MBBP’s Joshua Watson quoted in Bloomberg article discussing private equity tax and financial reform in the Trump era 01/30/2017Posted by Morse Barnes-Brown Pendleton in Attorney News, Corporate, Venture Capital & Private Equity.
Tags: bloomberg, corporate attorney, corporate law, dodd-frank, president trump, private equity, private investment funds & advisers
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Corporate partner Joshua H. Watson was quoted in a Bloomberg article discussing possible changes to the private equity industry during Donald Trump’s presidency. The article details the top three priorities for the private equity industry as Trump takes office: carried interest, interest deductibility, and changing Dodd-Frank registration requirements.
Regarding Dodd-Frank requirements, Josh notes that if the reform act passed by Obama’s administration is rolled-back, particularly in regards to registration requirements for private equity firms, there could be bipartisan political support for exempting more small firms from registering. Specifically, Josh states that “if small to mid-sized managers are able to spend less of their resources on compliance, they will have more resources available for making and managing investments.”
Tags: conflict minerals, court of appeals, dodd-frank, form sd, gold, SEC, tantalum, tungsten
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By: Mark Tarallo
On April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit struck down a portion of the “conflict minerals” rules promulgated by the Securities and Exchange Commission pursuant to the Dodd-Frank Act. In National Association of Manufacturers v. Securities and Exchange Commission, the court concluded that the provision of the conflict minerals rules that required an issuer to state on its website that its products may incorporate conflict minerals was unconstitutional on free speech grounds. In a 2-1 decision, the court struck this requirement, while leaving the other conflict minerals reporting obligations in place.
In an effort to combat the ongoing abuses and exploitation in the Democratic Republic of Congo and other African countries, Congress incorporated into the Dodd-Frank Act a provision that the SEC issue regulations requiring certain reporting companies to investigate and disclose the source of any “conflict minerals” such as gold, tantalum and tungsten used in their products. The goal of the rule is to identify those publicly-traded companies that use conflict minerals in their products and to pressure those companies to find legal sources for those materials. The final rule promulgated by the SEC required an issuer to undertake a three step process: i) determine if conflict minerals are used in the issuer’s products, and if so, ii) undertake a “reasonable country of origin” inquiry to determine the source of those conflict minerals, and if the issuer determines that the conflict minerals may have originated in certain countries, iii) “exercise due diligence on the source and chain of custody of its conflict minerals.”
Once an issuer determines (or has reason to believe) that the conflict minerals used in its products originated in covered countries, the issuer has an obligation to file a Conflict Minerals Report on Form SD, including a required third-party audit. In addition, in certain circumstances, issuers were required to post a notice on their website that their products “have not been found to be DRC conflict-free.” The recent ruling struck down just this last requirement, while leaving much of the remaining framework (including the obligations to investigate sources and file a Form SD) in place. Issuers should continue to prepare to File Form SD, as it is difficult to predict that any further action will take place prior to the upcoming May 31 deadline.
The SEC has indicated that it is reviewing the ruling.
For more information on this topic, please feel free to contact Mark Tarallo.
Tags: dodd-frank, lawson v. fmr, public companies, SEC, supreme court, whistleblower
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By: Joseph Marrow
On March 4, 2014, the United States Supreme Court issued its decision in a much anticipated whistleblower retaliation case. In its decision, Lawson v. FMR, LLC, No. 12-3, the Supreme Court expanded the coverage of an anti-retaliation claim under Sarbanes-Oxley Act of 2002 (SOX) to an employee of a privately-held contractor (the contractor provided investment management services to Fidelity mutual funds). 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. The First Circuit had ruled that the anti-retaliation provision only applies to employees of public companies. In a 6 to 3 vote, the Supreme Court reversed the decision of the First Circuit in favor of expanding the coverage of the whistleblower statute to cover employees of a public company’s private contractors and subcontractors.
In Lawson v. FMR, the Supreme Court interpreted a provision of SOX, namely 18 U.S.C. Section 1514A protecting whistleblowers, which provides in part: “No [public] company …, or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” The Supreme Court was faced with the question whether the protected class was simply limited to employees of the public company itself or would include “employees of privately held contractors and subcontractors – for example, investment advisers, law firms, accounting enterprises – who perform work for the public company?” Noting that SOX was enacted following the Enron scandal and in part in response to that scandal, the Supreme Court interpreted the statute as a response to a “concern about contractor conduct of the kind that contributed to Enron’s collapse.” As such, the Supreme Court held that a broader interpretation of the statute (to capture contractors that perform work for public companies) was warranted.
The implications of the Supreme Court’s decision are far reaching. The Supreme Court’s holding significantly expands the pool of potential whistleblower claimants. It remains to be seen whether the parade of horribles predicted by the dissent – resulting in a multitude of spurious claims – will come to fruition.
For more information on this topic please contact Joe Marrow.