Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
Last week, the IRS proposed new regulations under Section 162(m), which would significantly change the rule that applies to pre-existing stock option plans of private companies that then go public. Among other things, the proposal also reinforces that individual award limits must be stated in an option plan. The NASPP will be covering this proposal in detail (here’s the NASPP’s Blog if you haven’t checked it out yet).
New movie on the horizon? Will Ferrell will star as “a narcissistic hedge fund manager who thinks he has seen God.”
Yes, It’s Time to Update Your Insider Trading Policy
We have posted the transcript of the webcast: “Yes, It’s Time to Update Your Insider Trading Policy.”
Mailed: May-June Issue of The Corporate Executive
The May-June Issue of The Corporate Executive includes pieces on:
– The Interplay of Section 162(m) and ASC 718
– RSUs and Unaccepted Grants
– Deferred RSUs and ERISA
– Tax Deposits for RS/RSUs
Last month, I blogged about an SEC Enforcement action against two individuals who attempted to raise $300 million via a website, a Facebook page and a Twitter account, to finance a company which would purchase the Pabst Brewing Company. The SEC’s order noted that the offering was attempted to be “crowdsourced.”
A few members weighed in with similar stories from the old days. For example, Stephen Quinlivan notes that back in the late ’90s, James Page Brewing Co. placed a small ad on the side of its six packs to sell securities in a Regulation A/SCOR deal. And here’s an old NY Times article about the Boston Beer offering mentioned in last month’s blog, courtesy of John Newell of Goodwin Procter.
I do remember other examples of companies selling directly to their customers back in the ’90s (egs. Spring Street Brewing Company; Annie’s Homegrown); some of which are referenced in the “Public Companies” section of this ’97 study on technology and the markets that I helped draft back when I was at the SEC.
It’s Here: Crowdsourcing Offerings Through Mobile Phones & Tablets
This recent piece from “The Atlantic” discusses a relatively new start-up – Loyal3 – which allows companies to create “Customer Stock Ownership Plans” similar to the ones described above, but with the twist that the plan is run through on an app for your smart phone, tablet, etc. As noted in this WSJ article, Nasdaq has partnered with Loyal3 to offer CSOPs to listed companies. [This piece entitled “Nasdaq Social Partner Was Called on the Carpet” from “Investor Uprising” notes the Loyal3’s CEO’s troubling past.]
The piece in “The Atlantic” notes that these CSOPs are “dolled-up Direct Stock Purchase Plans.” DSPPs have been wavering in popularity – both among issuers and investors – over the past decade. The piece also notes that some companies may use CSOPs to give away stock to their customers for free, claiming Frontier Communications is planning to do. I haven’t found any other information to indicate this indeed will happen (searching Google generally and SEC filings made by the company). Anyways, Travelzoo went this “free stock” route back in ’98 before it went public six years later (here’s a law review piece on “free Internet stock offerings” from back in the day).
SEC to TSRA (Trade Sanctions Reform and Export Enhancements Act of 2000): Back Off!
From a member: You should be aware of a development we’ve seen over the past few years – namely, Corp Fin searching company websites for any mention of countries on the state sponsors of terrorism list and then sending letters to those companies suggesting that they are violating both the export laws and SEC disclosure obligations. It seems that the Staff may be overlooking the fact that US export laws do not prohibit all business with any country on that list – as those laws permit certain business with certain such countries.
This blog provides an example. It explains that UPS received a letter from the SEC demanding an explanation about how UPS could do business in Iran, Sudan and Cuba when those countries are on the state sponsors of terrorism list. The SEC’s diligence on this issue appears to be searching the UPS website for references to countries on the state sponsors of terrorism list. Although it’s hard to see how the Staff would otherwise diligence this issue, this remains a concern for some companies.
Internal Pay Disparity: House Committee Passes Bill for Repeal
In this Cooley news brief, Cydney Posner notes how the House Financial Services Committee passed the “Burdensome Data Collection Relief Act,” the substance of which is a single paragraph that would repeal Section 953(b) of Dodd-Frank and make any regulations issued pursuant to it of no force or effect. Section 953(b) is the provision in Dodd-Frank that – once the SEC adopts related rules – will require companies to disclose in proxy statements and other filings the median of the annual total compensation of all employees of the issuer, excluding the CEO, the annual total compensation of the CEO and the ratio of the two.
SEC Continues Push for Enhanced Disclosure of Litigation Contingencies
We have previously noted the SEC’s efforts to urge companies to enhance their disclosure of litigation contingencies and, in particular, to provide estimates of “reasonably possible” loss or range of losses in actions for which accruals have not been established and for exposure in excess of established accruals in other actions, or to explain why such estimates cannot be provided.
The SEC appeared to focus its earlier comment letter efforts on financial services companies, many of which have relatively extensive litigation disclosure. Now, however, the SEC appears to have extended its focus to at least some companies outside of the financial services sector, including companies whose litigation exposures are not as extensive as those of many financial services companies.
Needless to say, each company’s disclosure of loss contingencies must be prepared in light of its own litigation exposures, and it is difficult to generalize concerning the nature of disclosures that should be made. The Chief Accountant of the SEC’s Division of Corporation Finance has publicly stated that disclosure of a “reasonably possible” range of losses may be done in the aggregate.
Consistent with the Chief Accountant’s position, some companies have disclosed an aggregate range of reasonably possible losses for cases for which they were able to provide such an estimate, while alerting investors that they were not able to provide a meaningful estimate of reasonably possible loss or range of loss for all of the litigation contingencies described in their quarterly (or annual) filing. These companies have not typically disclosed which of their litigation proceedings are included within the aggregate range. Providing aggregate disclosure without identifying the included versus the excluded cases helps minimize the prejudice to a company that would follow from adversaries being given potential insights regarding its views of the merits (or settlement value) of individual litigation matters. Where appropriate, companies may also explain in their disclosures that the estimated range of reasonably possible losses they have disclosed is based on currently available information and involves elements of judgment and significant uncertainties, and that actual losses may turn out to exceed even the high end of the range.
Relatedly, the FASB – last July – issued an exposure draft regarding proposed new accounting standards for litigation contingency disclosure. However, after the FASB received numerous comments critical of the proposed standards, it announced that it would postpone the adoption of new standards pending “redeliberations” on the topic. Most recently, the FASB stated that its project on “Disclosure of Certain Loss Contingencies,” has been reassessed as a “lower priority” and that further action is not expected before this December.
This Davis Polk blog on the topic lists “several large financial institutions (American Express Company, Bank of America Corporation, Citigroup Inc., The Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Company) gave an estimate of possible loss or range of loss above their existing reserves for the first time in their Form 10-Ks for the 2010 fiscal year and updated those estimates in their 2011 first quarter Form 10-Qs.”
Last week, a seventh company was sued regarding its pay practices – Bank of New York Mellon in a state court in New York (here’s the complaint). One of the big differences in this lawsuit is unlike the six lawsuits filed against companies that failed to garner a majority of votes in support of their say-on-pay, Bank of New York Mellon received overwhelming support for its say-on-pay (although there was a huge number of broker non-votes). Here’s the Form 8-K reporting the company’s voting results.
Mark Borges notes “this lawsuit appears to be fundamentally different from the others that have been filed following a failed say-on-pay vote. This suit alleges that the company’s board (and its Compensation Committee) acted in contravention of the terms of their long-term incentive plans. What’s interesting to me is that the details of the complaint could only have been drawn from the Compensation Discussion and Analysis, so it’s a classic example of the disclosure providing a roadmap for second-guessing the decisions of the directors.” We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
By the way, two of the oldest of the say-on-pay cases have been settled. As noted in this Davis Polk blog: “KeyCorp agreed, according to Reuters, to pay $1.75 million in attorneys’ fees and expenses to settle related suits and Occidental Petroleum, faced with three suits, settled one for an undisclosed amount and had two dismissed.”
Purchasing from a Public Offering: Don’t Forget the SEC’s Credit Limitations
Here’s a tidbit from Suzanne Rothwell: With broker-dealers and their bank affiliates often extending loans to issuers, I am hearing about situations where an officer of an IPO issuer or other intended investor has asked one of the underwriters of the company’s IPO to extend a loan in order to purchase securities from the IPO or an almost simultaneous private placement. Section 11(d) of the ’34 Act prohibits an IPO underwriter from making a loan to anyone to purchase IPO securities from the offering and also in the secondary market for 30 days after the IPO.
The provision even prohibits an underwriter from “arranging” for a loan by any other party. The purpose of the regulation is to prevent underwriters from encouraging the purchase of securities without a market by extending credit to its customers. While generally a loan is permitted to investors purchasing from a private placement, the SEC can take the view that a close-in-time private placement is integrated with the IPO for purposes of the credit limitations.
House Financial Services Committee Approves the “Small Company Capital Formation Act”: Regulation A Revival Closer?
Last week, the House Financial Services Committee on Capital Markets and Government Sponsored Enterprises approved the Small Company Capital Formation Act of 2011. Several amendments were introduced and debated by the full House Financial Services Committee. This Morrison & Foerster memo explains more.
Starting today, due to an upgrade in our database, all individual login and passwords for our various sites have been reset. Your new username will be the email address that was in an email that was sent to on Friday. Your temporary password will be your five-digit, billing zip code. Beginning today, on your first login, you will be asked to reset your password as part of a simple process.
Once you have reset your password, it will automatically carryover to each of the following websites (if you’re a member of them):
Our HQ is handling questions on this (not me – I don’t even have access to our database) and their phone lines are open for extended hours this week: 925.685.5111. They have posted FAQs regarding this change.
If you use our popular Romeo & Dye’s Section 16 Filer software, you will need to download a new version of the software starting today and will automatically be prompted to do so.
Why Were the SEC’s New Whistleblower Rules Published Late in the Federal Register?
A member recently asked why the SEC’s new whistleblower rules were seemingly delayed in being published in the Federal Register until June 13th – since the agency issued its adopting release back in May after the Commission blessed them at a May 25th open Commission meeting (note: link to Fed Reg version is not yet posted on the SEC’s site)? To get something published in the Federal Register, the Office of Management & Budget (OMB) must conduct a review and then the adopting release moves to the Federal Register people (Government Printing Office).
Even though there seemed to be a delay for the whistleblower rules, it’s not really anything to complain about because it just pushed out the effective date for the rules. In other words, a delay would never have any bearing on whether an approved set of rules were indeed final – there would not be a reprieve from the Governor…
Gun-Jumping: Did Groupon Break SEC Rules?
This Forbes’ article notes how the timing of a lengthy NY Times piece on Groupon – that included behind-the-scenes access for the reporter – came out just a few days before Groupon filed a Form S-1 with the SEC for an IPO.
I haven’t seen any other commentary on this fact pattern – probably because most realize that the playing field has changed a bit due to the ’33 Act reform that took place in ’05. You may recall the infamous interview with the Google founders in Playboy a few days before that company filed its Form S-1 back in ’04. At first, Google was determined to fight the SEC regarding gun-jumping allegations – but the company ultimately backed down and included the entire Playboy interview in Google’s IPO prospectus.
Here’s an excerpt from the letter sent by SEC Chair Schapiro to Rep. Issa recently regarding more ’33 Act reform – the excerpt addresses this type of situation:
In April 2004, less than a week before Google initially filed its registration statement for its initial public offering, Google’s two founders were interviewed by Playboy magazine. Google informed the staff of the interview in August 2004 and advised the staff that the interview would appear in the September 2004 issue of Playboy, which was scheduled to hit newsstands after the offering period for Google’s innovative “Dutch auction initial public offering closed.
Under the rules in effect at the time of this offering, the publication of an article such as this in connection with an initial public offering could raise concerns about inappropriate market conditioning and the potential need for a cooling-off period. For a variety of reasons, primarily based on (l) the timing of the release of the article after the completion ofthe offering period for the auction; and (2) Google filing the article as an exhibit to its registration statement (thereby including it as part of its offering materials), the staff determined that the publication of the article would not inappropriately condition the market for Google’s initial public offering.
As such, the staff did not impose any cooling-off period or otherwise delay the offering as a result of the article. Beyond this, it is important to note that, had the 2005 communications rules described above been in effect at the time, even if the Playboy article was published before Google’s offering period for the auction had closed, Google’s initial public offering would not have been delayed.
By contrast, another initial public offering in 2004 had a different result under the rules in existence at the time. Salesforce.com, Inc. had planned to go effective on its registration statement in May 2004 when an article appeared in The New York Times featuring an interview with the company’s CEO. The CEO had invited a reporter to follow him for a day during the road show for the offering, and the article, which was published during the road show, included substantial information about the offering. It appeared to the staff that the interview was granted – and the reporter was given access to the road show process – in an effort for Salesforce.com or its CEO to communicate with prospective investors through the article, which was not permitted under the rules at that time.
To address gun-jumping concerns, the staff imposed a cooling-off period. Under the communications rules adopted in 2005, this media coverage would not have required delay of the offering if certain filings, such as filing a copy of the article or its contents as a free-writing prospectus, were made.
Webcast: “The Latest Compensation Disclosures: A Proxy Season Post-Mortem”
Tune in tomorrow for the CompensationStandards.com webcast – “The Latest Compensation Disclosures: A Proxy Season Post-Mortem” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
I’ve got a quote in this interesting column in yesterday’s NY Times by Gretchen Morgenson in which she analyzes a fascinating report that compares CEO pay with a number of different metrics. For example: “24 companies where cash compensation last year amounted to 2 percent or more of the company’s net income from continuing operations.”
On Monday, the US Supreme Court dealt a final blow to the SEC’s theory that third parties may be held to a standard of primary liability under the SEC antifraud rules (called “implied representation”) for statements in a prospectus (we are posting memos in our “Securities Litigation” Practice Area). In a 5-4 decision in Janus Capital Group v. First Derivative Traders, the Court rejected a shareholder class-action lawsuit that argued that Janus Capital Group and a subsidiary should be held liable under the SEC antifraud rules for allegedly false statements in the prospectuses of subsidiary mutual funds.
The Court stated that the “maker of a statement” that violates SEC Rule 10b-5 “is the person or entity with ultimate responsibility over the statement . . . ” and that “One who prepares or publishes a statement on behalf of another is not its maker.” The Court reached this determination despite the close affiliation of the defendants to the mutual funds and their involvement in the preparation of the prospectuses.
Suzanne Rothwell notes that while private investors may be limited in their ability to recover directly from third parties, broker-dealers that distribute offerings later found to be fraudulent nonetheless remain vulnerable to an enforcement action by FINRA (as indicated in Regulatory Notice 10-22) for failure to comply with FINRA product suitability standards and, if the broker-dealer assisted in the preparation of the offering document, the FINRA advertising regulations. In addition to sanctions such as fines and suspensions, FINRA has authority to require that a broker/dealer or a broker make restitution to investors.
If you’re a fan of “The Office,” this video is hilarious. It reengineers the standard opening of the show as if it was an old-fashioned sitcom…
SEC Continues Work on Section 13(d) & (g) Modernization Project
Last week, the SEC re-adopted changes to Rules 13d-3 and 16a-1 to preserve the application of the existing beneficial ownership rules to security-based swaps after July 16th, the effective date of new Section 13(o) that was created under Section 766 of Dodd-Frank. Thus, security-based swaps will remain subject to these rules following the July 16th effective date. As noted in the re-adopting release, the SEC continues to work on its modernization project for Section 13(d) and (g) – and as noted in this press release, the SEC will be “taking a series of actions in the coming weeks to clarify the requirements that will apply to security-based swap transactions as of July 16 – the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act – and to provide appropriate temporary relief.” This relief began to happen on Wednesday as noted in this press release.
Last Call: Early Bird Discount for our “Say-on-Pay Intensive” Pair of Conferences
There is only one week left for the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save by registering by Friday, June 24th at our early-bird discount rates. Note this early-bird discount will not be extended.
As you can see from our agendas, this year’s pair of Conferences (for one low price) will be workshop-oriented more than ever before in an effort to provide the practical guidance that you need in the new say-on-pay world that we live in:
1. November 1st’s “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” includes:
– Say-on-Pay Disclosures: The Proxy Advisors Speak
– Say-on-Pay: The Executive Summary
– Drafting CD&A in a Say-on-Pay World
– The In-House Perspective: Changing Your Processes for ‘Say-on-Pay’
– Getting the Vote In: The Proxy Solicitors Speak
– Handling the New Golden Parachute Requirement
– The Latest SEC Actions: Compensation Advisors, Clawbacks, Pay Disparity & Pay-for-Performance
– Dealing with the Complexities of Perks
– Conducting – and Disclosing – Pay Risk Assessments
– Say-on-Frequency & Other Form 8-K Challenges
– How to Handle the ‘Non-Compensation’ Proxy Disclosure Items
2. November 2nd’s “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” includes:
– SEC Chair Mary Schapiro’s Keynote (via pre-taped video)
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Say-on-Pay: The Proxy Advisors Speak
– How to Work with ISS & Glass Lewis: Navigating the Say-on-Pay Minefield
– Putting Your Best Foot Forward: How to Ensure Your Pay Practices Pass
– Say-on-Pay: Director (and HR Head) Perspectives
– Failed Say-on-Pay? Lessons Learned from the Front
– Say-on-Pay: Best Ideas for Putting It All Together
Last week, a sixth company that failed to garner majority support for their say-on-pay was sued – Hercules Offshore in a district court in Texas (here’s the complaint). We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
Yesterday, I traded tweets with someone regarding the probability that all companies that fail to earn majority support will be sued. I’m not convinced that will happen since these cases are brought in such diverse venues and by different plaintiff’s firms. Does anyone know of any guiding hand behind the scenes of these six lawsuits?
It’s also interesting to note that I haven’t seen a single law firm memo yet about these say-on-pay lawsuits even though it appears they are the talk of the town whenever I am out and about. Let me know if you see one…
Let the Wild Rumpus Begin! Competing Bills to Upsize ’34 Act Registration Threshold
Yesterday, I blogged about a new House bill (HR 2167) that would raise the ’34 Act registration threshold to 1000 shareholders (from 500) and exclude employees and accredited investors. In doing so, I neglected to mention another recent House bill (H.R. 1965) that would raise the threshold to 2000 shareholders and also raise the deregistration threshold from 300 to 1200 shareholders. As noted in Jim Hamilton’s blog, there also is a Senate companion bill (S 556) for this one.
For a view questioning the wisdom of raising the threshold, check out Suzanne Rothwell’s entry yesterday on “The Mentor Blog.”
SEC Enforcement Director Receives Delegated Power to Immunize Witnesses
A few days ago, the SEC Commissioners gave delegated authority to the agency’s Enforcement Director to immunize witnesses. I’m not certain that immunization happens all that happen at the SEC – since these are just civil cases – and in conjunction with 18 U.S.C. sections 6002 and 6004, I think this essentially allows Rob Khuzami to immunize any witness who is “pleading the Fifth” in an SEC investigation, thereby disallowing them to continue to assert the Fifth Amendment with the caveat that their testimony can’t be used against them in any criminal case.
Because he can, Senator Vitter temporarily blocked the nominations of Luis Aguilar and Dan Gallagher yesterday during a Senate Banking Committee hearing because he doesn’t like the pace of recovery for victims of Allen Stanford’s fraud. Strike that. I’m not sure it was “during” the hearing because Senator Vitter didn’t bother to show up to it, as noted in this Reuters article.
Yes, a single senator can hold up a nomination – but just temporarily as the Senate Banking Committee can still advance the nominations to the full Senate (so is that really a “hold”?). Doesn’t this make for some great gaming (last year, one Senator put an extraordinary “blanket hold” on at least 70 nominations)? I’m not sure what parliamentary procedure allows a nomination to be blocked when the Senator doesn’t even attend the hearing, but that surely compounds the waste of time that insincere holds are…
House Bill: Upsizing the 500 Shareholder ’34 Act Registration Threshold
During the past few months, I’ve blogged several times about the SEC’s upcoming capital-raising reform efforts, particularly in the area of pre-IPOs. Perhaps that’s not good enough for Congress as this Fortune article tells of a bill in the House that would boost the number of shareholders that trigger registration to 1000 shareholders, up from 500 – and would exclude exempt employees and accredited investors from counting towards the threshold. The bill was introduced yesterday and has six sponsors from both sides of the aisle. There is no corresponding Senate bill at this time.
Webcast: “Deals: The Latest Delaware Developments”
Tune in tomorrow for the DealLawyers.com webcast – “Deals: The Latest Delaware Developments” – to hear Rick Alexander of Morris Nichols, Stephen Bigler of Richards, Layton & Finger and Kevin Shannon of Potter Anderson discuss all the latest from the Delaware courts and legislature.
We’re very excited to announce the addition of Suzanne Rothwell to our editor staff. Suzanne brings a wealth of experience to our team. She recently retired from Skadden Arps after a decade of service here in DC. Previously, she served for 20 years in increasingly responsible positions with FINRA, including Associate Director and Chief Counsel of the Corporate Financing Department. At Nasdaq, she served as Special Counsel on the PORTAL Market and the development of trade reporting for debt securities. You’ll be seeing Suzanne on this blog – and our other blogs – as well as other parts of our sites.
The On-Going IPO Pricing Discussion: The Issuer’s Responsibility
And here’s a blog from Suzanne:
There has been quite a bit of commentary on the pricing of the LinkedIn IPO, which went public at $45 a share and closed at $94 on the first day of trading (including this entry in our “Mentor Blog”). The stock has traded as high as $122.69 and has since declined to close on June 7th at $77.82. One columnist questioned whether the underwriters of the LinkedIn IPO severely and intentionally underpriced the public offering in order to benefit customers who then immediately sold the stock to lock in the profit. (“Was LinkedIn Scammed?,” Joe Nocera, NY Times).
Another view was that possibly the IPO price for LinkedIn was too high as it resulted in a valuation of $8 billion for a company that made only $15.4 million in 2010. (“Why LinkedIn’s Price May Have Been Right,” Andrew Ross Sorkin, NY Times). Mr. Sorkin correctly points to the inherent conflict of IPO underwriters in meeting the interests of the company they are taking public and of their customers. He states that this is an “untenable position” and asks for a conversation on developing a better method. These statements reflect an on-going disagreement expressed over many years about the IPO pricing process.
The underwriters’ balancing of interests of the issuer and the need to price in some relation to the intrinsic value of the company in the interests of their customers has worked effectively for many years except when the underwriters have decided to game the distribution process or the aftermarket. In my experience, the regulation of IPO pricing is a difficult matter and it is better that the regulators limit their involvement to oversight for possible manipulation of the distribution process and the aftermarket as well as ensuring appropriate disclosures. FINRA’s predecessor, NASD, requested comment in 2003 on recommendations of the NYSE/NASD IPO Advisory Committee on three possible alternative approaches to promote transparency in pricing offerings, including whether to use an auction system–which is an oft-mentioned alternative.
What was not mentioned in the discussions of the LinkedIn IPO pricing was the responsibilities of the LinkedIn board of directors for that pricing, since the general view is that the issuer will accept the pricing determinations of the underwriters. However, this is where a new FINRA rule will likely make changes. Instead of proposing rules to adopt any of the alternative pricing methods, FINRA recently implemented new FINRA Rule 5131, which (among other things) requires that underwriters provide the IPO issuer’s pricing committee or board of directors with a regular report of indications of interest in order to assist the issuer to make an informed decision as to the pricing of the offering. As stated by the NASD in 2003, “. . . greater participation by issuers in pricing and allocation decisions would better ensure that those decisions are consistent with the fiduciary duty of directors and management, and would provide management with more information to evaluate the underwriter’s performance.” Clearly, it was FINRA’s intention to enhance the corporate governance responsibilities of issuers in the setting of the IPO price for the company.
We shall see whether the new rule, which became effective at the end of May, will have an impact on IPO pricing. In any event, any future discussions of the IPO pricing issue will have to take into account the fact that the issuer’s board of directors was part of an informed decision on the final pricing determination.
Supreme Court Rules Loss Causation Need Not Be Proven at Class Certification Stage
In the midst of my computer meltdown last week, the US Supreme Court held that securities fraud plaintiffs need not prove loss causation at the class certification stage in Erica P. John Fund v. Halliburton. We have been posting memos on this decision in our “Securities Litigation” Practice Area.
We’ve now had four more companies file Form 8-Ks reporting failed say-on-pay votes: Nabors Industries (43%): Tutor Perini (49%); Cadiz (38%); and BioMed Realty Trust (46%) . I keep maintaining our list of Form 8-Ks for failed SOPs in CompensationStandards.com’s “Say-on-Pay” Practice Area.
SEC Brings “Blue Ribbon” Enforcement Proceeding Against “Crowdsourcing” Offering
With thanks – and permission to blog – from the ABA’s State Regulation of Securities Committee:
This recent press release announcing the SEC’s entry into a cease and desist order with two individuals who attempted to raise $300 million via a website, a Facebook page and a Twitter account, to finance a company which would purchase the Pabst Brewing Company. While the respondents purportedly raised over $200 million in pledges from more than 5 million pledgors, they never collected any monies. A unique feature of the offering was the respondents’ promise that investors would not only receive a certificate of ownership in the acquisition company, but beer of a value equal to the amount invested (at least the SEC didn’t allege that the beer was a “security,” too – note, however, the old “whiskey warehouse receipt” cases).
One interesting point not mentioned in the press release – but raised in the actual Order – is that the SEC describes the offering as being effected “via crowdsourcing” (see paragraphs 3 and 5). Query whether this is the first enforcement proceeding by any securities regulator against a “crowdsource” offering? In any event, it sounds like the respondents never consulted with a reputable securities (or any?) attorney before commencing their offering; I would hope that any member of our Committee would have dissuaded them from attempting this venture in the chosen manner.
Here is a pun related to this case that I received: “I understand that the SEC went after the respondents when they heard that this offering was brewing on the Internet. Unfortunately for the SEC staff, they were only able to bottle up the respondents with their cease-and-desist order, the Justice Department decided the case wasn’t worth throwing them in the can with a criminal action.”
And another member noted: My foggy memory thinks that the Boston Beer Company tried to do something that was the then-equivalent of that back in the (maybe?) early 1990s when it was organized. I think they had “solicitation” language on their labels or something goofy like that…
Senator Grassley: How Does the SEC Treat Enforcement Referrals from Fellow Agencies?
As noted in this Reuters article, Senator Grassley’s recent investigation of SAC Capital Advisors is not really about the private investment firm but rather is a look into how the SEC treats referrals from other agencies. Here’s a letter from Grassley to reporters about how he believes that this response from the SEC into questions about how the SEC handled a referral from FINRA about suspicious trades by SAC Capital.
There are two Congressional hearings this week related to the SEC. Tomorrow, the Senate Banking Committee takes up the Commissioner nominations of Luis Aguilar and Dan Gallagher.
And then on Thursday, the House Transportation Committee hearing is holding a hearing entitled “The SEC’s $500 Million Fleecing of America” regarding the SEC leasing a building after it was directed to hire many more Staffers under Dodd-Frank – and then Congress reversed ship on the SEC’s budget (and is now blaming the SEC for thinking it was staffing up). This briefing memo relies heavily on the SEC Inspector General report about the lease that has been mentioned in the mass media lately. Note that it’s pretty rare that this House Committee gets involved with SEC affairs…
