Please find below the July/August issue of the U.S. Securities Law Digest. This update is 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 continue to welcome any feedback that you may have about the Digest.
Sincerely,
Daniel Winterfeldt Daniel.Winterfeldt@cms-cmck.com
Head of International Capital Markets
CMS Cameron McKenna LLP
Founder and Co-Chair of the Forum
The SEC Adopts Final Rules Eliminating the Prohibition Against General Solicitations in Certain Private Offerings
On July 10, 2013, the U.S. Securities and Exchange Commission (the "SEC") adopted rules that, amongst other changes, allow general solicitation and general advertising in non-public offerings made in reliance of Rule 144A or Rule 506 of Regulation D (“Rule 506”) under the U.S. Securities Act of 1933 (the “Securities Act”) which become effective 60 days from publication in the Federal Register. The SEC also proposed a number of new rules and rule changes to address concerns that general solicitation and general advertising now allowed under Rule 506 could result in an increase in unlawful sales to non-accredited investors as well as an increase in fraudulent activity in the Rule 506 market. The SEC's adopting release for the amendments (Release No. 33-9415) can be viewed here.
Private offerings: questions that might frequently be asked sometime soon
Although the SEC’s final rule relaxing the ban on general solicitation in certain Rule 506 offerings and Rule 144A offerings was highly anticipated, the final rule leaves open or raises a number of interesting questions. In the articles below, Morrison & Foerster and Latham & Watkins provide their perspective on a number of these questions based on the final rule.
Lawmakers claim SEC proposals are contrary to JOBS Act
As mentioned above, the SEC recently issued proposals relating to Regulation D which, among other things, require a Form D to be filed fifteen days before a general solicitation under Rule 506(c) can commence. Two Congressmen recently sent a letter to SEC Chair Mary Jo White claiming the provision effectively violates the JOBS Act. According to the letter, this restriction appears to violate the law by imposing a fifteen day ban on general solicitation. The letter further states that Title II of the JOBS Act lifted the ban on general solicitation for Regulation D and Rule 506 offerings to accredited investors and as a result, the Form D pre-filing requirement effectively violates Title II of the JOBS Act.
The letter also objects to filing solicitation materials: “Additionally, the proposed Rule 510T will require that for the first two years during which the proposed rule is in place, issuers must provide the Commission with all advertisements by the date of first use. Problems clearly exist with the imposition of this same-day or virtually “real-time” compliance requirement on an enormous market of small issuers that, prior to public advertising, have already raised nearly one trillion dollars per year. To the extent the disclosure of advertisements under Rule 510T supports analytical or market evaluation needs, samples of data should clearly suffice, yet the Commission seeks the entire population of advertising information on a same-day basis for two years – as a result, market analysis alone cannot realistically explain the imposition of this heavy burden.”
SEC allows use of social media for public company announcements, but risks remain
The SEC recently issued an investigative report confirming that public companies may use social media, such as Facebook, Twitter and corporate blogs, to announce material non-public information in compliance with Regulation FD – as long as investors and the market have been alerted in advance about the specific channels that will be used to disseminate the information. In light of this new guidance, public companies should review their corporate communications policies, consider whether they want to implement social media disclosure, and if so, take appropriate steps to ensure compliance with Regulation FD and other securities laws and regulations.
GAO releases studies on accredited investor definition, conflict minerals rule and SEC personnel management
The U.S. Government Accountability Office (the “GAO”) has released three studies on the SEC and its initiatives, pursuant to the Dodd-Frank Act. The GAO examined the criteria for qualifying as an individual accredited investor. The SEC requires such an investor to have an annual income over $200,000 ($300,000 for a married couple) or a net worth over $1 million, excluding a primary residence. These thresholds were set in the 1980s and in 2010. Beginning in 2014, the SEC must review the accredited investor definition every four years to determine whether it should be adjusted.
The GAO examined eight alternative criteria for the accredited investor standard, including separate certification and licensing, and ultimately recommended that the SEC consider two alternatives to assess an investor’s financial resources and understanding of financial risks. A liquid investments requirement, meaning a minimum dollar amount of investments in assets that can be easily sold, are marketable, and the value of which can be verified, would be a useful indicator of financial resources. In addition, the use of a registered investment adviser was viewed as a possible gauge of sophistication about financial risks. In its response, the SEC agreed to examine these and other alternatives when the agency reviews the standard next year.
The accredited investor definition is becoming more relevant in light of the private offering reforms the SEC recently adopted.
On June 12, 2013, the SEC announced its second ever set of awards under the whistleblower program established by the Dodd-Frank Act. The awards stem from an enforcement action against Locust Offshore Management, LLC and its CEO Andrey C. Hicks for fraud in selling shares in a fictitious hedge fund. The U.S. District Court entered final judgment in favor of the SEC after default by the defendants, holding the defendants jointly and severally liable for disgorgement of $2,512,058.39 and imposing a civil penalty of $2,512,058.39 on each defendant.
Fifth Circuit defines "whistleblower" narrowly under Dodd-Frank
On July 17, 2013, the Fifth Circuit issued the first circuit court decision interpreting Dodd-Frank’s anti-retaliation provision. In Asadi v. G.E. Energy (USA), L.L.C., the Fifth Circuit held that, to be protected under Dodd-Frank’s anti-retaliation provision, an individual must be a “whistleblower,” which is defined by the statute as an individual who has made a report to the SEC. Notably, this holding directly conflicts with the SEC’s regulations interpreting the Act, as well as five district court decisions that had all held that employees who make internal reports to company management are protected under Dodd-Frank even if they did not make reports to the SEC.
The Total S.A. Action: are administrative orders the SEC’s FCPA resolution of choice for the future?
The SEC and the Department of Justice (the “DOJ”) recently announced a $398 million settlement with Total S.A. (“Total”), a company organized and headquartered in France whose American Depositary Receipts trade on the NYSE. The settlement consisted of $153 million in disgorgement, as agreed in a settled SEC order, and a $245.2 million penalty, as agreed in a deferred prosecution agreement with the DOJ. With the combined settlement figure reaching nearly $400 million, Total was the largest FCPA settlement in years. It represents the fourth largest FCPA settlement on record and the third largest FPCA-related disgorgement to date. Total is the third French company on the top 10 FCPA settlements list and the first new entry to the top 10 list since December 2011.
Although the amount of the disgorgement and the overall settlement make the Total settlement noteworthy, it also highlights a potential trend in SEC FCPA enforcement—the increased use of administrative proceedings instead of civil court actions. After discussing a likely major driver of the use of administrative proceedings (i.e., the uncertainty of federal court action on court-filed settlements requiring judicial approval) this article outlines the different resolutions available to the SEC in FCPA cases and highlights the key distinctions between a court-ordered injunction and an administrative cease-and-desist order. It also points out what companies should keep in mind about FCPA settlements achieved via administrative orders. Finally, it examines recent trends in SEC FCPA settlements and explain why companies should expect, as in Total, to see more FCPA cases settle through administrative proceedings.
OECD releases “BEPS” action plan – a sweeping international tax effort to combat base erosion and profit shifting
The OECD’s Committee on Fiscal Affairs (the “CFA”) has published its Action Plan to address Base Erosion and Profit Shifting (the “BEPS”). This sweeping international effort aims to combat a comprehensive range of international tax reduction techniques on a scale that is without precedent.
The Action Plan follows from the directive given to the CFA by the G20 group of countries to better address global corporate taxation and builds upon the general concepts set forth in the OCED report on BEPS issued in January 2013. The Action Plan asserts: “The BEPS project marks a turning point in the history of international co-operation on taxation.”
The Action Plan will require coordinating individual OECD member (and non-member) countries to act individually (e.g., changes to legislation, regulations, administrative practices), bilaterally (e.g., through changes to bilateral treaties) or multilaterally (e.g., multilateral treaties or changes to OECD Guidelines) . Moreover, the scale of the Action Plan is vast. It has the support of the finance ministers of the G-20 - the world’s largest economies – and it includes the involvement of many emerging economies.
