SEC advisory committee to question Snap’s transparency for investors

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By Ross Kerber | BOSTON

BOSTON An investor committee that advises the
U.S. Securities and Exchange Commission will next week review if
Snap Inc’s decision to deny shareholders voting rights might
also reduce the social media company’s public disclosures on
executive pay and other governance matters, the head of that
committee told Reuters on Wednesday.

Snap, the parent of the popular messaging app
Snapchat, priced its eagerly awaited initial public offering at
$17 per share on Wednesday, above the expected range, giving the
company a value of close to $24 billion, the richest in a U.S.
tech IPO since Facebook Inc in 2012.

The IPO shares will give investors no voting rights, an
unprecedented feature that has raised concerns among corporate
governance leaders that other high-valuation companies may
follow suit and leave investors with little say over company

Snap insiders and early investors hold shares with voting
rights, giving them control of the company.

For Snap, “The question becomes, since there are no common
shareholders’ proxy votes to do, what does that do to the level
of disclosures it will have to do for annual meetings and annual
reports,” Kurt Schacht said in a telephone interview.

Schacht is chairman of the SEC’s Investor Advisory
Committee, which makes recommendations to the regulator and was
set up by the 2010 Dodd-Frank financial reforms. The SEC does
not have to follow its suggestions. Schacht is managing director
of the CFA Institute, which accredits investment professionals.

The committee has a meeting scheduled for March 9 that will
include a discussion on “unequal voting rights of common
shares,” according to a published agenda for the session.


Schacht said a concern was that Snap’s non-voting shares
could inspire other unicorns – the unofficial name for privately
held technology companies with valuations of over $1 billion –
to follow suit.

“We feel it’s worth asking the question of, is this a
one-off novelty pump-and-dump IPO, or is this a new trend with
these unicorns?” he said. If so, he said that would “a troubling
race to the bottom.”

A Snap representative declined to comment.

In a Feb. 27 securities filing, Venice, California-based
Snap said it will invite its new non-voting shareholders to its
annual meetings and to submit questions. It also said it will
provide them “the same proxy statements, information statements,
annual reports, and other information” it delivers to those who
hold its other classes of stock, including Chief Executive Evan

But the company may disclose some information to investors
up to four days after a material event has occurred, the filing
states. In the filing, Snap also calls itself an “emerging
growth company” under U.S. law, leaving it free to exempt itself
from some reporting requirements.

The scheduled review is only the latest test of transparency
for Snap, which has gained a reputation for secrecy befitting
its disappearing-message app, even as it has rebranded itself as
a “camera” company making video recording glasses and tools.

Snap’s IPO also is seen as a test for big mutual fund firms,
traditionally some of the largest buyers of tech IPOs. The
companies lately have made shareholder rights a rallying cry and
some governance specialists have called for funds to avoid the
IPO because of the unusual voting situation.

Schacht said Snap declined an invitation to appear at the
March 9 meeting. He said the discussion will also explore the
company’s viewpoint on governance and the argument its voting
structure could be cheaper than for a company with traditional
voting rights.

“We’ll try to explore both sides. Is this is a slap in the
face of corporate governance, or is this the market efficiency
of the future?,” he said.

(Additional reporting by Lauren Hirsch in New York)

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