New York partner Lois Herzeca is the author of "Social Media and the Federal Securities Laws" [PDF] published in the April 4, 2011 issue of BNA’s Securities Regulation & Law Report.
Securities Regulation
SEC Proposes to Readopt Existing Beneficial Ownership Rules as They Apply to Swaps
Last week the U.S. Securities and Exchange Commission (the "SEC") proposed to maintain–for now, at least–the current reporting rules under Sections 13(d) and 16 of the Securities Exchange Act of 1934 (the "Exchange Act") as they apply to security-based swap transactions. The SEC issued the proposal to preempt any uncertainty that may arise when Section 13(o)–which was added to the Exchange Act by Section 766 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")–becomes effective on July 16, 2011. Specifically, because new Section 13(o) may require the SEC to adopt new rules to regulate security-based swaps, the SEC has proposed readopting the portions of Rules 13d-3 and 16a-1 that apply to security-based swaps to maintain the regulatory status quo. The SEC’s proposed rules are the same as the existing rules in all respects.
SEC Targets Directors Who Ignore Red Flags
In the past two weeks, the U.S. Securities and Exchange Commission (“Commission”) announced enforcement actions against four independent directors at two publicly traded companies. While these actions reflect the Commission’s interest in bringing actions against these types of directors, they are consistent with the Commission’s historical practice of pursuing cases against independent directors only when it believes that they personally have engaged in violative conduct or have repeatedly ignored significant red flags One of the actions was brought as an administrative proceeding instead of as a complaint in federal court and illustrates how the Commission will choose to use some of its new enforcement powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).
Germany to Ban “Stealth Takeover” Strategies
On February 11, 2011, the German Parliament approved the bill for the so-called "Investor Protection and Capital Markets Improvement Act" (Anlegerschutz- und Funktionsverbesserungsgesetz) which is part of the ongoing legislative activity responding to the financial crisis. The bill is now referred to the second chamber of the Parliament and is expected to enter into force in April.
U.S. SEC Extends the Customer Identification Program No-Action Letter for Broker-Dealers and Changes the Terms
On January 11, 2011, the U.S. Securities and Exchange Commission ("SEC"), in consultation with the Department of the Treasury, Financial Crimes Enforcement Network ("FinCEN"), again extended the Bank Secrecy Act ("BSA") Customer Identification Program ("CIP") no-action letter (initially issued in 2004) relating to broker-dealer reliance on SEC registered investment advisers ("RIAs"). As previously, the extension was granted at the request of the Securities Industry and Financial Markets Association ("SIFMA").
The SEC Begins to Part Ways with Credit Ratings Pursuant to Dodd-Frank Stricture
On February 9, 2011, the Securities and Exchange Commission ("SEC") proposed to amend the SEC’s rules to eliminate credit rating as one of the "transaction requirement" criteria by which an issuer can qualify for the short-form registration process, most notably under Forms S-3 and F-3. Originally proposed in 2008, similar amendments were the subject of extensive, largely negative, comments and were not adopted at that time. Section 939A of the Dodd-Frank Act now requires the SEC to replace any reference to or reliance upon credit ratings with an appropriate alternative standard of credit-worthiness, and the 2008 proposals have thus been resurrected. We expect the proposed amendments, if adopted, will have a relatively limited impact on most companies that are frequent issuers. The proposals will likely affect those issuers with no publicly held common equity that historically have relied upon their investment-grade credit rating to qualify for short-form registration.
The Dodd-Frank Act: Application of Heightened Bank-Like Supervision and Regulation to Systemically Significant Financial Companies
Enacted on July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") comprehensively reforms and restructures the U.S. financial regulatory system. As part of this effort, Title I of the Act establishes the new Financial Stability Oversight Council (the "Council"). The Council’s purposes include: (i) identifying risks and responding to emerging threats to the financial stability of the United States and its financial system; and (ii) promoting market discipline by ending government loss shielding of shareholders, creditors and counterparties (that is, eliminating the concept of "too big to fail").
2010 Year-End Securities Enforcement Update
I. Overview of 2010
The year 2010 has been a watershed year for securities enforcement. The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the SEC additional enforcement powers, while also bringing additional market participants under SEC registration and potentially elevating the standards of conduct for other securities professionals. At the same time, the SEC, working closely with criminal prosecutors, continued to pursue insider trading investigations based on recorded conversations and cooperating witnesses. In addition, the reorganization of the Enforcement Division into specialized units has started to yield enforcement actions in areas of priority. By all accounts, the heightened enforcement reflected this year will continue for the foreseeable future, putting a premium on the ability of in-house compliance programs to adapt to the changing regulatory landscape.
SEC Proposes Disclosure Rules for Conflict Minerals, Mine Safety and Payments by Resource Extraction Issuers
On December 15, 2010, the Securities and Exchange Commission (the "SEC") proposed rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") relating to: (1) conflict minerals; (2) mine safety matters; and (3) resource extraction issuer payments to governments. Each of the proposed rules was approved by the SEC without questions. Comments on the proposed rules must be submitted to the SEC by January 31, 2011.
UK Government Publishes Consultation Paper on Proposed New Regulatory Landscape
In a previous alert published in July, The UK’s Blueprint for Financial Regulation, we looked at the UK Government’s proposals for an overhaul of the UK financial regulatory infrastructure. These proposals were issued upon the initiation of the new Government, aimed at addressing a systemic failure in the UK domestic regime to recognise and respond in a timely and adequate manner to the global financial crisis.