Yesterday, the Senate Banking Committee announced its agenda for this term of Congress. Not sure it really says all that much…
SEC Issues FAQs on Broker-Dealer Registration Exemption for Rule 506 Offerings
David Jenson of Leonard, Street and Deinard provides us this blog about how the SEC released FAQs last week regarding Section 201 of the JOBS Act, which offers a new limited exemption from broker-dealer registration. Anna Pinedo of Morrison & Foerster blogs this about the FAQs:
Title II of the JOBS Act formalizes the guidance that has been provided by the SEC in various no-action letters relating to the types of activities that may be conducted by matchmaking sites without requiring broker-dealer registration. Section 201 notes that a matchmaking site will not be required to register as a broker-dealer solely by virtue of its private capital raising activities (which may include the use of general solicitation) provided that it complies with specified conditions.
The FAQs clarify that this provision does not require further rulemaking, but notes that a platform cannot permit an issuer to conduct a general solicitation in a Rule 506 offering until the SEC promulgates its final rules. The FAQs note that the exemption from broker-dealer registration in this section is applicable only when securities are offered and sold pursuant to Rule 506. The FAQs also address compensation and note that “Congress conditioned the exemption on a person and its associated persons not receiving any “compensation” in connection with the purchase or sale of such security.” Congress did not limit the condition to transaction-based compensation. The staff interprets the term “compensation” broadly, to include any direct or indirect economic benefit to the person or any of its associated persons. At the same time, we recognize that Congress expressly permitted co-investment in the securities offered on the platform or mechanism. We do not believe that profits associated with these investments would be impermissible compensation for purposes of Securities Act Section 4(b).” To this end, the FAQs note that a venture fund may operate a matchmaking site.
The FAQs also note that the availability of the exemption from broker-dealer registration should not be construed as suggesting that the entity is not otherwise a “broker” or a “dealer” and refers to its guidance on the types of activities typically associated with broker-dealer status. The Staff also notes that the JOBS Act exemption does not address state registration requirements.
Below is Part 3 of a collection of memories from members about working at the printers (here’s Part 1 and Part 2). Please keep them coming and I will only blog them if you give me permission, and you can determine whether you want attribution or anonymity:
– Always fun to watch the linotype in action with the lead slugs lined up upside down and backwards.
– Back in 1988, I was an administrative clerk (basically a sub-paralegal (I was still in college, on break)) at a large NYC white shoe firm. It had been raining for about 4 days straight. I had been working late, and was waiting at my desk reading the paper waiting for a car (due to the rain, there was quite a delay). Around 10pm, I got a frantic call from the paralegal coordinator who said she had been calling every paralegal in the firm and asked me to take on the following task. I said OK.
A client wanted to file a debt registration statement with the SEC before its annual meeting the next morning. I was tasked with getting the registration statement filed (although I am now a securities lawyer, I did not have any securities background then). I took a car to the printer and waited (luckily, the Mets were on the West Coast and I watched the game while drinking a beer). Around 1am, the 12 copies were ready and I got in a car to drive to DC (remember, it has been raining for 4 days and the planes were iffy; the first train wouldn’t get me there in time). We started the drive to DC, the driver, me and the “Box.”
Every hour, we had to pull off the road (no cell phones then!) and call the printer to confirm our location and that we were OK. The reason: there was another car following an hour behind us, with a duplicate Box. That driver was also calling in every hour and would be in position to meet up with us if we had any car trouble or an accident, etc. Note that the client had initially tried to get the partner to take this journey, then the associate, finally agreeing to a paralegal (I guess I was close enough…).
Anyway, we got to DC safely at around 6:30am, I dropped the box with one of our DC paralegals, at her house, and then I called the partner to find out what to do next. He said “go watch it get filed at the SEC.” So, the driver and I went to grab breakfast, and I went to the SEC at 9 or 9:30 and watched the documents get filed. Then, I called the partner again to confirm the filing, and since the skies were now sunny asked if I could take a flight back to NY rather than getting back in the car. He said yes, thankfully.
– Many years ago I was working on a tiny IPO for a high end winery. The wine lovers among the lawyers, bankers and accountants had fought to get on the deal, but for me it was just the luck of the draw. Late one night at the printer, people started going around the table describing their wine collections, which gave me pause since I had none – until they got to the young banker next to me who said, “I have a bottle of Chablis in the fridge and a liquor store at the corner!”
– My securities practice started as a junior associate in 1996. I had my first child in 2007 and that coincided with so much more being done via email and without in-person printer sessions (coupled with the coming recession) which was great for motherhood and a part-time practice, but I will admit that I missed the days gone by. I met my husband at Donnelley, I was designated underwriters’ counsel and he was issuer’s counsel and we worked together on probably 50 deals before we got married in 2004 (upon which I was understandably conflicted out of being underwriters’ counsel on those deals).
My favorite memory was on a deal at Merrill in NYC back in the late 1990s. It was a 144A deal with a sub-investment grade issuer, when non-GAAP numbers were often central to offering memorandums. It also happened to be my 30th birthday, and in the hey-day of lavish printer sessions. Not only did Merrill bring out a tiered birthday cake during lunch, but they presented me with a bottle of Veuve Clicquot champagne, gratis from the printer.
As all of this was happening though, the business people and investment bankers decided to sidebar into another room while the lawyers and accountants continued to work on the OM and circle the numbers needing back-up. Several hours passed and it occurred to us that we hadn’t seen the business people in a long while. Someone had the guts to go to the sidebar room only to find that it was empty, they had all just left. Finally a junior investment banker made his way into our conference room and told us to halt our work immediately, the deal was off, and everyone should collect the final drafts of things and go back to their offices and wait for instruction from their clients.
There was my cake still on its rolling card with a white table cloth over it in the corner, it had yet to have a single piece cut out of it. We all quickly tried to gather the most recent scribner’s drafts and box those up to be shipped back to our firms and make quick arrangements for cars and flights (oh how easy it was those days to arrive at LaGuardia and get to the gate even though your ticket was for a later flight and have the attendant let you on an earlier flight with just 6 minutes to spare).
I grabbed the unopened bottle of champagne and had it sent back to me at my firm (sandwiched between stacks of documents in a bankers’ box). I preserved the bottle even as I moved several times. In fact, when my husband and I got married in 2004,I decided to save a few bucks on what was turning out to be a very expensive wedding and use that bottle of champagne for our wedding toast. Imagine my surprise when the bar tender poured us our champagne in front of 300 guests for the toast and it was rose champagne, not clear! In all of our pictures, it looks like we are drinking fruit punch out of champagne glasses. I had never read the bottle to see what kind of champagne it was, I just knew the great maker. Thanks Merrill!!
Transcript: “The ‘Former’ Corp Fin Staff Speaks”
We have posted the transcript for our recent webcast: “The ‘Former’ Corp Fin Staff Speaks.”
Webcast: “Projections, Prospects & Other Crystal Ball Provisions: Colliding with 20/20 Hindsight”
Are Rating Agencies Ramping Up to Publicly Warn on Excessive Executive Pay?
In a blog entitled “Moody’s Warns Jeffries on ‘Excessive’ Pay,” Paul Hastings’ Mark Poerio notes:
This article from the New York Times begins: “To Moody’s, the high pay [of $78 million for top executives] is a reminder of ‘excessive compensation’ among Wall Street firms, potentially leading investment banks to take excessive risks and irritating critics on Capitol Hill and among regulators.” Fast forward to the proxy statement disclosure implications: How will the company handle its discussion of the riskiness of its executive compensation structures? Going to the design of the firm’s executive compensation, Moody’s has apparently expressed concern that “the firm has not put in place measures like longer award vesting periods and more expansive powers to claw back compensation . . . to ensure that employees will not suffer consequences from excessive risk-taking.” It will be interesting to see how the firm’s shareholders and proxy advisory firms react to the Moody’s report, and whether the firm’s compensation committee acts preemptively beforehand.
I can’t recall a rating agency ever making a concern over excessive executive pay public? Maybe the NY Times sleuthed this out. Or maybe it’s a new trend…
Poll: How Many Companies Will Receive a “Failed” Say-on-Pay Vote in ’13?
Sadly, the web polling software I was using for my blog surveys is defunct. But below is an attempt to use another polling tool to gauge what y’all think will happen with say-on-pay this year:
Last night, eight law firms joined to issue this report on 13 open issues related to the Iran Threat Reduction and Syria Human Rights Act as the first time that companies need to provide disclosure under this new law draws nigh. A number of the answers in the memo address the “affiliate” issue that I raised in this blog earlier this week…
By the way, 4 companies have already filed “IRANNOTICES” with the SEC, per this Edgar search…
A Magic Number? How Many Firms Does It Take to Reach a Consensus?
First of all, let me commend those brave souls who have taken the lead to get law firms together to issue a consensus firm memo – as well as those tasked within each firm to help negotiate its language. This is no easy job – and I imagine it involves hours and hours that are not billable (and perhaps some hurt feelings to boot). Kudos!
The notion of a consensus memo is a relatively new phenomenon – I believe the first one was issued in October ’02 in the wake of Sarbanes-Oxley regarding Section 402 and insider loans. And there have been a handful more since then. I believe this new one with eight is the fewest number of firms to join together in harmony.
Anyways, I got to wondering how many firms does it take to reach a consensus? What is that magic number? Is five too few? Send me your feedback. I believe there hasn’t been any caselaw relying – or deciding not to rely – on any of the consensus memos pushed out over the past decade.
A few days ago, the NYSE submitted this rulemaking petition to the SEC seeking to amend the Section 13(f) beneficial ownership reporting rules, including shortening the current 45-day reporting deadline for Schedule 13Fs so that reporting is required 2 days after the quarter ends – as well as pushing for a reporting requirement on a monthly basis rather than the existing quarterly framework. The Society of Corporate Secretaries and NIRI co-signed the petition, as more frequent reporting would assist companies to determine who their larger shareholders are for engagement and vote projection purposes.
As noted in this recent webcast, rulemaking petitions don’t carry any special weight typically – so I found it unusual for the NYSE to submit a petition given that it is in frequent direct contact with the SEC. Over the past decade – which is how long petitions have been posted online – the NYSE and Nasdaq have only submitted one petition each – and both of those were fairly insignificant (one to extend a implementation date deadline and one to seek equal treatment among the two exchanges). It is possible that someone at the SEC asked the NYSE to file the petition as a way to test the waters – or maybe this is a new approach for the exchanges to seek regulatory changes…or none of the above…
This article predicts that even a smooth Senate confirmation process for Chair-nominee White might not take place til March…
Transcript: “The Litigation Explosion in Executive Compensation”
In talking to one of my law firm friends, it sounds like quite a few in-house counsel didn’t wake up to the new wave of executive compensation litigation until this WSJ article came out yesterday. Tell your friends to stop relying on the WSJ for news in their field and start reading this blog (or the daily blogs I post on CompensationStandards.com’s “The Advisors’ Blog” – or the Borges and Melbinger blogs on that site)! And the past two issues of The Corporate Counsel have covered this topic too. Good grief, the proxy season is half over already.
Anyways, I have posted the transcript for our recent CompensationStandards.com webcast:”The Litigation Explosion in Executive Compensation.”
Judges Needed for Fordham Securities Law Moot Court Competition
Each spring, Fordham Law School hosts the Kaufman Memorial Securities Law Moot Court Competition, which has a rich tradition of bringing together complex securities law issues, talented student advocates and top legal minds. This year’s Kaufman Competition will take place on March 22-24, with a focus this time around on two issues that arise in the fallout of Ponzi schemes: application of SLUSA, which was recently granted cert by the Supreme Court and whether the “stockbroker safe harbor” of the Bankruptcy Code applies to Ponzi operators.
They are currently soliciting folks to judge oral argument rounds and grade competition briefs. No securities law experience is required to participate and CLE credit is available – here is contact information to participate.
Recently I blogged a new Corp Fin position that has led Broadridge to eliminate the “vote with management” button, both online and by phone. Instead, Broadridge now encourages holders to vote on individual items and indicates that if the holder clicks on “submit” without selecting any items individually, proxies and vote instructions will be cast in accordance with board recommendations.
It is my understanding that the SEC also has asked transfer agents (and others that deal with registered shareholders) to ensure that – if their phone and Internet voting applications have a “vote with management” button – they must also have a “vote against management” button. In other words, Corp Fin’s position applies to both beneficial and registered holders.
Recently, GAO issued this report that identified 236 provisions of Dodd-Frank that require regulators to issue rulemakings across 9 key areas. As of December 2012, regulators had issued final rules for about 48% of these provisions – however, in some cases the dates by which affected entities had to comply with the rules had yet to be reached. Of the remaining provisions, regulators had proposed rules for about 29% – and rulemakings had not occurred for 23%.
More on “The Mentor Blog”
I continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Australia Threatens Auditors with Mandatory Rotation
– Notice-and-Access Adopted in Canada
– PowerPoint: Insider Trading Training for Restricted Employees
– More on “Bad Grades Are Rising for Auditors”
– S&P’s Governance Criteria
Recently, many members have been reaching out about how to determine who is an “affiliate” for purposes of the Iran Threat Reduction and Syria Human Rights Act of 2012 and the new disclosures that are required for any periodic report due after tomorrow. As noted during our recent “The ‘Former’ Corp Fin Staff Speaks” webcast, the “affiliate” definition is quite broad – and might elicit disclosure of transactions that may not even be prohibited by any of these law’s restrictions. See this part of the webcast’s transcript (there is also good stuff about the need for ongoing diligence regarding insiders given this new law is not just an annual disclosure). We have been posting memos regarding this new disclosure requirement in our “Iran Sanctions” Practice Area.
Many of the questions we have been getting relate to recent informal SEC Staff acknowledgement that “affiliate” might pick up brother-sister private equity portfolio companies. This Staff acknowledgement is informal (ie. even more informal than the 7 CDIs issued in December; Staff guidance is considered “informal” since it’s not blessed by the Commissioners) – but seems to be based on the fact that Congress didn’t limit the broad “affiliate” definition of Exchange Act Rule 12b-2 when it passed this legislation. As always, companies should make reasonable efforts to obtain the necessary information in order to comply with the disclosure requirements.
FINRA’s New FAQs on Public Offering Reviews
Thanks to David Jenson for alerting us to these new FAQs from FINRA on its public offering review process in this blog…
Transcript: “The Latest Developments: Your Upcoming Proxy Disclosures–
What You Need to Do Now!”
We have posted the transcript from our recent CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures–What You Need to Do Now!”
Webcast: “Rule 10b5-1 Plans Under Attack: The Latest Practices”
Tune in tomorrow for the webcast – “Rule 10b5-1 Plans Under Attack: The Latest Practices” – to hear Alan Dye of Hogan Lovells and Section16.net, Howard Dicker of Weil Gotshal, Ron Mueller of Gibson Dunn and Sue Morgan of Perkins Coie analyze the latest practices given the heightened scrutiny of these plans.
Transcript: “Dissecting the Quarterly Earnings Process”
We have posted the transcript from our recent webcast: “Dissecting the Quarterly Earnings Process.”
Despite all of the attention on cybersecurity issues these days, the last Congress was unable to pass “The Cybersecurity Act of 2012,” despite two attempts. Efforts are now gearing up to try again, and those efforts may be aided by Senator Rockefeller’s recently released survey of the cybersecurity practices of Fortune 500 companies. As Broc noted back in September 2012, Senator Rockefeller sent letters to the CEOs of all Fortune 500 companies requesting information on how each company was addressing cybersecurity, and how they felt about federal legislative initiatives to address the issue.
The staff summary of the responses to Senator Rockefeller’s letter noted that approximately three hundred companies in the Fortune 500 responded, and that overall the companies’ responses demonstrated that the private sector is supportive of Congress’s interest in passing cybersecurity legislation. Not surprisingly, the companies that responded all stated that they have developed cybersecurity practices to protect their infrastructure from cyber attacks.
As this WilmerHale alert notes, President Obama is likely to issue an executive order during the first half of 2013 addressing the improvement of cybersecurity practices in critical infrastructure sectors while the Congressional cybersecurity initiatives gear up.
SEC Gets a New IG
This week the SEC announced that Carl W. Hoecker will serve as the agency’s Inspector General, taking over from Interim Inspector General Jon Rymer, who was holding down the SEC gig and his day job as the Inspector General of the FDIC. Mr. Hoecker comes to the SEC after having served as the first Inspector General of the Capitol Police since 2006. With over 30 years of law enforcement experience, it sounds like Mr. Hoecker is a seasoned veteran. Perhaps with this background he can restore the SEC Inspector General’s office to those halcyon days before SEC IG scandals made news in Rolling Stone, among many other media outlets.
Our February Eminders is Posted!
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