Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

SEC Investor Advisory Committee Releases Recommendations on Changes to Accredited Investor Definition

Posted in Dodd-Frank Developments, SEC/Corporate

On October 9, the Investor Advisory Committee (Committee) established by the Securities and Exchange Commission released its recommendations for changes to the definition of “accredited investor” included in Rule 501 promulgated under the Securities Act of 1933 (Securities Act). Specifically, these recommendations relate to the determination of “accredited investor” status with respect to natural persons. The Committee’s recommendations are part of the SEC’s review of such definition that was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Continue Reading

FINRA Proposes to Revise Implementation Date for Supplemental Inventory Schedule

Posted in Broker-Dealer

On October 10, the Financial Industry Regulatory Authority, Inc. proposed a rule change to revise the implementation date for the Supplemental Inventory Schedule (SIS) approved in SR-FINRA-2014-025. The due date for the first SIS, which will disclose inventory positions for the reporting period ending December 31, will be January 30, 2015. FINRA states the due date revision will provide additional time for member firms to make any necessary systems changes to comply with SR-FINRA-2014-025. 

FINRA’s proposed rule filing is available here.

ISE Proposes to Amend Rules Regarding Information Barriers Between Customer and Proprietary Businesses

Posted in Broker-Dealer

On September 30, the International Securities Exchange, LLC (ISE) proposed amendments to ISE Rules 810 (Limitations on Dealings) and 717 (Limitations on Orders) concerning information barriers between a member firm’s Electronic Access Member (EAM) unit and its affiliated Primary Market Maker or Competitive Market Maker (Market Maker) units. In pertinent part, the current version of Rule 810 bilaterally restricts the sharing of order information between a member’s EAM unit handling customer/agency business and its affiliated Market Maker units. The proposed amendments to Rule 810 will allow an EAM to know where and at what price an affiliated Market Maker is either quoting or has orders on the order book and to use that information to influence routing decisions. The proposed amendments also will allow an EAM to route a customer order to ISE where its affiliated Market Maker is either quoting or has an order on the order book so that the two orders immediately interact. Continue Reading

CFTC Provides Additional Relief to Certain Delegating CPOs

Posted in CFTC, Dodd-Frank Developments

In response to industry comment, on October 15 the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) provided further relief from commodity pool operator (CPO) registration to a CPO that has delegated investment management authority (Delegating CPO) to another person registered as a CPO (Designated CPO). CFTC Letter No. 14-126 supersedes relief DSIO had provided earlier this year, as reported in the May 16, 2014 edition of the Corporate Financial Weekly Digest. The earlier relief, CFTC Letter No. 14-69 (May 12, 2014), provided a streamlined process for a Delegating CPO to request no-action relief from CPO registration, but nonetheless required the Delegating CPO to file a written request for relief and for DSIO to provide a written response. Continue Reading

Delaware Chancery Rejects Books and Records Demand as Time-Barred

Posted in Litigation

The Delaware Court of Chancery recently found that a shareholder’s demand for books and records was time-barred, as the alleged basis for a derivative action occurred nearly seven years ago and thus was well beyond any statute of limitations. In 2008, plaintiffs brought a federal securities class action against Monster Beverage Corporation based on alleged insider trading in 2006 and 2007. Anastasia Wolst, who held Monster common stock since 1999, did not join the class action, but did join a contemporaneous derivative action based on the same underlying claims. The securities class action recently settled, and the derivative action ultimately failed for inability to establish demand futility. In 2012, Wolst made an unsuccessful demand on Monster’s board to bring litigation regarding the alleged insider trading. In 2013, she asked to inspect Monster’s books and records concerning the board’s rejection of her litigation demand. The court found Wolst’s books and records demand lacked a proper purpose since the basis for her anticipated derivative claim—the insider trading allegations—occurred nearly seven years ago, well beyond the presumptive three-year statute of limitations. In particular, the court found that Wolst’s delay in making her demand was unreasonable in light of her participation in the earlier derivative action and constructive knowledge of the purported insider trading. Notably, the court considered whether the pendency of the securities class action tolled the statute of limitations and the period for evaluating the laches defense against Wolst’s derivative claims. The court declined to extend to Wolst’s case the tolling principle articulated in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), which protects stockholders’ direct, as opposed to derivative, claims.      

Wolst v. Monster Bev. Corp., C.A. No. 9154-VCN (Del. Ch. Oct. 3, 2014).

Investment Adviser Challenges Constitutionality of SEC Administrative Proceedings

Posted in Litigation

A registered investment adviser and its principal recently sued the Securities and Exchange Commission for declaratory and injunctive relief to stave off an imminent administrative enforcement action, alleging that the tenure and removal provisions governing SEC administrative law judges (ALJs) violate Article II of the US Constitution. Continue Reading

Beneficial Owner Disclosure and Its Potential Impact on Global Financial Businesses

Posted in UK Developments

As part of the continued international focus on combatting cross-border tax evasion and other financial crimes, during the June 2013 Lough Erne Summit presided over by the United Kingdom (G8 Summit), the G8 countries agreed to a set of principles intended to increase the level of transparency of ownership of companies. Continue Reading

EU Commission Adopts New Prudential Rules Applicable to Financial Institutions

Posted in EU Developments

On October 10, the European Commission (Commission) adopted two delegated acts (Delegated Acts) under the Capital Requirements Regulation ((EU) 575/2013) (CRR):  

  • the Liquidity Coverage Requirement Regulation (LCR Regulation), applicable to EU credit institutions (banks) setting out detailed quantitative liquidity rules; and
  • the Leverage Ratio Regulation (Leverage Regulation), setting out details for banks across the European Union on how to apply the existing rules on the leverage ratio in a uniform manner.

The CRR was adopted in June 2013 as the single rulebook for prudential requirements for all financial institutions in the European Union and included general rules on liquidity and leverage in addition to powers of the Commission to adopt delegated acts containing specific detailed rules in each of these areas. Each of these Delegated Acts attempts to deal with structural weaknesses that became apparent during or subsequent to the recent financial crisis in the operations of EU banks. Highlights of both the LCR Regulation and the Leverage Regulation are set out below together with links to the relevant legislation. Continue Reading

SEC Division of Corporation Finance Issues New C&DI Related to Rule 147 and Website/Social Media Use

Posted in SEC/Corporate

On October 2, the Securities and Exchange Commission’s Division of Corporation Finance issued a new Compliance and Disclosure Interpretation (C&DI) regarding whether an issuer of securities may use its own website or social media to offer securities in a manner consistent with Rule 147 under the Securities Act of 1933 (Securities Act). Rule 147 provides objective standards for satisfying the exemption from registration provided by Section 3(a)(11) under the Securities Act (which generally exempts from registration securities offered and sold by an issuer if the transaction is wholly intrastate, meaning the issuer and all the offerees/purchasers are residents of the same state).   Continue Reading