A few years ago, I blogged about the 2nd Circuit’s decision in U.S. v. Blaszczak, (2d. Cir.; 12/19), which addressed the elements that prosecutors had to establish in a criminal insider trading case under 18 U.S.C.§1348. That statute has become an increasingly popular alternative for prosecutors because on its face it doesn’t require them to establish some of the more difficult elements of a 10b-5 claim (such as a relationship of trust or confidence and a personal benefit) in order to obtain an insider trading conviction.
In its 2019 decision, the 2nd Circuit held that 18 U.S.C. §1348 doesn’t require the DOJ to prove that the defendant received a personal benefit, and affirmed convictions arising out of the defendants’ use of MNPI obtained from an employee of the federal government’s Center for Medicare and Medicaid Services (CMS) concerning potential changes reimbursement rates.
Last month, however, the 2nd Circuit overturned those convictions in light of the SCOTUS’s 2020 decision in U.S. v. Kelly, which held that federal fraud laws require that the defendants aim to “obtain money or property.” This Proskauer blog discusses the 2nd Circuit’s decision, and this excerpt addresses the conclusion that the information obtained from the CMS didn’t constitute “money or property”:
The majority held that CMS’s confidential, pre-decisional regulatory information was not CMS’s “property” here because “CMS is not a commercial entity; it does not sell, or offer for sale, a service or a product.” Moreover, the planned regulation, even if prematurely disclosed to outsiders, remained “within the exclusive control of CMS”; its disclosure thus had “no direct impact on the government’s fisc,” even if the leak “might well impact CMS’s subsequent regulatory choices.” The court therefore ruled that “merely obtaining advance information as to what the agency’s preferred regulation would be, and when it would be announced, cannot properly be considered the agency’s money or property or a thing of value that could be ‘convert[ed].’”
The blog also highlights a concurring opinion questioning whether it was appropriate not to require the government to establish a personal benefit in tipper-tippee cases brought under 18 U.S.C. §1348. The concurring judges pointed to the incongruity & potential unfairness of having a criminal statute requiring the government to establish fewer elements than it would be required to establish in order to prevail in a civil 10b-5 insider trading case. If the concurrence gets traction with other federal courts, the DOJ could find it much harder to use this particular end-around Rule 10b-5 in future cases.
For a long time, a lot of companies seem to have preferred buybacks to dividends as a way to return capital to stockholders. Among other things, buybacks offer companies an opportunity to boost ROE & EPS by reducing the number of shares outstanding, provide a non-dilutive source for equity awards and give each investor the ability to choose whether to participate. On the other hand, sharp criticism of the amount of money devoted to them has resulted in the imposition of a 1% excise tax and will likely soon result in significant new disclosure requirements.
With all the noise surrounding buybacks, it shouldn’t come as a surprise that the good ol’ fashioned dividend has been experiencing a bit of a renaissance. As this excerpt from a recent WSJ article explains, 2022 was a banner year for dividends – and 2023 is likely to be even bigger:
S&P 500 companies spent a record amount on dividends this year, a trend that is expected to continue in 2023 despite a slowing economy as more of the companies that had suspended or cut their dividends early in the pandemic resume payouts. Companies in the S&P 500 allocated an estimated $561 billion toward dividends in 2022, up from $511.2 billion in 2021 and the highest amount on record, according to S&P Dow Jones Indices, a unit of S&P Global Inc. Dividend spending is poised for another record in 2023 as companies are under pressure from investors to keep increasing returns, said Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
Despite the headwinds they’re facing, buybacks aren’t likely to go away. While buybacks by S&P 500 companies, declined by 10% in the third quarter, the article says they’re expected to decline only slightly from the $963 billion that companies spent on them this year.
The adopting release for the SEC’s recent Rule 10b5-1 amendments provides that the new rules will go into effect 60 days after the release’s publication in the Federal Register. Well, the clock is officially running, because the release was published in the Federal Register on Thursday, December 29, 2022. That means the changes to Rule 10b5-1 will become effective on February 27, 2023.
In addition to the Rule 10b5-1 amendments, the SEC adopted new disclosure & tagging requirements as well as changes to Section 16 forms. The adopting release provides the following compliance dates for those changes:
– Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023; and
– Issuers that are SRCs will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any proxy or information statements that are required to include the Item 408, Item 402(x), and/or Item 16J disclosures in the first filing that covers the first full fiscal period that begins on or after October 1, 2023.
– All other issuers will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F and in any proxy or information statements that are required to include the Item 408, Item 402(x), and/or Item 16J disclosures in the first filing that covers the first full fiscal period that begins on or after April 1, 2023.
A recent “Audit Analytics” blog highlights current market share leaders among transfer agents. This excerpt says that aside from one merger, the scene looks pretty much the same as last year:
One event significantly impacted the transfer agent market. In December 2021, Siris Capital Group completed the acquisition/combination of Equiniti and American Stock Transfer. As previously separate firms, these two transfer agents were each in the top 5 by market share annually.
The total market share for transfer agents among active SEC registrants remains mostly unchanged relative to 2021, besides the EQ/AST combination. The top 5 transfer agents for the total population market share include: Computershare, Equiniti Trust Co/American Stock Transfer & Trust, Continental Stock Transfer & Trust, BNY Mellon, and Broadridge.
Computershare maintains its lead with 25.7% market share in 2022 compared to 27.2% in 2021. Equiniti Trust Co/American Stock Transfer & Trust holds a 20.4% market share in 2022. Computershare and EQ/AST hold nearly half of the clients in the Audit Analytics database. Finally, Continental Stock Transfer & Trust hold a market share of 12.7% compared to 11.9% in 2021.
The blog says that three transfer agents dominate the large cap market, with Computershare serving as the transfer agent for 57% of the S&P 500. Equiniti Trust Co/American Stock Transfer & Trust follows with 35% of the large cap market share, while Broadridge Corporate Issuer solutions rounds out the top 3 with a market share of 7%.
Shortly before the holidays, the SEC announced that General Counsel Dan Berkovitz will leave the agency and that Principal Deputy General Counsel Megan Barbero will assume the GC position effective January 23, 2023. This excerpt from the SEC’s press release provides more details on Megan Barbero’s background:
Ms. Barbero joined the SEC in July 2021 and currently advises the Commission on complex legal issues relating to rulemaking initiatives and litigation strategy. Before joining the SEC, Ms. Barbero served as Deputy General Counsel for the U.S. House of Representatives, where she managed strategic litigation for the House.
Prior to her work at the House, Ms. Barbero served as an attorney for the U.S. Department of Justice Civil Appellate staff, where she represented the United States and its agencies as lead counsel in the federal courts of appeals. Ms. Barbero previously worked in the Supreme Court and appellate litigation practice at WilmerHale. Ms. Barbero clerked for Judge Rymer on the U.S. Court of Appeals for the Ninth Circuit. She is a graduate of Harvard University and Stanford Law School.
Thanks to everyone who responded to my blog earlier this month with well-wishes and practical tips on “boundaries” in client service. Your heartfelt encouragement has put wind in my sails. And I’ll reiterate: it’s not goodbye. I look forward to staying involved here, hopefully for a long time!
I heard from folks who have chosen a variety of professional & personal paths, which was inspiring in & of itself. But they all share a few traits with everyone who reads this blog: we’re interested in corporate & securities issues, we’re high performers, and we like to be “in the know.” A dozen common themes emerged:
1. Remember Your Current Goals & Be Strategic: Whatever your current goals are, embrace them without shame and know you’ll need to be strategic to accomplish them. Whenever you are faced with an “ask” that involves using your finite time, ask yourself whether it furthers those goals. If not, pass. Just because you could help solve a problem, doesn’t mean you need to. That may mean passing along opportunities for speaking, committees, or even client matters to someone else.
2. It’s Okay If Your Goals Change: Your goals at 50 probably aren’t the same as what they were at 30. Life is dynamic. Know your values (and your value) – and go with the flow.
3. Practice Saying No: When something is difficult, you need to practice. Write down phrases that will help you say “no” – so that it’s easier to follow through with that in the moment. Example: “Because of competing demands for my time, I have a policy that I won’t open new clients unless the fees are very likely to be at least $X [or we set a minimum fee of $X]. This helps me to ensure that I can focus on the clients that I do take on.”
4. Be Consistent: Set “working hours” and stick to them. Only deviate if there is a true “emergency” – and define “emergency” in a way that means it happens only once/month instead of once/week. Whatever you determine is the best schedule for you (7am – 4pm, 9am – 6pm), block your calendar so that calls aren’t scheduled during your non-working hours. This also gives predictability to your clients and colleagues. It’s a slippery slope if you start to let those boundaries slide.
5. Let It Burn: In the words of one member – “You might ask, ‘But what if there is important work that must get done?’ The answer is it can wait until tomorrow and, if it can’t and the place catches on fire, ‘forget it — let it burn.’ As I am sure you can guess, the place hasn’t burned down. In fact, my team has flourished. I think I’ve had a profound impact on the younger partners and associates behind me because I’ve shown them how this can be done and that, despite what conventional wisdom would have them think, the practice isn’t where we derive our value and we shouldn’t kill ourselves for the benefit of it. Moreover, it has helped them grow because I have empowered them with my absence.” Clients, this does not mean that we are going to let you go up in smoke, it means you have a team to help you instead of just one person. And on that note…
6. Find Your Team: Make your specialty known and valued, but also establish a “team” mentality. Communicate to colleagues and clients who they can go to as a backup when you’re not available. This is a benefit to them, not a detriment, because they get double (or triple) the experience. Have confidence in your team – don’t second-guess each other.
7. Communication is Key: Communicate your schedule and approach to colleagues and clients. Sometimes you have to say “no” to clients or at least advise on timing. Most respect that approach. If they don’t, then keep your goals in mind, and consider gently advising them that you may not be the best fit to serve their needs. Communicate with your team so that everyone who is staffing a particular client is up-to-speed and you can all sub in seamlessly. This requires intentional effort, but it’s worth it.
8. Set Your Out of Office: I used to work with clients who would immediately call the next lawyer on their list if they got a bounceback – so there is some risk to doing this. But it goes back to communication. If you’re going to be “out” for a few hours at night or for a vacation, tell people! Also tell them when you’ll return and who they should go to in your absence. I’ve noticed that the pandemic led to a lot more auto-replies along the lines of: “I’m offline after 5pm ET each night and will respond to your message when I return to my desk at 8am tomorrow. Please contact […] if you need urgent assistance.” And I got a lot of love for my “vacation trailer” auto-reply this summer. I hope the profession has turned over a new leaf.
9. Be Open to Unique Arrangements: Law firms – and companies – are starting to recognize that we’re not all identical cogs in the machine. There are new roles emerging for people at all levels of seniority. If you have an ideal type of work or arrangement, you might be surprised by the receptiveness. For example, some accomplished and semi-retired lawyers are happily pitching in on “overflow” work during proxy season.
10. Don’t Judge Yourself (Or Others): Life is short and tomorrow is not guaranteed. I was touched that people in our community who have been navigating traumatic events wrote in to share their perspective, and this is the message they want us all to know: Make the most of today. Be confident and comfortable in your choices (remember your goals). Never explain why you need to be somewhere other than work. Just say you have a conflict. We don’t need others to evaluate whether our family, health, or other personal obligations are a worthy reason for being unavailable.
11. Have an Accountability Partner: If you imagine it will be difficult to stick to your set schedule, get yourself an accountability partner. Text each other every day when it’s time to close the laptop.
12. Know That You’ll Make Mistakes: I’ve been processing these tips while also watching Stutz on Netflix (thanks, Mel). Jonah Hill’s therapist says that success is the sum of large & small actions – you just have to keep putting the next pearl on the string. But: “Within each pearl is a turd.” Meaning, no effort will be perfect – just keep moving. Others put it this way: “I have so many balls in the air, I have to be okay with a few on the floor.” That’s life, let’s go live it!
Happy “festive season,” everyone. Thanks again to everyone who reads this blog and subscribes to our sites. Big thanks as well to all of you who participate in our community through events, responding to these blogs, posting on the Q&A forums, or otherwise – including this blog’s “list contributor” from a few years ago, Nina Flax, who this list reminds me of. See you in the New Year!
It’s with great sadness that I share that Mary Hartman Morris has passed away. Mary was a longstanding fixture in the corporate governance community and a frequent speaker and participant in our events. She was always ready to share her reasoned perspective and kind smile. The news of Mary’s passing comes as we are all still grieving the loss of Sister Pat and Scott Spector, as well. Here is more information from the CII:
Mary Hartman Morris, a trailblazer for strengthening corporate governance and enhancing the quality of accounting and auditing, died earlier this month. An active CII member for many years, Mary was an investment officer for CalSTRS and was instrumental in the pension system’s work on corporate board diversity in the United States and globally. Before joining CalSTRS, Mary worked for more than 20 years at CalPERS, first in the audits department, and then for a majority of her career in the corporate governance unit. She retired from CalSTRS in 2021.
During her career, Mary served on the Public Company Accounting Oversight Board’s Standing Advisory Committee, the Financial Accounting Standards Board’s Investor Technical Advisory Committee and the International Corporate Governance Network’s Accounting and Auditing Practices Committee. Mary also co-chaired the Human Capital Management Coalition.
Our condolences go out to all of Mary’s family and friends, and to everyone who has lost someone they love this year.
As you look ahead to the new year, this 5-page Freshfields memo identifies trends in 7 key areas that you may want to raise with your board (or at least be prepared to discuss). Specifically:
– How to Be Prepared for M&A Strategies in 2023
– Fiduciary Duties in a Distressed Market
– Risk Oversight
– Activism
– Governance (Proxy Season & Disclosure)
– Compensation
– Cyber & Privacy
The Freshfields team explains that Delaware developments & recent SEC initiatives make it important that boards have adequate time to oversee “mission critical” risks – and that the record clearly reflects those efforts. They recommend 4 improvements to board structure & documentation (see the memo for even more context):
1. We are recommending that boards consider, as appropriate, creating specialized board committees to monitor discrete [“mission critical”] risks or ensuring that review of such risks expressly lies within the purview of existing committees, requiring dedicated management level teams to report periodically to the board on these risks, and engaging outside experts to conduct risk audits to ensure that the mission critical areas are being properly identified and addressed.
2. To receive credit for their work in fulfilling their duty of care, we are recommending that boards and committees adopt a more nuanced approach to minute-keeping, adding sufficient detail to show monitoring, consideration of, and reaction to, risks. We also recommend that minutes reflect factors and analyses considered in reaching decisions and list requests for management follow-up.
The minutes of subsequent meetings should reflect the extent to which management follow-up has occurred and whether the board is satisfied with management’s response or requests more follow-up. It is further important to record in the minutes (through addendums and introductory paragraphs) director interactions that occur between formal meetings, particularly if these discussions bear on significant board issues.
3. We recommend ensuring that comprehensive board-level records exist to obviate the need to delve into the directors’ and management’s emails, texts and internal materials [in response to expansive “books & records” demands]. In addition, we recommend additional management and board level trainings on best record-keeping practices and the use and preservation of privilege.
4. On the federal enforcement side, we recommend that audit committees review company preparedness for responding to regulatory inquiries and have a roadmap for responding constructively to potential subpoenas or requests for voluntary cooperation.
As Lawrence blogged yesterday on PracticalESG.com, the CFPB posted this consent order with Wells Fargo earlier this week, in which the bank agreed to pay $2 billion to customers to compensate for improper fees and illegal repossessions and foreclosures, along with a record $1.7 billion civil penalty. That topped the previous record of $1 billion, which was the fine assessed against Wells Fargo in 2017. The CFPB’s announcement made a big deal about the company being a repeat offender.
Bloomberg’s Matt Levine characterized the order as “basically just a litany of ‘Wells Fargo’s computers messed up.” With 20/20 hindsight, what corporate governance practitioners can take away from this settlement is that federal agencies don’t give a “pass” for operational oversights. They are paying attention to what they deem to be governance failures, which means that boards need to ask questions aimed at catching stuff like this, including with respect to product launches and growth initiatives, before mistakes become widespread. From the CFPB:
While today’s order addresses a number of consumer abuses, it should not be read as a sign that Wells Fargo has moved past its longstanding problems or that the CFPB’s work here is done. Importantly, the order does not provide immunity for any individuals, nor, for example, does it release claims for any ongoing illegal acts or practices.
While $3.7 billion may sound like a lot, the CFPB recognizes that this alone will not fix Wells Fargo’s fundamental problems. Over the past several years, Wells Fargo executives have taken steps to fix longstanding problems, but it is also clear that they are not making rapid progress. We are concerned that the bank’s product launches, growth initiatives, and other efforts to increase profits have delayed needed reform.
