In United States v. Newman, No. 13-1837 (2d Cir. Dec. 10, 2014), the United States Court of Appeals for the Second Circuit reversed the 2013 convictions of Anthony Chiasson and Todd Newman on charges of conspiracy to commit insider trading and insider trading under 18 U.S.C. § 371, Sections 10(b) and 32 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78ff, SEC Rules 10b-5 and 10b5-2, 17 C.F.R. § 240.10b-5, 10b5-2, and 18 U.S.C. § 2. Both individuals were portfolio managers at hedge funds who were charged with and convicted of receiving material non-public information from analysts with whom they worked. The Second Circuit’s decision greatly clarifies the elements required to prove “tippee” liability under the insider trading laws.
Recently the SEC announced enforcement actions which highlight the importance of complying with the beneficial ownership reporting requirements under Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of 1934, or the Exchange Act.
Most companies will be impacted by the immigration initiatives announced by the White House this week. It will take up to several months for the initiatives to be implemented in order to give the U.S. Department of Homeland Security (DHS) time to ramp up. And some of the initiatives are aspirational in nature so the end result and timing is unclear at this time. Be advised that because these are executive acts, they are subject to repeal in the future. The impact to employers includes the following:
In Regulatory Notice 14-40, FINRA reminds members that it is a violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) to incorporate into a settlement agreement a confidentiality provision restricting or prohibiting a customer or other person from communicating with the Securities and Exchange Commission (SEC), FINRA, or any federal or state regulatory authority regarding a possible securities law violation.
In Quadrant Structured Products Co. v. Vertin, C.A. No. 6990-VCL, 2014 Del. Ch. LEXIS 193 (Del. Ch. Oct. 1, 2014), the Delaware Court of Chancery held that when creditors of insolvent firms assert derivative claims, they need not meet the contemporaneous ownership requirement applied to stockholder-plaintiffs. Section 327 of the Delaware General Corporation Law requires that in any derivative suit brought by a stockholder of a corporation, the plaintiff must be a stockholder at the time that the fiduciary wrong allegedly occurred. The Court held that Section 327 refers only to stockholder-plaintiffs, thus the contemporaneous ownership requirement does not apply to creditor-plaintiffs bringing derivative suits. However, the Court stated that its reasoning did not necessarily excuse creditor-plaintiffs from complying with other substantive doctrines of shareholder derivative suits. In dicta, the Court declined to address whether creditors must satisfy the pre-lawsuit demand requirement, but the Court’s emphasis on the requirement’s importance leaves the door open for applying it to creditors in a future decision.
In Laborers’ Local 265 Pension Fund v. iShares Trust, No. 13-6486, 2014 U.S. App. LEXIS 18627 (6th Cir. Sept. 30, 2014), the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of claims alleging violations of the fiduciary duties imposed by Sections 36(a) and 36(b) of the Investment Company Act of 1940 (ICA), 15 U.S.C. § 80a-35(a), (b). The Court held that (1) a plaintiff may not aggregate a lending agent’s fees with an affiliate’s fees in order to find the affiliate breached Section 36(b), and (2) that there is no implied private right of action in Section 36(a). The Court’s holding effectively limits the ability of plaintiffs to bring Section 36 claims.
In Goldman, Sachs & Co. v. Golden Empire Schools Financing Authority, No. 13-797-cv, 2014 WL 4099289 (2d Cir. Aug. 21, 2014), the United States Court of Appeals for the Second Circuit held that a forum selection clause in a broker-dealer agreement superseded FINRA’s mandatory arbitration rule. FINRA Rule 12200 compels members to arbitrate disputes if (1) the customer requests arbitration and (2) the dispute arises in connection with the member’s business activities. In Golden Empire, the Second Circuit ruled that a broad forum selection clause, requiring “all actions and proceedings” related to the parties’ transactions to be brought in court, trumped Rule 12200. As discussed more fully below, Golden Empire marks a growing circuit split over the availability of mandatory FINRA arbitration in light of such a broad, all-inclusive forum selection clause. It also raises several important issues for future litigation.
On August 26, 2014, The NASDAQ Stock Market LLC (“NASDAQ”) filed with the Securities and Exchange Commission (the “SEC”) certain proposed amendments to the NASDAQ Stock Market Rules (the “Amendments”) to provide for, among other things, a new all-inclusive annual listing fee (the “All-Inclusive Annual Fee”). The Amendments were effective upon the filing with the SEC; however, NASDAQ has designated that the Amendments will become operative on January 1, 2015. Companies that become subject to the All-Inclusive Annual Fee will pay a single annual listing fee to cover various matters which had previously been subject to an annual fee and several other separate fees. NASDAQ’s incorporation of the All-Inclusive Annual Fee into its fee structure is expected to simplify NASDAQ’s payment process as well as promote visibility into the costs associated with listing on NASDAQ. NASDAQ also indicated that the All-Inclusive Annual Fee program will give NASDAQ greater visibility into its revenue and allow it to continue to invest in technology and other resources available to NASDAQ-listed companies. As part of the Amendments, NASDAQ also modified certain listing fees and clarified certain provisions of the NASDAQ Stock Market Rules.
In a case of first impression, the United States Court of Appeals for the Second Circuit in Citigroup Global Markets, Inc. v. Abbar, No. 13-2172, 2014 WL 3765867 (2d Cir. Aug. 1, 2014), established a bright-line definition of “customer” under FINRA’s mandatory arbitration provision. Absent a written agreement to arbitrate, FINRA Rule 12200 compels FINRA members to arbitrate disputes with “customers,” but the rule does not define “customer.” It states only that a “customer shall not include a broker or dealer.” In Abbar, the Second Circuit held that a “customer” is “one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member.” Whether an investor is a “customer” is a threshold arbitrability question, the resolution of which can entail protracted and costly litigation. But in establishing a clear definition of “customer,” Abbar provides a reliable framework for making this determination, which should promote the efficient resolution of FINRA-related disputes.
The Delaware Court of Chancery recently addressed a number of claims commonly made in the “ubiquitous” stockholder litigation that follows announcement of a public merger or acquisition transaction. In Dent v. Ramtron Int’l Corp., C.A. No. 7950-VCP (Del. Ch. June 30, 2014), a stockholder of Ramtron International Corp. filed suit after Ramtron was acquired by Cypress Semiconductor Corporation pursuant to an all-cash tender offer. The plaintiff alleged that Ramtron’s directors breached their fiduciary duties by failing to maximize the value of the company, adopting several “preclusive” and “draconian” deal protection devices, and failing to fully disclose material information in the company’s proxy statement, and that Cypress aided and abetted those breaches. The Court granted the defendants’ motion to dismiss, finding that the plaintiff failed, in each count, to state a claim upon which relief could be granted. In doing so, the Court essentially set forth a roadmap for stockholders considering so-called “strike suits” and for corporations in preempting such suits.