Tag: Securities Act


FAST Act Amendments to the U.S. Securities Laws

Nicolas Grabar is a partner at Cleary Gottlieb Steen & Hamilton LLP focusing on international capital markets and securities regulation. This post is based on a Cleary Gottlieb publication by Mr. Grabar, Les Silverman, and Andrea M. Basham.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”), which, among other legislation in its 1300+ pages, includes several bills designed to facilitate the offer and sale of securities. In this post we focus on two of those bills. The first provides additional accommodations related to the SEC registration process for emerging growth companies (“EGCs”), a category of issuer established by the Jumpstart Our Business Startups Act (the “JOBS Act”) in 2012. The second creates a non-exclusive safe harbor under Section 4 of the Securities Act of 1933, as amended (the “Securities Act”) for resales of securities that meet the conditions of the safe harbor.

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United States v. Litvak: Materiality of Pricing Misstatements

This post is based on a Sullivan & Cromwell LLP publication by Adam S. ParisSteven R. PeikinMichael H. Steinberg and Alexander B. Gura. Mr. Paris and Mr. Steinberg are partners in the Litigation Group; Mr. Peikin is partner in the Criminal Defense and Investigations Group; and Mr. Gura is a firm associate.

On December 8, 2015, the Second Circuit issued its decision in United States v. Litvak, which reversed the defendant’s conviction and remanded the case for a new trial. Notwithstanding the reversal, the Court reaffirmed the “longstanding principle” that Section 10(b) of the Securities Exchange Act of 1934 is to be construed “flexibly,” and held that misstatements that might otherwise be considered “seller’s talk,” when viewed through the lens of the federal securities laws, may be material and can result in criminal liability.

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SEC Guidance on Unbundling in M&A Context

Nicholas O’Keefe is a partner in the Corporate Department at Kaye Scholer LLP. This post is based on a Kaye Scholer memorandum authored by Mr. O’Keefe. The complete publication, including Annex, is available here. Related research from the Program on Corporate Governance about bundling includes Bundling and Entrenchment by Lucian Bebchuk and Ehud Kamar (discussed on the Forum here).

On October 27, 2015, the SEC issued new Compliance and Disclosure Interpretations (the 2015 C&DIs) regarding unbundling of votes in the M&A context. The 2015 C&DIs address the circumstances under which either a target or an acquiror in an M&A transaction must present unbundled shareholder proposals in its proxy statement relating to provisions in the organizational documents of the public company that results from the deal. The 2015 C&DIs replace SEC guidance given in the September 2004 Interim Supplement to Publicly Available Telephone Interpretations (the 2004 Guidance). According to public statements of the SEC, and contrary to perceptions created by the news media, [1] the 2015 C&DIs represent a slight change from, and clarification to, the 2004 Guidance. The following is a brief overview of the unbundling rules, a summary of key differences between the 2015 C&DIs and the 2004 Guidance, and some observations about the practical implications of the changes.

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FAST Act: Capital Formation Changes and Reduced Disclosure Burdens

Stacy J. Kanter is co-head of the global Corporate Finance practice at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden alert by Ms. Kanter, David J. Goldschmidt, Michael J. Zeidel, and Brian V. Breheny.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act), which, despite its name, contains several new provisions designed to facilitate capital formation and reduce disclosure burdens imposed on companies under the federal securities laws. The provisions build upon the 2012 Jumpstart Our Business Startups Act (JOBS Act), which created a new category of issuers called “emerging growth companies” (EGCs) [1] and sought to encourage EGCs to go public in the United States. [2] The FAST Act provisions, which were first introduced in a package of bills often called “JOBS Act 2.0,” are the culmination of a continuing congressional effort to increase initial public offerings (IPOs) by EGCs, reduce the burdens on smaller companies seeking to conduct registered offerings and provide trading liquidity for securities of private companies.

While some of the new provisions require rulemaking by the U.S. Securities and Exchange Commission (SEC) before they are effective, other provisions of the FAST Act amend the Securities Act itself and therefore are effective, with an immediate effect on current offerings.

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Scope of Federal Statutory Whistleblower Provisions

Joseph M. McLaughlin is a Partner at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. McLaughlin and Yafit Cohn. This article appeared in the December 10, 2015 edition of the New York Law Journal.

The Sarbanes-Oxley Act (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) contain provisions protecting from retaliation individuals who provide information regarding a violation of U.S. securities laws. Various ambiguities in these statutory provisions have been adjudicated, most recently by the Northern District of California, which grappled with a new issue: whether directors who allegedly engage in retaliatory conduct may be liable under SOX and Dodd-Frank.

In Wadler v. Bio-Rad Laboratories, [1] Chief Magistrate Judge Joseph C. Spero held that directors who take retaliatory action against a whistleblowing employee by voting in favor of that employee’s termination are subject to individual liability under both SOX and Dodd-Frank. In addition, the court addressed the unsettled question whether Dodd-Frank’s anti-retaliation protection extends to whistleblowers who report internally but not to the Securities and Exchange Commission (SEC), joining a divided Second Circuit in according deference to the SEC’s view that it does.

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Comment Letter of 18 Law Professors on the Trust Indenture Act

Adam J. Levitin is Professor of Law at Georgetown University Law Center, specializing in bankruptcy, commercial law, and financial regulation. This post contains the text of a letter spearheaded by Prof. Levitin, and co-signed by 18 professors of bankruptcy and corporate finance law, regarding a proposed omnibus appropriations rider that would amend the Trust Indenture Act of 1939. The complete letter is available here.

We are legal scholars of corporate finance. We write because we are concerned by a proposed omnibus appropriations rider that would amend the Trust Indenture Act of 1939 without any legislative hearings or opportunity for public comment on the proposed amendment.

As you may know, the Trust Indenture Act is one of the pillars of American securities regulation. Congress passed the Trust Indenture Act in the wake of the Great Depression to protect bondholders in restructurings. Among other things, the Trust Indenture Act provides that no bondholder’s right to payment or to institute suit for nonpayment may be impaired or affected without that individual bondholder’s consent. These provisions are intended to protect bond investors by requiring any restructuring of bonds to occur subject to the transparency of a court supervised bankruptcy process, absent bondholder consent to a debt restructuring.

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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.

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Omnicare in Action: City of Westland Decision

Aric H. Wu is a partner at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Wu and Michael J. Kahn.

When the Supreme Court issued its decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), plaintiff and defense counsel had warring views on what its practical impact would be, particularly at the motion to dismiss stage of securities class actions brought under Section 10(b) of the Securities Exchange Act of 1934. A recent decision from the Southern District of New York, City of Westland Police and Fire Retirement System v. MetLife, Inc., 2015 WL 5311196 (S.D.N.Y Sept. 11, 2015) (Kaplan, J.), shows that Omnicare will serve as a meaningful bar to plaintiffs who seek to base federal securities law claims on statements of opinion, but cannot plead sufficient underlying facts.

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Materiality as Pleading Obstacle

Brad S. Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.

Claims brought under the Securities Act of 1933 (the “Act”) are typically challenging for defendants to dismiss. Some defendants may have affirmative defenses, but most of the Act’s provisions impose strict liability for alleged misstatements—meaning that a plaintiff need not plead scienter—and claims brought under the Act are subject to the relatively low pleading standard imposed by Federal Rule of Civil Procedure 8. Further, although plaintiffs suing under the Act must allege facts sufficient to show that the purported misstatements were material, courts are generally reluctant to dismiss for failure to plead this element because materiality is an inherently fact-bound inquiry.

Notwithstanding these principles, on September 29, 2015, the United States District Court for the Southern District of New York (Oetken, J.) dismissed a putative class action brought under the Act on the ground that the complaint’s materiality allegations failed as a matter of law. The opinion provides valuable insights on how to defeat other Act claims on similar grounds. [1]

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The SEC’s Focus on Cybersecurity

Jessica Forbes is a corporate partner resident the New York office of Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Ms. Forbes, Joanna D. Rosenberg, and Stacey Song.

On September 22, 2015, the Securities and Exchange Commission (the “SEC”) issued a cease-and-desist order (the “Order”) and settled charges against St. Louis-based investment adviser R.T. Jones Capital Equities Management (“R.T. Jones”) for failing to establish required policies and procedures to safeguard customer information in violation of Rule 30(a) of Regulation S-P (“Rule 30(a)”) under the Securities Act of 1933. [1]

Rule 30(a) requires every broker, dealer, investment company and registered investment adviser to adopt written policies and procedures reasonably designed to ensure the security and confidentiality of customer information and to protect customer information from anticipated threats or unauthorized access. According to the Order, from at least September 2009 through July 2013, R.T. Jones stored personal information of its clients and other persons on its third party-hosted web server without adopting any such written policies and procedures. In July 2013, a hacker gained access to the data on R.T. Jones’ web server, rendering the personal information of more than 100,000 individuals vulnerable to theft. In response to the cyber attack, R.T. Jones notified each individual whose information was compromised.

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