Corporate Securities Law Blog

On January 25, 2012, the New York Stock Exchange issued an Information Memo to its member organizations stating that effective immediately, brokers may not vote on corporate governance proposals supported by company management without instructions from their clients. NYSE’s rules affect the voting of all shares held in “street name” by NYSE member organizations, regardless of whether the vote is for an issuer listed on the NYSE. This new position follows a recent regulatory and legislative trend disfavoring discretionary broker voting. The notification is a significant departure from historical practice where brokers used their discretion to cast votes on behalf of “street name” shareholders who fail to provide voting instructions with respect to what were previously viewed as “routine” matters. The NYSE’s new position will affect the voting dynamics for company-supported governance proposals, including those that companies may put forward this proxy season to avoid shareholder proposals on similar matters.

1. Higher Thresholds For HSR Filings

On January 24, 2012, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product and will be effective thirty days after publication in the Federal Register. Publication is expected within a week, so the new thresholds will most likely become effective in late February 2012. Acquisitions that have not closed by the effective date will be subject to the new thresholds.

As previously reported in the January 9th blog article, today is the last day to file Form 8937 to report 2011 corporate actions that affect stock basis, as required under Internal Revenue Code section 6045B. Because the actual IRS Form 8937 was only very recently released, and because a number of questions about the form have arisen following its release, the IRS issued a Notice (Notice 2012-11) stating that it will not impose penalties for reporting incorrect information, provided that the issuer makes a good-faith effort to report timely and accurately. Further, the Notice states that the issuer can satisfy its filing requirement by posting the required information in a readily accessible format to an area of its primary public Web site.

For further information, please contact Matthew Richardson at (213) 617-4222.

In Dow Chemical Canada ULC v. Superior Court, 2011 WL 6382110 (Cal. App. 2d Dist. Dec. 21, 2011), the California Court of Appeal, Second District, held that “plac[ing] products into the stream of commerce in a foreign country (or another state), aware that some may or will be swept into the forum state[,]” is not, by itself, sufficient to support the forum state’s exercise of personal jurisdiction over the manufacturer of the products. The Court’s decision explores the limits of personal jurisdiction after the recent decision by the United States Supreme Court in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 8780 (2011), and provides more certainty to foreign corporations regarding the likelihood of being forced to litigate in California courts.

On January 6, 2012, the Securities and Exchange Commission (“SEC”) announced that it has modified its settlement policy for enforcement actions that also involve a criminal conviction or admissions by a defendant of criminal violations. Under its new policy, the traditional “neither admit nor deny” language will be deleted from its settlement documents. Instead, the SEC will recite the facts and nature of the related criminal proceeding. Enforcement staff will have the discretion to incorporate into SEC settlement documents any relevant facts admitted by the defendant in the criminal proceedings.

As previously reported in the March 15 blog article, Section 6045B of the Internal Revenue Code imposes new reporting requirements on issuers of "specified securities" engaging in organizational actions after December 31, 2010 that affect the tax basis of their specified securities. Generally, a "specified security" includes shares of stock and interests treated as stock (such as an American Depository Receipt).

Just before 2011 year-end, the SEC adopted final rules first proposed in January 2011 to exclude the value of an investor's home when determining if an investor meets the net worth test for an accredited investor. A person's status as an accredited investor affects eligibility, sophistication and information requirements for certain unregistered securities offerings. The final rules differ from the proposed rules by addressing home equity indebtedness incurred in the 60 days prior to an offering, and by grandfathering securities purchase rights held prior to enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").

In Assured Guaranty (UK) Ltd. v. J. P. Morgan Investment Management Inc., 2011 N.Y. Slip Op. 09162, 2011 WL 6338898 (N.Y. Dec. 20, 2011), the New York Court of Appeals held that the Martin Act, N.Y. Gen. Bus. Law art. 23-A — New York’s “blue sky” law designed to address fraudulent practices in the marketing of securities — does not preempt common law causes of action for breach of fiduciary duty and gross negligence in connection with the marketing or sale of securities, even if the alleged wrongdoing also would fall within the purview of the Martin Act. This decision thus eliminates a defense to New York common law causes of action relating to securities.

Please join Sheppard Mullin for our monthly webinar series educating entrepreneurs and emerging companies on the key legal issues they face during the growth of their companies. These complimentary 1-hour webinars are held through WebEx on the third Thursday of the month at noon. They have both an audio and PowerPoint component, and are approved for 1.0 hour of Minimum Continuing Legal Education (MCLE) credit. Sheppard Mullin is a State Bar of California approved MCLE provider.

For information or to register for an event, please visit:
http://www.sheppardmullin.com/events.html.

Formation Issues and Changes in Structure - Tax Considerations
Third Thursday Emerging Company Webinar
February 16, 2012, 12:00 p.m. - 1:00 p.m. PST
Presented by Matthew Richardson, Partner, Sheppard Mullin
Via WebEx

Government Contracting 101: The Risks of Having Uncle Sam as a Customer
Third Thursday Emerging Company Webinar
January 19, 2012, 12:00 p.m. - 1:00 p.m. PST
Presented by Jonathan Aronie, Partner, Sheppard Mullin
Via WebEx

What Happens if you Get Sued - Litigation Basics
Third Thursday Emerging Company Webinar
December 15, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Brian Daucher, Partner, Sheppard Mullin
Via WebEx

How to Legally Protect Your Brand
Third Thursday Emerging Company Webinar
November 17, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Ted Max, Partner, Sheppard Mullin
Via WebEx

Executive Compensation and Stock Options
Third Thursday Emerging Company Webinar
October 20, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Greg Schick, Partner, Sheppard Mullin
Via WebEx

Offshore/International Manufacturing and Outsourcing
Third Thursday Emerging Company Webinar
September 15, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Shaalu Mehra, Partner, Sheppard Mullin
Via WebEx

Space Requirements for Start-Up Companies
Third Thursday Emerging Company Webinar
July 21, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Pam Westhoff, Partner, Sheppard Mullin
Via WebEx

Protection of Intellectual Property
Third Thursday Emerging Company Webinar
June 16, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Daniel Yannuzzi, Partner, Sheppard Mullin
Via WebEx

Employment Basics for Start-Ups
Third Thursday Emerging Company Webinar
May 19, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Jennifer Redmond, Partner, Sheppard Mullin
Via WebEx

What’s New in Seed Financings? A Look at “Lite” Preferred Stock
Third Thursday Emerging Company Webinar
April 21, 2011, 12:00 p.m. - 1:00 p.m. PST
Presented by Riaz Karamali, Partner, Sheppard Mullin
Via WebEx

Planning and Executing a Successful Sale of Your Company
Third Thursday Emerging Company Webinar
November 18, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Steve LaSala, Partner, Sheppard Mullin
Via WebEx

How to Legally Protect Your Brand in the New Millennium Third
Thursday Emerging Company Webinar
October 21, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Ted Max, Partner, Sheppard Mullin
Via WebEx

The Return of the IPO as a Viable Exit - Key Indicators, Considerations and Early Action Items
Third Thursday Emerging Company Webinar
September 16, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Louis Lehot, Partner, Sheppard Mullin
Via WebEx

Government Contracting 101: The Risks of Having Uncle Sam as a Customer
Third Thursday Emerging Company Webinar
August 19, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Anne Perry, Partner, Sheppard Mullin
Via WebEx

Addressing the Issues Raised by Bankruptcies of Your Vendors & Distributors
Third Thursday Emerging Company Webinar
July 15, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Ed Tillinghast, Partner, Sheppard Mullin
Via WebEx

Outsourcing and Offshoring: Business Strategies and Legal Considerations for Emerging Companies
Third Thursday Emerging Company Webinar
June 17, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Riaz Karamali, Partner, Sheppard Mullin
Via WebEx

Seed and Angel Capital: The Case for Convertible Notes
Third Thursday Emerging Company Webinar
May 20, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by John Tishler, Partner, Sheppard Mullin
Via LiveMeeting

Legal Issues Surrounding Using The Internet - Advertising, e-Commerce, & Social Networking
Third Thursday Emerging Company Webinar
April 15, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Brian Pass, Partner, Sheppard Mullin
Via LiveMeeting

Formation Issues and Changes In Structure - Tax Considerations
Third Thursday Emerging Company Webinar
March 18, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Matthew Richardson, Partner, Sheppard Mullin
Via LiveMeeting

What Happens If You Get Sued - Litigation Basics
Third Thursday Emerging Company Webinar
February 18, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Brian Daucher, Partner, Sheppard Mullin
Via LiveMeeting

Stock Options and Other Equity Compensation Arrangements for Start-Up Companies
Third Thursday Emerging Company Webinar
January 21, 2010, 12:00 p.m. - 1:00 p.m. PST
Presented by Gregory Schick, Partner, Sheppard Mullin
Via LiveMeeting

Space Requirements for Start-Up Companies
Third Thursday Emerging Company Webinar
December 17, 2009, 12:00 p.m. - 1:00 p.m. PST
Presented by Pam Westhoff and Doug Van Gessel, Sheppard Mullin
Via LiveMeeting

Protection of Intellectual Property
Third Thursday Emerging Company Webinar
November 19, 2009, 12:00 p.m. - 1:00 p.m. PST
Presented by Jennifer Trusso, Partner, Sheppard Mullin
Via LiveMeeting

Employment Basics for Start-ups
Third Thursday Emerging Company Webinar
October 15, 2009, 12:00 p.m. - 1:00 p.m. PST
Presented by Jennifer Redmond, Partner, Sheppard Mullin
Via LiveMeeting

Sources of Capital
Third Thursday Emerging Company Webinar
September 17, 2009, 12:00 p.m. - 1:00 p.m. PST
Presented by Stephanie Brecher, Partner, Sheppard Mullin
Via LiveMeeting