In July 2010, NASDAQ OMX began permitting companies applying for listing in US markets to submit Listing Applications via its online Listing Center, moving toward its stated goal of migrating all paper-based forms to its electronic platform. Currently the Listing Center supports the electronic submission of Listing Applications and Listing of Additional Shares Notifications. The Listing Center also allows the upload of any supporting documentation, including completed Listing Agreements and Corporate Governance Certification Forms.  On January 24, 2011, NASDAQ announced that the Listing Center now supports the electronic submission of Rule Interpretation Requests, as well.
 Continue Reading SMRH ALERT: NASDAQ Moves Toward Mandatory Electronic Filing

On January 25, 2011, the SEC proposed new amendments to conform the definition of “accredited investor” under Rule 215 of the Securities Act of 1933 and Rule 501 of Regulation D to requirements imposed by Congress under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Various exemptions for private or other limited offerings of securities under the Securities Act of 1933 and state “blue sky” laws depend on whether participants are “accredited investors.” Non-accredited investors who participate in private offerings under Rule 505 or Rule 506 of Regulation D must receive financial and other information that is not required to be given to accredited investors.
 Continue Reading SEC Proposes Amendments To Reflect Dodd-Frank’s Definition Of “Accredited Investor”

In King v. VeriFone Holdings, Inc., No. 330, 2010, 2011 WL 284966 (Del. Jan. 28, 2011), the Supreme Court of the State of Delaware reversed a decision by the Court of Chancery dismissing a derivative plaintiff’s action under Section 220 of the Delaware General Corporation Law seeking books and records of a Delaware corporation. The Supreme Court held that the Chancery Court erred as a matter of law when it held that the purpose of plaintiff’s demand to inspect books and records — to assist in bolstering demand futility allegations in a parallel shareholder derivative complaint filed in a California federal court — was improper. The Supreme Court explained that although the plaintiff’s simultaneous pursuit of a derivative action and a Section 220 books and records action was perhaps ill advised, it was not impermissible under prevailing Delaware law.
 Continue Reading Delaware Supreme Court Reverses Chancery Court Dismissal Of Derivative Plaintiff’s Section 220 Books And Records Action

In In re InterBank Funding Corp. Securities Litigation, No. 09-7167, — F.3d —-, 2010 WL 5299882 (D.C. Cir. Dec. 28, 2010), the United States Court of Appeals for the District of Columbia Circuit affirmed the dismissal with prejudice of a class action asserting securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, based upon a failure to adequately plead the essential element of reliance. The sole issue before the Court was whether the fraud allegations in the complaint involved material omissions, which would allow plaintiffs to invoke the presumption of reliance established by the United States Supreme Court in Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972). In affirming the district court’s decision, the Court held that the complaint’s allegations of fraud focused primarily on affirmative misrepresentations, not omissions, and thus did not qualify for the Affiliated Ute presumption of reliance.
 Continue Reading District Of Columbia Circuit Holds That Certifications In Financial Statements Do Not Constitute Omissions That Qualify For A Presumption Of Reliance In Fraud Claims Under Rule 10b-5

In Dronsejko v. Grant Thornton, Nos. 09-4222 and 10-4074, U.S. App. LEXIS 1052 (10th Cir. Jan. 20, 2011), the United States Court of Appeals for the Tenth Circuit affirmed a decision by the United States District Court for the District of Utah dismissing a securities fraud class action brought by investors in iMergent against its independent auditor, Grant Thornton. The district court held that the operative complaint failed to plead particularized facts sufficient to give rise to a strong inference that Grant Thornton possessed the scienter required to support liability under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiffs also sought relief from the dismissal under Rule 60(b) of the Federal Rules of Civil Procedure, asserting that subsequent orders by the Public Company Accounting Oversight Board (“PCAOB”) issuing sanctions against two Grant Thornton auditors for their conduct in auditing iMergent’s financial statements added new evidence to their claims. The district court denied plaintiffs’ Rule 60(b) motion. The Tenth Circuit affirmed both decisions, reiterating the high standards for pleading a securities fraud claim against an independent auditor.
 Continue Reading Tenth Circuit Affirms High Standard For Scienter Pleading In Securities Fraud Cases Against Independent Auditors

General counsel often do not receive notices from tax agencies. These notices generally go to the financial officer’s departments or to whomever handles taxes.

Notices from the Internal Revenue Service generally get attention, but notices from state or local agencies often get ignored because the amounts are small or the recipient does not think that the company has nexus (sufficient contacts) in the state to be subject to tax.
 Continue Reading General Counsel and State Tax Notices

In Golden Telecom, Inc. v. Global GT LP, 2010 WL 5387589 (Del. Dec. 29, 2010), the Delaware Supreme Court affirmed a judgment of the Delaware Chancery Court in an appraisal proceeding under Section 262(h) of the Delaware General Corporation Law (“DGCL”). Section 262(h) provides that in the event of a merger, a stockholder of a Delaware corporation is entitled to an independent appraisal proceeding regarding the “fair value” of its outstanding shares. In affirming the Chancery Court, the Supreme Court declined to adopt two bright line rules for appraisal proceedings under Section 262(h). First, it rejected the notion that the Chancery Court must consider the merger price agreed to by the parties following arm’s-length negotiations and fair process as necessarily reflecting the “fair value” of the corporation’s shares. Second, it rejected the assertion that a corporation is bound by company-specific data included in its fairness opinion in arriving at a “fair value” under Section 262(h). This decision confirms that the Chancery Court has great flexibility, and is entitled to great deference, in conducting its independent appraisal of the value of a merger target under Section 262(h).
 Continue Reading Delaware Supreme Court Holds That Chancery Court Is Not Bound By Merger Price Or Fairness Opinion In Appraisal Proceedings Under Delaware General Corporate Law Section 262(h)

In Viterbi v. Wasserman, 2011 Cal. App. LEXIS 25 (Cal. App. Jan. 11, 2011), the Court of Appeal for the Fourth Appellate District of the State of California affirmed the judgment of the Superior Court of San Diego County holding that privity between the purchaser and seller of a security is necessary to maintain an action for rescission under Sections 25504 and 25504.1 of the California Corporations Code. This decision, which follows persuasive authority in the federal courts construing analogous federal law, confirms the limits of the remedy of rescission under the California Corporations Code.
 Continue Reading California Court Of Appeal Holds That Privity Of Contract Is Necessary To Maintain An Action For Rescission Under California Corporations Code Sections 25504 And 25504.1

NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective year-end assessments of securities litigation for 2010. (Their findings and analyses are summarized…

Continue Reading 2010 Year-End Securities Litigation Reports Show a Second Half Increase In New Class Action Filings, With Merger Cases Spiking

Included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 signed into law on December 17, 2010, a tax incentive relating to qualified small business stock ("QSBS") was extended for another twelve months.  Pursuant to this extension, noncorporate taxpayers are allowed to exclude all (100%) of their gain from the sale or exchange of  QSBS (subject to  a variety of special rules), provided that the stock is acquired after September 27, 2010 and before January 1, 2012.  The gain exclusion provision only applies to QSBS held for more than five years.  The amount of gain from the sale of QSBS that can be excluded by a taxpayer is generally limited to the greater of $10,000,000 (in the aggregate) or 10 times the tax basis of the QSBS sold.  Generally speaking, and with a few exceptions, QSBS must be acquired when it is issued in exchange for money, property (other than stock) or services.
Continue Reading Extension of 100% Gain Exclusion for Qualified Small Business Stock