October 9, 2020

Next Friday: A Celebration of Marty Dunn’s Life

On June 15, 2020, we lost a valued friend, counselor, mentor, colleague, and legend of the securities bar when Marty Dunn was taken from us far too soon. Many people have expressed an interest in participating in a celebration of Marty’s life. Given the limitations on physical gatherings, a virtual celebration of Marty’s life will be held on Friday, October 16, 2020 at noon eastern time via Zoom. Speakers will share their memories of Marty, followed by an opportunity for the participants to pay their respects.

Please feel free to share this invitation, and we look forward to seeing you at the event. We ask that you not post information about how to access the meeting on social media or other public channels so that only those who wish to honor Marty will attend the event.

Please let Lillian Brown (, Keir Gumbs (, Scott Lesmes ( or David Lynn ( know if you are interested in attending and one of them will send you more information about the event.

If you would like to make a donation in honor of Marty’s memory, his family has asked that you support The Bail Project. More information about The Bail Project can be found at

Insider Trading Enforcement: Effect of Supreme Court’s Liu Decision

Last summer, the U.S. Supreme Court’s decision in Liu v. SEC reaffirmed the SEC’s authority to seek disgorgement as an equitable remedy in enforcement actions. But, the Court placed limits on that authority. The Court’s decision said that courts must deduct “legitimate expenses” from disgorgement awards and an award must be distributed to the victims. Several questions were left open by the decision and this Davis Polk memo discusses the possible effect of Liu on insider trading cases when victims aren’t easy to identify and such distribution is basically infeasible.

The memo says it will take time before we fully understand the consequences of Liu but there are indications that when distribution of disgorgement awards is infeasible, the SEC may choose to forgo disgorgement and instead seek greater penalties:

The memo notes a recent speech by Director of Enforcement Stephanie Avakian in which she suggested the SEC might compensate for potential limitations on its disgorgement authority by seeking increased penalties.

Also, in recent weeks, the SEC has settled several insider trading cases without obtaining any disgorgement and, instead, imposed a penalty equivalent to two-times the wrongful gains/losses avoided. The SEC has taken this approach in both district court actions and administrative proceedings, even though the holding in Liu concerned only district court actions. We note, however, that the SEC is still seeking disgorgement in some insider trading actions filed post-Liu, most notably in U.S. v. Bohra, a district court action in which the SEC is seeking disgorgement of ill-gotten gains and civil penalties in a case concerning alleged trading in advance of earnings releases.

Convertible Debt Deal Trends: Deal Size Ticks Up in Q2

This Fenwick survey reviews terms of 100 convertible debt deals last year – it covers first-money and early- and late-stage bridge deals. The report covers the 15-month period, January 2019 – March 2020, and it also includes a comparison to Q2 2020 as an addendum. Here’s some of the high-lights:

– Compared to the prior year, deal size is down overall from $1.62 million to $1.58 million, although late stage deals are an exception

– Conversion discounts continue to be used frequently, even in late-stage debt issuances. Pairing conversion discounts with valuation caps are common in first-money issuance and less so in later-stage deals

– Only 12% of deals used a valuation cap as a standalone provision in the absence of a conversion discount

– In change-of-control situations, such as the sale of the company, most deals provide for a premium payout that’s a multiple on top of the repayment of the principal balance. When compared to last year, despite a decline in the number of deals giving a premium, the low end of the premium spectrum increased from 10% to 20%

– Data from Q2 2020 stood out compared to the prior period with noticeable skewing toward larger, later-stage deals. For Q2 2020 deals, interest rates were slightly higher, more deals used conversion discounts and less used valuation caps. In change-of-control situations, fewer of the Q2 2020 deals provided for a premium but more deals had an option to convert on a change-in-control

– Lynn Jokela