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Frequently Asked Questions
  Under what circumstances may Nasdaq issue a Public Reprimand letter?
Identification Number 483
Nasdaq Staff will issue a Public Reprimand letter when it determines that a company has violated Nasdaq rules, but does not believe the circumstances warrant delisting the company. A Public Reprimand is generally issued to address inadvertent violations of Nasdaq's corporate governance rules.
Some of the factors Nasdaq will consider in determining whether to issue a Public Reprimand letter are as follows:
    • Was the violation inadvertent;
    • Did the violation have a material adverse impact on shareholders' interests;
    • What was the scope of the violation;
    • Upon discovery of the violation, was the violation cured and how quickly was it cured;
    • Did the company reasonably rely on an independent advisor;
    • Has the company demonstrated a pattern of rule violations; and
    • Did the company proactively report the violation to Nasdaq?
Examples of situations where Nasdaq has issued a Public Reprimand include:
Example 1: Listing Rules 5605(d) and 5605(e) - Failure to comply with Independent Committee requirements
The company's Proxy indicated that its CEO was a member of its Nominating Committee (the "Committee"). However, as an executive officer, the CEO is precluded from being an Independent Director. In that regard, the company violated the Rules since they require that executive compensation and director nominees must be selected or recommended, either by: (i) a majority of the independent directors; or, (ii) a committee comprised solely of independent directors. Staff was advised that after the company's CEO joined the Committee, it only met once. Upon Staff's notification to the company of the violations, it promptly regained compliance by having the CEO resign from the Committee.
Example 2: Listing Rules 5605(d) and 5605(e) - Failure to comply with Independent Committee and Controlled Company Exemption requirements
The company's Proxy stated that it was a Controlled Company because more than 50% of its voting power was held by a single entity and that it was relying on the Controlled Company exemption to allow a non-independent director to serve on both its Compensation and Nominating Committees. Staff determined that contrary to the disclosure in the Proxy, the company was no longer eligible to rely upon the Controlled Company exemption because an increase in its total shares outstanding had lowered the entity's voting control below 50%. Within a week of Staff bringing this issue to the company's attention, it acted to cure the violation by appointing another independent director to the Compensation and Nominating Committees. However, the company stated that the board had determined to continue the committee service of the non-independent directors in reliance on the exceptional and limited circumstances exception contained in Listing Rules 5605(d)(3) and 5605(e)(3), which reliance was appropriately disclosed.
Example 3: Listing Rule 5635(c) - Shareholder Approval Violation
The company notified Nasdaq that as a result of a recent review of its Stock Incentive Plan (the "Plan"), it discovered that stock options had been granted in excess of the number of shares authorized under the shareholder approved plan. To regain compliance with the shareholder approval requirements, the company obtained written waivers from each officer and director holding such awards, pursuant to which they waived the right to exercise their options unless and until the shareholders of the company vote in favor of an increase in the number of shares authorized for issuance under the Plan. This approval would include the excess awards as well as additional equity incentives to provide for future grants. The company expects to solicit the vote of its shareholders at its next annual meeting.
Publication Date*: 11/19/2019 Mailto Link Identification Number: 483
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