March 18, 2011

SEC Proposes to “Readopt” Rules 13d-3 and 16a-1

In what might be one of the more unusual rulemakings coming out of the Dodd-Frank Act, yesterday the SEC proposed to readopt relevant portions of Rules 13d-3 and 16a-1 so as to preserve the status quo with those rules as they apply to security-based swaps following the July 16, 2011 effective date of Exchange Act Section 13(o), which was added by Section 766 of the Dodd-Frank Act. Section 13(o) said that “[f]or purposes of this section and section 16, a person shall be deemed to acquire beneficial ownership of an equity security based on the purchase or sale of a security-based swap, only to the extent that the Commission, by rule, determines after consultation with the prudential regulators and the Secretary of the Treasury, that the purchase or sale of the security-based swap, or class of security-based swap, provides incidents of ownership comparable to direct ownership of the equity security, and that it is necessary to achieve the purposes of this section that the purchase or sale of the security-based swaps, or class of security-based swap, be deemed the acquisition of beneficial ownership of the equity security.” The proposing release provides an excellent discussion of the framework for determining beneficial ownership, and also discusses the application of that framework to security-based swaps. The proposing release does note that the use of security-based swaps “has not been frequently disclosed in Schedule 13D and 13G filings.”

The SEC Staff consulted with the Federal Reserve, the Office of the Comptroller of the Currency, the Farm Credit Administration, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation and the CFTC. Following these consultations, the SEC determined to propose to readopt, without any changes, portions of the rules enabling determinations of beneficial ownership to be made for purposes of Exchange Act Sections 13(d), 13(g) and 16 of the Exchange Act. The proposal to readopt the portions of the rules is intended to clarify that, after the effective date of Exchange Act Section 13(o), security-based swaps will remain within the scope of the rules “to the same extent as they are today.”

Comments on the proposed readoption rulemaking are due April 15, 2011.

A “Deep Thoughts” Shareholder Proposal No-Action Letter

Many of the shareholder proposal no-action letter responses coming out of the Staff at this time of year can seem very company-specific or repetitive, so it is exciting to occasionally come across a letter that delves into some new topics. This recent response to Alaska Air is definitely one of those letters. It goes deeply into the Rule 10b-5 private cause of action, damages, and the anti-waiver provision of the Exchange Act. In getting a favorable (i)(2) response from the Staff, Alaska Air was ably assisted by my radio show co-host Marty Dunn at O’Melveny & Myers. This letter proves yet again that the Staff’s job in dealing with shareholder proposals is not by any means easy!

March-April Issue: Deal Lawyers Print Newsletter

This March-April issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– Never Say Never, But, You May Have to Wait Two Years: Delaware’s Airgas Decision
– How Process Flaws Can Rewrite Your Merger Agreement: Process Flaws, Remedies and Del Monte
– The Validity of Stockholders’ Representatives after Aveta
– Tips for PE Firms Participating in Stalking Horse Auctions

If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Dave Lynn