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The Forum for US Securities Lawyers in London has recently started to produce a monthly US Securities Law Digest. The monthly updates are intended to provide a compilation of recent legal news relevant to a capital markets practice in the London and international markets. The news pieces have been collected and summarized from various sources, and links to the original sources are provided.

We welcome any feedback that you may have about the new monthly Digest. Happy holidays and best wishes for 2013.


Daniel Winterfeldt
Head of International Capital Markets
CMS Cameron McKenna LLP
Founder and Co-Chair of the Forum

Ed Bibko
Baker & McKenzie LLP
Co-Chair of the Forum


Guidance from the authors of the new era of FCPA enforcement: a road map to avoiding or minimizing liability in the future

The Department of Justice (the “DOJ”) and the Securities and Exchange Commission (the “SEC”) have published their long awaited guidance on the Foreign Corrupt Practices Act (the “FCPA”). The events which lead to its issuance began with DOJ and SEC enforcement officials creating what they now call the New Era of FCPA enforcement. It is characterized by expansive interpretations of the FCPA that are a function of prosecutorial charging discretion, industry sweeps, ever increasing sums paid to settle and earn cooperation credit and demands for longer prison terms.

The Guide is comprehensive and covers subjects ranging from gifts and entertainment, mergers and acquisitions, principles of civil and criminal liability, the role of auditors and related federal laws that can apply with equal force to corrupt conduct. Some of the topics covered have been the subject of much debate by practitioners in recent and still rare FCPA prosecutions that proceed to trial. Most prosecutions are settled without trial; as a consequence, there are very few court opinions to offer guidance.

See the Resource Guide to the US Foreign Corrupt Practices Act here.
See the SEC Actions blog here.
See the Kaye Scholer article here.
See the Foley and Lardner update here.
See the Simpson Thacher update here.

FCPA regulators speak on newly released FCPA guidance and reiterate unwavering commitment to FCPA enforcement

November was a busy month for compliance officers and FCPA practitioners. On November 14, the long-awaited FCPA guidance from the DOJ and SEC was released. In the following days, senior DOJ and SEC officials spoke at the American Conference Institute’s 28th National Conference on the Foreign Corrupt Practices Act in Washington, D.C. They revealed their thinking on the following topics, among others: the newly released guidance; expectations of companies’ compliance programs; self-reporting (not surprisingly, that companies should always pick up the phone); and their unwavering commitment to the aggressive FCPA enforcement we have seen in recent years.

See the Morrison & Foerster update here.

ISS issues 2013 corporate governance recommendations

Institutional Shareholder Services (ISS) has released its 2013 updates to corporate governance policy, which include some variations from its proposed updates issued mid-October for public comment. In general, the policy updates will be effective for shareholder meetings held on or after February 1, 2013. On December 6, 2012 at 11 a.m. ET, ISS hosted a webinar to highlight its updates. Either on that date or thereafter, ISS will also release frequently asked questions to provide additional guidance related to some of the new policies.

See the Squire Sanders update here.

ISS releases 2013 voting policy updates: two key changes on director voting recommendations

On November 16, 2012, Institutional Shareholder Services ("ISS") released its 2013 "Corporate Governance Policy Updates and Process," which will be used in its proxy voting recommendations for this upcoming annual meeting season. Public companies should be aware of two key changes in ISS's recommendations on voting for directors.

See the Manatt Phelps & Phillips update here.

SEC issues annual report on Dodd-Frank whistleblowing program: 3,001 tips, one award

As of November 2012, SEC whistleblowers have a one-in-3,001 chance of receiving a whistleblower award. That’s according to the latest annual report from the SEC’s Office of the Whistleblower, which was established to administer the whistleblower bounty program established by the Dodd-Frank Act of 2010.

See the Suits by Suits blog entry here.

The Financial Services Authority (the “FSA”) consultation on the implementation of the Alternative Investment Fund Managers Directive

On November 14, the FSA published its first consultation paper regarding the transposition of the Alternative Investment Fund Managers Directive (“AIFMD”) into UK law. The consultation paper sets out proposals on the following areas: - the prudential regime applicable to all types of alternative investment fund managers (“AIFMs”); - FSA Handbook amendments to reflect the main Level 1 requirements of the AIFMD, such as operating requirements for AIFMs, duties of AIFMs when managing funds, and transparency obligations towards both the Financial Conduct Authority and investors themselves; and - the regime applying to firms which act as depositaries of alternative investment funds, such as eligibility requirements, capital requirements and an independence requirement. The deadline for consultation responses is February 1, 2013. It is anticipated that a second consultation paper will be published in February 2013.

See the Orrick update here.

SEC initiates first stop order proceedings against emerging growth company

On October 29, 2012, the SEC announced that it had initiated proceedings to determine whether to issue a stop order to prevent sales of shares in a development stage company that filed a registration statement on Form S-1, which became effective on August 29, 2012. An associated prospectus was filed on September 5, 2012, in which the company stated that it qualifies as an “emerging growth company” as defined in the Jumpstart our Business Startups Act, and reported total assets of $20.

See the Holland & Knight article here.

Commissioners raise investor protection concerns

On November 15th, Reuters noted the concerns raised by SEC Commissioners Luis Aguilar and Elisse Walter regarding the agency's proposed elimination of the general solicitation ban for private offerings. Although the proposal is required by the Jumpstart Our Business Startups Act (the “JOBS Act”), the Commissioners voiced concern over its failure to include certain investor protection requirements.

See the Winston & Strawn article here.

Supreme Court hears argument on determining materiality at the class certification stage on 10b-5 securities fraud cases

The U.S. Supreme Court heard oral argument on November 5, 2012, to determine the issue of whether a court should decide the issue of materiality in an SEC Rule 10b-5 misrepresentation case, before certifying a plaintiff class based on the fraud-on-the-market theory — and if so, whether the court should then allow the defendant to present evidence rebutting the presumption of the theory before certifying the class. At oral argument, the petitioner stressed the importance of gate-keeping the materiality issue at the class-certification stage and was pressed by the court to distinguish it from the merits-based analysis conducted at the trial and summary judgment stage. Although the petitioner maintained that a finding at the class-certification stage was not determinative upon the later stages of the trial, many of the justices seemed unconvinced.

See the Holland & Knight article here.

Focus on conflicts

FINRA representatives have recently been focused on conflicts of interest in relation to the structuring and sales of structured products. In the period since a speech by Susan Axelrod, Executive Vice President, Member Regulation Sales Practice, of FINRA, the focus on conflicts seems to have intensified. In a more recent speech delivered at the end of October, Axelrod emphasized that, in connection with the FINRA examination process, FINRA would continue to devote substantial attention to complex products offered to retail investors. She cited as examples principal-protected notes, non-traded REITs, reverse convertible notes, and other structured notes. In relation to complex products she advised that “Firms should also consider whether they have any conflicts—particularly where they maintain affiliations with the product issuer or where there is a compensation arrangement that creates a conflict.” She also noted that firms should “identify potential conflicts and document their process for ensuring that they do not place their interest—or that of their brokers—before the clients.”

See the Morrison and Foerster update here.

NYSE and NASDAQ issue proposed rules for compensation committees

On June 20, 2012, in furtherance of Dodd-Frank, the SEC adopted new Rule 10C-1 under the Securities Exchange Act of 1934 and amendments to Item 407 of Regulation S-K that, among other things, focused on ensuring the independence of compensation committee members by directing the national securities exchanges to "establish listings standards that … require each member of a listed issuer’s compensation committee to be … ‘independent’ as defined in the listing standards of the exchange." In response to this SEC release, each national securities exchange in late September proposed rule change submissions to comply with new Rule 10C-1.

See Milbank’s article here.  

EU Regulation on Short Selling: impact on U.S. issuers of structured notes

On November 1, 2012, the regulation (the “Regulation”) of the European Parliament and Council of the European Union on short selling and certain aspects of credit default swaps became effective. The Regulation may have a substantive impact on U.S. issuers of structured products linked to securities that trade in the European Union, as well as other participants in structured product transactions, and this article discusses some of these impacts.

See the Morrison & Foerster update here.

Proposed amendment regarding the calculation of initial margin is approved

On November 2nd, the SEC approved the Options Clearing Corporation's (the "OCC") proposed rule change to provide for the calculation of initial margin for OCC segregated futures customer accounts on a gross basis, as required by CFTC Rule 39.13(g)(8)(i). See SEC Release No. 34-68148. See also SEC Release No. 34-68147 (notice of no objection under the Payment, Clearing, and Settlement Supervision Act of 2010).

See the Winston & Strawn article here.

Changes to European prospectus regime: will it be easier for US companies to operate employee stock plans in Europe? 

Recent amendments to the European prospectus rules may make the operation of certain employee stock plans in Europe by multinationals listed in the United States cheaper and more straightforward.

See Mayer Brown’s article here.

Clearing agency standards - effective January 2, 2013

The SEC is adopting new Rule 17Ad-22 in accordance with Section 17A of the Exchange Act and Title VII and VIII of the Dodd-Frank Act. Rule 17Ad-22 establishes minimum requirements regarding how registered clearing agencies must maintain effective risk management procedures and controls as well as meet the statutory requirements under the Exchange Act on an ongoing basis.

See the Winston & Strawn update here.

Corp Fin considers new disclosure requirement

On November 8th, CFO Journal reported the SEC’s Division of Corporation Finance may recommend that the SEC propose rules requiring issuers to disclose their political spending and lobbying activities. The move comes after the agency received over 300,000 comment letters in response to a rulemaking petition submitted by 10 law school professors.

See the Winston & Strawn article here.

Court rules that plaintiffs failed to establish “scheme liability” in securities case

A group of investors in a software company that services the property management industry commenced an action alleging violations of federal securities law and breaches of state law fiduciary duties against directors and officers of the company and individuals who sold securities for the company. Plaintiffs were not successful in establishing liability under Rules 10b-5(a) and (c), known as “scheme liability,” because the plaintiffs could not establish conduct beyond the officers’ alleged omissions related to the company’s securities offerings. The court rejected plaintiffs’ argument that the board approval of the offerings constituted misconduct because even if the directors knew the company was in poor financial condition, they still could have approved securities offerings without being part of a fraudulent scheme.

See the Katten Muchin Rosenman article here.

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