Recent news coverage has suggested that the Staff of the U.S. Securities and Exchange Commission (the “SEC”) has taken a position interpreting its tender offer rules that represents a significant new development. In actuality, however, the Staff has for some time taken the position that the satisfaction of a financing condition in a tender offer for an equity security subject to Regulation 14D constitutes a material change to the tender offer requiring that it remain open for at least five business days following this change. Though nothing new, the Staff’s recent reiteration of this position serves as a reminder to bidders who are financing their offers that they may be required to extend the tender offer period and that their financing papers and merger agreement should be drafted to take this into account.

…continue reading: Got Financing? You May Have to Extend Your Tender Offer

For many employers, underfunded defined benefit pension plans present significant ongoing challenges. These challenges arise not only because of the underfunding itself, but also because of the significant volatility that the underfunding can create on its balance sheet due to changes in interest rates and other key assumptions over time. An employer has always had the ability to seek to improve its longer-term financial profile by “de-risking” its pension plan through the purchase of an annuity from a suitable annuity provider that commits to pay benefits to plan participants without further financial support from the employer. The transfer of pension obligations in this manner, which may include the termination or partial termination of the pension plan, can significantly improve an employer’s financial profile. De-risking transactions have become more prominent in recent months because of two transformative transactions, one involving General Motors and the other involving Verizon. We are pleased to report that the first judicial test of these transactions in court under ERISA, the Federal benefits statute, has resulted in a victory for the parties involved in the transaction. And, while the decision was based only on a request for preliminary injunctive relief, and while future litigation will be based on the manner in which future de-risking transactions are structured (including on the key issue of annuity provider selection and suitability), the decision validates the central thesis of pension de-risking and provides an important and helpful roadmap through some of the potential ERISA challenges to these transactions.

…continue reading: Court Rejects ERISA Challenge to Pension De-Risking Transaction

On September 25, 2012, a federal judge in Connecticut resolved an apparent tension between the anti-retaliation provision of the Dodd-Frank Act (“Dodd-Frank” or the “Act”) and the definition of “whistleblower” under that Act in a way that broadly interprets the protections afforded to employees who report issues they “reasonably believe” constitute violations of the securities laws, even where the employee has never raised the issue with the Securities and Exchange Commission (“SEC”). The decision by Judge Stefan R. Underhill in Kramer v. Trans-Lux Corp., No. 3:11-cv-01424, 2012 WL 4444820 (D. Conn. Sept. 25, 2012), appears to be the first in which a judge has allowed a whistleblower anti-retaliation claim under Dodd-Frank to proceed past the motion to dismiss stage. [1]

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

…continue reading: Dodd-Frank Whistleblower Provision and Court’s Broad Interpretation

Judge Paul Crotty of the U.S. District Court for the Southern District of New York recently held that Goldman Sachs & Co. did not have a duty to publicly disclose the receipt of a Wells Notice from the Securities and Exchange Commission (“SEC”). Prior to this decision, no court had ever been asked to consider disclosure obligations with respect to Wells Notices. Going forward, this decision may inform companies’ consideration of whether and when to publicly disclose receipt of a Wells Notice.

The case, Richman v. Goldman Sachs Group, Inc., centered on allegations by class action plaintiffs against Goldman relating to the firm’s role in a synthetic collateralized debt obligation (“CDO”) called ABACUS 2007 AC-1 (“Abacus”). In January 2009, Goldman’s SEC filings disclosed ongoing governmental investigations related to the Abacus transaction. Between July 2009 and January 2010, the SEC issued Wells Notices to Goldman and two Goldman employees involved in the Abacus transaction, notifying them that Enforcement Division staff “intend[ed] to recommend an enforcement action.” The SEC filed a complaint against Goldman and one of its employees in April 2010, which Goldman settled for $550 million in July 2010. Plaintiffs alleged that Goldman’s failure to disclose its receipt of the Wells Notices was an actionable omission under Section 10(b) and Rule 10b-5 of the Exchange Act, and that Goldman had an affirmative legal obligation to disclose its receipt of the Wells Notices under applicable regulations.

…continue reading: Duty to Disclose SEC Wells Notices Rejected by Judge

The Eleventh Circuit Court of Appeals dealt a blow to the Securities and Exchange Commission (“SEC”) and its long-standing practice of seeking broad federal court injunction orders directing defendants to refrain from any future violations of securities laws, often referred to as “obey-the-law” injunctions. In SEC v. Goble, No. 11-12059, 2012 WL 1918819 (11th Cir. May 29, 2012), the Eleventh Circuit vacated the “obey-the-law” injunctions entered against defendant Richard Goble, the founder of North American Clearing, Inc. (“North American”), because the injunctions did not satisfy Federal Rule of Civil Procedure 65(d)(1), which requires that injunctions describe, “in reasonable detail. . . the act or acts [sought to be] restrained or required.” Although the decision appears to widen an existing gap between the Eleventh and Second Circuits on the propriety of “obey-the-law” injunctions in SEC settlements, the full impact of the Goble decision remains unclear. The Eleventh Circuit’s strongly worded opinion and careful analysis could prompt other courts to question the benefit and efficacy of the SEC’s frequent practice of seeking such broad “obey-the-law” injunctions.

…continue reading: SEC “Obey-the-Law” Injunctions Held Invalid

On October 11th and 12th, the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission (the “regulators”) proposed for comment implementing rules (the “Proposed Rules”) for Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”). The Volcker Rule generally prohibits “banking entities” from engaging in proprietary trading and investing in hedge funds or private equity funds, subject to certain exemptions.

The Proposed Rules, which provide guidance on how the Volcker Rule is proposed to be applied in practice, address a number of significant issues raised by the statutory text of the Volcker Rule but leave open many important questions. Indeed, the release proposing the Proposed Rules (the “Proposing Release”) includes almost 400 questions requesting comment on a range of issues, suggesting both that the Proposed Rules are a work in progress and that the regulators have not achieved consensus on many of the elements of the proposal. This memorandum focuses on the most significant issues relating to the prohibition on banking entities investing in and sponsoring private equity and hedge funds.

…continue reading: The Volcker Rule Proposals on Bank Investments in Private Funds

Recently, a new version of the Takeover Code came into force. With few exceptions, it governs all offers and possible offers made from this date. The amendments are the result of the year-long consultation process initiated by the Takeover Panel after widespread criticism and concern following Kraft Food Inc.’s hostile takeover of Cadbury plc. The amendments are designed to address the concern that hostile bidders have recently been able to acquire a tactical advantage over the target company to the detriment of the target and its shareholders and that the outcome of hostile offers is often unduly influenced by short-term investors that do not take into account the long-term interest of the target. The amendments being introduced are intended to redress the balance in favour of the target. This note provides a brief update of the principal changes.

Requirement for a potential bidder to be identified. There are enhanced disclosure requirements in the first public announcement of a possible offer, including identifying by name any potential bidder(s) from whom the target company has received an approach or with whom it is in talks.

…continue reading: Principal Changes to the UK Takeover Code