Although pay ratio didn’t seem to initially capture the imagination of journalists, there has been a wave of local reporting about the pay ratios at specific companies over the past week. Here’s some of the articles about how pay levels – particularly pay ratios – look this year, based on this season’s proxy statements (Mark Borges, Barbara Baksa & I are quoted in the first piece):
Yes, Edgar Is Still Broken (& We’re Not Being Told About It)
Sorry, but until the problem is fixed, I’m going to keep blogging about how the SEC’s Edgar continues to have problems (here’s a recent one) – and how the SEC isn’t telling us about it when it does. My hope is that by continuing to highlight the problems, the SEC will at least set up some sort of communication vehicle (a blog perhaps?) where it can inform the general public when Edgar is down (and when it’s back up). Here’s a note that I received from a member a few days ago:
Due to the volume of filings being received by the EDGAR system, the SEC confirmed that they are experiencing delays with filings disseminating. Filings are being accepted and acceptance notifications are returning. Please be assured that this is an SEC issue and the delay in posting does not alter the date/time of a live acceptance.
By the way, Edgar was having problems again this morning. You could make filings but could not access them on sec.gov…
A Tool to Propel Climate Change Disclosure
As this Davis Polk blog notes, the Financial Stability Board’s “Task Force on Climate-Related Financial Disclosure” has launched the “TCFD Knowledge Hub.” The Hub currently contains 300 different documents or other resources organized by the four thematically related areas for disclosure…
Speaking of databases, the SEC recently launched “SALI” (“SEC Action Lookup for Individuals”) so that anyone can research whether the person trying to sell them investments has a judgment or order entered against them in an enforcement action…
Here’s something that Mike Melbinger blogged recently on CompensationStandards.com:
I don’t recall that any court has decided in favor of plaintiffs alleging that the payment of executive compensation was a breach of fiduciary duty for a waste of corporate assets – until now. The reason is that [in the face of the business judgment rule] corporate waste is very difficult to prove. But last week, the Delaware Chancery Court allowed plaintiffs to continue with their shareholder derivative claims against the board of CBS Corporation in Feuer v. Redstone.
This court has commented many times on the difficulty of pleading a viable claim for waste against a corporate director under our law. But the particularized allegations of the complaint here depict an extreme factual scenario—one sufficiently severe so as to excuse plaintiff from having to make a demand on the CBS board of directors to press claims concerning certain (but not all) of the challenged payments, and to permit plaintiff to take discovery so that an evidentiary record may be developed before the court adjudicates whether those payments were made in accordance with the directors’ fiduciary duties.
Two full pages of the opinion are devoted to listing facts and information “demonstrating that it should have been abundantly clear to the members of the Board—from their attendance at Board meetings, press publicity, and other interactions with the Company—that far from being “actively engaged” in the CBS’s affairs, Redstone was providing no meaningful services to the Company beginning at some point in the latter part of 2014 or in 2015.” During and after that period, CBS paid Mr. Redstone more than $13 million, most of it in performance bonuses.
Note that this is far from a complete victory for plaintiffs. The decision only allows the plaintiffs to continue to trial with their lawsuit. But no allegations of compensation being corporate waste have made it this far in more than 30 years.
Happy Anniversary Baby! 16 Years of Blogging & Counting
Today marks 16 years of my blither & bother on this blog (note the DealLawyers.com Blog is nearly 15 years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina & boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age. So glad to now have John & Liz blogging with me!
Did you know that this is one of the oldest law blogs out there? When I started, nearly all of the few other lawyers that were blogging covered the marketing aspects of blogging – not substantive law. And since those folks wrote the “lists” that covered which lawyers were blogging, they frequently overlooked this blog because they tended to focus on marketing, not law.
Plus, the list compilers tended to be solo or small firm practitioners – they were nowhere near the securities law space. Bob Ambrogi compiled this list in 2007 of the first law bloggers – if he had placed us on the list, we would be the 8th blog to be started. And now we are the third oldest – only two of the 7 blogs started before us are still regularly active.
This blog still is overlooked by those handing out law blogging accolades. Our blog has long dropped out of the ABA’s Blawg 100, even when this blog won the popularity contest the first year they allowed the public to vote (they discontinued public voting soon thereafter). The ABA’s Blawg 100 list rarely includes securities law blogs – and their “Hall of Fame” doesn’t contain a single blog devoted to securities law…
Sexual Misconduct Claims: D&O Policy Implications
This D&O Diary blog delves into how D&O insurance policies might be implicated if claims are made against a company’s directors or senior managers for sexual harassment…
Is it me? Or is “Regulation Best Interest” a dorky name for a SEC regulation? #nerdy. This is something I tweeted when the SEC proposed its new broker regulation about providing investment advice – and nice to see Matt Levine link to my tweet in his Bloomberg article…
On the “Mentor Blog,” I recently blogged about the top of “who administers political spending policies?” – and I posted five examples. Following up on that, we have now posted a “Quick Survey on Political Spending Oversight.” Thanks to Teco Energy’s David Schwartz for the idea!
In addition, a member posted this query in our “Q&A Forum” (#9416): “Enjoyed the “Mentor Blog” on this topic a few days ago. How does the board ensure it doesn’t find itself in an embarrassing situation, like some companies have—where contributions have been made to candidates who end up supporting positions that are in conflict with the company’s mission?” John provided this simple answer:
If you’re worried about that, don’t give. If you trust a politician not to betray you, you deserve what you get.
– Industrial sector spiked: The Industrial sector saw 22 percent of traditional accounting case filings in 2017, double the historical average. The Disclosure Dollar Loss (DDL) for accounting case filings in this sector was the largest among all sectors for the first time in the last 10 years.
– Restatements declined: For the third consecutive year, the number of traditional accounting case filings involving restatements declined. The number of 2017 restatement cases was 35 percent lower than the historical average; restatement case DDL was 49 percent lower than the historical average.
– No auditor defendants named: There were no auditor defendants named in traditional accounting case filings during 2017—the first year that has happened since enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA).
– Total settlement value declined: The total settlement value attributable to accounting cases was the lowest since 1999, with only two accounting-related settlements reaching $100 million or more.
– Larger defendant firms observed as settlement size shrinks: Despite smaller settlement sizes, issuer defendants involved in accounting settlements were the largest observed over the past five years.
– Restatement cases garnered higher settlements: Cases involving financial statement restatements settled for substantially higher amounts than non-accounting cases.
Yesterday, the SEC issued this 71-page proposing release to amend its auditor independence rules to refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of its client at any time during an audit or professional engagement period.
The proposed amendments would focus the analysis solely on beneficial ownership rather than on both record & beneficial ownership; replace the existing 10% bright-line shareholder ownership test with a “significant influence” test; (3) add a “known through reasonable inquiry” standard with respect to identifying beneficial owners of the client’s equity securities; and (4) amend the definition of “audit client” for a fund under audit to exclude funds that otherwise would be considered affiliates of the client. See more in this Cooley blog…
As I recently blogged, the SEC Staff has long been able to modify – or – waive disclosure requirements in response to requests to modify what’s required for the financials in a SEC filing – but over the past few months, the Staff has announced that it’s now more amenable to grant Rule 3-13 requests than it was before. This is part of SEC Chair Clayton’s goal of removing unnecessary barriers to going public, etc.
Rumor has it that the Wall Street Journal has made a FOIA request for all 3-13 correspondence with the SEC Staff. That’s pretty wild if true! I hope this doesn’t lead to an article that distorts the purpose of these requests. It will be interesting to see how this plays out…
How Companies Grow Their In-House Teams
One of our more popular “sample documents” is our deck that in-house folks can use to argue for more resources in their department. Along these lines, a long while back, Splunk’s Scott Morgan sent me this note about how different industries might experience varying levels of growth in their in-house teams:
Over the past decade, I have seen a significant increase in the size and sophistication of in-house teams at technology companies. My experience is that companies are increasingly bringing specialty practices such as privacy/data security, M&A, securities/governance, benefits, technology transactions/products and IP/patents in-house. These experts are typically from big firms – so it’s the same expertise at a fraction of the cost. And there the work is closer to the business so the amount of firm-to-practice translation is significantly reduced in these areas. We still have a big need for firms (big and small) in certain subject matters, in larger projects and litigation, for benchmarking across companies and in foreign jurisdictions.
– A Small World After All: R&W Insurance in Cross-Border M&A
– Maximizing Value & Minimizing Risks in Carve-Outs: Seller’s Pre-Sale Preparation
– Director’s Abstention on Merger Vote Deemed Material to Shareholders
– LLCs: The Limits of the Implied Covenant of Good Faith
Remember that – as a “thank you” to those that subscribe to both DealLawyers.com & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online. There is a big blue tab called “Back Issues” near the top of DealLawyers.com – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.
And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to DealLawyers.com will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to DealLawyers.com – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.
In recent years, as SEC rulemaking has stalled on topics like proxy access and political spending disclosure, “private ordering” has become the catalyst for ESG changes (see Broc’s earlier blog about how that’s faring). This may have been due partly to Department of Labor interpretive bulletins from 2015 and 2016 which assured ERISA fiduciaries – i.e. pension plans – that they could consider ESG factors in making investment decisions.
1. Fiduciaries must avoid too readily treating ESG issues as being economically relevant to any particular investment choice
2. Fiduciaries may not incur significant plan expenses to (i) pay for the costs of shareholder resolutions or special shareholder meetings, or (ii) initiate or actively sponsor proxy fights on environmental or social issues
As noted in a CII alert, the most significant impact of the guidance likely will be on shareholder engagement. Earlier guidance – the bulletin says – didn’t suggest that it’s always appropriate for plans to engage with the board or management of companies in their portfolios. The guidance “was not meant to imply that plan fiduciaries, including appointed investment managers, should routinely incur significant plan expenses” to fund advocacy or campaigns on shareholder resolutions or proxy fights on environmental or social issues at portfolio companies. It appears that this new field assistance bulletin shifts the burden to pension funds to prove there are tangible activism benefits in every case. This creates a negative presumption that most ESG factors are not economically significant.
The change in tone will undoubtedly elicit angst among governance & sustainability advocates. It’s the latest in a long history of back-and-forth: the DOL’s 2015 & 2016 bulletins were issued in response to a 2008 bulletin, which walked back 1994 guidance. Also see this Davis Polk blog entitled “Are the Reports that the DOL Guidance Will Lead to the Demise of ESG-Focused Plans Greatly Exaggerated?”…
Sustainalytics’ ESG Ratings Now on Yahoo! Finance
Here’s the intro from this blog by Davis Polk’s Ning Chiu:
Some companies may not be aware that since February, their Yahoo Finance web page includes a separate tab with the ESG scores from Sustainalytics. The Sustainalytics quote page shows a company’s numerical rating for three categories, environment, social and governance, along with the overall ESG score. Scores range from 1 to 100.
There is also a graphic representation of the score that, according to the Sustainalytics press release, will be tracked against the average in each category and plotted over time. The graph, currently reflecting data from 2014 to now, is intended to display trends of how a company ranks against industry peers.
Our May Eminders is Posted!
We’ve posted the May issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
We’ve previously blogged about legislators’ efforts to pin-down SEC Chair Jay Clayton’s views on whether the agency would permit corporate bylaws compelling investors to arbitrate securities fraud claims. Last month, Rep. Carolyn Maloney & 25 other Democratic lawmakers became the latest to take a crack at Clayton – asking him to reaffirm that “forced arbitration provisions in the corporate governance documents of public companies harms the public interest and violates the anti-waiver provisions of the federal securities laws.”
That didn’t happen. Instead, last week, she received this letter from the Chair in response. Here’s what he said would be the SEC’s approach if an IPO company sought to include such a provision in its charter:
It is my view that if we are presented with this issue in the context of a registered IPO of a U.S. company, I would expect that any decision would involve Commission action (and not be made through delegated authority) and that the Commission would give the issue full consideration in a measured and deliberative manner. Such a review would take into account various considerations, including developments in applicable law and any other relevant considerations. I have reiterated these views and sought to appropriately frame this issue and my preference for such a process in my public statements.
He added that he had “not formed a definitive view” on whether mandatory arbitration is appropriate in the context of an IPO for a U.S. company, but that the issue is “not a priority” for him. Well, Rep. Maloney, it was a good try. Also see this Kevin LaCroix blog…
D&O Insurance: Do You Have What You Need?
Ahead of our upcoming webcast on D&O insurance, this Simpson Thacher memo reviews the key provisions of a D&O policy in order to help companies assess whether they have the coverages that they need. Here’s an excerpt on the complexities of coverage for SEC & other governmental investigations:
Courts continue to uphold D&O insurers’ declination of coverage for investigations by the SEC and other government investigations that do not target a specific director or officer but seek documents and interviews without specifying the alleged wrongdoing that is the focus of the investigation. Such investigations may not constitute a “Claim” under a D&O policy. Thus, there may be no coverage for the costs of complying with subpoenas and other investigative efforts.
Certain D&O policies offer provisions that afford at least some coverage. For example, policies will provide “Pre-Claim” coverage or “Noticed Investigations” coverage. Essentially, if an investigation does not constitute a Claim but later develops into a Claim, coverage will relate back to the point at which the investigation began, subject to certain limitations. Thus, the policyholder can keep track of its costs in connection with an investigation and if it turns into a Claim, those costs may be covered.
Some D&O policies provide coverage for complying with SEC subpoenas and other similar investigations, e.g., in the form of “Inquiry Coverage,” which may reimburse the insured for certain costs associated with preparing and accompanying directors, officers or other covered individuals who are called in for an interview by a government agency pursuing an investigation.
Legal Proceedings Disclosure: What If You’re the Plaintiff?
Most securities lawyers are accustomed to thinking about disclosure of legal proceedings from the perspective of a defendant. This “SEC Institute” blog “flips the script” by discussing how ASC 450 & Item 103 of S-K apply when you’re a plaintiff in a lawsuit. This excerpt reviews Item 103’s requirements:
The language “material pending legal proceedings” does not limit the disclosure to just defendant actions. And, to reinforce this conclusion, the SEC has issued the following Compliance and Disclosure Interpretation:
Section 205. Item 103 — Legal Proceedings
205.01 The bank subsidiary of a one bank holding company initiates a lawsuit to collect a debt that exceeds 10% of the current assets of the bank and its holding company parent. Due to the unusual size of the debt, Item 103 requires disclosure of the lawsuit, even though the collection of debts is a normal incident of the bank’s business. [July 3, 2008]
This CDI also illustrates the application of the 10% disclosure threshold and an interesting interpretation about normal course of business issues. And, it clearly shows that Legal Proceedings disclosure should include material lawsuits in which the company is a plaintiff as well as a defendant.
We have found that most companies are arming their managers with FAQs rather than delivering a set of FAQs to employees directly. Obviously, you’ll need to modify our sample FAQs to best fit your circumstances…
By the way, this pay ratio article about Wal-Mart was trending #1 on my Facebook feed a few days ago. The pay ratio extremes so far: Kinder Morgan – 3.7; Mattel – 4987 (supplemental ratio excluding one time awards of $22 million lowers it to 1527)…
Pay Ratio: What the S&P Companies Have Disclosed So Far
Here’s something that I blogged last week on CompensationStandards.com: As reflected in this deck, Deloitte Consulting just completed a review of 293 “S&P 500” companies that have filed their proxies as of April 10th. Here are the highlights:
– Median pay ratio is 153:1
– Median employee’s total annual compensation $70,867
– 21% of companies disclose information about the median employee’s employment status, geographic location and/or role
– Pay ratio and median employee’s total annual compensation varied significantly across industries. As expected, consumer discretionary (i.e., “retail”) had the highest median ratio of 396x and lowest median employee compensation at $32k while utilities had the lowest median ratio of 96x and second highest median employee compensation at $122k)
– Larger companies (in terms of revenue) had higher median ratios than smaller companies; however, the median employee’s pay did not correlate with revenue size
– 51% of companies chose a date other than the fiscal year end as the measurement date
– CACM used to identify the median employee varied significantly, with total cash compensation used by 32%, base pay and wages 23%, W-2 wages 20% and total direct compensation at 18%
– Only 8% used statistical sampling
– Only one company adjusted pay for the cost-of-living (CEO lives in Switzerland)
– 16% of companies added health benefits to total annual compensation
– 81% of companies placed the pay ratio disclosure immediately following the termination tables, while only 4% included it in the CD&A
Here’s something that I blogged yesterday on CompensationStandards.com: Since the SEC provided companies with some flexibility, there has been a debate as to where a pay ratio should be disclosed within a proxy statement – we cover this starting on page 72 of our “Pay Ratio” chapter in our Treatise. But where within the proxy pales in comparison to whether a company highlights its pay ratio on its online proxy or “Investor Relations” page.
That’s why I found what United Techologies did to be so notable – they broke out the disclosure of its pay ratio onto a separate page on its site. If you scroll down on the home page of the company’s interactive proxy, you’ll see a tab for “CEO Pay Ratio” in the 3rd row, two spots in from the left. Kudos…
As Liz foretold in a recent blog, the auditor ratification vote at yesterday’s annual meeting for General Electric is the big story of this proxy season. While shareholders at GE ratified KPMG for another year, as noted in this WSJ article and Cooley blog, there was a “no” vote of 35%.
That’s absolutely unprecedented in my lifetime. Auditors never get less than 90% support – and typically receive favorable votes in the mid-to-high 90s. Last year, 94% of GE shareholders voted in favor of KPMG (which has been GE’s auditor for 109 years). Maybe auditor rotation is here to stay…
By the way, Wells Fargo’s annual meeting also was yesterday. This article portrays it as quite explosive…
Poll: Auditor Rotation After Specified Period of Years?
Let’s presume you’re in favor of an arbitrary cut-off for auditors serving at a single client – most of the more established companies have had their auditors for well in excess of 50 years – what period of time would you consider appropriate? Please participate in this anonymous poll:
surveys & polls
More on “Proxy Season Blog”
We continue to post new items daily on our blog – “Proxy Season Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Length of Pay Disclosures? Growth, But Not Much
– Bank of America’s Proxy: A Few Notables
– Political Spending Proposals: “First Come, First Served”
– Voting Results for Last Half of ’17
– Online Movie Ratings: Men Drive Them?
When the SEC issued new cybersecurity disclosure guidance earlier this year, you just knew that a “message” enforcement action couldn’t be too far behind. Yesterday, the SEC delivered that message to Altaba (f/k/a Yahoo!) – in the form of this consent order & accompanying $35 million civil monetary penalty.
The action focused on alleged disclosure shortcomings associated with the company’s massive 2014 cyber breach. Here’s an excerpt from the SEC’s press release:
The SEC’s order finds that when Yahoo filed several quarterly and annual reports during the two-year period following the breach, the company failed to disclose the breach or its potential business impact and legal implications. Instead, the company’s SEC filings stated that it faced only the risk of, and negative effects that might flow from, data breaches.
In addition, the SEC’s order found that Yahoo did not share information regarding the breach with its auditors or outside counsel in order to assess the company’s disclosure obligations in its public filings. Finally, the SEC’s order finds that Yahoo failed to maintain disclosure controls and procedures designed to ensure that reports from Yahoo’s information security team concerning cyber breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure.
Without admitting or denying the SEC’s allegations, the company consented to an order requiring it to cease and desist from further violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15.
In addition to alleged shortcomings in Yahoo!’s periodic reports, the order calls out this Form 8-K filing announcing its deal with Verizon as another source of disclosure violations. The order notes that despite the company’s awareness of the breach, the stock purchase agreement filed with that 8-K contained affirmative reps & warranties by Yahoo! denying any significant data breaches.
The SEC’s use of reps & warranties as a premise for disclosure violations hearkens back to the 2005 Titan 21(a) report. After Titan, it became customary to include disclaimers clarifying that reps & warranties weren’t intended to be affirmative statements of fact. Those disclaimers were prominently displayed in Yahoo!’s 8-K, but they didn’t make much of an impression on the Division of Enforcement. We’re posting the related memos in our “Cybersecurity” Practice Area (see this Cooley blog – and D&O Diary blog).
Auditor’s Reports: What Can KAMs Tell Us About CAMs?
As companies & auditors wrestle with the implications of the PCAOB’s new audit report standard, companies in the rest of the world are assessing the early returns from changes to their audit reports that were adopted by the IAASB in 2014.
The IAASB’s new format required auditors to include a discussion of “key audit matters” – known as “KAMs” – in their audit reports. KAMs are matters communicated to those charged with governance that, in the auditor’s professional judgment, were of most significance in the audit. That’s a pretty close analog of the PCAOB’s “critical audit matters” – known as “CAMs” – which are matters communicated to the audit committee that relate to material accounts or disclosures and involve complex auditor judgment.
Concern have been expressed about the PCAOB’s new standard – and the CAMs concept in particular. Most critics have suggested that auditors will result to defensive disclosures of CAMs and will use “boilerplate” to protect themselves. But this recent report from the Association of Chartered Certified Accountants says that these concerns may be overblown. Here’s an except:
While these concerns are reasonable, ACCA’s research and roundtable feedback did not indicate that either of them is actually happening. And while there was evidence of common innovations among audit firm networks, ACCA has not seen widespread sharing of standardised wording. While the US legal environment is distinct from that of other countries, ACCA nevertheless believes that there are grounds to be optimistic about how the publication of critical audit matters will affect the financial reporting supply chain.
Tomorrow’s Webcast: “The Latest on ICOs/Token Deals”
Tune in tomorrow for the webcast – “The Latest on Token Deals” – to hear Pillsbury Winthrop’s Daniel Budofsky, Morrison & Foerster’s Susan Gault-Brown, Hunton Andrews Kurth’s Scott Kimpel and Smith Anderson’s Margaret Rosenfeld review the mechanics of ICOs/token deals as well as the latest trends & developments.
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.
