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

2014 Proxy Season

Following are some topics that public companies may want to consider in preparation for the 2014 proxy season.

Shareholder Proposals

The 2013 proxy season reflected a continued increase in the number of shareholder proposals submitted to public companies, while the SEC no-action relief process resulted in fewer successful efforts of public companies to exclude shareholder proposals from proxy statements compared to recent years.  However, public companies appear to be having success in negotiating with shareholders as an increased number of shareholder proposals were withdrawn prior to the stockholder meeting in 2013 compared to prior years.  Common shareholder proposals in 2013 included (i) proposals to appoint an independent board chair, (ii) proposals to declassify classified boards of directors (and dismantle other similar protective provisions), and (iii) proposals to increase the diversity of the board of directors.  Shareholder proposals for 2014 are expected to include (i) elimination of super-majority provisions to amend by-laws, (ii) proxy access, (iii) ability of stockholders to act by written consent and/or call special meetings, and (iv) social and environmental proposals related to political contributions, human rights policies and environmental sustainability.  In its 2014 Policy Update, ISS stated that (a) starting in 2014 it will review the responsiveness of a board to any shareholder proposal that receives one year of a majority of votes cast in support (rather than the previous triggers of either two years of a majority of votes cast in a three-year period or one year of a majority of shares outstanding); (b) ISS has adopted a case-by-case approach, including a list of factors for analysts to consider, for assessing board implementation of prior successful shareholder proposals, and (c) ISS provided analysts with broader discretion when determining which directors to hold accountable in the event the level of responsiveness to shareholder proposals is found to be insufficient.  Among the changes for 2014 related to board action on successful shareholder proposals is that ISS will consider in the case-by-case analysis the board’s rationale provided in the proxy statement for not adopting a shareholder proposal.

Continue Reading Client Alert – Considerations for 2014 Proxy Season and Beyond

On July 10, 2013, the SEC adopted the amendments required under the JOBS Act to Rule 506 that would permit issuers to use general solicitation and general advertising to offer their securities, subject to certain limitations. In addition, the SEC amended Rule 506, as required by the Dodd-Frank Act, to disqualify felons and other bad actors from being able to rely on Rule 506. The long-awaited new rules will allow issuers that are permitted to rely on Rule 506 to more widely solicit and advertise for potential investors, including on the Internet and through social media.

The SEC also adopted an amendment to Rule 144A that provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers.

Continue Reading SEC Eliminates the Prohibition on General Solicitation for Rule 506 and Rule 144A Offerings

In McDaniel v. Wells Fargo Investments, LLC, Nos. 11-17017, 11-55859, 11-55943, 11-55958, 2013 WL 1405949 (9th Cir. Apr. 9, 2013), the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of four class action lawsuits filed by employees against brokerage firms Wells Fargo, Bank of America, and Morgan Stanley. In separate lawsuits, the employees alleged that the brokerage firms’ policies prohibiting employees from opening outside self-directed trading accounts violates Section 450(a) of the California Labor Code, which prohibits employers from forcing its employees to patronize his or her employer. The Ninth Circuit held that the California statute is preempted by the Section 15(g) of the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 78o(g), which requires brokerage firms to take measures reasonably designed to prevent employees from engaging in insider trading. This case of first impression in California reassures brokerage firms that compliance with the securities laws will not violate California labor laws.

Continue Reading Ninth Circuit Holds that Federal Securities Laws Preempt California Labor Code’s Ban on Forced Patronage at Brokerage Firms

Most public companies use Broadridge for shareholder voting tasks related to their annual meetings. Due to a new interpretive position being taken by the SEC, Broadridge recently informed its clients of a technical change in its online, mobile and telephonic voting platforms that may adversely affect obtaining favorable shareholder votes, particularly from retail investors.

Continue Reading Technical Change by Broadridge May Impact Retail Voting at Upcoming Annual Meetings