Compliance

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On October 26, 2016, the SEC amended Rule 504 of Regulation D under the Securities Act of 1933 (the “Securities Act”) to increase the maximum amount of securities that may be sold thereunder in any 12-month period from $1 million to $5 million. Consequently, the rarely used Rule 504 may now prove useful to issuers of securities in smaller capital raising and M&A transactions.
Continue Reading Rule 504 Becomes Useful Tool for Smaller Capital Raising and M&A Transactions

So, fortune has smiled upon you. A partner has handed you a draft Form 10-K for a client and asked you to do a “rule check” or “form check” to confirm that no required disclosures are missing.

Most often, the Form 10-K template for a reporting company has evolved over a number of years, with significant input from the company’s accounting and legal professionals, and is generally in pretty good shape.

However, mistakes get made — and it’s your job to find them!

Here is a list of 12 items that even seasoned reporting clients frequently omit or prepare incorrectly when drafting the Form 10-K.Continue Reading 12 Common 10-K Mistakes — And How To Find Them

There are plenty of articles about how to write good MD&A – referring of course to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of your company’s Form 10-K, Form 10-Q or Securities Act registration statement.

The purpose of this article is to give you concrete tips on how to write bad MD&A, section by section.Continue Reading How to Write Bad MD&A

On July 1, 2016, the Securities and Exchange Commission (the “SEC”) approved, on an accelerated basis, proposed amendments to the listing rules of The Nasdaq Stock Market LLC (“Nasdaq”) to require Nasdaq-listed companies to disclose annually any “compensation” or “other payment” provided by third parties to directors or director-nominees in connection with their candidacy or service on the company’s board of directors. These arrangements are referred to as “golden leash” arrangements and commonly occur when an activist stockholder compensates its nominee for service on the company’s board of directors based on achieving certain criteria that are important to the activist stockholder. The new rule, Nasdaq Rule 5250(b)(3) (the “Rule”), became effective July 31, 2016.
Continue Reading SEC Approves Nasdaq’s Proposed Rule on Third Party Payments to Directors and Director-Nominees – The “Golden Leash” Disclosure

On July 13, 2016, the Securities and Exchange Commission (the “SEC”) announced proposed amendments in order to update and simplify its disclosure requirements.  The SEC’s proposed rule (the “Proposed Rule”) can be found here.
Continue Reading SEC Proposes Amendments to Update and Simplify Disclosure Requirements as Part of Overall Disclosure Effectiveness Review

The Securities and Exchange Commission’s (“SEC”) recent $1 million settlement with Morgan Stanley Smith Barney LLC (“MSSB”) marked a turning point in the agency’s focus on cybersecurity issues, an area that the agency has proclaimed a top enforcement priority in recent years.  The MSSB settlement addressed various cybersecurity deficiencies that led to the misappropriation of sensitive data for approximately 730,000 customer accounts.
Continue Reading SEC Steps Up Cybersecurity Enforcement with $1 Million Fine Against Morgan Stanley

On February 11, 2016, FINRA filed a proposed rule with the SEC that would require individuals who “design, develop or significantly modify algorithmic trading strategies” (or “ATS”) as well as individuals responsible for the “day-to-day supervision or direction of the development process,” to pass a qualification exam and register with FINRA as securities traders. During the comment period, FINRA clarified that the rule would not apply to every person who touches or is otherwise involved in the design of a trading system, but that it would be up to each firm to determine who is primarily responsible for the design of the ATS system.  The rule defines ATS as “any program that generates and routes (or sends for routing) orders (and order-related messages, such as cancellations) in securities on an automated basis” and identified eight typical programs that it would consider an ATS.  (FINRA Reg. Notice 15-06.)  The rule was prompted by FINRA’s concern that programmers be properly educated in securities regulations in order to avoid inaccurate orders, inadequate risk management controls, and other problematic conduct.  Commentators criticized the proposal as having a “potential chilling effect” by “discouraging well-qualified developers from participating in the design, development or modification of algorithmic trading strategies, and even from affiliating with FINRA member firms.”  
Continue Reading REGULATORS, QUANT UP! New Rules from FINRA, SEC and CFTC Target Automated Algorithmic Trading

Recently the SEC announced enforcement actions which highlight the importance of complying with the beneficial ownership reporting requirements under Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of 1934, or the Exchange Act.
Continue Reading Recent SEC Enforcement Actions Highlight Importance of Robust Insider Trading Compliance Policies

Yesterday, the Court of Appeals for the D.C. Circuit issued its opinion in the challenge to the SEC’s Conflict Minerals Rule.  We have reviewed the D.C. Court of Appeals decision and find that it leaves much of the SEC’s rule intact.  It is specifically the requirement that companies describe products as not “DRC conflict free” in their SEC filings and on their website that the Court held constitutes “compelled speech” in violation of the First Amendment.  In the words of the Court:  “Products and minerals do not fight conflicts. The label ‘conflict free’ is a metaphor that conveys moral responsibility for the Congo war. It requires an issuer to tell consumers that its products are ethically tainted. . . .  By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment.”
Continue Reading Appellate Court Issues Opinion on SEC’s Conflict Minerals Rule

Individuals form limited partnerships, limited liability companies and corporations to limit their personal liability.  These legal structures encourage entrepreneurs to take risks.  The California Court of Appeal, Second Appellate District, however, has made it easier to add a business owner to a judgment that initially was entered only against the corporate or limited partnership entity he or she owns.  In Relentless Air Racing LLC v. Airborne Turbine Ltd Partnership (Dec. 31, 2013) 2d Civil No. B244612, the Second Appellate District reversed the trial court’s finding that the business owner could not be added to the judgment under an “alter ego” theory.  The Court of Appeal required the limited partners, as well as current and former general partner entities to be added to the judgment against the limited partnership.
Continue Reading California Court of Appeal Makes It Easier to Add Business Owners to a Judgment