On February 6, 2019, the Securities and Exchange Commission released two Compliance and Disclosure Interpretations (CDIs) discussing disclosure requirements in instances where a director or board nominee self-identifies specific diversity characteristics, such as race, gender, ethnicity, religion, nationality, disability, sexual orientation and cultural background. Continue Reading
Court Finds Cybersecurity-Related Claims Sufficient in Securities Class Action
In the aftermath of Equifax’s data breach, a federal court recently found that allegations of poor cybersecurity coupled with misleading statements supported a proper cause of action. In its decision, the U.S. District Court for the Northern District of Georgia allowed a securities fraud class action case to continue against Equifax. The lawsuit claims the company issued false or misleading statements regarding the strength and quality of its cybersecurity measures. In their amended complaint, the plaintiffs cite Equifax’s claims of “strong data security and confidentiality standards” and “a highly sophisticated data information network that includes advanced security, protections and redundancies,” when, according to the plaintiffs’ allegations, Equifax’s cybersecurity practices “were grossly deficient and outdated” and “failed to implement even the most basic security measures.” The court found that data security is a core aspect of Equifax’s business and that investors are likely to review representations on data security when making their investment decisions. Continue Reading
SEC Administrative Proceedings Against Public Companies for Failure to Remediate Material Weaknesses in Internal Control Over Financial Reporting
Posted in Compliance, Corporate Governance, DisclosurePublic reporting companies that have material weaknesses in their internal control over financial reporting (“ICFR”) are required under Rule 308 of the Securities Exchange Act of 1934, as amended, to report such material weaknesses in their quarterly and annual reports along with proposed remedial measures. A material weakness is defined as a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of an issuer’s financial statements will not be prevented or detected on a timely basis. Continue Reading
Expansion of Regulation A to Reporting Companies: Increased Alternatives Now Available to Public Companies Seeking to Raise Capital or for Mergers and Acquisitions
On December 19, 2018, the SEC announced that it had adopted final rules that allow reporting companies to rely on the Regulation A exemption from registration for their securities offerings.[1]
Until recently, the only way that companies subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) have been able to access the capital markets has been through a private placement in public equity (PIPE) or a traditional registered public offering. PIPE’s have presented a number of issues regarding confidentiality, illiquidity of securities, limitations on offering size[2] and greater pricing discounts, whereas registered public offerings can be both time-consuming and costly. These issues are particularly magnified for smaller public companies that may not be eligible to use S-3 shelf registrations. Continue Reading
Delaware Courts Address Production of Emails and Other Electronically Stored Information In Response to Section 220 Demands
Posted in Corporate Governance, Courts and ADRSection 220 of the Delaware General Corporation Law, 8 Del. C. § 220, provides that any stockholder of a Delaware corporation “shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from . . . the corporation’s stock ledger, a list of its stockholders, and its other books and records.” Whether emails and other electronically stored information (“ESI”) created and maintained by the corporation constitute “other books and records” within the meaning of Section 220 has been a matter of some uncertainty. Recent decisions from the Delaware Courts provide useful guidance to practitioners on this question. Continue Reading
Class Size Doesn’t Matter—Seventh Circuit Holds That Federal Law Bars Private Securities Class Actions Brought Under State Law Regardless of the Number of Putative Class Members
Posted in Securities LitigationIn Nielen-Thomas v. Concorde Investment Servs., LLC, No. 18-2875, 2019 WL 302766 (7th Cir. Jan. 24, 2019), the United States Court of Appeals for the Seventh Circuit held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), Pub. L. 105-353, 112 Stat. 3227, bars all putative class actions brought by private plaintiffs in a representative capacity under state law, regardless of the estimated size of the class. The Seventh Circuit’s decision effectively eliminates the ability of a single plaintiff in a securities class action to represent a putative class of unnamed persons in any State within the Seventh Circuit (Illinois, Wisconsin and Indiana). Continue Reading
California Court of Appeal Enforces Delaware Forum Selection Bylaw
Posted in Courts and ADR, Securities LitigationIn Drulias v. 1st Century Bancshares, Inc., No. H045049, 2018 WL 6735137 (Cal. App. Dec. 21, 2018), the California Court of Appeal, Sixth Appellate District, affirmed an order staying a stockholder lawsuit brought in the Superior Court of California, Santa Clara County, on forum non conveniens grounds based upon enforcement of an exclusive Delaware forum selection bylaw. This decision confirms that California courts will enforce forum selection bylaws designating Delaware as the exclusive venue for intra-corporate claims. Continue Reading
The Impact of the Government Shutdown on S.E.C. Enforcement
Posted in Securities and Exchange CommissionThe federal government partial shutdown, now entering its second month, has had a severe impact upon the Securities and Exchange Commission, and its Division of Enforcement in particular, with enforcement activity coming to nearly a complete halt. Continue Reading
The Effects of the SEC Shutdown on the Capital Markets
Although EDGAR continues to accept filings, the government shutdown has now eclipsed its 28th day and the SEC continues to operate with limited staff which is having a crippling effect on the ability of many companies to raise money in the public markets. This is particularly due to the fact that the SEC is unable to perform many of the critical functions during the lapse in appropriations, including the review of new or pending registration statements and/or the declaration of effectiveness of any registration statements.
Regulation A May Prove Useful Alternative to Form S-4 Registration for Public Companies Doing Smaller M&A Deals
Last month, the U.S. Securities and Exchange Commission (“SEC”) announced it had adopted final rules to amend certain parts of Regulation A[1] promulgated under the Securities Act of 1933 (“Securities Act”).
These new rules implement changes as directed by the Economic Growth, Regulatory Relief, and Consumer Protection Act[2] signed into law on May 24, 2018 by President Donald J. Trump. There are two conceptual changes, both affecting Regulation A as it applies to reporting companies. Continue Reading
