Archive for the ‘Accounting & Disclosure’ Category

SEC Charges Schedule 13D Filers for Untimely Disclosure

Posted by David A. Katz, Wachtell, Lipton, Rosen & Katz, on Monday March 23, 2015 at 9:09 am
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Editor’s Note: David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions, corporate governance, and complex securities transactions. This post is based on a Wachtell Lipton memorandum by Mr. Katz and Alison Z. Preiss.

The Securities and Exchange Commission announced last week that it had charged eight directors, officers and major stockholders for failing to timely disclose steps taken to take their respective companies private in their beneficial ownership reports on Schedule 13D. The orders issued by the SEC indicate the SEC staff became aware of the violations in the course of their review of proxy and Schedule 13E-3 transaction statements, which described the steps taken in the required disclosures regarding the background of the transactions. The orders note that emails and other contemporaneous communications clearly indicate the steps taken that had not been properly disclosed. The orders issued by the SEC (to which the offending parties consented) resulted in cease-and-desist orders and payment of civil penalties.

…continue reading: SEC Charges Schedule 13D Filers for Untimely Disclosure

A Few Observations on Shareholders in 2015

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Friday March 20, 2015 at 9:03 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at Tulane’s 27th Annual Corporate Law Institute; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 19, 2015], I will share a few observations on three specific areas: the current state of shareholder activism; the shareholder proposal process; and fee-shifting bylaws. I know your next two panels take up aspects of these important topics, but I think the space is lively and big enough for all of us to comment.

The Current Activism Landscape

There are different views on what is meant by “shareholder activism,” but just the word “activism” triggers an adverse reaction from many companies. Reflexively painting all activism negatively is, in my view, using too broad a brush and indeed is counterproductive. To me, the term activism captures the range of efforts by investors to influence a company’s management or decision-making. Some of it is constructive. In certain situations, activism seeks to bring about important changes at companies that can increase shareholder value. Now, some of you may find the juxtaposition of the word “activism” with “shareholder value” does not comport with your sense of reality. Some of you also believe that activists are not interested in increasing long-term value for shareholders and other stakeholders. Still others will assert that activists are simply short-term traders looking to make a quick dollar. I did say this was a lively topic with many different views.

…continue reading: A Few Observations on Shareholders in 2015

SEC Enforcement Developments in 2014, and a Look Forward

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday March 18, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Bill McLucas, partner and chair of the securities department at Wilmer Cutler Pickering Hale and Dorr LLP, and is based on a WilmerHale publication by Mr. McLucas; the complete publication, including footnotes, is available here.

As we noted last year in our memorandum focused on 2013 developments, Securities and Exchange Commission Chair Mary Jo White has called for the SEC to be more aggressive in its enforcement program. By all accounts, the Enforcement Division has responded to that call. The past year saw the SEC continue the trend, started under Enforcement Director Robert Khuzami in 2009, of transforming the SEC’s civil enforcement arm into an aggressive law enforcement agency modeled on a federal prosecutor’s office. This should not come as a surprise since both Andrew Ceresney, the current Director, and George Cannellos, Ceresney’s Co-Director for a brief period of time, like Khuzami, spent many years as federal prosecutors in the Southern District of New York. And the Commission itself is now led for the first time by a former federal prosecutor, Mary Jo White, the US Attorney for the Southern District of New York from 1993 to 2002. Given the events of the past decade involving the Madoff fraud and the fallout from the 2008 financial crisis, we believe both the aggressive tone and positions the SEC has taken in recent years will continue.

…continue reading: SEC Enforcement Developments in 2014, and a Look Forward

Private Equity Fund Managers: Annual Compliance Reminders and New Developments

Editor’s Note: The following post comes to us from David J. Greene, partner focusing on investment fund formation, structuring, and related transactions at Latham & Watkins LLP, and is based on a Latham client alert by Mr. Greene, Amy Rigdon, Barton Clark, and Nabil Sabki.

US federal laws and regulations, as well as the rules of self-regulatory organizations, impose numerous yearly reporting and compliance obligations on private equity firms. While these obligations include many routine and ongoing obligations, new and emerging regulatory developments also impact private equity firms’ compliance operations. This post provides a round-up of certain annual or periodic investment advisory compliance-related requirements that apply to many private equity firms. In addition, this post highlights material regulatory developments in 2014 as well as a number of expectations regarding areas of regulatory focus for 2015.

…continue reading: Private Equity Fund Managers: Annual Compliance Reminders and New Developments

A European Prospectus Revolution?

Editor’s Note: David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. The following post is based on a Morrison & Foerster publication by Jeremy C. Jennings-Mares and Peter J. Green.

The EU prospectus regime, based on Directive 2003/71/EC (the “Prospective Directive”) as amended, has been in place now for nearly 10 years and was due to be reviewed by the European Commission by 1 January 2016. However, the European Commission has moved forward its review, and on 18 February 2015 released a consultation [1] on possible reform of the current regime, in conjunction with its Green Paper on a possible EU Capital Markets Union, released on the same date.

The main focus of the proposed EU Capital Markets Union is on improving the access to capital markets for smaller business entities (“SMEs”), in order to broaden the range of funding without the need for bank intermediation. The European Commission considers that the review of the EU prospectus regime is a vital part of developing a Capital Markets Union and, as such, has accelerated the timing of the review by launching its consultation now.

…continue reading: A European Prospectus Revolution?

Keeping Pace with Digital Disruption in our Securities Marketplace

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on Friday March 6, 2015 at 9:04 am
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Editor’s Note: Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference, available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Before I begin my remarks, I would like to acknowledge the remarkable and dedicated career of Harvey Goldschmid. Just a few weeks ago, Harvey visited me to discuss his perspectives on a number of timely securities law issues. His superb intellect was reinforced by his engaging personality and skill as a teacher.

Harvey’s intense passion for the securities laws and investor protection was an inspiration to many of us. In authoring a tribute to Harvey Goldschmid in 2006, SEC historian Joel Seligman labeled him one of the most influential Commissioners. [1] I couldn’t agree more.

This conference provides us with an opportunity to look backward and to look forward. As I look back over the SEC’s history, I am always impressed by the rate and degree of change.

Picture Wall Street 80 years ago—the street was filled with dozens of young men—“runners”—carrying paper back and forth between various brokers and dealers and banks and exchanges and companies that made up the securities markets. Runners were the backbone of the securities market, delivering paperwork and stock certificates at a rate of $8 per day. Maybe the telephone would ring (the desk telephone was launched in 1932) or a telegram would arrive. And investors, would look to the newspaper to decide what stocks to buy or sell.

…continue reading: Keeping Pace with Digital Disruption in our Securities Marketplace

The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday March 4, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Andrew Call of the School of Accountancy at Arizona State University, Gerald Martin of the Department of Finance and Real Estate at American University, Nathan Sharp of the Department of Accounting at Texas A&M University, and Jaron Wilde of the Department of Accounting at the University of Iowa.

In our paper, The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions, which was recently made available on SSRN, we investigate the effect of employee whistleblowers on the consequences of financial misrepresentation enforcement actions by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ). Whistleblowers are ostensibly a valuable resource to regulators investigating securities violations, but whether whistleblowers have any measurable impact on the outcomes of enforcement actions is unclear. Using the universe of SEC and DOJ enforcement actions for financial misrepresentation between 1978 and 2012 (Karpoff et al., 2008, 2014), we investigate whether whistleblower involvement is associated with more severe enforcement outcomes. Specifically, we examine the effects of whistleblower involvement on: (1) monetary penalties against targeted firms; (2) monetary penalties against culpable employees; and (3) the length of incarceration (prison sentences) imposed against employee respondents. In addition, we investigate the effect of whistleblowers on the duration of the violation, regulatory proceedings, and total enforcement periods. We examine the effects of whistleblowers conditional on the existence of a regulatory enforcement action. This distinction is important because our tests exploit variation in consequences to SEC or DOJ enforcement with and without whistleblower involvement; we do not measure the effects of whistleblower allegations for which there are no regulatory enforcement actions.

…continue reading: The Impact of Whistleblowers on Financial Misrepresentation Enforcement Actions

Not Clawing the Hand that Feeds You

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 3, 2015 at 9:18 am
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Editor’s Note: The following post comes to us from Sterling Huang, Chee Yeow Lim, and Jeffrey Ng, all of the School of Accountancy at Singapore Management University.

In our paper, Not Clawing the Hand that Feeds You: The Case of Co-opted Boards and Clawbacks, which was recently made publicly available on SSRN, we examine the impact of beholdenness of the directors to the CEO on the adoption and enforcement of clawbacks.

Clawbacks have been increasingly prevalent in recent years, and the aim of such provisions is to provide a punishment mechanism that links an executive’s compensation more closely to his or her financial reporting behavior. Clawbacks typically allow firms to recoup compensation from executives upon the occurrence of accounting restatements. Perhaps not surprisingly, the implementation and enforcement of clawbacks by companies is likely to create tensions between boards and executives because executives are unlikely to want to have a “Sword of Damocles” hanging over the compensation that is already in their pocket and are likely to resist attempts by boards to claw at this compensation when accounting restatements trigger a clawback. Hence, to better understand the use of clawbacks by firms, it is important to understand the type of boards that are more likely to implement clawbacks.

…continue reading: Not Clawing the Hand that Feeds You

SEC’s Swaps Reporting and Disclosure Final Rules

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 1, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Troy Paredes, Samuel Crystal, and David Kim.

On February 11, 2015, the Securities and Exchange Commission (SEC) released two final rules toward establishing a reporting and public disclosure framework for security-based swap (SBS) transaction data. The SEC’s Commissioners had voted in January to approve the rules, 3 to 2. [1] These rules are the SEC’s first substantive SBS requirements since the SEC began laying out its cross-border position through final rules in June 2014. [2] Chair White has consistently stressed the need to complete substantive SBS requirements and now appears willing to do so even when the SEC Commissioners are divided.

The SEC rules diverge from existing Commodity Futures Trading Commission (CFTC) requirements in some key ways. These divergences will create technical complexity for dealers who have built systems and processes to meet already live CFTC regulations. For example, the SEC’s broader, more exhaustive, and possibly repetitive scope of “Unique Identifier Codes” (UIC) will be problematic for market participants. A less obvious problem will be the SEC’s requirement to report SBS data within 24 hours (until modified by the SEC as the rule suggests), as dealers will likely want to delay public dissemination for as long as possible which will run counter to their existing set-ups for the CFTC requirement to report to a swap data repository (SDR) “as soon as technologically practicable.”

…continue reading: SEC’s Swaps Reporting and Disclosure Final Rules

Making the Municipal Securities Market More Transparent, Liquid, and Fair

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Sunday February 22, 2015 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

It is difficult to overstate the importance of the municipal securities market. There is perhaps no other market that so profoundly influences the quality of our daily lives. Municipal securities provide financing to build and maintain schools, hospitals, and utilities, as well as the roads and other basic infrastructure that enable our economy to flourish. Municipal bonds’ tax-free status also makes them an important investment vehicle for individual investors, particularly retirees. Ensuring the existence of a vibrant and efficient municipal bond market is essential, particularly at a time when state and local government budgets remain stretched.

Unfortunately, despite its size and importance, the municipal securities market has been subjected to a far lesser degree of regulation and transparency than other segments of the U.S. capital markets. In fact, investors in municipal securities are afforded “second-class treatment” under current law in many ways. This has allowed market participants to cling to outdated notions about how the municipal securities market should operate. The result is a market that, in the view of many, is excessively opaque, illiquid, and decentralized.

…continue reading: Making the Municipal Securities Market More Transparent, Liquid, and Fair

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