The SEC has responded to concerns about balance sheet “window dressing” and other perceived liquidity disclosure problems with an interpretive release regarding MD&A liquidity and capital resources disclosure and proposed new rules that would require detailed MD&A disclosure on short-term borrowing arrangements.
 Continue Reading SEC’S INTERPRETIVE MD&A GUIDANCE ON LIQUIDITY AND CAPITAL RESOURCES AND PROPOSED NEW RULES ON SHORT-TERM BORROWING DISCLOSURE

In Cohen v. Viray, 2010 WL 3785243 (2d Cir. Sept. 30, 2010), the United States Court of Appeals for the Second Circuit held that no private right of action exists under Section 304 of the Sarbanes Oxley Act, 15 U.S.C. § 7243 (“Section 304”), to recover from chief executive officers (“CEOs”) and chief financial officers (“CFOs”) any bonus or similar compensation, or any profits realized from stock sales, they may have received during the twelve-month period prior to a restatement of company financial statements due to misconduct. The Second Circuit concluded further that because only the Securities & Exchange Commission (“SEC”) may enforce Section 304, a settlement agreement between a shareholder derivative plaintiff and a CEO and CFO may not purport to indemnify or release those senior corporate executives from liability under Section 304. This decision follows that of the Ninth Circuit on the question of whether a private right of action exists under Section 304.
 Continue Reading Second Circuit Holds That No Private Right Of Action Exists Under Section 304 Of The Sarbanes-Oxley Act

In Favila v. Katten Muchin Rosenman LLP, 188 Cal. App. 4th 189 (2d Dist. 2010), the California Court of Appeal reversed the trial court’s denial of plaintiff’s motion for leave to amend its complaint and dismissal of plaintiff’s derivative action, holding, in part, that a shareholder’s estate may maintain a derivative action on behalf of a corporation even after the corporation has been dissolved. The holding clarifies that although a corporation is dissolved, it continues to exist for the purpose of winding up its affairs, and its shareholders retain the right to bring shareholder derivative actions.
 Continue Reading California Court Of Appeal Holds That Shareholders Have Standing To Pursue Derivative Actions After Dissolution Of A Corporation

On October 4, 2010, the Securities and Exchange Commission exercised its discretion to grant a stay of its controversial new proxy access rules and related amendments that were scheduled to take effect on November 15, 2010. As we previously blogged (see our posts here and here), the SEC’s disputed proxy access rules would grant shareholders who have held three percent (3%) of the outstanding stock of a company for at least three (3) years the right to include a limited number of director nominees in the company’s proxy statement. For many companies, the stay could effectively delay implementation of the new proxy access rules for the upcoming 2011 proxy season. The order granting the stay can be found here.
 Continue Reading SEC Stays New Proxy Access Rules

In Kiobel v. Royal Dutch Petroleum Co., Nos. 06-4800-CV, 06-4876-CV, 2010 WL 3611392 (2d Cir. Sept. 17, 2010), the United States Court of Appeals for the Second Circuit dismissed claims by Nigerian citizens against various multinational oil producers under the Alien Tort Statute, 28 U.S.C. § 1350 (“ATS”), alleging that the corporate defendants aided and abetted human rights violations by the Nigerian military. The Court held that the ATS does not provide federal subject matter jurisdiction for claims against corporations. In so holding, the Court reasoned that the scope of liability under the ATS is defined by international law, and that international law does not yet recognize the concept of corporate tort liability.
 Continue Reading Second Circuit Holds That Corporations Cannot Be Held Liable For Claims Brought Under The Alien Tort Statute

Today, Business Roundtable and the Chamber of Commerce of the United States filed a Petition for Review in the U.S. Court of Appeals for the District of Columbia Circuit challenging the legality of the SEC’s recently-adopted proxy access rules (See our blog posts here and here.) The proxy access rules grant shareholders who have held three percent (3%) of the outstanding stock of a company for at least three (3) years the right to include a limited number of director nominees in the company’s proxy statement.Continue Reading ALERT: Legal Challenge To SEC’s Recently Adopted Proxy Access Rules

In Iowa Public Employees’ Retirement System v. MF Global, Ltd., No. 09-3919, 2010 WL 3547602 (2d Cir. Sept. 14, 2010), the United States Court of Appeals for the Second Circuit vacated the dismissal of plaintiffs’ securities fraud claims and remanded the case to the district court, holding that the district court applied the “bespeaks caution” doctrine erroneously to statements that contained both present and future elements.  This decision provides guidance as well to the application in the Second Circuit of the safe harbor for forward-looking statements established under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), 15 U.S.C. § 78u-5.
 Continue Reading Second Circuit Rejects Application Of “Bespeaks Caution” Doctrine To Statement Containing Both Historical And Forward-Looking Elements

A number of domestic jurisdictions (Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah and Puerto Rico) have enacted "series LLC" statutes, which provide for the creation of limited liability companies (LLCs) with separate "series."  Although such statutes generally do not treat each series as a separate entity for state law purposes, the association of members with one or more particular series is similar to direct ownership in that series, in that the terms of such members’ rights, duties, and powers with respect to such series are specifically identified.  Series LLC statutes also typically provide that the debts, liabilities and obligations of one series generally are enforceable only against the assets of that series and not against assets of other series or of the series LLC.
 Continue Reading IRS Guidance on Series LLCs

In Malack v. BDO Seidman, LLP, No. 09-4475, 2010 WL 3211088 (3d Cir. Aug. 16, 2010), the United States Court of Appeals for the Third Circuit declined to recognize a presumption of reliance based upon the so-called “fraud-created-the-market” theory to state a claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and, consequently, satisfy the predominance requirement of Federal Rule of Civil Procedure 23(b)(3) for certifying a class. In so holding, the Third Circuit followed the Seventh Circuit and the recent trend of federal courts to narrow and limit Section 10(b) liability to its current contours.
 Continue Reading Third Circuit Rejects The “Fraud-Created-The-Market” Theory Of Reliance In A Section 10(b) Private Securities Fraud Action