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”).
The Model Business Corporation Act and Corporate Governance: An Enabling Statute Moves Toward Normative Standards
Washington, D.C. partner John Olson and associate Aaron Briggs are the authors of "The Model Business Corporation Act and Corporate Governance: An Enabling Statute Moves Toward Normative Standards" [PDF] published in the Winter 2011 issue of Law and Contemporary Problems.
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.
Delaware Chancery Court Upholds Airgas Poison Pill
On February 15, 2011, the Delaware Court of Chancery issued an important opinion upholding the continued vitality of the poison pill as an appropriate defensive measure for companies faced with takeover proposals deemed inadequate by the target’s board of directors. Chancellor Chandler’s 158 page decision in Air Products & Chemicals, Inc. v. Airgas, Inc. C.A. No. 5249-CC (Del. Ch. 2011) held that the maintenance of a poison pill by the Airgas board of directors was a reasonable response to an all cash, non-coercive, $70 per share tender offer by market rival Air Products & Chemicals, Inc. Despite the fact that Air Products’ tender offer had been public for more than a year–during which time Air Products won a proxy contest to place three directors on Airgas’s staggered board–and that Airgas stockholders were sophisticated and well-informed, the Court concluded that the Airgas board "acted in good faith and in the honest belief" that the $70 per share offer was inadequate, and therefore did not breach a fiduciary duty by failing to redeem the company’s poison pill. The Court highlighted the fact that the independent directors appointed pursuant to Air Products’ successful proxy efforts "changed teams" once they were appointed to the Airgas board–that is, Air Products’ own nominees voted to maintain the poison pill that prevented the tender offer from going forward.
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.
SEC Adopts Say-on-Pay Rules
At an open meeting held on January 25, 2011, the Securities and Exchange Commission (“SEC”) voted to approve rules to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) relating to shareholder advisory votes on executive compensation (“say-on-pay”), shareholder advisory votes on the frequency of conducting say-on-pay votes (“say-on-frequency”) and shareholder advisory votes on compensation arrangements in connection with significant corporate transactions (“say-on-golden-parachutes”). The SEC did not address its proposed rules regarding disclosure by institutional investment managers of their votes on say-on-pay, say-on-frequency and say-on-golden-parachutes proposals but indicated at the open meeting that it will do so in the coming month. The final rules, adopted by a vote of 3 to 2, with Commissioners Casey and Paredes dissenting, were issued pursuant to Section 951 of the Dodd-Frank Act.
7th Annual Webcast Briefing on Challenges in Compliance and Corporate Governance
While compliance professionals struggle to balance developing, implementing and monitoring effective compliance programs with the reality of shrinking resources and budgets, the risks involved in non-compliance are higher than ever. Join our experienced securities law, corporate governance, white collar defense and investigations, and government contracts attorneys as they discuss practical approaches for avoiding potential pitfalls and developing strong compliance programs in today’s challenging environment.
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").