Weinberg & Company

BEST PRACTICE Newsletter – June 2021

SEC’s Regs Agenda 

The SEC has disclosed a list of 49 proposed rule changes that are on the commission’s agenda for 2021, including a series of rules related to Dodd-Frank.

Called the Agency Rule List-Spring 2021, the list includes four in the Pre-rule Stage, nine in the Final Rule Stage and the remaining in Proposed Rule Stage.

Some notable rules in the “proposed” and “final” SEC rulemaking areas include:

  • Disclosure relating to climate risk, human capital, including workforce diversity and corporate board diversity, and cybersecurity risk
  • Market structure modernization within equity markets, treasury markets, and other fixed income markets.
  • Transparency around stock buybacks, short sale disclosure, securities-based swaps ownership, and the stock loan market.
  • Investment fund rules, including money market funds, private funds, and ESG funds.
  • 10b5-1 affirmative defense provisions.
  • Unfinished work directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including, among other things, securities-based swaps and related rules, incentive-based compensation arrangements, and conflicts of interest in securitizations.
  • Enhancing shareholder democracy.
  • Special purpose acquisition companies.
  • Mandated electronic filings and transfer agents.

In announcing the agenda, Gensler noted: “The SEC has a lot of regulatory work ahead of us.”

During his tenure as head of the Commodity Futures Trading Commission (CFTC) from 2009-2014, Chair Gensler made it a priority to implement new rules required by Dodd-Frank. When he left the CFTC, Reuters reported that “During Gensler’s term at the CFTC, it finished 70 percent of the rules it was required to write, far more than other U.S. regulators.”

Insider Trading Scrutinized

Insider trading is in the cross-hairs at the SEC, with Chair Gary Gensler saying that the Commission is drafting a proposal that would restrict plans that corporate insiders use to avoid claims of insider trading.

In his presentation at the recently held Wall Street Journal CFO Network event, Gensler said he is seeking to change rules that govern 10b5-1 plans, which corporate insiders set up in advance to schedule future trades of their company’s stock. According to the WSJ, the “arrangement gives executives a defense against insider-trading claims that would stem from having undisclosed material nonpublic information at the time of a trade.”

The WSJ reported that these plans, created by the SEC in 2000, have generated controversy because there is no requirement for public disclosure at the time the plan is set up. Under existing rules, company executives also can modify or cancel the plans. To mitigate the perception that executives are trading on non-public information, some companies disclose the plans.

Gensler said, “In my view, these plans have led to real cracks in our insider-trading regime.”

He noted that some proposals the SEC is considering include whether to set a timeline limit on when company executives can cancel a 10b5-1 plan, whether to limit the number of plans an executive can set up, and whether to establish a “cooling-off” period of four to six months between the time a plan is created and the timing of the trade. He pointed out that “Research has shown that 14 percent of sales of restricted stock in these plans are initiated within 30 days of plan adoption.”

Gensler warned that “If insiders don’t act in good faith when using such plans, the plans will not offer them an affirmative defense.”

AICPA, CAQ Support SEC’s ESG Push

The SEC has received support from both the AICPA and the Center for Audit Quality (CAQ) to explore new disclosure rules related to Environmental, Social and Corporate Governance (ESG)

Both the AICPA and CAQ were responding to the regulator’s March 2021 request for comment.

In its letter to the SEC, the AICPA said, “As the SEC considers climate change disclosures, we think it is essential that all market participants work towards a comprehensive global reporting solution that provides insight into how an enterprise leverages its array of resources to create value over the long-term, including ESG disclosures.”

The CAQ letter said, “It is important that any potential ESG reporting requirements be scalable to public companies of all sizes and consider the differences in the potential ESG risks and opportunities of different industries and geographies.”

New Bond Class to Fund ESG Transition

As investors, regulators and governments push companies toward ESG compliance, a new class of bonds has emerged that may provide CFOs with an instrument to fund their company’s shift toward green.

Called Transition Bonds, the bonds require issuers to commit to shifting their operations toward a reduced environmental impact or to reduce carbon emissions. Though the bonds don’t require that the issuer use funds for a specific green project, it does require funds to be used for climate transition-related activities.

Although this fairly new instrument has primarily been used by green-challenged companies in mining, energy and utilities, CFODive reports that any company eyeing a shift to green may look to transition bonds as a funding source. Eleven bonds were issued in 2020, and six bonds issued in the first half of 2021.

The Institute for Sustainable Finance (ISF) points out that “Unlike green bonds, where the focus is on the direct use of the debt proceeds for environmentally friendly projects or the profile of the issuer, Transition Bonds focus on an issuer’s commitment to becoming greener.”

The ISF reports that while concrete guidelines for transition bonds are still in the works, investors want disclosures related to use of proceeds, project evaluation and selection process, management of proceeds and reporting.

Grade School Accounting

If two members of Congress have their way, school children will have an introduction to accounting as early as elementary school. A bipartisan bill has been introduced that would recognize accounting as part of the STEM program in schools nationwide. STEM stands for science, technology, engineering and mathematics.

Introduced on June 11 by Victoria Spartz, (R-Indiana) and Haley Stevens, (D-Michigan), the Accounting STEM Pursuit Act would amend the Student Support and Academic Enrichment Grant Program to “promote career awareness in accounting as part of a well-rounded STEM educational experience.”

The Act would introduce children to the accounting profession through early classes, with the goal of promoting “the development, implementation, and strengthening of programs to teach accounting, including increasing access to high-quality accounting courses for students through grade 12 who are members of groups underrepresented in accounting careers.”

The accounting profession has, for a long time, been experiencing a labor shortage, said Corey Fischer, Weinberg Firm Managing Partner.

“We hope that students going through these STEM-supported accounting programs will catch the accounting bug and choose this very financially and personally rewarding career path,” he said. “But whether or not students choose this path, accounting provides a background in financial literacy that’s needed in every walk of life.”

The Bill has received support from the AICPA, the Center for Audit Quality, Diverse Organization of Firms, National Association of Black Accountants, and the National Academy Foundation.


CPAs Tell Clients: “It’s time to leave New Jersey”

New Jersey’s high taxes are prompting many CPAs to tell their clients it’s time to look for lower-cost states.

That’s the finding of a recent survey conducted by the New Jersey Society of CPAs, which found that 70 percent of accountants surveyed have advised individual clients to consider relocation due to the high cost of living, while 53% advised a business client to consider relocation due to the high costs of doing business.

Almost 70 percent of the CPAs surveyed “saw a decrease in the number of high-income clients who have residency in the state. Respondents pointed to New Jersey’s high property-tax and corporate-tax rates as among the top reasons.”

The NJCPA’s survey was conducted in May and included 440 Certified Public Accountants.


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