Monthly Archives: January 2016

Corporate Control and Idiosyncratic Vision

Zohar Goshen is the Alfred W. Bressler Professor of Law, Columbia Law School and Professor of Law at Ono Academic College. Assaf Hamdani is the Wachtell, Lipton, Rosen & Katz Professor of Corporate Law, Hebrew University of Jerusalem. This post is based on an article authored by Professor Goshen and Professor Hamdani.

Prominent technology firms such as Google, Facebook, LinkedIn, Groupon, Yelp, and Alibaba have gone public with the controversial dual-class structure to allow their controlling shareholders to preserve their indefinite, uncontestable control over the corporation. Similarly, in the concentrated ownership structure, a person or entity—the controlling shareholder—holds an effective majority of the firm’s voting and equity rights to preserve control. Indeed, most public corporations around the world have controlling shareholders, and concentrated ownership has a significant presence in the United States as well. Unlike diversified minority shareholders, a controlling shareholder bears the extra costs of being largely undiversified and illiquid. Why, then, does she insist on holding a control block?

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2015 Securities Law Developments

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Paul F. RuganiKatherine L. Maco, Katie Lieberg Stowe, and Suzette Pringle.

On balance, the securities litigation landscape in 2015 offered a glass half-full/glass half-empty perspective for issuers and their officers, directors and advisors. Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), the major securities law decision of the 2015 Supreme Court term, afforded defendants relatively greater protection from liability based on public statements of opinion, as long as those opinions are honestly held and have a reasonable factual basis. The SEC suffered several notable setbacks, with some federal courts striking as unconstitutional the highly debated conflict minerals rule and the SEC’s method of appointing administrative law judges. The Second Circuit significantly restricted federal prosecutors’ ability to pursue downstream recipients of non-public information, resulting in a spate of overturned convictions and withdrawn guilty pleas. And although decisions from lower courts within the Second Circuit dismissing derivative lawsuits will be subject to less deferential review, both the Second Circuit and the Delaware Supreme Court reaffirmed that decisions of independent and disinterested boards to reject stockholder demands are entitled to business judgment rule protection, thereby precluding minority shareholder second guessing in private lawsuits. Yet the results were not uniformly favorable to the defense. The SEC took an expansive view of Dodd-Frank’s whistleblower anti-retaliation provision, formalizing its view that such protections apply to whistleblowers who allege retaliation for reporting internally (as opposed to reporting to the SEC). The Second Circuit endorsed the SEC’s view shortly thereafter. And, the early returns from last year’s second Supreme Court decision in Halliburton suggest that rebutting the Basic presumption of reliance through price impact evidence will be a lofty hurdle for defendants at the class certification stage. Below is a roundup of key securities law developments in 2015 and trends for 2016.

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Calculating SEC Civil Money Penalties

Jonathan 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.

In addition to going to court to seek sanctions, the Securities and Exchange Commission may impose civil money penalties in its own administrative proceedings on any person who violates or causes a violation of the securities laws. [1] Unlike district courts, administrative law judges do not have authority to base penalties on respondents’ pecuniary gains resulting from violations. [2] Instead, under the various penalty statutes, maximum penalties in administrative proceedings are based on “each act or omission” violating or causing a violation of the securities laws. Currently, the maximum penalties for each act or omission violating the securities laws are:
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PCAOB Adopts Disclosure Rule

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess and Yafit Cohn.

On December 15, 2015, the Public Company Accounting Oversight Board (“PCAOB”) issued a new rule and related amendments to its auditing standards that require accounting firms to disclose, in a new PCAOB form, specified information regarding the engagement partner and other accounting firms that participated in the audit. [1]

The PCAOB’s New Rule

The PCAOB’s final rule requires accounting firms to disclose, on Form AP, Auditor Reporting of Certain Audit Participants, the following information for each completed issuer audit:

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Scope of Insider-Trading “Tippee” Liability

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Savarese and George T. Conway III.

In an insider-trading case that will be closely watched until it is decided before the end of June, the U.S. Supreme Court granted certiorari yesterday to decide critical open questions about what is required to establish insider trading by a remote “tippee”—specifically, what kind of personal benefit must a “tipper” receive, and what knowledge of that benefit must the “tippee” have, for a conviction or sanction to stand.

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Weekly Roundup: January 14–January 21


More from:

This roundup contains a collection of the posts published on the Forum during the week of January 14, 2016 to January 21, 2016.




Weekly Roundup: January 8–January 15










Acquisition Financing: the Year Behind and the Year Ahead

Eric M. Rosof is a partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Rosof, Joshua A. FeltmanGregory E. Pessin, and Michael S. Benn.

Last year’s robust acquisition financing market helped drive the headline-grabbing deals and record volume of M&A in 2015. At the same time, credit markets were volatile in 2015 and appeared to have shifted fundamentally as the year went on—and with them, the types of deals that can get done and the available methods of financing them. U.S. and European regulation of financial institutions, monetary policy, corporate debt levels and economic growth prospects have coalesced to create a more challenging acquisition financing market than we’ve seen in many years. As a result, 2016 is likely to be a year that demands creativity from corporate deal-makers, and where financing costs, availability and timing have significant influence over the type, shape and success of corporate deal-making.

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Political Values, Culture, and Corporate Litigation

Danling Jiang is Associate Professor of Finance at Florida State University. This post is based on an article authored by Professor Jiang; Irena Hutton, Associate Professor of Finance at Florida State University; and Alok Kumar, Professor of Finance at the University of Miami.

In our paper, Political Values, Culture, and Corporate Litigation, published in the latest issue of Management Science, we examine whether the political culture of a firm defines its ethical and legal boundaries as observed by the propensity for corporate misconduct. Using one of the largest samples of litigation data to date, we show that firms with Republican culture are more likely to be the subject of civil rights, labor, and environmental litigation than Democratic firms, consistent with the Democratic ideology that emphasizes equal rights, labor rights, and environmental protection. However, firms with Democratic culture are more likely to be the subject of litigation related to securities fraud and intellectual property rights violations than Republican firms whose Party ideology stresses self-reliance, property rights, market discipline, and limited government regulation.

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Compensation Season 2016

Michael J. Segal is senior partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Segal, Jeannemarie O’BrienAdam J. ShapiroAndrea K. Wahlquist, and David E. Kahan. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

Boards of directors and their compensation committees will soon shift attention to the 2016 compensation season. Key considerations in the year ahead include the following:

  1. Say-on-Pay. If a company anticipates a challenging say-on-pay vote with respect to 2015 compensation, it should proactively reach out to large investors, communicate the rationale for the company’s compensation programs and give investors an opportunity to voice any concerns. Shareholder outreach efforts, and any changes made to the compensation program in response to such efforts, should be highlighted in the proxy’s Compensation Disclosure and Analysis. ISS FAQs indicate that one possible way to reverse a negative say-on-pay recommendation is to impose more onerous performance goals on existing compensation awards and to disclose publicly such changes on Form 8-K, though the FAQs further note that such action will not ensure a change in recommendation. Disclosure of prospective changes to the compensation program will demonstrate responsiveness to compensation-related concerns raised by shareholders.

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The Cost of Supermajority Target Shareholder Approval

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, Brian Broughman, Associate Dean for Research and Professor of Law at Indiana University, and Antonio Macias, Assistant Professor of Finance at Baylor University. 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. This post is part of the Delaware law series; links to other posts in the series are available here.

Acquisitions via a tender offer can be significantly faster than a traditional merger, but this benefit is only available if the bidder can conduct a short-form merger following the tender, which avoids the need for a proxy statement filing and formal shareholder vote. Until recently this structure was only available if the bidder could convince a supermajority (90%) of shareholders to participate in the tender offer. In August 2013, however, Delaware’s legislature passed a new code provision, section 251(h) of the Delaware General Corporation Law (the DGCL), that allows bidders of targets incorporated in Delaware to conduct a short-form merger after achieving only 50% ownership as opposed to 90% that is required in almost all other states. We use this legal change to investigate how the required level of shareholder support affects acquisition outcomes.

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