REGULATORY DEVELOPMENTS
PRESIDENT BIDEN ISSUES SWEEPING EXECUTIVE ORDER ON PROMOTING COMPETITION IN THE AMERICAN ECONOMY
On July 9, President Joe Biden announced a broad executive order (Order) intended to boost what the Order characterizes as stagnant competition across the U.S. economy. The Order encourages the federal antitrust agencies to “fairly and vigorously” enforce the antitrust laws, encouraging them to focus on perceived competition problems in key industries, and “reaffirms” the authority of the U.S. antitrust agencies to challenge previously consummated transactions. The Order also calls on other agencies that administer industry-specific fair competition and anti-monopolization laws, including financial regulators such as the Department of the Treasury, Federal Reserve, FDIC, Consumer Financial Protection Bureau, U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission, to, among other things, regulate unfair, deceptive and abusive business practices; resist consolidation and promote competition within industries through the independent oversight of mergers, acquisitions and joint ventures; promulgate rules that promote competition, including the market entry of new competitors; and promote market transparency through compelled disclosure of information. For better or for worse (depending on your perspective), this sweeping Order is likely to launch a series of policy reevaluations and new rulemakings across a multitude of federal financial agencies that result in greater scrutiny of large bank mergers, more intrusive regulation and enhanced disclosure requirements for financial services companies.
For additional information about the antitrust implications of the Order, read the Goodwin client alert.
PROPOSED INTERAGENCY GUIDANCE ON THIRD-PARTY RELATIONSHIPS: RISK MANAGEMENT
The FDIC, Federal Reserve and OCC (collectively, the agencies) are seeking comment on proposed guidance on managing risks associated with third-party relationships. According to the agencies, the proposal responds to industry feedback requesting alignment among the agencies about third-party risk management guidance. The proposed guidance offers a framework of sound risk management principles to assist banking organizations in managing third-party relationships and promotes compliance with all applicable laws and regulations, including those related to consumer protection. The proposed guidance also takes into account the level of risk, complexity and size of the banking organization and the nature of the third-party relationship. If adopted by the agencies in final form, the guidance would replace each agency’s existing guidance for managing third-party risk with uniform interagency guidance on the topic. Comments will be accepted for 60 days after publication in the Federal Register.
“The heart of American capitalism is a simple idea: open and fair competition. Capitalism without competition isn’t capitalism, it’s exploitation.”
– President Joe Biden
LITIGATION AND ENFORCEMENT
SUPREME COURT TO DECIDE WHETHER AUTOMATIC DISCOVERY STAY APPLIES TO SECURITIES ACT CASES IN STATE COURT
The U.S. Supreme Court (Court) has agreed to decide whether the automatic discovery stay established by the Private Securities Litigation Reform Act of 1995 applies to cases under the Securities Act of 1933 (Securities Act) when they are brought in state court. The automatic discovery stay generally stays all discovery during the pendency of a motion to dismiss.
The Court’s ultimate decision could have a significant impact on securities litigation because many Securities Act cases are brought in state court, as permitted by the Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund (2018), and, unlike nearly all other cases under federal law, cannot be removed to federal court. The Court will receive briefing over the summer, hear argument in late 2021, and likely render a decision on this issue in early 2022. An amicus brief supporting the defendants’ side is due by September 22, 2021, on the current schedule, but that time may be extended.
Read the client alert to learn more about the Court’s upcoming decision.
SEC CHARGES SPAC, SPONSOR, TARGET, AND CEO OVER MISLEADING PROPOSED DE-SPAC TRANSACTION DISCLOSURES
On July 13, the SEC announced charges against special purpose acquisition corporation (SPAC) Stable Road Acquisition Company, its sponsor SRC-NI, its CEO Brian Kabot, the SPAC’s proposed acquisition target, Momentus Inc., and Momentus’ founder and former CEO Mikhail Kokorich for allegedly misleading claims about Momentus’ space propulsion technology and national security risks associated with Kokorich. The SEC’s litigation is proceeding against Kokorich in the U.S. District Court for the District of Columbia. The SEC announced that all other parties are settling these charges, by agreeing to, among other measures, payment of penalties of more than $8 million, the implementation of certain investor protection undertakings, and the SPAC sponsor’s forfeiture of the founder’s shares it stands to receive in connection with the de-SPAC transaction. The announcement comes in advance of a shareholder vote to approve the proposed de-SPAC transaction between Stable Road and Momentus scheduled for August 11, 2021 and highlights the SEC’s continued enforcement interest in SPACs.
This is the first SEC enforcement action targeting all parties to a potential de-SPAC transaction, as well as executives, and highlights the SEC’s continued scrutiny of and enforcement interest in SPACs and de-SPAC transactions. To learn more about this action, read the client alert.
