Corporate Securities Law Blog

On Wednesday, July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. We summarized the provisions of the new law applicable to public companies in a recent article.

On Thursday, July 15, 2010, the Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act by a vote of 60-39. The bill passed in the House of Representatives on June 30, 2010. The legislation is expected to be signed into law by President Obama next week. The Dodd-Frank Act introduces wide-ranging reforms of the US financial regulatory system. The legislation calls for hundreds of rulemakings and studies, so the full impact will not be known for many years.
 

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?

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.

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 May 6, 2008, the Securities and Exchange Commission (the “SEC” or “Commission”) proposed various amendments to, and provided new clarifying guidance regarding, the rules governing cross-border transactions.

On December 19, 2007, the SEC adopted amendments to its disclosure and reporting requirements under the Securities Act of 1933 and Securities Exchange Act of 1934 to expand the number of companies that qualify for the SEC's "scaled" (i.e., significantly less burdensome) disclosure requirements for smaller reporting companies.  Eligible issuers have the option to use the new scaled disclosure requirements when filing their next registration statement or periodic report after the effective date of the amendments.

In In re Netsmart Technologies, Inc. Shareholders Litigation, C.A. No. 2536-VCS (Del. Ch. Mar. 14, 2007), Vice Chancellor Strine held that the shareholder plaintiffs demonstrated a probability of success on the merits of their claim that the Netsmart board of directors failed to fulfill their Revlon duties in considering and approving a cash sale of the company to two private equity firms.  The Court determined that the board’s decision not to conduct a broad market canvass for strategic acquirers, and instead focus the search for acquirers solely on private equity firms, did not appear to be reasonable under the circumstances.  The Court also held that the post-signing “market check” recommended by the company’s financial advisers was not appropriate for a small-cap company like Netsmart, thus was far too passive to have been effective in mitigating the narrowness of the pre-signing market canvass.  This decision provides guidance to boards when considering a sale to a private equity firm — an increasingly common situation affecting boards of directors of public companies throughout the country.

On August 11, 2006, the SEC issued its adopting release for the new rules on executive compensation and related party disclosures. Beginning for fiscal years ending on or after December 15, 2006, companies will have to comply with the SEC's new rules that will substantially revise the disclosure requirements for executive and director compensation and security ownership, related party transactions, director independence, and other corporate governance matters. For calendar year end companies, the new rules will apply to the 2007 proxy statements.

On January 27, 2006, the SEC proposed amendments to the disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters and security ownership of officers and directors. These amendments would apply to disclosure in proxy and information statements, periodic reports, current reports and other filings under the Securities Exchange Act of 1934 and the Securities Act of 1933.

In December 2004, the SEC and The Walt Disney Company settled charges that Disney had failed to disclose timely relationships between Disney and certain of its directors or their adult children or spouses. SEC rules require the disclosure of material relationships between the company and directors, officers, significant shareholders, or members of their immediate families. In 2003, the NYSE and the Nasdaq adopted stricter definitions of independence for directors, required that a majority of the directors be independent, and mandated the role of independent directors in various areas, including the audit, compensation and nominating committees.

Earlier this year, the SEC and DOJ settled parallel criminal and civil enforcement actions against Titan Corporation ("Titan") under the Foreign Corrupt Practices Act ("FCPA"). Titan agreed to pay the largest FCPA penalty to date of $28.5 million. This case is a reminder that companies need to adopt and enforce FCPA compliance policies before the discovery of FCPA problems leads to the unraveling of potential merger discussions and creates financial and reputational risk for the company, both of which occurred in Titan's case. The SEC's investigation of Titan also highlights future potential enforcement actions under the antifraud and proxy provisions of the federal securities laws for publication of false or misleading material disclosures regarding provisions in merger and other agreements filed with the SEC by an "issuer." See Related Resources

In widely publicized enforcement actions against Tyson Foods and General Electric Company, and recent speeches by members of the staff, the SEC has emphasized the need to accurately and clearly identify, characterize, value and disclose executive perquisites and other personal benefits.

The SEC recently settled an enforcement action against Flowserve Corporation, its CEO and Director of Investor Relations for reaffirming the company's previous earnings guidance in a private meeting with analysts, near the end of a reporting period. Companies should ensure that their Regulation FD policies are enforced and that their investor relations professional cautions analysts in a private setting about topics that are off-limits. Companies should be wary about changing or confirming any earnings guidance in a non-public forum, especially near the end of a reporting period.

A recent survey from the National Investor Relations Institute ("NIRI"), accessible at http://www.niri.org/irresource_pubs/alerts/ea050330.cfm, shows that more companies now offer less guidance, and that companies are moving towards the practice of annual guidance rather than quarterly guidance. Some companies believe that providing guidance is important for maintaining analyst coverage, and that analyst coverage is important for attracting institutional investors. One problem with providing guidance is that once you provide it you may have an obligation to correct or update it. For a small company, one major customer win or loss could radically change the results for a quarter. By omitting quarterly guidance, the company does not have to worry whether events are material enough to merit additional guidance.