October 7, 2010

FINRA’s IPO Abuse Rule Approved

Last week the SEC approved new FINRA Rule 5131, which when effective will regulate the list of initial public offering abuses that were so prevalent during the dot-com bubble. (Has it really been almost a decade since that bubble burst?) Rule 5131, which started out life as a NASD rulemaking first submitted to the SEC in September 2003, prohibits a variety of practices in connection with a “new issue” of an equity security, including: (1) quid pro quo allocations, which involve making allocations of securities in return for services provided to the broker-dealer selling the new issue; (2) spinning, or the practice of allocating new issue securities to executive officers and directors of public or certain non-public companies to curry favor with those executives or directors (subject to certain exceptions); (3) imposing inequitable penalty bids; and (4) acceptance by broker-dealers of market orders for new issue shares before commencement of secondary market trading. The rule also imposes a number of additional restrictions on the offering process and the activities of broker-dealers participating in the offering of a new issue, including a requirement to establish walls between investment banking personnel and those making the new issue allocation decisions.

Many of these practices have already gone the way of the dinosaur thanks to all of the attention paid to them in the post-dot-com bubble fallout, including lots of litigation. Nonetheless, FINRA finally has some additional rules to keep them from happening again. FINRA will announce an effective date within 60 days of the SEC’s approval.

The FSOC Meets

As Dodd-Frank Act landmarks go, it seems like last week’s inaugural meeting of the Financial Stability Oversight Council was certainly a big one. The FSOC, comprised of all of the significant financial regulators, was created by Dodd-Frank to provide comprehensive monitoring of the overall financial system, hopefully so that emerging risks or issues won’t fall through the regulatory cracks. Much of the inaugural meeting was just housekeeping, including adopting bylaws and a transparency policy and setting in motion various tasks mandated under Dodd-Frank.

Mailed: September-October Issue of The Corporate Counsel

The September-October issue of The Corporate Counsel was just mailed and includes pieces on:

– The Requirement to File Revised Financials Ahead of a Shelf Filing–A Trap for the Unwary
– Identifying NEOs–Former CEO/CFO Can’t Also be One of Three Most Highly Compensated Executive Officers
– Form 8-K Requirement(s) upon Reassignment, Later Termination, of Principal Officer/NEO
– Risk Factor Updating in Form 10-Q–Repeat in Subsequent Qs?
– Former Affiliate’s Sale of Issuer Stock Within 90 Days After Termination–Chapter 2 (or 20?)
– Dodd-Frank–Whatever Happened to Principles-Based?
– Enforcement’s 1933 Act Batting Average Now .250
– Roth Conversion Follow-Up

Act Now: Get this issue on a complimentary basis when you try a “Free for Rest of ’10” no-risk trial today.

– Dave Lynn