October 21, 2013

SEC Chair White: A Speech on Agency Independence

Recently, SEC Chair Mary Jo White delivered this speech about the importance of independence for the SEC. Mary Jo reviewed the history of the agency’s independence from political influence, including more recent intrusions (think Dodd-Frank and conflict minerals). Not surprisingly, Mary Jo’s bottom line is that politics should not be a factor at an independent agency.

Given her interest in enforcement, it’s not surprising that her speech also focused on the sensitive topic of settlements with guilt admissions and possible judicial interference with the SEC’s decisions in that area, stating: “A court reviewing a consent judgment in one of our cases has a narrower focus – making sure that the settlement is not ambiguous and that it does not affirmatively harm third parties or impose an undue burden on the court’s own resources. But, the core decision as to whether to seek admissions is a decision for the Commission to make in its best, independent judgment of what should be required.”

Agency independence is an important topic. And good timing as a self-funded agency would avoid the chaos of a government shutdown. Not to mention that the Chair is definitely facing a divided Commission…

Here’s a blog from Keith Bishop entitled “Does SEC Independence Mean A Lack Of Accountability?

SEC is Monitoring General Solicitations

Steve Quinlivan blogs about another of SEC Chair White’s speeches – this one entitled “Hedge Funds: A New Era of Transparency and Openness” – during which she commented on steps the SEC is taking to monitor general solicitations. Here is an excerpt:

Contemporaneously with lifting the ban on general solicitation, the SEC staff has undertaken an interdivisional effort designed to monitor how the ability to advertise and “generally solicit” is actually occurring – how companies and hedge funds are taking advantage of the new rule. It includes assessing the impact of general solicitation on the market for private securities and -importantly -on identifying fraud if it is occurring. If it is, we can seek to stop those in their tracks, who would inappropriately take advantage of this new more open environment.

SEC’s Bad Actor Rules Roil Opinion Practice

Here’s a blog from Allen Matkin’s Keith Bishop:

The SEC’s bad actor rules are causing a great deal of consternation amongst lawyers who are being asked to give opinions that the offer and sale of securities do not require registration under the Securities Act of 1933. Historically, these opinions were usually based (albeit not always explicitly) on the non-exclusive safe harbor of Rule 506. The addition of bad actor disqualification in new Rule 506(d) is raising concerns for a number of reasons, including:

– The large number of potential covered persons;
– The unanswered interpretational questions, such as what it means for an officer to participate in an offering; and
– The fact that some covered persons (e.g., minority investors) may not cooperate in providing information.

To the extent that a lawyer is asked to opine that there are no “bad actors”, this would seem to be no opinion at all but a factual confirmation. Such a confirmation could be obtained from anyone who was willing to take the risk.

I expect that opinion givers will be tempted to assume in their opinions that no covered person is a “bad actor”. However, this assumption comes close to making the opinion worthless because it removes one of the key conditions to the exemption. In the old days (i.e., before September 23), this wouldn’t have been as great a problem because issuers could always fall back on Section 4(2) of the Securities Act and (hopefully) a corresponding state private placement exemption. Now, issuers are likely to be engaging in general solicitations in reliance on the SEC’s other amendment to Rule 506. If these issuers lose the Rule 506 safe harbor, they are likely to have lost the Section 4(2) exemption, federal preemption and equivalent state law exemptions.

And here’s Keith’s blog on good standing certificates for CPAs in California entitled “Questions About Third-Party Confirmations Of Accredited Investor Status.”

– Broc Romanek