On December 4, the Securities and Exchange Commission’s Division of Corporation Finance issued 14 new Compliance and Disclosure Interpretations (C&DIs) with respect to Rule 506 under the Securities Act of 1933. These C&DIs relate to the rules recently adopted by the SEC (the Bad Actor Rule) that disqualify issuers from relying on Rule 506 for securities offerings involving certain felons and other so-called “bad actors” (the persons subject to the Bad Actor Rule being referred to as covered persons). Continue Reading
On November 26, the NASDAQ Stock Market (NASDAQ) proposed an amendment to its recently amended listing rules covering the independence of compensation committee members. Earlier this year, NASDAQ adopted amendments to its listing rules regarding compensation committee composition, responsibilities and authority, which, among other things, prohibit the receipt of any consulting, advisory or other compensatory fees (excluding any fees for board or committee service) by compensation committee members. NASDAQ’s current rule proposal would remove the bright-line prohibition on compensatory fees and instead require that a company’s board, in affirmatively determining the independence of any compensation committee member, consider the source of compensation of the director (including any consulting, advisory or other compensatory fees paid by the company, without excluding fees paid for board or committee service). This proposal would harmonize NASDAQ’s requirement with that of the New York Stock Exchange.
To view the full text of NASDAQ’s proposed rule change, click here.
On December 4, the Securities and Exchange Commission approved rules proposed by the Financial Industry Regulatory Authority regarding securities loans and borrowings, permissible use of customers’ securities, and callable securities. For securities loans and borrowings, Financial Industry Regulatory Authority proposed new Rule 4314, which requires a member firm acting as an agent in a securities lending or borrowing transaction to disclose its capacity as agent. The rule aims to clarify whether parties are acting as principals or agents when entering into security lending or borrowing agreements. When member firms loan securities to or borrow securities from a counterparty acting in an agency capacity, the rule requires the member firm to maintain books and records to reflect the details of the transaction with the agent and each principal on whose behalf the agent is acting as well as the details of the transaction. The rule allows a member firm that is a party to a loan or borrowing agreement with another member firm to liquidate the transaction whenever the other party becomes subject to one of the specified liquidation conditions. Additionally, no member firm can lend or borrow any security to or from any person that is not a member of FINRA, including any customer, except pursuant to a written agreement. Each member firm subject to Securities Exchange Act Rule 15c3-3 that borrows fully paid or excess margin securities from a customer must comply with the Securities Exchange Act Rule 15c3-3 requirements for a written agreement between the borrowing member firm and lending customer. Continue Reading
The Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, Inc. and the Institute of International Bankers (collectively, Trade Associations) filed a complaint challenging the legality of the Commodity Futures Trading Commission’s Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations (Cross-Border Guidance) that was issued earlier this year. Continue Reading
The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) has delayed until January 14, 2014 the effectiveness its Advisory 13-69 issued on November 14 in which it took the position that a non-US swap dealer (SD) using personnel or agents located in the U.S. to arrange, negotiate, or execute a swap with a non-US person generally would be required to comply with transaction-level requirements for that swap. More information about Advisory 13-69 is available here.
This relief was provided in no-action letter 13-71 issued jointly on November 26 by DSIO, the Division of Clearing and Risk and the Division of Market Oversight. Pursuant to the no-action letter, non-US SDs using personnel or agents located in the United States to arrange, negotiate, or execute a swap with non-US persons that are not guaranteed affiliates or conduit affiliates of a US person are exempt, until January 14, 2014, from transaction-level requirements for such swap. However, if the counterparty for such swap is also a non-US SD, then the non-US SDs must still comply with the multilateral portfolio compression requirements and the swap trading relationship requirements under CFTC Regulations 23.503 and 23.504.
No-action letter 13-71 is available here.
The Commodity Futures Trading Commission will hold a public meeting on December 10 to discuss: (1) proprietary trading and certain interests in and relationships with covered funds; and (2) block trading for futures and options on futures on designated contract markets. Interested parties may view a webcast of the meeting at the CFTC’s website or listen to an audio feed by calling a toll-free number.
More information is available here.
The National Futures Association (NFA) issued guidance on the annual affirmation requirement for persons operating under an exemption or exclusion from commodity pool operator (CPO) or commodity trading advisor (CTA) registration. Any person claiming such exemption or exclusion must annually affirm the applicable exemption or exclusion within 60 days of the end of each calendar year. Any person that does not affirm its applicable CPO or CTA exemption will be deemed to have requested to withdraw the exemption or exclusion. The affirmation process can be completed through NFA’s online exemption system. NFA will publish on its website a list of all entities that have affirmed their continued eligibility for exemption.
More information is available here.
The Supreme Court of the State of Delaware recently reversed a Court of Chancery decision declining to appoint a receiver for a dissolved Delaware corporation, Krafft-Murphy Company, Inc. (Krafft). The Chancery Court determined that a receiver was inappropriate because Krafft had no property for the receiver to distribute to potential tort victims. The Supreme Court disagreed, holding that an unexhausted insurance policy is property of the dissolved company even after its three-year wind-up period under Delaware law. Continue Reading
The United States District Court for the Northern District of California recently denied class certification for plaintiffs alleging a claim under the Telephone Consumer Protection Act (TCPA). Plaintiffs alleged that Wise Media, LLC (Wise), illegally signed up cell phone users for subscription plans to receive texts offering trivial information such as horoscope updates and celebrity gossip. Wise then charged the plaintiffs a $9.99 monthly fee. Because the action against Wise Media was stayed, plaintiffs pursued their claim against “aggregators,” which plaintiffs alleged facilitated Wise’s purported scam by processing billings and monitoring customer complaints. Plaintiffs also accused Mobile Messengers of enrolling them in subscription plans without their consent by means of a software platform owned by Wise. Continue Reading
On November 20, US District Judge Paul G. Gardephe of the US District Court for the Southern District of New York issued a decision with potentially significant consequences for attorneys conducting internal investigations and parties seeking to obtain (or shield) disclosure of witness interview notes memorializing such investigations. Gruss v. Zwirn, 09-CV-6441 (S.D.N.Y., November 20, 2013). Judge Gardephe’s ruling, issued in a defamation action brought against a hedge fund by a former employee, followed a request for clarification after an earlier ruling in July. Through the two rulings, Judge Gardephe ordered production, for in camera inspection by the court, of interview notes prepared by outside counsel for the fund pertaining to 21 witnesses whose statements were obtained in the course of an internal investigation. The witness statements were voluntarily disclosed to the Securities and Exchange Commission, in summary form, through PowerPoint presentations. Judge Gardephe found that the fund’s voluntary production of the PowerPoint presentations to the SEC containing summaries of what the 21 witnesses told outside counsel during the internal investigation constituted a subject-matter waiver warranting the production of the underlying witness interview notes, subject to redaction of opinion work product material (which plaintiff in the defamation action did not seek).