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MBBP Client Valeritas Files IPO 02/17/2015

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Valeritas, Inc.

On February 12, 2015, MBBP client Valeritas, Inc., a medical technology company focused on the development and commercialization of innovative drug delivery solutions, filed for a $90 million IPO.

The filing with the SEC arrives one week after insulin pump maker Asante Solutions postponed its proposed $49 million offering.

Valeritas markets a disposable device that delivers basal-bolus insulin therapy for Type 2 diabetes.

More details can be found here or visit www.valeritas.com.

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.

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 Proposes Changes to Exchange Act Registration Thresholds 01/08/2015

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

On December 17, 2014, the United States Securities and Exchange Commission (“SEC) issued proposed amendments to the existing rules adopted under Section 12 (g) of the Exchange Act to reflect the new, higher thresholds for registration, termination of registration and suspension of reporting that were adopted as part of the JOBS Act.    In addition, the proposed amendments would revise the definition of “held of record” in Exchange Act Rule 12g5-1, in accordance with the JOBS Act, to exclude certain securities held by persons who received them pursuant to employee compensation plans and establish a non-exclusive safe harbor for determining whether securities are “held of record” for purposes of registration under Exchange Act Section 12(g).

Whether or not an issuer has “gone public,” any issuer that meets certain tests with respect to total assets and number of shareholders is required to file a registration statement and file regular periodic reports (such as forms 10-K and 10-Q).  The proposed amendments will adopt the standards set forth in the JOBS Act-an issuer must register if, as of the last day of its last fiscal year, it (i) had greater than $10 million in assets and (ii) had greater than 2,000 holders of record (or 500 persons who are not accredited investors) of any class of its securities.  In addition, the proposed amendments will revise the rules to make them consistent with the standards for termination of registration and suspension of reporting set forth in the JOBS Act.

The proposed amendments will also address the concept of securities “held of record.” In an effort to meet the goals of the JOBS Act of increasing the ability to raise capital while lessening the administrative burden on issuers, when determining whether or not an issuer must register, the issuer may exclude from the calculation of securities “held of record” any securities that are held by persons who received them pursuant to an “employee compensation plan” in a transaction exempted from the registration requirements of Section 5 of the Securities Act.  This amendment may have a significant beneficial impact on technology companies and other issuers that grant restricted stock to all employees as a matter of course.

The SEC Release containing the full text of the proposed amendments can be found here .  The SEC is soliciting comments on the proposed amendments, and the comment period is open until March 2, 2015.

Any questions on this topic, please feel free to contact Mark Tarallo.

Q3 VC Data Reported in MBBP’s VC Spotlight Newsletter 12/19/2014

Posted by Morse, Barnes-Brown Pendleton in Client News, Venture Capital & Private Equity.
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MBBP’s Q4 VC Spotlight newsletter just published over on our Venture Capital and Start-Up Blog!

We’re reporting on Q3 2014 First Institutional Rounds; how the SEC’s suggested changes to the definition of which investors constitute “accredited investors”  might affect you; and a recent financing completed by our client, MA-based OYO Sports.

Get the details here.

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

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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.

SEC Commissioner Offers Guidance on Cybersecurity Issues 06/30/2014

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By: Mark Tarallo

On June 10, 2014, Commissioner Luis A. Aguilar of the United States Securities and Exchange Commission spoke at the New York Stock Exchange as part of the “Cyber Risks and the Boardroom” Conference.  As Commissioner Aguilar noted, “[c]ybersecurity has become an important topic in both the private and public sectors, and for good reason. … Indeed, according to one survey, U.S. companies experienced a 42% increase between 2011 and 2012 in the number of successful cyber-attacks they experienced per week.”  Commissioner Aguilar indicated that not only are attacks becoming more frequent, they are becoming more expensive, citing one survey that showed that the average annualized cost of cyber-crime to a sample of U.S. companies was $11.6 million per year, representing a 78% increase since 2009.   Commissioner Aguilar concluded his remarks by stating quite clearly that boards of directors bear an increasingly heavy burden when dealing with cybersecurity, as “board oversight of cyber-risk management is critical to ensuring that companies are taking adequate steps to prevent, and prepare for, the harms that can result from such attacks.”  Commissioner Aguilar laid out several steps for proactive boards to engage in, including working with management to ensure that corporate policies match up with NIST Cybersecurity Framework guidelines, creating an enterprise risk committee on the board to make sure that members are adequately educated, and preparing in advance for the “inevitable” cyber attack.  Given the SEC’s recent enhanced focus on cybersecurity issues, Commissioner Aguilar’s remarks send a clear message to directors to embrace the responsibility of addressing cyber risk and adequately preparing for attacks.

The complete transcript of Commissioner Aguilar’s remarks can be found here.

Chair Mary Jo White Discusses SEC, FAF and FASB Shared Interests at Trustees Dinner 06/23/2014

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

On May 20, 2014 U.S. Securities and Exchange Commission Chair Mary Jo White spoke at the Financial Accounting Foundation Trustees Dinner.  Given the audience, it is not surprising that her remarks focused on accounting issues at the SEC.  In her remarks, Chair White mentioned that the SEC is still considering the addition of International Financial Reporting Standards (“IFRS”) for domestic registrants. Although no timetable was given for when the issue would be addressed, White noted that the interests of U.S. investors would be front and center during the IFRS consideration process.  In addition, Chair White commented on the continuing efforts of the Disclosure Effectiveness Project, noting that she has directed the staff to undertake a comprehensive review of disclosure requirements under Regulation S-K and make specific recommendations for updating the requirements pursuant to a JOBS Act-mandated report on Regulation S-K that provides the staff’s recommendations for a review of corporate disclosure requirements.  She also noted that the Financial Reporting and Audit Task Force, formed in July, 2013, will continue its increased enforcement efforts and will work to look ahead to identify additional areas where financial reporting fraud may be likely to occur, while focusing on internal controls related to the areas that have already been identified as being susceptible to financial reporting fraud.

The complete transcript of Chair White’s remarks is available here.

 

SEC Continues to Adapt to Use of Social Media – Companies not Responsible for Re-Tweets 05/13/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

As we have discussed in prior posts, the U.S. Securities and Exchange Commission (SEC) has been considering how the use of the social media by public companies fits within the existing regulatory framework.  The SEC recently issued additional guidance regarding the use of social media by public companies.  In its guidance, appearing as C&DIs 110.02 and 232.16, the SEC clarified that when third parties re-tweet or otherwise re-transmit a social media post originated by a public company, the company is not responsible for ensuring that the re-transmission complies with securities laws.  Under the SEC’s guidance, a re-tweet or re-transmission is not attributed to the company provided that:

  • the company has no involvement with the third party’s re-transmission of the post;
  • the third party is not acting on behalf of the company; and
  • the third party is not a participant in an offering of company securities.

We believe this new guidance provides another step toward permitting public companies to use social media to communicate with stockholders and the investment community.  This trend toward social media as a preferred platform for communicating with stockholders and potential investors underlines the need for public companies to adopt a comprehensive social media policy.

For more information on this topic please contact Daniele Levy.

U.S. Court of Appeals Narrows Application of Conflict Minerals Rules 05/01/2014

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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.

Supreme Court Expands Pool of Claimants in Whistleblower Case 03/07/2014

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Corporate Attorney Joseph MarrowBy: 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.

SEC’s No Action Letter Provides Relief to M&A Brokers 03/03/2014

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Corporate Attorney Joseph MarrowBy: Joseph Marrow

On January 31, 2014, the Securities and Exchange Commission (“SEC”) Division of Trading and Markets (the “Division”) issued a no action letter (the “No Action Letter”) providing relief to M&A Brokers (as defined below), in certain stated circumstances, engaged in the purchase or sale of privately-held companies from compliance with the registration requirements of Section 15(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). By reason of the no action relief, M&A Brokers may be entitled to receive transaction-based compensation without having to register as a broker-dealer under Section 15(a) of the Exchange Act. In issuing the No Action Letter, the SEC set a number of conditions to be followed. Please see the full post for more information including the full list of conditions.

For more information on this topic, please contact Joe.

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

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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.

Transitioning to the 2013 COSO Framework 01/23/2014

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Corporate Attorney Hillary PetersonBy: Hillary Peterson

In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) published an update to it’s Internal Controls – Integrated Framework, originally published in 1992. The 1992 framework has been adopted by the majority of publicly-traded companies in the United States as a way to design, implement and assess the effectiveness of the internal controls of the company. The 2013 framework has been updated in a number of ways to address the evolving issues facing companies today.

In a recent meeting of the Securities and Exchange Commission (“SEC”) Regulations Committee, the SEC staff indicated that it expects U.S. publicly-traded companies to review their internal controls and to update and revise those controls in order to comply with the newly updated COSO framework. While the new framework is not due to supersede the 1992 framework until December 15, 2014, the 2013 framework was issued in May 2013 in order to allow companies time to review and update their internal controls in advance of that date. The SEC staff has stated that, especially after the December 15, 2014 transition date, companies that continue to rely on the 1992 framework will likely receive questions from the staff about whether or not their internal controls meet the SEC standard.

For more information on the COSO Framwork, please feel free to contact Hillary Peterson.

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.

Supreme Court Review of Whistleblower Case 12/17/2013

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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.

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

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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.

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.

Joe Martinez to Speak at BBA Seminar on Crowdfunding 12/04/2013

Posted by Morse, Barnes-Brown Pendleton in Attorney News, Events.
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Corporate Attorney Joseph MartinezOn December 10 MBBP Corporate Attorney Joseph Martinez will be speaking at a Boston Bar Association seminar titled SEC’s Proposed Rules for Crowdfunding. In October the SEC proposed rules to implement Title III of the Jumpstart Our Business Startups (JOBS) Act which introduced a new “crowdfunding” exemption from registration of securities. The rules, if finalized, would make it possible for most privately-held companies to raise capital by selling securities to the public without registering with the SEC. In this program, Joe will review some of the key provisions in the proposed rules and discuss the challenges they pose for crowdfunding.

For more information or to register, please visit the event page.

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