Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

Bylaw of Delaware Corporation Providing for Exclusive Forum in North Carolina Upheld

Posted in SEC/Corporate

In City of Providence v. First Citizens Bancshares, Inc., C.A. No. 9795 (Del. Ch. Sep. 8, 2014), Delaware Chancellor Bouchard upheld a bylaw adopted by the board of directors of a corporation incorporated in Delaware providing that intra-corporate disputes be litigated exclusively in North Carolina. City of Providence relies heavily upon then-Chancellor Strine’s June 2013 opinion in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.3d 934 (Del. Ch. 2013) (Chevron), which found that exclusive forum bylaws are facially valid. Continue Reading

FINRA Board to Consider Rule Proposals Regarding Private Trading Platforms

Posted in Broker-Dealer

The Board of Governors (the Board) of the Financial Industry Regulatory Authority is scheduled to meet on September 19 to consider rule proposals requiring heightened oversight of computerized trading strategies and greater transparency and disclosures by private trading platforms. The FINRA Board will consider issuing guidance regarding a member firm’s obligations to supervise the development, testing and use of algorithmic trading strategies, and will consider a rule proposal requiring the registration of employees who develop or supervise the development of computerized strategies used to facilitate algorithmic trading. The proposals also would require alternative trading systems (ATSs) to provide FINRA with additional order book information (e.g., buy and sell orders) to enhance FINRA’s surveillance and oversight of ATSs. Currently, ATSs (also referred to as dark pools) do not post buy and sell orders, but only report trades after they take place.  

After the September 19 meeting, FINRA will notify member firms via email about the FINRA Board’s actions on the proposed items and anticipated next steps, if any. 

Click here to read the FINRA Board’s Rulemaking Items for Discussion at the September 2014 Meeting. 

CBOE and C2 in Discussions With FINRA for Regulatory Services

Posted in Broker-Dealer

CBOE Holdings Inc., the parent company of the Chicago Board Options Exchange (CBOE) and the C2 Options Exchange (C2), has issued a news release announcing that CBOE and C2 are in discussions with the Financial Industry Regulatory Authority (FINRA) on a potential regulatory services agreement pursuant to which FINRA would provide regulatory services to the CBOE and C2 options markets. If terms can be agreed to, a regulatory services agreement could potentially be finalized within the next few months. The agreement may include the transition to FINRA of certain CBOE regulatory services staff and options surveillance staff. In that event, CBOE and C2 would still be responsible for the regulation of their markets and would maintain an in-house regulatory team to, at a minimum, manage CBOE and C2 regulatory oversight programs and oversee the FINRA regulatory services relationship. Regulation of the CBOE Futures Exchange is not anticipated to be part of the regulatory services agreement with FINRA. 

Click here to read CBOE Holdings Inc.’s September 11, 2014 News Release.

SEC Proposes Rule for Communications Involving Security-Based Swaps

Posted in Derivatives

On September 8, the Securities and Exchange Commission proposed a rule providing that publication or distribution of quotes involving security-based swaps that may be purchased only by eligible contract participants would not be deemed offers of such security-based swaps for the purposes of Section 5 of the Securities Act of 1933 (1933 Act). While security-based swaps are currently traded over-the-counter, the SEC anticipates that additional rulemaking under Title VII of the Dodd-Frank Act will require certain security-based swaps to be traded on regulated markets, such as security-based swap execution facilities or national securities exchanges. Because such markets will be accessible to persons that are not eligible contract participants, publication and distribution of price information on such markets could be considered offers of security-based swaps that would be subject to the registration requirements of the 1933 Act. The proposed rule seeks to address this concern by providing that such communications do not constitute offers of security-based swaps. 

Comments on the proposed rule must be submitted to the SEC by November 10. 

The text of the SEC release is available here.

CFTC Aligns CPO Regulation With JOBS Act, Provides Other Guidance for CPOs

Posted in CFTC

The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) recently issued several letters affecting commodity pool operators (CPOs): 

  • JOBS Act Harmonization: On September 9, DSIO issued exemptive relief to permit CPOs that have claimed relief under CFTC Regulation 4.7(b), or an exemption from CPO registration under CFTC Regulation 4.13(a)(3), to engage in general solicitation and advertising in the marketing of their pools, consistent with the Jumpstart Our Business Startups Act (JOBS Act). This relief was necessitated by inconsistencies between these existing CFTC Regulations, which contained express prohibitions on public marketing, and the JOBS Act’s liberalization of the private placement regime under the Securities Act of 1933 (1933 Act) to permit general solicitation and advertising in certain circumstances. The CFTC relief is available to CPOs that are engaging in an offering pursuant to Rule 506(c) of Regulation D under the 1933 Act, or which use a reseller in reliance on Rule 144A under the 1933 Act. However, the relief is not self-effectuating, and must be claimed by filing a notice that includes required information with DSIO. Letter No. 14-116 is available here. Continue Reading

OTC Derivatives Regulators Issue Report Regarding Cross-Border Issues

Posted in CFTC

On September 10, the Over-the-Counter Derivatives Regulators Group (ODRG) issued a report providing an update to the Group of 20 (G20) on its progress in resolving over-the-counter (OTC) derivatives cross-border implementation issues. The ODRG stated it will continue to develop approaches to address potential gaps and duplications in regulating branches and affiliates and the treatment of organized trading platforms and implementation of the G20 commitment that all standardized OTC derivatives contracts be traded on exchanges or electronic trading platforms. The ODRG also described its progress toward implementing previously reached understandings in areas of (1) equivalence and substituted compliance between jurisdictions, (2) clearing determinations, (3) margin requirements for non-centrally cleared derivatives, and (4) trade repository data access and reporting. Finally, the ODRG reported that it has requested that the Financial Stability Board take steps to facilitate the removal of barriers to the reporting of counterparty-identifying information to trade repositories. 

The ODRG Report is available here

First Bitcoin Swap Proposed

Posted in Digital Assets and Virtual Currencies

According to Reuters reports on September 12, TeraExchange, LLC, received approval from the Commodity Futures Trading Commission to begin listing an over-the-counter swap that is based on the price of a bitcoin. The CFTC approval marks the first time a US regulatory agency approved a bitcoin financial product. In March, TeraExchange announced the finalization and submission to the CFTC of its non‑deliverable forward swap agreement framework for bitcoin, which allows parties to hedge against fluctuations on the Tera Bitcoin Price Index exchange rate for bitcoin. According to Reuters, to obtain CFTC approval, TeraExchange was required to create an Index that was sufficiently resistant to manipulation. The CFTC previously approved TeraExchange for temporary registration as a swap execution facility in late 2013. 

Click here to read the Reuters report.

Eighth Circuit Clarifies False Claims Act Pleading Standards for Whistleblowers

Posted in Litigation

The United States Court of Appeals for the Eighth Circuit recently held that whistleblowers may satisfy the False Claims Act’s (FCA) heightened pleading standards without providing representative examples of false claims, such as invoices, as long as they provide other indicia of their reliability, such as personal knowledge of allegedly fraudulent practices. Planned Parenthood of the Heartland, Inc. (Planned Parenthood) is a nonprofit organization in Iowa that provides services to patients, including those eligible for Medicaid, through clinics in various locations. From 1991 to 2008, Susan Thayer served as a manager for two such clinics. Based on her personal knowledge of Planned Parenthood’s billing practices, Ms. Thayer brought a qui tam action alleging that Planned Parenthood had violated the FCA and similar state laws by submitting false or fraudulent claims for Medicaid reimbursement. Because Ms. Thayer did not include representative examples of the purportedly false invoices, the trial court dismissed her complaint for failure to plead her claims with particularity as required by Federal Rule of Civil Procedure 9(b). The Eighth Circuit affirmed in part and reversed in part, finding that neither Rule 9(b) nor applicable caselaw requires representative examples to be submitted with every FCA complaint that alleges a systematic practice or scheme of submitting false claims. The Eighth Circuit’s holding follows other circuits that have concluded a whistleblower can satisfy Rule 9(b)’s heightened pleading standard by “alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”  

Thayer v. Planned Parenthood of the Heartland, Inc., Case No. 13-1654 (8th Cir. Aug. 29, 2014).  

Investment Management Firm Discloses Wells Notice Over Performance Claims

Posted in Litigation

F-Squared Investments, Inc. (F-Squared), a registered investment manager that provides portfolios of exchange-traded funds (ETFs), recently disclosed that it received a Wells notice from the Securities and Exchange Commission recommending enforcement action over the performance claims of certain fund indexes. According to F-Squared’s most recent Form ADV, the SEC investigation covered the performance record of certain fund indexes from April 2001 through September 2008 (the Relevant Period). In various advertising materials, F-Squared represented that performance records were based on buy and sell signals used by a wealth management firm to make investment decisions during the Relevant Period. F-Squared acquired the data signals used in performance reporting for the Relevant Period in September 2008, and in October 2013 removed references to performance records from all advertising materials. In May 2014, F-Squared alerted clients that the SEC had informed it that the wealth management firm had not used buy and sell signals to manage assets, with the result that performance results for certain indexes had been substantially overstated. F-Squared, its CEO and a related entity received a Wells notice regarding the performance claims last month. F-Squared noted that it has cooperated with the investigation and will continue to do so. 

F-Squared’s most recent Form ADV is available here.

Banking Agencies Request Comment on Proposed Questions and Answers Regarding Community Reinvestment

Posted in Banking

On September 8, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency requested comment on proposed revisions to the “Interagency Questions and Answers Regarding Community Reinvestment” (Q&As). The Community Reinvestment Act (CRA) requires each federal financial supervisory agency to assess the record of a financial institution in helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The agencies consider that record when reviewing certain licensing applications by an institution. The interagency Q&As provide guidance for use by agency personnel, financial institutions, and the public for the interpretation of the requirements of the agencies’ regulations implementing the CRA. Continue Reading