June 27, 2011

Unlucky #7: A Quasi-Say-on-Pay Lawsuit

Last week, a seventh company was sued regarding its pay practices – Bank of New York Mellon in a state court in New York (here’s the complaint). One of the big differences in this lawsuit is unlike the six lawsuits filed against companies that failed to garner a majority of votes in support of their say-on-pay, Bank of New York Mellon received overwhelming support for its say-on-pay (although there was a huge number of broker non-votes). Here’s the Form 8-K reporting the company’s voting results.

Mark Borges notes “this lawsuit appears to be fundamentally different from the others that have been filed following a failed say-on-pay vote. This suit alleges that the company’s board (and its Compensation Committee) acted in contravention of the terms of their long-term incentive plans. What’s interesting to me is that the details of the complaint could only have been drawn from the Compensation Discussion and Analysis, so it’s a classic example of the disclosure providing a roadmap for second-guessing the decisions of the directors.” We continue to post pleadings from these cases in’s “Say-on-Pay” Practice Area.

By the way, two of the oldest of the say-on-pay cases have been settled. As noted in this Davis Polk blog: “KeyCorp agreed, according to Reuters, to pay $1.75 million in attorneys’ fees and expenses to settle related suits and Occidental Petroleum, faced with three suits, settled one for an undisclosed amount and had two dismissed.”

Purchasing from a Public Offering: Don’t Forget the SEC’s Credit Limitations

Here’s a tidbit from Suzanne Rothwell: With broker-dealers and their bank affiliates often extending loans to issuers, I am hearing about situations where an officer of an IPO issuer or other intended investor has asked one of the underwriters of the company’s IPO to extend a loan in order to purchase securities from the IPO or an almost simultaneous private placement. Section 11(d) of the ’34 Act prohibits an IPO underwriter from making a loan to anyone to purchase IPO securities from the offering and also in the secondary market for 30 days after the IPO.

The provision even prohibits an underwriter from “arranging” for a loan by any other party. The purpose of the regulation is to prevent underwriters from encouraging the purchase of securities without a market by extending credit to its customers. While generally a loan is permitted to investors purchasing from a private placement, the SEC can take the view that a close-in-time private placement is integrated with the IPO for purposes of the credit limitations.

House Financial Services Committee Approves the “Small Company Capital Formation Act”: Regulation A Revival Closer?

Last week, the House Financial Services Committee on Capital Markets and Government Sponsored Enterprises approved the Small Company Capital Formation Act of 2011. Several amendments were introduced and debated by the full House Financial Services Committee. This Morrison & Foerster memo explains more.

– Broc Romanek