Tag Archives: SEC

SEC Legal Bulletin on Shareholder Proposals — The Harvard Law School Forum on Corporate Governance

Small business need-to-know SEC update.

Excerpt:  In a prior bulletin, SLB No.14F, the SEC had reconsidered its view as to who constitutes a “record holder” for purposes of Rule 14a-8 and indicated that only DTC participants may provide adequate proof of ownership for shareholder proponents. Consistent with its no-action letter decisions during 2012, the Staff indicated in this bulletin that it would also view ownership letters from affiliates of DTC participants as satisfying the proof of ownership requirement.

Also, the Staff indicated that a shareholder who holds securities through a securities intermediary that is not a broker or a bank can satisfy Rule 14a-8’s documentation requirement by submitting a proof of ownership letter from that securities intermediary. If the securities intermediary is not a DTC participant or an affiliate of a DTC participant, then the shareholder will also need to obtain a proof of ownership letter from the DTC participant, or an affiliate of the DTC participant, that can verify the holdings of the securities intermediary.

Read full article via SEC Legal Bulletin on Shareholder Proposals — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Dodd-Frank Whistleblower Provision and Court’s Broad Interpretation — The Harvard Law School Forum on Corporate Governance

Small business need-to-know.

Excerpt:  Under Judge Underhill’s ruling, whistleblower protection extends to all individuals who report or disclose, either internally or to the SEC, alleged violations that are “required or protected” under the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, 18 U.S.C. § 1513(e), or any other law, rule, or regulation subject to the jurisdiction of the SEC. The Kramer ruling could embolden corporate employees to claim whistleblower protection for a broad range of activities.

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Canadian Court Addresses Continuing Use of Empty-Voting Tactics — The Harvard Law School Forum on Corporate Governance

Small business of-interest and news-to-watch.

Excerpt:  Activist investors continue to aggressively exploit a variety of techniques — including hedging, securities borrowing, total return swaps and other contractual arrangements — to avoid public disclosure of their investments and to obtain governance rights out of proportion with their economic stakes. We have long warned against these abuses, which are not confined to the U.S. market but are truly a global phenomenon. Courts, including the Supreme Court of Delaware, have emphasized that corporate voting rights and economic interests should not be “uncoupled” but should travel together. The SEC is considering regulating the use of derivatives in its “proxy plumbing” initiative, and we have encouraged it to focus on “empty voting” abuses.

Read full article via Canadian Court Addresses Continuing Use of Empty-Voting Tactics — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Hedge Funds and Risk-Decoupling — The Empty Voting Problem in the EU — The Harvard Law School Forum on Corporate Governance

Small business of-interest and news-to-watch.   Definition and an explanation

Excerpt:   I address the implications of negative risk-decoupling, otherwise known as empty voting, for corporate governance and corporate finance, and I develop suggestions for a regulatory response. These suggestions are framed for the European context, but the underlying policy considerations may prove useful for other regulators worldwide, including the SEC.

Empty voting is a popular strategy amongst hedge funds and other activist investors. In short, it is the attempt to decouple the economic risk from the share’s ownership position, retaining in particular the voting right without risk. This paper uses three perspectives to analyze the problems created by such negative risk-decoupling:

Read full article via Hedge Funds and Risk-Decoupling — The Empty Voting Problem in the EU — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Second Circuit Clarifies Standards for Insider Trading Claims — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.       SEC and legal

Excerpt: In the latest of a string of litigation victories it has scored in the Second Circuit, the Securities and Exchange Commission convinced a panel of the Second Circuit on September 6, 2012, to vacate a district court’s grant of summary judgment to the defendants in Securities and Exchange Commission v. Obus, No. 10 Civ. 4749.  In so doing, the Circuit clarified, and to some extent modified, the standards for tipper/tippee insider trading under the misappropriation theory.

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Recent Circuit Court Opinions Impact SEC Enforcement Program — The Harvard Law School Forum on Corporate Governance

Small business need-to-know, of-interest and news-to-watch.

Excerpt:  Four federal circuit courts recently issued a string of rulings that are likely to have an impact on the manner in which the Securities and Exchange Commission (“SEC”) seeks to police the financial markets and penalize alleged misconduct. The Courts of Appeals for the Second, Fifth, Ninth and Eleventh Circuits released four opinions, two of which potentially enlarge the SEC’s tool kit in seeking to punish wrongdoing, one that could pare back the SEC’s reach, and finally one that is useful in addressing potential collateral consequences of SEC “neither admit nor deny” settlements in subsequent litigation. Each has the potential to influence litigated matters involving SEC investigations that are currently pending before federal courts, and may well have an impact even at the investigative stage.

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Board Evolution: Progress Made, Yet Challenges Persist — The Harvard Law School Forum on Corporate Governance

Small business and board of diretors need-to-know and takeaways.   Where are we, accomplishments, needs, news-to-watch.

Excerpt:  Corporate directors have adjusted to significant changes in the governance environment during the last year. On the regulatory front, the Securities and Exchange Commission (SEC) continues to implement new rules stemming from the Dodd-Frank Act, causing companies to rethink and react. The voice of shareholders has never been louder, pressuring companies to adopt structural governance changes by submitting proposals on board declassification, splitting CEO and board chair roles, and majority voting. Shareholder “say on pay” votes moved into a second year with some companies uncertain about how to respond based on their voting results. Plus, more companies had their shareholders withhold approval on their “say on pay” votes, maintaining the pressure on compensation committees.

In the summer of 2012, 860 public company directors responded to PwC’s 2012 Annual Corporate Directors Survey. Of those directors, 70% serve on the boards of companies with more than $1 billion in annual revenue. As a result, the survey’s findings reflect the practices and boardroom perspectives of many of today’s world-class companies. We structured the survey to provide pragmatic feedback directors can use to assess and improve performance in areas that are “top of mind” to today’s boards. The survey shows directors are clearly making progress and enhancing their practices. At the same time, directors acknowledge the numerous challenges they still face. The following are the highlights:

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Innovation, “Pure Information,” and the SEC Disclosure Paradigm — The Harvard Law School Forum on Corporate Governance

Small business of-interest, news-to-watch and thoughts to review.

Excerpt:  My article, Too Complex to Depict? Innovation, ‘Pure Information,’ and the SEC Disclosure Paradigm, published in June in the 2012 symposium issue of the Texas Law Review, offers a new conceptualization of the SEC disclosure paradigm that has been in place since the Depression, shows how that paradigm has been undermined by the modern process of financial innovation, and offers possible ways ahead. Since its creation, the SEC’s totemic philosophy has been to promote a robust informational foundation. As a necessary corollary, the SEC’s approach has been incremental, generally not venturing into substantive decision-making (as to stock prices or otherwise).

The article starts by suggesting that this disclosure philosophy has always been largely implemented through what can be conceptualized as an “intermediary depiction” model  ….

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SEC Division of Trading and Markets Issues Guidance on JOBS Act — The Harvard Law School Forum on Corporate Governance

Small business update on JOBS act and SEC interpretation, explanation and FAQ.

Excerpt:  On August 22, 2012, the SEC Division of Trading and Markets (the “Staff”) published answers to 14 frequently asked questions (“FAQs”) relating to certain provisions of Title I of the Jumpstart Our Business Startups Act, signed into law on April 5, 2012 (the “JOBS Act”), affecting research analyst and investment banking personnel conduct in connection with emerging growth companies (“EGCs”).

The most noteworthy guidance, in our view, relates to the following:  …….

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Private Investment Funds Perspective on Permitting General Solicitation and Advertising — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  Following the review of comments by the SEC, the final rules will be issued. Since private investment funds typically rely on Rule 506 in connection with their fundraisings in the United States, we anticipate that the final rules, assuming that they are substantially similar to the Proposed Rules, will allow for greater flexibility in the United States fundraising process by relaxing existing regulatory requirements on publicity. This memorandum focuses on the aspects of the proposed changes to Rule 506 that are relevant for private investment funds.

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SEC Requirements under the Iran Threat Reduction and Syria Human Rights Act — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and news-to-watch

Excerpt:  On August 10, 2012, President Obama signed the Iran Threat Reduction and Syria Human Rights Act into law. The act is available at http://www.gpo.gov/fdsys/pkg/BILLS-112hr1905enr/pdf/BILLS-112hr1905enr.pdf.

The purpose of the act is to expand U.S. sanctions against Iran in order to compel Iran to stop pursuing a nuclear weapons program and other controversial initiatives.

Public companies, however, may have new disclosure obligations as a consequence of the act. Among other things, the act requires that companies subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) make certain disclosures relating to activities that they and their worldwide affiliates knowingly engage in involving Iran in their quarterly and annual reports filed with the Securities and Exchange Commission (SEC). This provision of the act does not require additional rulemaking by the SEC in order to be effective. As a consequence, public reporting companies must comply with the new reporting obligations under the act by February 6, 2013.

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The SEC Punts (Again) on Financial Stability Reform — The Harvard Law School Forum on Corporate Governance

And on it goes!!!!!!!    Small business of-interest, need-to-know and news-to-watch.  Should we blame a lobbyist for an interest group or blame allowing too much leeway to lobbying groups to control based on power but not neccessarily the best interests of the public?

Excerpt:  In an all-too-familiar pattern, the SEC has backed down in the face of industry pressure and dropped a key proposal to prevent a repetition of the 2008 financial crisis. Despite valiant efforts by Chair Mary Shapiro, a divided Commission has rejected further steps toward reform of money market funds, a $3 trillion dollar financial intermediary that was at ground zero of the financial crisis and that now presents a continuing threat to financial system stability.

A powerful industry group, mutual funds and some of their clients, have persuaded three SEC Commissioners to ignore the near implosion of the money market fund sector in 2008. Here are their names, for now is an accountability moment: Luis A. Aguilar, Daniel M. Gallagher, and Troy A. Parades.

Read full article via The SEC Punts (Again) on Financial Stability Reform — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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PCAOB Adopts New Audit Standard on Communications with Audit Committees — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.  Accounting and audit

Excerpt:  Auditing Standard No. 16 is the first standard that the PCAOB has adopted following enactment of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, a new PCAOB standard will not apply to audits of “emerging growth companies” (“EGCs”) unless the SEC determines that the application of the standard is “necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.” At its August 15 meeting, the PCAOB expressed its view that the SEC should approve the application of the new standard to EGCs.

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Mid-Year Securities Litigation Update — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and of interest 2012 review of litigation and findings result and probable impact forward.  SEC legal

Excerpt:  Securities litigation filing trends remain generally steady in the face of these developments, with securities class action filings increasing only slightly in the first half of 2012, and the filings against particular sectors staying roughly similar to last year, with filings against financial industry companies at their lowest level since 2008. One particularly noteworthy development is that not a single securities class action filing thus far in 2012 has named an accounting firm as a defendant, possibly as a result of the Supreme Court’s rejection of aiding and abetting liability under the securities laws, emphatically reinforced last year in Janus Capital Group Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2012) (in which Gibson Dunn represented Janus).

Some of the most significant case law and legislative developments in the first half of 2012 are summarized below.

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Derivatives Rules under the Dodd-Frank Act Affecting End-Users — The Harvard Law School Forum on Corporate Governance

Small business of-interest and need-to-know.

Excerpt: Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provides for new Federal regulation of the swaps market, and, when fully implemented, is expected to make fundamental changes in the way the swaps market operates. Title VII seeks to reduce systemic risk, increase transparency and improve efficiency in the swaps market by requiring centralized clearing and exchange trading of swaps as well as real-time and regulatory reporting of swap transactions. Under the Dodd-Frank Act, the Commodity Futures Trading Commission (the “CFTC”) will regulate most swaps on interest rates, commodities and currencies and the Securities and Exchange Commission (the “SEC,” together with the CFTC, the “Commissions”) will regulate swaps, including equity and credit default swaps, on single securities and narrow-based securities indices. The term “swap” is defined broadly in the Dodd-Frank Act, and includes certain foreign exchange transactions, such as non-deliverable foreign currency forwards, that may not be characterized as swaps for other purposes.

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