Corporate Governance

Mutual Fund Distribution Fee Reform, Part III

Posted on August 19, 2010
The July rule proposal sets out to eliminate the old regime, governed under Rule 12b-1.  Rule 12b-1  became effective thirty years ago. Prior to 1980, investors were only charged 'up front,' upon buying shares. This sales load could be used to compensate brokers and also pay for advertisements run by the fund family, for example...

Mutual Fund Distribution Fee Reform, Part IV

Posted on August 19, 2010
Before describing in a little more detail what the proposed rule would change, it's important to note what is left out.  Most critically, of course, are the other fees that go to paying for money management and operations.  Also not touched are the actual categories of expenses that are permissible...

Mutual Fund Distribution Fee Reform, Part I

Posted on August 18, 2010
Mutual fund fees are very confusing.  And, confused investors have no way of knowing whether they are paying too much. The SEC wants to change that. In late July, the SEC announced a much-anticipated rule proposal designed to make more clear to investors the visible and hidden fees they pay that have nothing to do with managing the fund assets...

Mutual Fund Distribution Fee Reform, Part II

Posted on August 18, 2010
Sales commissions and other marketing fees associated with buying a share in a mutual fund differ from buying a stock or bond of a public company.  For example, if I called my broker and placed an order to buy 100 shares of Company A stock at $100 per share, the broker would charge me a commission for that purchase...

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The Bailout of AIG and the Securities Lending Business: A Double Death Spiral

Posted on August 17, 2010
The TARP Oversight Commission run by Elizabeth Warren has issued a report on the bailout of AIG back in June.   The Report did not get much attention but it is well worth the read (all 300 pages of it).  We thought we would mention a few interesting points that came out of the Report...

Circumventing the Interal Affairs Doctrine

Posted on August 17, 2010
TR Investors v. Genger, a recently decided Chancery Court opinion, is a workman like decision that resolves issues mostly under a stockholder agreement.  The most interesting thing in the opinion is the treatment, in the stockholder agreement, of the choice of law provision...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (The Inevitable Solution)

Posted on August 16, 2010
This case imposed liability on officers for breach of their fiduiciary duties.  To the extent that this happens on a recurring basis, officers (particularly the CEO) may begin to view Delaware as insufficiently management friendly and consider reincorporating elsewhere...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Criticizing the Whistleblowers)

Posted on August 13, 2010
Where did the allegations of misbehavior come from? A series of new employees started with the company between 2004 and 2006.  One was the new compliance officer, a former employee with Deloitte.  Another was the general counsel and CFO.  Yet despite what has to be seen as a courageous gesture, it forced the board and, ultimately, the court to have to address uncomfortable issues...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Those Tee Hee Purchases)

Posted on August 12, 2010
A portion of the case centered around alleged improper reimbursements submitted by the CEO and alleged improper approval by at least one officer of the expenses.  To make its case, plaintiff tried to show some improper expenditures that ostensibly should have been picked up by the approving officer...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (The Case for A Private Right of Action for Clawbacks)

Posted on August 12, 2010
In the discussion of the remedy, the company sought a return of the bonuses paid in the year the company restated its financial statements.  The opinion referenced SOX and the clawback provision (which has been amended in Dodd-Frank).  The court had this to say: In Sarbanes-Oxley, Congress crafted a provision that requires public company CEOs and CFOs to disgorge bonuses if there is a restatement because of material noncompliance...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (The Benefits of SOX)

Posted on August 11, 2010
We enjoy seeing SOX at work and Hampshire Group provides a fitting example.  The vociferous criticism of SOX has often alleged that it provides few actual benefits.  Most of the attacks have focused on Section 404(b) and the requirement that accounting firms attest to the review of the internal controls conducted by management...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Cute in a Non-Praiseworthy Sense)

Posted on August 11, 2010
The company, in bringing the action against the officers, asserted that they had violated their fiduciary obligations in connection with their approval of expenses made by the CEO.  The company asserted that because of ties to the CEO, the officers were not independent and the standard of review ought to be the duty of loyalty, essentially shifting to the officers the obligation to show the proprietary of their behavior...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Critizing the Board)

Posted on August 10, 2010
The Vice Chancellor in this case was not happy having to address the issues of officer liability.  As the case noted in the very first sentence:  "This is an unfortunate case in which it is clear that the parties have spent far more money investigating and litigating over certain matters than those matters involved...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Criticizing the Board)

Posted on August 10, 2010
The Vice Chancellor in this case was not happy having to address the issues of officer liability.  As the case noted in the very first sentence:  "This is an unfortunate case in which it is clear that the parties have spent far more money investigating and litigating over certain matters than those matters involved...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Introduction)

Posted on August 09, 2010
Hampshire Group Limited v. Kuttner is a 132 page, dare we say, prolix, opinion, that explores the liability of officers under Delaware law.  The opinion doesn't need that length.  It is a straightforward issue concerning officer liability for breach of the duty of loyalty for engaging in alleged misbehavior...

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (Liability of Officers for Breach of Fiduciary Obligations)

Posted on August 09, 2010
We are discussing Hampshire Group Limited v. Kuttner.  The case addresses the fiduciary obligations of officers.    Officer liability has become an interesting area of development.  The Delaware Supreme Court held in Gantler v...

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces (The End of Mandatory Arbitration?)

Posted on August 06, 2010
For cases brought against securities firms, customers must submit to mandatory arbitration through FINRA.  The requirement is typically in the account opening documents and investors have little choice on the matter.  See Shearson/American Express, Inc...

The Promise of Access

Posted on August 05, 2010
With the adoption of Dodd-Frank, Congress took away the only remaining threat to access.  Those who threatened to sue to enjoin the Commission's efforts at access -- rather than work constructively towards a compromise -- provided the impetus for the language in Dodd-Frank...

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces (Accredited Investor Standard)

Posted on August 05, 2010
Without much fanfare, the SEC has been instructed to update the definition of accredited investor.  This was designed to provide a safe harbor for the notion of sophisticated investor under Section 4(2) of the Securities Act.  The safe harbor was designed to select out those investors with the financial wherewithal to lose their investment...

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces (Diversity, the Commission, and the Securities Industry)

Posted on August 04, 2010
One item that slipped into the DFA was the requirement that certain agencies, including the Commission, create an Office of Minority and Women.  See Section 342. The provision was designed to ensure that the designated agencies had an office "responsible for all matters of the agency relating to diversity in management, employment, and business activities...

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces (Aiding and Abetting)(UNPUBLISHED)

Posted on August 03, 2010
There was some attempt to add aiding and abetting liability for private actions under the securities laws.  The efforts, however, failed.  Instead, Congress strengthened the SEC's authority to bring actions for aiding and abetting.  Section 20 of the Exchange Act allows the SEC to bring an aiding and abetting claim against "any person that knowingly provides substantial assistance" to a primary violator...

The Dodd-Frank Wall Street Reform Act and the SEC: Profound Bits and Pieces

Posted on August 03, 2010
With all of the focus on too big to fail and derivatives, any number of small but important provisions in the Dodd-Frank Wall Street Reform Act have largely escaped notice.  We'll take up a few posts to mention some of them. 

How the Wall Street Reform Act Impacts Smaller Businesses: Conclusion

Posted on August 03, 2010
Clearly there are a significant amount of additional legislative and statutory changes in the Act that may be of interest to a large number of lawyers, accountants, bankers, mortgage bankers, broker-dealers, real estate professionals, and business men and women...

How the Wall Street Reform Act Impacts Smaller Businesses: Changes to the Securities and Exchange Commission (the ?SEC?)

Posted on August 02, 2010
Title IX of the Act is entitled the 'Investor Protection and Securities Reform Act of 2010.' The first substantive provision of this Title is found in § 911 of the Act which amends the 1934 Act to establish an investor advisory committee to 'advise and consult with the [SEC] on a number of different issues, including 'regulatory priorities of the [SEC]...

How the Wall Street Reform Act Impacts Smaller Businesses: A Couple of Provisions that Did Not Make the Final Act

Posted on August 02, 2010
There are several provisions that were included in either the House or Senate bills that did not survive the Conference Committee.  Gustafson not overturned. As adopted, the Act does not include a proposed amendment that would have effectively overturned the Supreme Court's 1995 decision in Gustafson v...

How the Wall Street Reform Act Impacts Smaller Businesses: Hedge Fund Regulation ?Advisers Act

Posted on August 01, 2010
Elimination of the Advisers Act Exemption for Advisers to Private Funds and Foreign Private Advisers. Title IV 85 is the 'Private Fund Investment Advisers Registration Act of 2010' and eliminates some exemptions from registration that previously existed...

How the Wall Street Reform Act Impacts Smaller Businesses: Enhanced Regulation of Short-Selling

Posted on July 31, 2010
The Act enhances the SEC's authority over 'naked' short-selling – the practice of investors selling securities of an issuer that the investor does not then own, betting on the price decreasing, and then covering the short sale with the same security at a lower price...

How the Wall Street Reform Act Impacts Smaller Businesses: Expansion of the Anti-Fraud Rules and SEC Enforcement

Posted on July 30, 2010
The Act also enhances the application of the anti-fraud provisions under the securities laws. Section 9(e) of the 1934 Act45 grants a civil remedy for damages to the plaintiff if he bought or sold stock during a time when the market for that stock on a national securities exchange was being manipulated in violation of §§ 9(a), (b), or (c)...

How the Wall Street Reform Act Impacts Smaller Businesses: Increased Coverage for Whistleblowers - NRSROs

Posted on July 30, 2010
The Sarbanes-Oxley Act of 2002 provided whistleblower protection for persons reporting wrongdoing at companies registered or reporting under the 1934 Act.72 If an employer is covered under the whistleblower protection, the company may not discharge or in any manner retaliate against an employee who: provided information; caused information to be provided; or assisted in an investigation by a federal regulatory or law enforcement agency, an investigation by a member or committee of Congress, or an internal investigation by the company relating to an alleged violation of mail fraud, wire fraud, bank fraud, securities fraud, or violating SEC rules or regulations or federal laws relating to fraud against shareholders...

Access and a Desperate Response

Posted on July 29, 2010
As we have noted on this blog, opposition to access has been absolute and shrill.  As a result, opponents of access have lost at every stage.  Rather than accept the ridiculously narrow access bylaw proposed under the Cox Commission (perhaps with a 5% threshold), oponents now confront direct access at much lower thresholds...

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