– Reuters (paywall) reported that according to a person familiar with the matter, Elliott Investment Management now holds 10 percent of Southwest Airlines common stock, crossing the threshold that allows the hedge fund firm to call a special meeting at the company. The two sides are scheduled to meet on September 9 to discuss ways to solve problems that have contributed to Southwest’s stock declining over the last three years.
Elliott has demanded that Southwest CEO Robert Jordan and executive chair Gary Kelly be removed. It has also laid out plans to nominate 10 directors to the airline’s 15-person board. Jordan has said he will not resign and has indicated to staff that he and other executives are ready to fight Elliott. The investor has signaled to other shareholders that it is ready to take next steps, including calling a special meeting, unless the company is willing to discuss changes to its leadership.
A Southwest representative was not immediately available for comment.
– The Wall Street Journal (paywall) looked at the uncertainty surrounding President Joe Biden’s regulatory agenda ahead of the US elections. As of late May, the Biden administration had issued 273 economically significant rules – more than any of the past six administrations managed to accomplish in the entire four years of their first term – and regulators have made it clear that more rules are in the works. This regulatory push has been met with stiff resistance by business groups and the US Supreme Court. With the regulatory state increasingly a top political issue, many of the president’s most ambitious rules face stiff legal headwinds no matter the outcome in November.
‘There is a tug of war happening between different branches of the government, between regulators and the courts – and even at the state level, between blue states and red states,’ said Brad Caswell, head of the financial regulation group at Linklaters. ‘Our clients are sitting there wondering what to do.’
– According to Reuters, Norway’s sovereign wealth fund may have to divest shares of companies that violate the fund watchdog’s new, tougher interpretation of ethics standards for firms that aid Israel’s operations in the occupied Palestinian territories. Norges Bank Investment Management’s Council on Ethics sent a letter on August 30 to the finance ministry, in which it summarizes the recently expanded definition of unethical corporate behavior.
The letter did not specify how many firms nor name companies whose stocks might be sold but suggested it would be a small number, should the board of the central bank follow recommendations the council makes. One company has already been identified for disinvestment under the new definition, it said.
– The WSJ reported that six credit-rating providers agreed to pay a total of $49 mn in civil penalties in a settlement with the SEC over the use of so-called off-channel communications. Moody’s Investors Service and S&P Global Ratings each agreed to pay $20 mn to settle the allegations, according to an SEC statement. Fitch Ratings agreed to pay an $8 mn penalty, while AM Best Rating Services agreed to pay $1 mn, according to the SEC. Also charged were HR Ratings de México, which agreed to a $250,000 penalty, and Demotech, with a $100,000 penalty, the regulator said.
The SEC said the firms failed to maintain and preserve records of off-channel electronic communications, including texting and use of platforms such as WhatsApp. ‘We have seen repeatedly that failures to maintain and preserve required records can hinder the staff’s ability to ensure firms are complying with their obligations,’ said Sanjay Wadhwa, deputy director of the SEC’s division of enforcement.
Each of the firms acknowledged its conduct and agreed to improve compliance policies and procedures around off-channel communications. Moody’s, S&P, Fitch and HR Ratings de México agreed to hire compliance consultants.
S&P said it was pleased to have settled the matter and noted that the agency recognized its co-operative approach and remedial actions. It added that it ‘takes compliance with regulatory obligations very seriously.’ A Moody’s representative said the firm was ‘fully committed to upholding our regulatory record-keeping obligations.’ AM Best said it was pleased the issue had been resolved and that the SEC recognized its efforts to comply with recordkeeping requirements, adding that it remains committed to the integrity of its ratings process. HR Ratings said it has strengthened its electronic recordkeeping procedures and ‘the settlement with the SEC underscores our firm commitment to upholding regulatory standards in every jurisdiction where we operate.’
Fitch and Demotech didn’t immediately respond to requests for comment.
– CNN reported that, according to people familiar with the matter, President Biden is prepared to block Japan’s Nippon Steel’s proposed acquisition of US Steel, a move that would deal a major blow to the $14 bn merger. A White House official would not comment on the president’s decision but said the Committee on Foreign Investment in the United States (CFIUS), which is examining the proposed deal on national security grounds, has not transmitted its recommendations to Biden yet. The president would oppose the deal, one person said, if the CFIUS committee recommended the deal not go through or withheld a recommendation. ‘CFIUS hasn’t transmitted a recommendation to the president and that’s the next step in this process,’ the White House official said.
US Steel and Nippon Steel both indicated in statements that they’re open to conduct legal fights to get the deal approved regardless of any action announced by the president. ‘We continue to stand by the fact that there are no national security issues associated with this transaction, as Japan is one of our most staunch allies,’ US Steel said. ‘We fully expect to pursue all possible options under the law to ensure this transaction closes.’
In a statement, a spokesperson for Nippon Steel said the company has not received any updates on the CFIUS process.
– According to the WSJ, California’s greenhouse gas (GHG) emissions-reporting requirements are due to move forward as originally planned after a proposal to delay them by two years failed to persuade state legislators. Governor Gavin Newsom last year signed a pair of laws requiring companies to report GHG emissions and climate-related risks, with initial disclosures due in 2026.
An analysis by Public Citizen estimated that at least 75 percent of Fortune 1000 companies would have to disclose GHG emissions under the state’s law. California’s laws are more expansive than currently paused SEC rules in that they require companies to disclose Scope 3 emissions. ‘Late last year when these laws came out, we were just bombarded with calls from clients asking, What should we be doing?’ said David Zilberberg, an environmental lawyer at the firm Davis Polk & Wardwell.
When he signed the legislation last October, Newsom wrote in a letter to legislators that ‘the implementation deadlines in this bill are likely infeasible.’ The laws are now headed to Newsom’s desk for his signature.
– The SEC last month asked for the dismissal of all active misconduct proceedings against accountants sitting before its in-house judges, according to Reuters. Legal experts said the move was a fresh sign that a recent US Supreme Court ruling is curbing the agency’s enforcement powers. Between August 2 and August 19, the SEC’s enforcement division filed motions to dismiss eight enforcement actions pending before its administrative law judges, public filings show. In each case, the agency had been seeking to discipline accountants for alleged malpractice. The SEC offered no explanation for the decision and a spokesperson declined to comment.
Legal experts said it was rare if not unprecedented for the agency to dismiss an entire category of administrative enforcement actions. They said the SEC’s decision appeared to relate to a Supreme Court decision in June that barred the agency from using in-house judges in cases seeking fines for fraud.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
