Just before 2011 year-end, the SEC adopted final rules first proposed in January 2011 to exclude the value of an investor’s home when determining if an investor meets the net worth test for an accredited investor. A person’s status as an accredited investor affects eligibility, sophistication and information requirements for certain unregistered securities offerings. The final rules differ from the proposed rules by addressing home equity indebtedness incurred in the 60 days prior to an offering, and by grandfathering securities purchase rights held prior to enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").Continue Reading Regulatory Update: SEC Adopts Final Rules Defining “Accredited Investor” Consistent with Dodd-Frank

In Assured Guaranty (UK) Ltd. v. J. P. Morgan Investment Management Inc., 2011 N.Y. Slip Op. 09162, 2011 WL 6338898 (N.Y. Dec. 20, 2011), the New York Court of Appeals held that the Martin Act, N.Y. Gen. Bus. Law art. 23-A — New York’s “blue sky” law designed to address fraudulent practices in the marketing of securities — does not preempt common law causes of action for breach of fiduciary duty and gross negligence in connection with the marketing or sale of securities, even if the alleged wrongdoing also would fall within the purview of the Martin Act. This decision thus eliminates a defense to New York common law causes of action relating to securities.Continue Reading New York High Court Holds That State Blue Sky Law Does Not Preempt Common Law Claims Involving Securities

In Espinoza v. Hewlett-Packard Co., No. 208, 2011 WL 5838882 (Del. Nov. 21, 2011), the Delaware Supreme Court held that shareholders seeking inspection of corporate books and records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220 (“Section 220”), must demonstrate that the records sought are “essential” to the “articulated purpose for the inspection.” In so holding, the Delaware Supreme Court affirmed the Delaware Court of Chancery’s holding that a report prepared in connection with an internal investigation into sexual harassment allegations made against Hewlett-Packard’s (“HP”) former Chief Executive Officer was not “essential” to plaintiff’s “articulated purpose for the inspection.” The decision provides insight into the limits of corporate documents a shareholder may obtain pursuant to a Section 220 demand and the proper legal analysis for determining whether a shareholder is within his or her right to inspect such documents.
 Continue Reading Delaware Supreme Court Clarifies Scope of Relief A Shareholder Is Entitled For Inspection Of Corporate Books And Records Pursuant To A Section 220 Demand

In Sarei v. Rio Tinto, PLC, Nos. 02-56256, 02-56390, 09-56381, 2011 WL 5041927 (9th Cir. Oct. 25, 2011), the United States Court of Appeals for the Ninth Circuit became the latest Circuit to hold that corporations may be held liable under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350. As previously reported here and here, the Second Circuit held last year in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010), that the scope of liability under the ATS does not extend to corporations because imposing liability on corporations for violations of the law of nations has not achieved a sufficiently “specific, universal, and obligatory” character so as to be considered a norm of customary international law. In Sarei, the Ninth Circuit joined the District of Columbia Circuit, the Seventh Circuit and the Eleventh Circuit in reaching the opposite conclusion. The current circuit split will be resolved by the United States Supreme Court, which granted certiorari to Kiobel on October 17, 2011.Continue Reading Ninth Circuit Latest to Permit Corporate Liability Under Alien Tort Statute; Supreme Court to Resolve Circuit Split in 2012

As we noted in a previous post, on January 1, 2012, the California Transparency in Supply Chains Act of 2010 (the "Act") will become effective. This legislation will require every large retailer and manufacturer doing business in California to publicly disclose whether it has taken specified actions to eliminate slavery and human trafficking from its product supply chain. The Act does not require a company to make any effort to eliminate slavery or human trafficking, but only to disclose the extent, if any, to which it has taken the actions listed in the Act. The impact of the Act ultimately will depend on the extent to which consumers, investors and activists use the required disclosure to pressure companies to monitor and eliminate abuses in their supply chains. On August 1, 2011, federal legislation modeled on the Act was introduced.Continue Reading California Transparency in Supply Chains Act

On September 21, 2011, the IRS announced (in Announcement 2011-64) a new program that will allow employers to resolve their worker classification problems at a relatively low cost. This new Voluntary Classification Settlement Program (VCSP) is available to businesses that erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees. Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year (technically, the employer will pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under reduced rates). The employer will not be audited on payroll taxes related to these workers for prior years, and will not be subject to interest or penalties. To participate in the program, the employer must meet certain eligibility requirements, apply to participate in the VCSP, and enter into a closing agreement with the IRS.Continue Reading IRS Launches Voluntary Worker Reclassification Program

On January 1, 2012, the California Transparency in Supply Chains Act of 2010 will become effective. This legislation will require every large retailer and manufacturer doing business in California to publicly disclose whether it has taken specified actions to eliminate slavery and human trafficking from its product supply chain. The Act does not require a company to make any effort to eliminate slavery or human trafficking, but only to disclose the extent, if any, to which it has taken the actions listed in the Act. The impact of the Act ultimately will depend on whether consumers, investors and activists use the required disclosure to pressure companies to monitor and eliminate abuses in their supply chains. California Civil Code Section 1714.43(a).
 Continue Reading Compliance Deadline Looms for New Transparency in Supply Chains Act

In The Bank of New York Mellon Trust Co., N.A., v. Liberty Media Corp., No. 284, 2011 WL 4376552 (Del. Sept. 21, 2011), the Delaware Supreme Court held that Liberty Media Corp’s proposed split-off was not sufficiently connected to previous transactions to warrant aggregation of both the proposed and previous transactions, and thus the proposed split-off did not constitute a sale of "substantially all" of its assets. Bond indentures issued by corporate borrowers typically contain a covenant that the issuer will not sell "all or substantially all" of its assets without the substitution of the purchaser as successor obligor or without otherwise causing a default and acceleration. This landmark ruling should allow corporate issuers accessing the debt capital markets greater flexibility to manage assets and dealmakers’ increased clarity in interpreting a standard indenture provision.
 Continue Reading Delaware Supreme Court Clarifies When a Series of Dispositions will not Trigger an “All or Substantially All” Indenture Covenant

In In re Washington Mutual, Inc., No. 08-12229 (MFW), 2011 WL 4090757 (Bankr. D. Del. Sept. 13, 2011), the United States Bankruptcy Court for the District of Delaware denied confirmation of debtor Washington Mutual, Inc.’s (“WaMu”) plan of reorganization.  Standing in the way of confirmation was the equity committee’s motion for leave to file an adversary proceeding against four noteholding hedge funds because of insider trading. The bankruptcy court, in granting the motion, provided guidance to participants in bankruptcy proceedings who might be inclined to purchase or sell stock on information gleaned through the bankruptcy process.
 Continue Reading How to Turn a Bankruptcy Reorganization Into an Insider Trading Charge