Posts Tagged ‘Morrison & Foerster’

SEC Investigations and Enforcement Related to Financial Reporting and Accounting

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday February 16, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Randall J. Fons, partner and co-chair of the Securities Litigation, Enforcement, and White-Collar Defense Group and the global FCPA and Anti-Corruption Task Force at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Fons.

“One of our goals is to see that the SEC’s enforcement program is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small.”
— Mary Jo White, Chair of the SEC, October 9, 2013

“In the end, our view is that we will not know whether there has been an overall reduction in accounting fraud until we devote the resources to find out, which is what we are doing.”
— Andrew Ceresney, Co-Director of the SEC Division of Enforcement, September 19, 2013

“The SEC is ‘Bringin’ Sexy Back’ to Accounting Investigations”
New York Times, June 3, 2013

Much has changed since the collapse of Enron in 2001 and the ensuing avalanche of financial fraud cases brought by the SEC. For example, Sarbanes-Oxley raised auditing standards, imposed certification requirements on public company officers and required enhanced internal controls for public companies. The Public Company Accounting Oversight Board (PCAOB) was formed “to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit
reports.” [1] In pursuit of that goal, the PCAOB has conducted hundreds of audit firm inspections, adopted numerous auditing standards and brought dozens of enforcement actions against auditors for violating PCAOB rules and auditing standards.

…continue reading: SEC Investigations and Enforcement Related to Financial Reporting and Accounting

“Greenmail” Makes a Comeback

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday January 22, 2014 at 9:12 am
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Editor’s Note: The following post comes to us from Spencer D. Klein, partner in the Corporate Department and co-chair of the global Mergers & Acquisitions Group at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Klein and Enrico Granata.

The much-maligned 1980s tactic of “greenmail” [1] appears to have made a comeback in 2013. “Greenmail” has generally been defined as the practice of purchasing enough shares in a company to threaten a takeover, and then using that leverage to pressure the target company to buy those shares back at a premium in order to abandon the takeover. Today’s variety of greenmail does not always involve the threat of a takeover, but instead typically involves the actual or implied threat of a proxy contest that would effect major corporate change.

In just the last few months, several noted activist investors have profited handsomely by selling shares back to their target companies, including, among others, Icahn Associates with respect to its stake in WebMD and Corvex Management with respect to its stake in ADT.

…continue reading: “Greenmail” Makes a Comeback

Creeping Takeovers and Fiduciary Duties—A Recap

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 8, 2013 at 9:03 am
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Editor’s Note: The following post comes to us from Spencer D. Klein, partner in the Corporate Department and co-chair of the global Mergers & Acquisitions Group at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

In In re Sirius XM Shareholder Litigation, [1] Delaware Chancellor Strine dismissed a complaint that the Sirius board had breached its fiduciary duties by adhering to the provisions of an investment agreement with Liberty Media that precluded the Sirius board from blocking Liberty Media’s acquisition of majority control of Sirius through open-market purchases made by Liberty Media following a three-year standstill period. By holding the complaint to be time-barred under the equitable doctrine of laches the Delaware court did not address the merits of whether the Sirius board breached its fiduciary duties. However, In re Sirius still offers the opportunity to recap the guidance on “creeping takeovers” that can be derived from existing Delaware case law:

…continue reading: Creeping Takeovers and Fiduciary Duties—A Recap

Changing Banking for Good or for Better?

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 28, 2013 at 10:02 am
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Editor’s Note: The following post comes to us from Jeremy Jennings-Mares, partner in the Capital Markets practice at Morrison & Foerster LLP, and is based on a Morrison & Foerster client alert by Mr. Jennings-Mares, Peter J. Green and Nimesh Christie.

The UK Parliamentary Commission on Banking Standards (the “Commission”) published its much anticipated report (the “Report”) [1] on 19 June 2013 entitled “Changing Banking for Good”. The Government provided its response (the “Response”) [2] to the Report on 8 July 2013, stating that it agrees with the principal recommendations of the Report. It states, however, that there are certain recommendations that require more detailed work to ensure effective implementation, and other recommendations that the Government disagrees with, but intends to achieve the goals of the Commission in other ways. The implementation of the recommendations in the Report will change banking in the UK permanently; the question remains whether they will change banking for the better.

The Commission, chaired by Andrew Tyrie MP, was established in July 2012 following the very public recent controversies affecting banks, including issues arising from the setting of the LIBOR rate, to make recommendations regarding improving the culture, professional standards and governance of banks. The Report contains proposals which fall into five main categories:

…continue reading: Changing Banking for Good or for Better?

The STOCK Act and the Political Intelligence Industry

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday July 20, 2013 at 8:44 am
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Editor’s Note: The following post comes to us from Daniel A. Nathan, partner in the Securities, Enforcement, and White-Collar Defense Group at Morrison & Foerster LLP, and is based on a Morrison & Foerster client alert by Mr. Nathan, Ana-Maria Ignat, and Kevin J. Matta.

Investors who hire political intelligence firms to collect information from government sources should take notice of the Stop Trading on Congressional Knowledge (STOCK) Act, according to panelists at a recent American Bar Association event. The panel, which included Stephen Cohen of the SEC’s Division of Enforcement, gathered in the wake of recent scandals and increased government scrutiny of the political intelligence industry—in particular, the SEC’s investigation of Height Securities, a political research and advisory firm. According to The Wall Street Journal, on April 1, 2013, Height Securities alerted investors to a government decision to reverse funding cuts to certain health-care companies before the agency formally announced its decision. In the 18 minutes before the markets closed, investors traded the suddenly promising health-care stocks, making exorbitant profits.

The STOCK Act

Under the STOCK Act, investors who rely on material, non-public information obtained through government channels can be liable under the federal securities laws for insider trading. Irrespective of the Act, insider-trading laws prohibit trading in securities while in possession of material non-public information obtained in breach of a fiduciary duty. The Act explicitly expanded insider-trading restrictions to members of Congress and legislative branch employees, and made clear that a government employee owes a duty to the United States with respect to material non-public information derived from his or her position.

…continue reading: The STOCK Act and the Political Intelligence Industry

Goldilocks, Porridge and General Solicitation

Posted by David M. Lynn, Morrison & Foerster LLP, on Friday July 19, 2013 at 9:18 am
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Editor’s Note: David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. This post is based on a Morrison & Foerster client alert by Mr. Lynn, Jay Baris, and Anna Pinedo.

At long last, the U.S. Securities and Exchange Commission (SEC) took action July 10, 2013 to implement rules that complied with the JOBS Act mandate to relax the prohibition against general solicitation in certain private offerings of securities. The original SEC proposal from August 2012, proposing amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act, had drawn significant comments. The final rule, as well as the SEC’s proposed rules relating to private offerings discussed below, are likely to generate additional commentary. One might say that the July 10, 2013 webcast of the SEC’s open meeting provided a glimpse into the too-hot/too-cold Goldilocks-type debate that will continue to play out over the next few months regarding the appropriate balance between measures that facilitate capital formation and investor protection provisions.

In addition to promulgating rules to relax the ban on general solicitation, which will have a significant market impact, the SEC also adopted the bad actor provisions for Rule 506 offerings that it was required to implement pursuant to the Dodd-Frank Act. The bad actor proposal had been released in 2011, and SEC action had been anticipated on the bad actor proposal for some time. The SEC also approved a series of proposals relating to private offerings that are intended to safeguard investors in the new world of general advertising and general solicitation. All told, will these measures encourage or discourage issuers and their financial intermediaries from availing themselves of the opportunity to use general solicitation? Will this new ability to reach investors with whom neither the issuer nor its intermediary have a pre-existing relationship create serious investor protection concerns? Will the proposed investor protection measures be sufficient to address the concerns of consumer and investor advocacy groups, or will we ultimately see revamped investor accreditation standards?

Below we provide a very brief summary of the July 10, 2013 actions.

…continue reading: Goldilocks, Porridge and General Solicitation

Court Orders Company to Provide Privileged Communications to Dissident Director

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday July 15, 2013 at 9:14 am
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Editor’s Note: The following post comes to us from Michael O’Bryan, partner in the Corporate Department at Morrison & Foerster LLP. This post is based on a Morrison & Foerster Client Alert, and is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

The Delaware Court of Chancery, in Kalisman v. Friedman (Apr. 17, 2013), ordered the respective counsels for a company and for a special committee of the company’s board of directors to provide to a dissident director copies of their communications with the company’s other directors, as well as internal law firm communications. The dissident director was a member of a large stockholder that had announced an intent to nominate a competing slate of directors at the company’s next annual meeting, and was a member of the special committee as well as of the board. The communications related to actions taken by the board and the special committee that might otherwise be protected from disclosure to third parties by the attorney-client privilege or the work product doctrine.

Background

The opinion arises from the proxy contest and related litigation over Morgans Hotel Group. The dissident director, Kalisman, is a member of a large stockholder, OTK, and was first appointed to the Morgans board early in 2011. Later that year, the board formed a special committee to evaluate strategic alternatives, and Kalisman was put on the committee. No significant alternative was adopted, however, and early this year OTK announced that it would nominate a competing slate of directors for the Morgans board.

…continue reading: Court Orders Company to Provide Privileged Communications to Dissident Director

SEC Guidance on Conflict Mineral and Resource Extraction Disclosure Requirements

Posted by David M. Lynn, Morrison & Foerster LLP, on Sunday June 16, 2013 at 11:10 am
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Editor’s Note: David M. Lynn is a partner and co-chair of the Global Public Companies and Securities practice at Morrison & Foerster LLP. This post is based on a Morrison & Foerster client alert by Mr. Lynn, Lawrence R. Bard, and Daniel R. Kahan.

On May 30, 2013, the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) published Frequently Asked Questions (“FAQs”) regarding certain disclosures required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). [1] The new FAQs provide important guidance to issuers regarding disclosures they may be required to make in connection with products containing conflict minerals and certain payments made by resource extraction issuers.

Background

Title XV of the Dodd-Frank Act, entitled “Miscellaneous Provisions,” contains these “specialized corporate disclosure” provisions, which include:

…continue reading: SEC Guidance on Conflict Mineral and Resource Extraction Disclosure Requirements

FINRA: Broker-Dealer Email Systems Must Keep Pace with Firm Growth

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday June 10, 2013 at 9:04 am
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Editor’s Note: The following post comes to us from Daniel Nathan, partner in the Securities Litigation, Enforcement and White-Collar Defense Group at Morrison & Foerster LLP, and is based on a client alert by Mr. Nathan and Kelley Howes.

A recent FINRA disciplinary action sends a strong message to broker-dealers that the development of their compliance systems—particularly with respect to email review and retention—must keep pace with the growth of their businesses.

FINRA fined LPL Financial LLC (LPL) $7.5 million for significant failures in its email system that prevented LPL from accessing hundreds of millions of emails, and from reviewing tens of millions of other emails over an approximately six-year period. FINRA stressed that LPL’s inadequate systems and procedures caused the firm to provide incomplete responses to email requests from regulators, and also likely affected the firm’s production of emails in arbitrations and private actions. Accordingly, FINRA also required the firm to establish a $1.5 million fund to pay discovery sanctions to customer claimants that were potentially affected by the system failures, and to notify regulators that may have received incomplete email production.

…continue reading: FINRA: Broker-Dealer Email Systems Must Keep Pace with Firm Growth

FSOC Proposes the First Three Nonbank SIFIs

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday June 8, 2013 at 10:51 am
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Editor’s Note: The following post comes to us from Charles Horn, partner focusing on banking and financial services matters at Morrison & Foerster LLP, and is based on a Morrison & Foerster client alert by Mr. Horn and Jay G. Baris.

In a June 3, 2013 closed-door meeting, the Financial Stability Oversight Council (“FSOC”) voted to propose the designation of three financial services companies—American International Group (“AIG”), Prudential Financial and GE Capital—as the first systemically significant nonbank financial institutions (“nonbank SIFIs”) under section 113 of the Dodd-Frank Act.

The FSOC decision, announced by the Treasury Secretary, did not identify specific names, but all three companies publicly confirmed their proposed nonbank SIFI status. If these proposed designations become final, these three companies will become the first nonbank SIFIs to be subjected to stringent Federal Reserve Board oversight and supervision, as well as capital and other regulatory requirements, under Title I of the Dodd-Frank Act. In addition, these designations will bring to life the Dodd-Frank Act’s orderly liquidation authority that applies to systemically significant financial firms, in the event that one of these companies may fail or be in danger of failing in the future.

The FSOC’s action to begin the process of designating nonbank SIFIs has been long awaited—some would say long-overdue—and the identities of the three companies that have been proposed for SIFI designation come as no real surprise. Nonetheless, the FSOC’s action marks an important milestone in the implementation of the Dodd- Frank Act’s systemic regulation framework. While the actual significance of these designations likely will emerge more clearly in the coming weeks and months, the FSOC’s action brings into sharper focus the questions and challenges that the designated firms and their regulators will face.

…continue reading: FSOC Proposes the First Three Nonbank SIFIs

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