TheCorporateCounsel.net

August 16, 2007

Chicago to Play NASPP Annual Conference

As in past years, the NASPP Annual Conference – this year in San Francisco from October 9 through October 12 – will kick off with a Gala Opening Reception sponsored by Fidelity Investments on October 9. The NASPP and Fidelity are excited to announce that immediately following the opening reception, all Conference session attendees are invited to the San Francisco Concourse Exhibition Center for an exclusive private concert featuring the multi-talented, multi-platinum group, Chicago!

The concert is offered to those registered to attend the full NASPP Annual Conference sessions only. There is no additional charge to attend the concert, but space is limited and you must register in advance.

The NASPP Annual Conference features a full two and a half day program of critical updates and practical guidance – check out the “Top Ten Reasons You Need to Attend.” As a bonus, the Conference includes CompensationStandards.com’s “4th Annual Executive Compensation Conference” at no extra charge, and you definitely don’t want to miss the critical pre-conference programs, “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” and “The Fundamentals of Stock Plan Administration.”

US Solicitor General Files Brief in Stoneridge Case

Despite some last minute lobbying by Senator Christopher Dodd (D-CT), the government filed a brief as amicus curiae in the case of Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc. As Broc noted in the blog earlier this summer, President Bush and Treasury Secretary Paulson had blocked the SEC’s effort to weigh in on the case with its views, and now the Solicitor General has filed a brief that comes out on the opposite side of the SEC with respect to the core issue of “scheme liability” under Section 10(b) and Rule 10b-5.

On Tuesday, Senator Dodd, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, announced that he had sent a letter to President Bush and a letter to Solicitor General Paul Clement, asking that they not file an amicus brief “advocating views inconsistent with the views of the SEC.” Dodd noted that such a move would “compound the damage” already caused by the government’s decision to not advocate the SEC’s views on the case.

The government’s brief cites significant policy concerns with the promotion of “scheme liability,” a theory of primary liability for third parties that have been involved in a public company’s fraudulent conduct. In stating the government’s interest in the case, the brief notes that “private securities actions can be abused in ways that impose substantial costs on companies that have fully complied with the applicable laws. The United States also has responsibility, through, inter alia, the federal banking agencies, for ensuring that entities providing services to publicly traded companies are not subject to inappropriate secondary liability.”

The brief advocates a position that is generally consistent with the SEC’s views on the point that the lower court erred in holding that Section 10(b) reaches only misstatements, omissions made while under a duty to disclose, or manipulative trading practices, stating “[t]he plain language of Section 10(b) demonstrates that it potentially reaches all conduct that is ‘manipulative’ or ‘deceptive’” and “[t]his Court’s cases provide no support for the conclusion that non-verbal deceptive conduct is somehow beyond the reach of Section 10(b).”

On the more critical point of third party liability, however, the brief argues:

“It would greatly expand the inferred private right of action under Section 10(b) and Rule 10b-5 if ‘secondary actors’ could be held primarily liable whenever they engage in allegedly deceptive conduct, even if investors do not rely on (and are not even aware of) that conduct. Such a rule would expose not only accountants and lawyers who advise issuers of securities, but also vendors (such as respondents) and other firms that simply do business with issuers, to potentially billions of dollars in liability when those issuers make misrepresentations to the market. Such a rule would thereby considerably widen the pool of deep-pocketed defendants that could be sued for the misrepresentations of issuers, increasing the likelihood that the private right of action will be ‘employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.’ Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499, 2504 (2007). Moreover, extending liability to vendors could have the effect of substantially expanding liability for foreign companies that trade with publicly listed companies. Likewise, creating new and unpredictable liability for closely regulated entities like banks could create particular problems and greatly complicate the task of regulators. And the expansion of liability would raise difficult questions concerning the apportionment of liability where, as here, the conduct of the secondary actor relates only to a small part of a broader fraudulent scheme. See, e.g., 15 U.S.C. 78u-4(f)(3)(C) (providing that, in apportioning liability, the trier of fact should consider ‘the nature of the conduct of each covered person found to have caused or contributed to the loss incurred by the plaintiff or plaintiffs’ and ‘the nature and extent of the causal relationship between the conduct of each such person and the damages incurred by the plaintiff or plaintiffs’).”

The case is set for oral argument before the Supreme Court on October 9. Check out the many other briefs filed in this case in our “Securities Litigation” Practice Area.

Black Box Revisited: Helpful Interpretive Guidance in the SEC’s Reg. D Proposing Release

Earlier this month, the SEC posted its long awaited proposing release on possible revisions to Regulation D. While the ultimate outcome of these proposals may not be known until later this Fall (Corp Fin Director John White recently said that the SEC’s goal was to approve all of the small business capital-raising proposals this year), the release includes some currently applicable interpretive guidance that is worth taking a look at now.

Responding to concerns expressed by the Advisory Committee on Smaller Public Companies, the SEC revisited the integration safe harbor in Regulation D with a proposal to shorten the timeframe from six months to 90 days. While doing so, the SEC states its views on issues related to private capital-raising transactions occurring around the time of a public offering. In particular, the SEC weighs in on the ability to do concurrent public and private offerings, which to date has largely been a topic for the staff’s consideration in interpretive letters such as Black Box and Squadron Ellenoff and in countless registration statements filed over the years.

In the release, the SEC says that “[w]hile there are many situations in which the filing of a registration statement could serve as a general solicitation or general advertising for a concurrent private offering, the filing of a registration statement does not, per se, eliminate a company’s ability to conduct a concurrent private offering, whether it is commenced before or after the filing of the registration statement. Further, it is our view that the determination as to whether the filing of the registration statement should be considered to be a general solicitation or general advertising that would affect the availability of the Section 4(2) exemption for such a concurrent unregistered offering should be based on a consideration of whether the investors in the private placement were solicited by the registration statement or through some other means that would otherwise not foreclose the availability of the Section 4(2) exemption. This analysis should not focus exclusively on the nature of the investors, such as whether they are ‘qualified institutional buyers’ as defined in Securities Act Rule 144A or institutional accredited investors, or the number of such investors participating in the offering; instead, companies and their counsel should analyze whether the offering is exempt under Section 4(2) on its own, including whether securities were offered and sold to the private placement investors through the means of a general solicitation in the form of the registration statement.”

The SEC goes on to provide some examples of the application of these principles, and notes that this guidance does not foreclose the ability to rely on the Staff interpretive guidance in Black Box and other similar letters.

While this guidance recognizes the practical approach that the Staff has taken to these issues over the years, the interpretive statement in the release should provide more certainty and perhaps a little more flexibility as potential capital raising opportunities come up before and during public offerings.

– Dave Lynn