Earlier today [Wednesday, December 10, 2014], the Second Circuit Court of Appeals issued an important decision overturning the insider trading convictions of two portfolio managers while clarifying what the government must prove to establish so-called “tippee liability.” United States v. Newman, et al., Nos. 13-1837-cr, 13-1917-cr (2d Cir. Dec. 10, 2014). The Court’s decision leaves undisturbed the well-established principles that a corporate insider is criminally liable when the government proves he breached fiduciary duties owed to the company’s shareholders by trading while in possession of material, non-public information, and that such a corporate insider can also be held liable if he discloses confidential corporate information to an outsider in exchange for a “personal benefit.”
Posts Tagged ‘Wachtell Lipton’
Today’s Wall Street Journal reports that a current SEC Commissioner and a former SEC Commissioner (now a law professor) have published a lengthy paper challenging the scholarly bona fides—and legality—of the recent efforts by the Harvard Law School Shareholder Rights Project (SRP) to cause major American corporations to declassify their boards of directors. During the past three proxy seasons, the Harvard SRP has promulgated numerous stockholder-sponsored precatory resolutions calling for declassification of companies with staggered boards, and has succeeded in causing 98 companies to remove their staggered structure and have all their directors stand for election annually.
A New York appellate court today [December 04, 2014] ruled that the “common-interest privilege” can protect from discovery pre-closing communications among merger parties and their counsel made for the predominant purpose of furthering a common legal interest, even if there is no pending or anticipated litigation. Ambac Assurance Corp. v. Countrywide Home Loans, Inc., No. 651612/10 (N.Y. App. Div. 1st Dep’t Dec. 4, 2014). The ruling recognizes that after a merger agreement is signed, the merging parties must often share legal advice to complete the transaction.
On October 22, 2014, Institutional Shareholder Services issued a note to clients entitled “The IRR of ‘No’.” The note argues that shareholders of companies that have successfully “just said no” to hostile takeover bids have incurred “profoundly negative” returns. In a note we issued the same day, we called attention to critical methodological and analytical flaws that completely undermine the ISS conclusion. Others have also rejected the ISS methodology and conclusions; see, for example, the November analysis by Dr. Yvan Allaire’s Institute for Governance of Public and Private Organizations entitled “The Value of ‘Just Say No’” and, more generally, a December paper by James Montier entitled “The World’s Dumbest Idea.” Of course, even putting aside analytical flaws, statistical studies do not provide a basis in individual cases to attack informed board discretion in the face of a dynamic business environment. The debate about “just say no” has been raging for the 35 years since Lipton published “Takeover Bids in the Target’s Boardroom,” 35 Business Lawyer p.101 (1979). This prompts looking at the most prominent 1979 “just say no” rejection of a takeover.
The challenges that directors of public companies face in carrying out their duties continue to grow. The end goal remains the same, to oversee the successful, profitable and sustainable operations of their companies. But the pressures that confront directors, from activism and short-termism, to ongoing shifts in governance, to global risks and competition, are many. A few weeks ago we issued an updated list of key issues that boards will be expected to deal with in the coming year (accessible at this link: The Spotlight on Boards, and discussed on the Forum here). Highlighted below are a few of the more significant issues and trends that we believe directors should bear in mind as they consider their companies’ priorities and objectives and seek to meet their companies’ goals.
On November 7, 2014, the Antitrust Division of the U.S. Department of Justice brought a lawsuit against Flakeboard America Limited, its foreign parents, and SierraPine, charging that Flakeboard exercised operational control over SierraPine prior to expiration of the statutory pre-merger waiting period, prematurely assuming beneficial ownership of the target assets in violation of the Hart-Scott-Rodino Act and conspiring in violation of Section 1 of the Sherman Act. Flakeboard and SierraPine settled the case, with each agreeing to pay $1.9 million in HSR fines and Flakeboard disgorging an additional $1.15 million in unlawful profits.
A number of U.S. companies have recently received “proxy access” shareholder proposals submitted under SEC Rule 14a-8. Many of the recipients have been targeted under the New York City Comptroller’s new “2015 Boardroom Accountability Project,” which is seeking to install proxy access at 75 U.S. publicly traded companies reflecting diverse industries and market capitalizations. Underlying the Comptroller’s selection of targets is a stated focus on climate change, board diversity and executive compensation.
This year has seen a continuance of the high and increasing level of activist campaigns experienced during the last 14 years, from 27 in 2000 to nearly 250 to date in 2014, in addition to numerous undisclosed behind-the-scenes situations. Today, regardless of industry, no company can consider itself immune from potential activism. Indeed, no company is too large, too popular or too successful, and even companies that are respected industry leaders and have outperformed peers can come under fire. Among the major companies that have been targeted are, Amgen, Apple, Microsoft, Sony, Hess, P&G, eBay, Transocean, ITW, DuPont, and PepsiCo. There are more than 100 hedge funds that have engaged in activism. Activist hedge funds have approximately $200 billion of assets under management. They have become an “asset class” that continues to attract investment from major traditional institutional investors. The additional capital and new partnerships between activists and institutional investors have encouraged increasingly aggressive activist attacks.
A federal district court today ruled that serious questions existed as to the legality of Pershing Square’s ploy to finance Valeant’s hostile bid for Allergan. Allergan v. Valeant Pharmaceuticals Int’l, Inc., Case No. SACV-1214 DOC (C.D. Cal. November 4, 2014).
As we wrote about in April, Pershing Square and Valeant hatched a plan early this year attempting to exploit loopholes in the federal securities laws to enable Pershing Square to trade on inside information of Valeant’s secret takeover plan, creating a billion dollar profit at the expense of former Allergan stockholders that could then be used to fund the hostile bid. Since then, Pershing Square and Valeant have trumpeted their maneuver as a new template for activist-driven hostile dealmaking.
The national and economic security of the United States depends on the reliable functioning of critical infrastructure. Cybersecurity threats exploit the increased complexity and connectivity of critical infrastructure systems, placing the Nation’s security, economy, and public safety and health at risk. Similar to financial and reputational risk, cybersecurity risk affects a company’s bottom line. It can drive up costs and impact revenue. It can harm an organization’s ability to innovate and to gain and maintain customers.
—National Institute for Standards and Technology, Framework for Improving Critical Infrastructure Cybersecurity, Version 1.0
In today’s technology driven environment, public companies must constantly confront the challenge of cybersecurity, in its complex, varied, and ever-adapting forms. Cybersecurity breaches regularly fill the headlines, the costs of cybercrime are skyrocketing, and the repercussions of corporate cyber-attacks are felt all the way from chief executives to retail customers. President Barack Obama has stated that “the private sector and the government can, and should, work together to meet this shared challenge,” while FBI Director Robert S. Mueller has described “the critical role the private sector must play in cyber security.” As companies become increasingly dependent on networked technology, and as an expanding number of people conduct transactions and other activities online, cybersecurity will continue to grow in importance for the business community, for the global economy, and for society at large.