Corporate Securities Law Blog

The federal government’s extraordinary multi-pronged attack against executive compensation practices took another step forward, this time with the Federal Reserve Board of Governors (“FRB”) taking aim. On October 22, 2009, the FRB proposed new guidance that will dramatically affect incentive compensation arrangements for the banking industry. The proposed guidance is consistent with and largely patterned after the multi-national Financial Stability Board’s September 25, 2009 report titled “FSB Principles for Sound Compensation Practices.” Not to be left out of the headlines, on the same day, the Special Master for the government’s Troubled Asset Relief Program (“TARP”) Executive Compensation also announced significant reductions in compensation for the top executives and employees at companies receiving exceptional TARP assistance along with various other mandated reforms to compensation practices.

In Murray v. Metropolitan Life Ins. Co., No. 09-3716-CV, 2009 WL 3080462 (2d Cir. Sept. 29, 2009), the United States Court of Appeals for the Second Circuit reversed an order by the district court disqualifying defense counsel for a life insurance company in an action alleging fraud in connection with the demutualization of defendant life insurance company. The Court held that the law firm did not have an attorney-client relationship with the policyholders (plaintiffs) by reason of counsel’s representation of the insurance company in the demutualization process several years earlier.  The Second Circuit’s decision provides clear guidance as to whether constituents of a mutual company have a direct attorney-client relationship with counsel for the company, slamming shut the door opened by the district court in this case.
 

In United States v. Ruehle, No. 09-50161, 2009 WL 3152971 (9th Cir. Sept. 30, 2009), the United States Court of Appeals for the Ninth Circuit reversed a controversial decision by the United States District Court for the Central District of California, which improperly excluded from evidence in a criminal prosecution certain statements made by a senior officer to corporate counsel conducting an internal investigation that the officer claimed were protected from disclosure by the attorney-client privilege. The Ninth Circuit held that the corporate counsel’s alleged failure to give an “Upjohn warning” — which comes from the United States Supreme Court’s decision in Upjohn Co. v. United States, 449 U.S. 383 (1981), and is sometimes referred to as “corporate Miranda warning” — to the officer does not necessarily bar the government from using the statements made by the officer to corporate counsel. The decision potentially has far-reaching implications for groups as diverse as government prosecutors, individual corporate officers and corporate counsel in connection with the conduct of internal investigations of alleged corporate wrongdoing.
 

Governor Schwarzenegger established the Commission on the 21st Century Economy (the "Commission") to evaluate and recommend changes to California's tax system. A report of the Commission's findings was published in September 2009. Six recommendations were proposed, which, if approved, would take effect in 2012.
 

On June 10, 2009, the Securities and Exchange Commission, or the SEC, proposed a comprehensive series of rule amendments to facilitate the rights of shareholders to nominate a minority slate of directors on corporate boards.[1]There was speculation that final action could be taken on the proposed rule amendments—known as the direct access proposal—as early as November 2009 and that the changes would be effective for the 2010 proxy season. Commissioner Elisse B. Walter, in a speech on October 2, 2009, indicated that it was unlikely that the proposed rules would be acted upon before the 2010 proxy season but assured that she is "quite serious" about the direct access proposal and expected the SEC to consider an adopting release in early 2010.[2]
 

On October 2, 2009, the U.S. Securities and Exchange Commission, or the SEC, delayed the requirement for small reporting companies[1] to include in their annual reports an auditor attestation report on internal control over financial reporting.[2] Prior to this announcement, a smaller reporting company was required to include the auditor's attestation report in its annual report filed for fiscal years ending on or after December 15, 2009. Under the extension, a smaller reporting company is now required to begin to include the auditor's attestation report in its annual report filed for fiscal years ending on or after June 15, 2010. This extension gives calendar year-end smaller reporting companies an additional year to plan for the required auditor attestation report.
 

On September 22, 2009, the Delaware Senate confirmed Wilmington corporate governance litigator J. Travis Laster to become a Vice Chancellor of the Delaware Chancery Court. Laster will replace outgoing Vice Chancellor Stephen Lamb, who retired at the end of his 12-year term. Laster was nominated by Delaware Governor Jack Markell in August and is expected to take his seat on October 9, 2009.
 

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