In a recent decision in In re Investor Bancorp, Inc. Stockholder Litigation, the Delaware Court of Chancery held that a fully informed stockholder vote approving adoption of an equity incentive plan also ratified subsequent equity awards to individual directors under the plan. The court found that the plan included limits on grants to directors as a beneficiary group, as opposed to “generic” limits applicable to all plan beneficiaries. In dismissing the shareholder derivative suit, the court applied the business judgment standard of review to the directors’ decision to make the awards to themselves.
In 2015, the directors of … Read more
Although the Trump administration has announced only one of its selections for top positions at the Antitrust Division of the U.S. Department of Justice (“DOJ”) or the Federal Trade Commission (“FTC”), the election of President Donald J. Trump sets the stage for a potentially significant recalibration of federal antitrust enforcement by the U.S. agencies.
Republican administrations historically have taken a less interventionist approach to antitrust enforcement than their Democratic counterparts, and the Trump administration has an unprecedented opportunity to shape antitrust policy through several key appointments.
Still, many of President Donald Trump’s policy positions have not tracked traditional Republican paradigms, … Read more
Over the last three decades, U.S. and global securities markets have undergone tremendous change, driven by globalization, advances in information technology, and regulatory choices at the federal and international levels. The days of adventuresome floor trading and concerns of safeguarding ink-and-paper securities have given way to electronic order books within a multi-venue exchange system and to concerns about safeguarding interconnected global trade networks lead by SIFI’s. Artificial intelligence systems and distributed ledger technologies on the horizon have further potential to disrupt the landscape.
Markets today are dramatically different from those of 30 or 50 years ago, and a new comprehensive … Read more
The Financial Stability Oversight Council is the only regulatory body in the United States with an express mandate to “identify risks to the financial stability of the United States” and to “respond to emerging threats to the stability of the United States financial system.” But the FSOC is not a stand-alone agency; rather it is a council of regulators, lacking sufficient staff or resources to operate on its own. To function, the FSOC must leverage the expertise of its component agencies – including the Securities and Exchange Commission.
There have been several subtle (and not-so-subtle) tugs-of-war between the FSOC and … Read more
A federal court in Utah recently held that the Securities and Exchange Commission may bring an enforcement action based on allegedly foreign securities transactions involving non-U.S. residents if sufficient conduct occurred in the United States.
The March 28, 2017 ruling in SEC v. Traffic Monsoon, LLC (D. Utah) appears to be the first decision squarely resolving whether the Dodd-Frank Act succeeded in allowing the Government to pursue such claims. The court recognized that the Act’s grant of “jurisdiction” to federal courts over enforcement actions relating to non-U.S. securities transactions had inartfully responded to the Supreme Court’s ruling in Morrison v. … Read more
It’s back. Congress is trying to kill class actions again. Last year, Representative Robert Goodlatte introduced a one-paragraph dagger, H.R. 1927, requiring that all class members’ damages be of “the same type and scope.” To many, this language meant that class members’ damages had to be identical. This requirement was perilous because it meant, for instance, that in securities-fraud class actions, where class members necessarily buy different numbers of shares, purchasers could never bind together as a class since their damage amounts would be different. Because that bill explicably limped through the House, the Senate didn’t bother voting on it.… Read more
On March 27, 2017, the Supreme Court granted certiorari in a potentially significant securities case addressing the scope of claims under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, based solely on alleged omissions of material information. Leidos, Inc. Indiana Public Retirement System, Supreme Court No. 16-581. The Supreme Court will resolve a split between the Second and Ninth circuits caused by the Second Circuit’s holding that issuers may be liable for federal securities fraud by omitting information required to be disclosed by SEC regulations, even if those omissions do not render affirmative disclosures … Read more
The world of Harry Potter is divided into wizards and muggles, those who can work magic, and those who (sadly) cannot. In the world of US federal securities laws, the division between domestic US companies and foreign private issuers, or FPIs, is just as important. While FPIs don’t have magical powers — at least that we know of — FPIs do enjoy some very important advantages under special rules and accommodations established by the US Securities and Exchange Commission (SEC).
How do you know if you are a foreign private issuer?
A company must pass one of the following tests … Read more
The Supreme Court has long held that “[s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5.” And such a duty to disclose only arises where necessary to make a statement already made not misleading, thus allowing companies to “control what they have to disclose … by controlling what they say to the market.” On March 27, 2017, in Leidos, Inc. v. Indiana Public Retirement System, the court granted certiorari to determine whether, in the absence of any need to correct a prior statement, there exists a separate disclosure duty under Item 303 of SEC … Read more
Each year, hot on the heels of the federal government’s September 30 fiscal year end, the Securities and Exchange Commission proclaims that it has once again filed a record (or near-record) number of enforcement actions. But the main event for true SEC nerds (yes, we exist) arrives early the following calendar year, when the agency gets around to quietly posting its more detailed enforcement report, breaking out enforcement actions by subject matter and providing other quantitative signposts.
Ordinarily, the annual statistics (or “stats” in SEC vernacular) illustrate trends that may be helpful in anticipating the future direction of the agency … Read more
Thank you, Larry [Glosten], for that kind introduction. I also want to thank you, Merritt Fox, and Edward Greene — the directors of Columbia University’s Program in the Law and Economics of Capital Markets — for all that you do to advance informed capital markets regulation. The Program’s various projects continue to provide market participants, academic researchers, students, and regulators with valuable resources that are not available elsewhere.
I am delighted to have the opportunity to address you today and to join you in kicking off the Program’s newest project, the New Special Study of the Securities Markets. A … Read more
In 2016, the Securities and Exchange Commission (SEC) issued a Concept Release on Regulation S-K as part of its comprehensive review of the effectiveness of federal disclosure rules. The release included for the first time a request for comment on whether and how sustainability information should be incorporated into periodic reporting under federal securities law. The SEC previously issued guidance in 2010 showing how information on material climate-related risks should be disclosed in companies’ financial reports. Other studies have also shown that nonfinancial information (referred to generally as “environmental, social, and governance” (ESG) disclosure) is material to firms, depending on … Read more
The so-called “short-swing profit rule” under Securities Exchange Act Section 16(b) generally prohibits officers and directors as well as 10 percent shareholders of a U.S. public company from profiting from any purchase or sale (or sale and purchase) of the company’s equity securities within a period of less than six months. However, Rule 16b-3 permits a company’s board of directors and qualifying board committees to take actions that exempt from the short-swing profit rule most transactions under the company’s equity-based compensation programs.
For example, many companies take steps so that the common practice often referred to as “net settlement,” in … Read more
On March 1, 2017, the Securities and Exchange Commission (“SEC”) issued a notice and request for comment, together with proposed and final rules intended to update certain disclosure requirements:
- Hyperlinks to Exhibits in SEC Filings. The SEC adopted a final rule requiring issuers to include a hyperlink to each exhibit in the filing’s exhibit index. The rule, originally proposed in August 2016, becomes effective September 1, 2017, or September 1, 2018 for smaller reporting companies and companies that are neither large accelerated filers nor accelerated filers.
- XBRL Reporting Requirements for IFRS Users. The SEC issued a notice that
… Read more
Mandatory disclosure sits at the foundation of modern securities regulation. Public companies must produce and share a wide variety of information about their condition and prospects, and they must do so on their own dime.
There can be little doubt that corporate information has great social value. Much has been written on the connection between more informative securities prices, on the one hand, and improved capital allocation and corporate governance, on the other. Nevertheless, it is equally as clear that having the government dictate the amount, format, and timing of corporate disclosure will leave society with less than the optimal … Read more
Crowdfunding is an exciting development that uses the power of the internet to allow entrepreneurs and startups to efficiently raise financing from a large number of people who each contribute a small amount of money. It breaks with the past by enabling companies to locate investors through a passive internet platform rather than through the active selling efforts of a traditional broker-dealer intermediary. Websites like Kickstarter, Indiegogo and GoFundMe helped popularize the concept and led Congress to legalize a variety of new ways for companies to raise capital through sales of stock and other securities. Regulation Crowdfunding (“Reg CF… Read more
In his statement announcing the appointment of Jay Clayton to run the Securities and Exchange Commission (SEC), President Donald Trump said that “we need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers.” Taken together, President Trump’s emphasis on deregulation, his statement in connection with Clayton’s appointment and Clayton’s professional experiences indicate a clear intention to shift the SEC’s agenda in terms of both regulation and enforcement priorities.
Leadership changes throughout the SEC will position the agency to implement these changes this … Read more
On January 22, 2016, the Delaware Court of Chancery signaled the demise of “disclosure-only” settlements in M&A stockholder lawsuits with its decision in In re Trulia, Inc. Stockholder Litigation. Arguing that the “optimal means by which disclosure claims in deal litigation” should be through adjudication rather than the settlement process, the Chancery Court cautioned that it would “continue to be increasingly vigilant in applying its independent judgment to its case-by-case assessment of the reasonableness of the ‘give’ and ‘get’” of disclosure-only settlements. The Chancery Court offered its “hope and trust that [its] sister courts will reach the same … Read more
It was predictable. Given a solidly Republican Congress and a Republican president, sooner or later, an effort would be made in the Trump administration to curb class actions. Not surprisingly, it has come sooner, with the “Fairness in Class Action Litigation Act of 2017” (H.R. 985). A motley assortment of procedural “reforms”—some good, many bad, and most overbroad—H.R. 985 has been introduced by Representative Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee. Much of this bill is a reincarnation of a similar class action “reform” bill that passed the House in 2015, but died in the Senate (possibly because … Read more