With the SEC likely to be gearing up to hold true to its promise to consider adopting final proxy access rules sometime this spring – and the Dodd bill containing a proxy access provision – the activities of the US House of Representatives bear watching.
This Wednesday, Rep. Paul Kanjorski, the Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, will be holding a hearing to examine legislative proposals aimed at giving investors a greater say in corporate affairs. As noted in a press release, this hearing will focus on several other corporate governance reform proposals now pending in Congress, especially the bills advanced by three active members of the House Financial Services Committee – Gary Peters, Keith Ellison and Mary Jo Kilroy.
Placement Agent Regulation Makes Headline News
Last week, the SEC announced an action against a private equity firm – Quadrangle Group LLC – for kickbacks involving a New York Pension Fund, making headline news due to the political connections of the firm’s chief.
What struck me as interesting about this case, was that it was a Securities Act case but it doesn’t involve a registration statement or a public offering. I wondered why the SEC proceeded under the ’33 Act – and not the ’34 Act?
I did a little digging into why the SEC may have brought the action under Section 17(a) of the Securities Act. The Supreme Court has held that standard of proof must be met by the Commission when it seeks to enjoin violations of § 17(a) and § 10(b) and Rule 10b-5. In Aaron v. SEC, 446 U.S. 680, 100 S.Ct. 1945, 64 L.Ed.2d 611 (1980), the Court held that scienter is a necessary element of a violation of § 17(a)(1) and § 10(b) and of Rule 10b-5. Scienter was held not to be a necessary element of a violation of § 17(a)(2) or § 17(a)(3). More importantly, the Court held that “when scienter is an element of the substantive violation sought to be enjoined, it must be proved before an injunction may issue.” 446 U.S. at 701, 100 S.Ct. at 1958. By consenting to an action under Section 17(a)(2), Quadrangle is presumably able to continue to deny scienter and this may help, among other things, with insurers.
In unrelated news, CalPERS has published for comment its proposed placement agent regulations. Last Fall, emergency legislation was enacted requiring CalPERS to adopt disclosure regulations for placement agents by June 30th of this year. Because CalPERS is the country’s largest pension fund, these regulations will impact money managers and those trying to market investment products across the country.
A Huge News Event: The SEC Sues Goldman Over a CDO
On Friday, the SEC sued Goldman Sachs over the sale of a “synthetic” collateralized debt obligation, under facts that are not quite as may be otherwise expected as noted by Erik Gerding in “The Conglomerate Blog.” Goldman is strongly disputing the SEC’s allegations.
There’s been an onslaught of news about this action, including:
– This WSJ article discusses the SEC rules regarding disclosure by Goldman of a Wells notice it apparently received last summer (note our panel covered disclosure of SEC Enforcement actions during the popular webcast last week,”Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now“).
– This Bloomberg article points out a hole in the existing securities laws and regulations manifesting it self in self-dealings in the capital markets.
– This Financial Times article notes how the lawyers are likely to now come at Wall Street.
– Broc Romanek