September 20, 2017

The Kid & the “Proxy Season Disclosure Treatise”

I was excited to get my “feet wet” by editing the new 2018 Edition of the popular “Proxy Season Disclosure Treatise.” It just came back from the printers – and you can order now so that you receive it hot off the press! This “Detailed Table of Contents” lists the numerous topics so you can get a sense of the Treatise’s practical nature.

It’s huge – 33 chapters & 1650 pages! And so lovable that even a small child can enjoy it, as borne out by this 30-second video:

Links to Exhibits: Where To Put The Exhibit Index

When the SEC amended its rules to require links to exhibits, it also amended Rule 102(d) of Regulation S-T & Rule 601(a)(2) of Regulation S-K to require the exhibit index to “appear before the required signatures in the registration statement or report.” We’ve been getting lots of questions about what this means: Does a separate list still need to precede the exhibits themselves?

Thankfully, Bass Berry’s Jay Knight contacted the SEC’s Office of Chief Counsel – and updated his blog to reflect the Staff’s informal answer to this question:

It’s permissible to combine the exhibit table with the exhibit index and only present one list of exhibits with hyperlinks, and a separate exhibit index is not required.

I think this is a good, practicable outcome and should dispense with the notion of having two lists of exhibits. Here’s an example of the approach applied on an 8-K.

Equifax Data Breach: Securities Class Action Liability?

Last week, Broc blogged about the possible “insider trading twist” in the Equifax data breach. That, along with an alleged 17% decline in Equifax’s stock price following news of the breach, might provide unusually strong fodder for a securities class action.

At least one of these lawsuits has been filed – and more will likely follow. Check out this analysis from Kevin LaCroix:

The recent Equifax securities class action lawsuit arguably represents the exceptional case where the company’s share price declined significantly after the announcement of the data breach. The share price decline following Equifax’s data breach announcement undoubtedly reflected the fact that the company’s business model depends on maintaining the confidentiality of the customers’ sensitive financial information. The sheer magnitude of the breach likely was also a factor; although the Equifax breach is not the largest data breach of all times, it may represent one of the highest profile breaches involving sensitive personal information.

The alleged insider trading may also make the Equifax case more attractive to prospective litigants. To be sure, the company has claimed that the officials were not aware of the breach when they traded. In addition, the sales themselves are relatively small and reportedly only involve small portions of the officials’ holdings. Nevertheless, the plaintiffs undoubtedly will try to argue that the officials sought to capture trading profits by trading in their shares before the news of the breach was publicly released.

The fact that the insider trading took place after the breach had been discovered but before the breach was publicly disclosed highlights the danger involved when a company delays publicly disclosing that it had sustained a cybersecurity incident. The company’s press release states that the company delayed disclosing the breach while it conducted a forensic examination of the breach to determine its scope. One of the issues that undoubtedly will be examined in great depth in the wake of Equifax’s data breach disclosure is the question of how quickly companies should disclose information about the breach, particularly if the cause, scope, and seriousness of the breach is unknown when a company discovers that it has been hacked.

How the Equifax case ultimately will fare remains to be seen; in particular it remains to be seen whether the specifics of the plaintiffs’ allegations are sufficient for the case to survive motions to dismiss. Notwithstanding the lack of success plaintiffs typically have had with data breach-related shareholder derivative lawsuits, Equifax may seek to file derivative lawsuits against company officials as well.

The potential insider trading aspect of this situation also highlights the need for well-implemented pre-clearance & special blackout procedures. Take a moment to participate anonymously in our “Quick Survey on Blackout Periods.” We have over a dozen related survey results posted in our “Insider Trading” Practice Area – as well as other resources, like this timely Dorsey memo.

Liz Dunshee