Corporate Securities Law Blog

The NYSE and Nasdaq each recently amended the definition of "independent director" to increase from $100,000 to $120,000 the amount of compensation that an independent director may receive from a listed company in a 12-month period.  In addition, the NYSE amended the definition of "independent director" to allow an immediate family member of an independent director to be employed by the company's auditor provided the immediate family member is not a partner of the auditor or working on the company's audit.

One question facing public companies is whether or not to implement a stock ownership policy for its senior executives. In essence, a stock ownership policy requires each covered executive to hold a specified minimum amount of company stock. Corporate governance reform advocates routinely call for companies to establish stock ownership requirements including imposing hold until retirement (HTR) policies for equity awards held by company officers (see for example the September-October 2008 issue of The Corporate Executive). As a result of the on-going dialogue on this issue, I wanted to proffer the following concept for consideration by public companies and practitioners.

You may be saying to yourself . . . Xbox?  X Games?  X what?  XBRL is something altogether different: eXtensible Business Reporting Language.  The SEC is proposing to require public companies to use this new language to provide financial statements, financial statement footnotes and schedules in interactive data format.  The question is . . . are you ready?

Seven Sheppard Mullin Corporate Partners have been named Best Lawyers in America for 2009.  David Bosko, Larry Braun, Robert Copeland, Tom Hopkins, Richard Kintz, Peter Menard and Mike Moore received this distinguished honor.  In addition to our Corporate Partners, 39 Partners from our Antitrust; Entertainment, Media and Technology; Finance and Bankruptcy; Government Contracts and Regulated Industries; Intellectual Property; Labor and Employment; Land Use and Natural Resources; Litigation; Real Estate; Tax and White Collar Practice Groups were named Best Lawyers in America for 2009.

The SEC has issued an interpretive release that provides guidance on the use of company web sites to disclose information to investors.  The release became effective upon publication in the Federal Register on August 7, 2008.  The SEC last provided comprehensive guidance regarding company web sites in 2000.  In its recent release, the SEC acknowledges that investors are increasingly relying on the Internet for information to aid their investment decisions, and that "where access is freely available to all, use of electronic media is at least equal to other methods of delivering information or making it available to investors and the markets."  In providing updated guidance, the SEC hopes to encourage companies to continue to develop their web sites in compliance with the federal securities laws so that they can serve as effective information and analytical tools for investors.  However, in light of the subjective nature of many of the factors set forth in the release, a company which is satisfied with its current practice of distributing press releases or filing Form 8-Ks to disclose developments in its business, or a smaller company whose web site is less frequently accessed, will likely maintain their current disclosure procedures while monitoring the response to the new guidance.

In South Ferry LP, #2 v. Killinger, 2008 WL 4138237 (9th Cir. Sept. 9, 2008), the United States Court of Appeals for the Ninth Circuit held that inferring scienter based upon nothing more than defendants’ senior management positions in a company does not satisfy the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  The interlocutory appeal in this case arose from a series of apparently conflicting case law within the Ninth Circuit with respect the so-called “core operations inference” in securities fraud actions, i.e., an inference that senior management must be aware of all matters, including wrongdoing, affecting a company’s core operations.  This decision resolves that apparent conflict by reaffirming pre-existing law and distinguishing a handful of seemingly contrary Ninth Circuit decisions.

In In re Gilead Sciences Securities Litigation, 536 F.3d 1049 (9th Cir. 2008), a three-judge panel of the United States Court of Appeals for the Ninth Circuit reversed the dismissal of a securities fraud complaint that the district court had held failed to plead loss causation due to the passage of time between the disclosure of the alleged fraud and the drop in the company’s stock price. The Ninth Circuit held that the delay in market reaction was not dispositive because, according to plaintiffs, the analysts and investors were unaware of the financial impact of the matters discussed in the corrective disclosure until after the company issued its quarterly financial results. This decision comes just two weeks after another panel of the same court cautioned, based on similar facts, that “[e]nabling a plaintiff to proceed on such a theory would effectively resurrect what Dura [Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005),] discredited.”  Metzler Investment GMBH v. Corinthian Colleges, Inc., 2008 WL 2853402 (9th Cir. July 25, 2008, amended Aug. 26, 2008) [See blog article].

As reported by Barron's Clare McKeen, the Internal Revenue Service's new "Whistleblower Office" is open and ready for business.  If you are willing to tattle on your fellow man, the IRS is willing to pay you for the information.

The SEC today issued an emergency order to temporarily ease the restrictions on the ability of issuers to repurchase their securities.  This change is intended to give issuers more flexibility to buy back their securities and, thereby, help restore liquidity to the securities markets.  The SEC's emergency order is effective at 12:01 a.m. EDT on September 19, 2008 and terminates at 11:59 p.m. on October 2, 2008 unless further extended by the SEC.

On June 13, 2008, the Department of Justice ("DOJ") issued Opinion Procedure Release 08-02 which allowed Halliburton Company ("Halliburton") to acquire Expro International Group, PLC ("Expro"), a foreign (U.K.) corporation with potential Foreign Corrupt Practices Act ("FCPA") violations, without exposing Halliburton to immediate FCPA liability.  Specifically, the DOJ agreed that it would forgo action against Halliburton for any FCPA violations committed by Expro both prior to the acquisition and in the first 180 days after the acquisition provided Halliburton followed a "post closing plan" consisting of FCPA due diligence and disclosure.

On September 15, 2008, a California Court of Appeal decided the case of Varisco v. Gateway Science and Engineering, Inc., holding that - where all other indicators point to a valid independent contractor relationship - a single clause in a contract allowing either party to terminate the relationship "at will" does not transform it into an employment relationship.

Yes, sadly this is yet another blog posting dealing with that infernal Internal Revenue Code Section 409A. But, my musings here are not about the intricacies of 409A and the various tax issues it presents or even the fact that the year-end compliance deadline is now less than 125 days away! Rather my focus is on whether this pervasive tax statute also has the power to complicate securities law compliance as well.

A company can be liable for violating its employees' privacy rights when it looks at the content of their text messages, even when the text-messaging devices were provided by the company, held the Ninth Circuit Court of Appeals.  Employers thus cannot be complacent about privacy rights just because they own the means by which their employees communicate.  Employers can, however, still access their employee's electronic communications if they take appropriate and consistent measures to alert employees of the employer's rights to these communications.

On August 5, 2008, the SEC announced the settlement of administrative proceedings against Ernst & Young and Mark C. Thompson, a former director of three public audit clients of Ernst & Young. The proceedings arose from a business relationship between Ernst & Young and Mr. Thompson which the SEC determined impaired the audit firm's independence and, thereby, caused each company to violate the federal securities laws. The proceedings clarify certain aspects of the SEC's rules regarding auditor independence, and highlight the need for public companies to periodically review any changes in the relationship between each director and the company and its audit firm that might affect auditor independence.

In Schoon v. Troy Corporation, 948 A.2d 1157 (Del. Ch. 2008), the Delaware Chancery Court held that a former director is not entitled to advancement rights where a later board-approved amendment to the corporation’s by-laws cut off such rights. This case is important for all directors and officers who are concerned about liability coverage after leaving a company or resigning from the board of directors.