Cross-posted at Forbes.com WLF contributor site
You’re a publicly traded company, and it’s a week before your annual meeting. The SEC had no objections to your proxy statement, and it’s been sent to shareholders. Your focus should be on final meeting details, but instead, you are working with your lawyers to fend off a class action lawsuit which threatens to forestall the meeting.
This is not a bad dream, but an awake nightmare that an increasing number of public companies are facing. It’s the latest securities class action lawsuit “innovation” — just before an annual meeting, allege that a company’s proxy statements omit “material” information and thus violate general state-law duties to disclose; demand trivial changes to the proxy and high-six-figure fees; and stalk your next victim.
As leading securities defense litigator Bruce Vanyo noted at D&O Diary, at least 20 companies have faced such suits this year, with most claims involving advisory “say on pay” votes and votes on other compensation issues such as stock purchases. The suits are a mutation of disclosure-oriented class actions that are routinely filed against companies going through mergers or acquisitions. These new proxy challenges are of the cookie-cutter ilk common in securities class actions, with the same law firm and often the same investor acting as the lead plaintiff. Continue reading
by Steven A. Engel and Katherine M. Wyman, Dechert LLP*
Of the various U.S. departments and agencies responsible for policing U.S. activities abroad, the Securities and Exchange Commission (SEC) does not readily come to mind. Nonetheless, the Commission recently stepped into those waters by issuing two rules implementing provisions buried deep within the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Those rules put the SEC’s “mission” to “maintain fair, orderly and efficient markets” in the United States in direct conflict with their supporters’ interests in policing the activities of U.S. corporations in international hotspots. In all likelihood, litigation will soon follow.
Section 1502 of Dodd-Frank amended the Securities Exchange Act of 1934 (“Exchange Act”) by adding Section 13(p), which directs the Commission to issue rules requiring certain issuers to disclose their use of so-called “conflict minerals” (tantalum, tin, gold, and tungsten) that originated in the Democratic Republic of the Congo or in adjoining countries. Section 1504 similarly adds Section 13(q) and directs the Commission to put out rules requiring “resource extraction” issuers (namely oil, gas, and mining companies) to disclose certain payments made to U.S. and foreign governments. Continue reading
Cross-posted at Forbes.com’s WLF contributor page
In a post last February, Supreme Court Cert Petition Spotlights Speech Limits on Securities Market, we urged the Justices to review a Massachusetts high court ruling which prevented communication about investment opportunities. The Court denied certiorari on May 14, but by that time, securities issuers like the petitioner in that case, Bulldog Investors, had a new, and improbable, champion for its speech rights—Congress.
The JOBS Act, which became law on April 5, includes a provision ordering the Securities and Exchange Commission (SEC) to eliminate a rule prohibiting “general solicitation” in situations where “accredited investors” are participating in the offering process. The prohibition takes the form of a condition for certain securities offerings. Under Rule 506 of SEC Regulation D, issuers who target accredited investors (i.e. rich and sophisticated persons and entities) and who refrain from solicitation (i.e. direct marketing, print or broadcast ads, websites, seminars) don’t have to register their offerings with the SEC. In other words, the issuers only get a benefit (no registration) if they surrender their speech rights.
As Bulldog Investors argued in its cert petition, such limitations tread on issuers’ commercial speech rights and are a significant impediment in the formation of capital, especially for startups. SEC’s own Advisory Company on Smaller Public Companies concurred with the latter point, as did Congress when it drafted the JOBS Act. The Act ordered SEC to eliminate the speech restraint within 90 days. Continue reading
Cross-posted by Forbes.com at WLF’s contributor site
Distinguished First Amendment scholar Frederick Schaeur once wrote in the Harvard Law Review, “It might be hyperbole to describe the Securities and Exchange Commission as the Content Regulation Commission, but such a description would not be wholly inaccurate.” SEC has yet to heed a suggestion from one of its own advisory committees to relax prohibitions on general solicitations and advertising, and has ignored a letter from the New York City Bar noting that New York and 30 other states take a more respectful approach to securities speech regulation.
The Commonwealth of Massachusetts is not one of those 31 states, as hedge fund Bulldog Investors learned in 2006. The enforcement action taken by the state against Bulldog, and Bulldog’s constitutional challenge of that action, has resulted in a cert petition filed with the U.S. Supreme Court that could shock SEC and securities speech-averse states into the 21st Century. Continue reading
Just when you thought that federal agencies might finally get the message, the Securities and Exchange Commission has found a new area in which they may want to regulate, or at least require businesses to manage more paperwork.
On October 13, the SEC’s Division of Corporation Finance published a Disclosure Guidance relating to cyber security. The basic thesis of the guidance is that while current requirements do not explicitly refer to cybersecurity, it is the Division’s belief that the requirements “may impose an obligation on registrants to disclose such risks and incidents.” For example, businesses may need to disclose risk factors for investors, such as certain aspects of the business or operations that could create cybersecurity risks and the potential costs and consequences. Registrants with the SEC should avoid giving just boilerplate disclosures, though, which should be “tailored to their particular circumstances.” Good luck trying to figure out how particular it should be. Continue reading
Cross-posted by Forbes.com at On the Merits and WLF’s Forbes contributor page.
Regulators regulate. It’s a simple concept, but one which seems to escape even the highest of government officials. Some in the Obama Administration must be disappointed by the lukewarm reception business leaders and the public have given to recent regulatory red-tape cutting efforts. But when you read stories like “SEC Bears Down on Fracking“, which appeared in this morning’s Wall Street Journal (online subscription required), you cannot be surprised that serious doubts exist over the federal government’s wherewithal to rationalize regulation.
It must have been hard for securities regulators to see their counterparts at the EPA, the Department of Energy, and the Army Corps of Engineers, not to mention state, county, and city regulatory entities, getting a piece of the action on hydraulic fracturing, aka, “fracking.” Pursuit of reportedly 110 years’ worth of natural gas trapped in rock formations like the New York-to-Kentucky Marcellus Shale is now possible with new technology. Regulators are, as always, struggling to keep up with this new technology. Job-creating companies, aware that regulation is inevitable and, if done right, can lend credibility to their natural gas extraction, are working with many officials to craft disclosure and other rules. Continue reading
Someone to Watch Over Me: Legal & Compliance Challenges Posed by Antitrust Agencies’ Consent Decrees, WLF’s latest Web Seminar program, is now available as an on-demand archived video file.
The program featured Christine Wilson and Bilal Sayyed, partners at Kirkland & Ellis LLP.
Is an “Effective” Compliance Program Enough? Lessons from Foreign Corrupt Practices Act Enforcement Actions and Settlements, WLF’s latest Web Seminar program, is now available as an on-demand archived video file.
WLF’s Stephen Richer and John Kendrick provided a summary of the program which the White Collar Crime Professor’s Blog has posted here.
Our speakers, Michael Volkov and Anthony Alexis with Mayer Brown LLP utilized a comprehensive set of PowerPoint slides to compliment their presentation. Those slides are available here.
Cross-posted by Forbes.com at On The Docket
Section 3(f) of the Securities and Exchange Act of 1934 provides a clear mandate for Securities and Exchange Commission (SEC) rulemaking:
“[T]he Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.”
The SEC mission is to protect investors and the securities markets. Last year, Congress decided to alter and expand this mission. But it didn’t amend the Exchange Act. Instead, Congress made its changes through two obscure provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). These sections convert the SEC into a foreign policy-making agency. Dodd-Frank Sections 1502 and 1504 require new SEC rules which will force some industries doing business overseas to disclose information which, in turn, can be used to pressure foreign governments into altering their behavior or impose new regulations.
Dodd-Frank Section 1502 requires the SEC to devise rules requiring those companies which utilize “conflict minerals” (tantalum, tungsten, gold, etc. from the Congo) to report the origin of those minerals annually. With this provision, Congress has enlisted the SEC in the “corporate social responsibility” activists’ ”name-and-shame” campaign, which is aimed at forcing companies to help stop the humanitarian crisis in the Congo. A recent WLF Legal Backgrounder describes this provision and argues that it runs afoul of public companies’ First Amendment rights. We also focused this Legal Pulse post on it.
Dodd-Frank Section 1504 is even more ambitious. Troubled that it can’t force oil-rich foreign governments to act more responsibly, Congress has conscripted the SEC to do its bidding. Section 1504 mandates new SEC rules on disclosure of payments made by companies to U.S. and foreign governments “for the commercial development of oil, natural gas, and minerals.” Continue reading