TheCorporateCounsel.net

As I blogged last month, there are significant developments for any LLC that does any business in New York. In her podcast last month, Monica Lord provided some analysis of the coming changes in New York’s LLC laws and she had identified some potential problems.

Just one day before the June 1st effective date, New York Governor George Pataki signed an amended bill into law that removed most of these problems. For example, as noted in this Kramer Levin memo, the original bill would have changed New York’s procedures to require that published notices disclose the names of the ten persons who hold the most valuable membership interests – but the amended legislation deletes the “ten person” requirement from the published notice – so that the form of the notice now reverts essentially to the form that old law required. Other law firm memos on this topic are posted in our “Limited Liability Companies” Practice Area.

July E-minders is Up!

Our most recent issue of our monthly e-mail newsletter is posted.

Attack on Foreign Private Issuer Exemption Beaten Back

Jay Kesner and Scott Musoff of Skadden Arps give us this news: A recent decision in favor of Tower Semiconductor is significant for foreign companies that access U.S. capital markets. The Second Circuit Court of Appeals affirmed the SEC’s authority to exempt foreign private issuers from certain sections of the ’34 Act. Had the Court not ruled in our client’s favor, the result would have been a chilling effect on foreign issuers accessing US markets.

The Second Circuit’s decision resolved the novel issue of the SEC’s authority to exempt foreign private issuers from Section 14(a) and Rule 14a-9. Shareholders alleged that Tower issued a proxy statement that was false and misleading in violation of those federal securities laws. Skadden argued that, as a foreign private issuer, Tower was exempt from the strictures of Section 14(a), including the antifraud provisions of Rule 14a-9, by virtue of Rule 3(a)(12)-3.

Plaintiffs argued that the SEC exceeded its authority in exempting foreign private issuers from Section 14(a) and Rule 14a-9 because it failed to make a formal finding as to the need for a such an exemption – and because the exemption was inconsistent with Congress’ mandate that any exemptions adopted by the SEC be consistent with the public interest and the protection of investors.

The Second Circuit agreed with Tower, holding that although “novel,” plaintiffs’ argument was ultimately unpersuasive. “3(a)(12)-3 weathers this storm not because of its impressive longevity. Rather, Rule 3(a)(12)-3 survives [plaintiff’s] challenge because it was promulgated pursuant to the Commission’s statutory mandate.”

The Court explained that although “[t]he rule exempting foreign private issuers from section 14(a) is nearly as old as section 14(a) itself,” – and virtually no rationale for it had been expressed at that time – in 1965, the SEC published a notice of proposed rulemaking to amend Rule 3a12-3 that included the Commission’s underlying rationale for the amendments. The considerations included “the available protections for investors in foreign securities – the quality of foreign corporate law, the nature of foreign stock exchange rules, and the amount of information voluntarily disclosed . . . . [and] determined that these protections were adequate in light of the important goal of ‘maintaining existing markets in foreign securities.'” The Court rejected as illogical and unsupportable plaintiff’s contention that “the Commission may not sacrifice any investor protection, regardless of the public interest an exemption might serve.”