Monthly Archives: September 2009

September 16, 2009

How to Prepare for a Proxy Access World

Tune into our webcast tomorrow – “How to Prepare for a Proxy Access World” – to learn the list of tasks you need to perform now including scrubbing bylaws, understanding the demand for stockholder lists process, etc. This program is not a debate about the virtues of the SEC’s access proposal – rather, it will provide practical guidance about what you need to do now ahead of the SEC acting on its access proposal (because by the time the SEC acts, the window to scrub things may be a bit short before the proxy season).

Join these experts:

– Steve Bigler, President and Director, Richards Layton & Finger
– David Drake, President, Georgeson Shareholder
– David Katz, Partner, Wachtell Lipton Rosen & Katz
– Carol McGee, Partner, Alston & Bird

Redlined Version: Corp Fin’s Latest CDIs

With Corp Fin updating a bunch of CDIs over the past few months (egs. on Monday and in August), a number of members have sought redlined versions of the changes. You may want to check out the redlines on the ABA’s Disclosure and Continuous Reporting Subcommittee page, where WilmerHale’s Jonathan Wolfman and Carter Ledyard’s Guy Lander are now manning the fort.

The massive redline of the August CDIs comes courtesy of Jonathan, with the legwork done by WilmerHale’s Michelle Vervais and Alex Greene.

Input for Corp Fin’s Shareholder Proposal Process Meeting

Next Tuesday, Corp Fin is holding a meeting with representatives of some key stakeholders to discuss the process by which the Staff decides on no-action letters regarding shareholder resolutions, as noted by Jim McRitchie. Jim notes that Sanford Lewis and others have prepared a brief survey for shareholders who have had experience in that process to help provide input to the Staff. I think it’s a great idea that the Staff is conducting this meeting – it probably should be an annual pre-proxy season event…

– Broc Romanek

September 15, 2009

Corp Fin Updates a Number of CDIs

Here’s my pitiful plea before today’s “meat.” Please drop a note and nominate “ Blog” to be included in ABA Journal’s Top 100 Blogs. We were named last year and would like to be included in the list again. Yes, it’s vain – but this is a lot of work and peer recognition is appreciated!

Okay, on to the news. Yesterday, Corp Fin updated a slew of new Compliance & Disclosure Interpretations in a variety of topic areas (and issued new interps in one area). It looks like the Division will take advantage of the Web to quickly distribute updated guidance rather than relying on major overhauls every few years like the old days. That’s good news!

Here are the updated (and new) CDIs:

Sections 13D/G and Regulation 13D/G (this includes new CDIs)

Securities Act Rules

Regulation S-K

Form 8-K

Interactive Data

Regulation S-T

Going to Trial? Judge Rakoff Takes SEC to Task in Rejecting BofA Settlement

Yesterday, in a sternly-worded 12-page order, US District Court Judge Jed Rakoff’s refused to approve a $33 million settlement between the SEC and Bank of America over allegations of misleading proxy materials because the bonus obligations due to Merrill Lynch employees were not fully disclosed. As this Bloomberg article notes, even though a February 1st trial is scheduled, the SEC has limited options now because it argued before Rakoff that that there was insufficient evidence to charge individuals. The SEC’s best bet may be to dismiss the case and file an administrative claim that wouldn’t be heard in federal court.

The following excerpt from this NY Times article gives you a sense of how Judge Rakoff felt about the settlement:

He accused the S.E.C. of failing in its role as Wall Street’s top cop by going too easy on one of the biggest banks it regulates. And he accused executives of the Bank of America of failing to take responsibility for actions that blindsided its shareholders and the taxpayers who bailed out the bank at the height of the crisis.

The sharply worded ruling, which invoked justice and morality, seemed to speak not only to the controversial deal, but also to the anger across the nation over the excesses that led to the financial crisis, and the lax regulation in Washington that permitted those excesses to flourish.

Implicit in the judge’s remarks were broader questions on the anniversary of one of the most tumultuous weeks in Wall Street’s history: What do the giants of finance owe their shareholders and the investing public? And who will adequately oversee these behemoths?

As the drama of this case continues to unfold, Bank of America awaits the findings of NY Attorney General Andrew Cuomo as some expect him to file a complaint charging individuals at Bank of America in connection with the disclosure of Merrill Lynch bonuses in the near future.

Obama Speaks on Lehman’s Collapse Anniversary: Latest Timetable for Congressional Reform

Yesterday, President Obama was also stern as he delivered a speech near Wall Street in which he talked about the need for financial reform. As noted in this NY Times article, the window for true reform is quickly closing as the stock market climbs every day. Below is an excerpt from that article about the possible timeline for Congress taking legislative action:

Senior Congressional Democrats had originally planned to have the House complete its work on the financial overhaul before turning to the more recalcitrant Senate. But the tighter time schedule has forced lawmakers to rethink that approach.

Later this week, Barney Frank, Democrat of Massachusetts and the chairman of the House Financial Services Committee, is expected to announce a series of hearings for the coming days before his committee marks up legislation in October. Aides say he is hoping to get legislation to the floor by the end of next month or beginning of November.

There is less certainty in the Senate, where Christopher J. Dodd, Democrat of Connecticut and the chairman of the Senate Banking Committee, has been working to put together a package that could withstand the threat of a filibuster.

– Broc Romanek

September 14, 2009

VC = Venture Cataclysm?

The world of venture capital is changing dramatically. Thanks in part to the global recession, VCs are contending with less-than-stellar returns, contracting investment levels, and a sluggish IPO market (previously a preferred VC exit strategy). Other sources of funding are so decimated that VCs are looking to Uncle Sam for assistance. This recent WSJ article explores the fact that VCs are hoping stimulus funds will help their fledgling companies survive.

Adding to these woes, VCs may be facing a significant tax set-back wrought by legislation. As described in this blog, the tax rate on carried interest may be increased from 15% to 38%.

Keep up with how much VC is evolving by joining us for tomorrow’s webcast – “Venture Capital: Facing a Changing World” – as Jonathan Axelrad of Goodwin Procter, Steve Bochner of Wilson Sonsini and Gordy Davidson of Fenwick & West discuss how deal structures are adapting to fundamental changes in the VC world.

Change Blowing Your Mind? A Simple Chart to the Rescue

To help you navigate the numerous proposals at hand these days, Bob Hayward and others at Kirkland & Ellis have put together this 32-page chart. And it’s good to see Marty Rosenbaum of Maslon Edelman launch a new blog – – which includes this nifty (and much shorter) cheat sheet to help you navigate these regulatory changes as well. Check it out!

Latest Trends of the M&A Environment

In this podcast, Bob Filek of PricewaterhouseCoopers discusses the state of the M&A market, including:

– What major deal trends have characterized 2009?
– What have been the biggest surprises?
– Why are cross-border deals at greatest risk due to the down market?
– What will restore CEO confidence?
– How big is the distressed M&A opportunity?
– What sectors are still consolidation hot spots?

– Broc Romanek

September 11, 2009

A Different View: “Early Problems for XBRL? A Mismatch with FASB’s GAAP Codification”

Michelle Savage of XBRL US weighs in on my recent blogs expressing concerns over the SEC’s mandatory XBRL deadline and the mismatch caused by the FASB’s new codification of accounting standards:

There seems to be some confusion about the FASB codification as relates to XBRL and how it is used with the XBRL US GAAP Taxonomies. I wanted to see if I could help set the record straight – some of the recent blogs appear to imply that because of the FASB codification extension files, companies that reference it risk having their XBRL submissions rejected.

Here are a couple of points that will hopefully clear this up: the FASB codification is there for public company preparers simply to help them have as much information as they need to select the right element to match up with their financial statement captions. Typically a public company will first look at the taxonomy element label, then at the definition and then if they’re still not sure, they’ll look at the references to check the authoritative literature. It’s not needed as part of the EDGAR submission, it doesn’t even have to be used to complete an xbrl document.

Second, when a company submits their XBRL document to the SEC’s EDGAR system, they submit the XBRL files plus any extension taxonomy that they created (essentially, if there were line items in their financial statements that were not in the US GAAP taxonomy, they have the ability of creating a new one and they need to send their company extension taxonomy which gives end users the label, definition, etc. so they know what the data means). Anyone using the 2009 US GAAP Taxonomy has no reason to send anything else. And this will be the same in 2010, 2011, etc.

Therefore, there’s no reason for a preparer to submit the codification extension as part of their filing. To try to clarify this a bit further, we’ve revised the FAQ to explain further.

By the way, Dominic Jones recently gave kudos to Michelle for her remarks on the true meaning of XBRL for investor relations officers in this blog

High-Frequency Trading: What’s the Board’s Fiduciary Duty to a Computer?

With AIG, Fannie and Freddie shooting to unpredicted heights in recent weeks – weeks when the volume of trading in their stocks represented a sizable chunk of the overall market’s volume – I’ve begun to wonder whether the high-frequency trading craze is the latest innovation by Wall Street that poisons our financial system. Computers trading with each other certainly is not new – program trading has been around for many years and now accounts for roughly half of the market’s daily trading volume. Even HFT has been around awhile; it’s not something that has sprung up over the past year.

But has HFT reached a height of popularity (eg. NY Times article) where it’s causing the market to be divorced so much from reality that it will scare retail investors away forever? AIG going to $50 makes me want to take my last dollar out of equities. The SEC and Congress recently have been delving into these concerns, including considering a ban on a subset of HFT, flash trading (see this “Zero Hedge” Blog).

I don’t know much about high-frequency trading, so I did some research (here is a WSJ primer) and there is a divergence of opinion as to its value – just like most things. Some argue it makes the market more efficient (or in simpler terms, enables investors to analyze real-time data faster, see the “Electronic Market Microstructure” Blog). Others argue that it’s a computer arms race that will just make the computer companies wealthy (eg. Rick Bookstaber).

Regardless of one’s opinion of whether high-frequency trading is a good thing, there are some governance issues to consider. One is whether it makes sense for boards to have fiduciary duties to a shareholder who essentially is a computer? Another is what happens if a voting record date happens to fall on one of those days when the computers are battling it out to move your stock price – does it make sense for 30% or more of your vote to fall in the hands of those that run these computers and don’t have a long-term interest in a company? Put another way, will high-frequency trading purposedly occur on voting record dates to gain leverage over a company? It may argued that this strategy already is employed by some.

Short-termism is growing by leaps and bounds as the “buy and hold” philosophy recently has taken its lumps. What that means for public companies and shareholder activism surely must be a prominient part of the governance reform debate. Let me know what you think.

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Director Independence Standards: Confusing and Lax?
– Auditors Under Pressure: More Lawsuits on the Way?
– Some Thoughts on Using Twitter: My Experiences So Far
– Do You Need an Annual Meeting Transcript?
– How to Market Yourself Through Us
– Twitter This, Twitter That: Corporate & Securities Law Issues to Consider
– A Primer on “Overboarded” Directors

– Broc Romanek

September 10, 2009

The Return of Virtual-Only Shareholder Meetings? Herman Miller’s Third Year in a Row

Well, it’s been done before. Annual meetings held solely online. Inforte was first company to conduct their annual meeting solely online in April ’01. Ciber did it in ’02 and ICU Medical in ’04. Siebel Systems had plans to do it in ’03 – but changed course in the face of criticism.

Now we have a relatively small company – Herman Miller – that filed this proxy statement last week, indicating that it would be the latest company to hold a virtual meeting. And you want to know the biggest surprise of it all – this will be the third year in a row that the company will do so! Slipped under the radar. Anyone aware of any other companies out there doing this?

Although I drafted them about eight years ago, these FAQs on conducting electronically-only meetings remains the best thing out there on the topic (because its about the only thing written on the topic) – it’s posted in our “Annual Shareholder Meetings” Practice Area.

Here is one of the FAQs worth considering:

What risks does a company face if it holds an electronic-only stockholders’ meeting with no physical counterpart?

Increased shareholder activism is quite possible – as well as potential negative media coverage based on the scorn of disappointed stockholders that like to have the opportunity to attend physical meetings.

Some investors have expressed concerns that electronic-only meetings would deprive them of the opportunity to meet with company representatives face to face. They believe that these physical meetings allow investors to better express their positions – and that management and the board listen more closely when communications are made in person.

After Delaware changed its laws in 2000, the Council of Institutional Investors wrote letters to the CEOs of all companies incorporated in Delaware urging them not to conduct electronic-only meetings. Unions also are concerned about the changes in the Delaware law.

Particularly for matters that are contested at a stockholders’ meeting, electronic-only meetings pose the risk that a company can be surprised by large stockholders who vote at the meeting or change their vote – thereby making the outcome of meetings less predictable.

A risk for management is that an electronic-only meeting likely would result in greater attendance with more questions asked compared to a physical meeting – since attending an electronic meeting is fairly easy. This is a risk for those companies who like their meetings small and intimate (i.e. the fewer questions, the better) – but an advantage for those who don’t mind the attention.

Whistleblowing and In-House Counsel: Not Blowing in the Wind?

From Keith Bishop: A few weeks ago, the 9th Circuit Court of Appeals delivered an opinion in Asdale v. International Game Technology. This case involved claims by two former in-house lawyers under the whistleblower protection provisions of Sarbanes-Oxley.

The lawyers’ former employer argued, among other things, that they should not be able to maintain their SOX claims because doing so would require the use of attorney-client privilege. The 9th Circuit agreed with the analysis of the Third Circuit (ie. Kachmar v. SunGard Data Systems, 109 F.3d 173 (3d Cir. 1997)) and Fifth Circuit (i.e. Willy v. Administrative Review Board, 423 F.3d 483 (5th Cir. 2005)) – and held that confidentiality concerns alone did not warrant dismissal of the lawyers’ claims. The 9th Circuit also noted that nothing in the SOX whistleblower provisions indicates that in-house attorneys are not also protected “even though Congress plainly considered the role attorneys might play in reporting possible securities fraud.” We’ve been posting memos on this case in our “Whistleblowers” Practice Area.

Attorney-Client Privilege Issues for Executive Email Communications

Here’s more news on the privilege front, courtesy of Mike Melbinger of Winston & Strawn from his “Melbinger’s Compensation Blog” on

Because the work of executive compensation professionals often involves email communications among executives, I wanted to note a recent case on the extent to which the attorney-client privilege would apply to communications between the executive and his/her lawyer. The issue in Stengart v. Loving Care, No. A-3506-08T1, slip op. (N.J. Super. Ct. App. Div. June 26, 2009), was whether the privilege would apply to communications from an executive’s personal email account, which the executive accessed from a company computer on company time (while at work), to an outside lawyer representing her in connection with her departure from the company.

This is an issue that should be important to anyone who:

– Advises executives in compensation and/or employment matters
– Advises employers in compensation and/or employment matters, or
– Drafts company computer-use policies

The application of the privilege to email sent from the workplace is fact-intensive. The factual analysis determines whether or not the communication was truly confidential. This is that case for both company-owned email accounts and personal email accounts accessed via company computers from the workplace. The leading federal case on the question, In re Asia Global Crossing, Ltd, 322 B.R. 247 (S.D.N.Y. 2005), lays out several factors to consider:

– Does the company maintain a policy banning personal or other objectionable use;
– Does the company monitor the use of the employee’s computer or e-mail;
– Do third parties have a right of access to the computer or e-mails; and
– Did the company notify the employee, or was the employee aware, of the use and monitoring policies?

The approach adopted by the In re Asia Global court and every other court we surveyed, focuses on the effect that the company policy had on the employee’s expectation of confidentiality. A strong and clear company policy can make it impossible for an employee to claim that his/her communication was confidential. On the other hand, a policy that is unclear or does not cover a certain type of electronic communication will leave the door open for the employee to claim that his/her communication was confidential.

However, the court in Stengart v. Loving Care held that emails sent by an employee from her personal, web-based, password protected email account, accessed from a company-owned computer while at work, were protected by the attorney-client privilege. The court held this, despite the company having a computer use policy which indicated that employees had no expectation of privacy in their computer use, and that all data stored, created, or transmitted via company computer was the property of the company. The Stengart court may have misunderstood the role of company policy. The issue should not be whether a court will enforce company policy, but rather whether company policy had the effect of placing the employee on notice that his/her electronic communications through company computers could not be considered confidential.

Many thanks to summer associate Ben Ellison from Notre Dame for his research and drafting help on this Blog.

– Broc Romanek

September 9, 2009

The PCAOB: Big Changes Afoot?

Last week, the PCAOB announced that one of the founding Board Members – Charley Niemeier – will be leaving the PCAOB. His term expired a year ago and his actual departure date is unknown. Upon his departure, there will be only three of the five Board slots filled – with Bill Gradison’s term expiring in October and potentially slimming down the Board to two (remember in the mid-90s when Arthur Levitt and Steve Wallman were the only two SEC Commissioners – Commission meetings are somewhat of a joke when its two guys talking to each other).

It’s likely that SEC Chair Schapiro will act before the PCAOB gets too thin up top – and by filling three new slots, the PCAOB’s direction could well change…

PCAOB Staff Issues Guidance on Impact of FASB Codification on Its Standards

Last week, the PCAOB Staff issued these “Questions and Answers” to provide guidance on how the FASB’s codification project impacts references to authoritative literature.

Farewell to a Corp Fin Giant: Bill Toomey

Starting back when the number of SEC Staffers was substantially smaller, Bill Toomey was a Corp Fin staple for nearly 40 years before he retired ten years ago. Here is a note that Corp Fin circulated yesterday:

It is with great sadness that we inform you that one of our former Division members, Bill Toomey, recently passed away. Bill joined the Division in 1959 as an attorney. He enjoyed a long career in the Division, serving in many important positions and retired in 1998. Those of you who had the opportunity to work with Bill will always remember his consistent willingness to spend time sharing his knowledge with less experienced attorneys and his overall character as a consummate gentleman. Several of those whom Bill mentored continue to serve in the Division today. Bill took great pride in his SEC career and represented the best of the Commission in the many years that he served on the staff.

You can make memorial contributions to the Hillandale Volunteer Fire Department (24), 10617 New Hampshire Ave, Silver Spring, MD 20903 or Montgomery Hospice, 1355 Piccard Dr, Rockville, MD 20850.

– Broc Romanek

September 8, 2009

Another IG Report: SEC Bears Barrage of Renewed Madoff Criticism

Last Wednesday, the SEC released this 22-page executive summary from it’s Inspector General David Kotz regarding the SEC’s failure to nail Bernie Madoff, ahead of the full 477-page report released late Friday (note that it’s the “public” version, some names have been redacted). SEC Chair Schapiro released this statement with the executive summary – and this one with the full report, both of which highlight the 13 reforms undertaken post-Madoff.

As could be expected, the IG’s report resulted in front-page news as the gruesome details of the SEC’s failures would sink any former Staffer’s heart. And this is a story that won’t end for quite some time (FEI’s “Financial Reporting” Blog notes Senate Banking Committee hearings commence this Thursday) and is likely to produce more heartache. For example, I can’t bear the thought of the SEC promoting the fact that they may create a “Fraud College,” as noted in the Bloomberg article. Such nomenclature screams out that the SEC hasn’t been doing the basics when it comes to training.

The repeated bashing of the SEC – unfortunately, much of it warranted – over the past year surely has made a folk hero of its Inspector General David Kotz. This is notable from a historical perspective because the SEC’s IG was someone that hardly knew existed for decades and decades. Now it is among the highest profile jobs at the agency.

Given that the Madoff report is 477 pages, it’s likely that Kotz had a lot of assistance writing it. That’s quite a tome. The IG’s organization chart indicates that the office includes 18 Staffers (including Kotz himself) – but page 7 of the report lists a total of nine in the Office (including two summer interns) that worked on the Madoff investigation. On page 5 of the report, it’s noted that 4 forensic contractors were hired to help investigate (as well as an email recovery expert). Someone will get smart and publish this thing as a book…

Upshot of Madoff Mess? SEC to Finally Be Self-Funded?

Ironically, this Bernie Madoff mess may result in the SEC finally getting funded more adequately. Cries for self-funding have resurfaced, led by Senator Schumer who issued this press release last Thursday noting that he is drafting legislation that would enable the SEC to fund itself from the fees it collects. The SEC historically has collected a level of transaction and registration fees for the US Treasury Department that far outweighs – by about 50% – the funds that Congress appropriates to the SEC to operate. It’s a gravy train that will be hard for the US government to wean itself from.

Beginning in early August, SEC Chair Schapiro began beating the drum for self-funding, as noted in this Financial Times article. This follows a long-line of SEC Chairs seeking the same thing, as it’s hard to run an independent agency when you are dependent on politicians for funding. The SEC is one of only two financial regulators in that must go through the annual Congressional appropriations process. Banking regulators got self-funding a couple of decades ago.

Drilling down into the details, the SEC is part of the appropriations and budget request that includes the Departments of Justice and Commerce. Indirectly, Congress uses the fees that the SEC collects to help balance the budgets of the DOJ and Commerce, even though those paying the fees are not receiving benefits from those agencies. Essentially, the excess fees that market participants pay serve as a “tax.” Here is a mid-’02 GAO report that provides numerous details about a self-funding alternative.

Ah, perhaps a silver lining to the Madoff fiasco…

– Broc Romanek

September 3, 2009

Cool Stuff from Europe: “Wall Street” English and More

Back from a record-length vacation (two weeks without email!) and the papers over there are filled with stories about banker bonuses and how the French have gotten their bankers to agree to some restrictions. French President Sarkozy pushed hard for these restrictions and he intends to make it a big point at the upcoming G-20 summit so that French bankers don’t seek employment elsewhere. Here is a WSJ article from last week describing these developments.

On a lighter note, I thought I would share a few vaca videos that may interest you:

1. “Wall Street” English

One of my favorite moments in Paris was spotting a billboard on the subway promoting the Wall Street Institute, which promises to teach you how to speak “Wall Street” English and more. Maybe talking the talk in Paris is all it takes to be an i-banker? Here is the billboard:

2. Public Company Offerings in The Hague

While walking down the street in The Hague, I spotted a storefront which had a host of securities law and compliance books – unbelievable, eh? – including one entitled “Prospectus for the Public Offering of Securities in Europe.” See if you can spot it:

3. Dancing Along the Seine River

One of the nicer sights in Paris wasn’t in the guide books. We first spotted it during one of the river boat rides in the Seine – folks of all ages swing dancing along the banks (and many more just eating cheese and drinking wine). The second video below is a closer look as I went in to investigate. Like a storybook come true:

– Broc Romanek

September 2, 2009

Survey Results: Corporate Airplane Use by Outside Directors

We recently wrapped up our Quick Survey on “Corporate Airplane Use by Outside Directors.” Below are our results:

1. At our company, when it comes to allowing non-employee directors to use the company’s plane to travel to – and from – board meetings:
– Yes, we allow – but we disclose the aggregate incremental costs associated with such use as director perks in the Director Compensation Table – 1.0%
– Yes, we allow – but we believe such travel is for a business purpose and thus do not disclose it in the proxy statement – 60.8%
– Yes, we allow – but we believe such travel is for a business purpose and therefore only disclose that such travel is permitted in the narrative portion of the proxy statement – 12.4%
– Yes, we allow – but only a percentage of the amounts associated with such use is considered for a business purpose – so some of the cost is disclosed in the Director Compensation Table – 0.0%
– No, we don’t allow non-employee directors to fly on the company plane to our board meetings – 7.2%
– No, as a result of a recent change in our travel policy, we no longer allow non-employee directors to fly on the company plane to board meetings – 1.0%
– We don’t have a company plane – 17.5%

Please take a moment to respond anonymously to respond to our “Quick Survey on “Affiliates” for Rule 144 Purposes.”

Poll Results: How Do You Look Up a SEC Rule?

Recently, I posted a poll about how our members look up a SEC rule. Here are the results, as members look up a SEC rule by referring to:

– SEC’s web site – 16.3%
– Another web site (eg. U. of Cincinnati’s site) – 38.4%
– Free financial printer handbook – 12.1%
– CCH looseleaf service -16.8%
– Other – 11.6%
– What SEC rules? – 2.6%

Greg Wiessner of Wright Express Corporation said he liked the poll but noted: “How come you didn’t include the Appeal Securities Act Handbook (a/k/a “the Red Book” or “Aspen Book”)? As a junior associate, I remember being confounded by a senior partner asking me to find a rule and telling me to either look it up in CCH or online – both of which I found useless.

Shortly thereafter, another partner joined the firm and asked me – knowing I worked on securities matters – to borrow my “Handbook” for an hour because his had not come in yet. I was embarrassed to admit I didn’t even know what he was referring to. He promptly changed the order from one to two books so I’d have my own. When it showed up, I was amazed that each act was tabbed by practical designation, not all in one big mess.”

Trivia: The “Handbook” was named after the now defunct Appeal Printing Company, which originally published it.

Non-U.S. Issuer Lawsuits

In this podcast, Bruce Vanyo of Katten Muchin Rosenman discusses the increasing trend of non-US issuers facing lawsuits in NY courts, including:

– Are more foreign issuers being sued in the US in securities class actions?
– Can you describe how the non-US issuers are being sued in New York?
– What are the causes of these developments?
– Is there anything a non-US company should do in an attempt to stave off being sued in New York?

– Broc Romanek

September 1, 2009

Stir It Up: Latest Controversial Textron Work Product Decision

The most recent U.S. Circuit Court of Appeals for the First Circuit decision in United States v. Textron – a 3-2 en banc decision – has caused quite a stir. This decision follows one from January, in which I blogged thoughts from Stan Keller, who noted then: “The First Circuit decision may amount to an illusory victory for Textron with mischievous consequences.”

In its new en banc decision, the court significantly narrows the “work product” doctrine by ruling that it did not protect tax accrual work papers. The court found that the law “does not protect from disclosure documents that are prepared in the ordinary course of business” instead of in anticipation of litigation or in preparation for trial. Textron had argued that if it were not for the possibility of litigation with the IRS, the papers would not be prepared at all because no reserves would be needed. We have posted the opinion – and memos analyzing it – in our “Audit Documentation/Work Papers” Practice Area.

In their 26-page dissent, Judges Torruella and Lipez noted that there was a split among the circuits and that the “time is ripe for the Supreme Court to intervene and set the circuits straight on this issue.” The depth of the dissent may help those fighting for work product protection going forward as it seems more reasoned than the majority opinion.

The Textron decision is a continuing attack on the work product doctrine, which is likely to continue partly because the definition of “work product” is not all that clear. A split in the 2nd Circuit – as well as the far-reaching implications of the 1st Circuit’s decision – may well lead the US Supreme Court to grant certiorari in this case.

Foreign Corrupt Practices Act Going Strong: SEC Brings “Control Person” Charges

As we’ve been covering in this blog for a while, there has been a marked uptick in activity in the Foreign Corrupt Practices Act area over the past year or so. This is highlighted by SEC Enforcement Director Rob Khuzami’s recent speech – discussing his first 100 days in office – announcing the formation of a new FCPA unit, which will seek to develop new and proactive approaches to detecting FCPA violations and work more closely with foreign regulatory counterparts to develop a global approach to prosecution. This likely signals the end of the de-centralized SEC enforcement of the FCPA, with each regional office having the authority to bring FCPA cases.

For example, the SEC recently settled an enforcement action against Nature’s Sunshine Products and its then-COO and CFO for FCPA violations. What makes this case interesting is that the SEC did not allege any illegal activity (or knowledge of the illegal activity) on the part of the COO or CFO, but rather invoked the often-forgotten “control person” doctrine in Section 20(a) of the Exchange Act to allege that the two men had violated the FCPA based on their position as control persons. It is fair to say that this case serves notice that a broader enforcement effort against executives who fail to adequately supervise employees is underway.

Also notable is how the Department of Justice recently invoked the Travel Act to prosecute a case against Central Components for bribery of a non-government official (the company also pled guilty to FCPA violations). This case demonstrates that the government is casting a wide net to prosecute bribery. We have been posting memos analyzing all the activity in this area in our “Foreign Corrupt Practices Act” Practice Area – and Kevin LaCroix recently covered a host of FCPA developments in his “D&O Diary Blog.”

– Broc Romanek