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

Co-authored by Jonathan D. Weiner

On December 1, the staff of the Securities and Exchange Commission announced that, “to further enhance the transparency of the filing review process,” effective January 1, 2012, it will release (through the EDGAR system) comment letters and response letters relating to filings reviewed by the Divisions of Corporation Finance and Investment Management no earlier than 20 business days following completion of a filing review.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Jonathan D. Weiner

On December 8, the staff of the Securities and Exchange Commission’s Division of Corporation Finance announced that it will limit the circumstances in which it will review initial registrations statements of foreign private issuers that are submitted to the staff on a non-public basis.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Christopher H. Mendoza

The Commodity Futures Trading Commission will hold a public meeting on December 20 at 9:30 a.m. (EST) to consider the following rules:

(1) Final Rule on Real-Time Reporting of Swap Transaction Data;
(2) Final Rule on Swap Data Recordkeeping and Reporting Requirements; and
(3) Final Rule on Effective Date for Swap Regulation

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Avi Badash

The United States Bankruptcy Court for the Southern District of New York issued a memorandum decision in the Lehman Brothers Inc. (LBI) liquidation proceeding confirming the LBI trustee’s determination that certain claims relating to TBA contracts do not qualify as customer claims against LBI’s estate.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Jason F. Clouser

Plaintiff Kimberton Healthcare Consulting, Inc. d/b/a DialysisPPO (DPPO), a provider of benefits consulting services, brought an action alleging breach of contract, violation of the Pennsylvania Uniform Trade Secrets Act (PUTSA) and various tort claims against Primary Physiciancare, Inc. (PPC), a privately held medical management company.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Jason F. Clouser

On December 12, the Securities and Exchange Commission charged a subsidiary of GlaxoSmithKline with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder in connection with the company’s stock buybacks between November 2006 and April 2009.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Michael R. Durnwald

One of the many changes brought by health care reform requires employers to report the value of employer-sponsored health coverage on employees’ W-2s.

• Email This
• Print
• Comments
• Trackbacks

On December 8, the Office of the Comptroller of the Currency (OCC), announced via Bulletin OCC 2011-47 (the Bulletin) that it intends to fully integrate the Office of Thrift Supervision (OTS) policy guidance documents into a common set of supervisory policies that applies to both national banks and federal savings associations.

• Email This
• Print
• Comments
• Trackbacks

On November 29, the Office of the Comptroller of the Currency (OCC) proposed a rule to remove references to credit ratings from various OCC regulations and related guidance "to assist national banks and federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments." Comments may be submitted through December 29.

• Email This
• Print
• Comments
• Trackbacks

In action related to the removal of credit ratings from the Office of the Comptroller of the Currency (OCC) investment securities regulation, discussed in this issue of Corporate and Financial Weekly Digest, all three federal bank regulatory agencies, the OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation, announced on December 7 they are seeking comment on a notice of proposed rulemaking (NPR) that would amend an earlier NPR announced in December 2010.

• Email This
• Print
• Comments
• Trackbacks

The Federal Reserve Board on December 5 announced the designation of the chairs and deputy chairs of the 12 Federal Reserve Banks for 2012. Each Reserve Bank has a nine-member board of directors. The Board of Governors in Washington appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair. Following are the names of the chairs and deputy chairs designated by the Board for 2012:

• Email This
• Print
• Comments
• Trackbacks

On December 12, the UK Financial Services Authority (FSA) published its Report on the failure of the Royal Bank of Scotland (RBS) and the FSA’s conduct in relation to it.

• Email This
• Print
• Comments
• Trackbacks

On December 13, the UK Financial Services Authority (FSA) and HM Treasury published joint consultation paper (CP11/28) UK implementation of the Directive amending the EU Prospectus Directive and the EU Transparency Directive (2010/73/EU). The Amending Directive came into force on December 31, 2010, and must be implemented by EU member states by July 1, 2012. Two aspects of the Amending Directive (increasing the minimum number of investors and the minimum total consideration for an exemption from the obligation to produce a prospectus) were implemented in the UK in July 2011. The consultation paper sets out how the UK intends to implement the remaining provisions of the Amending Directive.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Daniel J. Silverthorn.

On December 5, the chief accountant of the Securities and Exchange Commission, James L. Kroeker, stated in a speech before the National Conference of the American Institute of Certified Public Accountants (AICPA) that the SEC’s staff will need “a few additional months” to prepare a final report concerning a possible incorporation of International Financial Reporting Standards (IFRS) for U.S. issuers. Kroeker noted that he was encouraged about the potential prospects of IFRS incorporation in the United States, and stated that creating a strong and lasting framework was more important than a rapid timeframe for adoption and implementation.

• Email This
• Print
• Comments
• Trackbacks

The International Swaps and Derivatives Association is responsible for a trio of recent developments with respect to the collateralization of derivative transactions using ISDA Credit Support Annexes.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza and Christian B. Hennion.

The Commodity Futures Trading Commission has adopted amendments to CFTC Rules 1.25 and 30.7 that would narrow the scope of permissible investments for customer funds held by futures commission merchants (FCMs) and derivatives clearing organizations (DCOs) in the customer segregated account maintained under section 4d(a)(2) of the Commodity Exchange Act or the foreign futures and foreign options secured amount account maintained in accordance with CFTC Rule 30.7. Among the key investment categories that will no longer be permitted under the amended rule are (i) foreign sovereign debt obligations, (ii) commercial paper and corporate notes or bonds (other than certain instruments that are fully guaranteed by the U.S. government pursuant to the Temporary Liquidity Guarantee Program (TLGP)), and (iii) inter-affiliate resale and repurchase transactions and certain internal transactions (i.e., “internal repos”).

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza and Christian B. Hennion.

If a swap execution facility (SEF) or designated contract market (DCM) makes a “swap available to trade,” all other SEFs and DCMs listing or offering that swap or an economically equivalent swap must also make those swaps available to trade for purposes of the trade execution requirements of section 2(h)(8) of the CEA. The Commodity Futures Trading Commission has now proposed a rule setting forth the process by which SEFs and DCMs may make a swap “available to trade.”

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza and Christian B. Hennion.

The Commodity Futures Trading Commission has adopted final rules (which are substantially similar to the proposed rules) that replace the existing system of staff-issued no-action letters with a registration system for foreign boards of trade (FBOTs) seeking to provide their members or other participants located in the U.S. with direct access to the FBOT’s electronic order entry and trade matching system. The standards and procedures for registration (as well as an appendix containing two application forms—one for the FBOT and one for the clearing organization—and describing the information required to be submitted as part of an application) are set out in a new Part 48 of the CFTC’s regulations.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza, and Christian B. Hennion.

Amendments made to the Commodity Exchange Act by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) require that an agreement, contract or transaction in any commodity that is entered into with, or offered to, a non-eligible contract participant or non-eligible commercial entity on a leveraged, margined, or financed basis must be conducted on a regulated exchange and be subject to the Commodity Futures Trading Commission’s anti-fraud authority, unless actual delivery of the commodity is made within 28 days. The CFTC has issued an interpretation of the term “actual delivery” containing guidance on how the CFTC will construe this requirement.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza, and Christian B. Hennion.

The Commodity Futures Trading Commission’s Division of Market Oversight has issued a guidebook containing additional guidance and detailed instructions for submitting large swap trader reports required by new Part 20 of the CFTC’s rules. Clearing organizations and clearing members were required to begin reporting on cleared swaps on November 21, 2011, and are required to begin reporting on uncleared swaps on January 20, 2012. Fully compliant month-end open interest reports must be collected beginning in September 2011 through February 2012 and submitted to the CFTC by March 20, 2012.

The Guidebook for Part 20 Reports is available here.
 

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Maureen C. Guilfoile, Christopher H. Mendoza, and Christian B. Hennion. 

The Commodity Futures Trading Commission’s Technology Advisory Committee will hold a public meeting on December 13, to address: (1) emerging issues in relation to swap execution facilities; (2) high frequency traders and their market impact; and (3) interim recommendations from the subcommittee on data standardization regarding universal product and legal entity identifiers, standardization of machine-readable legal contracts, and data storage and retrieval.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Tanja Samardzija.

As previously reported in the October 21, 2011 edition of Corporate & Financial Weekly Digest, the Financial Industry Regulatory Authority (FINRA) had previously proposed to adopt NASD Rule 2320 (Best Execution and Interpositioning) and Interpretive Material 2320 (Interpretive Guidance with Respect to Best Execution Requirements) as FINRA Rule 5310 in the consolidated FINRA rulebook. On December 5, 2011, the Securities and Exchange Commission (SEC) issued an order granting approval of the proposed rule change. FINRA will announce the implementation date of the proposed rule change in a Regulatory Notice that will be published no later than 90 days following SEC approval. The implementation date will be no later than 90 days following publication of the Regulatory Notice announcing SEC approval.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Dean N. Razavi.

The McCaskill-Bond Amendment to the Federal Aviation Act provides that a merger of air carriers requires the new entity to merge the seniority lists of the two carriers’ employees. Republic Airways acquired Midwest Airlines, and thereafter the Teamsters Union, which represented the flight attendants at Republic’s older carriers, refused to integrate the seniority lists for flight attendants and placed Midwest’s flight attendants at the bottom of the seniority roster. A group of Midwest flight attendants challenged the action, asserting that it violated the amendment. The Teamsters argued that, at the time of acquisition, Midwest was on the verge of bankruptcy, that Republic abandoned Midwest’s regulatory certificate, and therefore Midwest was not an “air carrier” for the purpose of the amendment. The U.S. District Court for the Eastern District of Wisconsin characterized the transaction as merely Republic’s acquisition of some of Midwest’s assets, but not the acquisition of an air carrier for the purposes of the amendment, thus holding that integration of seniority lists was not required.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Dean N. Razavi.

The U.S. Court of Appeals for the Ninth Circuit overturned a district court’s holding that a securities fraud claim was time-barred, noting that the 2010 Supreme Court case Merck & Co. v. Reynolds had rejected “inquiry notice” as the bright-line test for the limitations period. The plaintiff alleged that he had sold his interest in Alchemix Corporation based on misrepresentations as to ongoing negotiations between Alchemix, AFG investment group, and Western Oil Sands. Alchemix countered that, in 2002, it sent the plaintiff a letter noting that negotiations with AFG had terminated, putting the plaintiff on inquiry notice to further investigate the circumstances surrounding the negotiations. Because the limitations period is the earliest of five years or two years after the discovery of facts constituting the violation, the district court held that receipt of the letter more than two years before the suit was filed barred litigation.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Ann N. Kim and Hannah C. Amoah.

The New York Wage Theft Prevention Act (WTPA), effective on April 9, imposes more stringent pay notice and record keeping requirements on all employers.

• Email This
• Print
• Comments
• Trackbacks

On December 7, the Consumer Financial Protection Bureau (CFPB) released a prototype consumer credit card agreement. The two-page form, which contains only 1100 words, is divided into three separate sections: costs, changes and additional information. The CFPB has solicited public comment on its website with respect to the prototype.

• Email This
• Print
• Comments
• Trackbacks

The Financial Services Authority (FSA) announced on December 8, that it fined Integrated Financial Arrangements Plc (Integrated) £3.5 million (approximately $5.5 million) for failings in relation to segregation of client money. Integrated operates Transact, one of the UK's largest wrap platforms. This is the second largest penalty imposed by the FSA for client money rule breaches.

• Email This
• Print
• Comments
• Trackbacks

The FSA has published the final notice it has issued to Dr. Sandradee Joseph, the former compliance officer of hedge fund manager Dynamic Decisions Capital Management Ltd (Dynamic) (a hedge fund management company).

• Email This
• Print
• Comments
• Trackbacks

The European Commission has published its proposals for the revision of the Market Abuse Directive (2003/6/EC) (MAD). The proposals consist of a directly applicable Regulation to replace MAD (the proposed Regulation) and a Directive containing additional requirements for parallel criminal offences (the proposed Directive).

• Email This
• Print
• Comments
• Trackbacks

The European Parliament has indicated that it will consider the proposed European Market Infrastructure Regulation (EMIR) in its plenary session to be held January 16 to 19, 2012. This vote was originally expected in July 2011. EMIR covers over-the-counter (OTC) derivatives transactions, central counterparties and trade repositories as reported in the July 8, 2011 edition of Corporate and Financial Weekly Digest.

For more information, click here.
 

• Email This
• Print
• Comments
• Trackbacks

On December 8, the text of the Regulation on Energy Market Integrity and Transparency (Regulation 1227/2011) (REMIT) was published in the Official Journal of the European Union.

• Email This
• Print
• Comments
• Trackbacks

On December 5, European Securities and Markets Authority (ESMA) issued an investor warning about foreign exchange (forex) trading. It warns about the risks involved in forex trading and the particular dangers of dealing with unauthorized or unregulated firms.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Michelle Griswold.

On November 17, Institutional Shareholder Services (ISS) published updates to its proxy voting policies, which will be effective for meetings held on or after February 1, 2012.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Christopher H. Mendoza and Christian B. Hennion.

The Commodity Futures Trading Commission is requesting public comment on a petition submitted by ICE Clear Credit LLC (ICC) seeking a CFTC order that would permit ICC and its clearing members that are dually-registered as futures commission merchants and securities broker-dealers to (i) commingle positions in swaps and security-based swaps and related customer money, securities, and property in a cleared swaps customer account and (ii) portfolio margin the swaps and the security-based swaps held in such an account.

The comment period for the ICC petition closes on December 22. The ICC petition may be found here.
 

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Avi Badash.


The Securities and Exchange Commission has adopted Rule 15c3-5 to require broker-dealers with access or that provide access to trading securities directly on an exchange or alternative trading system to establish, document and maintain a system of risk management controls and supervisory procedures that are reasonably designed to: i) systematically limit the financial exposure of the broker-dealer that could arise as a result of market access and ii) ensure compliance with all regulatory requirements that are applicable in connection with market access. Rule 15c3-5 requires that the financial risk management controls and supervisory procedures established are reasonably designed to: i) prevent the entry of orders that exceed appropriate pre-set credit or capital thresholds, or that appear to be erroneous; ii) prevent the entry of orders unless there has been compliance with all regulatory requirements that must be satisfied on a pre-order entry basis; iii) prevent the entry of orders that the broker or dealer or customer is restricted from trading; iv) restrict market access technology and systems to authorized persons; and v) assure appropriate surveillance personnel receive immediate post-trade execution reports.

Click here to read Release No. 34-63241.
 

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Avi Badash.

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have issued a National Exam Risk Alert (the Risk Alert) that provides broker-dealers with guidance on adopting effective policies and procedures for branch office inspections.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Jason F. Clouser.

The U.S. Court of Appeals for the Seventh Circuit vacated the lower court’s decision to grant class certification based on the misconduct of plaintiff’s counsel.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Jason F. Clouser.

A Colorado federal district court dismissed RICO claims in a case involving a property owner and a homeowners’ association, finding that the plaintiffs failed to plead specific instances of fraud necessary to sustain the claims.

• Email This
• Print
• Comments
• Trackbacks

Co-authored by Kevin M. Foley.

In Advisory Opinion 2011-09A, the U.S. Department of Labor (DOL) indicated that a personal indemnification of a broker by the holder of an individual retirement account (IRA), for losses in excess of the value of the assets in a futures trading account established for the IRA, raises prohibited transaction issues under section 4975 of the Internal Revenue Code of 1986 (the Code). Further, the DOL said that Prohibited Transaction Class Exemption 80-26 (PTE 80-26) does not provide an exemption for such a prohibited transaction. Previously, the DOL has advised practitioners informally of this position, but the Advisory Opinion formalizes it.

• Email This
• Print
• Comments
• Trackbacks

On November 28, Barney Frank, long-time Chairman and currently ranking member of the House Financial Services Committee, announced he would not seek reelection in 2012. Representative Maxine Waters, D - Cal., announced on November 29 that she would seek Frank's position once vacated. Aside from Mr. Frank, Ms. Waters has seniority among all Democrats on the committee. She is currently the subject of an ethics investigation.

• Email This
• Print
• Comments
• Trackbacks

On November 30, five financial trade groups (the Securities Industry and Financial Markets Association, the American Bankers Association, the Financial Services Forum, The Financial Services Roundtable, and the Institute of International Bankers) requested federal banking regulators and the Securities and Exchange Commission to extend the January 13 comment deadline on the 298-page proposal to implement the Volcker Rule. In a letter the trade groups stated the extension is needed because of the proposal’s potentially far-reaching impact, its unusual request for comment on more than 1,400 questions, and the fact that the Commodity Futures Trading Commission has not yet submitted its companion Volcker proposal. One analysis, by the American Bankers Association, found the proposed rule -- purportedly affecting only the largest banks -- could actually affect the activities of more than 1,000 institutions and require nearly every bank to create a new compliance program.

For more information, click here.
 

• Email This
• Print
• Comments
• Trackbacks

On November 29, the Office of the Comptroller of the Currency (OCC) proposed guidance to assist national banks and Federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments. Comments must be received by December 29. Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) requires each Federal agency, within one year of enactment, to review: (i) any regulations that require the use of an assessment of the creditworthiness of a security or money market instrument, and (ii) any references to or requirements in those regulations regarding credit ratings. Section 939A then requires the Federal agencies to modify the regulations identified during the review to substitute any references to or requirements of reliance on credit ratings with such standards of creditworthiness that each agency determines to be appropriate. The OCC proposes to amend the definition of ‘‘investment grade’’ in 12 CFR part 1 to no longer reference credit ratings. Instead, ‘‘investment grade’’ securities would be those where the issuer has an adequate capacity to meet the financial commitments under the security for the projected life of the investment. An issuer has an adequate capacity to meet financial commitments if the risk of default by the obligor is low and the full and timely repayment of principal and interest is expected. Generally, securities with good to very strong credit quality will meet this standard. National banks will have to meet this new standard before purchasing investment securities.

• Email This
• Print
• Comments
• Trackbacks

On November 25, a notice of proposed rulemaking was published jointly by the Federal Deposit Insurance Corporation (the FDIC) and the Departmental Offices of the Department of the Treasury (the Treasury, and collectively, the Agencies) to implement applicable provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). In accordance with the requirements of the Dodd-Frank Act, the proposed rules govern the calculation of the maximum obligation limitation (MOL), as specified in section 210(n)(6) of the Dodd-Frank Act. The MOL limits the aggregate amount of outstanding obligations that the FDIC may issue or incur in connection with the orderly liquidation of a "covered financial company." Under section 201(a)(8) of the Dodd-Frank Act, a ‘‘covered financial company’’ is a ‘‘financial company’’ for which a systemic risk determination has been made pursuant to section 203(b) of the Dodd-Frank Act but does not include an insured depository institution.

• Email This
• Print
• Comments
• Trackbacks

On November 22, the Financial Markets Law Committee (FMLC) published its final response comments to HM Treasury's June 2011 consultation on the government’s new UK financial services regulatory structure.

• Email This
• Print
• Comments
• Trackbacks