On October 18, 2010, the Securities and Exchange Commission (“SEC”) released proposed rules that would implement additional disclosure requirements for certain institutional investment managers to report, at least annually, how they voted on the following executive compensation matters: (i) say-on-executive-pay, (ii) frequency of say-on-executive-pay, and (iii) say on golden parachute arrangements.  The proposed rules are required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  This blogpost sets forth the background of the proposed new rules, the investment managers that would be subject to the new rules, how the proposed disclosure obligations expand existing disclosure obligations, whether confidential treatment can be obtained, when the changes will become effective and next steps.
 Continue Reading SEC’s Proposed New Reporting Rules for Institutional Investment Managers

In Affco Investments 2001 LLC v. Proskauer Rose L.L.P., No. 09-20734, 2010 WL 4226685 (5th Cir. Oct. 27, 2010), the United States Court of Appeals for the Fifth Circuit held that a law firm which allegedly assisted in developing a fraudulent tax shelter scheme could not be held liable 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, for conduct and statements not explicitly attributed to it. In the absence of such express attribution, the Court held, the investor plaintiffs could not demonstrate reliance upon the law firm in deciding whether to invest. This decision echoes a recent, similar ruling by the Second Circuit establishing a “bright line” rule limiting liability of secondary actors only to instances where conduct or statements are expressly attributed to them.Continue Reading Fifth Circuit Rejects Section 10(b) Scheme Liability in Absence of Explicit Attribution of Conduct or Statements to Defendant

In Lambrecht v. O’Neal, No. 135, 2010, 2010 WL 3397451 (Del. Aug. 27, 2010), the Supreme Court of Delaware answered a certified question of Delaware law from the United States District Court for the Southern District of New York regarding the standing of a plaintiff-shareholder of a parent corporation to bring a “double derivative” action following a merger. The Court held that plaintiffs who were pre-merger shareholders in an acquired company and who, by virtue of a stock-for-stock merger, are current shareholders of a post-merger parent company need not demonstrate for purposes of standing that, at the time of the alleged wrongdoing at the acquired company, (1) they owned stock in the acquiring company, and (2) the acquiring company owned stock in the acquired company.  In so holding, the Court clarified the law allowing for the possibility of double derivative claims where standard derivative claims are extinguished by an intervening merger.
 Continue Reading Delaware Supreme Court Clarifies Law Regarding Standing Of Plaintiff-Shareholders To Bring A Post-Merger Double Derivative Action

In Office Depot, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., No. 09-80554-CIV-MARRA, 2010 WL 4065416 (S.D. Fla. Oct. 15, 2010), the United States District Court for the Southern District of Florida recently concluded that Office Depot, Inc. (“Office Depot” or the “Company”) could not recover $23 million in attorneys’ fees and costs incurred in voluntarily responding to a Securities & Exchange Commission (“SEC”) investigation and in conducting an internal investigation and audit. The court held that these fees and costs did not fall within the policy’s definition of loss “arising from” a covered “Securities Claim” made against the Company or a covered “Claim” made against one of its officers, directors or employees. Companies with policy language similar to that in Office Depot thus take a calculated risk, when committing resources towards voluntary cooperation with the SEC or an internal investigation, that insurance coverage for the attorneys’ fees or costs incurred will not be available.
 Continue Reading District Court Holds No D&O Insurance Coverage For Attorneys’ Fees And Costs Incurred In Voluntary Response To SEC Investigation

In Kirschner v. KPMG LLP, 2010 NY Slip Op. 07415, 2010 WL 4116609 (N.Y. Oct. 21, 2010), a majority of the New York Court of Appeals declined to expand liability of outside professional service providers who allegedly failed to detect or stop corporate wrongdoing. Through the interplay of two legal principles soundly “embedded in New York law” — namely, the “in pari delicto” defense and the “adverse interest” exception to the general rule that corporate executives’ wrongdoing is imputed to the corporation — the Court rejected attempts by investors to recoup some of their investment losses from the issuers’ outside auditors. If the dissent is to be believed, this decision “effectively immunizes auditors and other outside professionals from liability wherever any corporate insider engages in fraud.”
 Continue Reading New York’s High Court Rejects Attempts To Expand Liability Of Outside Professional Service Providers For Failing To Detect Corporate Fraud

In City of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., 1 A.3d 281 (Del. 2010), the Delaware Supreme Court affirmed the dismissal of an action brought under Section 220 of the Delaware General Corporation Law, 8 Del. Code § 220, to review books and records of a corporation. The Court of Chancery had dismissed the action on the ground that plaintiff failed to present “some evidence” suggesting a “credible basis” from which the court could infer a “proper purpose” for the review, such as possible wrongdoing or mismanagement. The decision offers enhanced guidance on the “proper purpose” test, particularly with respect to corporations that follow “plurality plus” governance policies.
 Continue Reading Delaware Supreme Court Requires Credible Evidence Of A “Proper Purpose” To Review A Corporation’s Books And Records