Tag: Disclosure


Securities Class Action Filings: 2015 Year in Review

John Gould is senior vice president at Cornerstone Research. This post is based on a Cornerstone Research report. The complete publication is available here.

Number and Size of Filings

  • Plaintiffs filed 189 new federal class action securities cases (filings) in 2015—the most since 2008, and an 11 percent increase compared with 2014. The number of filings in 2015 was in line with the average number of filings observed annually between 1997 and 2014.
  • The total Disclosure Dollar Loss (DDL) of cases filed in 2015 jumped to $106 billion from $57 billion in 2014—an 86 percent increase. DDL remained below its historical average of $121 billion.
  • The total Maximum Dollar Loss (MDL) increased by 73 percent—from $215 billion in 2014 to $371 billion in 2015. MDL was approximately 61 percent of the historical average of $607 billion.
  • The number of mega filings in 2015 increased substantially from 2014. There were five mega DDL cases (those with a DDL of at least $5 billion) and eight mega MDL cases (those with an MDL of at least $10 billion)—compared to zero and two in 2014, respectively.

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Fed Rules on CFO Attestation Requirements

Andrew R. Gladin is a partner in the Financial Services and Corporate and Finance Groups at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication authored by Mr. Gladin, Mark J. Welshimer, and Sarah C. Flowers. The complete publication, including Annexes, is available here.

On January 21, 2016, the Federal Reserve published in the Federal Register a final rule (the “Final Rule”) [1] modifying Forms FR Y-14A, FR Y-14Q and FR Y-14M (collectively, the “FR Y-14 Forms”). Most notably, the Final Rule requires the chief financial officer (“CFO”) of each bank holding company (“BHC”) that is overseen by the Federal Reserve’s Large Institution Supervision Coordinating Committee (the “LISCC Firms”) and that reports on the FR Y-14 Forms to make attestations regarding those forms and to “agree to report material weaknesses and any material errors in the data” reported on those forms.

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2016 Proxy Season: Engagement, Transparency, Proxy Access

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication; the complete publication, including footnotes and appendix, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

While shareholders have a wide spectrum of views on corporate objectives, the time horizon for realizing these objectives and environmental, social and governance (ESG) issues, there is an emerging consensus that—regardless of size, industry or profitability—public companies must achieve greater accountability to their shareholders, through engagement and transparency, than ever before. Corporate engagement and transparency now take two forms: direct dialogue, increasingly involving directors, and enhanced proxy statement and other public disclosure that sheds light on the company’s strategy and the performance of its board, board committees and management, demonstrates responsiveness to shareholder ESG concerns, and justifies the composition of the board in light of the company’s present needs. Throughout this post, we offer practical suggestions about “what to do now” to meet shareholder expectations about engagement and transparency and to address a host of other new developments for the 2016 proxy season.

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In re Lions Gate: Corporate Disclosure of Securities Enforcement

David M.J. Rein is a partner in the Litigation Group at Sullivan & Cromwell LLP . This post is based on a Sullivan & Cromwell memorandum by Mr. Rein and Jacob E. Cohen. The complete publication, including footnotes, is available here.

On January 22, 2016, the United States District Court for the Southern District of New York (Judge John Koeltl) dismissed In re Lions Gate Entertainment Corp. Securities Litigation, a putative securities fraud class action lawsuit, brought under Section 10(b) of the Securities Exchange Act of 1934. The complaint alleged that the company should have disclosed publicly the pendency of a Securities and Exchange Commission (“SEC”) investigation, the company’s intention to settle with the SEC and the company’s receipt of a so-called “Wells Notice”—i.e., a letter from the SEC Enforcement Division staff informing the company that it “has decided to recommend that the Commission bring an enforcement proceeding.”

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Crowdfunding and the Digital Shareholder

Andrew A. Schwartz is an Associate Professor at University of Colorado Law School. This post is based on Professor Schwartz’s recent article published in The Minnesota Law Review, available here.

After several years of delay, Internet-based securities crowdfunding is finally poised to go live this year thanks to the SEC’s recent issuance of Regulation Crowdfunding. Through crowdfunding, people of modest means will for the first time be legally authorized to make investments that are currently offered exclusively to “accredited” (wealthy) investors. This democratization of entrepreneurial finance sounds great in theory, but will it work in practice? Will non-accredited investors really buy unregistered securities in speculative startups, over the Internet, with only the barest form of disclosure? The conventional wisdom among most legal scholars is, basically, no. In their view, securities crowdfunding is doomed to failure for myriad reasons, including fraud, [1] costs, [2] dilution, [3] adverse selection, [4] opportunism, [5] and more. [6]

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Chancery Court on Disclosure-Only Settlements

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, Peter J. Rooney, and Gregory Beaman. This post is part of the Delaware law series; links to other posts in the series are available here.

It’s a familiar story in M&A transactions. A merger is announced and, within days, the plaintiffs’ bar scrambles to file suits on behalf of the selling company’s stockholders, alleging that the seller’s board agreed to an inadequate price and made misleading disclosures about the deal. After going through “the motions”—the plaintiffs file a motion for preliminary injunction and the defendants produce certain agreed-upon documents—a settlement is reached whereby the plaintiffs give defendants a broad release in exchange for (often immaterial and unhelpful) supplemental disclosures and the defendants’ agreement to pay (and not to oppose court approval of) a “six-figure” fee award to plaintiffs’ counsel. According to the Trulia Court, the result is tantamount to a deal “tax” on M&A transactions.

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Delaware Court Guidance on Merger Litigation Settlements

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Mr. Mirvis, William Savitt, and Ryan A. McLeod. 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 an opinion last week, the Delaware Court of Chancery rejected a disclosure-only settlement of a putative stockholder class-action lawsuit challenging a merger. In re Trulia, Inc. Stockholder Litig., C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016). Continuing and perhaps completing its recent reevaluation of merger litigation settlement practice, the Court made clear that it “will be increasingly vigilant in scrutinizing” such settlements in the future and that disclosure claims should be litigated (if at all) outside the settlement context.

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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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