January 14, 2010

The SEC Enforcement Division’s Big Day: Changes Galore

With a media blitz to drive home the point, the SEC showed its determination to overcome a year of bad publicity by announcing a series of changes in its Enforcement Division. In fact, there are so many changes that there were two press releases and a special “Cooperation” web page. Here is this release announcing internal structural changes (ie. new heads of specialized units and a new “Office of Market Intelligence”) And here is this release announcing an initiative to encourage cooperation during investigations (which is driven by this new policy statement, as reflected in a new Section 6.2 in the SEC’s Enforcement Manual).

To help you navigate the new regulatory approach, I have planned this upcoming webcast: “Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now.” You may want to catch Russ Ryan’s interview regarding the state of the Enforcement Division, posted in “The Mentor Blog” today.

The SEC’s Division of Trading & Markets also had a big day as the SEC moved forward with a broad review of the equity market structure yesterday by approving the issuance of a concept release seeking comment on such issues as high frequency trading, co-locating trading terminals and markets that do not publicly display price quotations.

Corp Fin Permits Section 3(a)(9) Reliance for Securities Exchanges with Upstream Guarantees

Here’s a new development as explained by Davis Polk: Yesterday, the Staff of the SEC’s Division of Corporation Finance issued a no-action letter to Davis Polk, Cleary Gottlieb and O’Melveny & Myers permitting reliance upon Section 3(a)(9) of the Securities Act of 1933 for the issuance of a new parent security in exchange for an outstanding parent security that has one or more “upstream” guarantees from the parent’s 100%-owned subsidiaries.

All of the prior Staff no-action positions involving the availability of Section 3(a)(9) for exchanges of guaranteed securities had involved “downstream” guarantees (i.e., situations where the parent guaranteed a security issued by one or more of its subsidiaries) as opposed to “upstream” guarantees. Here is the incoming request.

As a result of the 3(a)(9) Upstream Guarantee Letter:

– issuers of securities with upstream guarantees will not be required to keep a shelf registration statement effective for the life of the outstanding convertible security to cover exercises and

– issuers of securities with upstream guarantees will have an attractive third option for effecting exchange offers in addition to registration (which has timing implications) and relying on a private placement exemption (which limits the potential offerees).

Transcript Posted: “The Latest Developments: Your Upcoming Compensation Disclosure”

We have posted the transcript to the popular webcast: “The Latest Developments: Your Upcoming Compensation Disclosures – What You Need to Do Now!” As we do every year, we have updated’s “SEC Rules” Practice Area – including posting these memos & checklists that raise considerations for this proxy season.

– Broc Romanek