work in or perform services within its borders. In this latest effort, it is going after income paid to someone who may have worked remotely outside of New York due to COVID-19 restrictions.
Since January 1, New York’s tax collecting agency has mailed more than 149,000 audit notices, including automatically computerized letters known as desk audits to taxpayers. The notice demands verification of residency status and personal income allocation, all to determine whether the taxpayer owed more to New York than they reported in their 2020 tax filings.
Although New York historically primarily targeted high net worth taxpayers, Bloomberg is reporting that the tax collecting agency began sending notices at the end of the filing season in May to individuals earning as little as $100,000 per year. Bloomberg noted that “it usually takes $1 million a year in income to trigger heightened scrutiny.”
The trigger for these latest audits appears to be if a taxpayer claimed that they lived in the state for part of the year, or if they reported less income to New York than in prior years. Taxpayers claiming to be non-residents are asked to fill out a non-resident questionnaire and provide such information as when they became a non-resident and how many days they worked in New York.
