On August 30, the U.S. Commodity Futures Trading Commission (CFTC) released final rules respecting off-exchange retail foreign currency transactions. The rules, which include requirements regarding registration, disclosure, recordkeeping, financial reporting, minimum capital and other operational standards, among other things, take effect on October 18.
Earlier this week, the U.S. Securities and Exchange Commission (SEC) released a report cautioning nationally recognized credit rating agencies about "deceptive ratings conduct and the importance of sufficient internal controls over the policies, procedures, and methodologies the firms use to determine credit ratings." The report stems from an investigation into whether Moody's Investor Service, Inc. violated federal registration or antifraud provisions. The SEC also stated in the report that it will utilize new provisions in the Dodd-Frank Act "for enforcement actions alleging otherwise extraterritorial fraudulent misconduct that involves significant steps or foreseeable effects within the United States."
The U.S. Securities and Exchange Commission (SEC) yesterday announced that it is amending federal proxy rules in order to "facilitate the effective exercise of shareholders' traditional state law rights to nominate and elect directors to company boards of directors." Specifically, a new proxy rule (Rule 14a-11 under the Securities Exchange Act of 1934) will, under certain circumstances, require companies to include shareholder nominees for director in the company's proxy materials. An ownership threshold of 3% of the voting power based on securities that are entitled to be voted, held for at least three years, will be required for a nominating shareholder or group to rely on Rule 14a-11. Further, amendments to Rule 14a-8 will narrow an exception that currently permits companies to exclude shareholder proposals that relate to elections. The final rules take into account public response to the draft proposals released by the SEC in July 2009 and will generally be effective 60 days after their publication in the Federal Register.
In describing the need for the new rules, SEC Chairman Mary Schapiro stated that
[a]s a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own...Nominating a director candidate is not the same as electing a candidate to the board. I have great faith in the collective wisdom of shareholders to determine which competing candidates will best fulfill the responsibilities of serving as a director. The critical point is that shareholders have the ability to make this choice.
Notable to Canadian companies, the amended rules will apply to foreign issuers that are otherwise subject to U.S. proxy rules unless the applicable foreign law prohibits shareholders from nominating director candidates.
As we discussed in our post of June 16, the Ontario Securities Commission, Quebec's Autorité des marchés financiers and the U.S. Securities and Exchange Commission (SEC) recently signed a Memorandum of Understanding to facilitate the supervision of regulated entities that operate on a cross-border basis. The Minister of Finance has now approved the MOU.
On Tuesday, the U.S. Securities and Exchange Commission (SEC) published a request for public comment for a study to evaluate
the effectiveness of existing legal or regulatory standards of care for brokers, dealers, investment advisers, and persons associated with them when providing personalized investment advice and recommendations about securities to retail investors; and whether there are gaps, shortcomings, or overlaps in legal or regulatory standards in the protection of retail customers relating to the standards of care for these intermediaries.
Such a study is required by s. 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama last week. In Canada, most provinces and territories adopted a fiduciary standard for registrants as part of the broad registration reforms implemented last September.
Yesterday, the Securities and Exchange Commission (SEC) approved changes to Form ADV, the principal disclosure document that registered investment advisers are required to provide to clients. According to SEC Chairman Mary Schapiro, the current form's check-the-box formal "frequently does not correspond well to an adviser's business." As such, the changes are intended to improve the information available to clients regarding those providing them with investment advice. To that end, the format of the brochure will be updated to including narrative in plain English, the content will be expanded to include topics such as fees and compensation, an adviser's disciplinary information and brokerage practices and advisers will be required to deliver brochure supplements that contain "résumé-like disclosure" regarding such things as educational background and business experience. Advisers will also be required to electronically file brochures, which will be available to the public on the SEC's website.
The amendments will be effective 60 days after publication in the Federal Register and the SEC expects that investment advisers will begin distributing and posting new brochures in the first quarter of 2011.
The Securities and Exchange Commission (SEC) yesterday announced proposals intended to improve the regulation of mutual fund distribution fees and provide enhanced disclosure for investors. Distribution fees, also known as 12b-1 fees, are fees paid by the fund out of its assets to cover distribution costs and shareholder service expenses. The proposals would limit fund sales charges, improve the transparency of fees by requiring funds to identify and more clearly disclose distribution fees, encourage retail price competition and revise fund director oversight duties. The proposals will be open to a 90-day comment period after publication in the Federal Register.
The U.S. Securities and Exchange Commission (SEC) announced last week that Goldman, Sachs & Co. had agreed to pay $550 million to settle charges that the company had misled investors respecting a subprime mortgage product. The settlement also requires remedial action by Goldman Sachs with respect to the company's review and approval of certain mortgage securities offerings and additional education and training of employees in this area of the company's business. For more on the case and settlement, see this article from the New York Times.
On July 15, the U.S. Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act by a vote of 60-39. The legislation is intended to overhaul the financial regulatory system in the U.S. by improving the supervision and regulation of federal depository institutions, providing transparency to derivatives markets and setting out obligations regarding corporate governance and executive compensation.
The legislation, which was passed by House of Representatives on June 30, is now awaiting the President's signature. A brief summary of the legislation is provided by the House Financial Services Committee, while Steven M. Davidoff provides some thoughts in the New York Times' DealBook.
The Securities and Exchange Commission yesterday announced that it was issuing a concept release to seek public comment on the U.S. proxy system. Specifically, the comprehensive review focuses on the accuracy, transparency and efficiency of the voting process, communications and shareholder participation and the relationship between voting power and economic interest. The SEC is accepting public comment for a 90-day period.
The U.S. Financial Industry Regulatory Authority (FINRA) yesterday announced an expansion in the amount of information that will be available to the public regarding current and former security brokers through its online BrokerCheck service. Specifically, the changes will increase the number of customer complaints that are reported publicly by disclosing historic complaints back to 1999, expand the disclosure period for former brokers from two years to ten years, make certain information regarding former brokers permanently available and formalize the process for brokers to dispute the accuracy of the information. The expansion of BrokerCheck is expected to be complete by the end of the year.
As we discussed in our post of September 18, 2009, the U.S. Securities and Exchange Commission published a proposal last year to eliminate the exception under Rule 602 of Regulation NMS under the Securities Exchange Act of 1934 for the use of flash orders by equity and options exchanges.
On July 2, the SEC reopened the comment period on the proposal for 30 additional days.
On July 2, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 10-0191 relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the third quarter of 2010 as 1,000 points, 2,050 points and 3,050 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite Index. The TSX trigger levels are: Level 1 (10%) - 1,150 points; Level 2 (20%) - 2,350 points and Level 3 (30%) - 3,500 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
On June 16, the Alberta Securities Commission and the U.S. Commodity Futures Trading Commission (CFTC) announced the signing of a Memorandum of Understanding intended to enhance the cooperation between the two regulators in connection with their functions relating to the supervision of covered clearing organizations. The MOU was executed on June 10.
On June 11, the U.S. Commodity Futures Trading Commission (CFTC) announced that it was proposing a rule that would require that co-location and proximity hosting services be available to all qualified market participants willing to pay for the services. Comments on the proposals are being accepted until July 12, 2010.
The U.S. Federal Reserve, along with other banking regulators, issued final guidance yesterday "to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices." The guidance adopts three main principles, being that: (i) incentive compensation arrangements at a banking organization should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; (ii) these arrangements should be compatible with effective controls and risk-management; and (iii) these arrangements should be supported by strong corporate governance, including active and effective oversight by the organization's board of directors.
The U.S. Securities and Exchange Commission (SEC) announced yesterday proposed amendments to the Financial Industry Regulatory Authority rules respecting clearly erroneous transactions in exchange-listed securities. Under the current rules, a trade may be found to be clearly erroneous where the price of a transaction deviates from the consolidated last sale price for the security beyond a specified amount. These thresholds depend on the consolidated last sale price of the security and whether trading occurs during or outside normal market hours. For example, where the price of a security is up to $25, a deviation of 10% or more during normal market hours would be considered clearly erroneous.
The amendments would, among other things, establish different thresholds and standards to handle large-scale market events and would remove FINRA's flexibility to use different thresholds in unusual circumstances. In circumstances of a multi-stock event involving 20 or more securities, FINRA may use a reference price other than the consolidated last sale and will nullify transactions at prices equal to, or greater than, 30% of the reference price.
The amendments are a further response to the market volatility that occurred on May 6 and follow the recent approval of stock-by-stock circuit breakers in the U.S. We originally discussed the circuit breaker proposals in our post of May 19.
The U.S. Securities Industry and Financial Markets Association (SIFMA) recently released the results of a study intended to "assist regulators and policymakers in preparing for expanded systemic risk oversight" and enhance the ability of regulators to respond to future systemic risk events. The study was based on interviews with a number of organizations, including regulators, securities broker-dealers, insurers and hedge funds.
On Monday, the U.S. Securities and Exchange Commission (SEC), Quebec's Autorité des marchés financiers and the Ontario Securities Commission (OSC) announced the signing of a memorandum of understanding to facilitate the supervision of regulated entities that operate on a cross-border basis. The parties intend to consult, cooperate and exchange information related to the supervision and oversight of such regulated entities and the MOU is intended to support and facilitate such cooperation.
In our post of May 19, we discussed the recent SEC proposals that would see a five minute pause to trading in individual stocks that experienced a 10 percent change in price over a five minute period. On June 4, the SEC issued a statement stating that staff is reviewing comments received and that staff expects to present proposals this week.
Citing the lack of a central database containing comprehensive and readily accessible data regarding orders and executions, the U.S. Securities and Exchange Commission proposed a new rule on May 26 that would require SROs to establish a consolidated audit trail system. Under the new system, exchanges and FINRA, as well as their members, would be required to provide certain information to the central repository regarding each quote and order in a National Market System (NMS) security.
Such a consolidated system would be intended to: (i) provide regulators direct and timely access to uniform consolidated order and execution information for all orders in NMS securities from all participants across all markets; (ii) enable SROs to better fulfill their regulatory responsibilities to oversee their markets and members; and (iii) enable the SEC to better carry out its oversight of the NMS for securities.
The SEC is accepting public comments on the proposal for 60 days after its publication in the Federal Register.
The U.S. Financial Industry Regulatory Authority (FINRA) released a Regulatory Notice on May 26 requesting comments on proposed rule amendments intended to enhance the oversight of broker-dealers' back office operations. The proposed amendments would create a registration category for operations professionals engaged in, or supervising, activities relating to sales and trading support and the handling of customer assets. A new qualification exam for operations professionals would be established as well as continuing education requirements. Comments on FINRA's proposal are being accepted until July 12, 2010.
As we discussed yesterday, recent media reports suggested that the U.S. Securities and Exchange Commission (SEC) was planning to announce proposals for new circuit breaker rules to address issues stemming from the market volatility of May 6. Such proposals were subsequently announced late yesterday afternoon.
Under the proposed rules, which reflect a consensus among the various U.S. stock exchanges and the Financial Industry Regulatory Authority (FINRA), trading in a stock would be paused for five minutes where the stock experienced a 10 percent change in price over a five minute period. The five minute pause would be intended to "give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price and resume trading in a fair and orderly fashion." If approved by the SEC after the comment period, the new rules would be in effect on a pilot basis through December 10, 2010, during which time SEC staff would study, among other things, the impact of other trading protocols.
The SEC and Commodity Futures Trading Commission (CFTC) also released their preliminary findings yesterday regarding the "unusual market events" of May 6. While the events of that day continue to be reviewed, the report focuses on the following "hypotheses and findings": (i) the possible linkage between the decline in the prices of stock index products and the simultaneous and subsequent waves of selling in individual securities; (ii) a generalized severe mismatch in liquidity; (iii) the extent to which the liquidity mismatch may have been exacerbated by disparate trading conventions among various exchanges; (iv) the need to examine the use of "stub quotes"; (v) the use of market orders, stop loss market orders and stop loss limit orders that, coupled with sharp price declines, might have contributed to market instability; and (vi) the impact on Exchange Traded Funds.
The Globe and Mail is reporting today that new circuit breaker rules will soon be introduced by the U.S. Securities and Exchange Commission in an attempt to prevent the type of market volatility seen on May 6th. According to the Globe, the circuit breakers may be operational as early as June 14.
As regulators continue to investigate last Thursday's extreme market volatility, the Investment Industry Regulatory Organization of Canada (IIROC) has announced that it has re-priced or cancelled various trades occurring during the market slide. Various U.S. markets have also announced that they would cancel trades (see for example announcements from NYSE Arca and NASDAQ). Meanwhile, the Securities and Exchange Commission (SEC) announced yesterday that it has met with the leaders of the Financial Industry Regulatory Authority, NASDAQ, BATS, Direct Edge, ISE and the CBOE, and that all parties have agreed on a structural framework for strengthening circuit breakers and handling erroneous trades.
Today, the SEC and Commodity Futures Trading Commission announced the formation of a joint committee to address "emerging regulatory issues", with the first item on the committee's agenda being a review of last Thursday's market events. Meanwhile, SEC Chairman Mary Schapiro testified before the Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises this afternoon to summarize the events of May 6, provide an overview of the current market structure and discuss various regulatory tools to be considered "in determining how best to maintain fair and orderly financial markets and to prevent severe market disruptions in the future."
On May 7, the U.S. Commodity Futures Trading Commission (CFTC) issued an Advisory to alert market participants regarding their "ongoing legal obligations to comply with speculative position limits." Specifically, the CFTC reaffirmed that such limits apply on an intraday as well as an end-of-day basis and that traders whose positions exceed the applicable speculative position limit "at any time during the day" (emphasis in text) are in violation of the pertinent regulations even if their positions are reduced below the limit by the end of the day.
On May 3, TMX Group Inc., released a letter written to the Canadian Securities Administrators (CSA) outlining its position on the regulation of short sales in Canada in light of recent U.S. amendments on the subject.
Specifically, TMX recommended against adopting SEC-style amendments incorporating a price test trigger and stated that the "additional regulation of short sales in Canada is not warranted." In support of its views, TMX outlined findings from an analysis it performed on securities inter-listed on the TSX and a U.S. exchange. TMX found that on average, at least one inter-listed security would have triggered the SEC-style short sale circuit breaker every day. According to TMX, however, "it is highly unlikely that manipulative shorting occurs every day in one of the inter-listed securities." Thus, TMX urged the CSA "to take a decision on short sales that is contrary to the SEC's politically driven amendment to Reg SHO". Citing UMIR amendments to address failed trades and the strong real-time surveillance and enforcement capabilities of IIROC, TMX further outlined its support for "the removal of the short sale price test for all exchange-listed securities in order for Canadian participants to operate under one rule."
It was announced on May 4 that the U.S. Financial Industry Regulatory Authority (FINRA) would be assuming the market surveillance and enforcement functions currently conducted by NYSE Regulation. Under the agreement, which is subject to review by the Securities and Exchange Commission, FINRA would assume the regulatory functions for NYSE Euronext's U.S. equities and options markets, being the NYSE, NYSE Arca and NYSE Amex.
The U.S. Financial Industry Regulatory Authority (FINRA) yesterday published guidance regarding the suitability, disclosure and other obligations of broker-dealers recommending securities in offerings made under the SEC's Regulation D (private placements). While Regulation D provides exemptions from the registration requirements of the Securities Act of 1933, FINRA's notice stresses that broker-dealers must still conduct a reasonable investigation of the issuer and the securities being recommended and comply with other applicable requirements, including suitability and advertising and supervisory rules. Specifically, the notice provides a list of best practices that have been adopted by other firms.
The U.S. Senate Committee on Agriculture, Nutrition and Forestry introduced a draft bill today intended to "bring 100% transparency" to financial markets. According to the news release of Committee Chair Blanche Lincoln, D-Ark, the bill includes mandatory clearing and trading requirements, requires real-time reporting of derivatives trades and would prohibit federal assistance to banks that "engage in risky derivative deals". Thus, the proposed legislation appears to take a tougher stance in its attempts to regulate financial institutions than the legislative proposals emanating from the Senate Committee on Banking, Housing, and Urban Affairs.
The U.S. House of Representatives passed comprehensive financial reform legislation in December 2009, which addressed OTC derivatives trading, but the Senate has yet to pass the House Bill or agree to a different proposal. The latest indications, however, are that the Senate is preparing for a vote in the upcoming weeks. What the final regulations will look like, however, remains unclear.
The U.S. Securities and Exchange Commission (SEC) yesterday proposed creating a "large trader" reporting system that would identify large market participants, collect information regarding their trades and analyze their trading activity. Traders would generally be considered to fit the "large trader" categorization where their transactions in exchange-listed securities equalled or exceeded two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. The proposals would require such traders to identify themselves to the SEC and impose recordkeeping and reporting obligations on the part of broker-dealers.
Meanwhile, the SEC also proposed extending two investor protection measures, currently existing in stock markets, to options markets. Specifically, the SEC proposed prohibiting an option exchange from unfairly impeding access to displayed quotes and limiting the fees that an options exchange can charge those wishing to access a quote.
Comments on the proposals are being accepted for 60 days after their publication in the Federal Register.
On March 30, the Supreme Court of the United States released its decision in the case of Jones v. Harris. The case considered the fiduciary duty imposed on mutual fund advisers by section 36 of the Investment Company Act of 1940 (ICA) with respect to the receipt of compensation for services. This particular issue has been the topic of recent judicial attention.
Ultimately, the Supreme Court accepted the basic formulation of the Gartenberg test, stating that "to face liability under §36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." While the basic formulation of the test appeared to be relatively uncontroversial in this case, the parties disagreed on a number of points concerning its application. Thus, the Supreme Court provided guidance on a number of issues. Specifically, the Supreme Court stated that:
Finding that the Seventh Circuit panel focused almost entirely on disclosure, the Supreme Court vacated the Circuit Court's decision and remanded the case.
The immediate decision's effect on mutual fund fees remains to be seen, and will ultimately depend on the interpretation given to the Supreme Court's findings by lower courts. Thus, the mutual fund industry will undoubtedly watch with interest as this case, and those like it, proceed through the lower courts.
On April 7, the U.S. Securities and Exchange Commission (SEC) announced proposals to revise the rules respecting asset-backed securities in order to "better protect investors in the securitization market." Specifically, the proposals would make changes to the offering process, disclosure and reporting for asset-backed securities (ABS). The changes are described by the SEC as being comprehensive and imposing new burdens in order to "provide investors with timely and sufficient information...reduce the likelihood of undue reliance on credit ratings, and help restore investor confidence in the representations and warranties regarding the assets." Comments on the proposals are being accepted by the SEC for 90 days after publication of the proposals in the Federal Register.
Meanwhile, the International Organization of Securities Commissions (IOSCO) released a report yesterday entitled "Disclosure Principles for Public Offerings and Listings of Asset Backed Securities". The report is intended to "provide guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset-backed securities (ABS)." Specifically, the report outlines the information that should be included in any offer or listing document for a publicly offered or listed ABS.
On February 17, the U.S. Financial Industry Regulatory Authority (FINRA) filed proposed changes to its Rules with the SEC intended to prohibit abuses in the allocation and distribution of shares in IPOs. The release amends earlier FINRA proposals by addressing issues raised by comments to its earlier proposed changes. The SEC published the proposed amendments for comment on March 11.
The U.S. SEC announced on March 25 that its staff is conducting a review of the use of derivatives by mutual funds, exchange-traded funds (ETFs) and other investment companies to determine whether additional protections for those funds are required under the Investment Company Act of 1940 (the Act) . Staff of the SEC also intend to identify if any changes to the SEC's rules or guidance may be warranted. Pending the completion of the review, SEC staff will be deferring consideration of exemptive requests under the Act to permit ETFs that would make significant investments in derivatives.
On April 1, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the second quarter of 2010 as 1,050 points, 2,150 points and 3,200 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite Index. The TSX trigger levels are: Level 1 (10%) - 1,200 points; Level 2 (20%) - 2,400 points and Level 3 (30%) - 3,600 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
Airborne Health, Inc. v. Squid Soap, LP, C.A. No. 4410 VCL
Delaware Court of Chancery | Vice Chancellor Laster | November 23, 2009
Andrew S. Cunningham
This ruling by Vice Chancellor Laster of the Delaware Court of Chancery reminds us that in a commercial relationship, the contract reigns supreme. Even though it had a sympathetic story to tell, and despite some creative appeals to tort and equitable doctrines, Squid Soap couldn't get around the fact that the Asset Purchase Agreement (APA) it had negotiated with acquiror Airborne Health - with payment heavily weighted toward the earn-out - had not adequately protected it against certain unanticipated post-closing events that occurred, most notably the economic downturn.
Background
Squid Soap had developed a child-friendly hand washing product. A hit with U.S. TV morning shows and major magazines, "Squid Soap" was soon picked up by Wal-Mart and other mass retailers. As the brainchild of a single entrepreneur, the Squid Soap business was ripe for a buyout. Despite interest from Procter & Gamble and a major hedge fund, Squid Soap selected Airborne Health, Inc., a larger entrepreneurial company, as its acquiror. Airborne had made its name with a highly successful vitamin and herb supplement that was marketed as effective against coughs and colds.
Continue Reading...The U.S. Securities and Exchange Commission published a staff legal bulletin on March 15 providing the views of its Division of Corporation Finance respecting the circumstances under which issuers may suspend their reporting obligations under section 15(d) of the Securities Exchange Act of 1934 by relying on Rule 12h-3. Citing the routine nature of no-action requests by issuers, the large body of no-action precedent and the guidance in the bulletin, the Division is of the view that, on a going-forward basis, issuers that fit within the situations identified by the bulletin and that satisfy the relevant conditions do not need a no-action response before filing the applicable form to suspend its section 15(d) reporting obligations.
Earlier this month, U.S. Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, unveiled the "Restoring American Financial Stability Act of 2010". According to Senator Dodd, the bill will (i) end "too big to fail" bailouts; (ii) create a strong and independent consumer protection watchdog; (iii) create an early warning system; and (iv) bring transparency and accountability to "exotic instruments" like hedge funds and derivatives. Of particular note, the bill also contains provisions regarding executive compensation (Subtitle E, beginning on page 868) and corporate governance (Subtitle G, beginning on page 895). A summary of the proposed legislation was also released.
The Canadian National Stock Exchange (CNSX) announced yesterday that the U.S. Securities and Exchange Commission (SEC) has designated it a "Designated offshore securities market" under Regulation S of the Securities Act of 1933. The designation applies to CNSX and Pure Trading.
Regulation S allows companies to bypass SEC registration requirements where offerings and sales of securities occur outside the U.S. The exemptions were created in order to encourage investments in U.S. companies by non-U.S. investors and provide safe harbours with respect to offers and sales by issuers, distributors and affiliates under Rule 903 and offshore resales under Rule 904. Regulation S, however, imposes a number of resale restrictions to ensure sales to a U.S. person do not occur.
The SEC designation, however, means that restricted securities may now generally be resold on CNSX or Pure Trading without the seller having to determine whether the buyer is in the U.S. or a U.S. person, as would otherwise have been the case.
The U.S. Securities and Exchange Commission (SEC) adopted a new short selling rule on February 24, 2010. The new rule is intended to promote market stability and preserve investor confidence during periods of stress and volatility by restricting short sellers from being able to drive the price of a stock further down when it is already experiencing downward pressure. Short selling involves the sale of stock that an investor does not own or has borrowed, where the investor intends to profit by buying the stock back at a price that is lower than the price of the short sale. While acknowledging that short selling may be useful in that it can promote market liquidity and pricing efficiency, the SEC cautions that it may also be used to "improperly drive down the price of a security or to accelerate a declining market in a security."
The SEC considered various options over the course of the last year to address its concerns regarding short selling and has decided to implement an alternative uptick rule that would restrict short selling when the price of a security has fallen more than 10% in one day. This restriction would remain in effect for the remainder of the day as well as the next day and under such a scenario, short selling would only be permitted if the price of the security was above the current national best bid. The rule will apply to all equity securities that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market, and requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a prohibited short sale. The rule will become effective 60 days after its publication in the Federal Register, while market participants will have six months to comply with its requirements.
On February 22, the U.S. Securities and Exchange Commission (SEC) announced that it was amending its proxy rules to improve the "notice and access" model for furnishing proxy materials to shareholders. Under the model, issuers are permitted to post their proxy materials on the internet and send shareholders a "Notice of Internet Availability of Proxy Materials" (a Notice), directing shareholders to the website where the proxy materials may be found, in lieu of delivering a full set of proxy materials in paper accompanied by the above Notice. While the notice and access model, adopted in 2007, was intended to promote the use of the internet as a cost-efficient and reliable means of making proxy materials available to shareholders, the SEC has found lower shareholder response rates to proxy solicitations when the notice-only option is employed.
The SEC attributes the lower response rate in cases where the notice-only option is used to confusion among investors regarding the operation of the notice and access model. Thus, issuers and other soliciting persons will be provided additional flexibility under the amendments with respect to the format and content of the Notice, including being able to provide additional materials explaining the e-proxy rules, rather than being restricted to inclusion of the boilerplate-type language currently set out by the rules. Changes are also being made with respect to the time by which a soliciting person other than an issuer must send its Notice to shareholders. The effective date of the amendments, first proposed in October 2009, is March 29, 2010.
In addition to the introducing the above amendments, the SEC also published an Alert describing changes that went into effect in January 2010 eliminating discretionary voting by brokers in the election of directors and the effects of these changes on proxy voting. The SEC also launched a new website providing investors with general information respecting, among other things, proxy voting and e-proxy rules.
As of March 1, the U.S. Financial Industry Regulatory Authority (FINRA) Trade Reporting and Compliance Engine (TRACE) will now include debt issued by federal government agencies, government corporations and government-sponsored enterprises as well as primary market transactions in new corporate debt issues. The expansion of TRACE represents a 50% increase in the number of debt securities subject to its reporting requirements.
The SEC issued a statement on Wednesday outlining its position with respect to global accounting standards. Specifically, the SEC stated that it supports "the objective of financial reporting in the global markets pursuant to a single set of high-quality globally accepted accounting standards." It recognizes, however, that incorporating IFRS into the U.S. financial reporting environment would be a large task and recognizes the need for deliberation as well as a sufficient transition time to prepare for such a change.
Thus, the SEC directed its staff to develop and execute a work plan to enhance the SEC's understanding and assist it in making a decision in 2011 regarding the incorporation of IFRS into the financial reporting system for U.S. issuers. Specifically, the work plan sets out the following areas of concern: (i) sufficient development and application of IFRS for the U.S. domestic reporting system; (ii) the independence of standard setting for the benefit of investors; (iii) investor understanding and education regarding IFRS; (iv) examination of the U.S. regulatory environment that would be affected by a change in accounting standards; (v) the impact on issuers; and (vi) human capital readiness.
Considering the time required to successfully implement a change in financial reporting, the SEC stated that should it make the decision in 2011 to incorporate IFRS, the earliest that U.S. companies would report under such a system would be approximately 2015 or 2016, although SEC staff have been asked to further evaluate this timeline as part of the work plan.
In December 2009, the U.S. Securities and Exchange Commission (SEC) published final amendments to its rules to enhance proxy disclosure. Proposed amendments were first released in July 2009 and the final rules reflect changes made in response to many of the comments received by the SEC in response to the proposed amendments.
Specifically, the final rules intend to improve the information that companies provide to shareholders regarding: (i) risk, by requiring disclosure respecting the board's role in risk oversight and, where relevant, disclosure respecting compensation policies and practices that are likely to expose the company to material risk; (ii) governance and director qualifications, by requiring expanded disclosure of the background and qualifications of directors and nominees, as well as disclosure concerning a company's board leadership structure; and (iii) compensation, by amending the reporting of stock and option awards and requiring, in certain circumstances, the disclosure of compensation consultants' potential conflicts of interest.
The amendments are effective as of February 28, 2010.
The U.S. Securities and Exchange Commission (SEC) announced in January that it was seeking public comment on issues respecting the current equity market structure. In publishing the concept release, the SEC specifically cited the dramatic change in the secondary market for equities in recent years and the trend towards a market structure with primarily automated trading. Thus, the SEC intends to assess "whether market structure rules have kept pace with, among other things, changes in trading technology and practices". The release seeks specific comment on issues such as market quality metrics, the fairness of market structure, high frequency trading, co-location services and dark liquidity. The SEC will use the comments received to help determine whether additional regulatory measures are needed to improve the current equity market structure. Further, the SEC also proposed for public comment a new market structure initiative that is intended to strengthen the risk management control of broker-dealers that provide market access.
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| Chairman Gensler Photo Courtesy of www.cftc.gov |
In January, the U.S. Securities and Exchange Commission (SEC) announced amendments to the proxy rules under the Securities Exchange Act of 1934 to require companies that have received TARP money to permit a shareholder advisory vote on executive compensation. The rules are effective February 18, 2010.
On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the issuance of interpretive guidance respecting existing SEC disclosure requirements that apply to business or legal developments relating to climate change. While the guidance has yet to be published by the SEC, a speech by SEC Commissioner Luis A. Aguilar suggests that the SEC's release will clarify the responsibility of companies to discuss (i) the direct effects of existing and pending environmental regulation, legislation and treaties on a company's business, operations, risk factors and in MD&A; (ii) the indirect effects of such regulation on a company's business; and (iii) the effect on a company's business and operations related to the "physical changes to our planet caused by climate change". Commissioner Aguilar also suggested that companies should know their emissions information in order to evaluate risks and focus on investors when considering the materiality of information.
Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the first quarter of 2010 as 1,050 points, 2,100 points and 3,150 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite Index. The TSX trigger levels are: Level 1 (10%) - 1,150 points; Level 2 (20%) - 2,300 points and Level 3 (30%) - 3,450 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
On December 11, the U.S. House of Representatives approved comprehensive legislation intended to "modernize America's financial rules" in response to last year's market meltdown. The Wall Street Reform and Consumer Protection Act of 2009, which passed by a vote of 223-202, combines a number of legislative initiatives announced in the past year into a single piece of legislation numbering almost 1300 pages in length.
The bill includes provisions respecting (i) shareholder approval of executive compensation and golden parachutes; (ii) enhanced compensation structure reporting; (iii) the regulation of OTC derivatives and specifically the requirement that all standardized swap transactions between dealers and "major swap participants" be cleared and traded on an exchange or electronic platform; and (iv) the registration and regulation of advisers to private pools of capital.
There is no guarantee, however, that the bill will become law, as it must now go to the Senate for consideration.
The U.S. Securities and Exchange Commission (SEC) yesterday announced the adoption of rule amendments to "substantially increase the protections" for investors that trust their assets with SEC-registered investment advisers. Depending on the investment adviser's custody arrangement, the rules would require (i) advisers to engage independent public accountants to conduct annual surprise exams to verify that client assets exist; and (ii) a written custody control review that "describes the controls in place at the custodian, tests the operating effectiveness of those controls and provides the results of those tests" when the adviser or affiliate acts as custodian of client assets. The amended rules would also impose new controls on advisers to hedge funds and other private funds that comply with the custody rule. Such advisers would have to obtain an audit of the fund and deliver the fund's financial statements to fund investors, while the auditor would have to be registered with and subject to inspection by the Public Company Accounting Oversight Board.
According to SEC Chairman Mary Schapiro, "[t]hese new rules will apply additional safeguards where the safeguards are needed most - that is, where the risk of fraud is heightened by the degree of control the adviser has over the client’s assets."
The U.S. Securities and Exchange Commission (SEC) announced on Monday that it is reopening the comment period for its proposals on shareholder director nominations. Originally published earlier this year, the proposal would change federal proxy rules to make it easier for shareholders to nominate and elect directors to company boards. The SEC decided to reopen the comment period to allow interested parties to comment on additional data and related analyses that were submitted during and after the initial comment period and included in the public comment file.
On September 23, 2009, United States Senator Richard Lugar introduced a Bill entitled the Energy Security Through Transparency Act of 2009 (ESTA), which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs for further consideration.
The progress of ESTA is of interest to Canadian oil and gas issuers with annual reporting obligations under the U.S. Securities Exchange Act of 1934. Among other things, ESTA proposes to require the U.S. Securities and Exchange Commission to issue rules requiring "resource extraction issuers" (defined as an issuer that engages in the commercial development of oil, natural gas, or minerals) to include in their annual reports information relating to any payments made by the issuer, a subsidiary or partner of the issuer, or an entity under the control of the issuer to a foreign government for the purpose of the commercial development of oil, natural gas, or minerals.
ESTA provides that the required disclosure shall include the type and total of all such payments (i) for all projects, and (ii) to each foreign government, and the term "payment" is defined to include taxes, royalties, fees, licenses, production entitlements, bonuses and other material benefits.
As described in our post of October 21, the U.S. Securities and Exchange Commission (SEC) recently voted to propose measures intended to increase the transparency of private automated trading systems known as "dark pools". On November 13, the SEC published its proposed rules and amendments to joint-industry plans. The proposals would: (i) amend the Exchange Act quoting requirements so as to apply expressly to actionable "Indications of Interest", which are similar to a typical buy or sell quote and permit others to trade; (ii) revise the order display requirements of Regulation ATS, including a substantial lowering of the trading volume threshold that triggers public display obligations for alternative trading systems; and (iii) amend the joint-industry plans for publicly disseminating consolidated trade data to require real-time disclosure of the identity of dark pools and other alternative trading systems on the reports of their executed trades.
On November 5, the International Accounting Standards Board (IASB) and the U.S.Financial Accounting Standards Board (FASB) released a statement reaffirming their commitment to improving IFRS and U.S. GAAP and to bring about their convergence. The joint statement also described the boards' plans and milestone targets for individual projects.
On November 4, Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission (SEC), gave a speech in New York in which she described the SEC's recent initiatives related to proxy voting. Specifically, Ms. Schapiro discussed proposals respecting shareholder director nominations, proxy enhancements and e-proxy revisions. She also stated that SEC staff is currently conducting a comprehensive review of the mechanics of proxy voting with a view to ensuring that the proxy voting system "operates with the degree of reliability, accuracy, transparency and integrity that shareholders and companies have the right to expect."
On October 30, the U.S. Securities and Exchange Commission (SEC) announced the release of a staff accounting bulletin to update guidance "on how the agency's staff interprets accounting rules related to the oil and gas industry." The guidance is intended to correspond with rulemaking that the SEC approved in December 2008 to modernize its oil and gas company reporting requirements. The principal revisions of the guidance include:
The guidance updates Topic 12 of the codification of staff accounting bulletins in order to make it consistent with the Commission’s Final Rule Release, Modernization of Oil and Gas Reporting, issued December 31, 2008.
It's been a busy week for the U.S. House Financial Services Committee. Following its approval of a private adviser registration bill and the introduction of draft legislation to address systemic financial risk, the Committee has also approved a bill respecting credit rating agencies. The proposed legislation is intended to "take strong steps to reduce conflicts of interest, stem market reliance on credit rating agencies, and impose a liability standard on the agencies." According to the Committee's press release, the proposed legislation expands on the Treasury proposal of July 2009. Specifically, the proposed legislation clarifies the ability of individuals to sue rating agencies, adds a duty to supervise an agency's employees, requires that agencies have a board with at least one-third independent directors, provides for greater public disclosure and includes provisions regarding former employees of rating agencies that go to work for an issuer.
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| Secretary Geithner Photo Courtesy of www.treasury.gov |
Secretary of the Treasury Timothy Geithner, meanwhile, testified yesterday before the House Committee on Financial Services regarding the draft legislation. Secretary Geithner cited the five key elements necessary for reform, being: (i) the orderly resolution of failing financial institutions; (ii) no open-bank assistance to failing financial institutions; (iii) protecting taxpayers from losses; (iv) limiting the Federal Reserve's and the FDIC's emergency authorities; and (v) stronger constraints on size and leverage. According to Secretary Geithner, "the test for any effective set of reforms" is whether the above elements are included. According to the Secretary, the draft legislation "meets that test."
The U.S. House Committee on Financial Services announced yesterday that it had passed draft legislation (available here in its initial form as introduced in the House of Representatives) that would require the registration of advisers to private pools of capital. The draft legislation would also introduce new recordkeeping and disclosure requirements for private advisers and increase the regulation of advisers to hedge funds, private equity firms and other private pools of capital.
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| Chairman Schapiro Photo Courtesy of www.sec.gov |
The SEC is inviting public comments on the proposals, which have yet to be published on the SEC website, for 90 days after their publication in the Federal Register. For more information, see the text of Ms. Schapiro's speech before the SEC's open meeting as well as the SEC fact sheet on the subject.
The Senior Supervisors Group, consisting of financial supervisors from nine different countries, including the U.S. Securities and Exchange Commission and the Office of the Superintendent of Financial Institutions (Canada), issued a report today (October 21) titled "Risk Management Lessons from the Global Banking Crisis of 2008". The report identifies deficiencies in the "governance, firm management, risk management, and internal control programs that contributed to, or were revealed by, the financial and banking crisis of 2008." The weaknesses identified in the report include the failure of some boards and managers to establish and adhere to acceptable levels of risk, as well as compensation programs that "conflicted with the control objectives of the firm". Despite recent progress in improving risk management practices at financial firms, the report concludes that weaknesses remain that still need to be addressed.
RiskMetrics Group has published its 2009 Postseason Report, which reviews the issues and trends of the 2009 proxy season, including proxy access, broker voting and executive compensation. While the report focuses more on the U.S. environment, Canadian issues are considered.
The U.S. House Committee on Financial Services yesterday approved draft legislation to regulate over-the-counter derivatives. Among other things, the legislation requires that: (i) standardized swap transactions be executed on a national securities exchange, board of trade or swap execution facility; (ii) swap dealers and major participants register with the appropriate commission; and (iii) reporting and recordkeeping obligations are met. The U.S. Treasury Department first proposed such legislation in mid August.
Earlier today, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued a joint report on the issue of regulatory harmonization. The report follows joint meetings held in early September and makes a series of recommendations on such issues as oversight and enforcement, investor and customer protection, compliance and the improvement of coordination and cooperation between the agencies.
Of particular note, the report recommends that the SEC "review its approach to cross-border access to determine whether greater efficiencies could be achieved with respect to cross-border transactions in securities..." Specifically, the report states that the SEC may consider amendments to Rule 15a-6 of the Securities Exchange Act of 1934 regarding the interaction of U.S. investors with foreign broker-dealers.
On October 1, the U.S. House Committee on Financial Services released, among other bills, a discussion draft of the Investor Protection Act. The IPA is intended to strengthen the powers of the Securities and Exchange Commission, while enhancing the SEC's enforcement powers and funding. Further, under the draft bill, all financial intermediaries that provide advice would have a fiduciary duty toward their customers and the SEC would also be granted the authority to prohibit or impose limitations on arbitration clauses respecting customer contracts.
On October 2, meanwhile, the Committee circulated a discussion draft of legislation intended to regulate over-the-counter derivatives. According to a committee member, the OTC bill "moves us in the right direction by reducing risk to the economy with robust and dynamic oversight of major market participants, while preserving appropriate risk-management tools for end users." The Committee is began meeting yesterday to discuss the OTC bill.
The U.S. Securities and Exchange Commission (SEC) yesterday released for public comment a draft Strategic Plan outlining its mission, values and strategic goals for fiscal years 2010 to 2015. The identified goals include fostering and enforcing compliance with federal securities laws, establishing an effective regulatory environment, facilitating access to information that investors need to make informed investment decisions and enhancing the SEC's performance. Desired outcomes are discussed and the SEC also identified performance metrics by which to measure its progress.
On October 2, the U.S. Securities and Exchange Commission (SEC) announced the upcoming expiration of the exemption from section 404 of the Sarbanes-Oxley Act currently enjoyed by public companies with a public float below $75 million. Section 404 of SOX requires public companies and their independent auditors to report on the effectiveness of internal controls. The extension for small public companies is scheduled to expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. The exemption had been set to expire for fiscal years ending on or after December 15, 2009, but was extended due to the recent publication of a study by the SEC's Office of Economic Analysis regarding whether post-2007 reforms were having the intended effect of "facilitating more cost-effective internal controls evaluations and audits." The study found a "significant reduction" in compliance costs following the 2007 reforms.
Certification of effectiveness of internal control over financial reporting is also required in Canada under NI 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings. In contrast to the U.S., however, NI 52-109 does not require auditor attestation and permits "venture issuers" to omit certain certifications relating to internal controls over financial reporting and disclosure controls and procedures.
The Securities and Exchange Commission (SEC) today announced its approval of new exchange rules (see, for example, filings respecting NYSE Arca, NASDAQ and the Chicago Board Options Exchange) for "breaking stock trades that deviate so substantially from current market prices that they are considered 'clearly erroneous.'" Specifically, the rules seek to provide consistent standards across equity markets.
Generally, the rules provide that a trade may be found to be clearly erroneous only if the price of a transaction occurring during regular trading hours exceeds the consolidated last sale price by more than 10% for stocks priced under $25, 5% for stocks priced between $25 and $50 and 3% for stocks priced over $50. The thresholds are set at 20%, 10% and 6%, respectively, for transactions occurring outside of regular trading hours. A filing involving five or more securities will be aggregated into a single filing, to which a 10% threshold will apply. Further, the erroneous trade review process must generally begin within 30 minutes of the trade.
Compare these quite specific rules to the more general discretion that applies on Canadian marketplaces by virtue of UMIR Rule 10.9, which has resulted in cancellations being quite rare events in Canada.
At the recent Pittsburgh summit, leaders of the G-20 met to, according to the leaders' statement, "turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21st century global economy." The leaders' statement released on September 25 specifically discussed strengthening the international financial regulatory system by reforming compensation policies and practices and improving over-the-counter derivatives markets.
With respect to executive compensation, the G-20 endorsed the implementation standards of the newly-created Financial Stability Board respecting compensation, including: (i) avoiding multi-year guaranteed bonuses; (ii) requiring a significant portion of variable compensation be deferred, tied to performance and tied to appropriate clawbacks; (iii) ensuring that compensation for those having a material impact on the firm's risk exposure align with performance and risk; (iv) making compensation policies and structures transparent through disclosure requirements; (v) limiting variable compensation as a percentage of total net revenue when it is inconsistent with the maintenance of a sound capital base; and (vi) ensuring that compensation committees overseeing compensation policies are able to act independently. The Financial Stability Board is expected to complete a review of actions taken by national authorities to implement its compensation principles by March 2010. A progress report discussing actions taken and to be taken in the future was also released.
The U.S. Securities and Exchange Commission yesterday proposed a ban on flash trading, a practice that allows certain market participants to access information about the best available prices before the public is given an opportunity to trade. According to SEC Chairman Mary Schapiro, flash orders "provide a momentary head-start in the trading arena that can produce inequities in the markets and create disincentives to display quotes." Public comments on the amendments, which have yet to be published, are being accepted by the SEC until 60 days following their publication in the Federal Register.
Update: The proposed amendments have now been published.
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| Chairman Schapiro Photo Courtesy of www.sec.gov |
Yesterday, the U.S. Securities and Exchange Commission (SEC) announced the creation of its new Division of Risk, Strategy, and Financial Innovation, which combines the Office of Economic Analysis, the Office of Risk Assessment and certain other functions. According to the SEC, the new division will "provide the Commission with sophisticated analysis that integrates economic, financial, and legal disciplines." The three broad areas that fall under the new division's responsibilities are risk and economic analysis, strategic research and financial innovation.
In July, the U.S. Financial Industry Regulatory Authority (FINRA), published a regulatory notice regarding the approval by the Securities and Exchange Commission of amendments to NASD Rules 1022 and 1032. The amendments, effective November 2, 2009 and first described in our post of March 19, require individuals engaged in investment banking activities to register under a new limited representative registration category for investment banking professionals and take a corresponding qualification exam in lieu of the current General Securities Registered Representative (Series 7) exam. A transition period, however, will allow individuals holding the Series 7 registration to opt into the new category until May 3, 2010 without having to take the new exam.
The New York Stock Exchange announced earlier this month that it is forming an independent advisory commission to "take a comprehensive look at strengthening U.S. best practices for corporate governance and the proxy process." While committee members have yet to be announced, the NYSE stated in its release that the commission will work with policymakers and interested constituents "to foster a comprehensive and constructive approach" to corporate governance and proxy reform.
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| Secretary Geithner Photo Courtesy of www.treasury.gov |
Specifically, the draft legislation requires that standardized OTC derivatives be centrally cleared by a securities or derivatives clearing organization, while encouraging the use of such standardized derivatives through higher capital and margin requirements for non-standardized derivatives. Financial regulatory agencies will have access on a confidential basis to OTC derivative transactions, while aggregated data on open positions and trading volumes will be available to the public. Meanwhile, federal banking agencies, the Commodity Futures Trading Commission and Securities and Exchange Commission will supervise and regulate OTC derivative dealers and major market participants. The Treasury Department hopes to have the reforms passed by the end of the year.
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| Chairman Schapiro Photo Courtesy of www.sec.gov |
Under the alternative uptick rule, in an advancing or declining market, short selling would generally only be permitted at an increment above the current national best bid. The alternative uptick rule proposal is slightly different from April's proposed modified uptick rule (and the proposed uptick rule), in that only allowing short selling at an increment above the national best bid would not allow short sale to get immediate execution and would, therefore, restrict short selling to a greater extent than the other two proposed rules. It would not, however, require monitoring the sequence of bids or last sale prices. According to the SEC’s press release, this alternative uptick rule would, as a result, be easier to monitor. The comment period for the proposal will extend for 30 days from the date of publication of the proposal in the Federal Register.
Earlier this month, CDS Clearing and Depository Services (CDS), announced that participants of the New York Link service, which allows CDS participants to clear and settle exchange and over-the-counter trades with U.S. broker-dealers via the National Securities Clearing Corporation (NSCC), will have to satisfy additional collateral requirements as of November 1, 2009. As of that date, CDS will "no longer have access to the collateral needed to protect the remaining New York Link participants from the default of a single sponsored participant." As such, CDS will require participants of the New York Link to provide additional collateral and may also require participants to pre-fund their NSCC payment obligations "from time to time". Participants have until September 30 to advise CDS whether they will remain a CDS-sponsored participant or become direct members of the NSCC and Depository Trust Company (DTC). According to CDS, "[b]ased on the number of participants who would be interested in continuing under the new requirements, CDS Clearing will evaluate the economic and risk containment impacts on operating these services." The Depository Trust & Clearing Corporation (the parent company of the NSCC and DTC), meanwhile, is prepared to "immediately begin processing membership applications of Canadian firms who wish to become members of its NSCC and DTC subsidiaries and who meet the membership criteria."
Earlier this year, the New York Stock Exchange (NYSE) adopted a temporary policy wherein the market capitalization continued listing standard would be reduced from $25 million to $15 million. The changes have now been made permanent as of July 2, 2009.
On July 31, the U.S. House of Representatives approved the "Corporate and Financial Institution Compensation Fairness Act of 2009", which deals with say-on-pay and compensation committee independence. The final version of the bill incorporates amendments subsequent to its approval by the House Financial Services Committee, with the final version clarifying that the section regarding enhanced compensation structure reporting to reduce "perverse incentives" shall not apply to covered financial institutions with assets of less than $1 billion. Whether the proposed legislation makes it through the Senate remains to be seen.
The U.S. House Financial Services Committee announced yesterday that it has approved legislation dealing with say-on-pay and compensation committee independence. While the legislation is similar to the proposals released earlier this month by the Department of the Treasury, the House legislation also includes a provision that would allow regulators to prescribe regulations that prohibit compensation structures that regulators determine encourage "inappropriate risks" by financial institutions that "could threaten the safety and soundness of covered financial institutions" or have "serious adverse effects on economic conditions or financial stability." It is expected that the House of Representatives will consider the bill on Friday.
The Securities and Exchange Commission's Investor Advisory Committee, having held its first meeting on Monday, announced today that it has agreed on a broad agenda. Identified topics for discussion moving forward include: the fiduciary duties of financial intermediaries, disclosures to investors, whether majority voting for directors should be mandatory for all U.S. companies and whether investors have the information necessary to make informed proxy voting decisions.
The U.S. Securities and Exchange Commission yesterday announced that it is taking further steps in an attempt to curtail abusive "naked" short selling in equity securities and improve transparency respecting short sales generally. To that end, the SEC is making permanent, with some limited modifications, its interim final rule of October 2008 requiring broker-dealers to promptly purchase or borrow securities to deliver on a short sale. Further, the SEC stated that it is working with self-regulatory organizations to make short sale volume and transaction data available on SRO websites. The SEC's consideration of proposals on short sale price tests and circuit breaker restrictions also continues.
The Investment Industry Regulatory Organization of Canada (IIROC) and the U.S. Financial Industry Regulatory Authority (FINRA) today announced a cooperation agreement whose objective is to "enhance the effectiveness of both organizations through the exchange of information and other cross-border assistance." The news release describing the arrangement further stated that "[i]n addition to information sharing on compliance and enforcement related matters, IIROC and FINRA plan to work together on issues related to firm oversight and examinations."
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| Secretary Geithner Photo Courtesy of www.treasury.gov |
The U.S. Department of the Treasury announced on Monday that it was delivering to Congress proposed legislation intended to address the situation of recent years where "investors were overly reliant on credit rating agencies that often failed to accurately describe the risk of rated products." Under the proposed legislation and rules to be adopted by the Securities and Exchange Commission, credit rating agencies would, among other things, have to register with the SEC and be subject to a higher degree of oversight, they would be prohibited from providing consulting services to companies that contract for ratings, agencies would be required to manage and disclose conflicts of interest and preliminary ratings would have to be publicly disclosed to reduce "ratings shopping". According to the Treasury Department's fact sheet, the proposals will "increase transparency, tighten oversight, and reduce reliance on credit rating agencies."
As described in our post of June 18, the U.S. Treasury Department's financial reform plan included a proposal requiring that investment advisers to hedge funds and other private pools of capital whose assets under management exceed "some modest threshold" be registered with the Securities and Exchange Commission under the Investment Advisers Act. On July 15, the Treasury Department delivered such proposed legislation to Congress.
While some hedge fund managers are currently subject to regulation as “investment advisers” by the SEC under the Investment Company Act of 1940, the majority operate outside the ambit of the SEC as they are organized to qualify for exemptions from registration requirements that generally apply to managers of similar types of investment vehicles, such as mutual funds. The proposed legislation, however, would impose registration requirements on advisers to private investment funds with more than $30 million of assets under management. Funds would be subject to various obligations with respect to financial reporting, conflict of interest prohibitions and increased disclosure requirements. According to the Treasury Department's press release, the new legislation "would help protect investors from fraud and abuse, provide increased transparency, and provide the information necessary to assess whether risks in the aggregate or risks in any particular fund pose a threat to our overall financial stability.
On July 16, 2009, the U.S. Department of the Treasury released draft legislation that includes proposed amendments relating to "say-on-pay" in the form of a required non-binding shareholder vote on compensation as well as proposals relating to the authority and composition of an issuer’s compensation committee.
With respect to “say-on-pay”, the draft legislation would require any proxy, consent or authorization for an annual meeting of shareholders (or special meeting in lieu thereof) to provide for a separate non-binding shareholder vote to approve the compensation of executives. In addition to including such a non-binding shareholder vote relating to annual compensation disclosure, the draft legislation would also require that a similar vote be provided to shareholders in any proxy or consent solicitation material for a meeting or special meeting of shareholders that concerns an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all of the assets of an issuer. In such circumstances, the person making the solicitation would be required to disclose any agreements or understanding that such person has with executive officers concerning any type of compensation that is based on, or otherwise relates to, the proposed transaction as well as the aggregate total of all such compensation that may be paid or become payable to, or on behalf of, such executive officer. The disclosure is to be set out in further regulations to be promulgated by the Securities and Exchange Commission and the SEC has been given one year to issue such further regulations or other rules that may be required.
Continue Reading...The U.S. Securities and Exchange Commission has now published proposed amendments to its rules in order to "improve the disclosure shareholders of public companies receive regarding compensation and corporate governance, and facilitate communications relating to voting decisions." The proposals, announced earlier this month, would expand the scope of compensation disclosure and analysis to require disclosure of a company's overall compensation program as it related to risk management. Disclosure requirements regarding the qualifications of directors and nominees would also be extended and certain issues relating to the solicitation of proxies and the granting of proxy authority would be clarified. Comments on the proposals are being accepted by the SEC until September 15, 2009.
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| Chairman Schapiro Photo Courtesy of www.sec.gov |
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| Secretary Geithner speaking in February |
On June 30, the Obama Administration delivered to Congress a bill that would create the Consumer Financial Protection Agency. The agency's mission would be to regulate the provision of consumer financial products and services by promoting "transparency, simplicity, fairness, accountability, and access in the market". More specifically, the agency would ensure that:
The agency would also be provided with the power to investigate practices, issue cease and desist orders and commence civil actions against those that violate provisions of the statute. According to the Treasury Department's press release, "[f]or the first time, a single agency will have authority to examine and enforce compliance against any institution, bank or non-bank, that provides consumer financial products or services."
On July 1, the U.S. Securities and Exchange Commission (SEC) proposed rule revisions "intended to improve the disclosure provided to shareholders of public companies" with respect to executive compensation and corporate governance matters in proxy and information statements. The proposals would require information regarding: the relationship of a company's overall compensation policies to risk; the qualifications of executive officers, directors and nominees; company leadership structure; and potential conflicts of interest of compensation consultants. Amendments to proxy rules intended to clarify how they operate were also proposed. The proposals follow a speech by SEC Chairman Mary Schapiro on the subject on June 10. Comments on the amendments, yet to be published on the SEC website, are being accepted until 60 days after their publication in the Federal Register.
The SEC also approved a proposal of the New York Stock Exchange (NYSE) to eliminate discretionary voting by brokers in the election of directors. Currently, NYSE Rule 452 permits voting by brokers without instructions in certain situations. The changes will apply to shareholder meetings held on or after January 1, 2010.
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| Chairman Schapiro Photo Courtesy of www.sec.gov |
Chairman Schapiro noted that while transactions involving OTC derivatives can replicate the economics of securities transactions without involving the purchase or sale of actual securities, such transactions currently fall outside the umbrella of federal securities laws. As such, Chairman Schapiro discussed a "functional and sensible approach to regulation", in which the SEC would have primary responsibility for securities-related OTC derivatives, while the responsibility for all other derivatives, including those related to such things as commodities, energy and foreign exchange would rest with the Commodity Futures Trading Commission. Citing the close relationship between the securities markets and securities-related OTC derivatives, Chairman Schapiro emphasized the importance of ensuring that such OTC derivatives be "subject to the federal securities laws so that the risk of arbitrage and manipulation of interconnected markets is minimized." Subjecting securities-related OTC derivatives to federal securities laws would also provide a unified and consistent framework for securities regulation.
For the testimony of the other witnesses that appeared before the Subcommittee, click here.
In a speech to New York financial writers yesterday, Securities and Exchange Commission Chairman Mary Schapiro discussed the SEC's concerns with private automated trading systems known as "dark pools". Such private systems do not display quotes in the public quote stream and according to Ms. Schapiro, the "lack of transparency has the potential to undermine public confidence in the equity markets, particularly if the volume of trading activity in dark pools increases substantially." As such, the SEC intends to take a "serious look" at potential regulatory actions to protect investors and market integrity.
As described yesterday, the U.S. Treasury Department's "Financial Regulatory Reform: A New Foundation" includes numerous proposals to address perceived inadequacies in U.S. financial regulation. Of particular note, the report proposes requiring that investment advisers to hedge funds and other private pools of capital (including private equity and venture capital funds) whose assets under management exceed "some modest threshold" be registered with the Securities and Exchange Commission under the Investment Advisers Act. Registration of such investment advisers would make them subject to recordkeeping and disclosure requirements, including requirements to report to investors, creditors and counterparties, as well as regulators. While the reporting may vary across the different types of private pools of capital, the report proposed confidential reporting to regulators of the amount of assets under management, borrowings, off-balance sheet exposures and other “necessary” information. As stated in the report, "[r]equiring the SEC registration of investment advisers to hedge funds and other private pools of capital would allow data to be collected that would permit an informed assessment of how such funds are changing over time and whether any such funds have become so large, leveraged, or interconnected that they require regulation for financial stability purposes."
Continue Reading...
On June 17, U.S. President Barack Obama announced a series of proposed financial regulatory reforms, found in the Treasury Department's "Financial Regulatory Reform: A New Foundation". The recommendations include proposals to create comprehensive regulation of all OTC derivatives, harmonize futures and securities regulation and strengthen oversight of systemically important payment, clearing and settlement systems. An executive summary of the proposals was also released, as were related fact sheets.
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| Secretary Geithner Photo Courtesy of www.treasury.gov |
The U.S. Securities and Exchange Commission released a statement Wednesday by Chairman Mary Schapiro regarding executive compensation. While recognizing that the SEC's role is not to set pay scales or cap compensation, Ms. Schapiro stated that the SEC will actively consider "a package of new proxy disclosure rules that will provide further sunshine on compensation decisions." A number of disclosure requirements that will be considered by the SEC were listed in the statement, including information regarding a company's overall compensation approach, potential conflicts of interest by compensation consultants and the experience and qualifications of director nominees.
On a similar note, Treasury Secretary Timothy Geithner released a statement after meeting with Ms. Schapiro, stating that legislation will be pursued in two specific areas respecting compensation practices. The first, "say on pay" legislation, would provide the SEC with authority to require that companies allow non-binding shareholder votes on executive compensation. The second proposed piece of legislation would provide the SEC with "the power to ensure that compensation committees are more independent, adhereing to standards similar to those in place for audit committees as part of the Sarbanes-Oxley Act."
Citing the "dramatic decline in stock prices and market capitalizations of many listed companies", the U.S. Securities and Exchange Commission recently published temporary changes filed by the New York Stock Exchange (NYSE) in its listing thresholds for certain listed companies. These changes went into effect on May 12, 2009, the date of filing by the NYSE, and will remain in force until October 31, 2009. Prior to these temporary amendments, the rules considered companies that qualified to list under the Earnings Test, Assets and Equity Test or the "Initial Listing Standard for Companies Transferring from NYSE Arca" standard of the NYSE's Listed Company Manual to be below compliance standards if their average global market cap over a consecutive 30 trading-day period was less than $75 million and, at the same time, total stockholders' equity was less than $75 million. These temporary changes have lowered the thresholds for these companies to $50 million. Although the changes are in effect, the SEC is inviting comments until June 25, 2009 as it has 60 days from the date of filing to abrogate the rule change.
The U.S. Government Accountability Office recently released a report with respect to its review of SEC rules and actions respecting naked short selling and failures to deliver. The report recommends that the SEC expedite the finalization of the temporary rule implemented in 2008 and develop a process that allows the SEC to "raise and resolve implementation issues that arise from SEC regulations".
For information on short sales in Canada, see our recent update of April 28, 2009.
On June 3, the U.S. Securities and Exchange Commission announced the creation of an Investor Advisory Committee. The Committee's scope includes advising the SEC on investors' concerns, providing perspectives on regulatory issues and serving as a source of information and recommendations with respect to the SEC's regulatory programs. The Committee is expected to begin its work in the next few weeks.
On May 20, the Securities and Exchange Commission proposed rule amendments "that would provide shareholders with a meaningful ability to...nominate the directors of the companies that they own." Under the proposals, shareholders that meet certain thresholds (including holding between 1% and 5% of the voting securities, depending on the circumstances) would be eligible to have their nominee included in proxy materials. The proposed amendments would also allow for shareholder proposals in proxy materials regarding a company's nomination procedures under certain circumstances.
Public comment on the proposed amendments will be accepted for 60 days after their publication.
As recently announced, the SEC has been considering imposing restrictions on short sales and has now published its proposals on the subject. The options being considered include a short sale price test and a "circuit breaker" approach. The SEC is accepting comments on the proposals until June 19, 2009.
The U.S. Court of Appeals for the Eighth Circuit recently released its opinion in Gallus v. Ameriprise, a case considering the scope of a mutual fund adviser’s fiduciary duties under section 36 of the Investment Company Act of 1940 (ICA). The Circuit Court found that while the Gartenberg v. Merrill Lynch case provided a “useful framework for resolving claims of excessive fees”, the size of the fee was not the only factor in considering an alleged violation of the ICA and that the adviser’s conduct during negotiation should also be considered. “[W]e read the plain language of § 36(b) to impose on advisers a duty to be honest and transparent throughout the negotiation process.”
In reversing the Minnesota District Court's decision, the Eighth Circuit found that the lower court should have compared the fees charged to institutional and mutual fund clients. “Indeed, the argument for comparing mutual fund advisory fees with the fees charged to institutional accounts is particularly strong in this case because the investment advice may have been essentially the same for both accounts.” Further, the District Court should have considered the defendants’ conduct “independent of the result of the negotiation” and specifically whether the defendants misled the plaintiffs with respect to the discrepancy in fees.
As such, the Eighth Circuit reversed the decision of the District Court granting the defendants summary judgment and remanded the case for further consideration.
On April 8, 2009, the U.S. Securities and Exchange Commission voted to seek public comment on proposals to impose short sale price restrictions or circuit breaker restrictions and “whether such measures would help promote market stability and restore investor confidence.” The introduction of an uptick rule would be permanent and market-wide, while a "circuit breaker" would limit short selling for particular securities for the remainder of the day in the case of a severe decline in the security’s price. The SEC plans to publish the full text of the full proposals as soon as possible.
The proposals are now available here.
On March 25, 2009, the Supreme Court of Delaware released its decision in Lyondell Chemical Company v. Ryan, a case where the defendant directors of Lyondell were accused of breaching their fiduciary duties in conducting the sale of the company in July 2007. The plaintiffs claimed, among other things, that the directors did virtually nothing to develop a strategy for maximizing shareholder value once they became aware of the buyer’s filing of a Schedule 13D with the SEC in May 2007, which indicated that the company was “in play”. Since the company charter provided directors protection for breaches of their duty of care, this case turned on whether the directors breached their duty of loyalty by failing to act in good faith. The opinion of the Delaware Supreme Court was issued with respect to the defendants’ appeal of the decision of the Court of Chancery (memorandum opinion of July 29, 2008 and letter opinion of August 29, 2008) denying them summary judgment.
Continue Reading...The Delaware Court of Chancery recently released its Opinion in the case of In re Citigroup Inc. Shareholder Derivative Litigation, a derivative action initiated by shareholders of Citigroup against current and former directors and officers of the company. The plaintiffs claimed that the defendants breached their fiduciary duties by not adequately overseeing and managing the risks associated with the company’s involvement in the subprime lending markets. The plaintiffs maintained that the defendants ignored numerous “red flags” that indicated problems in the real estate and credit markets. The plaintiffs also alleged that the directors of the company were liable for corporate waste for, among other things, approving a letter agreement providing a multi-million dollar payment and benefits package for the company’s CEO upon retirement in November 2007. The defendants, meanwhile, brought a motion to dismiss the action, since the plaintiffs did not make a pre-suit demand to the company's directors to pursue litigation. The plaintiffs countered by pleading that demand would have been futile.
In its decision dismissing the oversight claims (for failing to adequately plead demand futility), the Court expounded on the business judgment rule and its application in the present case, where the plaintiffs framed their allegations as Caremark (failure of oversight) claims, when, in fact, the plaintiffs were “attempting to hold the director defendants personally liable for making (or allowing to be made) business decisions that, in hindsight, turned out poorly for the Company” (emphasis added). With respect to the corporate waste claim, the Court found that without further information regarding the additional compensation received by Citigroup’s CEO as a result of the letter agreement and the real value of various restrictive promises provided by him, there was reasonable doubt as to whether the compensation provided by the letter agreement was unconscionable. As such, the motion to dismiss this particular claim was denied.
Amid daily news stories and statements from U.S. public officials about bolstering financial system transparency through increased regulation, two U.S. senators have introduced a bill called the Hedge Fund Transparency Act (the Bill). If passed, the Bill would have significant implications not only for hedge funds, but for venture capitalists, private equity funds and other private funds, including potentially Canadian-domiciled and other offshore funds (Private Funds) that rely on commonly-used exemptions from the definition of “investment company” under the Investment Company Act of 1940 (the ICA). A statement issued by one of the Bill’s sponsors makes clear the intention to cast a wide net:
Continue Reading...The U.S. Securities and Exchange Commission (SEC) recently published a final rule requiring companies to incorporate interactive data, using eXtensible Business Reporting Language (XBRL), into financial statements. Issuers will have to "tag" data using a standard taxonomy and provide the interactive data as an exhibit to periodic and current reports and registration statements as well as transition reports for a change in fiscal year. Further, financial statements in interactive data format will have to be posted on a filer's corporate website. The requirements are intended to improve the usefulness of financial information to investors. "Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of financial and business performance across companies, reporting periods, and industries."
Continue Reading...David Taniguchi, Charles Kraus and Kristi Kasper | 
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As one of its last acts of 2008, the U.S. Securities and Exchange Commission (the SEC) issued its final rule adopting revisions to the oil and gas reporting disclosure requirements applicable to all U.S. domestic and most foreign issuers (the Final Rule)1. The rule revisions will become effective on January 1, 2010, and issuers will be required to begin complying with them in registration statements filed on or after that date, and in annual reports on Form 10-K and Form 20-F for fiscal years ending on or after December 31, 2009. Citing the potential for incomparable disclosures, the SEC will not permit issuers to follow the new rules prior to their effective date.
Continue Reading...On November 14, 2008, the President’s Working Group on Financial Markets (PWG) announced a number of initiatives intended to provide regulatory oversight and prudent management of the over-the-counter derivatives market in the U.S. These initiatives include the implementation of central counterparty services for credit default swaps and the signing of a Memorandum of Understanding between the Federal Reserve, SEC and the Commodity Futures Trading Commission with respect to information sharing and consultation regarding CDS central counterparties issues. The PWG also announced a set of policy objectives to “guide efforts to address challenges associated with OTC derivatives.”
The SEC announced yesterday that it was extending the Emergency Order of September 18 prohibiting the short selling of financial institutions. The Order was set to end at the end of the day on October 2nd, but considering the current state of the market, the SEC decided to extend the Order until the earlier of either the President's signing of the market "bailout" bill or 11:59 p.m. on October 17th, 2008.
The SEC has also extended its Emergency Order of September 17, 2008, which banned "naked" short selling. The Order was set to expire at the end of day October 1, but has now been extended to 11:59 p.m. on October 17, 2008. In the press release accompanying the extension Order, the SEC also communicated that the temporary reporting requirements regarding new short sales and the penalties for violations will extend beyond the above date in the form of an interim final rule.
On October 1, the SEC announced that it is extending its Emergency Order of September 18 temporarily broadening the safe harbour from liability for issuers repurchasing securities. The extended Order will now terminate at 11:59 p.m. on October 17, 2008.
Update: The TSX has taken a similar course of action, extending its previous notice to October 17.
On September 23, 2008, the SEC issued amendments to its rules relating to foreign private issuers, which are intended to enhance information available to investors. Of note, the amendments will allow reporting foreign issuers to assess their eligibility to use the rules and special forms available to foreign private issuers once a year rather than continuously. The reporting deadline for annual reports by foreign private issuers, however, will be accelerated and disclosure requirements will be changed.
The U.S. SEC has recently issued new rules, effective September 18, which require short sellers and broker-dealers to deliver securities by the close of business on the settlement date. A broker-dealer in violation of the close-out requirement will be forced to locate and pre-borrow securities for future short sales in the same security. The SEC took action due to its concern "about the possible unnecessary or artificial price movements based on unfounded rumors regarding the stability of financial institutions and other issuers exacerbated by 'naked' short selling."
On Wednesday, the SEC also voted to publish a proposed roadmap that could lead to the adoption of International Financial Reporting Standards (IFRS) beginning in 2014. The roadmap provides several milestones that lead to a 2011 decision on whether adoption of IFRS occurs.
On Wednesday, the U.S. SEC voted to modernize and update disclosure requirements for foreign companies offering securities in U.S. markets. The amendments seek to improve access to such information by providing American investors with instant electronic access to foreign company disclosure on the internet and in English. The full text of the rules will be published by the SEC shortly.
On Monday, the SEC announced that it had entered into a mutual recognition arrangement with the Australian Securities and Investments Commission (ASIC), together with the Australian Minister for Superannuation and Corporate Law. The agreement provides a framework for the parties to consider exemptions to regulations that would allow American and Australian exchanges and broker-dealers to operate in both jurisdictions without being subject to double regulation. A Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information Related to the Enforcement of Securities Laws and a Memorandum of Understanding Concerning Consultation, Cooperation and the Exchange of Information Related to Market Oversight and the Supervision of Financial Services Firms were also agreed to, and are intended to apply broadly to all U.S. and Australian market activity.
The SEC announced a successor to its EDGAR database today, which it states will provide faster and easier access to financial information. The new Interactive Data Electronic Applications (IDEA) will first supplement, but eventually replace EDGAR. IDEA will collate information from individual forms and allow investors to create reports and analysis, as opposed to the current system, which only allows investors to review one form at a time.
The US SEC recently approved a rule change to amend NASDAQ's definition of "independent director". Previous to the change, NASDAQ Rule 4200(a)(15)(B) generally provided that a director who accepted or had a family member who accepted any compensation from the company in excess of $100,000 during a period of 12 months within the previous three years may not have been deemed an independent director. The approved change to the Rule raises this threshold to $120,000.
In a press release dated August 13, 2008, the U.S. SEC announced that it was publishing for comment an agreement among self-regulatory organizations intended to improve the surveillance and detection of insider trading. The agreement seeks to better protect investors and improve market integrity by reallocating regulatory responsibility in order to eliminate duplication and gaps in surveillance among equity markets.
On August 7, 2008, the U.S. SEC announced two new anti-money laundering compliance initiatives. The first, an online reference site, was originally developed for the benefit of SEC examiners and provides links to relevant laws, rules and guidance to assist mutual funds in AML compliance efforts. The second initiative, a centralized SEC SAR Alert Message Line, will allow the reporting of Suspicious Activity Reports that may require immediate attention by the SEC.
On July 30, 2008, the U.S. Securities and Exchange Commission (SEC) announced new guidance for public companies with respect to investor disclosure on corporate websites. Citing the development of the internet and the emergence of social networking since the last time it issued such direction, the SEC guidance clarifies how companies can develop their websites while complying with securities regulations.
CSX Corporation v. TCI and 3G Fund, June 11, 2008 | 08 CV 02764, U.S. District Court (S.D. N.Y.).
U.S. Court deems hedge fund beneficial owners of shares due to arrangements designed to avoid disclosure obligations. The Court, however, finds itself constrained from ordering remedy sought by target company.
In a somewhat empty victory for the plaintiff railroad company, the U.S. District Court for the Southern District of New York found that the defendant hedge funds employed surreptitious means to avoid disclosure requirements while accumulating shares of CSX. Despite its findings, the District Court found itself restrained by precedent from preventing TCI and 3G Fund from exercising the votes associated with the shares they acquired during the time they were offside disclosure obligations. The plaintiff, therefore, had to settle for an injunction inhibiting the defendants from any future violations of disclosure obligations.
Continue Reading...The HA2003 Liquidating Trust v. Credit Suisse Securities LLC, February 20, 2008 | No. 06-3842 (U.S. Court of Appeals for the 7th Circuit)
Contract between parties set out terms of engagement and the defendant did not have a duty to go beyond its mandate.
This case takes us back to the heady days of the dot-com boom. Back in the 1990s, HA-LO Industries was in the business of making logo-bearing promotional products that companies could use to market themselves. In 1999, the company decided it needed to join the e-commerce bandwagon and subsequently agreed to purchase Starbelly.com for $240 million in cash and shares. While Starbelly.com was a young start-up with a negligible track record, its e-commerce system was attractive to HA-LO.
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