In Nguyen v. Barrett, C.A. No. 11511-VCG, 2016 WL 5404095 (Del. Ch. Sept. 28, 2016) (Glasscock, V.C.), the Delaware Court of Chancery dismissed an amended complaint seeking damages for alleged disclosure violations in connection with a tender offer that had already closed.  The Chancery Court’s opinion demonstrates the challenges plaintiffs face when they pursue non-exculpated disclosure claims for damages post-closing.  It also shows that these challenges increase when the disclosure claims were previously pled but not pursued at the preliminary injunction stage — a time when the Chancery Court is still in a position to ensure stockholders are provided sufficient information to cast an informed vote.  The Court confirmed that the preferred practice is for plaintiffs to pursue disclosure claims at that earlier stage.
Continue Reading Delaware Court of Chancery Dismisses Post-Closing Disclosure Claims for Damages, Cautioning That Such Claims Are Best Pursued Pre-Closing

If the New York State Department of Financial Services (“DFS”) has its way, come January 1, 2017, financial services companies that require a form of authorization to operate under the banking, insurance, or financial services laws (“Covered Entities”) will be required to comply with a new set of comprehensive cybersecurity regulations aimed at safeguarding information systems and nonpublic information.
Continue Reading New York State Department of Financial Services Proposes Cybersecurity Regulations for Financial Services Companies

In Ray v. Spirit Airlines, Inc., No. 15-13792, 2016 WL 4578347 (11th Cir. Sept. 2, 2016), the United States Court of Appeals for the Eleventh Circuit held that a defendant corporation is not distinct from its own officers and employees for purposes of forming an “enterprise” under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (“RICO”).  The Eleventh Circuit thus joins the Second, Seventh and Tenth Circuits in holding that a corporation cannot form an enterprise with its own agents, as the only way the corporation can act is through those agents.
Continue Reading Eleventh Circuit Holds That a Corporation Is Not Distinct From Its Agents For Purposes of a RICO Enterprise, Following Sister Circuits

In Securities & Exchange Commission v. Jensen, No. 14-55221, 2016 WL 4537377 (9th Cir. Aug. 31, 2016), the United States Court of Appeals for the Ninth Circuit broke new ground by providing the Securities & Exchange Commission (“SEC”) with a new independent cause of action under SEC Rule 13a-14, 17 C.F.R. § 240.13a-14, against a CEO or CFO who certifies false or misleading statements.  The Court also held that the disgorgement remedy authorized under Section 304 of the Sarbanes-Oxley Act, 15 U.S.C. § 7243 (“SOX 304”), applied regardless of whether a restatement was caused by the personal misconduct of an issuer’s CEO and CFO or by other issuer misconduct.  The majority opinion left some important questions unanswered, but Judge Bea, who concurred with the majority’s analysis and holding, wrote separately to clarify the intended scope of the new legal rules announced by the Court’s opinion.
Continue Reading Ninth Circuit Permits SEC to Assert Standalone Claim for False Sarbanes-Oxley Certification and Confirms Disgorgement Remedy Against CEO and CFO Despite Lack of Personal Involvement In Underlying Misconduct

In two recent decisions, City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB, 2016 Del. Ch. LEXIS 133 (Del. Ch. Aug. 24, 2016) (Bouchard, C.) (“Comstock”), and Larkin v. Shah, C.A. No. 10918-VCS, 2016 Del. Ch. LEXIS 134 (Del. Ch. Aug. 25, 2016) (Slights, V.C.), the Delaware Court of Chancery addressed the salutary effect of stockholder approval on the standard of review to be applied when evaluating damages claims in post-closing merger litigation.  The Delaware Supreme Court first recognized this effect in Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304, 309 (Del. 2015), holding that “[w]hen a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.”  But, since Corwin, the precise meaning of the phrase “not subject to the entire fairness standard” — and thus the scope of Corwin’s holding — had not been addressed.  Comstock and Larkin do so, with Larkin extending Corwin’s holding the furthest.  Larkin declares that fully informed, uncoerced stockholder approval changes the standard of review in post-closing litigation to the more deferential business judgment rule in all instances save one:  when the presence of a controlling stockholder triggers entire fairness review, in which case the entire fairness standard remains applicable.
Continue Reading Delaware Court of Chancery Addresses the “Cleansing Effect” of Stockholder Approval In Post-Closing M&A Damages Actions

Volume IX – Unclassified Contracts?  Foreign Buyers Still Make a Difference

Last month, we discussed the extent to which a foreign buyer can introduce an unacceptable level of foreign ownership, control, or influence (“FOCI”) that, absent mitigation, will render the target ineligible for the facility security clearances needed to perform classified work. This month, we look at foreign ownership through a broader lens.  Specifically, we consider how the United States regulates the proposed acquisition of a U.S. business by a foreign interest, irrespective of whether classified contracts and classified information may be involved in the planned transfer.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume VIII – Foreign Buyers Do Make a Difference

Not every potential buyer is a U.S. corporation controlled by U.S. interests.  It is important, both for the buyer and the seller, to understand the implications of foreign ownership, control, or influence (“FOCI”) on the feasibility of a sale to foreign interests and the processes that apply to such sales.  As the title of this posting makes clear, foreign buyers do, in fact, make a difference.Continue Reading What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

In In re Walgreen Co. Stockholder Litigation, No. 14 C 9786, 2016 WL 4207962 (7th Cir. Aug. 10, 2016) (Posner, J.), the United States Court of Appeals for the Seventh Circuit issued a highly charged opinion critical of an unopposed settlement of a stockholder class action “strike suit” which provided “nonexistent” benefits to class members yet “sweet fees for class counsel.”  In this case, a putative stockholder class action was filed immediately after Walgreen Co. (“Walgreens”) issued a proxy statement seeking approval of its reorganization as a new Delaware corporation to be called Walgreens Boots Alliance, Inc.  (As the Seventh Circuit noted, this was hardly unusual, as an astounding 94.9% of public company strategic transactions involving $100 million or more in recent years have triggered “strike suits” or “deal litigation.”)  Echoing criticisms of similar types of disclosure-only settlements by the Delaware Court of Chancery (see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016); blog article here], the Seventh Circuit reversed the district court’s approval of the settlement.  This decision from an influential federal jurist will put additional pressure on plaintiffs in these types of cases to forego or abandon litigation over public company strategic transactions (or, perhaps ironically, to litigate these cases more aggressively).
Continue Reading Seventh Circuit Criticizes Disclosure-Only M&A Litigation Settlements, Holding That Supplemental Proxy Disclosures Must Address and Correct a Plainly Material Misrepresentation or Omission

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