Corporate & Financial Weekly Digest : Corporate Finance Lawyers & Attorneys for Legal Developments in Business & Financial Services

Co-authored by Avi Badash.

The Financial Industry Regulatory Authority has issued Regulatory Notice 11-52 (the Notice) to remind firms of their supervisory obligations regarding the use of certifications and designations that imply expertise, certification, training or specialty in advising senior investors (“senior designations”). Examples of senior designations that FINRA has observed include “certified senior adviser,” “senior specialist,” “retirement specialist” or “certified financial gerontologist.” FINRA encourages firms to consider the practices described in the Notice in assessing their own procedures and implementing improvements that will best protect their customers. The Notice provides that, at a minimum, firms must have supervisory procedures in place reasonably designed to prevent their registered persons from using a senior designation in a manner that is unethical or misleading. In addition, all advertisements and sales literature as defined in NASD Rule 2210(a), including communications that include the use of senior designations, must be approved in writing by a registered principal prior to use pursuant to NASD Rule 2210(b)(1). The Notice also includes recommended practices used by some firms that were provided to FINRA in response to a FINRA survey of 157 firms on the use and prevalence of senior designations. Those practices include standards by which firms approve senior designations, reviews of communications with the public to detect violative practices, required training sessions, and periodic certifications of senior designations.

Click here to read Regulatory Notice 11-52.

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Co-authored by Avi Badash.

The Financial Industry Regulatory Authority has issued Regulatory Notice 11-51 to advise firms that the Preliminary Renewal Statements are available online on FINRA’s Web CRD/IARD. The Preliminary Renewal Statements include a list of renewal fees, including: Web CRD system processing fees; FINRA branch office fees; FINRA branch renewal processing fees; maintenance fees for the various exchanges; state agent renewal fees; state broker dealer renewal fees; state broker dealer branch fees; investment adviser firm and representative renewal fees; and broker-dealer and/or investment adviser branch renewal fees. Full payment of the firms’ Preliminary Renewal Statements must be received by FINRA no later than December 12, 2011. Firms may pay by check, wire transfer, or the Web CRD/IARD E-Pay application. FINRA will automatically transfer funds from a firm’s daily account to its renewal account if the firm has not paid by December 12, provided there are sufficient funds in the daily account to cover the amount due. Failure by a firm to remit full payment of its Preliminary Renewal Statements to FINRA by December 12, 2011, may cause the firm to become ineligible to do business in the jurisdictions where it is registered, effective January 1, 2012. If a firm wishes to transfer funds between affiliated firms, the firm should submit a Web CRD/IARD Account Transfer Form available on FINRA’s website.

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Co-authored by Dean N. Razavi.

In a patent infringement suit between two competing technology firms, the U.S. District Court for the Northern District of California adopted the “Model Order on E-Discovery in Patent Cases” recently promulgated by a subcommittee of the Advisory Council of the Federal Circuit.

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Co-authored by Dean N. Razavi.

The Delaware Court of Chancery granted a motion to certify a class of investor plaintiffs in a limited liability company, dismissing a claim raised by the defendant manager that there was a conflict of interest among class members.

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In Revenue Ruling 2011-29 (the Ruling), the Internal Revenue Service (IRS) reversed a long-held position to now permit accrual-basis employers to accrue employee bonuses for federal income tax deduction purposes, even though the amount to be paid to specific employees is not known at the end of the year. Previously, the IRS had held that the deduction could not be claimed until both the identity of the bonus recipient and the specific amount of that bonus are both known.

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On November 17, a statement was issued by the Bureau of Consumer Financial Protection (CFPB), the three federal banking agencies, and the National Credit Union Administration that explains how the total assets of an insured bank, thrift or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). Under section 1025 of the Dodd-Frank Act, the CFPB has exclusive authority to examine for compliance with federal consumer financial laws and primary authority to enforce those laws for institutions with total assets of more than $10 billion, and their affiliates. Section 1026 of the Dodd-Frank Act confirms that the four prudential regulators—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency—will retain supervisory and enforcement authority for other institutions. The policy statement issued on November 17 clarifies the application of sections 1025 and 1026 of the Dodd-Frank Act by addressing two key matters: the measure to be used to determine asset size and the schedule for making such determinations.

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On November 15, the European Parliament passed a resolution adopting, with amendments, the European Commission's proposal for a regulation on short selling and certain aspects of credit default swaps (CDS).

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On November 16, the European Securities and Markets Authority (ESMA) published its final advice to the European Commission on possible implementing measures under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD).

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Co-authored by Kari E. Hoelting

On November 3 the U.S. House of Representatives passed H.R. 2930 (the “Entrepreneur Access to Capital Act”) and H.R. 2940 (the “Access to Capital for Job Creators Act”).

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Co-authored by David S. Kravitz

On November 9, the Securities and Exchange Commission approved new rules proposed by the New York Stock Exchange LLC, NYSE Amex LLC and the NASDAQ Stock Market LLC that toughen the listing standards for issuers that become public through reverse mergers. A reverse merger is a transaction in which an unlisted private operating company becomes public via a merger with a publicly traded shell company, which is generally a company with no material business operations.

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Co-authored by Elizabeth D. Langdale

The United States District Court for the Eastern District of New York recently addressed the question of how to designate a lead plaintiff in a class action brought under the Private Securities Litigation Reform Act (PSLRA) where the original named plaintiff withdraws.

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Co-authored by Ann M. Kim

The Department of Labor (the DOL) recently issued guidance that clarifies how advisers can provide investment advice to retirement plan participants in a manner that protects both the participant and the provider. The final rule, released by the DOL on October 24, allows investment advisers to provide individualized investment advice to participants in account balance plans, (401(k) plans, profit-sharing plans, and IRAs) if either (i) the advice is provided pursuant to a computer model certified as unbiased and as applying generally accepted investment theories, or (ii) the adviser is compensated on a “level-fee” basis (i.e., fees do not vary based on investments selected by participants).

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On November 7, the Federal Deposit Insurance Corporation (FDIC) announced that it is changing the virtual data room hosting company used to help market failing financial institutions. Beginning in November 2011, the FDIC will begin using the RR Donnelley (the site is known as "Venue") instead of IntraLinks, which will continue to host projects initiated before November 2011 until they are resolved.

For more information, click here.
 

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Raj Date, the acting head of the Consumer Financial Protection Bureau, announced on November 9 that the bureau will begin a targeted review to identify and address outdated, unnecessary and unduly burdensome regulations. Speaking before the American Bankers Association's Community Bankers Council, Mr. Date stated, "I have been a vocal critic of the efficiency and effectiveness of bank regulation for my entire career. As an institution, we have no emotional attachment to the way things have been done in the past. If it doesn't make sense, we're going to stop doing it." Date noted that the bureau has inherited from other agencies numerous regulations that have been on the books for years, and invited bankers to provide input to identify the rules that should be priority candidates for review.

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On November 2, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a list of Frequently Asked Questions (FAQs) related to its prepaid access rule originally issued by FinCEN in July. The FAQs were issued to help providers and sellers of prepaid access in understanding the scope of the recordkeeping and reporting requirements related to the prepaid card business under the Bank Secrecy Act (BSA).

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On November 9, the UK Financial Services Authority (FSA) announced that it had fined Rameshkumar Goenka (Goenka), a Dubai based private investor, $9,621,240 for manipulating the closing price of Reliance Industries (Reliance) securities on the London Stock Exchange (LSE).

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Co-authored by Avi Badash.

The Securities and Exchange Commission has issued Release No. 34-65663 (the Release) requesting comment on the Financial Industry Regulatory Authority’s proposed amendments to its proposed rule change regarding communications with the public. In July, FINRA proposed new FINRA Rule 2210 (the Rule) regarding communications with the public. FINRA proposed that the Rule replace the current six communication categories with three new categories: institutional communication, retail communication, and correspondence, and that the rule prescribe approval, review, record-keeping, filing, and content requirements to such communications. A summary of the proposal can be found in the July 22, 2011 edition of Corporate and Financial Weekly Digest.

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Co-authored by Avi Badash.

The Financial Industry Regulatory Authority has issued Regulatory Notice 11-50 regarding amendments to FINRA Rule 9251 (the Rule). The Rule describes the types of documents that FINRA’s Enforcement and Market Regulation Departments must produce to respondents during the discovery phase of a FINRA proceeding. The Rule explicitly protects certain types of documents from production (e.g., documents protected by attorney-client privilege or attorney work-product). As a result of the approved amendments, the Rule also protects documents that federal law prohibits FINRA from disclosing. The Rule removes FINRA’s previous requirement to seek a good cause determination from a hearing officer to allow FINRA to withhold such documents. The Rule also prohibits a hearing officer from ordering Enforcement or Market Regulation to either produce or reveal information about the existence of a document to a respondent if federal law prohibits such disclosure. The amendment, however, contains a procedural safeguard allowing a hearing officer to review a document to determine whether federal law prohibits its disclosure by Enforcement or Market Regulation.

Click here to read Regulatory Notice 11-50.

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Co-authored by Jason Clouser.

The U.S. District Court for the Eastern District of Pennsylvania granted a motion to dismiss a fraud claim against two corporate officers in a case arising out of a failed business relationship between two companies that sell products used in fundraising efforts.

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Co-authored by Jason Clouser.

The U.S. Court of Appeals for the Fourth Circuit recently affirmed the denial of a preliminary injunction motion by Bethesda Softworks, LLC (Bethesda), finding that the district court did not abuse its discretion by looking to factors outside of the agreement between the parties in ruling on the motion.

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On September 21, the Internal Revenue Service announced the launch of the Voluntary Classification Settlement Program (VCSP), a new voluntary and low cost program to allow employers to reclassify as employees for future tax periods workers who had been misclassified as independent contractors.

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The Financial Crimes Enforcement Network (FinCEN) has announced that it will hold an informational webinar on Wednesday, November 9, from 3:00 to 4:00 p.m. EST that will highlight the new regulatory requirements of the Prepaid Access Final Rule, its intent and purpose, and the regulatory expectations.

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