April 24, 2018

E&S Shareholder Proposals: “We’re No. 1!”

This “Corporate Secretary” article says that – for the first time in a generation – E&S shareholder proposals topped governance proposals during 2017. This excerpt provides some of the details:

In 2017, E&S proposals accounted for 54 percent of all ESG proposals in the US, whereas in 2012 they accounted for 39 percent, according to data ISS Corporate Solutions has shared with Corporate Secretary. The number of E&S proposals has increased by 41 percent during this five-year period, while fewer governance proposals have been filed.

‘The dip in governance resolutions likely reflects the fact that reforms such as proxy access, board declassification and repealing poison pills have taken hold across a wide swath of US companies, and so fewer companies are being targeted for governance reforms,’ Leah Rozin, principal ESG adviser at ISS Corporate Solutions, tells Corporate Secretary. ‘By contrast, environmental and social resolutions continue to climb, and we expect this trend to continue into 2018.’

Interestingly, the article also reports that efforts to engage with proponents may be faltering – for the first time in more than a decade, fewer than 20% of proposals were withdrawn.

NY’s Martin Act in the Crosshairs

I don’t think I’m sticking my neck out when I say that you’d be hard pressed to find a more intimidating statute than New York’s Martin Act. The Martin Act cuts a very wide path. Over the years, it has been used by New York authorities in a number of high profile criminal and civil actions – and was the lever that Eliot Spitzer used to extract the global research settlement from major Wall Street firms.

What makes the statute so intimidating it that it weds severe remedies – including criminal penalties – to very broad “fraud” provisions that don’t require scienter to impose criminal liability (at least in the case of misdemeanors). As a bonus, it’s also one of the most dense & turgid pieces of legislative prose that you’ll find this side of the Tax Code. As the WSJ once observed, the statute’s first sentence laying out the NY AG’s investigative authority is a “40-line, 535-word preamble, sweeping in all manner of fraudulent behavior.”

Now it looks like the Martin Act is drawing fire from some pretty big guns.  This NYT article says that – after recently settling his own long-running Martin Act battle with the NY AG – former AIG CEO Hank Greenberg has set his sites on the statute:

“I care about my country and I care about the rule of law,” Mr. Greenberg, a veteran of World War II and the Korean War, said in a feisty interview this past week. “I fought two wars for my country. This is another war.”

The Martin Act, a 1921 New York securities law that predates the creation of the federal Securities and Exchange Commission, grants sweeping powers exceeding even those of Washington. In addition to bringing the case against Mr. Greenberg, the former New York attorney general Eliot Spitzer used the act to force investment banks to curb abuses related to how analysts overhyped stocks and to crack down on illegal trading in the mutual fund industry.

Although there have been attempts to limit the Martin Act in the past, Mr. Greenberg’s bid is gaining traction. He is working alongside a powerful ally, the U.S. Chamber of Commerce, and has the backing of Wall Street Journal editorial page. And he has had a warm relationship with President Trump.

Legislation that would declaw the Martin Act was recently introduced by Rep. Tom MacArthur (R-NJ) – a former AIG exec.  His proposed legislation – “The Securities Fraud Act of 2018” – would only apply to listed companies. But the statute would preempt all state civil fraud actions against those companies – and because it would give federal courts exclusive jurisdiction over “securities fraud” claims, it looks like it would also undo the result in the Supreme Court’s recent Cyan decision for listed companies.

ICOs: Speaking of the Martin Act. . .

A few weeks ago, I blogged about how the states were ramping up their enforcement efforts on coin deals.  Now this Jenner & Block memo says that New York’s Attorney General has launched a fact-finding inquiry into 13 cryptocurrency exchanges.  The AG’s press release says that the inquiry “seeks to increase transparency and accountability as it relates to the platforms retail investors rely on to trade virtual currency, and better inform enforcement agencies, investors, and consumers.”

What was one of the statutes cited by the AG as giving him the authority for this particular fishing expedition? You guessed it – the Martin Act.  Sometimes these blogs practically write themselves.

John Jenkins