From The Sox Up

From The Sox Up

Cases. Trends. Personalities of Interest.

Shareholder Internal Insider-Trading Policies

Posted in SEC, SEC Rules, Shareholders

Certain organizations that hold or invest in publicly traded securities may gain material nonpublic information regarding an issuer of those securities by virtue of the terms of the investment in the issuer, such as through a contractual right to receive certain information or to designate a director of the issuer, or by virtue of a business relationship with the issuer, such as providing services to the issuer.  Such an organization (an “insider-shareholder”) is justifiably concerned with the risk of improper trading of the securities it owns while in possession of material nonpublic information regarding the issuer of those securities, and the insider-shareholder may address that risk by adhering to the issuer’s insider-trading policy or adopting a Rule 10b5-1 plan for trading in the securities.  The insider-shareholder should also be concerned, however, about the risk of improper personal trading of securities of the issuer by, or resulting from the individual actionsContinue Reading

Designating Officers for Exchange Act Purposes

Posted in SEC

Annual “housekeeping” activities of public companies at this time of year include, or should include, designating “officers” for purposes of filing reports under Section 16 of the Securities Exchange Act of 1934, as amended, and “executive officers” for purposes of disclosures in the Form 10-K and the proxy statement filed with the Securities and Exchange Commission under the Exchange Act.  The board of directors of a public company designates the officers and executive officers.  Although the board’s determination typically does not involve a great deal of uncertainty or complexity, the board may have judgments to make.

The definitions of “officer” in SEC Rule 16a-1(f) under the Exchange Act and of “executive officer” in SEC Rule 3b-7 under the Exchange Act– which are substantially similar, though not identical – provide the standards for the board’s determination.  Although the definitions primarily refer to or use titles to describe the persons whoContinue Reading

Limited Availability of Rule 144 for Resales by Shareholders of Former Shell Companies

Posted in Mergers & Acquisitions, SEC

Persons seriously considering, on an informed basis, going public through a reverse merger with a public shell company likely understand that the transaction will not create liquidity for shareholders of the public company within at least a year after the merger.  What those persons may not appreciate, however, is the restriction on shareholder liquidity that will continue for years after the merger.

Frequently, the public company in a reverse merger is or was a “shell company,” as defined in Rule 144(i)(1) and Rule 405 under the Securities Act of 1933, as amended .  The shares held by the public company’s shareholders after the merger may be publicly resold only in accordance with a resale registration statement filed with the Securities and Exchange Commission – which is unusual – or under Rule 144, the principal exemption from registration for resales of securities under the Securities ActContinue Reading

Supreme Court Clarifies That Whistleblower Protection for Public Company Employees Also Protects Employees of Contractors and Subcontractors of Public Companies

Posted in Public Disclosure

“To safeguard investors in public companies and restore trust in the financial markets following the collapse of Enron Corporation, Congress enacted the Sarbanes-Oxley Act of 2002.” Lawson v. FMR LLC, 571 U.S. __, slip op. at 1 (March 4, 2014).  Among other things, a provision of the Act, 18 U.S.C. § 1514A, provides protection for whistleblowers from retaliation.  For over a decade, the Department of Labor, the agency with initial responsibility for whistleblower claims, has interpreted Section 1514A as protecting employees of public company contractors.  On Feb. 3, 2012, the First Circuit disagreed holding that Section 1514A only protects public company employees. On March 4, 2014, the United States Supreme Court in a divided decision, confirmed that Section 1514A’s protection does, indeed, extend to employees of public company contractors.  However, the Court’s decision exposes a variety of ambiguities in the text of Section 1514A that likely will serve as fodderContinue Reading

Reporting Companies’ Conflict-Minerals Obligations Will Continue

Posted in SEC, SEC Forms

A number of reporting companies are still working diligently to comply with their obligations to file the initial Form SD, by May 31, 2014, under the SEC’s conflict-minerals rule.  As recently pointed out in a comment by Doug Harmon, however, the compliance “battle” will not cease with the filing of the Form SD in May.  It will be an achievement for a reporting company to complete the work regarding the initial Form SD filing obligation.  But a reporting company should be mindful that the assessment and filing obligation is an annual one.  Therefore, among the efforts to assess and (as necessary) make this year’s filing, a reporting company should be focusing on:

Institutionalizing or formalizing information and processes or procedures that will be useful in its compliance efforts in future years, and Identifying changes in its businesses or operations in the future that may changeContinue Reading

New SEC No-Action Letter Exempts M&A Brokers from Federal Broker-Dealer Registration Requirement

Posted in SEC

by Richard A. Tulli and George T. Lee III

The Staff of the Securities and Exchange Commission has just released a significant no-action letter, dated Jan. 31, 2014 and revised Feb. 4, 2014 (available here), regarding the application of the broker-dealer registration requirements of the Securities Exchange Act of 1934, as amended, to certain persons who engage in the business of effecting securities transactions solely in connection with transfers of ownership and control of privately held companies.

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New Texas Rules Require Texas-Based Investment Fund Managers to Conduct a Compliance Review Before March 31, 2014

Posted in Exemptions, Investment Advisers Act of 1940, SEC
New Texas Private Fund Adviser Registration ExemptionContinue Reading

The IRS Issues Ruling on Same-Sex Marriages

Posted in Internal Revenue Service
The Internal Revenue Service released Revenue Ruling 2013-17 on Aug. 29, 2013 in connection with the U.S. Supreme Court's ruling earlier this summer regarding same-sex marriages (i.e., the Windsor case). The IRS ruling addresses the federal tax consequences resulting from the Windsor decision with respect to same-sex, legally married spouses. It's entirely possible that employee health, welfare and retirement plans will be impactedContinue Reading

General Solicitation and General Advertising under Rule 502(c)

Posted in Proposed Rules, SEC, SEC Rules
Because it appears that the prohibition against General Solicitation will continue to be relevant after the effectiveness of new Rule 506(c), an effort to understand the SEC's views regarding General Solicitation will continue to be necessaryContinue Reading

SEC Adopts Final Rules Allowing General Solicitation and Advertising in Private Placements

Posted in Dodd-Frank Act, JOBS Act, Offerings, Private Offerings, Proposed Rules, SEC, SEC Forms, SEC Rules
While the lifting of the ban on general solicitation and advertising under Rule 506 is welcome news for issuers and investors alike, those seeking to use the new exemption must consider the significant steps that need to be taken in order to comply with Rule 506(c). In addition, the burdens imposed by the SEC's proposed amendments to Regulation D, Form D and Rule 156 could limit issuers' willingness to use the new Rule 506(c) exemption if those amendments are in fact adoptedContinue Reading