On 1 March, the UK Financial Services Authority ("FSA") published its new framework for financial penalty-setting. Explaining the tri-partite objectives of the new policy of deterrence, discipline and disgorgement, Margaret Cole (Director of Enforcement and Financial Crime) said:
Supreme Court Clarifies Standards for Judicial Review of Mutual Fund Fees
On March 30, 2010, the Supreme Court issued its decision in Jones v. Harris Associates L.P., No. 08-586. The Court construed Section 36(b) of the Investment Company Act of 1940, which states that investment advisers to mutual funds are deemed to have a fiduciary duty with respect to the receipt of compensation for services and provides a private cause of action for breach of that duty.
Financial Regulatory Reform: Chairman Dodd Releases New Legislation to Reform Financial Services Industry Regulation and Enhance Consumer Protection
Gibson Dunn is closely tracking government responses to the recent turmoil that has catalyzed a dramatic and rapid reshaping of our capital and credit markets. We are providing updates on key regulatory and legislative issues, as well as information on legal and oversight issues that we believe could prove useful as firms and other entities navigate these changing times.
Delaware Court of Chancery Validates Use of a Net Operating Loss Poison Pill
On February 26, 2010, the Court of Chancery of the State of Delaware issued an important opinion validating the use of a net operating loss (NOL) shareholder rights plan or poison pill.[1] The case, Selectica, Inc. v. Versata, Inc.,[2] arose out of the intentional triggering of Selectica’s NOL rights plan in December 2008 by its competitor Trilogy and Trilogy’s subsidiary, Versata Enterprises. The decision provides boards of directors of Delaware corporations with guidance as to the steps they should take in adopting and implementing an NOL rights plan. It also reflects Delaware courts’ continuing deference to well-informed boards that run a methodical and well-reasoned process, even in the face of the so-called Unocal enhanced standard of review.
SEC Amends E-Proxy Rules
The Securities and Exchange Commission ("SEC") recently approved amendments to its notice and access (e-proxy) rules that are designed to increase participation in the e-proxy process. Under the prior e-proxy rules, the SEC mandated the exact form and content that had to appear on the Notice of Internet Availability (the "Notice"). Concerns have been expressed that the Notice rules limited the ability of issuers to communicate effectively about the e-proxy process, which resulted in lower shareholder participation rates for e-proxy, particularly among retail investors.
Formula Pricing: “Day 20” Pricing Has Finally Arrived for Debt Tender Offers!
Orange County partner James Moloney is the author of “Formula Pricing: ‘Day 20’ Pricing Has Finally Arrived for Debt Tender Offers!” [PDF] published in the March-April 2010 issue of Deal Lawyers.
SEC Votes 3-2 to Adopt Alternative Uptick Rule
Today, the Securities and Exchange Commission voted 3-2 to adopt a short sale-related circuit breaker solution (the “Alternative Uptick Rule”) to limit excessive short selling pressure on individual stocks. The SEC’s press release is available at http://www.sec.gov/news/press/2010/2010-26.htm. The Alternative Uptick Rule, Securities Exchange Act Rule 201 of Regulation SHO, was formally proposed by the Commission in August 2009, see Release No. 34-60509 (Aug. 17, 2009), available at http://www.sec.gov/rules/proposed/2009/34-60509.pdf.1
SEC Issues Interpretive Guidance on Climate Change Disclosures
At a meeting held on January 27, 2010, the Securities and Exchange Commission (“SEC”) approved by a 3-2 vote an interpretive release (the “Interpretive Release”) providing guidance to public companies on the SEC’s existing disclosure requirements as they apply to climate change matters. The Interpretive Release makes clear that companies who have not done so should establish a process for assessing whether and to what extent climate change matters are material to the company and, if so, include appropriate disclosures in their SEC filings.[1] This is especially critical for calendar-year companies who will be filing their Annual Reports on Form 10-K in the coming weeks. The Interpretive Release is available at http://www.sec.gov./rules/interp/2010/33-9106.pdf.
Poison Pills Revisited
During the last decade, activist shareholders and corporate governance groups have been fairly successful in pressuring companies to voluntarily surrender a number of anti-takeover defenses, most notably the use of staggered boards and shareholder rights plans (also referred to as “poison pills”). In fact, according to FactSet SharkRepellent, between December 2002 and December 2009 the percentage of S&P 1500 companies with a staggered board decreased from 62.3% to 44.8%, and the percentage having a rights plan dropped from 61.6% to 23%. The success of activists and governance groups, at least as measured by these numbers, is partly attributable to the view held by certain groups that anti-takeover mechanisms are a reflection of poor corporate governance practices and, thus, antithetical to shareholder value. Also, given the healthy equity markets and high M&A transaction multiples, at least until recently companies may have been more willing to shed defense mechanisms as an easy give to appease activists and corporate governance groups. With respect to the termination of rights plans, companies also probably considered that, unless otherwise provided in the company’s organizational documents, the voluntary decision to terminate a rights plan did not restrict the board’s future ability to adopt a rights plan if it were to become the subject of an unsolicited tender offer.
SEC’s Initiative to Foster Cooperation — Perspective and Analysis
The SEC yesterday formally released an anticipated new initiative designed to encourage individual and company cooperation with SEC investigations and enforcement actions.[1] The initiative, laid out in a new section of the enforcement manual for the Division of Enforcement entitled “Fostering Cooperation,” (the “Initiative”) establishes incentives for early, substantial, robust cooperation with the stated goal of ensuring “that potential cooperation arrangements maximize the Commission’s law enforcement interests.”[2] The Initiative provides guidance for evaluating an individual’s cooperation and authorizes new cooperation tools, including cooperation agreements, deferred prosecution agreements and non-prosecution agreements. While the new Initiative provides more options for the Enforcement Division and individuals, only time will tell if it proves to be the “game-changer” that Enforcement Director Robert Khuzami anticipates.