Corporate & Securities Law

Securities Industry Asks IRS for Comfort in Complying with Derivatives Provisions of Dodd-Frank

Posted on April 01, 2011
In a letter to the IRS, the securities industry has asked for official confirmation that the assumption of a derivative position by a related derivatives dealer does not cause the assignor?s counterparty to be deemed, for tax purposes, to have terminated its position and entered into a new one...

House Ag Chair Says CFTC Interpretations of Dodd-Frank Derivatives Exemptions Are Too Narrow

Posted on March 31, 2011
In implementing Title VII of Dodd-Frank, the CFTC has proposed regulations with very broad and far-reaching definitions, but very narrow interpretations of the derivatives exemptions Congress authorized. This was the message delivered by House Agriculture Committee Chair Frank Lucas (R-OK) ahead of hearings on the derivatives title of Dodd-Frank...

Companion Legislation to Reform GSEs Introduced in the Senate

Posted on March 31, 2011
Senators Orrin Hatch (R-Utah) and John McCain (R-Ariz.) have introduced a companion bill to the House bill to reform the government-sponsored enterprises. Based on the House bill introduced by Rep. Jeb Hensarling (R-Texas), and other House GSE reform bills, the legislation would permanently end government support for Fannie Mae and Freddie Mac, the two heavily-indebted government-sponsored enterprises that were a major cause of the financial crisis over two years ago...

SEC Proposals Would Implement Dodd-Frank Mandates on Independent Compensation Committees and Compensation Consultants

Posted on March 31, 2011
Pursuant to Dodd-Frank mandates, the SEC has proposed rules directing exchanges to adopt listing standards requiring issuers to have independent compensation committees. In developing a definition of independence, the exchanges would be required to consider such factors as the sources of compensation of a director, including any consulting, advisory or compensatory fee paid by the company to the director and whether a director is affiliated with the company, a subsidiary of the company, or an affiliate of a subsidiary of the company...

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SIGTARP Tells Congress that Dodd-Frank Did Not End Market Perception that Systemically Risky Financial Institutions Are Too Big to Fail

Posted on March 31, 2011
Despite Dodd-Frank?s enactment of a liquidation authority for failing systemically risky financial institutions, TARP Special Inspector General Neil Barofsky said that there is still a public perception, reinforced by global credit rating agencies, that these institutions are still too big to fail...

IOSCO Issues Key Principles on Point of Sale Disclosure

Posted on March 30, 2011
As securities regulators consider point of sale disclosure requirements for retail investors, IOSCO has issued a number of principles designed to provide key information quickly to the investors. As a threshold matter, IOSCO defines point of sale as the moment at which a customer requests that a product be purchased...

In Letter to SEC, House Oversight Chair Questions Efficacy of Capital Formation Regulation

Posted on March 30, 2011
In a letter to SEC Chair Mary Schapiro, House Oversight Committee Chair Darrell Issa asked that the Commission consider whether its current regulations and actions contribute to the decline of capital formation. The letter was send in light of Facebook's recent attempt to raise additional equity capital while avoiding the burdens of SEC registration, and the SEC's subsequent examination into the strategy employed by FacebookThe letter highlights outdated laws that place an arbitrary cap on the number of shareholders permitted to own private entities...

Senator Shelby Outlines Process for Drafting GSE Reform Legislation in Banking Committee

Posted on March 30, 2011
As the House Financial Services Committee prepares to mark up legislation reforming government-sponsored enterprises and the secondary market form mortgage-backed securities, Senator Richard Shelby outlined a two-tier hearings process in the Banking Committee before drafting legislation...

Construing Delaware Law, Federal Appeals Court Rules Disclosure of Conflict of Interest Does Not Excuse Breach of Duty of Loyalty

Posted on March 30, 2011
A federal appeals court has ruled that a director?s disclosure of a conflict of interest does not excuse an alleged breach of fiduciary duty involving a duty of loyalty. It just excuses the conflict. To have a conflict and to be motivated by it to breach a duty of loyalty are two different things, reasoned a Seventh Circuit panel, the first a factor increasing the likelihood of a wrong, the second the wrong itself...

North Carolina Clarifies Financial Reporting Requirements for IAs with Custody

Posted on March 30, 2011
North Carolina-registered investment advisers with custody of their clients? funds or securities or who require prepayment of advisory fees of at least $500 per client six months or more in advance must send the North Carolina Securities Division a copy of an audited balance sheet within 90 days of the advisers? fiscal year-end, effective March 11, 2011 by policy statement bulletin...

House Committee Unveils Eight Pieces of Legislation to Reform GSEs

Posted on March 29, 2011
As part of its plan to reform the secondary market for mortgage-backed securities, the House Financial Services Committee unveiled eight pieces of legislation reforming government-sponsored enterprises such as Fannie Mae and Freddie Mac. This legislation is in addition to the main reform vehicle introduced earlier by Committee Vice-Chair Jeb Hensarling (R-TX), the GSE Bailout Elimination and Taxpayer Protection Act (HR 4889), that applies only to Fannie Mae and Freddie Mac and establishes a finite end to the GSEs? conservatorship 2 years from the date of enactment...

SEC and Banking Agencies Set to Propose Dodd-Frank Risk Retention Regulations with 5 Percent Benchmark and Conservative QRM Exemption

Posted on March 29, 2011
Consistent with the securitization and ``skin in the game?? risk retention provisions of Dodd-Frank, the SEC and the Federal banking agencies will propose regulations this week requiring securitization sponsors to retain an economic interest equal to at least 5 percent of the aggregate credit risk of the assets collateralizing an issuance of asset-backed securities...

Illinois Adopts by Emergency Written Exam for Salespersons Dealing Exclusively in Investment Banking

Posted on March 29, 2011
Salespersons intending to deal exclusively in investment banking must take and pass the Investment Banking Representative Examination (Series 79), as well as either the Series 63 or 66 Exam. FINRA is added to a definitions rule and replaces the NASD in the salesperson exam rule...

Senate Authors of Qualified Residential Mortgage Carve Out from Dodd-Frank Risk Retention Provisions Clarify Legislative Intent

Posted on March 28, 2011
With the SEC and the federal banking agencies set to consider risk retention rules under Dodd-Frank, the Senate authors of the qualified residential mortgage carve out have written to the Commission to clarify the legislative intent of the carve out, which is codified in Section 941...

Global Audit Firms and Corporate Groups Reject Presumptive Doubt as Part of Professional Skepticism in Financial Statement Audit

Posted on March 28, 2011
The auditing industry and their corporate clients have strongly rejected any suggestion of replacing the enquiring mind approach to the professional skepticism brought to an audit of financial statements with a presumptive doubt approach. Comment letters to UK Auditing Practices Board proposals to reinforce skepticism in the audit culture indicated a broad consensus that a presumptive doubt standard would increase the cost of the audit without a concomitant benefit and contradict international audit standards, which have essentially codified the enquiring mind standard enunciated by Lord Denning in a famous 1958 opinion...

Sen. Crapo Asks Regulators to Refrain from Uniform Risk Retention Rules for Commercial Mortgage-Backed Securities

Posted on March 28, 2011
In a letter to Treasury copied to the SEC, Senator Mike Crapo (R-ID) explained the intent behind the commercial mortgage-backed securities alternatives of the risk retention requirements of Section 941 of Dodd-Frank, which he authored. The Senator said that the legislative intent is for the regulations to offer alternative options with regard to commercial mortgage-backed securities as provided in Dodd-Frank and avoid the creation of a one-size-fits-all retention rule that could stifle a commercial real estate recovery before it can occur...

Community Bankers Endorse Bachus Legislation Replacing CSFB Director with Five Member Commission

Posted on March 28, 2011
The Independent Community Bankers of America support legislation to replace the Director of the Consumer Financial Protection Bureau with a five-member Commission modeled on the SEC and FTC. Commissioners would be appointed by the President and confirmed by the Senate to staggered, five-year terms, and no more than three commissioners would be affiliated with any one political party...

IAASB Examines Implications of Evolving Financial Statement Disclosures for the Outside Auditor

Posted on March 27, 2011
An International Auditing and Assurance Standards Board discussion paper on the evolving nature of financial statement disclosure and its implications for the independent audit has been praised by PCAOB Standing Advisory Group members as containing a complete discussion of these highly important and sometimes contentious issues which arise against the backdrop of the efficacy of company financial statements for investors and other users...

IOSCO Begins Initiatives to Involve Securities Regulators in Mitigating Systemic Risk

Posted on March 26, 2011
IOSCO has issued a discussion paper on the enhanced role that securities regulators can play in mitigating systemic risk through better surveillance, transparency, and the imposition of position limits. Traditionally, securities regulators have focused on transparency and disclosure...

Financial Services Companies Fear that Proposed SEC Whistleblower Rules Could Breach Customer Information Walls

Posted on March 25, 2011
In a letter to the SEC, banking and financial services associations cautioned that the Commission?s proposed whistleblower rules would create powerful financial incentives for unscrupulous persons to download, copy, and steal confidential corporate and customer information in order to substantiate their claims and receive monetary rewards...

Global Hedge Fund Assoc. Opposes SRO for US Investment Advisers

Posted on March 25, 2011
Against the backdrop of Dodd-Frank mandated studies on the efficacy of an SRO to oversee investment advisers, the global hedge fund industry has raised the specter that delegating oversight to a SRO could impact the ability of US investment advisers to access European markets and use the management passport provided to third-country managers under the EU?s Alternative Investment Fund Managers Directive...

PCAOB Advisory Group Members Praise IAASB Paper during Discussion on Financial Statement Disclosure

Posted on March 25, 2011
Against the backdrop of a growing global concern with the efficacy of financial statement disclosures, the PCAOB?s Standing Advisory Group examined issues around financial statement disclosures during their March meeting. PCAOB Member Dan Goelzer began the meeting by noting that financial statement disclosures have evolved and are still evolving significantly in their extent and nature...

House Financial Services Committee to Mark Up GSE Reform Legislation

Posted on March 24, 2011
After a hearing on GSE reform on March 31, the House Financial Services Committee will mark up a bill reforming Fannie Mae and Freddie Mac on April 5. The GSE Bailout Elimination and Taxpayer Protection Act, HR 1182, was introduced by Committee Vice Chairman Jeb Hensarling (R-TX) and is co-sponsored by Committee Chairman Spencer Bachus (R-ALA)...

Pending COSO Updated Internal Controls Framework Discussed by PCAOB?s Standing Advisory Group

Posted on March 24, 2011
The March meeting of the PCAOB's Standing Advisory Group included an examination of the pending revised internal controls framework being developed by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Describing the update as a welcome development, PCAOB Member Lewis Ferguson said that the update will make the COSO internal control framework more relevant to the complex global business environment...

German High Court Rules that Bank Had Duty to Advise on Risks of Complex Derivatives Contract

Posted on March 23, 2011
The German Federal Court of Justice has ruled that a global German bank violated its advisory duties with regard to a derivatives interest rate swap contract and was liable for damages. A bank must determine investment advice with regard to derivatives contracts before making recommendations, noted the court, taking into account the risk appetite of the investor, unless the bank has had a long business relationship with the investor or already knows the recent investment behavior of the customer...

In Letter to Sen. McConnell, Senate Democrats Urge Adequate Funding for CFTC

Posted on March 23, 2011
In a letter to Senate Minority Leader Mitch McConnell (R-KY), 48 Senate Democrats, including Majority Leader Harry Reid (D-NV) and Agriculture Committee Chair Debbie Stabenow (D-MI), urged the abandonment of the reckless proposal in the House-passed Continuing Resolution (H...

House Legislation Raising the Regulation A Exemption Threshold Gains Favor Conditioned on Audited Financial Statements

Posted on March 23, 2011
Support is growing for House legislation designed to encourage small companies to access the capital markets by increasing the offering threshold for companies exempted from SEC registration under Regulation A from $5 million to $50 million. The SEC has the authority to raise this threshold but has not done so for almost two decades...

Supreme Court Reaffirms Historic Total Mix Test for Rule 10b-5 Materiality, Rejects Bright-Line Rule as SEC Urged

Posted on March 22, 2011
Rejecting a bright line test for Rule 10b-5 materiality, the US Supreme Court ruled unanimously that an investor can state a claim under Rule 10b-5 based on a pharmaceutical company?s nondisclosure of adverse event reports about a drug even though the reports are not alleged to be statistically significant...

High Court Rejects "Statistical Significance" Materiality Argument

Posted on March 22, 2011
A unanimous Supreme Court upheld a decision by a 9th Circuit panel in Matrixx Initiatives Inc. v. Siracusano. The appellate court had previously rejected claims by the maker of Zicam Cold Remedy, an over-the-counter product, that the number of users who suffered from a loss of smell (anosmia) was statistically insignificant, and the company therefore had no duty to disclose the complaints it had received because these were immaterial as a matter of law...

Well, That "Settles" That....For Now

Posted on March 22, 2011
Judge Jed S. Rakoff, of the Southern District of New York, has recently been skeptical of settlement agreements executed by the SEC. In the recent Bank of America-Merrill Lynch case, the judge said that the Commission's proposed settlement did not "comport with the most elementary notions of justice and morality...

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