Tag: Disclosure

Shedding Light on Dark Pools

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 at an open meeting of the SEC; 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.

Today, [November 18, 2015], the Commission considers proposing much-needed enhancements to the regulatory regime for alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. I will support these proposals because they could go a long way toward helping market participants make informed decisions as they attempt to navigate the byzantine structure of today’s equity markets.


Rural/Metro and Disclosure Settlements

Joel E. Friedlander is President of Friedlander & Gorris, P.A. This post relates to Mr. Friedlander’s recent article, How Rural/Metro Exposes the Systemic Problem of Disclosure Settlements. This post is part of the Delaware law series; links to other posts in the series are available here.

There is no aspect of merger and acquisitions litigation more pervasive or significant than the disclosure settlement. It is the mechanism by which stockholder claims are conclusively resolved for approximately half of all public company acquisitions greater than $100 million. [1] For that half of major acquisitions, the contracting parties and their directors, officers, affiliates, and advisors receive a court-approved global release of known and unknown claims relating to the merger in exchange for supplemental disclosures to stockholders prior to the stockholder vote. [2] The supplemental disclosures have no impact on stockholder approval of the merger. Nevertheless, in almost every such case, class counsel for the stockholder plaintiff receives a court-approved six-figure fee award for having conferred a benefit on the stockholder class.


Navigating the Cybersecurity Storm in 2016

Paul A. Ferrillo is counsel at Weil, Gotshal & Manges LLP specializing in complex securities and business litigation. This post is based on a summary of a Weil publication; the complete publication is available here.

“Our nation is being challenged as never before to defend its interests and values in cyberspace. Adversaries increasingly seek to magnify their impact and extend their reach through cyber exploitation, disruption and destruction.”

—Admiral Mike Rogers, Head of US Cyber Command September 9, 2015

A very recent article in the UK publication The Guardian, entitled “Stuxnet-style code signing of malware becomes darknet cottage industry,” [1] raises the specter of bad actors purchasing digital code signatures, enabling their malicious code to be viewed as “trusted” by most operating systems and computers. Two recent high profile hacks utilized false or stolen signatures: Stuxnet, the code used to sabotage the Iranian nuclear program, allegedly jointly developed by America and Israel, and the Sony hack which was allegedly perpetrated by the government of North Korea. Both of these instances involve sovereign states, with effectively unlimited resources.


Increasing Transparency of Alternative Trading Systems

Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Stein’s recent remarks at a recent open meeting of the SEC; the complete publication, including footnotes, is 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.

Today [November 18, 2015], the Commission meets to consider a proposal to increase the transparency of alternative trading systems (ATS). Many ATSs are commonly referred to as “dark pools”. To most people, dark pools are a little bit of a mystery, and that’s because they often function in great secrecy. Today’s proposal seeks to shine a light into that darkness.

Modern ATSs are a product of the rapid technological advances that have revolutionized the way stocks are bought and sold. An ATS is an electronic order matching system operated by a broker-dealer. Much like an exchange, it brings together buyers and sellers. There are many types of ATSs, and they facilitate the purchase and sale of all types of securities ranging from equities to corporate bonds to Treasuries, and more. Unlike an exchange, which must disclose publicly quotes and prices at which securities transactions occur, an ATS can operate in the dark with only limited information about its operations.


19 Law Professors Submit Amicus Brief in Union Political Spending Case

John C. Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School. This post relates to a brief submitted by 19 law professors, led by Professor Coates, in the case of Friedrichs v. California Teachers Association. The amicus brief is available here.

In 2010, the Supreme Court ruled in Citizens United v. Federal Election Commission that under the First Amendment, the government could not restrict a corporation’s independent political spending, even in the interest of aligning corporate expression with shareholders’ views. In contrast, an earlier Court case, Abood v. Detroit of Board of Education, conditioned the ability of unions to use fees from non-members for political spending on a mechanism for non-members to opt out of fees not directly used in collective bargaining. In Friedrichs v. California Teachers Associationcurrently awaiting oral argument in the Court’s October Term 2015—again deals with speech by labor unions, which the Supreme Court has compared to speech by corporations.

Presently, California requires that public schoolteachers either join the California Teachers Union or pay “agency fees” to compensate the union for its efforts on their behalf. Plaintiffs, a group of teachers, argue that these fees constitute forced subsidization of the union’s speech. Pinning their claim to the First Amendment, plaintiffs are seeking to invalidate agency fees altogether, or else require non-union members to affirmatively consent to subsidizing the union’s speech. In effect, plaintiffs are seeking to overturn Abood, converting an opt-out to an opt-in. The CTU, on the other hand, argues that the opt-out already required by Abood means that non-union teachers are not forced to pay for union speech at all.


SEC Adopts Final Rules for Crowdfunding

Andrew J. Foley is a partner in the Corporate Department of Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss memorandum.

On October 30, 2015, the Securities and Exchange Commission (the “SEC”) adopted final rules under Title III of the Jumpstart Our Business Startups (“JOBS”) Act. These rules relate to a new exemption under the Securities Act of 1933 (the “Securities Act”) that will permit securities-based crowdfunding by private companies without registering the offering with the SEC. The crowdfunding proposal (“Regulation Crowdfunding”) follows the 2013 crowdfunding rule proposal in most significant respects and represents a major shift in how small U.S. companies can raise money in the private securities market.


SEC Disclosures by Foreign Firms

Audra Boone is a senior financial economist at the U.S. Securities and Exchange Commission in the Division of Economic and Risk Analysis. This post is based on an article authored by Dr. Boone, Kathryn Schumann, Assistant Professor of Finance at James Madison University, and Joshua White, Assistant Professor of Finance at the University of Georgia. The views expressed in the post are those of Dr. Boone and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.

The U.S. Securities and Exchange Commission (SEC) established the ongoing reporting regime for U.S.-listed foreign firms when most of these filers were large, well-known companies that had a primary trading venue on a major foreign exchange. Accordingly, prior work argues that the SEC exempted these firms from producing quarterly and event-driven filings beyond those mandated by their home country or exchange. [1] Specifically, the SEC stipulates that foreign firms must supply ongoing disclosures on a Form 6-K only when they publicly release information outside the U.S. (e.g., updates on earnings, acquisitions, raising capital, or payout structure). [2]

The composition of foreign firms listing in the U.S. has evolved over the years towards one with more firms stemming from less transparent countries and those lacking a primary listing outside the U.S. Notably, foreign firms with these characteristics likely have fewer ongoing reporting mandates, and thus considerable discretion regarding the information they supply to the SEC. Yet, there is little evidence on how the deference to home country requirements affects ongoing reporting and information flows in more recent periods. Studying these issues helps understand the relative trade-offs of creating a competitive landscape for attracting foreign firm listings and ensuring meaningful information flows to investors, thus balancing capital formation and investor protection.

SEC Enforcement Actions Against Investment Advisers

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg. The complete publication, including footnotes, is available here.

According to the SEC’s most recent financial report, as of August 2014, SEC-registered investment advisers managed $62.3 trillion in assets. Not surprisingly, investment advisers attract a great deal of attention from the SEC’s Enforcement Division. The Division of Enforcement’s Asset Management Unit has 75 professionals spread across all 12 SEC offices. The group has developed strong industry expertise: it includes more than a half-dozen former industry professionals and works closely with the examination teams of the Office of Compliance Inspections and Examinations, as well as with the Divisions of Investment Management and Economic and Risk Analysis. In the first 10 months of 2015, it brought over two dozen cases, resulting in over $190 million in settlements; nearly a dozen cases are being litigated.


Fund Advisers and Fee Disclosure in SEC Enforcement Action

Veronica Rendón Callahan is a partner at Arnold & Porter LLP and co-chair of the firm’s Securities Enforcement and Litigation practice. This post is a based on an Arnold & Porter memorandum by Ms. Callahan, Ellen Kaye Fleishhacker, Daniel M. Hawke, Robert E. Holton, and Kevin J. Lavin.

October 7, 2015, the US Securities and Exchange Commission (the Commission or SEC) entered into a settlement agreement with Blackstone Management Partners L.L.C., Blackstone Management Partners III L.L.C., and Blackstone Management Partners IV L.L.C. (collectively, Blackstone) regarding certain Blackstone fee and expense disclosure practices. Without admitting or denying the Commission’s findings, Blackstone consented to a cease-and-desist order and agreed to pay nearly $40 million to settle the charges consisting of $26,225,203 of disgorgement, $2,686,553 of prejudgment interest, and $10,000,000 of civil money penalties. This action represents a continuing focus by the SEC on fee and expense allocation and disclosure practices of private fund advisers. [1] It serves as a reminder of the need for advisers to private investment funds to review and revise as necessary their compliance and disclosure policies and procedures related to the allocation of fees and expenses.


Building a Dynamic Framework for Offering Reform

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent Keynote Address at the 47th Annual Securities Regulation 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.

I am very pleased to be here to help kick off the 47th Annual Securities Regulation Institute. As some of you know, I am no stranger to this program, nor is the SEC staff. I have participated since my early days as U.S. Attorney, and its tremendous success is largely due to its tireless organizers. For many years, that work was led by Anita Shapiro, who is now the President of PLI, along with Laura Shields. Laura has now taken over from Anita, and she will surely continue the program’s record of excellence. Thank you both for all that you do to make this program such a great one year after year.

I have selected a topic that I think is well-suited for a conference of such endurance and importance: how the Commission is building a more proactive and responsive regulatory framework to better assess the impact of regulatory changes on investors and issuers over time in the context of securities offerings. As your opening panelists will no doubt discuss, this important area has seen tremendous regulatory change over the last ten years, including significant new rules in the past year.


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