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An Overview of Rule 10b5-1 Trading Plans 03/05/2015

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

 

Officers, directors and other insiders (“Company Insiders”) of publicly-traded companies use Rule 10b5-1 Trading Plans (a “10b5-1 Plan”) to buy and sell company stock at predetermined times so that such trading activity may occur regardless of whether the Company Insider is privy to material nonpublic information at the time of the trade.  The SEC introduced 10b5-1 Plans in 2000 to permit Company Insiders to adopt a written trading plan to buy and sell company stock.  A 10b5-1 Plan is generally structured as a contract between a Company Insider and his or her broker.  The Company Insider must adopt the 10b5-1 Plan at a time when the Company Insider is not in possession of material non-public information.  A 10b5-1 Plan must meet several requirements:

  • It must be adopted when the Company Insider is not in possession of material non-public information;
  • It must specify the amount of shares to be traded, the price at which the shares are to be traded (which can include a range of prices and a limit price) and specific dates of the trades, or alternatively, it can provide a formula for determining the amount, price and dates; and
  • It must delegate to the broker the sole right to exercise control over the trading activity as long as the broker does not have knowledge of material non-public information at the time of the trade.

If the 10b5-1 Plan has been properly adopted, it provides the Company Insider with an affirmative defense to illegal insider trading and a means for discretionary selling.  Not all public companies allow 10b5-1 Plans; however, many public companies consider such plans an effective method of dealing with concerns raised by the public regarding trading by Company Insiders.  In considering whether to allow the adoption of such plans, companies should consider the following best practices that have developed surrounding 10b5-1 Plans:

  1. After adoption of the 10b5-1 Plan, but prior to allowing trading, the 10b5-1 Plan should establish a waiting period (30 to 90 days) before trading activity may commence;
  1. A public company should establish a policy only permitting adoption of a 10b5-1 Plan when a Company Insider is not aware of material nonpublic information (i.e., an open window);
  1. A public company should consider a minimum duration pursuant to which a 10b5-1 Plan must be kept in place (six months to two years to avoid market timing and to avoid risk to the Company Insider) or otherwise require preapproval of a cancellation of such 10b5-1 Plan (or require that such 10b5-1 Plan be terminated during an open trading window) to avoid allegations of bad faith;
  1. A public company should carefully consider whether to publicly announce the establishment of a 10b5-1 Plan – the markets will become aware of it in connection with ordinary course Section 16 filings so there may be a public relations benefit to announcing the 10b5-1 Plan at the time of its adoption; and
  1. A public company should consider implementing general oversight of 10b5-1 Plans by company counsel or a compliance officer.

Well constructed 10b5-1 Plans and corporate policies surrounding such plans can be effective tools to avoid and combat insider trading claims.  Careful consideration should be given prior to permitting the use of 10b5-1 Plans and in implementing corporate governance policies related to such plans.

 

Any questions regarding this topic, please feel free to contact Joe Marrow.

Upcoming Boston IE Club Panel at Venture Cafe 03/05/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Events, Legal Developments, New Resources, Public Companies.
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2015-03-03_10-20-57On Wednesday March 11, 2015, Innovation & Enterprise Business Club (The IE Club) will host an event entitled “Successful Partnerships Between Large And Small Companies Building Great Success With… Very Different Teams Working Together: How To Make It Work”. The panel will feature several CEOs of small companies sharing their views of company best practices, as well as practices to avoid (internet/enablers/innovative services). This event will be held at the Venture Cafe at the Cambridge Innovation Center from 5:30 pm – 8:00 pm, and is complimentary.

Moderator:

David Feinberg, Esq. Feinberg Hanson LLP

Panel:

Robert Kalocsai, Founder, Software Continuity
Bernard Haurie, General Manager, Geopost
Ann Halford, Executive Director of Digital Technology, Boston University
Daniel Behr, CEO at Slips Technologies

 

MBBP’s Robert M. Finkel is a board member of IE Club of Boston. To learn more or to register for the event, please visit The IE Club.

Insights on Corporate Venture Capital 03/04/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments, New Resources, Public Companies, Venture Capital & Private Equity.
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Corporate Attorney Scott BleierLast week, MBBP’s Scott Bleier attended a panel discussion hosted by the Johnson & Johnson Boston Innovation Center, which featured three corporate venture capitalists from Sanofi-Genzyme Bioventures, Boehringer Ingelheim Venture USA Inc. and Johnson & Johnson Development Corp.  In a very informative and candid discussion, the panelists shared the investment philosophies behind their companies’ CVC funds, what issues they consider when making an investment and their insights for start-ups seeking access to CVC funding.  The panel revealed several points of apparent consensus in the CVC community while also highlighting a divergence of philosophical approach in certain important areas.

To learn more about the panel discussion regarding CVC funds, please visit our VCs and Start-Ups blog.

Forging Successful Strategic Alliances for Life Sciences Companies 02/25/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Licensing & Strategic Alliances, Life Sciences, M&A, New Resources, Public Companies.
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M0744200When entering into an exclusive licensing arrangement, the odds of success are against most companies. Typically within the first twelve months of an arrangement, 2/3 of all alliances crumble.  If these ventures are so prone to failure, what preventative measures can a company employ to ensure success?

To learn how to achieve success when entering an alliance, read John Hession’s full article.

MBBP Client Demiurge Studios Acquired by SEGA Networks 02/20/2015

Posted by Morse, Barnes-Brown Pendleton in Client News, Computer Software & Hardware, Games & Interactive Entertainment, Intellectual Property, Legal Developments, Licensing & Strategic Alliances, New Resources, Public Companies, Publishing & Media.
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2015-02-19_10-29-40MBBP Client Demiurge Studios, an independent game developer out of Cambridge, Massachusetts, has been acquired by SEGA Networks, a multinational video game developer, publisher, and hardware development company. Founded in 2002, Demiurge Studios made the transition into mobile gaming in 2008 and found success with Marvel® Puzzle Quest™, a top 100 grossing app on the App Store and top 50 grossing apps on Google Play. Previously, they worked with world-class developers like BioWare™ and Irrational Games™ on AAA console and PC games, contributing to titles such as BioshockBorderlands, and Mass Effect. Demiurge Studios will continue to make games under the Demiurge Studios name.

Morse, Barnes-Brown & Pendleton serves as counsel to Demiurge Studios, and advised it in connection with the structuring, negotiation and documentation of this transaction.

Joe Martinez was the lead corporate attorney on MBBP’s team, which also included attorneys Mike Cavaretta, Diana Española and Hillary Peterson.

To learn more, read the full press release.

Insider Trading Prosecutions Going Forward: The Fallout from Newman 02/06/2015

Posted by Morse, Barnes-Brown Pendleton in Legal Developments, New Resources, Public Companies.
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Corporate Attorney Mark TaralloBy: Mark Tarallo 

In its recent decision in United States vs. Newman, the Second Circuit Court of Appeals imposed a significant burden on prosecutors bringing insider trading cases.  The Court articulated that in an insider trading case, the prosecution must prove that:

  • the corporate insider was entrusted with a fiduciary duty
  • the corporate insider breached his fiduciary duty by (a) disclosing confidential information to a tippee (b) in exchange for a personal benefit;
  • the tippee knew of the tipper’s breach, that is, he knew the information was confidential and divulged for personal benefit; and
  • the tippee still used that information to trade in a security or tip another individual for personal benefit.

The ruling makes it difficult, if not impossible, to prosecute remote tipees, who learn the insider information from someone other than the corporate insider who makes the original disclosure of confidential information.  Given how difficult this standard will be to meet, it is not surprising that the prosecution has appealed the decision.  US Attorney Preet Bharara’s office has both asked the three judge panel that issued the Newman opinion to rehear the case, and has requested that the entire US Second Circuit Court of Appeals to review the case en banc.   A narrowing or reversal of the Newman ruling is critical to the efforts of prosecutors to continue to bring insider trading cases.

The Newman ruling has already had a negative impact on recent cases.  A federal judge sitting in the U.S. District Court in Manhattan vacated the guilty pleas of four men charged with insider trading relating to IBM.  Citing Newman as controlling law, Judge Andrew Carter ruled that the guilty pleas must be vacated based on the new standards for insider trading (although he did not go as far as dismissing the charges outright).

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

MBBP Client Forge Worldwide Wins “Sweet” Partnership with Friendly’s 02/05/2015

Posted by Morse, Barnes-Brown Pendleton in Client News, Industries, Internet and E-Commerce, Public Companies, Publishing & Media, Telecommunications & Networking.
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forgelogoMBBP would like to congratulate client Forge Worldwide, a Boston-based advertising agency, for winning a partnership with Friendly’s Ice Cream.  Forge Worldwide will now oversee all television, radio, print and out-of-home advertising for Friendly’s as well as provide support to the Friendly’s team as it focuses on its re-brand and resurgence in core markets. Some other clients Forge Worldwide works with include Cisco, Rockland Trust, Brigham and Women’s Hospital, and Dragon Speech Recognition Software.

 

You can read the full announcement here.

Well done, Forge Worldwide!

Reminder: Schedule 13G Amendments and Forms 5 due February 17, 2015 02/05/2015

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

Significant stockholders of public companies have ongoing reporting obligations under Sections 13 and 16 of the ’34 Act.

  • Beneficial owners of greater than 5% of a registered class of stock of a public company must disclose their ownership by filing a Schedule 13D. Certain stockholders may instead file the abbreviated Schedule 13G provided their ownership does not exceed 20% and they meet certain other requirements.
  • Owners of greater than 10% of a registered class of stock of a public company must disclose all transactions in company securities under Section 16 within two business days of the transaction. Reporting of certain transactions – such as gifts – may be delayed until the end of each calendar year and reported on Form 5.

Amendments to Schedule 13G and Forms 5 are due on February 17, 2015 (45 days after the end of the calendar year, plus a few extra days due to the President’s Day holiday).  These filings are required in order to disclose any changes in ownership during the past year or any transactions in company securities during the past year which were not previously disclosed.

Keep in mind that while changes in ownership may result from actions at the company level – such as option vesting or option grants – the obligation to make these filings is the responsibility of the individual stockholder.

For help determining whether you are required to submit a filing please contact Daniele Levy.

Action Item for Smaller Reporting Companies – Update Review of Internal Controls to COSO 2013 01/29/2015

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

In response to the requirements of SOX 404, a majority of public companies adopted the 1992 framework prepare by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess the design and effectiveness of their internal controls over financial reporting.  Effective as of December 14, 2014, COSO no longer makes the 1992 framework available and encourages public companies to transition to its revised framework – COSO 2013.

Public companies are required, on an annual basis, to evaluate the effectiveness of their internal controls over financial reporting and to disclose in their 10-K the results of such evaluation and the framework used to make such evaluation.  Public companies must also disclose any material changes to internal controls – for example changes resulting from a transition to COSO 2013.

Companies who delay the transition to COSO 2013 face the risk of increased scrutiny by the SEC.  In a recent public meeting, the SEC staff stated “the longer issuers continue to use the 1992 framework, the more likely they are to receive questions from the staff about whether the issuer’s use of the 1992 framework satisfies the SEC’s requirement to use a suitable, recognized framework”. To avoid questions form the staff, smaller reporting companies will want to take steps to transition to COSO 2013.

 

For more information regarding this topic, please feel free to contact Daniele Ouellette Levy.

Court Outlines Requirements for Insider Trading Case 01/23/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Legal Developments, New Resources, Public Companies.
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Corporate Attorney Mark TaralloBy: Mark Tarallo

In a decision dated December 10, 2014, the Second Circuit Court of Appeals clarified its position on insider trading cases where the discloser of the information committed no crime.  In US v. Newman, the Court addressed a situation where the defendants, who were several “degrees” removed from the discloser of the information, received the information without any knowledge as to the criminal liability of the discloser.  The Court ruled that since the defendants did not know that the discloser committed a crime, then the defendants cannot be guilty of a criminal act, stating in part “we find no support for the Government’s contention that knowledge of a breach of the duty of confidentiality without knowledge of the personal benefit is sufficient to impose criminal liability.”  The Court then went on to lay out a clear statement of the requirements for an insider trading case:

In sum, we hold that to sustain an insider trading conviction against a tippee, the Government must prove each of the following elements beyond a reasonable doubt: (1) the corporate insider was entrusted with a fiduciary duty; (2) the corporate insider breached his fiduciary duty by (a) disclosing confidential information to a tippee (b) in exchange for a personal benefit; (3) the tippee knew of the tipper’s breach, that is, he knew the information was confidential and divulged for personal benefit; and (4) the tippee still used that information to trade in a security or tip another individual for personal benefit.

The Court reversed the lower court’s guilty finding, and ordered a finding of not guilty.  In addition to clearly setting out the standards for an insider trading case, the case serves as a reminder to all public companies that they should incorporate robust protections to ensure against even the inadvertent disclosure of confidential, non-public information.

 

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

Massachusetts Lawyers Weekly Seeks Carl Barnes Opinion in Matter of Control of Attorney-Client Privilege 01/21/2015

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Corporate, Legal Developments, M&A, MBBP news, Public Companies.
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Corporate Attorney Carl Barnes

MBBP Partner Carl Barnes was recently quoted in a Massachusetts Lawyers Weekly article written by Patrick Murphy, entitled “Survivor of Merger Controls Attorney-Client Privilege.” The article discusses Novack v. Raytheon, a recent Massachusetts Superior Court decision holding that, under Delaware law and the terms of a merger agreement, control of the attorney-client privilege relating to pre-merger communications between BBN Technologies Holding Corp. and its counsel passed to the acquirer, Raytheon Company. The privilege could not, therefore, be asserted after the merger by the representative of BBN’s former shareholders. The Superior Court, applying Delaware law, simply followed the Delaware Chancery Court’s 2013 decision in Great Hill Equity IV, LP v. SIG Growth Equity Fund I, LLLP. As an M&A attorney for more than 30 years, Carl considered whether the same result would be reached under the Massachusetts Business Corporation Act. Carl stated:

Under Delaware law, the effect of a merger is the conveyance of all property, rights, privilege, powers and franchises to the surviving corporation.  On the other hand, G.L.c. 156D 11.07(a)(3) is more narrowly drawn, providing merely that the surviving entity is vested in all property owned and every contract right possessed by the entity that is merged into the survivor. There is probably more room for interpretation in Massachusetts than there is in Delaware, Barnes said.  But he said there is still a strong argument to be made under Massachusetts law that the control of the attorney-client privilege passed to the surviving corporation in a merger.It defies logic that the successor will get the property and contract rights, and nothing else.

 

For further analysis and practical recommendations for M&A lawyers in Massachusetts, see Carl’s own article, “Massachusetts Court (Sort of) Adopts Delaware’s Great Hill Holding Regarding the Attorney-Client Privilege in Mergers” or please feel free to contact Carl.

Our Greatest Hits of 2014! 01/21/2015

Posted by Morse, Barnes-Brown Pendleton in Corporate, Employment, Immigration, Intellectual Property, Licensing & Strategic Alliances, M&A, MBBP news, Privacy and Data Security, Public Companies, Taxation.
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From the Top Ten Issues in M&A Transactions to the Life Cycle of an IRS Audit we’re recapping the most popular articles and blogs in 2014!

Other popular articles include:

Most popular posts from our 4 blogs:

These articles, along with our newsletters and other blogs can found here.

SEC Sends Individuals a Strong Reminder About Complying with FCPA. 01/15/2015

Posted by Morse, Barnes-Brown Pendleton in Legal Developments, New Resources, Public Companies.
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Corporate Attorney Mark TaralloBy: Mark Tarallo 

The Securities and Exchange Commission (“SEC”) is charged with enforcing the accounting provisions of the Foreign Corrupt Practices Act (“FCPA”).  Section 30A of the Securities Exchange Act prohibits any officer, director, employee, or agent acting on behalf of a publicly traded issuer from giving anything of value to a foreign official in order to secure business from that official’s government.  Typically, enforcement actions result in penalties against the issuer.  However, for the first time since 2012, in November 2014 the SEC brought charges against individuals for violating the FCPA resulting in a cease and desist order and monetary penalties against the individuals.  The individuals provided certain officials of the Saudi Arabian government with expensive gifts and extensive travel (not in any way necessary to, or in connection with, the proposed business).  The individuals then falsified records in an effort to cover up their actions.  The SEC found that the individuals were responsible for the violations, and that the issuer had both a strong compliance policy and a training program in place for individuals dealing with foreign governments.  While the SEC indicated that the investigation is continuing, no charges have been brought against the issuer. The SEC order can be found here .

Publicly traded companies doing business (or attempting to business) overseas should make sure that they are familiar with the provisions of the FCPA and have a robust training and compliance program in place in order to make sure that all employees who may be dealing with foreign officials are well aware of their compliance and reporting obligations.

 

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

SEC Cracks Down on Smaller Public Companies 12/01/2014

Posted by Morse, Barnes-Brown Pendleton in Legal Developments, New Resources, Public Companies.
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Corporate Attorney Mark TaralloBy: Mark Tarallo

On November 5, 2014, the United States Securities and Exchange Commission (SEC) announced enforcement actions against 10 publicly traded companies for failing to properly disclose financing transactions and other sales of unregistered stock.

Companies are required to file a Form 8-K to inform investors when shares of common stock are sold in transactions that are not registered with the SEC under the federal securities laws and constitute at least five percent of the total stock held by their shareholders.  Companies also must report when they have entered into a financing agreement not made in the ordinary course of business.  These disclosures enable investors to be aware that stock dilution has occurred as a company issues additional shares in a financing transaction or other unregistered sale that has the effect of reducing the earnings per share and an investor’s percentage of ownership in the company.

The SEC found that each of the 10 companies failed to make proper disclosures regarding the dilutive effects of the transactions, and some later used incorrect share numbers when filing quarterly or annual reports.  Each of the companies was fined at least $25,000, with some of the fines as high as $50,000.

The companies that these actions were brought against are all smaller public companies, and signal that the SEC continues to engage in the “broken windows” enforcement strategy expressed by SEC Chair Mary Jo White in October, 2013.  It shows a continued effort by the SEC to prosecute “even the smallest infractions,” and that even micro-cap issuers are at risk of an enforcement action for failing to comply with applicable requirements.

 

Going Concern Evaluation – FASB Issues a Roadmap for Management 09/15/2014

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

By: Daniele Ouellette Levy

Under US GAAP (generally accepted accounting principles) a company’s continuation as a going concern is presumed when preparing the financial statements.  As part of their review of the financial statements, auditors are required to evaluate whether there is a substantial doubt about the company’s ability to continue as a going concern for a reasonable period of time (often 12 months) after the date of the financial statements.

Until recently GAAP did not provide guidance to management regarding management’s responsibility to evaluate whether there exists a substantial doubt about the company’s ability to continue as a going concern.  As a result, there have been significant inconsistencies between companies in their evaluation of this issue as well as the related disclosures.  Also, without the benefit of guidance, management was often left to rely on the assessment performed by the auditors.

Companies may face unintended negative implications on their business resulting from the auditor’s determination of “substantial doubt” and the inclusion of a going concern qualification in the audit letter. For example, inclusion of a going concern qualification may result in a significant reduction in a company’s D&B Supplier Evaluation Risk Rating (SER).  The SER, which predicts the likelihood that a business will seek legal relief from creditors or cease operations in the next 12 months, is relied on by many large retailers to evaluate their vendors.  A significant reduction in a company’s SER could result in that company being dropped from the approved vendor list and losing a significant customer.

In August, FASB issued guidance to management in making this evaluation.  Based on this guidance, management is required to evaluate on a quarterly basis whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern in the next 12 months.  In its guidance FASB defined substantial doubt as: “Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued . . . .”

Careful review of the roadmap provided by FASB and analysis by management may help standardize the evaluation and disclosures provided by companies and avoid negative business implications associated with a going concern qualification.

For more information on this topic, please contact Daniele.

Anti-Retaliation Provision of Whistleblower Statute Does Not Apply Extraterritorially 09/12/2014

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Corporate Attorney Joseph MarrowBy: Joe Marrow

On August 14, 2014, the Second Circuit Court of Appeals held that the anti-retaliation provision of the Dodd-Frank whistleblower statute does not apply extraterritorially.  In its decision, Liu v. Siemens A.G., No. 13-4385-cv (2d Cir. Aug. 14, 2014), the Second Circuit upheld the Federal District Court’s holding that a foreign employee cannot successfully bring an action under the anti-retaliation provision of the Dodd-Frank whistleblower statute alleging improper conduct for events taking place outside the United States.

In Liu v. Siemens, Liu, a former employee of Siemens, alleged that Siemens fired him in response to his report of improper conduct against Siemens and in so doing Siemens violated 15 U.S.C. Section 78u-6(h) of the Dodd-Frank Act which prohibits an employer from retaliating against an employee for making certain protected statements.  Most notably, Liu, who is not a U.S. citizen and was employed abroad by Siemens, alleged that all improper conduct occurred outside the United States.  The Second Circuit noted the presumption that legislation is intended to apply domestically absent clear congressional intent that the legislation was intended to apply extraterritorially.  The Court found no such congressional intent.  Absent any type of nexus between the improper conduct and the United States and the presumption against applying the statute outside the United States, the Court refused to apply the anti-retaliation provision against Siemens in this case.

The Second Circuit’s holding provides some assurance to foreign companies that if the conduct alleged to violate the anti-retaliation provisions of the Dodd-Frank whistleblower statute takes place outside the United States, the foreign corporation should not face exposure under the statute.

For more information on this topic, please contact Joe Marrow

MBBP Client Hastings Equity Partners Completes Sale of Advanced Precision Products, Inc. 09/04/2014

Posted by Morse, Barnes-Brown Pendleton in Client News, Intellectual Property, Manufacturing, Retail & Service, MBBP news, Public Companies.
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Hastings Equity Partners, LLCMBBP client Hastings Equity Partners recently announced the sale of Advanced Precision Products, Inc. (APP) to Precision Engineered Products, LLC (PEP). Advanced Precision Products is a leading manufacturer of highly engineered components and products for oil & gas, medical, aerospace, automotive, military and commercial OEMs.  Morse, Barnes-Brown & Pendleton serves as counsel to Hastings Equity Partners, and advised it in connection with the structuring, negotiation and documentation of this transaction. Shannon Zollo was the lead corporate attorney on MBBP’s team, which also included attorneys Mark Tarallo and Jonathan Calla.

Hastings Equity Partners is a Waltham, MA-based, private investment firm that acquires and grows small to mid-sized enterprises.

Please visit Hastings Equity Partners for more information.

Consultant or Executive Officer? SEC Brings an Action to Clarify 07/30/2014

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

On July 16, 2014, the United States Securities and Exchange Commission (“SEC”) brought an action against Natural Blue Resources, Inc. (“Natural Blue”), James E. Cohen (“Cohen”) and Joseph A. Corazzi (“Corazzi”)(Natural Blue, Cohen and Corazzi are referred to collectively as the “Respondents”).  The SEC is seeking a cease-and-desist order against the Respondents, alleging among other items that Cohen and Corazzi acted as the de facto executive management of Natural Blue, while failing to make any of the disclosures required of executive officers of a public company.

Natural Blue was a privately-held corporation based in Nevada that went public in August, 2009 via a reverse merger with Datameg Corporation.  In November 2009, Natural Blue entered into a consulting agreement with JEC Corp. (“JEC”) a corporation owned by Cohen’s family.  Cohen was the President of JEC, and  Corazzi was employed by JEC.  Cohen and Corazzi each had extensive disciplinary histories that would have prevented them from serving as an executive officer of Natural Blue.

From the time that Natural Blue went public in 2009 through the end of 2011, Cohen and Corazzi exercised a significant degree of control over Natural Blue through JEC.  They recommended virtually all of the directors that served on the board of Natural Blue, and almost all of the key executive positions were filled by individuals with whom they had significant preexisting business or social relationships.  Despite the fact that Natural Blue had a named CEO, Cohen and Corazzi controlled all of the key functions of Natural Blue, such as the accounting department (the CFO was an associate of Cohen’s with whom Cohen shared outside office space).  Cohen and Corazzi dealt directly with third parties and purported to enter into agreements on behalf of Natural Blue.  Despite the fact that the actions of Cohen and Corazzi did not actually generate any revenue for Natural Blue or its shareholders, they were paid significant amounts of cash and Natural Blue stock (which was sold at a profit) for their efforts.

The SEC’s action alleges among other things that the Respondents engaged in fraud by failing to accurately report the roles played by Cohen and Corazzi, and that those failures caused harm to investors.  Given the disciplinary histories of Cohen and Corazzi, it is clear why they went to the lengths that they did to hide their actual roles.  The SEC filing can be found here.

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

 

SEC Chair Speaks on Corporate Governance 07/10/2014

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

On June 23, 2014, SEC Chair Mary Jo White spoke to the Twentieth Annual Stanford Directors’ College held at the Stanford University Rock Center for Corporate Governance.  Chair White’s remarks focused on the SEC’s view of the role of the board of directors in a corporation.

Chair White characterized her remarks as covering three topics-one attitudinal, one advisory, and one descriptive.  The “attitudinal” topic was the view that the SEC takes regarding directors as the most important “gatekeepers” of a corporation.  She noted that “it is essential for directors to establish expectations for senior management and the company as a whole, and exercise appropriate oversight to ensure that those expectations are met.  It is up to directors, along with senior management under the purview of the board, to set the all-important “tone at the top” for the entire company.”  From an advisory perspective, Chair White spoke to the obligation of the board to engage in self-reporting when they learn of any wrongdoing and working cooperatively with regulators.  She referred to prior decisions and press releases to show how self-reporting and cooperation is viewed favorably by the SEC, and called on directors to “[m]ake it clear from the outset that the board’s expectation is that any internal investigation will search for misconduct wherever and however high up it occurred; that the company will act promptly and report real-time to the Enforcement staff on any misconduct uncovered; and that the company will hold its responsible employees to account.”  Last, Chair White described the workings of the SEC’s Whistleblower program and why it is necessary for the board to take any tips or accusations seriously.  It is clear from her remarks that the SEC plans to hold boards accountable for compliance failures, and while her remarks were targeted at public reporting companies, they are instructive for private companies as well, and directors of private companies should take note of the increasing obligations to ensure compliance.

A full copy of the text of Chair White’s comments can be found here.

Please feel free to contact Mark with any questions on this topic.

Insider Trading Allegations Continue to Dog Phil Mickelson 07/08/2014

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

As Phil Mickelson prepares to play in the upcoming British Open, he faces additional insider trading allegations (there were previous reports that Mickelson profited from trades involving Clorox, but that investigation allegedly ended without any action). Most recently, federal authorities subpoenaed Dean Foods (Land O Lakes, Garelick Farms and TruMoo brands), a publicly-traded company, about trading activity that closely preceded the announcement of a subsidiary spinoff. Prior to the spinoff, Mickelson and William Walters, a sports gambler and friend of the golfer, placed trades in the shares of Dean Foods. Allegedly, Walters made $15 million in profit and Mickelson made $1 million in profit from the trades. According to reports, the investigation has focused on whether someone inside Dean Foods tipped Walters with material non-public information regarding the proposed spinoff and whether Walters then informed Mickelson.

Insider trading refers to the practice of profiting from the buying and selling of stock in publicly-traded companies through the use of non-public information. In addition, an individual can trip up the insider trading rules by being the “tippee” (recipient) of inside information from a “tipper” (person with access to the inside information). This is the situation purportedly facing Mickelson. Proving insider trading can be very challenging for prosecutors. There has been a noticeable increase in the investigation and prosecution of insider trading cases. Targeting a high profile person like Mickelson may bring more attention to insider trading claims and may serve as a deterrent to individuals considering trading on material non-public information.

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

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