June 17, 2011

Supreme Court Ends SEC’s Theory of “Implied Representation”

On Monday, the US Supreme Court dealt a final blow to the SEC’s theory that third parties may be held to a standard of primary liability under the SEC antifraud rules (called “implied representation”) for statements in a prospectus (we are posting memos in our “Securities Litigation” Practice Area). In a 5-4 decision in Janus Capital Group v. First Derivative Traders, the Court rejected a shareholder class-action lawsuit that argued that Janus Capital Group and a subsidiary should be held liable under the SEC antifraud rules for allegedly false statements in the prospectuses of subsidiary mutual funds.

The Court stated that the “maker of a statement” that violates SEC Rule 10b-5 “is the person or entity with ultimate responsibility over the statement . . . ” and that “One who prepares or publishes a statement on behalf of another is not its maker.” The Court reached this determination despite the close affiliation of the defendants to the mutual funds and their involvement in the preparation of the prospectuses.

Suzanne Rothwell notes that while private investors may be limited in their ability to recover directly from third parties, broker-dealers that distribute offerings later found to be fraudulent nonetheless remain vulnerable to an enforcement action by FINRA (as indicated in Regulatory Notice 10-22) for failure to comply with FINRA product suitability standards and, if the broker-dealer assisted in the preparation of the offering document, the FINRA advertising regulations. In addition to sanctions such as fines and suspensions, FINRA has authority to require that a broker/dealer or a broker make restitution to investors.

If you’re a fan of “The Office,” this video is hilarious. It reengineers the standard opening of the show as if it was an old-fashioned sitcom…

SEC Continues Work on Section 13(d) & (g) Modernization Project

Last week, the SEC re-adopted changes to Rules 13d-3 and 16a-1 to preserve the application of the existing beneficial ownership rules to security-based swaps after July 16th, the effective date of new Section 13(o) that was created under Section 766 of Dodd-Frank. Thus, security-based swaps will remain subject to these rules following the July 16th effective date. As noted in the re-adopting release, the SEC continues to work on its modernization project for Section 13(d) and (g) – and as noted in this press release, the SEC will be “taking a series of actions in the coming weeks to clarify the requirements that will apply to security-based swap transactions as of July 16 – the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act – and to provide appropriate temporary relief.” This relief began to happen on Wednesday as noted in this press release.

Last Call: Early Bird Discount for our “Say-on-Pay Intensive” Pair of Conferences

There is only one week left for the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save by registering by Friday, June 24th at our early-bird discount rates. Note this early-bird discount will not be extended.

As you can see from our agendas, this year’s pair of Conferences (for one low price) will be workshop-oriented more than ever before in an effort to provide the practical guidance that you need in the new say-on-pay world that we live in:

1. November 1st’s “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” includes:

– Say-on-Pay Disclosures: The Proxy Advisors Speak
– Say-on-Pay: The Executive Summary
– Drafting CD&A in a Say-on-Pay World
– The In-House Perspective: Changing Your Processes for ‘Say-on-Pay’
– Getting the Vote In: The Proxy Solicitors Speak
– Handling the New Golden Parachute Requirement
– The Latest SEC Actions: Compensation Advisors, Clawbacks, Pay Disparity & Pay-for-Performance
– Dealing with the Complexities of Perks
– Conducting – and Disclosing – Pay Risk Assessments
– Say-on-Frequency & Other Form 8-K Challenges
– How to Handle the ‘Non-Compensation’ Proxy Disclosure Items

2. November 2nd’s “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” includes:

– SEC Chair Mary Schapiro’s Keynote (via pre-taped video)
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Say-on-Pay: The Proxy Advisors Speak
– How to Work with ISS & Glass Lewis: Navigating the Say-on-Pay Minefield
– Putting Your Best Foot Forward: How to Ensure Your Pay Practices Pass
– Say-on-Pay: Director (and HR Head) Perspectives
– Failed Say-on-Pay? Lessons Learned from the Front
– Say-on-Pay: Best Ideas for Putting It All Together

– Broc Romanek