On October 13, 2011, the staff of the Securities and Exchange Commission ("SEC") released disclosure guidance regarding public company disclosure obligations relating to cybersecurity risks and cyber incidents (the "Disclosure Guidance")."[1] The Disclosure Guidance reviews specific SEC disclosure rules that may require public companies to describe cybersecurity matters and provides SEC staff guidance on what type of disclosure, if any, may be necessary in light of a company’s particular facts and circumstances. The Disclosure Guidance is available at http://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm. Cybersecurity is only the second topic to be addressed in the Division of Corporation Finance’s new Disclosure Guidance publications.Background
Delaware Court of Chancery Issues Important Guidance for Special Committees Negotiating M&A Transactions with Controlling Stockholders
On October 14, 2011, Chancellor Strine of the Court of Chancery of the State of Delaware issued a decision in In re Southern Peru Copper Corp. Shareholder Derivative Litig., C.A. No. 961-CS. In the 105-page decision, Chancellor Strine ultimately found that the controlling stockholder defendants had breached their fiduciary duty of loyalty and awarded damages of over $1.2 billion, which may be paid by the controlling stockholder by returning some of the stock consideration received from the controlled company in the transaction. The decision provides important guidance for companies engaging in M&A transactions with their controlling stockholders.
Observations on Key Corporate Governance Impacts of Dodd-Frank
Washington, D.C. partner John F. Olson is the author of "Observations on Key Corporate Governance Impacts of Dodd-Frank" [PDF] published in the September issue of U.S. News’s Best Lawyers "BEST LAW FIRMS’ 2010.
California Amends Corporations Code to Liberalize and Streamline Legal Standards for Corporate Distributions and Dividends
On September 1, 2011, the Governor of California signed into law California Assembly Bill No. 571 (“AB 571”), which will liberalize and streamline the legal standards for California corporations and quasi-California corporations to make cash and property distributions to shareholders, including dividends and share repurchases and redemptions. AB 571 amends portions of the California Corporations Code (the “Code”) limiting corporate distributions that have been in effect since 1977, which many lawyers and clients have found confusing and overly restrictive. The new law will make California’s restrictions on shareholder distributions more consistent with analogous restrictions applicable to California limited liability companies and limited partnerships and the corporate laws of most other states. With AB 571, boards of directors of corporations will be free to consider the fair market value of a corporation’s assets, instead of historical carrying cost, and rely on whatever financial information a board deems reasonable under the circumstances, when determining whether the corporation has sufficient assets relative to its liabilities to distribute cash or property to its shareholders. This change alone will make it significantly easier for financially healthy corporations with historical book losses and appreciated assets (as is common with many growth companies) to pay dividends or redeem or repurchase shares.
Public Company Accounting Oversight Board Considers Mandatory Audit Firm Rotation
On August 16, 2011, the Public Company Accounting Oversight Board (“PCAOB”) issued a Concept Release on Auditor Independence and Audit Firm Rotation (“Concept Release”). The Concept Release, available at http://pcaobus.org/Rules/Rulemaking/Docket037/Release_2011-006.pdf, solicits public comment on steps it could take under its existing authority to enhance auditor independence, objectivity, and professional skepticism, including, most notably, imposing for the first time mandatory audit firm rotation on public companies.
The SEC’s Final Whistleblower Rules: The Floodgates Open on a New Wave of Whistleblower Claims, as the SEC Authorizes Massive Bounties to Anonymous Tipsters
New York partner Jonathan C. Dickey and associate Brian M. Lutz are authors of “The SEC’s Final Whistleblower Rules: The Floodgates Open on a New Wave of Whistleblower Claims, as the SEC Authorizes Massive Bounties to Anonymous Tipsters” [PDF] published in the July/August 2011 issue of Thomson Reuters’ Securities Litigation Report.
The Securities and Exchange Board of India Once Again Takes the View That Put/Call Options Are Unenforceable under Indian Law
In a letter dated May 23, 2011, the Securities and Exchange Board of India (“SEBI”, and such letter, the “SEBI Letter”) took the view that put/call options governing the shares of an Indian public listed company are unenforceable. This is consistent with the view SEBI had taken previously, in an unpublished letter dated March 18, 2011, issued in connection with the proposed acquisition by UK based Vedanta Resources Plc. (an English company) and others of a majority stake in Cairn India Limited.[1]
SEC Adopts New Rules to Replace Use of Credit Ratings in Short-Form Eligibility Criteria
On July 26, 2011, the Securities and Exchange Commission ("SEC") adopted new rules to eliminate an issuer’s credit rating as one of the "transaction requirement" criteria by which an issuer can qualify for the short-form registration process on Forms S-3 and F-3. The new rules correspondingly modify Forms S-4 and F-4 to the extent that these forms reference the amended contents of Forms S-3 and F-3. The SEC also adopted conforming amendments to Rules 134, 138, 139 and 168 to remove the safe harbor for including credit ratings in communications by issuers and broker/dealers. The new rules were adopted pursuant to Section 939A of the Dodd‑Frank Act ("Dodd-Frank"), which requires the SEC to modify its regulations to "remove any reference to or requirement of reliance on credit ratings and to substitute in such regulations such standard of credit-worthiness" as the SEC deems appropriate.
The Extraterritorial Application of the Dodd-Frank Whistleblower Provisions
Washington, D.C. partner Jason Schwartz and associate Thomas Johnson are the authors of "The Extraterritorial Application of the Dodd-Frank Whistleblower Provisions" [PDF] published in the August 2011 issue of ALM’s Law Journal Newsletters: Employment Law Strategist.
SEC Finalizes Investment Adviser Registration Exemptions and Grants Extension to New Registrants
New York partner Edward Nelson, Washington, D.C. partner C. William Thomas and New York associate Ebonie Hazle are the authors of "SEC Finalizes Investment Adviser Registration Exemptions and Grants Extension to New Registrants" [PDF] published in the August 1, 2011 issue of BNA’s Securities Regulation & Law Report.