Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

SEC Adopts Final Rules for Regulation A+ Offerings

Posted in SEC/Corporate

On March 25, the Securities and Exchange Commission adopted final rules that will expand the exemption from registration under the Securities Act of 1933 provided by Regulation A to include an exemption for up to $50 million of securities sold during a 12-month period in accordance with the new rules. This new exemption, which is often referred to as Regulation A+, implements Section 401 of The Jumpstart Our Business Startups Act (JOBS Act) (adding Section 3(b)(2) of the Securities Act), which required the SEC to adopt rules that would have the effect of updating and expanding Regulation A. The final rules address a number of comments received by the SEC in response to its December 2013 proposal, which was discussed in a prior edition of Corporate and Financial Weekly Digest. Continue Reading

FINRA Issues Notice on New Rules and Amendments Relating to Transaction-Based Compensation, Membership and Sanctions

Posted in Broker-Dealer

The Financial Industry Regulatory Authority released Regulatory Notice 15-07 to alert member firms of the new consolidated rules regarding payments to unregistered persons and membership. The notice also alerts member firms of amendments to a FINRA rule regarding sanctions related to improper payments by member firms to persons subject to suspension, revocation, cancellation, bar or other disqualification. Continue Reading

FINRA Issues Guidance on Effective Supervision for Firms Engaging in Algorithmic Trading Strategies

Posted in Broker-Dealer

The Financial Industry Regulatory Authority released Regulatory Notice 15-09 to provide guidance to member firms and market participants on effective supervision and control practices with respect to algorithmic trading strategies. This notice is one of seven FINRA initiatives related to equity market structure and automated trading activities. These initiatives are designed to increase the amount of information that FINRA receives and to provide more transparency to investors. Continue Reading

SEC Proposes to Amend Rule 15b9-1

Posted in Broker-Dealer

The Securities and Exchange Commission is proposing to amend Rule 15b9-1 under the Securities Exchange Act of 1934, as amended, to require broker-dealers that engage in off-exchange proprietary trading to become members of a registered national securities association such as the Financial Industry Regulatory Authority. Under the proposed amendment, an affected broker-dealer will have 360 days after the publication of the final rule in the Federal Register to become a member of FINRA. The proposed amendment would narrow the exemption from membership in a national securities association for certain broker-dealers. The SEC’s proposal would narrow the exemption so that firms that are not focused on trading on an exchange and are responsible for a substantial percentage of trading volume in the off-exchange market may no longer be exempt. Continue Reading

SEC Staff Clarifies Regulation SHO FAQ 2.5(B) on Order Marking

Posted in Broker-Dealer

As reported in the March 20 edition of the Corporate & Financial Weekly Digest, the staff of the Securities and Exchange Commission’s Division of Trading and Markets (Staff) issued new frequently asked questions (FAQs) relating to Regulation SHO. As discussed below, during recent discussions with Katten, the Staff clarified that the scope of new FAQ 2.5(B) is limited to the specific scenario set forth in the Staff’s guidance. Continue Reading

CFTC Issues Advisory on Ownership and Control Reporting

Posted in CFTC

The Division of Market Oversight (DMO) and Division of Swap Dealer and Intermediary Oversight (DSIO) of the Commodity Futures Trading Commission have issued an advisory on ownership and control reporting (OCR) for futures commission merchants, clearing members, foreign brokers, swap dealers and certain reporting markets. In 2013, the CFTC adopted changes to its OCR requirements, including changes to OCR forms that identify market participants that own or control reportable positions in certain futures or swaps and provide detailed market participant data to the CFTC. CFTC staff have subsequently issued temporary no-action relief to extend the dates by which reporting parties must begin using the new OCR forms. Continue Reading

Fourth Circuit Sustains Securities Fraud Claim Against Drug Manufacturer

Posted in Litigation

On March 6, the US Court of Appeals for the Fourth Circuit found that the United States District Court for the Western District of North Carolina had erred in dismissing a class action lawsuit filed under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) because the lower court had inappropriately relied on regulatory filings provided to the Securities and Exchange Commission and had incorrectly applied case law precedent. The plaintiff class contended that the defendants, Chelsea International, Ltd. and several of its corporate officers, materially misled investors over the risk associated with securing Food and Drug Administration (FDA) approval for a blood pressure medication that Chelsea was developing. Notably, the plaintiffs alleged that defendants had misled investors to believe that the FDA would approve the drug at issue based on the results of only one successful efficacy study, even though the FDA repeatedly had warned Chelsea that two successful studies and evidence of “duration of effect” would be necessary for approval of the new drug. The Fourth Circuit first held that the District Court erred in finding that the plaintiffs had failed to demonstrate the scienter necessary to sustain a securities fraud claim under the Exchange Act. The Fourth Circuit found that the District Court erred in its scienter analysis by considering SEC documents submitted by the defendants that were not integral to the complaint. The documents purportedly showed that the defendants did not sell any Chelsea stock during the class period. However, stock sales were never a part of the plaintiffs’ complaint and thus, the Fourth Circuit reasoned that the lower court should not have considered these SEC documents as evidence of the defendants’ intentions. Further, the Fourth Circuit held that material, non-public information known to the defendants about the status of the drug application conflicted with the defendants’ public statements on those subjects, which was an inconsistency the Fourth Circuit deemed sufficient to establish the severe reckless conduct necessary to establish an inference of scienter in securities fraud cases.

Zak v. Chelsea Therapeutics No. 13-2370 (4th Cir. Mar. 16, 2015)

 

Software Company to Face Suit Over Contract Restructuring

Posted in Litigation

The United States District Court for the Northern District of California sustained a securities fraud complaint alleging that the defendants, a software company and its executives, had defrauded investors by failing to disclose that the company had systematically restructured contracts with its customers for the purpose of accelerating revenue recognition. Continue Reading

ESMA Updates Q&A on the AIFMD

Posted in EU Developments, Financial Markets, Private Investment Funds

On March 26, the European Securities and Markets Authority (ESMA) published an updated questions and answers (Updated Q&A) of the application on the Alternative Investment Fund Managers Directive (AIFMD). The Updated Q&A includes updated and new questions and answers on reporting, notification, additional own funds and scope as discussed below. Continue Reading

Delaware Proposal Banning Fee-Shifting and Permitting Exclusive Forum Provisions

Posted in SEC/Corporate

Following the unexpected May 2014 decision of the Delaware Supreme Court in ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), upholding the validity of fee-shifting bylaws of a non-stock corporation, the plaintiffs’ and defense bar in Delaware swiftly prepared legislation to ban such provisions in bylaws and charters. Although passage of the bill had widely been expected, following criticism from the US Chamber of Commerce and some public companies, the issue was tabled until the Delaware legislature’s 2015 session. Continue Reading