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We hope you have had a joyous holiday season and a Happy New Year! Last year the Forum for US Securities Lawyers in London 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 monthly Digest.


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


Top 10 Issues for Public Company GCs in 2013 spoke with Gibson Dunn partner Amy Goodman about the firm’s “Key Year-End Considerations for Public Companies” alert, which offers some important issues to consider as 2012 comes to a close.

Goodman, co-chair of the firm's securities regulation and corporate governance practice group and a primary author of the alert, says, “The whole idea of this list was that, if you’re a general counsel of a public company, from a securities and governance standpoint, what should you be worrying about?”

See the article here.

Federal district court upholds "big boy" agreement

A US federal district court granted summary judgment in favor of a placement agent in connection with a claim based on an investment transaction. The court held that under New York law, the investor failed to prove it justifiably relied on the placement agent's statements by reason of a "big boy" letter agreement the investor entered into with the placement agent. Under this letter agreement, the investor acknowledged that it was sophisticated, knew what it was doing and could fend for itself. The investor was found to have met with management of the company it invested in and received access to a data room of due diligence materials. The court ruled that the clear language of the letter agreement and the surrounding factors rendered any claim of reliance by the investor on statements made by the placement agent unjustifiable.

See the Herrick Feinstein article here and the Morrison & Foerster article here.

No-action letter regarding definition of “ready market” with regard to foreign equity securities pursuant to SEC rule 15c3-1(c)(11)(i)

Currently, under Securities and Exchange Commission (the “SEC”) Rule 15c3-1 (the “Net Capital Rule”), broker-dealers may treat equity securities of a foreign issuer that are listed on the FTSE World Index as having a ready market. A ready market is relevant because the Net Capital Rule requires a broker-dealer to deduct 100% of the carrying value of securities it holds in its proprietary account for which there is no ready market. See SEC Rule 15c3-1(c)(2)(vii). Because its members were interested in expanding the criteria for recognizing foreign equity securities as having a ready market, the Financial Industry Regulatory Authority (“FINRA”) requested no-action relief from the SEC to treat certain additional foreign equity securities as having a ready market under paragraph (c)(11) of the Net Capital Rule.

See the Katten Muchin Rosenman article here.

FINRA announces arbitration for investment advisers that are not FINRA-regulated firms

FINRA recently released guidance announcing that it has opened up its arbitration forum to investment advisers that are not members of FINRA and, therefore, are currently not subject to regulation by FINRA. FINRA will arbitrate disputes between such investment advisers and investors on a voluntary, case-by-case basis if (i) the parties submit a post-dispute agreement to arbitrate, (ii) the parties agree to pay all arbitration surcharge fees and (iii) the investor files a special written submission agreement signed by all parties to the arbitration. The special written submission agreement requires the parties to acknowledge, among other things, that FINRA may bar the investment adviser from the forum in future cases if it fails to pay any award, settlement agreement or FINRA fees and that FINRA cannot enforce awards entered against non-member investment advisers. Thus, the prevailing party may need to enforce an award against a non-member investment adviser in a court of competent jurisdiction. Final awards will be made publicly available.

See the Davis Polk article here.

FINRA Rule 5123 revisited

As noted in the Foley & Lardner article on new FINRA Rule 5123, effective December 3, 2012, FINRA member firms that begin selling efforts related to private placement offerings are required to file the offering documents with FINRA or otherwise file a notice that no such documents were used. Recently, FINRA issued additional guidance regarding Rule 5123 in the form of frequently asked questions.

See the Foley & Lardner article here, the Katten Muchin Rosenman update here, the Cahill Gordon update here, the Morrison and Foerster article here, and the Leonard, Street and Deinard article here.

Additional guidance on FINRA's suitability rule

In May 2012, FINRA provided guidance on Rule 2111 (Suitability) by providing answers to frequently asked questions (FAQs). Answers that supersede some of these FAQs and additional FAQs have been addressed in FINRA Regulatory Notice 12-55. The new material addresses the scope of the terms “customer” and “investment strategy.”

Regulatory Notice 12-55 can be found here and the suitability web page can be found here.

See the Katten Muchin Rosenman article here, the Morrison and Foerster update here, the Sutherland Asbill & Brennan article here, and the Davis Polk article here.

SEC probe of Netflix highlights legal risks of social media

The U.S. regulatory probe of a Facebook posting by Netflix CEO Reed Hastings is raising questions about whether the 43-word message violates a rule requiring that material information be released to all investors at the same time. The outcome of the investigation is important to all companies that use social media to share information about their business with followers.

In December, Netflix disclosed that it received what is known as a Wells notice from the Securities and Exchange Commission concerning the July posting on Hastings’ Facebook page. In that message, Hastings congratulated his team and said that subscribers had watched about one billion hours of video in June. Although Netflix contends that the information was not material, the matter is not so clear-cut to the SEC, which warned that it could take civil action against Netflix and Hastings.

See the Armstrong Teasdale article here, the CMS Cameron McKenna International Capital Markets Client Alert here, the SNR Denton article here, the Calfee Halter & Griswold article here, and the Kaye Scholer article here.

FCPA resource guide released by SEC and DOJ consistent with previous guidance

On November 14th, 2012, the SEC and the DOJ released their jointly developed “Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Guide”). Long awaited and much anticipated, the Guide brings together in a single, 120-page document the agencies’ interpretation of the FCPA and approach to enforcement activities. It was hoped that this Guide would illuminate and clarify some of the issues that have continued to cause difficulties from both a compliance and an enforcement perspective.

See the Hunton and Williams article here and the Bass, Berry & Sims article here.

What’s not in the new FCPA resource guide, or why doing your FCPA homework is still a good idea

Notwithstanding our overall approval of the FCPA Resource Guide issued by the DOJ and the SEC in December, we are certainly not above a bit of criticism.

To that end, those who have investigated and settled FCPA cases after choosing to cooperate with the government will be familiar with the instruction to do “homework” following a meeting. The direction generally requires a deeper dive into specific facts or issues identified by the DOJ and/or SEC. While directed by the government, the homework instruction nonetheless allows the investigation target a lot of leeway about how to get the homework done.

See the Sheppard Mullin Richter & Hampton article here.

DOJ and SEC officials discuss FCPA guidance and current enforcement issues

Officials from the DOJ and the SEC spoke about the newly released FCPA guidance and current issues in FCPA enforcement at the American Conference Institute’s 28th National Conference on the Foreign Corrupt Practices Act, held in Washington, D.C., on November 15-16, 2012.

See the Debevoise & Plimpton article here.

German insurer settles FCPA charges with SEC

Allianz SE, the giant German insurer and asset manager, settled FCPA books and records and internal control charges with the SEC (In the Matter of Allianz SE, Adm. Proc. File No. 3-15132, dated December 17, 2012). At the time of the underlying events Alianz’s American Depositary Shares and bonds were registered with the SEC and listed on the New York Stock Exchange. After the company discovered the conduct involved here, but before the SEC started its investigation, the Allianz voluntarily delisted from all exchanges except those in Germany.

See SEC Actions blog article here.

SEC approves new rules regarding lost holders of securities

The SEC has approved new rules requiring broker-dealers to conduct searches for holders of securities with whom they have lost contact.

A similar rule already applied to recordkeeping transfer agents, who are the intermediaries between the clearing house and the broker-dealer. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") tasked the SEC with extending the application of this rule to broker dealers so that broker-dealers have the same obligation.

The new rules also require broker-dealers and other securities market participants to provide notifications to persons who have not processed checks that they have received in connection with their securities holdings.

See the Leonard, Street and Deinard article here.

Is the current wave of insider trading cases a deterrent to others?

As sentences in insider trading cases have grown longer, insider trading has continued, apparently at historically high rates, with increasingly longer sentences being meted out. However, the longer sentences do not appear to deter insider trading. What does deter insider trading is the likelihood of getting caught. And the likelihood of getting caught is largely a function of Congressional funding of investigations and prosecutions of white collar crime.

See the Forbes article here.

SEC is “here to stay” on insider trading

It has been over three years since the SEC filed its insider trading charges against Galleon Management and Raj Rajaratnam. When that complaint was filed, the Director of the SEC’s Division of Enforcement, Robert Khuzami promised to “roll back the curtain” and “look at patterns across all markets” for illegal insider trading. Last month, Mr. Khuzami echoed those remarks when he announced that the SEC had filed its largest-ever insider trading case and warned “would-be insider traders” that the SEC is “here to stay.”

See the Securities Litigation and Regulatory Enforcement blog entry here.

SEC sets rulemaking agenda for 2013

In its fiscal year 2012 Agency Financial Report released last week, the SEC published its rulemaking agenda for 2013 under both the Dodd-Frank Act and the Jumpstart Our Business Startups Act (the “JOBS Act”) as follows:

Propose and adopt rules to implement four executive compensation related provisions of the Dodd-Frank Act: new listing standards relating to specified “clawback” policies; disclosure requirements regarding performance-related executive compensation; executive pay ratios; and employee and director hedging.

These rulemaking mandates did not have a statutory deadline under the Dodd-Frank Act: Finalize rules that disqualify securities offerings involving “bad actors” from relying on the safe harbor from registration provided by Rule 506 of Regulation D under the Securities Act of 1933 (the "Securities Act") and adopt rules to require many of the entities that the SEC regulates to establish programs to detect and respond to indications of identity thefts.

See the Katten Muchin Rosenman article here.

Responding to the SEC comment letter

Each year the staff of the Division of Corporation Finance (the “Staff”) of the SEC issues approximately 2,200 comment letters on the registration statements and reports filed under the Securities Act and the Securities Exchange Act of 1934. Responding to these comment letters absorbs a tremendous amount of the time and resources of management teams, their counsel and the auditors. This article provides some practical considerations for making the process as efficient as possible.

See the Arnall Golden Gregory article here.

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