On the heels of reading about Corp Fin’s denial of a request by Apple to exclude a shareholder proposal based on “proxy” grounds, I learned of two lawsuits filed against John Chevedden in federal court. As reflected in this complaint, Chipotle filed a “proposal by proxy” lawsuit in a Colorado federal court last week. As you might recall, John is fighting an adverse court decision involving Waste Connections – based on a similar fact pattern – that was handed down last year in a Texas court. That appeal is ongoing.
Meanwhile, Express Scripts recently filed a lawsuit against John in a Missouri federal court (here’s the complaint). The suit’s basis is only the accuracy of supporting statements for an independent board chair proposal. Given this Davis Polk blog describing how Corp Fin continues to deny exclusion requests based on misleading supporting statements, I can’t imagine that John won’t win this case. But you never know in some of these federal court cases…
Webcast: “The ‘Former’ Corp Fin Staff Speaks”
Tune in tomorrow for the webcast – “The ‘Former’ Corp Fin Staff Speaks” – to hear former Senior Staffers from the SEC’s Division of Corporation Finance Brian Breheny of Skadden Arps, Meredith Cross of WilmerHale, Marty Dunn of Morrison & Foerster, Tom Kim of Sidley Austin and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster weigh in on the latest in the wake of the SEC’s Reg D changes and what you need to be doing for the upcoming proxy season, as well as provide a “bring-down” of what’s happening now in Corp Fin.
“Mommy’s Alright, Daddy’s Alright, They Just Seem a Little Weird”
I couldn’t help humming the lyrics from “Surrender” when I read this Bloomberg article entitled “Ex-Cheap Trick Drummer Sued Over Corporate-Director Removal.” As noted in this article, the case was tossed…
Following on the heels of the issuance of 14 CDIs last month clarifying the application of the “bad actor” disqualifications from Rule 506 offerings, Corp Fin issued five more “Securities Act Rules Compliance and Disclosure Interpretations” in this area on Friday. They are:
In addition, the Staff issued one CDI under Rule 13d-3 that relates to one of the new Bad Actor CDIs.
SEC Enforcement Co-Director George Canellos Leaving
Kinda funny. On the day that Mark Cuban & I traded tweets over my blog about him and his beef with the SEC’s Enforcement Division, the SEC announces that one of the co-heads of Enforcement is leaving. As noted in this NY Times article, it’s no big surprise that George Canellos is leaving. SEC Chair White had installed George as co-head last April when fellow co-head Andrew Ceresney joined the SEC from her old law firm (note that Ceresney also worked with the Chair in the US Attorney’s Office for the Southern District of New York before that). Here is a pic of some of the tweets I received from Mark Cuban:
Your New Year’s Resolution? Lifestyle Adjustment
In this podcast, Jennifer Martella – a former securities lawyer turned wellness consultant – provides insights into how you should be approaching your life, including:
– Although we have the best of intentions when making annual resolutions and promises to ourselves, why do you believe we so quickly break them?
– New Years resolutions often focus on diet and exercise. What other areas come under the wellness umbrella that we can seek to improve in the New Year?
– Can you share a few key tools busy executives can incorporate into their over-booked schedules to improve health and wellness in the New Year?
A few weeks ago, a shareholder sued Aetna (& each director) in federal court based on the company’s statements of opposition regarding two “political contribution disclosure” shareholder proposals submitted to the company over the past two years. The plaintiff was not a proponent for either of the proposals. Here’s the proponent’s press release – and here’s the complaint.
I can’t remember a lawsuit being filed based on disclosure made in a Statement in Opposition – does anyone? A Statement in Opposition is a solicitation, but I can’t think of a suit brought on that basis. And the transparency allegations based on how Aetna disclosed content on its website is also pretty wild, particularly considering the SEC’s upcoming disclosure reform! An earlier withdrawn shareholder proposal plays a role too. This is a complaint worth reading.
Here’s an article from Courthouse News – and here’s one from the Huffington Post.
Say-on-Pay: Now 74 Failures
Last month, RCM Technologies (Form 8-K) became the 72nd with 28% support; MGP Ingredients became the 73rd failure with 21% support (Form 8-K) – and Syntroleum became the 74th with 49% support (Form 8-K). Thanks to Karla Bos! And that’s our final ones for the year…
In this WSJ article, it is reported that Mark Cuban continues to be smarting from his long and drawn out battle with the SEC over insider trading allegations that ultimately led to a court victory for him in a jury trial. Apparently, he is now considering a new venture publicizing transcripts of court cases involving the SEC and highlighting tactics he considers suspect.
While I can sympathize with anyone having to go through such a long court process – and the bizarre circumstances that he faced in some instances dealing with the SEC – it can’t be healthy to dwell on the past. The reality is that the facts that led to the investigation being brought appear on their face to warrant a look – and that all enforcement investigations don’t play out like they did for Mr. Cuban.
Before he decides to proceed with such a venture, I encourage Mr. Cuban to talk to reputable former SEC enforcement lawyers and get their take on the value of such a venture (and recognize that some of them are already shedding light on what goes down at the SEC – see this recent David Smyth blog about how the SEC sorts through tips). My own take is that merely reading a court transcript won’t give you enough of a sense of whether the investigative approaches being used by the SEC are appropriate. And a court transcript certainly won’t tell you a thing about the many headwinds behind the scenes that hinder the SEC from achieving its investor protection mission. If anything, Mr. Cuban should use his resources to help the SEC – not hurt it…
Did you know that Rule 144 is the sole form left that isn’t required to be filed electronically with the SEC? Recently, our very own Jesse Brill submitted this rulemaking petition, laying out the case for combining Form 144 and Form 4 – along with the sample combined form so that you can see what this might look like. Combining the forms would be a “win-win” as the SEC Staff, brokers & companies would save time and money – and investors would receive the information provided on a Form 144 sooner…
Comments on the New Reg D Proposals: Is the Tide Turning?
As noted by MoFo’s Anna Pinedo in this blog, despite many commentators weighing in against the latest round of proposed changes for Form D, Regulation D and Rule 156, SEC Commissioner Aguilar and Senator Levin have weighed in supporting the proposals. Here are the comments received – including this one from the ABA’s Business Law Section.
Our January Eminders is Posted!
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A preliminary agreement reached between the European Parliament and EU Member States will require audit firms to rotate every 10 years, with extensions for up to 14 additional years if there is a joint audit, which is required in some EU nations and not uncommon in others, or 10 more years if the work is put out for bid. The original proposal sought mandatory rotation every six years. Listed companies, banks and insurance companies will reportedly be affected.
Other reforms are expected, including prohibition of certain non-audit services such as tax advice and services linked to the financial and investment strategy of the audit clients. A cap of 70% on fees generated for non-audit services based on a three-year average will also be imposed. Audit reports are expected to contain more information although the details were not clear, and third parties can no longer require that only the “Big Four” be used.
The text is subject to final approval and a reasonable transitional period, six years according to some accounts, is expected. One article argues that with the transition time period and the allowable extensions, it may be as long as 30 years before some companies will be required to switch auditors.
SEC Removes References to Rating Agencies in Bunch of Rules
Last week, the SEC finally removed references to credit ratings from a bunch of SEC rules, as mandated by Section 939A of Dodd-Frank. SEC Commissioner Gallagher issued this statement praising the action – and bemoaning that it took so long…
More on our “Proxy Season Blog”
We continue to post new items regularly on our “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:
– Glencore Xstrata: Wild Results from an Annual Meeting
– Reviewing Key ESG Shareholder Proposals in 2013
– Interview with Amalgamated Bank: Shareholder Proposals & Communications
– Director Elections & Contests in 2013
– Does Compliance with Proxy Advisors’ Recommendations Decrease Shareholder Value?
– You Can’t Shoot Zombie Directors!
In this “Take Two Video,” I spend 40 seconds telling my own firsthand account of the boiler room operations of Stratton Oakmont from back in ’97. This was a time when I served as a SEC Staffer. Pretty funny story (from a lawyer’s perspective)…
Here is an interesting review of “The Wolf of Wall Street” from someone who used to be a boiler room broker…
Best Movies in 2013? My Take
Here’s the best movies list from the Washington Post – and here are reviews from Nell Minow (who doubles as ‘Movie Mom’ when she isn’t a governance guru). I didn’t see all that many movies this year as I am picky about what I see. But I do think that “The Way Way Back” should be on the “best of” lists and that “Dallas Buyer’s Club” and “Mud” should have been near the top. “Frances Ha” and “Nebraska” were fine – but both were not “Top 20” worthy. And something about “Her” scares me and you couldn’t pay me to go…
Every year, I try not to blog during the week of Christmas. And it never happens. On Friday, the SEC released Corp Fin’s Study on Regulation S-K. This report to Congress was mandated by Section 108 of the JOBS Act. It’s 106 pages – but double-spaced.
Comprising nearly a third of the Study, I loved reading the history section of the Study. It’s like your life flashing before your eyes. Memories of learning about the Wheat Report and the expansion of the availability of Form S-7 (which was the first streamlined registration statement). Hard to believe that the initial version of Reg S-K only called for a “Description of Business” and “Description of Property.” It’s hard to believe it’s been nearly 20 years since the Task Force on Disclosure Simplification made its recommendations.
The next section of the Study provides the history of each Item in Reg S-K, along with a brief description of comments submitted on each item through the SEC’s JOBS Act page. Only 5 comment letters were submitted.
Starting on page 92, the final 15 pages of the Study is the section that everyone should read – about possible next steps & the Staff’s preliminary suggestions for further study. The study notes there are two approaches to disclosure reform: a broad comprehensive review of disclosures or a more targeted review topic by topic. The former approach would obviously be a bigger project that would take longer. The study identifies these 4 issues that should be addressed during a reform project: principles-based disclosure requirements; scalability for different types of companies; how disclosure is delivered & presented; and readability & navigability of disclosure.
Even though this is just a Staff study, the study’s preliminary suggestions may present some tea leaves about how SEC Chair White wants to pursue disclosure reform (eg. reconsider lengthy & technical executive pay disclosures on page 100). As noted in the SEC’s press release, Chair White has “directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings. We will seek input from companies about how we can make our disclosure rules work better for them and will solicit the views of investors about what type of information they want and how it can be best presented.” Once the inevitable slew of memos are out, I’ll be posting them in our “Regulation S-K” Practice Area.
Wachtell Lipton v. Carl Icahn
This Forbes article notes a lawsuit filed by Wachtell Lipton against Carl Icahn over a fee dispute…
Exchange-Traded Notes: Corp Fin May Seek Better Disclosure
This Bloomberg article indicates that Corp Fin’s Amy Starr may seek better disclosure from lenders about how they value exchanged-traded notes…
In what has become an annual tradition, Cary Klafter of Intel again shares what I imagine has to be the world’s largest holiday disclaimer, running for 19 pages – nearly 25% greater than the last one…
Let It Snow, Make It So
Maybe you have to be a “Star Trek-Next Generation” fan to enjoy this video, but I found it hilarious:
Shareholder on a Shelf: An Earnings Tradition
And then Sharon Merrill’s Dennis Walsh gives us this hilarious holiday poem. Here’s an excerpt:
Have you ever wondered how the SEC could know;
If you’re naughty or nice in making your reported revenues and margins grow;
For 79 years it’s been a big secret;
Which now can be shared, if you promise to keep it.
At reporting time the SEC sends me to you;
I sit in the shadows to watch and report on all that you do;
My job is an assignment from Ms. Mary Jo White herself;
I am her helper, a friendly scout shareholder that sits on a shelf.
At an open meeting yesterday, the SEC voted to propose the exempt public offering rules mandated by Title IV of the JOBS Act. The proposals have been much-anticipated, because the possibility of offering up to $50 million of securities within a 12-month period without going through the full-blown registration process has been seen as a promising way to revive the smaller IPO market. Over the past decade, the infrastructure for conducting IPOs by companies raising less than $50 million has all but disappeared, and existing exemptions like Regulation A have proven to be a poor alternative given the $5 million offering limit and the lack of state preemption.
The SEC’s proposal seeks to create a workable exempt public offering regime that will hopefully not fall into disuse like current Regulation A. The SEC proposes to amend Regulation A to create two tiers of offerings: Tier 1, for offerings of up to $5 million in a twelve-month period, and Tier 2, for offerings of up to $50 million in a twelve-month period. Both of these tiers would be subject to basic requirements concerning issuer eligibility, disclosure, and other matters, building on the current provisions of Regulation A while in some cases modernizing existing provisions to make Regulation A consistent with current practice for registered offerings. Tier 2 offerings would be subject to additional requirements, such as the provision of audited financial statements, ongoing reporting obligations, and certain limitations on sales, reflecting the directives in Title IV of the JOBS Act and the additional investor protection concerns associated with larger exempt public offerings.
The offering documents used in Regulation A as proposed to be amended would be filed with the SEC and subject to a review and qualification process, as has been the case with current Regulation A.
Ongoing Reporting Obligations Proposed
One aspect of the proposed Regulation A amendments that will no doubt draw a lot of interest from commenters is the ongoing reporting scheme that issuers using Regulation A will become subject to when they conduct a Regulation A offering. The SEC has proposed to:
1. require issuers that conduct a Tier 1 offering to electronically file a Form 1-Z exit report with the SEC not later than 30 calendar days after termination or completion of a qualified Regulation A offering to provide information about sales in such offering and to update certain issuer information;
2. require issuers that conduct a Tier 2 offering to electronically file with the Commission annual and semiannual reports, as well as current event updates, similar to the way an issuer is required to file periodic and current reports when it conducts a registered offering and becomes subject to Exchange Act reporting requirements pursuant to Section 15(d);
3. require issuers that conduct a Tier 2 offering to, where applicable, provide special financial reports to provide information to investors in between the time the financial statements are included in Form 1-A and the issuer’s first periodic report due after qualification of the offering statement;
4. require issuers that conduct a Tier 2 offering to include in their first annual report after termination or completion of a qualified Regulation A offering, or in their Form 1-Z exit report, information about sales in the terminated or completed offering and to update certain issuer information; and
5. eliminate the requirement that issuers file a Form 2-A with the SEC to report sales and the termination of sales made under Regulation A every six months after qualification and within 30 calendar days after the termination, completion, or final sale of securities in the offering.
The Big Deal: Federal Preemption is Proposed for Regulation A Offerings!
One of the biggest concerns with the implementation of Title IV of Regulation A has been whether the SEC would address the state blue sky issues that have historically made Regulation A less attractive as an offering alternative. In a surprise move, the SEC has proposed to provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers,” which is defined to be all offerees of securities in a Regulation A offering and all purchasers in a Tier 2 offering. The SEC said that these federal preemption provisions are appropriate in light of the total package of investor protections proposed to be included in the implementing rules for Regulation A.
I chuckled when I read this DealBook article about how Fantex Holdings intends to open an online marketplace for investors to buy and sell interests in professional athletes. I laughed because I had been involved with a few of these types of schemes when I worked at the SEC in the Chief Counsel’s office. Way back then, the issuers argued that interests in athletes were not “securities” and thus didn’t need to be registered. As I recall, those no-action requests went nowhere as the “not a security” arguments were not persuasive.
But Fantex is taking a different approach. On October 17th, it filed a Form S-1 (which has since been amended), for an IPO in the NFL player Arian Foster – with the intention of selling about $10.5 million worth of “tracking stock,” representing a 20% interest in his future brand income. In exchange, Arian would receive $10 million; the balance will cover the costs of the deal. In addition, five pieces of free writing prospectuses were filed – the components of Fantex’s site and other selling documents. The Fantex platform itself has filed as a broker-dealer. As noted in this DealBook article, a second Form S-1 has been filed by Fantex for another football player, Vernon Davis.
What is a “Tracking Stock”? Is Securitization of Future Earnings Novel?
Okay, I need help since I’m not a securitization lawyer. Who out there knows how different this is than the securitizations of 15 years ago relating to David Bowie and others celebrities who monetized their future earnings? Is this Fantex stuff really a securitization? Or is this type of “tracking stock” something different? And how is this tracking stock different than the ones that a half dozen companies did in the late ’90s?
