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Venture Exchange Regulation: Listing Standards, Market Microstructure, and Investor Protection

This summer, the House Financial Services Committee passed the Main Street Growth Act, which calls for legislative changes to promote the formation of venture exchanges. The idea that securities exchanges specially designed...more

SEC Files Action Against Company and its General Counsel for Loss Contingency Accrual and Disclosure Failures – What to Know

SEC’s Factual Allegations - On September 9, 2016, the Securities and Exchange Commission (“SEC”) filed a complaint against RPM International Inc. (“RPM”) and its General Counsel and Chief Compliance Officer, alleging the...more

House Bill Would Ease Regulatory Restrictions to Private Fund Advisers

On September 9, 2016, the U.S. House of Representatives approved a bill that would amend the Investment Advisers Act of 1940 to modernize certain disclosure requirements and lessen regulatory burdens on private fund advisers....more

Funds and Investment Advisers: Changes Coming in AML Compliance

Anti-money laundering (AML) regulation has continued to evolve since it was introduced in 1970 under the broad regulatory scheme commonly known as the Bank Secrecy Act. While funds and investment advisers have not been...more

Compliance into the Weeds-Episode 14-Wells Fargo and the Fraud Triangle

In this episode, Matt Kelly and I take a look at the Wells Fargo scandal through the lens of the fraud triangle. ...more

The Financial Choice Act: Implications for the U.S. Securities Legal Framework

On September 13, 2016, the House Financial Services Committee of the United States House of Representatives (the “FSC”) formally released H.R. 5983, the “Financial CHOICE Act” (the “CHOICE Act”). While the CHOICE Act has largely been viewed through a financial regulatory lens, as the first major concerted effort to provide an alternative to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) as a way to end “Too Big to Fail,” the CHOICE Act, as currently drafted, would also repeal a number of the specialized disclosure provisions that were contained in the Dodd-Frank Act and subsume “JOBS Act 2.0” capital formation measures that have largely been presented to date as standalone bills. This alert provides an overview of the sections of the CHOICE Act that would impact U.S. securities laws, which are contained in Title IV and Title X of the CHOICE Act. Please see full Alert below for more information. more

Ninth Circuit Holds that SOX 304 Clawback Applies to Executives that are Not at Fault

The Ninth Circuit recently held that Section 304 of the Sarbanes-Oxley Act (SOX 304) allows for a clawback of certain CEO and CFO compensation regardless of whether the clawback was triggered by the personal misconduct of such officers. District courts have reached this conclusion before, but the Ninth Circuit appears to be the first circuit to adopt such a view. The Ninth Circuit also held that Rule 13a-14 of the Securities Exchange Act (Rule 13a-14) provides the SEC with a cause of action against a CEO and CFO who certify false or misleading statements.more

Corporate governance: Tools for the job

Japan's corporate governance reforms hold promise of real change. Local and foreign observers have attributed the low "metabolism" of Japan's economy to the low productivity and comparatively low profitability of many Japanese companies. To address these problems, the Abe government has lent its political weight to corporate governance reforms.more

Bridging the Week - September 2016

NFA Proposes Requiring CTAs and CPOs to File Certain Financial Ratio Information: The National Futures Association submitted to the Commodity Futures Trading Commission for its approval a new requirement that would mandate that registered commodity pool operators and commodity trading advisors submit two financial ratios on their quarterly reports to it on Forms PQR and PR, respectively. The required ratios would be current assets/current liabilities and total revenue/total expenses and must be calculated using the accrual method of accounting. The NFA said it seeks to obtain these ratios so that it might better monitor each CPO’s and CTA’s financial condition in order to identify firms that might be having financial troubles. CPOs and CTAs that are part of a holding company/subsidiary structure would have the option to report the ratios at the parent level, according to NFA. In addition, each CPO and CTA would be required to ensure it could demonstrate how it computed its ratios and to retain all financial records supporting its calculations. Importantly, stated NFA, it “is not establishing any minimum ratio that a firm must meet. Rather NFA will incorporate the financial information collected on Forms PQR and PR in to its oversight program and use it to identify trends that indicate that a firm may be facing financial difficulties which could impair its ability to act in the best interests of its customers.” NFA expressly noted that it would not constitute a rule violation solely because a CPO’s or CTA’s financial ratios suggested it might be experiencing financial problems. In January 2014, NFA sought comment regarding a possible new requirement that registered CPOs and CTAs maintain a minimum amount of capital, much like futures commission merchants and non-guaranteed introducing brokers currently are required. In a podcast summarizing the August 2016 NFA Board of Directors meeting, Dan Roth, NFA's chief executive officer, said that proposal proved to be a "spectacularly unpopular idea." Currently, CPOs and CTAs are not subject to any capital requirement.more

New Case Addresses LLC Member Expulsion in New Jersey

The New Jersey Supreme Court has decided a new case addressing what it takes to expel a member from an LLC in New Jersey. The applicable statute in New Jersey (42:2C-46(e)) has three subsections dealing with expelling a member, two of which are fairly clear. One section permits the expulsion of a member by the Court when he or she engages in activity that may hurt the company in a material way, or is about to engage in such activity; and another permits expulsion when a member willfully and persistently breaches the Operating Agreement or the member’s fiduciary duties. more

In Eagerly Awaited Ruling, AXA Beats Excessive Fee Claim

The fund manager was victorious in the first court decision to come from a group of complaints filed over the last several years against manager-of-manager models. Introduction - Following a 25-day bench trial, the US District Court for the District of New Jersey recently ruled against a group of plaintiff shareholders who claimed that AXA Equitable Funds Management Group (FMG) “charged exorbitant fees for mutual fund investment and administrative duties, and then delegated those same duties to sub-advisers and sub-administrators for nominal fees.”more

Investing Private Foundation Assets: What Every Foundation Manager Should Know

Those responsible for managing a private foundation’s investment assets may not always understand the unique fiduciary and tax constraints imposed on private foundations and their managers by both state and federal law.more

Federal Banking Agencies Issue Recommendations as Part of Their Section 620 Report to Solidify the Safety and Soundness of the U.S. Financial System

On September 8, 2016, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC,” and together with the Federal Reserve and the FDIC, the “Federal Banking Agencies”) issued their report pursuant to Section 620 (the “Section 620 Report”) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). In accordance with Section 620 of the Dodd-Frank Act, the Federal Banking Agencies are required to conduct a study of the activities and investments that banking entities may engage in under state and federal law for the purpose of providing recommendations regarding: ..Whether the activities or investments have (or could have) a negative effect on the safetyand soundness of the banking entities or the U.S. financial system at large... Please see full Alert below for more information.more

Updates from the Division of Corporation Finance

During the ABA Business Law Section Annual Meeting, at the Dialogue with the Director of the Division of Corporation Finance, hosted by the Federal Regulation of Securities Committee, Keith Higgins offered a comprehensive overview of developments. Mr. Higgins provided a brief update of the proxy season. He noted that the Staff is pretty far along in its thinking regarding recommendations for disclosures regarding diversity on public boards, consistent with statements made by Chair White.more

Corporate Law & Governance Update - September 2016

The following developments from the past month offer guidance on corporate law and governance law as they may be applied to nonprofit health care organizations: BUSINESS ROUNDTABLE GOVERNANCE GUIDELINES - In an important governance development on August 3, the influential Business Roundtable (BRT) released a 2016 edition of its well-known “Governance Principles” monograph. This new release is a comprehensive revision of the 2012 edition of the Principles, and should attract close attention from corporate directors and their advisors. Please see full Update below for more information. more

SEC Proposes Changes Expanding Eligibility for “Smaller Reporting Companies”

The SEC has proposed changes that would expand the number of registrants that qualify as “smaller reporting companies” under the SEC rules and regulations. Under the proposed definition, the pool of registrants qualifying as smaller reporting companies would be enlarged by increasing the thresholds for eligibility based on either a registrant’s public float or its previous year’s revenues, permitting an estimated additional 782 registrants to file as smaller reporting companies.more

Taking stock: Going public in volatile times

The third report in our Deal Dimensions series, written in collaboration with Mergermarket and launched today, reveals that a wave of IPOs could hit the global markets within the next 12 months. The study of senior executives found that more than half (58 per cent) expect the IPO window to re-open in the next 12 months, while a further 38 per cent suggest it will happen in the next 24 months. Investor appetite for IPOs has dulled considerably over the last year; global IPO volume fell by 38 per cent from a H1 2015 total of 544 to just 339 in H1 2016. The reasons for the decline have been well documented, yet our exclusive survey of C-suite executives from 100 private companies around the world, shows the attraction of going public remains strong. Companies are positioning themselves to launch an IPO when market conditions stabilise either temporarily or for a more sustained period. Please see full Publication below for more information. more

Grant of security – Not so secure anymore?

The recent High Court decision in Encus International Pte Ltd (in compulsory liquidation) v Tenacious Investment Pte Ltd & Ors [2016] SGHC 50 (Encus International) bears significance to lenders for two pivotal reasons. First, it reiterates the orthodox position that an appropriately-crafted entire agreement clause could cause a previously-negotiated agreement, including a prior term sheet, to be superseded. Secondly, it casts a long shadow of doubt on the status of grant of security in Singapore’s insolvency regime. While the traditional English position holds that the grant of security is beyond the reach of avoidance under the Bankruptcy Act, the court in Encus International has significantly opined that this may no longer be the case in Singapore.more

New Nasdaq Rule Requires Disclosure of Third Party Compensation of Directors and Nominees

Effective August 1, 2016, companies listed on Nasdaq are subject to a new rule requiring annual disclosure of the material terms of agreements or arrangements between directors or director nominees and third parties that relate to compensation or other payment in connection with that person’s candidacy or service as a director.more

Update to August 24th Safe Harbors Client Alert - NEW TRANSITION PERIOD

Update to August 24th Client Alert: Note: As published September 6, 2016 in the Internal Revenue Bulletin, the Internal Revenue Service has extended the transition period with respect to Revenue Procedure 2016-44 to August 18, 2017. Thus, while the new safe harbors of Revenue Procedure 2016-44 apply to any management contract entered into on or after August 22, 2016, and an issuer may apply these safe harbors to any management contract entered into before August 22, 2016, an issuer may apply the safe harbors contained in Rev. Proc. 97-13, as modified by Rev. Proc. 2001-39 and amplified by Notice 2014-67, to a management contract entered into before August 18, 2017 that is not materially modified or extended on or after August 18, 2017 other than pursuant to a renewal option.more

The SEC Adopts Amendments to Form ADV and Recordkeeping Rule: Advisers Now Required to Disclose Information About Separately Managed Accounts

The Securities and Exchange Commission (SEC) recently amended Form ADV to require investment advisers to disclose more information about their separately managed account business, aggregate data related to the use of borrowings and derivatives, and disclose information about other aspects of their advisory business, including branch office operations and the use of social media. The amendments also streamline registration and reporting for “umbrella registrations” made by groups of private fund advisers operating a single advisory business. The SEC also adopted amendments to the books and records requirements under the Investment Advisers Act of 1940 (the “Advisers Act”) to require advisers to maintain additional records related to the calculation and distribution of performance information. Please see full Alert below for more information. more

Broker-Lite: FINRA Built It, But Will They Come?

On August 18, 2016, the US Securities and Exchange Commission (SEC) approved a new Financial Industry Regulatory Authority (FINRA) rule series intended as a “lite” framework for the registration and regulation of brokers that limit their activities to certain capital raising and private placements, mergers and acquisitions (M&A) advisory, and related corporate financing. Under the new framework, contained in a new FINRA rule series, a broker that qualifies as a capital acquisition broker (CAB), as defined below, can elect to be regulated under the new rules (CAB Rules). Both current and prospective FINRA members may opt in to the CAB Rules. FINRA will announce the CAB Rules’ effective date in a forthcoming regulatory notice. Please see full White Paper below for more information. more

Cheyne Capital v. Deutsche Trustee Company: another securitisation dispute on contractual interpretation

Hot on the heels of a number of recent cases on the interpretation of securitisation documents comes Cheyne Capital (Management) UK (LLP) v. Deutsche Trustee Company Limited and another. In this case the Court of Appeal judges unanimously agreed on the "natural and ordinary" meaning of a clause in dispute, upholding the High Court's decision. As David Cohen explains, like the recent Supreme Court case of Arnold v. Britton, this case is a reminder that the courts are reluctant to depart from the literal meaning of words on a page.more

Top Ten International Anti-Corruption Developments for July 2016

In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments from the past month, with links to primary resources. This month we ask: Which companies reached resolutions with the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), the Serious Fraud Office (SFO), and a host of Brazilian authorities? What aspect of Mexico's new anti-corruption regime was called a “game changer”? Which Asian country saw the release of a new set of anti-corruption compliance guidelines? The answers to these questions and more are here in our July 2016 Top Ten list: 1. South American Airline Resolves Argentina FCPA Accounting Provision Allegations. In February 2016, SEC announced that Ignacio Cueto Plaza, the CEO of South America-based LAN Airlines, had agreed to settle claims that he violated the FCPA’s accounting provisions by authorizing payments to a third-party consultant in 2007 despite knowing that the consultant might pass money onto union officials in Argentina to help resolve a labor dispute. On July 25, 2016, DOJ and SEC announced that they had reached resolutions with the company for a combined penalty of approximately $22.2 million based on the same allegations. There were some notable aspects of the corporate resolutions. Although neither agency alleged that the union officials were “foreign officials” under the FCPA, both agencies characterized the consultant as an “advisor” to Argentina’s Ministry of Transportation. This suggests that they might have viewed the consultant as a person “acting in an official capacity for or on behalf of” the Ministry and, therefore, a “foreign official” under the FCPA. Read this way, any money that the consultant kept for himself in exchange for intervening in a labor dispute within the scope of his Ministry could arguably be characterized as a bribe under the FCPA. However, the SEC Order notes that the consultant held an “ad-honorem” position given to him “pursuant to an unpublished Resolution.” This further suggests that the agencies might not have been willing to test this “foreign official” theory, which they were able to avoid by bringing accounting charges instead... Please see full Alert below for more information. more

The Financial Report, Volume 5, Number 16 (Global)

Discussion and Analysis One of our lead articles discusses a research report indicating that SEC enforcement activity has slowed in 2016. According to the article, the SEC has brought nearly ten percent fewer enforcement actions through the first three quarters of fiscal year 2016 (which runs from October 1, 2015, through September 30, 2016) than in fiscal year 2015. Moreover, the referenced report shows that to this point in FY 2016, the SEC has taken more actions related to previously filed cases than at the same point in FY 2015, while the number of new actions has declined.more

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