In Heinze v. Tesco Corp., No. 19-20298, 2020 WL 4814094 (5th Cir. Aug. 19, 2020), the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a putative class action suit under Section 14(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78(b) alleging that defendant Tesco Corporation (“Tesco”), former members of Tesco’s board of directors and Nabors Industries, Ltd. (“Nabors”) omitted material information from a proxy statement issued in connection with Nabors’ acquisition of Tesco in 2017.  Applying the heightened pleading standard of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4, et seq., the Court held that plaintiffs failed to show how the omitted facts were necessary to make the statements therein not false or misleading.  Heinze marks a significant victory for companies facing Section 14(a) shareholder litigation over merger-related proxy statements, reaffirming the PSLRA’s specificity requirements as well as its safe harbor provision shielding companies from liability over certain forward-looking statements and projections.
Continue Reading Fifth Circuit Affirms Dismissal of Section 14(a) Complaint For Failure to Plead Facts Demonstrating Alleged Omissions from Proxy Statement Were Misleading

For the first time outside of the originating case itself, a federal appeals court was called upon to apply the principles governing disgorgement in SEC enforcement actions established by the United States Supreme Court’s high-profile decision in Liu v. Securities & Exchange Comm’n, No. 18-1501, 2020 WL 3405845 (U.S. June 22, 2020) (blog article here).  In Securities & Exchange Comm’n v. Yang, No. 19-55289, 2020 WL 4530630 (9th Cir. Aug. 6, 2020), the United States Court of Appeals for the Ninth Circuit reviewed a district court order, issued some eighteen months before the Supreme Court spoke in Liu, awarding the SEC disgorgement.  In an unpublished memorandum decision, the Court of Appeals reversed the disgorgement awards and remanded the case to the district court to explicitly determine whether the awards comported with the requirements for such relief under Liu.  The Yang decision drew attention because it served as an example of how the high court’s decision is impacting appellate review of disgorgement awards.  If Yang is any indication, courts of appeal will be remanding cases to district courts with instruction to reach specific findings regarding compliance with Liu’s disgorgement requirements.
Continue Reading Ninth Circuit Reverses SEC Disgorgement Award and Remands in First Decision Post-Liu

In Juul Labs, Inc. v. Grove, 2020 Del. Ch. LEXIS 264 (Del. Ch. Aug. 13, 2020) (Laster, V.C.), the Delaware Court of Chancery held that the “internal affairs doctrine” bars a stockholder of a Delaware corporation headquartered in a foreign jurisdiction from seeking to inspect corporate books and records pursuant to the statutory law of that foreign jurisdiction.  The stockholder is limited instead to the inspection rights and remedies under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220.  This decision has the potential to provide greater certainty to Delaware corporations headquartered in other states that Delaware law will govern all aspects of stockholders’ rights, although it remains to be seen whether the courts of those other states will enforce Delaware law in a similarly limiting fashion.
Continue Reading Delaware Court of Chancery Applies the Internal Affairs Doctrine to Deny Stockholder Inspection Rights Under a Foreign State’s Law

A recent enforcement action offers a glimpse of the Financial Industry Regulatory Authority’s (“FINRA”) expectations for firms conducting anti-money laundering (“AML”) due diligence and transaction monitoring.  On July 27, 2020, FINRA settled with broker-dealer JKR & Company (“JKR”) over allegations that the firm failed to detect, investigate, and report suspicious activity in four customer accounts in violation of FINRA Rules 3310(a) and 2010.  JKR agreed to a $50,000 fine and a censure to resolve the matter.  The settlement is notable in that FINRA applied transaction monitoring and due diligence expectations common in the banking industry to a broker-dealer.  It also serves as a reminder that FINRA expects member firms to not only establish written AML policies and procedures, but also to put their AML programs into practice in order to meet their regulatory obligations.
Continue Reading FINRA Settlement Highlights Importance of Anti-Money Laundering Due Diligence and Monitoring

The Office of the Comptroller of the Currency (“OCC”) recently signaled its approval for banks to fully wade into the cryptocurrency custodian space.  On in a July 22, 2020 interpretive letter, the OCC concluded that a national bank may provide cryptocurrency custody services on behalf of its customers, including by holding the unique cryptographic keys associated with cryptocurrency, so long as the institution is able to effectively manage the risks and complies with applicable law.
Continue Reading Office of the Comptroller of the Currency Affirms Authority of a National Bank to Provide Cryptocurrency Custody Services

November is approaching and in an election year, that means candidates are making plans and promises.  These promises and plans inevitably include something about taxes; and when it comes to taxes, it pays to be prepared.  While we take no position on the candidates or proposals, in the event you are considering the timing of your tax decisions for the balance of the year and 2021, it is important to consider the potential impact of the election.  The following items explain the current status of various tax proposals that might impact your planning.
Continue Reading Tax Planning Considerations Raised by Election-related Proposals

IN RE DELL TECHNOLOGIES INC. CLASS V STOCKHOLDERS LITIGATION

There has been a growing deference in Delaware courts for transactions approved by independent special committees and minority stockholders. In the context of a company with a controlling stockholder, the Delaware Supreme Court has provided guidance in Kahn v. M&F Worldwide Corp.[1] (“MFW”) on how boards can structure special committees and minority stockholder votes to have board decisions adjudicated under the highly deferential protection of the business judgment rule.[2] However, the Delaware Court of Chancery recently found in In re Dell Technologies Inc. Class V Stockholders Litigation[3] (“Dell”) that it was reasonably conceivable that the conditions established in MFW had not been satisfied in the transaction under review resulting in the application of the more onerous entire fairness standard of review.[4] The opinion in Dell provides helpful insight for boards as they navigate transactions involving controlling stockholders.[5]
Continue Reading Board Guidance: Getting To Business Judgment Rule Deference When You Have A Controlling Stockholder

The COVID-19 pandemic has caused severe disruption, distress and uncertainty for companies across almost every industry. While this initially resulted in a substantial slow-down in the M&A market, transactional activity is expected to accelerate in certain areas as the economy begins to recover; for example, we expect to see more carveouts by companies that seek to divest non-core assets, acquisitions of distressed companies, financings of independent companies that may have liquidity issues, and divestitures or joint ventures by private equity funds that seek to exit investments or bring in new partners. Prospective sellers and buyers alike should have an increased focus on specific considerations as they evaluate new opportunities during and post-COVID-19.

We anticipate lasting changes to three main categories of deal terms in M&A transactions as companies and the economy begin to recover from the pandemic: execution risk, risk allocation and purchase price. Special considerations that should be taken into account in each of those categories include the following:Continue Reading The Impact of COVID-19 on M&A Transactions — Part II: Deal Terms

The COVID-19 pandemic has caused severe disruption, distress and uncertainty for companies across almost every industry. While this initially resulted in a substantial slow-down in the M&A market, transactional activity is expected to accelerate in certain areas as the economy begins to recover; for example, we expect to see more carveouts by companies that seek to divest non-core assets, acquisitions of distressed companies, financings of independent companies that may have liquidity issues, and divestitures or joint ventures by private equity funds that seek to exit investments or bring in new partners. Prospective sellers and buyers alike should have an increased focus on specific considerations as they evaluate new opportunities during and post-COVID-19.
Continue Reading The Impact of COVID-19 on M&A Transactions — Part I: Due Diligence and Operational Issues

In Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454-2019, 2020 WL 3885166 (Del. July 9, 2020), the Delaware Supreme Court affirmed a Delaware Court of Chancery (Slights, V.C.) appraisal decision that adopted the respondent corporation’s unaffected market price as fair value, squarely rejecting petitioners’ argument that, as a matter of Delaware law, a corporation’s unaffected stock price can never equate to fair value.  Under the appraisal statute, when determining the fair value of the shares on the closing date of the merger, the trial judge shall take into account “all relevant factors.”  The Delaware Supreme Court’s decision makes clear that a corporation’s unaffected market price alone can be a “relevant factor” indicating fair value in mergers.
Continue Reading Delaware Supreme Court Affirms Appraisal Award Using Corporation’s Unaffected Market Price As Fair Value