This is a transcript of the GRIP podcast, Nekia Hackworth tells us about the SEC’s history-making rule proposals in 2026, a conversation between GRIP’s Head of Regulatory Content (North America), Julie DiMauro, and Nekia Hackworth, a partner at the law firm Jones Day and the former Deputy Director of Enforcement at the SEC.
[INTRO]
Julie DiMauro: Greetings and welcome to a Global Relay Intelligence and Practice, or GRIP, podcast. I am Julie DiMauro, the Head of Regulatory Content for North America, speaking to you from our offices in New York City.
I’m so pleased to have on the program today, Nekia Hackworth. Nekia is a partner at Jones Day in Atlanta, where she serves as a litigator and strategic adviser. She brings more than two decades of experience in government enforcement and private practice to her role as an attorney at Jones Day. Having been a former Deputy Director of Enforcement at the Securities and Exchange Commission, and a decent federal prosecutor, she has deep experience in complex financial crime and government investigations.
Nekia, thank you so much again for being on the program.
Nekia Hackworth: Thank you very much for having me, Julie. I am delighted to be here today. It has really been wonderful meeting you and Ryan Sheridan, one of your colleagues there, starting with the Compliance and Conversations event that was held in your New York offices back in, I think, April of 2026. So it’s been wonderful to get to learn more about the work that you and your colleagues are doing, and I’m very excited about the conversation that we will have today.
Julie DiMauro: Thanks so much, Nekia. All right, let’s get into those questions. Looking at the SEC and some of the developments that have occurred there over the past year and a half, let’s think about the push to lighten regulation and modernize how businesses raise capital. It’s a major departure from prior administration’s approaches. How should companies planning securities offerings leverage these eased requirements while still maintaining strong governance practices?
Nekia Hackworth: Well, Julie, it is a very exciting time right now in the securities space. There are many history-making proposals happening right now. And honestly, they are sparking very lively discussion between enforcement attorneys like myself and my corporate securities and disclosure counterparts across the bar. The first thing I want to make sure that I stay allowed, and it should go without saying that I think it always merits attention because we are sort of in a mode where there’s a lot of conversation about deregulation, right? That’s what your question basically is talking about. But the SEC’s work is still very much alive and well, right, in terms of its regulatory functions.
Remember, the three part mission of the SEC is to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. And the entire agency across every division from the very top with the chairman all the way down to the person who was just hired, you know, perhaps a day ago, they are still working very hard to execute that mission, which obviously includes monitoring and regulating public companies, issuers, in some instances, private companies, examining registered entities, and obviously doing enforcement work. So I just want folks to remember that the SEC is alive and well, notwithstanding the conversation around deregulation. Now, with that being said, though, you are right in terms of there is a shift towards what this deregulatory posture that you and I both just spoke of.
The current chairman, Paul Atkins, who was confirmed in April 2025, has declared very publicly that it is a new day at the SEC. And soon after joining the agency launched a sweeping agenda, and it has been around what is called the ACT framework, Advance, Clarity or Clarify, depending on which you prefer, and Transform. And some of the areas where the chairman has made very clear the agency is prioritizing his resources include areas like crypto regulation, registered offering reform, corporate disclosure reform, small business capital formation, and interagency regulation, especially when it comes to the SEC sister agency, the Commodity Futures Trading Commission.
My personal view is that companies should understand that this shift creates opportunity, but it’s not a permanent reset of all the regulatory baselines. Right? So that goes to the point, we’ll talk about this a little more, which is that there are opportunities that can be seized given all of the changes that are being made. But it doesn’t mean you just kind of abandon all of the compliance frameworks and the capital resourcing around compliance that investors and markets truly expect. I wanted to talk a little bit about some of the ways that the chairman has said the agency has kind of come up with these new priorities that sort of lean towards or tend towards deregulation. And all of this, interestingly, was said in a press release where the SEC’s 2026 regulatory agenda was just announced, right?
Some of the things I think you could have seen online and public resources on the sec.gov [website] beforehand, but there was an official announcement about the Commission’s regulatory agenda just yesterday. And in the press release, the chairman pointed to three things. He said that the priority was to advance the regulatory framework to reflect the realities of today’s operating environment, including things like embracing technology and innovation. He also said that it was important to reverse the decline of public companies and to revitalize public markets to make IPOs great again, which is a tagline that he is using several speeches recently, especially in 2026.
And third, the chairman said that as it relates to private markets, that the agenda reflects the agency’s priority to ensure a regulatory framework that is transparent, accessible, and that remains safeguarded. So what does it actually look like? That’s a lot of sort of framing and high level descriptions, important to know and understand why the SEC is doing this. But some of the very specific and tangible things that are on deck to potentially change include going from quarterly to semi-annual reporting, which is the big thing.
I know we’ll talk about that a little bit during this conversation, thinking through a way to rationalize and potentially reduce disclosure burdens for publicly traded companies and for other companies that have to make disclosure to the SEC, particularly when it comes to line items that perhaps at one point were material, but perhaps now are immaterial, or maybe items that were never material to begin with. And also thinking about areas where there might be duplicative reporting, where a company may be reporting something to another agency for another purpose, but then the SEC is requiring that same information be reported again, as a result of the securities laws. Another part that I know we’ll talk about is the expanded use of shelf registrations.
There are big announcements around that here recently, and we’ll talk about that. And then also greater access to flexibility in pre-filing and post-filing communications around offerings. So these are just four of the things that I wanted to flag with the entire agenda, based on just kind of my quick eyeball, there’s probably 40 or 50 items there. It’s a very long list, a very robust list of things that the Commission plans to think through and work on in 2026 and perhaps a little bit beyond. So it’s definitely worth taking a look at for your listeners.
Julie DiMauro: I want to follow up by saying, you know, there is still a lot of activity happening. I mean, the agency just released a rule-making agenda, and with a lot of different things on there, as far as revisiting recordkeeping rules, they talk about cryptocurrency, executive compensation, and there’s a lot going on. And what I hear from consultants, lawyers, advisers in this space is the fact that there’s a burden on firms in terms of the comments that they have to supply that the SEC is seeking from registered firms in terms of wanting comments on these proposals. Whether it’s a rescission or a totally new rule or proposal amended rule. And that’s a lot of engagement and activity that’s going on. Firms have to definitely keep up with that. So that points to an energized SEC right there, right?
Nekia Hackworth: Absolutely. And I’ll make an additional point, spending on the opportunities with also potentially the burdens of engaging with the SEC and all the rulemaking. So also with the burden. So commenting can be very difficult. I know, depending on the size of your firm, depending on how the organization decides to do its comments, I know some organizations and entities will hire outside counsel to do that for them. Some have internal teams that work with that. Some actually kind of rely on their industry associations to do it. Right. And so there’s different ways that organizations that want to be heard get involved in the comment process. But the agency also realizes that that takes time for some organizations.
It can be an investment of human capital, as well as financial resources, especially when you have such a deep regulatory agenda. So just know that in my personal view, based on my experience, the effort and the undertaking surrounding commenting does not go under-appreciated or unnoticed by the agency. And that’s probably one of the reasons why you will hear in almost every instance, either in writing and a press release of some sort from the SEC, or when you hear one of the principals from the SEC speaking from the chairman to the director of Corporation Finance, James Maloney, they will say: “We invite your comments.” Right. Like it’s out there on the website, but they say, “Please, we want to hear from the industry because these are things that while we believe that these proposals are well informed and serve a good purpose and will be helpful to investors in the markets, at the end of the day, we need to understand the real impact, right? The practical impact these proposals will have, especially if they’re parts of the market or parts of the industry where maybe there’s a blind spot there, right? And so a lot of times you just won’t know.
And so I think when the SEC puts out a call for comments, I believe it’s also required by law to do it in order to comment period. So the ask itself is required, but also we’re in administration in a time where the leadership actually does want that feedback. And I have one example that I’ll point to is what Lenny saw with the crypto task force. So that task force was set up in, I believe it was early 2025, to sort of take the lead at the SEC on thinking through whether and how there could be some common regulatory framework around crypto assets.
And once it’s determining to what extent or whether they were securities versus not, and if they were securities, what type of regulation needs to be around them in order to protect investors the same way that investors need to be protected in every other aspect of the security space. The crypto task force had an entire website where people could write in their letters and those letters are publicly available. They had roundtable meetings, some of them took place outside of the country, and there were regular sort of smaller meetings. You could schedule a meeting with members of the task force.
And all of this engagement was posted on the website. And I remember when I was with the Commission, I was so intrigued by the fact that so many companies, either in the space who had opinions about the crypto space, wrote very lengthy and very detailed, very thoughtful letters about what a crypto framework could look like. And now you fast forward. I think, you know, the crypto task force was probably set up in January or February of 2025. A little over a year later, March 2026, is when you get that document from the SEC and the CFTC that basically set out a joint interpretation, joint release around a crypto framework, which agency would have jurisdiction, different categories of cryptocurrency, and so crypto assets, I should say.
In my mind, and there’s probably other examples, but that was one that I was looking at real time, that the timeline from kind of that momentum around engagement that was put out by the SEC to when you actually saw a live document. And I believe that document might either still open for comment, or perhaps the comment period just ended. But either way, you had a very extensive document that reflected all the feedback that the industry put in. And for me, it shows that this goes in the comment cycle is very real, right? So to the extent that there is a firm that is questioning whether they should undertake the resources, the time, the man and woman power, the financial investment, you know, is it worth it?
I personally would say yes, recognizing that not every firm or individual will have a space and an opportunity where they want to do that. But I think we’re in a situation now where every submission is going to be noticed. And I think it wasn’t before, but we are suddenly in a moment where they are seeking energetically seeking their feedback now. And so I think it’s an opportunity that everyone really needs to take full advantage of, if they’re able.
The other thing that I wanted to mention, and it goes back to your regulatory or deregulatory question, where we started this conversation is what else confirms what we’re going to be thinking about and doing sort of where we’re in this space. In my personal view, and I said it at the outset, you don’t want to do nothing, right? But you want to think through how can you really leverage the additional opportunities that these changes really provide? And so one idea is to think about modernizing the compliance infrastructure.
For example, can you be investing in technology, streamlining internal processes, updating board reporting, rather than just simply reducing governance altogether, right? So you don’t want to abandon everything you’ve been doing. But if you believe that you’re wearing more of a deregulatory state right now, then in that the government’s not coming to get everyone, then this might be an opportunity to think through what you currently are, right? You might be able to try some things that may have given you pause, I don’t know, two, five or 20 years ago. So that’s one idea. And then one thing that the chairman has said is that he believes, and I said this earlier, that disclosure should be rooted in financial materiality.
And again, that materiality meaning a substantial likelihood that a reasonable investor would consider information important when making an investment decision, and that disclosure should be scaled by company size and maturity. So one thing to think about is, should you be sort of reassessing your governance framework with those principles in mind, right? Like what do you need for the current size of your organization, for the industry you’re in, for the risks that are related to and attended to your particular industry, and then given sort of the Commission’s evolving view around materiality, maybe that changes how the organization views materiality. And so that is a way, in my view, you know, I think opportunity creates competitive advantage, right?
So if you think about governance as a way to create a competitive advantage vis-a-vis other players in the market, and to give value to your investors, that’s something that’s worth the effort and that’s worth the undertaking. So that is one way that companies might really want to think through these spaces that are being created by all of the conversation and history-making proposals we’re seeing from the SEC.
Julie DiMauro: That’s very helpful. Thank you. I want to just talk to you about registered offerings in that framework, because in May, the SEC proposed a package of amendments intended to overhaul that framework, extending registration accommodations to a far broader set of issuers. It could enable newly public firms to take advantage of desirable market conditions quickly, for one thing. But what do you think? Will these reforms have the potential to change the playbook for newly public exchange-listing companies? How could such things affect their capital-raising strategies, for example?
Nekia Hackworth: Sure. I think the opportunity is there. I guess that’s a tagline for this conversation, opportunity. There’s opportunity, there’s potential, but again, these are just proposals, so we’re still in the wait and see period, like how many of these things make it across the finish line, which goes back to engagement with the industry and with third parties about what makes sense and what doesn’t. But you’re absolutely right, Julie. So these proposals came out in mid-May.
Many people said that this is the most significant offer on reform they’ve seen in the past two decades, and it aligns again with the tagline I said earlier with the chairman saying” “One of the priorities of the agency is to make IPOs great again.” He said in a recent speech, Chairman Atkins said in a recent speech, that under his tenure, we’ve already seen an increase in IPOs. So the statistic given was that initial submissions for firm commitment IPOs surged 70% from January through early June of 2026, as compared with the same period two years ago in 2024.
And just this month alone, the chairman made reference to the fact that we saw one of the largest single offerings, single IPOs, that we have seen in the entire history of the US IPO market. And so I believe that the chairman will continue down this line and of trying to make it easier for companies to go public so that there are more opportunities for investors to become owners and to provide more opportunities for capital strategy and to accumulate capital for business and for industry. So the reforms that you made mention of, the two biggest ones, these packages came with a lot of different details, but I’ll highlight the two that I know my corporate disclosure colleagues are really thinking through with their clients.
The first amendment I think is noteworthy is an amendment that would extend the ability to primary shelf and add the market offerings to significantly more issuers by eliminating from form S3, that is the primary, so there’s the short form registration document, two requirements that made it very difficult for some companies to do sort of these accelerated offerings or doing these shelf offerings. One was what is called a one-year seasoning requirement, and it required that organizations essentially be reporting companies under the exchange act for 12 months or one year. Another requirement was that a company have a $75 million public float threshold.
So while these numbers and these timing requirements may not seem like much on paper, there were many companies that just could not do the accelerated shelf registration that will allow companies to get to market faster. So that was one impediment, and with this new proposal, some of that could go away. The new proposals would allow any exchange act reporting company that is current and timely in its filings to use that Form S3, that more expedited form to get to a public offering for any primary or secondary offering immediately upon becoming a now there are some exceptions here and there, but it means that the very thresholds that restrict certain companies from having them access, those restrictions are no longer going to be in place.
And in that release, the SEC estimated that these changes would extend Form S3 eligibility by approximately 60%. So that goes back to the point I was making that there were a lot of companies that could not get access to the markets that are quicker, faster. And so the chairman hopes and the Commission hopes that this will let companies do that.
The second proposal that I wanted to flag is beginning a lot of attention would eliminate the well-known season issuer definition for domestic issuers in favor of two new categories, eligible listed issuers, they’re going to call ELIs and seasoned eligible listed issuers, which will be called SELIs. These two designations would have significantly less demanding qualification thresholds. So you sort of see the theme here, Julie, which is, you know, the bar has been set, you know, here, and I know we’re not on video.
Let’s say the bar’s been set at a 10 for a very long time in terms of how companies can go public and have access to the markets. The chairman has made clear that, you know, that he and the Commission believe that the bar has become so high and it’s become so expensive. That’s why you see many companies either just going up, going private and staying private or even public companies who are buying all their shares back and then going private. So the goal was to reduce those barriers to entry, maybe taking them from a 10 down to a five or two and three. And so this is one of those areas.
And it says that with these new categories, benefits that were currently limited to those well-known seasoned issuers, such as pay as you go filing fees, the ability to add additional securities or issuers after effectiveness, pre-filing and post filing communications flexibility, and some different prospectus omission rights. These are things that would be available to these newly designated categories of issuers. So again, expanding the universe of companies who can access the markets faster. And there was also some data around this.
The Commission estimates that the extension of the registration and communication benefits to S3 eligible companies may reach over 200% more companies that are currently eligible. So what that means is altogether, when you have companies who are going to presumably now be eligible for the form S3 that were not, and then now you have a universe of people who are going to be treated the way previously only the well-known seasoned issuers can be treated, getting those benefits, getting a little bit of a reprieve and being able to get information out more quickly, you’re going to have a two-fold increase and who can get to market faster. So this is something that is making a lot of people very excited. Again, we don’t know how it’s going to work in practice because it’s going to be brand new.
But folks are thinking that in terms of doing capital-raising strategy, because that’s a part of your question, one idea is that companies are going to be able to go public earlier knowing that follow-on capital is available. They may be able to size their IPOs more conservatively, sort of at the outset, and then kind of issue more stock rapidly in a follow-on capacity because they’ll have those shelf registrations. And then overall, more generally, they’re going to be able to structure their capital more proactively, but also with more flexibility, right? They can layer in equity and debt offerings more opportunistically because they’re not going to be locked in. They’re going to have that flexibility to pull the securities off the shelf, so to speak.
So faster access to capital, hopefully some reduced transaction costs of going public, and more flexibility, especially when you have market uncertainty. I’m assuming that companies would appreciate having more flexibility rather than less, just given all the market volatility that we’re seeing. And so we would just encourage companies to start preparing now, work with their outside counsel to understand if these rules go through, you know, would they be eligible for some of the benefits, and think about how it could impact how they raise capital. So this is kind of planning mode, so that if ultimately these become final rules and the law does change, that companies who are able to benefit from them can execute.
Julie DiMauro: Absolutely. It’s opening the doors to a much wider group of companies to avail themselves of these rules. Like you said, Atkins said, making IPOs great again, but a seismic change. And I’m just wondering about, you know, I always kind of have to do this in my head, think of the alternative argument that, you know, maybe some consumer and investor advocacy groups would bring up, which is, is this also going to invite more kind of, you know, over ambitious in capital raising efforts that have not been really well parsed out, and that, you know, maybe some of those companies haven’t done their homework because they’re in a rush to make good on some of these relaxed standards.
Nekia Hackworth: I think there’s always a risk. You know, I am not sure if there’s ever a scenario where someone taking advantage of investors by manipulating either the current regulatory regime or this new regulatory regime is zero, right? Unfortunately, there’s almost always a bad actor in every space, right? Even if it’s just one out of a million, there can almost always be one. And that’s a risk. What I would say is, and I haven’t read the full release, I think it’s 500 pages on the release for these huge reforms, but I can tell you what I do know as a general matter about parts of how the SEC works when it comes to rulemaking. Remember what I said in sort of our first conversation, the first part of this conversation around the three-part mission of the SEC.
The very first one is to protect investors. The other two pieces come later, right? Is to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate so while number two and number three are very important, number one is always number one, to protect investors. Investor protection is always top. I’ve not seen a situation where that is not top of mind for any type of any, honestly, any work of the SEC, whether it’s rule-making, examinations, or enforcement.
The agency is always thinking about investors because it is a part of the remit. So as part of the analysis around and the engagement that the agency will be seeking around whether or not this should go forward, I am, without being a part of that, those conversations, I would be shocked if this was not something that had already been integrated into the consideration, but that also the agency will keep monitoring, right? Because that’s the thing when a new rule becomes law, right? That’s not the end of the work of the SEC or any agency, right? Or any, or anyone who works in government, when there is something new, that means that, honestly, that’s kind of when the work begins.
You are obviously trying to get the population of organizations and individuals who are impacted accustomed and adjusted to what the new laws require, but then you’re also monitoring for adverse impacts, right? So you’re seeing how things are going well, but then you’re also saying, wait, are there unintended consequences? Are things not working out the way that we’re saying? And so, Julie, I am sure that these conversations are being had while we’re in the rule-making phase, but ultimately, these proposals go live, and then I’m just making up a hypothetical.
If there are sharp increases in the numbers of offering frauds that you see, and it’s because maybe Corp Finance didn’t catch something in a document that was filed under the abbreviated or the modified registration process, right? Or if ultimately we learned that, you know, the outcomes are not necessarily what the agency expected, rest assured that the agency is going to reevaluate it. And honestly, the public is going to let the agency know about it too, right? So I hope that investor advocacy groups that are concerned about these amendments take their moment and take the time to engage with the SEC on it. But I also like to get both a little comfort to say, just because something hits the books doesn’t mean that it’s there for life.
Now, obviously, it can be harder to unwind something and undo something than to do it for the first time, but certainly nothing is ever written truly in pen or tone as the old adage goes. So I think it’s a great question. I’m reasonably confident that the SEC has thought about it, but I can say based on firsthand experience, that if ultimately these changes go live, everyone who has responsibility for execution of this rule and making sure that it gets stood up properly and monitoring the impacts on investors will take those roles very, very seriously.
Julie DiMauro: Absolutely. Great point. Okay, so I want to ask you about accredited investors now and their status. In March, the SEC Division of Corporate Finance issued a no-action letter clarifying reasonable steps that issuers can take to verify purchasers accredited investor status, which is required under Rule 506(c) of Regulation D. Now, that rule already had reasonable steps outlined in it, but the no-action letter provides an alternative path for compliance, so more flexibility. What are the benefits and the risks involved here for registered firms?
Nekia Hackworth: Sure. So you outlined the top line. I’ll just give a little bit more background in this space, just to level-set. So Rule 506(c) of Regulation D permits general solicitation in private placements, but what’s an important trade-off? I think it’s a general theme you see, I think, in government is given this take, probably a life there’s given this take. So the good thing is that you can do a general solicitation, but here’s the take, that if an organization chooses to use Rule 506(c), then that organization has to take reasonable steps to verify that all purchasers are accredited investors. And some of the documents that will often be relied on, and some of these are actually enumerated in the rule, include tax returns, W-2s, bank statements, broker attorney verification letters. The challenge, and I think the thing that some issuers who are in these private markets noted, is that it could be burdensome. Some of the issuers just didn’t like the fact that you had to basically pry all these documents out of the prospective or credit investor.
And so it seems as though some issuers or prospective issuers would turn away from using Rule 506(c) and then go to 506(b), which prohibited right? Meaning you had to sort of have a narrow group of investors, but the steps you had to take in order to form a reasonable leap about the credit status, it was much lighter, right? So it was a lighter lift for the companies to vet their investors, but they had to like focus in on the people who they really knew that they wanted to have participate in the particular offering. So again, a little bit of give and a little bit of take. So in March of 2025, a no-action letter came out of Corporation Finance at the SEC, and it established what some viewed to be a practical bright line framework for verifying investors from the Rule 506(c).
Again, like I said, if it was viewed as a burden, the Commission was trying to figure out a way to sort of take some of that uncertainty out of the process, right? And to sort of say, here’s a bright line rule. If an issuer is trying to use Rule 506(c), here’s a way to do it. And so what the Commission said is that an issuer may satisfy the verification requirement under 506(c) by doing things like establishing a minimum investment amount, such as $200K for individuals or a million dollars for entities. So long as that issuer also obtains at least a written representation from that purchaser confirming things like they believe that they already created investor and confirming that the purchaser’s minimum investment, the $200K or the $1 million was not financed by third party. And based on this no-action letter from the SEC, the issuer must also essentially represent that they have no actual knowledge that the purchaser is not accredited. And so the way the no-action letter process work with your some of your listeners may already know this is that either, you know, companies or their outside counsel on their behalf, can send a letter to certain divisions. Usually it’s the policymaking divisions like corporation finance to say, staff attorneys, here is a set of facts, right?
Based on what we know now, under this set of facts, please tell us whether or not you believe we might even admit or may not be violating the law. And whether or not you think that this is a problem that you may try to do something about later, right? And so that is what gave rise to this no-action letter. On the firm behalf of a client gave a set of facts, and this is what Corbin said that, you know, if you can do these things, have those re representations, and the investor can provide those threshold dollar amounts, you’re probably good when it comes to rule 506(c).
I’m gonna say probably Corbin said that they would, they would find that to be something that aligns with taking sufficient steps to vet the accredited investor status. So benefits for the firm, because that is what you ask in risk benefits for the firm, lower compliance costs, lower administrative burden, I think, like I said before, that’s one of the things that issuers are complaining about with rule 506(c), you could perhaps close faster, especially if you just need a written representation and someone writing a check, you might be able to get to closing faster, you might be able to reach a broader pool of potential investors, who’s maybe willing to participate, right? It could be that these people were eligible to participate under the, under the old sort of the old take on how to comply with rule 506(c), meaning giving a lot of documents.
But Julie, you and I know some people just don’t like to share personal data, and it’s, it’s not a personal thing, it’s just ideological thing. And so it could be that once people learn that you don’t have to give your actual documents, you could just make a representation, maybe they’re going to be willing to participate more so than they were before. Another thing is that you may have more issuers who are willing to use rule 506(c). Again, remembering that that is the rule that allows for a broader solicitation. So that means you might have broader participation in some of these private offerings.
Now we’re still talking about people who have resources, right? Because, you know, individuals at $200K, and we’re talking about companies that need to pony up a million dollars, but they’re not going to be such narrow offerings because they can be generally offered, or they are open to a more diverse group of potential investors through the general solicitation. And so now you may have more of a low playing field between 506(c) and 506(b). And then another thing that was noted, and I thought was particularly interesting is that, you know, there are platforms that do a lot of capital raising online. Fintech platforms are one example, I don’t want to name any names, but I can think of some crowd raising platforms so you can just sort of, anyone can just kind of go in and decide, hey, I want to be in this new thing, here’s my money.
And so it might be that you find more people who are willing to go in and to participate in that way. And those particular platforms, those particular companies might be able to take more of those investors now that some of the burdens have been reduced. I think in terms of risk it kind of goes back to some of the things we just talked about with investor protection, in a sense.
So what is the potential for unqualified investors to slip through the cracks, right? So let’s just say it’s someone who, while they might make a good living, they don’t meet the financial thresholds, right, of $200,000. And let’s say they invest their entire savings of $100,000, right? And they do that and it’s a bad investment. Let’s say it’s not even fraud. It’s just a bad investment. And they represented that they qualified as an accredited investor, but they really don’t. I mean, that person, while anyone, I think anyone losing a dollar to a bad investment could be a bad thing, that is going to impact that person in a way that might be different if that was a high-networthed individual. So you might see a situation where individuals might not be fully truthful in their representations, and as a result, might face more harm. There could be enforcement risk when it comes to using this no-action letter about 501(c). I can’t say I’ve ever seen this being an enforcement attorney, but no-action letters do not carry the weight of law. It is literally just “Corp Fin” or whatever the policymaking division is saying, “Give it what you’ve told us. If this is the truth, we will not recommend or take any action,” right, for now, right? But they always caveat it, right?
If we learn that what you told us isn’t true, that could change. Also, the positions of these divisions change because the positions of their bosses change and the chairman’s position may change. There are always risks that what is okay today may not be okay tomorrow. So there’s a risk that the no-action letter could be withdrawn or modified, or that the commission itself could just take a take a different view. So, you know, this is good for right now. This doesn’t mean it’s going to be here forever. And then there might be litigation risks from investors who claim that they were not properly verified, and therefore the exemption was unavailable to them. And then state securities laws are also considered to be a false consideration. And I don’t know as much about this firsthand because I haven’t done as deep-a-dive into the state law securities implications about this. But this is an item, based on my research, that I came across, and I thought it was worth at least noting that, you know, even though we’re all, at least I, when I’m talking, I’m usually talking about the federal securities laws, but there’s always a patchwork of state securities laws, right, that are out there across, I believe, not all of the state’s blue sky laws, right?
And so in many instances, if something is permissible in the federal securities laws, there will be analogous permissible provisions in the state securities laws just to sort of, you know, ensure consistency. My understanding is that there could be fewer state-level exemptions available for Rule 506(c) offerings compared to 506(b). So I’ll just flag that to say that if there is an offering out there or an issuer out there that ultimately decides to take advantage of this no-action letter, it’s probably just something to run down and to be careful, right?
Because it might be okay from the SEC perspective for now, but there could be a landmine there in a specific state for which your accredited investor originates or in the state that might have jurisdiction over the offering or over the company, depending on sort of the jurisdiction, that would take priority. And then there’s always risk, I think, to the company that they could just be getting it wrong and they just open themselves up to a lot of reputational damage, right? Like that they’re letting in a lot of people who really are not accredited and they did nothing about it, or maybe they even fell below this minimum threshold of getting the written representation. So I think when you loosen the restrictions and requirements, there is a risk that people will go too far, but on balance, you know, this is something that could provide, again, Buzzword, more opportunity. So I think the best practices here, in my humble opinion, would be document, document, document, right? Like it ultimately, this is something where companies want to take advantage of this no-action letter.
I think documenting sort of the process that a company has used to verify its accredited investors based on the no-action letter is a great first step. Realizing that, of course, your investors could be less than truthful, perhaps your process isn’t bulletproof, but having a process and following the process and documenting that process, I think, is always very, very helpful. And then to train whoever it is that is sort of leading this on what they need to do and making sure that they do it consistently. I don’t know if companies would use internal people to do this, if they’re hiring external vendors, but whoever it is that a company is using to take the lead on the verification process, making sure that they are well trained and that they are consistent.
I think those are the major points. I really like that question, Julie, because, you know, there’s so many conversations around giving, as part of protecting investors, this Commission really does want to give investors more opportunities and access to investment opportunities that maybe historically were either limited by law or because of other restrictions were limited to institutional investors. The Commission wants retail investors to be in spaces where historically you may only find big businesses. Now, with our guardrails, of course, but, you know, this is something that I think aligns with that view of the world, but I do think that we always have to proceed with caution.
Julie DiMauro: Absolutely. Terrific, Nekia, that was very thorough and very helpful. And I need to move on to something that actually has been really taking up a lot of attention in terms of compliance officers and legal professionals and their thoughts on this proposal that I’ll mention. It’s the one that would offer the opportunity to report since twice a year. So your financial results, instead of three months, which we’ve been doing for over half century, again, it would be just twice a year. So consumer advocacy groups contend that while executives, lawyers, and big institutional investors will still know exactly how the business is doing through their high-priced research analysts and other means, the investing public would be the last to find out what are we to make of this proposal and its potential impact? And what would you have to say to maybe make those inventor advocacy groups feel a little bit better about the proposal?
Nekia Hackworth: I don’t know if I’ll be able to eliminate all questions and concerns around this, but at least happy to share both sides. And as you said, this would be history of, as we have both said, like this is completely new, has never before been seen and got a lot of headlines. My understanding is that we’ve been in a quarterly filing era since the 1970s. So this is not just decades of history being made. This is five decades of history being made. These new amendments proposed the semi-annual reporting, and instead of the big document being the 10K, it would be the 10X, which would allow companies to elect to file one semi-annual report and one annual report per fiscal year. And we will have the three quarterly reports and one annual report. I take that back. The 10K would still exist, but now there’s going to be a 10S instead. Perhaps this will replace the 10Q. Again, a part of the Make IPO Great Again agenda.
What I think is interesting is that if the company doesn’t check the box, then that company still goes into the legacy quarterly reporting regime. So it’s not a situation where quarterly reporting just continue, will go away, right? It will still be there, but companies can just decide, right? Do they want the traditional regime of the quarterly reporting or do they want to go into this semi-annual reporting regime? Arguments in favor of the semi-annual reporting. Some of these might sound obvious, but some of them I found to be particularly interesting. So reduced compliance costs, obviously, but I’ve seen firsthand, but I know people listening to this know that it takes a lot of effort to have the internal controls over financial reporting and honestly, the overall governance structure that leads to accurate and timely financial reporting, both in the context of audited financial statements, but also in the reporting that is necessary for the SEC.
These are whole departments, right? In big companies, but even in small companies, you have to have dedicated, very well-trained people either in the organization to handle it or outside consultants, accountants, auditors, and the like. And it’s something that’s like a non-negotiable, right? You have to do in order to remain public in many instances. So the outcome could be that some of the compliance costs are reduced, especially for smaller reporting companies. And the point that I thought was really interesting when I looked into this is that even if a company decides to elect the semi-annual reporting, they can still just voluntarily disclose the quarterly information, right?
So if they’re concerned that they’re going to get a negative hit in the stock market or through debt agreements, or they’re the one in their industry that’s deciding to do this, but no one else is doing it, everybody else is staying with quarterly, you can just decide that you’re going to do both. You’re going to do the official semi-annual, and then you’re going to voluntarily do the quarterly. So that is an option. Some say that this will allow the business to focus more so on running the business versus preparing financial reports. I don’t know if I’m certain how that plays out in practice, because a lot of running the business kind of does turn on financial results. But on paper, right, it could be, because I do know, and I’ve seen this firsthand, when those filing deadlines creep up, it’s like pencils down on everything else.
Everybody’s on deck to make sure that these reports are accurate, because now, ever since Sarbanes-Oxley, at a minimum, maybe even before, but certainly Sarbanes-Oxley said, you’ve got to have high-level executives signing off on these documents, they’re very accurate and complete, right? And so, you know, it’s not just a quick review. Everybody’s on deck. So it does consume a lot of time, not just in the reporting functions, but also for a senior level executive. So that is something that could be a benefit, is that, you know, more have that type of consumption of energy, which can be turned to operations and strategy. The other thing that I thought was interesting in terms of potential benefits is that my understanding is that some markets, international markets, have more of a semi-annual reporting regime. I was not independently aware of that, but I did learn that as I was preparing for this conversation today.
And so, you know, our markets are obviously more global now than ever before, right? So to the extent that doing a semi-annual report gives an apples-to-apples comparison for a company that is on an exchange here and also in, you know, the Middle East, but then also in Europe, you know, that’s something that could certainly be a benefit. Obviously, though, one thing that people do worry about is the information asymmetry, right? And I think it was embedded in your question, and it’s something that I know the consumer groups have really talked about, is that there’s already asymmetry in terms of disclosure, right?
Corporate insiders are always going to know more than outsiders will. Institutional investors oftentimes have, even though there’s rules around how information gets disclosed, right? Even with those rules in which the goal is to sort of even out how the disclosures occur, making sure that, you know, one group of investors doesn’t know more than the other, because institutional investors are following these things so visually, the moment it comes out from a company, they are making decisions based on that. Whereas if you’ve just got a retail investor looking at your E-Trade account every few days, right, then they’re not going to have that. The information may be out there, but they’re not going to take it in and use it in the same way or at the same pace as an institutional investor. So the question then becomes, does this semi-annual reporting kind of increase that asymmetry? I honestly don’t know, because, you know, like I said, Reg FD is supposed to help minimize some of that information asymmetry. And I don’t know if it’s necessarily going to be changed by the fact that we’re going to potentially could go from quarterly to semi-annual.
But I did think it was an interesting point around, you know, is this something that’s going to be helpful to investors or to harm them? And that might be a TBD. It might be hard to know until we really see how many companies are going to opt in, how many companies who opt in, then still decide to do these quarterly disclosures. Will anything really change? Or is this just kind of an option that’ll be out there, but then nobody checks the box? It’ll definitely be interesting to see. So practically advise the companies as you’re thinking through this, because just so you know, Julie, not everyone who practices in this phase thinks that this is the way to go.
There are a lot of considerations around sort of debt covenants and expectations from the market and, you know, whether it makes sense when it comes to lending agreements and inside of trading windows, like so many things tie to quarterly reporting. My corporate securities friends don’t all agree that every company should just reflexively jump into this. There’s really going to be an evaluation case by case, company by company, around whether or not this makes sense. Companies, and when I say companies, I mean, obviously the engagement can come from any level, but certainly talking to senior level executives, boards, right, chairs, and really think through whether this is something that makes sense, especially given all the other changes that are going on. And if so, what those changes would look like if ultimately a company decided to change his reporting cadence.
So I think this is the one is, it sounded so exciting to me when it first came out, but then as I started to learn more, I was like, huh, this might be more of a TBD. Like, will people really do it? And if so, is it really going to work the way that we think it will? I really don’t know. So I’m curious to see what the feedback will be from the public when they do their notice and comment, or when they do the comment during the notice and comment period, and then ultimately where things land after the SEC takes a look at all the feedback.
Julie DiMauro: Absolutely. I’m glad you brought up to do that. You know, firms have to do their own kind of case by case analysis in terms of their risk profile, how cyclical their business is in nature, you know, how comfortable their accountants feel about, you know, a smaller window for errors to go undetected or a larger window if this proposal goes through. So thinking about firms having, playing an active role to play in monitoring their own risk profiles, with parameters and choosing to maybe be a little more conservative than this SEC-Atkins regime, which they have the choice to do.
Nekia Hackworth: That’s absolutely right. I mean, so the fact that firms can choose the best of both worlds, I think is a good thing. But as you said, a lot of while this is on paper, this is super interesting. When you think about the great point you just made, right, if there is a problem in your or any company’s accounting function, right, some error that has gone undetected or some operational issue that impacts the financial statements, most companies are going to, when it gets discovered, are going to work on that in the present, right? Like waiting until reporting to like fix the problem, right? Exactly. So, additionally, in terms of identifying issues and errors, having that good governance structure, compliance, risk mitigation, like those things can’t actually go to the wayside, but it’s a reporting question. When are you required to report it out? But in terms of like the guardrails that still govern good business, right, and that the market requires to be, it requires a company to are within the market. I’m hoping that that doesn’t change. And I hope that that’s not the signal that is being sent by the potential decrease in the reporting cadence. But you never know. It’s TBD.
Julie DiMauro: Absolutely. All right, Nekia, I have to hit you with another kind of like much disgusted issue, which is a decision coming from the Supreme Court on June 29. That was Trump versus Slaughter, and the Supreme Court invalidated the Federal Trade Commission’s for-cause removal protections for commissioners and overturned a 1935 decision that had previously established that Congress could constitutionally limit the president’s power to remove commissioners independent regulatory agencies. With this decision from the court, it’s unclear whether President Trump will remove additional agency officials. But let’s focus on how businesses need to think about this. How will the decision impact day-to-day activities of businesses and individuals under the regulatory purview of these agencies, do you think, given this decision?
Nekia Hackworth: I definitely thought it was an interesting decision. I didn’t know how it was going to turn out beforehand, but it was certainly one that drew a lot of attention and has an impact on agencies like the Federal Trade Commission, potentially other independent agencies, although we don’t know for a fact that it will. But it doesn’t really impact, in my view, the laws of these, at least right now, the laws of these agencies are charged with enforcing. And so then by extension, your question, like, you know, what, how will it impact the day-to-day activities? I would say there should be minimal impact. Should, right? Now, there’s probably some one-offs here and there, but at the end of the day, the laws that these agencies are responsible for enforcing and regulating, for example, like the SEC, the federal securities laws, right? That work will continue. I mean, I’ll use this great example. Right now, the SEC has three commissioners out of five, right? They’re all Republicans. If you look at Trump versus Slaughter, you know, if you’re down to, it’s a hypothetical, and I think this will happen, but let’s say you go from, we went from five to three, and what if we were to go from three to one?
Will there be an impact in certain aspects of the agency potentially, right? Because there’s certain things where you have to have so many votes for different actions to take place when you’re dealing with a multi-commission or commission, but the laws that are on the books are still there, right? So in terms of everyday practice, I think firms could, should continue to do hopefully the good work that they’re already doing, right? Like this is not a moment to slow down or relax in terms of compliance work and monitoring the legal landscape.
The one thing that I think you could do if you were in a firm that essentially is regulated by these commissions or these independent agencies or adjacent enough that you follow them is to just think about the regulatory strategy, right? Because now that the Supreme Court case makes clear that individuals who’ve been appointed to these positions can be removed by the president for essentially any reason, then it could impact how individuals who are in those positions do things like set their enforcement priorities, right? Set their rule-making agendas, how they decide to settle a case, how they decide to litigate a case, what remedies they think make sense, right? So at the end of the day, all of the executive branch agencies, whether they are cabinet level or independent agencies, report up through and to the president, right? So now we, and we knew that as a general matter, there was just this question around for cause removal versus essentially, you know, for any reason removal.
So now that that question has been settled as a legal matter, right? Then it’s sort of back to what we already knew, which is that everyone is serving at the pleasure of the president. And so you see that harmonization across the administration. And so now this is another, in my view, this is another opinion that shows that harmonization that we’ve already seen in this administration will likely continue. So this is a time where if you hear the president say something, then more likely than not, you’re going to hear every cabinet level official say something similar. And now you may hear every commissioner in an independent agency say something similar. I’m not saying that will happen, but I’m saying you’re going to probably see more of the priorities being adopted across the agency now than perhaps ever before. And I think I was already kind of seeing that before this opinion came out. And I think this is just another moment or a movement in that harmonization direction. And maybe organizations were trying to figure out how to engage with agencies. This is something that they can use in their back pocket. However, they need to recognize that this harmonization ever will continue. Everyone wants to be and will likely be in alignment with the White House.
Julie DiMauro: Well, that’s what I was going to ask you about, which is, we can call it harmonization, but are the agencies just going to feel like they have to do what the president wants? You know, that they will have to align with the administration’s whims. I’m thinking that on the agency side, that undercuts independence, but also on the businesses’ side, I mean, are they going to have to carefully re-craft how they approach agencies with each change in administration?
Nekia Hackworth: Just knowing the people at least within the Commission, knowing the leaders, the commissioners themselves, the chairman, knowing the staff, knowing the great work that they do every day. I can’t say that they’re going to feel as though their independence is being robbed. I believe that these are these independent agencies still exist and will execute on their remit. But what I also will say in the same breath, though, is that the White House has always been a White House, right? And while there can be different views and different versions of opinions and different perspectives, at the end of the day, everyone’s reporting up to the president. And so and now more so than ever before. And I think whether people might like it or not, I think if you are trying to figure out a strategy in terms of how to engage, that is just something to be aware of.
Does it mean that you change every single administration? I don’t know. But you certainly have to assess in every single because you can assess and not change. Right. But I think if you talk to people who are in government relations, who are working a space of like any type of government facing individual people like me who do investigations, people who do government relations, anyone who is interfacing with the government quite regularly. I mean, we adjust our approach when the when one individual leads and we’re talking to another one, we’re always reassessing how we’re going to interact.
And so I think that just continues on. But I think it’s particularly important to be attentive to that right now. So I would encourage companies to always be tracked and whatever the whatever the agency is that you believe you need to track based on your business and the laws and regulations that apply to you, you know, be looking at those press releases, right? Be on the distribution list, be attending any type of training or forms that they have. Be reading all the materials that they’re putting out.
Because another thing that I am seeing is that a lot of the information is being not everything’s being pushed out publicly, obviously, but there’s a lot more that is out there publicly than perhaps there have been in in decades past a little bit because we have now more media through which to promote these things, right, including social media and traditional Internet channels. But there’s way more effort, I think, on the part of the government to get messages out. And I think companies in every industry would be missing opportunities if they did not digest that information and figure out whether they need to make adjustments in how they engage.
Julie DiMauro: Nekia, if you had to list the three or four things we could expect the SEC to be laser focused on in the next five months to close out the year, what would those be and how can compliance schemes prepare? Sure.
Nekia Hackworth: And this is just my view. I’m sure you asked five other people, they’ll have another view. And I pretty much said most of it. I think that doing the finalization on the register offering and file status reforms will continue on. I think that’s probably a high profile and high priority effort on the part of the commission. I think even though the commission, so that’s number one, I think number two, there will be continued momentum around crypto and digital asset regulatory clarity. The big document went out, but there’s still a lot of other things going on across government, including legislation that is still pending, I believe is on the Senate side, to see if there is federal law that could potentially come out that governs the crypto asset space.
And then to the extent that we now have at least some degree of clarity based on the SEC-CFTC joint release, assuming that it ultimately becomes final, then there’s a lot of other little small things that have to be figured out and how they may impact things like custody and sort of how that impacts brokers and dealers and investment managers and exchanges and all of the market participants, they may want to get more involved in crypto. And if that happens, then the SEC will need to think about rule-making and or how current apply to the expanded involvement of pre-established market participants in this new securities or non-securities space. So I think that’s number two. And number three is the Reg-SK review. And this is something that the chairman mentioned earlier this year. And Regulation SK is the SEC central set of non-financial disclosure documents for public company filings, such as business descriptions, risk factors, legal proceedings, executive compensation. And you actually mentioned that governance matters, cybersecurity disclosures. There’s a lot that’s within the Reg-SK disclosure space.
And the chairman basically requested public input on ways to modernize, streamline and reform it. One of the concerns he expressed in public speeches has been that the disclosure has become way too expensive and may secure information that is truly material, right? The information that investors really need. So the initial public comment period on this may have already closed, but I know that public comment was being sought. I have not seen any proposals or anything else since the comment period closed or he made these announcements. So I would expect since he has talked about this fairly regularly in all of his public speeches, that we will see something. I don’t know what the something will look like, but that there may be some announcement around what the Commission plans to do, even if the answer is do nothing, that because he has been very focused on Reg-SK, that we’ll hear something about that.
And honestly, my advice in terms of how you prepare for those priorities, it actually goes back to what we just talked about with a regulatory strategy, right? Always be watching, right? So looking at the federal register, the SEC website, apparently there’s a new harmonization website between the SEC and the CFTC. I cannot remember the name of the website, but there is a website dedicated to coordination between those two agencies. And then really these organizations can really be thinking about, are there any ways or areas where maybe changes to laws and rules would be helpful to their business, right?
Like we think about many organizations and it’s outside counsel. I hear complaints from companies or from clients that say, “This rule does not work for us. We don’t like it.” And we want to complain to the government about it, right? And that’s fine, but it might be that, what’s your idea for a new rule, right? Or something that would work. So it’s fine to identify a problem that, based on something that currently exists, but maybe some ideas on how to fix it in order to propose something new that would actually be more beneficial. I think we definitely saw that a lot with the crypto industry as another example. Ensure that boards and senior management are engaged. And then think about financial resources to support these efforts as well and how any updates may be needed to just the overall governance and structure, such as policies, procedures, and systems being proactive in that. So to the extent that these things remain priorities, and I’m basically just emphasizing and amplifying what we’ve already talked about, companies should be looking at the external landscape and sort of assessing how things are going and then looking internally to figure out, do we need to stay where we are? Do we need to change anything? And if so, where, when, and how?
Julie DiMauro: Exactly. Perfect. Nekia, I want to end on a note that has to do primarily with you. You made a transition from public sector regulatory agency work into the large law firm domain. How has your experience in the public sector informed your work as an attorney at Jones Day?
Nekia Hackworth: Sure. I mean, I think I carry all of these experiences with me, both being outside counsel, working in two different agencies and federal government, my experiences in other firms. In a few ways, I think that my work specifically in the public sector impacts my work. When I’m counseling with clients, right? And not every client wants to hear some of the things that I say when I say, you know what? Because I have sat in the seat of the government official, right? And so sometimes I’m in a position where I have to tell the client, I understand where you’re coming from, but just know that when the government hears this, their reaction is likely going to be this, right? I try to be the helpful devil’s advocate for positions or reactions where they are grounded in motion or grounded in fact, when we’re sort of strategizing through how to move through a government investigation or perhaps another type of investigation that could end up being a government, end up being government adjacent.
I’m always thinking through how will this be viewed by ex regulator, ex law enforcement official, or even if it kind of comes up in the light of day, even if it’s not necessarily a government issue right now, if a public official just sees this in the headline, what will they think? So that kind of informs how I approach my conversations and my advice, because I’m going to be the advocate for that they’ve retained me to be. But for me, a part of advocacy is also truth and truth telling, right? And giving a full-time perspective.
And I think that’s something I try to bring to the table. It doesn’t mean everybody wants to hear it. But I think giving my 360 degree perspective is a part of the value that I bring. And I think also I don’t ever want to underestimate the relationships and the credibility. Listen, you can, I will never say that I don’t use my relationships to get a particular outcome. That’s not what it’s about, right? When I say relationships and credibility, what I mean is in some of these agencies and in some instances, it’s important to kind of know what to do and what not to do. Where do you start? Where don’t you start? What’s the process? What’s the right thing to say? And what could really make somebody upset? And these are sometimes, they’re small things, but sometimes they’re everything.
And they’re the big things that matter. So when I talk about the relationships I have and the credibility I have, I make clear to my clients, I cannot guarantee you an outcome. But what I tell is the process that we are about to go through, I am familiar with it because I did it on the other side. So I can help navigate you through this with a level of information and insight that perhaps someone who had never done this before might not have. And so I really do enjoy, and I try to do it as education. A lot of times this world in which I live is so new. And honestly, I don’t want anybody to have to be in this world. They have to talk to a government agent. But if they do, I love being across the room to guide people through that.
And then the last thing I will say is that I’m very mission driven. And so I am about service. I view what I do as an active service. And so I really do want to help clients get to an outcome in an ideal world, perhaps the outcome they want. But a lot of people just want an outcome. They just want it to be done. love the idea and I love the work that involves guiding people through the most difficult parts of their lives to get to that end result. And I did that time and time again on the government side, especially dealing with victim cases.
And it’s the same thing here. And so I try to bring a level of understanding and empathy, even if it’s a CEO down to some former employee that has no reason why they don’t know why they need to go and talk to this agent. They’re confused as to why they’re there. I want to help everyone understand that they have an advocate that has their back. And that is going to provide the level of education and protection and advocacy that they deserve in those moments. So that’s kind of how I look at what I bring to the table.
Julie DiMauro: Thank you so much for sharing that. Nekia Hackworth, partner at Jones Day, thank you so much for being on the GRIP podcast program and sharing your valuable insights with our listeners today. And to our listeners, thank you for tuning in. Please tell your colleagues about us.
The views, thoughts, and opinions expressed on this podcast are those of the guests and do not necessarily reflect the official policy or position of their employer, the moderator, or Global Relay.