January 29, 2020

SEC’s Proxy Advisor Interpretive Guidance on Hold

Last fall, Liz blogged that ISS was suing the SEC to overturn the Commission’s August 2019 interpretations saying that proxy voting advice is “proxy solicitation” under SEC rules. As reported in Bloomberg Law, that lawsuit is now on hold.

As part of the stay, the SEC has indicated that its guidance issued last August doesn’t have the effect of law and it won’t be invoked while the stay is in place. All of the underlying court filings are available on Pacer.

Insider Trading: Bharara Task Force Weighs In

A few years ago, I blogged over on The Mentor Blog about the establishment of a task force led by former SDNY chief Preet Bharara to make recommendations about reforming insider trading law.  The task force recently issued its report, which recommends enactment of a new statute setting forth the elements of insider trading.  Here’s an excerpt from the executive summary summarizing what the task force thinks that statute should include:

The language and structure of any statute should aim for clarity and simplicity.

– The law should focus on material nonpublic information that is “wrongfully” obtained or communicated, as opposed to focusing exclusively on concepts of “deception” or “fraud,” as the current case law does.

– The “personal benefit” requirement should be eliminated.

– The law should clearly and explicitly define the knowledge requirement for criminal and civil insider trading enforcement, as well as the knowledge requirement for downstream tippees who receive material nonpublic information and trade on it.

The task force’s report includes specific language that it would like to see included in any statute, including this definition of what it means to “wrongfully” obtain MNPI:

“Wrongfully shall mean obtained or communicated in a manner that involves (a) deception, fraud, or misrepresentation, (b) breaches of duties of trust or confidence or breach of an agreement to keep information confidential, express or implied, (c) theft, misappropriation, or embezzlement, or (d) unauthorized access to electronic devices, documents, or information.”

There’s a lot to unpack in this definition, but among other things, the inclusion of language covering the breach of an NDA would address one of the key weaknesses in the SEC’s failed enforcement action against Mark Cuban, while the language in clause (d) would shore up insider trading cases against data hackers, which also face some impediments under existing law.

Building Better Board Evaluations

Over the years, some boards have become pretty good at implementing effective & insightful self-evaluation schemes.  But others struggle with a formulaic, “fill-in-the-blanks” process that leaves many directors wondering just exactly what this all was supposed to accomplish.  If you advise any boards that fall into this latter category, this Weil memo laying out a framework for more effective board evaluations may be a helpful resource.  Check it out!

John Jenkins