TheCorporateCounsel.net

February 9, 2006

New Corp Fin Director: Heeeere’s John!

Pardon the Johnny Carson reference (I’m reading a new Ed McMahon book) – but it seems appropriate given the exciting news that Chairman Cox has lured Cravath Partner John White to serve as the next Director for the SEC’s Division of Corporation Finance.

That is quite a “catch” as John has over 30 years of Wall Street experience and is respected so much by the bar (and is quite well-versed in accounting issues). John starts work on March 20th. Here is the related press release.

Applicability of SOX’s Whistleblower Law Overseas

Following up on Monday’s blog, in this podcast, Carrie Wofford and Tom White of Wilmer Cutler Pickering Hale and Dorr, address an important decision – in Carnero v. Boston Scientific Corp. – about the Sarbanes-Oxley whistleblower laws, including:

– Tell us about the new decision on Sarbanes-Oxley whistleblowers? Why is this issue such a hot one?
– Does this decision mean that companies’ overseas offices can relax?
– Does this decision mean that U.S. regulators cannot now reach companies that retaliate against whistleblowers in foreign offices?
– Is this ruling likely to be reiterated by other circuits and DOL judges?
– Does the ruling create problems for companies in term of compliance training if foreign-based workers don’t have the same protections that domestic workers get?

California Fairness Hearings and Reverse Mergers with Shell Companies

I’ve never been able to figure out why an operating company would want to engage in a reverse merger with a shell company. It always seems that the operating company gets all of the costs, headaches and liability of being public, without gaining a truly liquid market for its securities.

Nonetheless, the shell company industry somehow seems to continue, if not thrive – even though the regulators don’t like it. Last summer, the SEC adopted rules regarding the use of Form S-8 by shell companies and Form 8-K in transactions in which shell companies cease to be shell companies.

Now, the California Commissioner of Corporations has followed up with a release that essentially closes the door on the use of fairness hearings in California for shell company reverse mergers. California is one of the few states that authorizes fairness hearings (ie. in Cal. Corp. Code Section 25142). The main attraction of the fairness hearing process is the availability of the exemption under Section 3(a)(10) of the Securities Act (for the SEC Staff’s views on Section 3(a)(10), see Staff Legal Bulletin 3R).

Lately, the fairness hearing process has been widely used by public companies to acquire privately-held companies. Companies that have used the fairness hearing process include Cisco Systems, E-Bay and Boston Scientific. By using the fairness hearing process, a company can save hundreds of thousands of dollars. The California Department of Corporations reports that the market value of the securities covered by fairness hearing applications totaled over $40 billion for the period covering the 1998-2005 fiscal years. In the most recently completed fiscal year, the market value was over $3 billion.

We have posted the new California release in our “California Corporations” Practice Area.