JUNE 2014




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Dear <<First Name>>,

Please find below the June 2014 issue of the US 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.

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



SEC settles financial fraud charges with issuer, CFO
The Securities and Exchange Commission (the “SEC”) settled financial fraud charges against an issuer which discovered and remediated a series of accounting issues and the CFO who caused the books and records to be falsified, eventually resulting in a restatement. SEC v. DGSE Companies Inc., Civil Action No. 14-1909 (N.D. Tx. Filed May 27, 2014).

See the SEC Actions blog entry here.

Lawyers as SEC enforcement targets, what a fund manager needs to know

In a move that should place securities lawyers and their clients on notice, Commissioner Kara Stein of the SEC recently indicated that lawyers may become targets of SEC enforcement actions when a registrant has been poorly advised by its attorney and the result of that advice ends up harming investors or violating regulatory standards.  The SEC has the ability to sanction, fine and bar attorneys and accountants from practicing before the SEC pursuant to SEC Rules of Practice 102(e).  As a practical matter, a bar pursuant to Rule 102(e) precludes an attorney or an accountant from representing a regulated entity, such as an investment adviser or broker dealer, in any further dealings with the SEC or otherwise.

See the full Investment Fund Law Blog entry here.

See the Cadwalader article here.

SEC brings lawsuit against unregistered broker dealer

On May 15, 2014, the SEC filed a complaint against Behrooz Sarafraz in California federal court, alleging Sarafraz violated federal securities laws by acting as an unregistered broker dealer. According to the SEC, between February 2002 and April 2010, Sarafraz participated in the offer and sale of securities by TVC Opus I Drilling Program, LP and its managing partner, Tri-Valley Corporation. The SEC alleged that Sarafraz described the investment program to prospective investors and recommended that they purchase securities. Sarafraz allegedly received approximately $18.3 million in commissions, $1.9 million of which he paid to others for their referrals. The SEC asserted that these actions violated Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and it sought an order requiring Sarafraz to disgorge illicit gains and pay a civil penalty, in addition to an injunction against further violations. The SEC announced that Sarafraz agreed to settle, without admitting or denying the allegations, by paying over $22.4 million in disgorgement plus interest and a civil penalty, and by consenting to an injunction. (Securities and Exchange Commission v. Behrooz Sarafraz, C.A. No. 3:14-cv-02252 (N.D. Cal. May 15, 2014).)
See the Corporate Financial Weekly Digest article here.
See the Investment Fund Law blog entry here.
See the Stinson Leonard Street article here.

Mary Jo White explains enforcement action decisions

Mary Jo White, Chair of the SEC, recently explained decisions in enforcement actions to a group of white collar crime lawyers.
"Ever wonder why some cases draw both criminal and civil charges but others do not?" Chair White talks through the progressive analysis but in the end notes “The bottom line is that the decision of whether a case will go criminal will typically turn on the strength of the evidence and the type of offense under investigation – which are the appropriate factors to consider in making such a determination.”
See the full article on the site here.

All relief sought by SEC subject to 5-year statute of limitations

As we reported last year, the U.S. Supreme Court’s decision in Gabelli v. SEC precludes the SEC from using the “discovery rule” to extend the five-year statute of limitations on the government’s claims for civil penalties available under 28 U.S.C. § 2462. In Gabelli, the Supreme Court expressly declined to address whether the statute of limitations under Section 2462 also applies to disgorgement and an injunction. U.S. District Judge James King in the Southern District of Florida answered that question in the affirmative. In issuing a Final Order of Dismissal in SEC v. Graham, Judge King significantly expands Gabelli by applying Section 2462 to all forms of relief, not just civil penalties, sought by the SEC in that matter.  Given that SEC investigations often take years, this decision likely will incentivize the SEC to expedite investigations and charging decisions.
See the Subject to Inquiry article here.
See the Barnes & Thornburg article here.
See the Bryan Cave article here.
See the Cahill Gordon memorandum here.
See the SEC Actions blog entry here.

Seventh Circuit ruling reaffirms: the financial industry compliance crackdown continues

The need for risk and compliance officers is skyrocketing as lenders and financial market participants remain under strict scrutiny in the wake of the 2008 financial crisis. J. P. Morgan Chase & Co. recently announced plans to add 13,000 officers to its compliance staff.  Sharp oversight and regulation has resulted in severe penalties for market participants. Industry members have faced astronomical costs for failure to supervise operations. A recent Seventh Circuit ruling reaffirms that government agencies and courts will apply the law to the fullest extent to promote financial industry compliance.

See the Baker & Hostetler update here.

Financial fraud actions - the new SEC staple?

With the creation last year of the Financial Reporting and Audit Task Force, the SEC is returning to one of its enforcement staples – financial statement fraud. Following then Chairman Levitt’s “Numbers Game Speech” in 1998 the SEC brought a series of significant financial statement fraud actions against issuers, their executives and in some instances the auditors and third parties. The driving force behind the wrongful conduct was often the same: Making the numbers or meeting street expectations.
Some commentators have argued that with the passage of Sarbanes-Oxley things have changed, and financial statement fraud is less prevalent. In probability it will be some time before the results of the Task Force work, and that of its partner, the Division of Economic and Risk Analysis, are known.
See the SEC Actions blog entry here.

SEC alleges fraud from unregistered offerings of oil and gas securities

On May 12, 2014, the SEC brought a lawsuit in the US District Court for the Northern District of Texas, alleging that between September 2010 and January 2012, Charles Couch, directly and through his company, Couch Oil & Gas, raised approximately $9.8 million from investors in two unregistered offerings of oil and gas securities. According to the SEC, defendants made false representations to investors in brochures and other documents, including the promise to use all funds to drill and complete wells. The SEC alleged that, contrary to the defendants’ representations, defendants spent only 35% of investors’ funds on costs associated with drilling and used almost 30% of the funds to pay sales commissions to unregistered brokers. The SEC charged defendants with violating Sections 5(a), 5(c) and 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10(b) thereunder. It seeks disgorgement of profits, civil penalties and an injunction preventing defendants from future violations.  (Securities and Exchange Commission v. Charles Couch and Couch Oil & Gas, Inc., C.A. No. 3:14-cv-01747-D (N.D. Tex. May 12, 2014).)
See the Corporate Financial Weekly Digest article here.

Financial Industry Regulatory Authority

SEC approves amendments to FINRA's Corporate Financing Rule

In May 2014, the SEC approved the Financial Industry Regulatory Authority’s (“FINRA”) proposed amendments to Rule 5110, commonly called the Corporate Financing Rule.  The Corporate Financing Rule addresses commercial fairness in underwriting and other arrangements for the distribution of securities. Rule 5110 provides for review by FINRA of underwriting or other arrangements in connection with most public offerings in order to enable FINRA to assess the fairness and reasonableness of proposed underwriting compensation and arrangements. In addition, the underwriters of an offering must comply with a variety of substantive provisions in Rule 5110, even if the offering is exempt from filing.

See the Morrison & Foerster article here.

See the Latham & Watkins article here.

See the full blog entry by Stinson Leonard Street here.

FINRA proposes changes to FINRA Rules 7410 and 2121

FINRA is proposing to amend FINRA Rule 7410 to permit members which, under FINRA Rule 7410, are not considered to be “reporting members” (i.e., because, among other things, such members route order information to a single “reporting member”) to route any order information to two “reporting members” without being deemed to be a “reporting member.” Such permission is conditioned on a member routing orders to each of the two “reporting members” on a pre-determined schedule approved by FINRA for a time period not to exceed one year.
Separately, as part of FINRA’s initiative to develop a new consolidated rulebook, FINRA is proposing changes to FINRA Rule 2121 to adopt current National Association of Securities Dealers ("NASD") Rule 2440 and Interpretive Material 2440-1 and 2440-2 as FINRA Rule 2121, which generally provide that members buying or selling securities for their own accounts shall buy or sell at a price that is fair, and members buying or selling securities as agents for customer accounts shall charge commissions that are fair, without any substantive changes thereto
See the Corporate Financial Weekly Digest article here.

FINRA moves to make expungement independent

FINRA operates the Central Registration Depository (“CRD”) – the central, publicly-accessible licensure and registration information source on the US securities industry.  Industry members seek to remove – “expunge” –  unfounded or merely negative information from their CRD records, while regulators seek to keep a full and accurate record available to the public.
See the Burr Securities Litigation article here.

FINRA clarifies reporting requirements for Tier 1 capital securities

For some time now, there has been confusion regarding the appropriate trade reporting for certain hybrid securities. Hybrid securities, such as non-cumulative perpetual preferred securities and depositary shares, have certain features typically associated with equity securities and certain features typically associated with debt securities.  Traditionally, trust preferred securities and non-cumulative perpetual securities were reported to FINRA’s Trade Reporting and Compliance Engine (“TRACE”) system (as debt securities).
Following the enactment of the Dodd-Frank Act and the implementation of the Basel III capital rules in the United States, trust preferred securities and other “innovative” hybrid securities that once qualified for favorable regulatory capital treatment have generally been phased out.  Banks have instead come to rely upon the issuance of non-cumulative preferred stock to raise Tier 1-qualifying capital.  Increased issuance activity may have led FINRA to revisit the manner in which hybrid securities transactions should be trade reported.
See the Morrison & Foerster article here.

SEC confirms that FINRA may investigate non-FINRA companies controlled by a FINRA member

Challenging FINRA’s expansive powers to request information and documents under Rule 8210 can be a career-ending move, as demonstrated by In the Matter of Gregory Evan Goldstein, Release No. 71970. The case involved a FINRA investigation of Gregory Evan Goldstein, an associated person at Marquis, a FINRA member firm. FINRA ordered Mr. Goldstein to produce documents related to “Wall Street at Home,” a non-FINRA company in which Mr. Goldstein was a majority owner. When Mr. Goldstein refused, FINRA barred him from association.
On April 17, 2014, the SEC affirmed FINRA’s decision, confirming that FINRA has a right to seek documents related to any business controlled by a FINRA member, even if the business being targeted is not itself a FINRA company.
See the full Bryan Cave article here.

Broker-Dealer Topics

Securities regulators are inspired by an academic article to seek information regarding order routing

Apparently attempting to understand how broker-dealers provide best execution in the face of incentives to trade at certain exchanges, the SEC and FINRA are asking broker-dealers for extensive transaction information regarding how they route trades to exchanges.  By collecting this data, the regulators can monitor how firms, that have an incentive to trade with the exchanges offering the highest rebates, handle potential conflicts of interest with customers, who seek best execution. The regulators’ requests appear to grow out of an academic paper recently published by several academics at the Indiana University and University of Notre Dame business schools.
See the BDI Regulator article here.

Specific steps broker-dealers and investment advisers should take in response to the SEC's Cybersecurity Initiative

On April 15, 2014 the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released a Risk Alert announcing its Cybersecurity Initiative.
Through this initiative, the OCIE staff will conduct cybersecurity examination of approximately 50 broker-dealers and investment advisers. Notably, the Risk Alert includes a sample of the types of questions and information the OCIE staff would be requesting as part of these investigations. As noted by John Reed Stark, the SEC’s former chief of Internet enforcement and now a managing director at Stroz Friedberg: “[w]ith the public disclosure of this questionnaire, the SEC is giving up the surprise of one aspect of their exam program and opting to provide to SEC-registered financial firms a rare chance to prepare.”
See the full Securities Litigation Matters article here.

SEC and FINRA to hold compliance outreach programs for broker-dealers

The SEC and FINRA are partnering to sponsor regional compliance outreach programs for broker-dealers.  The programs, which launched on April 30, 2014 in Denver and Los Angeles, are designed for risk, audit, legal, and compliance professionals who are employed by broker-dealers and will focus on promoting strong compliance practices.  Additional programs are scheduled in other cities in coming months.
See the full article by Perkins Coie here.

Insider Trading

SEC settles five insider trading actions, cooperation key

The SEC filed two groups of settled insider trading actions centered on the merger of eBay, Inc. with Pennsylvania based e-commerce company GSI Commerce, Inc., announced on March 28, 2011. The first group traces to Christopher Saridakis as the source of the information, then the CEO of the Marketing Solutions division of GSIC. SEC v. Saridakis, Civil Action 152397 (E.D. Pa. Filed April 25, 2014): In the Matter of Sunken A. Shah, Adm. Proc. File No. 3-15856 (Filed April 25, 2014): In the Matter of Shimul A. Shah, Adm. Admin. Proc. File No. 3-15857 (April 25, 2014).
The other traces to the wife of a corporate insider, neither of whom are identified. In the Matter of Oden Gabay, Adm. Proc. File No. 3-15854 (April 25, 2014); In the Matter of Aharon R. Yehuda, Adm. Procc. File No. 3-15855 (April 25, 2014). The SEC was substantially assisted in its investigation by an individual who entered into a non-prosecution agreement, the first with an individual, and others who cooperated.
See the SEC Actions blog entry here.

Government swimming upstream at Second Circuit oral argument on downstream insider trading liability

The Justice Department has been bullish over its rigorous enforcement of insider trading over the past year, but recently, a Second Circuit panel raised questions regarding the government’s theory of liability that led to the conviction of two “downstream” traders. Before the court was the issue of whether tippees – recipients of inside information – can be convicted if they did not know that the tipper received any personal benefit for disclosure of inside information. The case may implicate how far downstream from the insider prosecutors can go in prosecuting “remote tippees” for insider trading.
See the White Collar blog entry here.

Three company founders settle SEC insider trading case

Most insider trading cases center on news about a corporate event such as an acquisition or an earnings announcement that has not become public. In SEC v. Lawson, Civil Action No. 3:14-cv-02157 (N.D. Cal. Filed May 12, 2014) the SEC brought an action against three company founders who traded on inside information that press rumors driving the price of Lawson Software Inc. shares up were false.
See the SEC Actions blog entry here.

Foreign Corrupt Practices Act

The Eleventh Circuit provides long sought-after clarification of the Foreign Corrupt Practices Act

On May 16, 2014 the U.S. Court of Appeals for the Eleventh Circuit issued an opinion in United States v. Joel Esquenazi, et al, affirming the government’s broad interpretation of what constitutes a “government instrumentality” under the Foreign Corrupt Practices Act (“FCPA”). For several years, the Department of Justice (the “DOJ”) and the SEC have brought enforcement actions against employees of companies alleged to be engaged in corrupt practices involving state-owned enterprises, including state-owned hospitals and construction firms, with the understanding that such entities were “government instrumentalities” under the FCPA. In cases such as United States v. Lindsey Manufacturing, defense lawyers have countered that such broad definitions cannot apply where a company acts as a commercial participant in a country’s economy. However, until last week the DOJ’s and SEC’s broad interpretation had never been tested in a court of appeals.
See the full Hogan Lovells article here.

See the full Paul Hastings article here.

See the full Arnall Golden Gregory article here.
See the SEC Actions blog entry here.
See the Mayer Brown article here.

Recent Cases

Three options for institutional investors pursuing claims against non-U.S. issuers in the wake of Morrison and City of Pontiac

In its 2010 Morrison decision, the Supreme Court decided that Section 10(b) of the Exchange Act only reaches “transactions in securities listed on domestic exchanges” and “domestic transactions in other securities,” regardless of whether the alleged fraudulent conduct occurred within the United States or caused a substantial effect within the United States.  Morrison v. National Australian Bank Ltd., 561 U.S. 247, 266 (2010); contrast Alfadda v. Fenn, 935 F.2d 475, 478-79 (2d Cir. 1991).  
Morrison did not foreclose Section 10(b) claims for purchases of American Depository Shares or American Depository Receipts.  Indeed, investor class actions asserting Section 10(b) claims for ADS or ADR purchases are not uncommon.  As a result of this door left open by Morrison, both foreign and U.S. investors have argued that they should be able to pursue Section 10(b) claims for purchases of common stock on a foreign exchange so long as the company has shares cross-listed on a U.S. exchange.  This became known as “listing theory.”
See the Securities Litigation Matters article here.

Avoidance of securities transactions - investor exposure

The finality of securities transactions is critical not only to investors but also to global securities markets whose stability depends upon a very basic, but crucial, assumption: once a securities transaction is complete, it cannot be undone. However, in the wake of the Ponzi scheme perpetrated by Bernard Madoff, this fundamental assumption has been challenged and courts have had to determine whether and under what circumstances a transfer in connection with a securities transaction can be recovered by a bankruptcy trustee. A series of high-profile decisions from the Southern District of New York in the Madoff bankruptcy case have explored the contours of Section 546(e) of the Bankruptcy Code, one of the so-called “safe harbor provisions” that seek to protect transferees from having to return money paid in connection with the closing of a securities transaction. These decisions have been largely favorable to investors, even though the transferor (i.e. Bernard Madoff) was engaged in a Ponzi scheme. They are now on appeal before the Second Circuit Court of Appeals, but a recent decision by the Seventh Circuit Court of Appeals in the case of Grede v. FCStone, LLC addresses several of the same issues and may shed some light on how the Second Circuit will rule.
See the full Tannenbaum Helpern Syracuse & Hirschtritt article here.

Court rejects two common methods of proving reliance on class-wide basis

Plaintiffs in a securities fraud class action containing over 2,000 individual investors were unable to convince a New York District Court that the reliance element of their claims was susceptible to a common method of proof for all putative class members thereby precluding certification under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
Plaintiffs alleged that defendants misrepresented the involvement a certain individual, known for his investment expertise, would have in the management of their portfolios. Plaintiffs claimed that they and other putative class members relied on those representations in deciding to purchase defendants’ securities, that the representations were false, and that they lost millions of dollars as a result.  Plaintiffs recognized that proving reliance, or “transaction causation” in the court’s parlance, is usually an individualized inquiry that presents an obstacle to class certification.   Therefore, Plaintiffs proposed two common methods of proving reliance on a class-wide basis:  the Affiliated Ute presumption and circumstantial evidence of class-wide reliance.
See the Carlton Fields Jorden Burt blog entry here.
See the 10b-5 Daily article here.

Eleventh Circuit holds that Dodd-Frank amendments to the Commodity Exchange Act expand enforcement authority of the Commodity Futures Trading Commission

The US Court of Appeals for the Eleventh Circuit recently decided in a case of first impression that amendments to the Commodity Exchange Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act expand the enforcement authority of the Commodity Futures Trading Commission (the “CFTC”) to a broader class of retail customer transactions made on a leveraged, margined or otherwise-financed basis.
The CFTC brought a civil enforcement action against 20 defendants, including the Chief Executive Officer and Chief Operating Officer of Hunter Wise, a brokerage firm (Appellants), alleging that they violated the Commodity Exchange Act by conducting off-exchange and fraudulent retail commodity transactions.
See the Katten Muchin article here.

Fourth Circuit holds that criminal enforcement of Rule 10b-5 violation is not limited to "makers" of statements

On May 7, 2014, the Fourth Circuit held that the Supreme Court’s decision in Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), did not apply in the context of a criminal prosecution for a violation of Rule 10b-5. See Prousalis v. Moore, No. 13-6814, 2014 U.S. App. LEXIS 8584 (May 7, 2014). Thus, under the Fourth Circuit’s interpretation of Janus, persons who are not the “maker” of a statement for purposes of private liability under Rule 10b-5 may nonetheless be subject to criminal prosecution for violations of Rule 10b-5.
See the Haynes and Boone article here.
See the Katten Muchin Rosenman article here.

Regulatory and Compliance

Additional SEC guidance on well-known seasoned issuer waivers

On March 12, 2014, the Division of Corporation Finance (“Division”) of the SEC issued revised guidance on well-known seasoned issuer (“WKSI”) waivers.  The Division further updated this guidance on April 24, 2014 (the “April 2014 guidance”).
In the April 2014 guidance, the Division clarified its framework for determining whether a showing of good cause has been established in a WKSI ineligibility waiver request, specifying that: where there is a criminal conviction or a scienter based violation involving disclosure for which the issuer or any of its subsidiaries was responsible, the issuer's burden to show good cause that  a waiver is justified would be significantly greater.
See the full Mayer Brown article here.

Regulation A+: a new path to accessing the markets for small issuers?

The SEC has proposed new rules implementing Section 3(b)(2) of the Securities Act pursuant to the mandate under Title IV of the Jumpstart Our Business Startups (the “JOBS Act”).  Also known as Regulation A+, the proposed rules intend to help smaller companies get better access to capital by expanding upon the existing Regulation A.
See the full Chadbourne Park article here.

Separate financial statements and the SEC's disclosure effectiveness project

SEC Division of Corporation Finance Director, Keith Higgins, recently suggested that the SEC will review the rules requiring separate financial statements or separate financial information under certain circumstances for acquired companies, investees, and guarantors. This review will be conducted as part of the SEC’s project to improve its disclosure regime. Although Higgins’s April remarks noted that the information may be quite material to investors, he also observed that the application of these rules may be challenging at times and compliance can be costly.   Higgins suggested that the SEC staff consider whether the rules should have bright-line tests or a more general principle of materiality.
See the Morgan Lewis blog entry here.

SEC proposes recordkeeping and reporting rules for security-based swaps

On April 17, 2014, the SEC proposed several new rules relating to security-based swaps. The rules deal with “recordkeeping, reporting, and notification requirements applicable to security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”), securities count requirements applicable to certain SBSDs, and additional recordkeeping requirements applicable to broker-dealers to account for their security-based swap and swap activities.”
Specifically, the SEC is proposing to amend Rules 17a-3, 17a-4, 17a-5 and 17a-11 to establish a recordkeeping, reporting and notification program for broker-dealer SBSDs and broker-dealer MSBSPs.

See the Corporate Financial Weekly Digest article here.

Privacy concerns and the proposed Reg AB II revisions relating to asset level data

In February 2014, the SEC once again re-opened the comment period with respect to proposed revisions to Regulation AB relating to the disclosure of asset-level data after receiving many public comments relating to privacy law compliance issues.  On the same date, the SEC released a memorandum outlining an alternative means for disseminating asset-level data in an attempt to address such concerns.  Regulation AB governs the offering, disclosure and reporting process for asset-backed securities.  In 2010, as a result of the financial crisis and the perceived role that securitization played in it, the SEC released a series of proposed revisions to Regulation AB (“Reg AB II”).  In 2011, the SEC re-proposed portions of its Reg AB II proposal to take into account the passage of the Dodd-Frank Act and other developments since the date of the initial proposal. This most recent comment period closed on April 28, 2014 with many commenters feeling that the memorandum falls short of resolving the myriad of privacy concerns expressed by industry participants and consumer protection advocates.

See the Morrison & Foerster article here.

CFTC issues no-action letter regarding the resubmission of rejected trades

On April 18, 2014, the Division of Clearing and Risk and Division of Market Oversight of the CFTC issued a no-action letter indicating that it will not recommend an enforcement action against a designated contract market (“DCM”) that allows a market participant to correct a clerical or operational error or omission and resubmit as a new trade a swap transaction that was rejected by a derivatives clearing organization (“DCO”).

See the Corporate Financial Weekly Digest entry here.

Noteworthy News

SEC chair highlights Commission's accounting priorities

In a recent speech, SEC Chair Mary Jo White highlighted the Commission’s accounting priorities, indicating, among other things, that the Commission plans to issue a statement regarding International Financial Reporting Standards (“IFRS”) in the relatively near future and that she has asked the SEC staff to examine the existing audit committee report to make it more useful to investors. Chair White discussed whether IFRS should apply to domestic issuers, saying that “considering whether to further incorporate IFRS into the U.S. financial reporting system [continues to be] a priority for me.” With respect to the audit committee report, she stated that the “audit committee reporting requirements have not changed significantly in a number of years, and I think it is time to take a look at whether improvements can be made.”

See the Morgan Lewis blog entry here.

Committee passes JOBS Act related bills

The House Financial Services Committee passed several bills designed to promote capital formation, including:

  • HR 4200, the Small Business Investment Companies (“SBICs”) Advisers Relief Act, introduced by Rep. Blaine Luetkemeyer (R-MO). The bill was approved 56-0.
  • H.R. 4200 amends the Investment Advisers Act of 1940 to reduce unnecessary regulatory costs and eliminate duplicative regulation of advisers to SBICs.
  • H.R. 4554, the Restricted Securities Relief Act, introduced by Rep. Mick Mulvaney (R-SC). The bill was approved 29-28.  H.R. 4554 would streamline the process for reselling restricted securities to the public under an SEC rule in order to increase liquidity in the private securities markets and the availability of capital for small companies and to reduce its cost.

See the Morrison & Foerster article here.

And we thought things were going well...

Recently, the Committee on Capital Markets Regulation published information regarding the competitiveness of our US capital markets. See the Committee’s site here for detailed statistics that seem to focus principally on whether foreign issuers are looking to the United States for their IPOs. The report notes that “While the overall U.S. IPO market did see renewed signs of strength in the first quarter, increasing 41% in volume over the first quarter of 2013 ($11 billion versus $7.8 billion), foreign issuers accounted for relatively little of that activity. In fact, a number of key measures of market competitiveness showed dramatic declines over previous years, including: U.S. share of global IPOs by foreign companies decreased to 5.4%, the lowest level since 2008 and a substantial decline from the 11.4% recorded in 2012. This measure remains far below the historical average of 26.8% (1996-2007).”

See the full article by Morrison & Foerster here.

FATCA: action steps for funds

In 2010, the United States Congress enacted the Hiring Incentives to Restore Employment Act, which included provisions known as the Foreign Account Tax Compliance Act (“FATCA”). The purpose of FATCA is to prevent U.S. persons from evading U.S. tax through the use of non-U.S. entities, by requiring such entities to disclose U.S. account information to the relevant governmental authorities. U.S. and non-U.S. investment funds will be impacted by FATCA and will potentially be subject to U.S. withholding tax under FATCA unless they comply with certain requirements, including requirements relating to investor due diligence and the reporting of U.S. account information to the relevant governmental authorities. As part of their FATCA compliance processes, non-U.S. investment funds must first determine their classification under FATCA, and assess whether they need to register their FATCA status with the U.S. tax authorities and the deadlines for registration. The FATCA classification of a non-U.S. investment fund is critical as this in turn drives the manner of FATCA compliance for such fund. FATCA classification analyses should be completed as soon as possible for non-U.S. investment funds and before July 1, 2014, when FATCA withholding begins.

See the full Baker & McKenzie article here.

SEC Guidance on the use of Social Media

SEC Division of Corporate Finance issues new Compliance and Disclosure Interpretations relating to social media use

On April 21, 2014, the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (“C&DIs”) regarding the use of social media in the context of securities offerings, business combination transactions and other similar transactions, providing guidance to issuers seeking to use social media in compliance with certain SEC rules, including rules requiring the inclusion of legends in various public communications.

See the Corporate Weekly Financial Digest article here.
See the Morgan Lewis article here.

See the full Hunton & Williams article here.

SEC staff issues guidance permitting hyperlinks to cautionary statements and legends in social media communications
See the Hogan Lovells update here.


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