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Upcoming Seminars in Waltham & Cambridge! 07/16/2014

Posted by Morse, Barnes-Brown Pendleton in Corporate, Employment, Events, Intellectual Property, Legal Developments, MBBP news, Privacy and Data Security.
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The end of Summer and beginning of Fall are the perfect time to get back into the swing of things! Join us for timely, informative seminars on False Advertising, Sweepstakes & Contests, and Employment Law. Get the details below.

LIMITED SEATING – REGISTER TODAY!

8/12/14 – Unfair Competition / False Advertising: How the Supreme Court’s recent decisions impact false advertising claims against competitors. (Waltham, MA) – In this seminar, we will discuss unfair competition and false advertising under the Lanham Act, the Lexmark International, Inc. v. Static Control Components, Inc.and POM Wonderful LLC v. Coca-Cola Co. decisions, and how these decisions may affect your rights against third parties. Complimentary seminar!

9/18/14 – Playing a Game of ChanceUnderstanding the Differences Between Sweepstakes, Contests and Illegal Lotteries. (Cambridge, MA) – Sweepstakes and contests are a great way to promote your business. However, there is a fine line between conducting legal sweepstakes or contests and conducting an illegal lottery. In this seminar, we will discuss what constitutes an illegal lottery, ways to structure contests / sweepstakes to comply with federal & state laws, state registration requirements and penalties for conducting an illegal lottery. Complimentary seminar!

10/17/14 – The Morse CourseEmployment Law Compliance & Risk Prevention for Managers, Supervisors and HR Professionals. (Waltham, MA) – Learn practical information and valuable strategies for avoiding the many traps that lead to expensive and time-consuming HR problems and employment litigation. Group discount available!

Have a different topic in mind? Check our Events Page for additional seminars or email us.

Mary Beth Kerrigan to Panel Seminar on Women Business Leaders 06/12/2014

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, Events.
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Corporate Attorney Mary Beth KerriganThe Business Coalition (TBC) and the Showa Boston Institute for Language and Culture are uniting to host a panel discussion entitled “Shattering the Bamboo Ceiling” on June 12th. MBBP Corporate Attorney Mary Beth Kerrigan will sit as one of five panelists, all Boston-area women of distinction, who will discuss their personal journeys of where they are today in their work life. The event will be simulcast to students located at Showa Tokyo on Friday morning as well.

To learn more about the event, please visit The Business Coalition.

 

Risk Containment Strategies for Start-Ups 04/29/2014

Posted by Morse, Barnes-Brown Pendleton in Corporate, Events.
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The road to success for startup companies is rife with potential risks, including contractual liability to customers, strategic partners, and end users; violation of laws; infringement of intellectual property and other proprietary rights; and product liability. On Thursday, May 22nd, learn from a panel of professionals and entrepreneurs how to identify these risks and strategies for containing them at a free event hosted by MBBP and Telamon.

Join us for a lively discussion and then network over a beer at the Venture Cafe.

Visit the event page to learn more or to register.

Radio Entrepreneurs Interviews Shannon Zollo 04/28/2014

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, Legal Developments, Venture Capital & Private Equity.
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Corporate Attorney Shannon Zollo

The Radio Entrepreneurs, a show that provides advice, information and connections for entrepreneurs, service providers and established companies, recently interviewed MBBP Corporate Attorney Shannon Zollo. Shannon was invited to discuss the Exit Planning Exchange (XPX) Boston, a community of trusted advisors to privately-held businesses and their owners who are focused on a successful path to the exit, and its annual Summit on May 2nd. The 2014 XPX Summit‘s theme is on growth and liquidity and helping business owners achieve both. To listen to the full discussion, please click the following link: Radio Entrepreneurs Interviews MBBP Attorney Shannon Zollo

Feel free to contact Shannon with any questions on exit planning or XPX.

Visit XPX Summit 2014 for more information or to register for the event.

Delaware Increases Corporate Formation Taxes 04/14/2014

Posted by Morse, Barnes-Brown Pendleton in Corporate.
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Corporate Attorney Joseph MarrowBy: Joseph Marrow

On Thursday, April 10, 2014, the Delaware legislature passed a new law, effective retroactively to January 1, 2014, which raises the annual corporate tax on limited liability companies, limited partnerships and general partnerships from $250 to $300 per year.  In addition, the legislation increases the minimum annual corporate franchise tax on businesses incorporated in Delaware from $75 to $175.  The Delaware legislature passed the legislation in an effort to fix a state budget gap.  Delaware has always been considered one of the most attractive states in the country for forming a new business enterprise.  It remains to be seen whether the new law will have an adverse impact on the state’s ability to continue to attract new businesses.

For more information on corporate formations, please feel free to contact Joe.

SEC Releases Study of Public Company Disclosure Requirements 02/07/2014

Posted by Morse, Barnes-Brown Pendleton in Corporate, Public Companies.
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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

The JOBS Act, which became law in April 2012, requires the SEC to conduct a review of the disclosure requirements in Reg. S-K in order to identify how the rules could be updated to modernize and simplify the registration process for emerging growth companies and reduce related costs. Reg. S-K is the primary regulation under the federal securities laws detailing the disclosure requirements applicable to public companies.

At the end of December 2013, the SEC released the results of its review of Reg. S-K.  In the study the SEC noted it had not conducted a comprehensive review of Reg. S-K since 1996 and stated that a reevaluation of the disclosure requirements was warranted due to significant changes in the manner many public companies operate their businesses and world events which have altered the regulatory framework for public companies. In such reevaluation the SEC would aim to ensure existing and potential investors, as well as the marketplace as a whole, receive meaningful information upon which to base investment decisions. In addition, the SEC stated that its regulatory framework must ensure that the disclosure requirements focus on information which is material and are flexible enough to adapt to dynamic circumstances.

This study is a starting point. In its conclusion, the SEC proposes undertaking a comprehensive plan to systematically review the disclosure requirements in all of the SEC’s rules and forms concerning the presentation and delivery of information to investors and the marketplace, not just Reg. S-K. We expect more to come on this issue.

For more information on public company disclosure requirements please contact Daniele Ouellette Levy.

MBBP Attorneys to Panel Upcoming MCLE Program – Building Business Organizations: LLCs, LLPs, Limited Partnerships & Corporations 01/30/2014

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, Events, Taxation.
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Corporate and Tax Attorney Charles Wry, Jr. MBBP Attorneys Charles A. Wry, Jr. and Scott R. Bleier are among the faculty presenting at MCLE New England’s in-person program “Building Business Organizations: LLCs, LLPs, Limited Partnerships & Corporations” on Thursday, February 6 from 9:00 am – 12:00 pm.

The program focuses on new business organizations that are typically formed as limited liability companies (“LLCs”),Corporate Attorney Scott Bleier corporations, or, less frequently, limited partnerships or limited liability partnerships (“LLPs”). The faculty will discuss how to choose a form of entity based on a number of tax and non-tax considerations and then, if the entity chosen is a corporation or LLC, whether to use Massachusetts or Delaware law. Attendees will learn how to form a corporation or LLC in Massachusetts or Delaware, including how to prepare the various organizational documents. 

To learn more or to register for this event, please visit MCLE.

For more information on building business organizations, please contact Chip Wry or Scott Bleier.

The “Secret” IPO: Confidential filings under the JOBS Act 01/07/2014

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Corporate Attorney Hillary PetersonBy: Hillary Peterson

On September 12, 2013 Twitter announced (appropriately, in a tweet) that it had “confidentially” submitted an S-1 to the Securities and Exchange Commission (the “SEC”) in connection with a planned Initial Public Offering (“IPO”). In the immediate aftermath of the announcement, there was significant confusion as to what a confidential filing meant and how it differed from the traditional IPO filing process.

One of the goals of the Jumpstart Our Business Startups Act (commonly known as the “JOBS Act”) was to ease the burden on smaller, growing companies who wish to raise money from the public. One way in which this goal is achieved is by allowing these “emerging growth companies,” defined under the JOBS Act as a company with total gross revenue of less than $1 billion during the most recent fiscal year, to negotiate confidentially with the SEC over the substance of their S-1 filing, away from the public spotlight. Once the negotiation and drafting process is complete, a company’s final S-1 must be made available to the public 21 days before the road show commences and the company begins speaking to investors.

There are a number of benefits for a company which files confidentially with the SEC. Perhaps most significantly, confidential filing allows a company greater control over the timing of disclosure of its intention to go public. Through the confidential filing process, companies are able to test the waters and receive feedback from the SEC without having to publicly disclose essential information related to the company’s financials and other corporate information. Similarly, in the event that a company chooses not to move forward with the IPO process, filing confidentially shields that company from the damage to its reputation that would result from an abandoned offering.

According to one study, in the first year of the JOBS Act, 65% of companies that eventually filed a public registration statement had previously submitted a confidential statement with the SEC. While Twitter may be the most high-profile company yet to avail itself of the new process of confidential filing, every indication is that many companies will continue to use confidential filings as a way to begin the IPO process.

For more information on this topic, please feel free to contact Hillary.

Investment Banker Engagement Letters: Terms to Review 12/20/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, M&A.
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Corporate Attorney Mary Beth KerriganBy: Mary Beth Kerrigan

As companies begin the process of preparing for an acquisition, companies often engage an investment banker to assist with and facilitate the transaction. Companies should approach such an engagement by interviewing multiple bankers and perform appropriate due diligence on the bankers to ensure the chosen banker is the right fit.

As part of this process, a company will enter into an engagement letter with the selected investment banker. This engagement letter will cover many business terms which can vary depending upon the size of the transaction and other factors. To learn which engagement letter terms should be carefully reviewed and negotiated by the company, read the full post here.

For more information on investment banker engagement letters, please feel free to contact Mary Beth.

Baskets and Materiality: i/mx Information Management Solutions, Inc. v. MultiPlan, Inc. 12/18/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, M&A.
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Corporate Attorney Mary Beth KerriganBy: Mary Beth Kerrigan

A Delaware opinion recently focused on how the use of “baskets” in indemnification provisions for M&A transactions can impact the definition of “materiality” in definitive agreements. In i/mx Information Management Solutions, Inc. v. MultiPlan, Inc., the Delaware Court of Chancery denied the defendant’s motion to dismiss the plaintiff’s declaratory judgment claims. To learn more about what this case means regarding the potential connection between baskets and the definition of “materiality” in definitive agreements, please see the full post here.

For more information on this topic, please contact Mary Beth.

Supreme Court Review of Whistleblower Case 12/17/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate.
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Corporate Attorney Joseph MarrowBy: Joseph Marrow

Recently, the United States Supreme Court heard oral argument in a whistleblower retaliation case. In Lawson v. FMR, LLC, the Supreme Court is faced with the question whether to expand the coverage of an anti-retaliation claim under Sarbanes-Oxley to an employee of a privately-held contractor (which provides investment management services to Fidelity mutual funds), a subsidiary of a public company. Pursuant to the Dodd-Frank Act, the Securities and Exchange Commission established an award program for whistleblowers creating a new private right of action for employees in the financial services sector who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. In the case on appeal to the Supreme Court, the First Circuit had ruled that the anti-retaliation provision only applies to employees of public companies. The Supreme Court must decide whether to expand the definition of the class protected by the statute to employees of privately-held companies. The decision is expected in the Spring of 2014.

For more information on this topic, please contact Joe.

Social Media – Due Diligence 12/11/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, Public Companies.
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Corporate Attorney Jonathan CallaBy: Jonathan Calla

Social media websites such as LinkedIn, Twitter, Facebook, Instagram and YouTube have become useful vehicles for companies to disseminate information. The instantaneous promotion and advertising of company products and services to a wide audience through social media websites has motivated companies to incorporate the use of social media websites as a part of their business strategy. The integration of social media websites to the business strategy of companies is expected to continue and grow in response to the pressure on companies to remain competitive in their respective industries.

In most M&A transactions, and more specifically as part of the legal due diligence process, a buyer will typically request from a target any press releases that have been previously disseminated by a target over a defined period of time. While a press release request may not produce the delivery by a target of documents related to its use of social media, review of the content shared by a target on such websites should not be ignored by a buyer. Accordingly, buyers should consider expanding their due diligence requests of a target to specifically include requests for information related to its use of social media websites. More specifically, buyers may want to consider incorporating the following into their due diligence request lists: (i) the names of social media websites used by the company, (ii) the names of employees or third parties who access and operate social media websites used by the company (and any usernames or passwords, if applicable), and (iii) an explanation of the company’s use of each social media website.

Specifically requesting the social media website information above will ensure its delivery by a target, and more importantly, will assist buyers with a comprehensive review of a target’s social media presence.

For more information on this topic, please feel free to contact Jonathan.

SEC Encourages Firms to Review Business Continuity Planning 12/10/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate.
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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

A year after Hurricane Sandy caused significant damage along the northeast coast, the SEC, in conjunction with FINRA and the CFTC, has issued guidance encouraging registered investment advisers and securities broker-dealers to review their business continuity plans and consider certain best practices identified in the report. These best practices were compiled by the agencies after discussions with firms impacted by Hurricane Sandy.

The SEC is encouraging firms to consider the following recommendations in reviewing their business continuity planning:

  • Establish redundant services in anticipation of the widespread lack of basic resources, such as telecommunications, transportation, electricity, office space, fuel and water;
  • Review the availability and structure of remote access for employees;
  • Assess the availability and accessibility of alternative locations, considering geographic diversity and the ability of staff to travel to such alternative sites;
  • Analyze vendor relationships and the business continuity plans of key vendors;
  • Provide detailed plans for communicating with customers and staff during any business disruption;
  • Plan for the completion of time-sensitive regulatory filings in the event of a business disruption; and
  • Conduct periodic testing of the firm’s business continuity plan and related training on at least an annual basis.

A copy of the guidance issued by the SEC may be found here.

For more information on this topic, please contact Daniele.

Delaware Legislative Update 12/09/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, Public Companies.
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Corporate Attorney Josh FrenchBy: Joshua French

Many times prior to an institutional financing, acquisition or an IPO, a company will review its corporate records and notice that there may be a couple of loose ends to tie up with ratifying board resolutions. While this works for many corporate actions, certain actions are not permissible to be retroactively approved under Delaware law and are void. Among these actions include the issuance of stock that was not authorized under a company certificate of incorporation filed with the Delaware Secretary of State. This means that if shares of stock were issued to stockholders before there were enough shares authorized, that those shares are void and any action taken by those stockholders (for example, electing board members) would also be void. This, obviously, could be very problematic, particularly if the board is no longer controlled by the original stockholders.

Beginning in April 2014, the Delaware General Corporation Law (the DGCL) will allow these types of mistakes to be rectified and will allow for corporations to remedy any actions taken that would otherwise have been deemed void. In order to remedy a defective corporate act, the following steps will need to be taken:

  • The board of directors must pass a resolution ratifying the defective corporate act and stating in detail the defect seeking to be cured.
  • If the resolution would have needed to have been approved by the stockholders, the stockholders must also approve the resolution and the company must provide at least twenty days prior notice of the meeting at which the resolution is to be adopted. The notice must also state that any challenge to the ratification must be brought within 120 days of the date on which the resolution is adopted.
  • If the action being remedied would have required a filing with the Secretary of State of Delaware, then a “Certificate of Validation” must be filed with the Secretary of State. The form of this certificate is currently being prepared by the Secretary of State’s office.
  • If the resolution did not require stockholder approval, the corporation must provide notice of the adoption of the ratification resolution to the stockholders within 60 days of approval. The notice must also that any challenge to the ratification must be brought within 120 days of the date on which the resolution is adopted.

This procedure will not be effective until April 1, 2014, but it may be worthwhile for corporations to consider if there are any actions which may not have been approved properly when completed and contact your law firm to determine whether those actions need to be approved under this new section of the DGCL or if there are steps that can be taken now to ensure that proper corporate approvals had been obtained.

For more information on this topic, please feel free to contact Josh.

Relief in Sight for M&A Brokers in Smaller Deals? 12/06/2013

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Corporate Attorney Carl BarnesBy: Carl Barnes

Since the Supreme Court’s Landreth Timber decision in 1985, the sale of 100% of a company’s stock has been considered a securities transaction, regulated under the federal securities laws, even though the sale of 100% of the same company’s assets is not. Intermediaries who facilitate M&A deals for privately held companies must therefore be registered as broker-dealers under the Securities Exchange Act of 1934 and must be members of FINRA – or limit themselves to working only on asset deals. The initial and ongoing costs of registering as a broker-dealer with the SEC can be significant and it clearly isn’t in the best interests of clients for their intermediaries to try to force all transactions to be structured as asset deals. Consequently, although many intermediaries register, others skirt the law and hope for the best. Still others don’t even realize they are subject to regulation.

But wait – a bill currently before the House of Representatives may provide relief. H.R. 2274, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2013, would provide a simplified notice-filing registration procedure for brokers who only facilitate M&A transactions involving the sale of private companies with earnings (EBITDA) of less than $25 million and revenue of less than $250 million. Many registrations would be effective upon filing.

After hearings in October, the House Financial Services Committee marked up the bill on November 14. H.R. 2274 appears to enjoy bi-partisan support and even the North American Securities Administrators Association likes it (read its testimony here) – and NASAA generally isn’t in favor of Washington DC’s recent moves to ease securities regulations. If H.R. 2274 becomes law, it will simplify life and reduce costs for many M&A brokers (costs that would otherwise be passed on to their clients), facilitate more deals and maybe even encourage registration and regulatory compliance by M&A brokers.

And if that happens, everyone wins.

For more information on this topic, please feel free to contact Carl.

Arbitration Provisions and Post Closing Disputes 12/04/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, Public Companies.
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Corporate Attorney Joseph MarrowBy: Joseph Marrow

Many business acquisition agreements provide that post-closing disputes relating to earn-outs, working capital adjustments and other purchase price adjustments are to be submitted to an independent third party (i.e., an accounting firm) for resolution. A recent decision of the Delaware Supreme Court, Viacom Int’l, Inc. v. Winshall, No. 513, 2012, 2013 WL 367878786 (Del. July 16, 2013) (“Viacom”), reaffirms the enforceability and binding nature of the alternative dispute resolutions procedures chosen in these agreements. In Viacom, the parties to a merger agreement agreed to submit a dispute regarding an earn-out issue to arbitration subject to resolution by an independent accounting firm which decision would be final, binding and conclusive. The accounting firm made a determination adverse to Viacom and Viacom filed an action in state court seeking a declaration that the arbitration award was erroneous.

The Delaware Supreme Court upheld the arbitration award. The Court noted that the challenge to the arbitration award was governed by the Federal Arbitration Act. Absent a determination that the decision “was procured by fraud” or was subject to “manifest error”, the Court could not vacate the award. The Court rejected Viacom’s arguments of fraud or manifest error.

The Viacom decision lends support to the ability of parties to rely on the enforceability of alternative dispute resolution provisions in business acquisition agreements to resolve post-closing disputes as long as such disputes fall within the scope of the independent arbitrator’s scope of review.

For more information on this topic, please feel free to contact Joe.

Employee Classification and M&A 12/02/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, New Resources, Public Companies.
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By: Mark Tarallo

A Massachusetts Superior Court judge recently held up the sale of The Boston Globe (and related entities) to Red Sox owner John Henry, as a result of a restraining order filed against the Worcester Telegram & Gazette, part of the New England Media Group along with The Boston Globe. While the injunction was eventually dissolved and the sale completed, it did create some tense moments in the process. The suit was filed by a class of newspapers carriers, claiming that they were misclassified as independent contractors when they should have been treated as employees. While the actions that gave rise to the suit happened several years ago, employee classification issues are back in the spotlight. The United States Department of Labor budget for 2014 includes a line item of $10 million for grants to the states to investigate worker misclassification and recover additional taxes. States that are looking to generate additional tax revenue will be quick to take advantage of these grants.

While most M&A transactions include representations from the seller regarding employee classification issues, parties considering an M&A transaction must place a renewed emphasis on spotting and dealing with any issues prior to the closing. Liabilities for misclassified workers can travel with the target, leaving the buyer to pay taxes and penalties that it did not anticipate, and indemnity claims may not completely resolve the problem. Sellers that cannot properly document their classification of employees run the risk of seeing their purchase price reduced, or deals fall apart completely, if buyers cannot get comfortable with the classification of the seller’s workers. Both sellers and buyers must work to identify and fix these issues prior to closing, to avoid having an unwanted third party (the DOL or a corresponding state agency) in their transaction.

For more information on this topic, please feel free to contact Mark.

Second Whistleblower Award Under Dodd-Frank 11/25/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments.
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Corporate Attorney Joseph MarrowBy: Joseph Marrow

More than three years ago, pursuant to the Dodd-Frank Act, the Securities and Exchange Commission (SEC) established an award program for whistleblowers creating a new private right of action for employees in the financial services sector who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. See article from December 2010 Enhanced Whistleblower Provisions Under Dodd-Frank Act. It was expected that the program would lead to a bounty of whistleblower awards. This has not been the case. Indeed, on August 30, 2013, the SEC announced just the second payment under the program, a $125,000 award to three whistleblowers.

The most recent award was made in connection with information that led to an SEC enforcement action against Andrey Hicks, the operator of a sham hedge fund. To be eligible for an award, whistleblowers must provide the SEC with “original information” about a violation of the securities laws that leads to a successful enforcement action in which the SEC obtains monetary sanctions exceeding $1 million. The information provided must cause the SEC to start or reopen an investigation or must significantly contribute to the success of an SEC enforcement action.

In Hicks, two of the whistleblowers furnished the SEC with information that led the SEC to open an investigation. The other whistleblower provided information that identified key witnesses and corroborated information provided by the other whistleblowers. Interestingly, the SEC only awarded the whistleblowers 15% of the award collected (the Dodd-Frank Act allows the SEC to award up to 30% to the whistleblower). It is possible that extenuating factors were in play that led to a lower award – possible culpability on the part of the whistleblowers.

The record in the proceeding demonstrates that the award process can be quite time consuming – it took more than 20 months from the filing of the enforcement action before the SEC issued its final whistleblower eligibility order. The length of time for the award process to be completed may present the most compelling evidence why there have been so few awards since the program was enacted.

For more information on this topic, please feel free to contact Joe.

Are Reg FD Enforcements Back? 11/20/2013

Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments.
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By: Mark J. Tarallo

In the late 1990’s, market regulators grew concerned that public companies (and their representatives) were too often engaging in “selective disclosure,” and that certain analysts and institutional investors were getting access to material information that was not available to most institutional investors (such as quarterly analyst calls made by the issuers). As a result, the U.S. Securities and Exchange Commission (“SEC”) adopted Regulation Fair Disclosure (“Reg FD”), in August 2000, in an effort to level the playing field. Reg FD required that all material information be disclosed publicly, so that all investors would get access to the information at the same time, and that if any material information was inadvertently disclosed in a private fashion that it be publicly reported within 24 hours. Many commentators regard Reg FD as having done more to foster transparency to investors than any other regulation adopted by the SEC.

The SEC is charged with enforcing Reg FD, and from 2002-2005, the SEC brought a number of enforcement actions against companies and individuals alleging violations of Reg FD. After 2005 however, the SEC did not bring any more enforcement actions under Reg FD until 2009-2010, when it brought actions against several major companies, including Office Depot.

After the Office Depot action in 2010, the SEC was relatively silent on Reg FD until this past September, when it announced an action against Lawrence D. Polizzotto, the former head of investor relations for First Solar Inc. According to the SEC’s order, Polizzotto violated Regulation FD during one-on-one phone conversations with approximately 20 sell-side analysts and institutional investors on Sept. 21, 2011, when he indicated that the company was unlikely to receive a much-anticipated loan guarantee from the U.S. Department of Energy. Polizzotto agreed to pay $50,000 to settle the SEC’s charges.

While a single case in two years may not signify that Reg FD enforcement is back on the SEC’s front burner, it certainly does serve as a reminder that issuers must remain vigilant in enforcing Reg FD compliance. All issuers subject to Reg FD should have a compliance program in place, and should regularly review the program with all company officers likely to be in possession of material, non-public information. The SEC noted that it did not bring an enforcement action against First Solar due to the company’s extraordinary cooperation with the investigation, and because First Solar generally cultivated an environment of compliance through the use of a disclosure committee that focused on compliance with Reg FD. First Solar quickly self-reported the misconduct to the SEC once it learned of it, and concurrent with the SEC’s investigation, First Solar undertook remedial measures to address the improper conduct, by (in part) conducting additional Reg FD training for employees responsible for public disclosure.

For more information on this topic, please feel free to contact Mark.

“Conflict Minerals” Reporting is Coming – and Smaller Reporting Companies are Not Exempt 11/04/2013

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Corporate Attorney Carl BarnesBy: Carl Barnes If you haven’t been paying attention to the Securities and Exchange Commission‘s final “conflict minerals” disclosure rules, it’s time to start. Mandated by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, these rules attempt to exert pressure on publicly traded companies to end their use of “conflict minerals” – gold, tin, tantalum or tungsten – originating in the Democratic Republic of the Congo or nine adjoining countries in their manufactured products.

Beginning in May 2014, public companies will be required to conduct detailed reviews of their manufacturing processes and supply chains to determine whether any conflict minerals that are necessary to the manufacture of their products originated in any of the covered countries. Public disclosure of the results of the inquiry will be required. If it is determined that any conflict minerals did originate in a covered country, the company must perform more extensive due diligence on the source and chain of custody of those minerals to determine whether its products are “DRC conflict free,” i.e., whether they contain minerals that “directly or indirectly [financed or benefited] armed groups in the” covered countries. Those reports, too, must be publicly disclosed and, in most cases, the reports must be audited by independent third parties.

The SEC estimates that approximately 6,000 publicly traded companies – including smaller reporting companies (companies with a public float of less than $75 million or, if they have no public float, less than $50 million in revenues) – will be affected by the rule. Privately held companies will be affected as well, when their publicly traded customers require them to conduct their own due diligence and confirm that components supplied to public companies are DRC conflict free.

A lot has happened since the SEC issued the rules in August 2012. In July 2013, a U.S. District Court rejected challenges from the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable (read the decision here). The plaintiffs appealed, filing their opening brief with the Court of Appeals in September (read the brief here). The Government’s final brief must be filed by November 13, 2013.

So, what happens next? The rules may be struck down in whole or in part by the Court of Appeals, but manufacturers and their counsel shouldn’t count on it. Compliance will require long lead-times and won’t be easy. There are no de minimis exceptions. Companies that haven’t begun to take the steps to satisfy these rules – or even to learn about them – may be in for a shock. We’re just heading into autumn, but the disclosures required in the spring are already on us.

For more information on this topic, please feel free to contact Carl.

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