Yesterday, each of Nasdaq, FINRA and NYSE released Regulatory Alerts highlighting concerns surrounding fraudulent activities in Small-Cap IPOs. Each of these alerts raises similar issues, highlights the importance of the Underwriter in the process, and stresses the obligations that Underwriters have as Gatekeepers in the IPO Process. Below is a link to each of these Alerts and some relevant excerpts from them.

Continue Reading Nasdaq, FINRA and NYSE Issue Warnings of Small-Cap IPO Fraud

On November 10, 2022, the Federal Trade Commission issued its “Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act.” The Statement replaces prior guidance on the subject that was rescinded by the FTC on July 1, 2021[1] and “supersedes all prior FTC policy statements and advisory guidance on the scope and meaning of unfair methods of competition under Section 5 of the FTC Act.”

Continue Reading FTC Policy Statement on the Scope of Unfair Methods of Competition – A Broad But Vague Warning

Over the last year, the U.S. Securities and Exchange Commission (“SEC”) has been laser-focused on the use of personal devices by employees of the large Wall Street banks to conduct company business. The SEC’s investigations have focused on whether the banks complied with the “books and records” requirement that they preserve all communications that relate to Company business. The SEC has asserted that certain “off-channel” business communications not captured in company systems run afoul of this basic record keeping requirement. Not surprisingly, during the pandemic and with the increase in remote work, the SEC has determined that violations have been widespread. 

Continue Reading SEC Shifts Focus on Employees’ Off-Channel Business Communications to Investment Advisers

The U.S. Securities and Exchange Commission (“SEC”) voted on Wednesday to adopt a new rule requiring companies listed on a national securities exchange to claw back incentive-based executive compensation that was erroneously awarded on the basis of materially misreported financial information that requires an accounting restatement.

Continue Reading SEC Adopts New Executive Compensation Clawback and Disclosure Rule

Kandace Watson, Corporate M&A Partner, Sheppard Mullin, and Michael-Bryant Hicks, a seasoned EVP, General Counsel & Corporate Secretary recently discussed mergers and acquisitions perspectives from the Boardroom and C-Suite. From the Board and Executive Management viewpoint, there are only a few key important wins.

Continue Reading Mergers & Acquisitions Insights: Perspectives from the Boardroom and C-Suite

On August 25, 2022, the Securities and Exchange Commission adopted a pay versus performance rule in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires a registrant to disclose, in a proxy statement or an information statement in which executive compensation disclosure is required to be included, how executive compensation actually paid by the registrant to its named executive officers is related to the financial performance of the registrant. The new rule is intended to “provide investors with important and decision-useful information for comparison purposes in one place when they evaluate a registrant’s executive compensation practices and policies, including for purposes of the shareholder advisory vote on executive compensation, votes on other compensation matters, director elections, or when making investment decisions.”

Continue Reading SEC Releases Pay Versus Performance Disclosure Requirements For Public Companies

In ZF Micro Solutions, Inc. v. TAT Capital Partners, Ltd., 2022 WL 4090879 (Cal. App. Aug. 8, 2022), the Fourth Appellate District of the California Court of Appeal decided, as a matter of first impression, that a non-derivative breach of fiduciary duty cause of action seeking compensatory damages was legal rather than equitable, and therefore required a jury trial as a matter of law. The Court arrived at its conclusion by evaluating the right and relief requested. In so doing, the Court concluded that because the claim at hand exhibited all the characteristics of a cause of action at law, it was legal, rather than equitable, and should have been tried to a jury.

Continue Reading California Court of Appeal Holds that a Corporation’s Direct Cause of Action for Breach of Fiduciary Duty is Legal Rather than Equitable, Requiring a Trial by Jury

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the Act), a sweeping bill with significant tax, energy and healthcare implications.[1] This alert focuses on two key corporate tax aspects of the Act:

Continue Reading Key Corporate Tax Aspects of the New Inflation Reduction Act

In In re GGP Stockholder Litigation, 2022 WL 2815820 (Del. July 19, 2022), an M&A transaction split the merger consideration into two parts: an oversized pre-closing dividend totaling over $9 billion, followed by a nominal post-closing payment of about 31 cents a share. In this case, a majority of the Delaware Supreme Court concluded that divvying up merger consideration in this manner does not defeat a dissenting stockholder’s appraisal rights. The majority held that a pre-closing dividend (at least one dependent upon the consummation of the transaction) is part and parcel of the total “merger consideration,” and therefore will be taken into account when determining the fair value of a stockholder’s shares prior to the transaction. However, the Court added, the proxy materials must be clear that the merger consideration subject to an appraisal action includes not only the post-closing per share payment, but also any pre-closing dividend—no matter how large it might be. Otherwise, a stockholder could (incorrectly) believe that the fair value of her shares will be appraised only after deducting the padded dividend from the value of the company, thus depleting the fair value of her shares and making the pursuit of an appraisal action highly unsavory. Here, the Court held that the proxy statement was less than clear in this regard, and upheld plaintiffs’ breach of fiduciary duty claims on a motion to dismiss. In reaching its decision, the Delaware Supreme Court provides important guidance to practitioners structuring deals with an eye towards diminishing the usual deluge of appraisal actions—shoehorning the lion’s share of merger compensation into a pre-closing dividend will not do the trick, nor can the accompanying proxy materials make that suggestion (no matter how subtly or perhaps unintentionally).

Continue Reading Delaware Supreme Court Holds Novel Pre-Closing Dividend Transaction Structure Does Not Thwart Appraisal Remedy

A recent decision by the U.S. Court of Appeals for the Second Circuit has implications for whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “The Act”). In Hong v. SEC, No. 21-529 (2d Cir. July 21, 2022), the Court held that a person who provides the Securities and Exchange Commission (“SEC”) with information about potential securities laws violations is entitled to receive a whistleblower award under Section 21F of the Securities Exchange Act (15 U.S.C. § 78u-6)if the SEC itself brings a qualifying action, but not when the SEC shares the whistleblower’s information to other agencies who then bring an action in partial reliance upon it. The decision sets definitive limits on the reach of the Dodd-Frank Act’s whistleblower incentives and may affect the calculus for individuals considering whether to risk their personal and professional careers to come forward with information of wrongdoing.

Continue Reading Second Circuit Limits Scope of SEC Whistleblower Incentives

In SEC v. Rio Tinto PLC, No. 21-2042, 2022 U.S. App. LEXIS 19577 (2d Cir. July 15, 2022) (Jacobs, J.), the United States Court of Appeals for the Second Circuit declined to impose “scheme liability” under subsections (a) and (c) of the Securities & Exchange Commission Rule 10b-5 (17 C.F.R. § 240.10b-5) where the challenged conduct amounted solely to the making of a material misstatement or omission. The Rio Tinto decision is noteworthy because it limits the U.S. Supreme Court’s decision in Lorenzo v. SEC, 139 S. Ct. 1094 (2019) (blog article here), which potentially expanded “scheme liability” to defendants who may have been tangentially involved in the issuance of a misleading statement.

Continue Reading Second Circuit Declines to Allow SEC Rule 10b-5 Claim for “Scheme Liability” to Proceed Where the Alleged Misconduct Amounted Only to the Making of Material Misstatements or Omissions