The IRS recently announced that a contribution to a domestic LLC that is wholly owned and controlled by an IRC § 501(c)(3) charitable organization will be treated as if the contribution were made directly to the charitable organization, provided that the LLC has not elected to be taxed as a corporation. Although the IRS had previously provided guidance to public charities and private foundations as to the tax treatment of operating through such single-member LLCs, the July 31, 2012 release of Notice 2012-52 was the first guidance given to individual and corporate contributors as to the deductibility of their contributions. Left unaddressed, however, is the tax treatment of a contribution to a single-member, “disregarded entity” LLC organized in a foreign jurisdiction.Continue Reading IRS Confirms Charitable Contribution Deduction for Gifts Made to Single-Member LLCs

In In re Boston Scientific Corp. Securities Litigation, 2012 WL 2849660 (1st Cir. July 12, 2012), the United States Court of Appeals for the First Circuit affirmed the dismissal of a securities class action lawsuit against Boston Scientific Corporation (the “BSC”). The Court held that the alleged misstatements or omissions were not sufficiently material to support a claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and that the complaint’s allegations failed to meet the heightened requirements for pleading scienter under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (“Reform Act”). In so holding, the First Circuit reconfirmed that the federal securities laws do not impose an affirmative duty on management to disclose all information that might affect the price of a company’s stock.Continue Reading First Circuit Upholds Dismissal of Securities Fraud Action Based Upon Immateriality of Allegedly Omitted Information

In recent weeks, the SEC has given notice of matters that SEC Commissioners will consider at an open meeting on August 22, 2012, including:

  • general solicitation rulemaking required by Title II of the JOBS Act
  • disclosure and reporting rules for conflict minerals and resource extraction issuers that are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act

SEC Chairman Mary Schapiro also recently testified before a House Oversight and Government Reform Committee about the SEC’s progress in implementing rules and providing studies and reports to Congress required under the Jumpstart Our Business Startups (JOBS) Act.Continue Reading Update on Timeline for SEC Rulemaking to Implement the JOBS Act and Dodd-Frank Act

In Analytical Surveys, Inc. v. Tonga Partners, L.P., 2012 WL 1970389 (2d Cir. June 4, 2012), the United States Court of Appeals for the Second Circuit addressed (among other things) the scope of two exceptions that apply to liability for short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b): the exception for derivative securities that do not have a fixed price and the exception for securities acquired in connection with a “debt previously contracted.” The Court concluded that the exception for derivative securities that do not have a fixed price does not apply to hybrid securities exercised at a floating price and that the “debt previously contracted” exception only applies to “mature debts.”Continue Reading Second Circuit Addresses Hybrid Convertible Securities and the “Debt Previously Contracted” Exceptions to Section 16(b) of the Securities Exchange Act of 1934

In Dixon v. Cost Plus, Inc., No. 12-2721, 2012 U.S. Dist. LEXIS 90854 (N.D. Cal. Jun. 27, 2012), the United States District Court for the Northern District of California held that Section 1312(a) of the California Corporations Code precluded plaintiff-minority shareholder’s breach of fiduciary duty claim to the extent that the claim relied upon arguments that a proposed merger price was unfair, or that the process employed by the board of directors was inadequate. Nonetheless, the court noted a “recognized exception” to this bar for challenges based upon “the question of an insufficient vote to authorize a merger or consolidation.” In so holding, the court upheld a “unique” California statute which limits the availability of relief for allegations that directors breached their fiduciary obligations in agreeing to merger terms and in the process engaged in self-dealing and other breaches of duty, while also noting an exception to the general bar.Continue Reading California Federal District Court Holds That Section 1312(a) of the California Corporations Code Provides the Exclusive Remedy For Minority Shareholders Seeking to Challenge a Proposed Merger

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) for adopting regulations required by section 952 of the Reform Act, the Securities and Exchange Commission (the “SEC”) on June 20, 2012 issued a press release and published final rules (Release No. 33-9330) (the “Final Rules”) for compensation committee and compensation adviser independence requirements.Continue Reading SEC Adopts New Rules Calling For Greater Independence Standards For Compensation Committees And Their Advisers

In Securities & Exchange Commission v. Goble, 2012 WL 1918819 (11th Cir. May 29, 2012), the United States Court of Appeals for the Eleventh Circuit held that the recording of a sham transaction in the corporate books did not constitute “securities fraud” in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Securities & Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5, because “a misrepresentation that would only influence an individual’s choice of broker-dealers cannot form the basis for § 10(b) securities fraud liability.” In so holding, the Eleventh Circuit declined “the SEC’s invitation to expand [the] definition of materiality” to capture the misrepresentation.Continue Reading Eleventh Circuit Reverses In Part Securities Fraud Judgment Against Clearing Broker in an Action Brought by the SEC

In City of Omaha v. CBS Corp., No. 11-2575, 2012 U.S. App. LEXIS 9535 (2d Cir. May 10, 2012), the United States Court of Appeals for the Second Circuit reaffirmed its decision in Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011) [see our prior blog article here], which held that statements regarding goodwill and loan loss reserves were “opinions” that could only be actionable under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities & Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder, if defendants did not genuinely believe the statements to be true at the time they were made. Separately, the Court also held that plaintiffs’ complaint did not sufficiently allege reliance upon a fraudulently inflated price where the alleged “red flags” purportedly indicating the need for earlier review of CBS’ goodwill were matters of public knowledge and thus were already incorporated into the price of the stock. This decision is notable for its recognition that the presumption that publicly available information, if material, necessarily affects the price of an efficiently traded stock, which typically is used by plaintiffs to support securities fraud complaints, can also be used by defendants to defeat securities fraud complaints.Continue Reading Second Circuit Affirms Dismissal of Securities Class Action Against CBS Due to Plaintiffs’ Failure to Plead Scienter and Reliance