TheCorporateCounsel.net

Yesterday, the Staff updated a number of C&DIs across several different topic areas. A number of the new or revised C&DIs relate to foreign private issuers, and two new C&DIs provide guidance on the ability of smaller listed issuers to utilize shelf registration under the conditions of General Instruction I.B.6.

The new interpretations are:

– Securities Act Rules Question 256.21 (general solicitation issue for a private fund)
– Securities Act Forms Question 116.22 (calculating 1/3 limit in General Instruction I.B.6.)
– Securities Act Forms Question 116.23 (calculating 1/3 limit in General Instruction I.B.6.)
– Exchange Act Rules Question 110.01 (foreign private issuer status)
– Exchange Act Forms Question 104.17 (Part III must incorporate definitive proxy statement)
– Section 16 Question 101.02 (foreign issuer and Section 16 reporting)
– Section 16 Question 110.03 (foreign issuer losing foreign private issuer status and 16a-2)
– Section 16 Question 110.04 (foreign issuer and 16a-2)

The revised interpretations are:

– Securities Act Sections Question 139.29 (lock-up in registered debt exchange offer)
– Securities Act Sections Question 139.30 (lock-up in registered third party exchange offer)
– Section 16 Question 101.01 (applicability of Section 16 when issuer loses FPI status)

The exchange offer lock-up interpretations were only revised slightly – in the fourth condition, the words “are offered” replaced the words “will receive” when referring to the same amount and form of consideration for all note holders eligible to participate in the exchange offer. Alan Dye will be blogging about the Section 16 C&DI changes on Section 16.net.

Enforcement Keeps its Subpoena Power

One of the high profile changes to the SEC Enforcement process that Chairman Schapiro made this time last year was the delegation of authority for issuing Formal Orders of Investigation, vesting with the Director of Enforcement the ability to designate the Enforcement Staff authorized to issue subpoenas in investigations. Prior to making that change, the Enforcement Staff had to go to the Commission for a Formal Order, thus slowing down the process.

The original delegation of authority had a one-year sunset provision in order to permit the Commission to evaluate the new approach. Yesterday, the Commission issued an order extending the delegation of authority without a sunset provision, so the Formal Orders can keep flowing down at the SEC.

Better than Lotto?

While on the topic of SEC Enforcement, Section 922 of the Dodd-Frank Act establishes enhanced bounty provisions for whistleblowers voluntarily providing information that leads to a successful enforcement action by the SEC. The SEC already had bounty authority in insider trading cases pursuant to Section 21A(e) of the Exchange Act, but earlier this year the SEC’s Inspector General found that the bounty program was rarely used, having received few applications and paying out few bounties over the past 20 years. The SEC asked Congress to significantly expand its authority to pay bounties, and that proposal ultimately found its way into the Dodd-Frank Act.

This time, the SEC won’t be fooling around when it comes to bounties, and there will no doubt be an increase in the flow of applications now that the stakes are so much higher. Under the Dodd-Frank Act provision, awards to whistleblowers range from ten to thirty percent of the collected monetary sanctions (the insider trading bounty was limited to ten percent). That means that if a whistleblower had provided “original information” which led to the recent Enforcement action against Goldman Sachs – with its $500 million settlement touted as the largest penalty against a Wall Street firm in the history of mankind – the whistleblower could have potentially collected $50 million to $150 million under this new law. Obviously, with those kinds of incentives involved, there may be more of an inclination for whistleblowers to go to the SEC (especially since they can do so anonymously up until the time the bounty is paid), particularly in those situations that typically involve very high monetary penalties, such as in the FCPA cases.

We have posted lots of memos on these new whistleblower provisions in our “Dodd-Frank Act” Practice Area.