1. The FDIC, Federal Reserve, Treasury and SEC published proposed regulations to implement the “Volcker Rule” requirements of Section 619 of the Dodd-Frank Act, which generally would prohibit banks from short-term proprietary trading for their own accounts and from specified relationships with hedge funds or private equity funds. The Federal Reserve’s press release, and a link to the proposed regulation, is here. The rule has been characterized by some, pithily but perhaps incorrectly, as one of the “sharpest tools” to prevent future financial collapse due to unchecked speculation by banks.
  2. In news from the Securities and Exchange Commission,
  • The SEC published an updated Financial Reporting Manual, the playbook for the accounting staff in the Division of Corporate Finance and a handy resource for those preparing financial disclosures, here. The update includes a summary of the revisions and “Last Updated” tags in particular sections to help you keep track.
  • The Division of Corporation Finance published “CF Disclosure Guidance” based on its reviews of Forms 8-K reporting transactions, typically reverse mergers, in which shell companies cease to be shells. See here.
  • The SEC decreased securities registration fees by 1.2%, to $114.60 per million of aggregate maximum offering price of securities. See here. Let the capital raising begin!
  • The SEC published proposed rules prohibiting conflicts of interest in asset-backed securitizations, here, and proposed rules regarding registration of security-based swap dealers and participants, here.
  • The SEC will hold a public roundtable discussion on October 18, see announcement here, to solicit views in advance of publishing proposed conflict minerals disclosure rules.
  • Corporation Finance Director Cross testified before Congress in September on SEC initiatives to foster capital formation without endangering investor protection, which sounds like a splendid idea. Of particular interest are the references to potential activity on the internal controls/SOX 404 front for smaller issuers, summarized here. It’s good to see the internal controls debate is still alive and kicking nearly a decade after SOX was enacted.
  1. ISS published, here, its 2011-2012 policy survey, a listing of what investors and issuers think are the hot corporate governance topics. Among its key findings: executive compensation is again a focus for many; more engagement between investors and issuers in 2011; environmental, social and governance issues are viewed by both investors and issuers to have “a significant impact on shareholder value.”
  2. Some were taken aback to learn that at least one say-on-pay lawsuit has survived the summary judgment phase, see here, because “the business judgment rule imposes a burden of proof, not a burden of pleading.” In its order denying the motion to dismiss, the Court allowed the trial to continue because the plaintiff’s claim—that the board’s approval of increased 2010 executive compensation despite poor company performance constituted a breach of the duty of loyalty—was “plausible on its face.” Note that the claim relates to 2010 pay that 66% of the shareholders voted against at the 2011 shareholder meeting. The plaintiff cited the “overwhelming rejection” as evidence, apparently, that the duty of loyalty was breached. It’s hard to imagine plaintiffs ultimately winning these types of cases, assuming directors do not document their intent to “stick it to shareholders” by wasting corporate assets on extravagant executive compensation, but the settlement and nuisance value of suits in the wake of a negative say-on-pay may have just gone up.
  3. The U.S. Department of Labor broadened, in Mendendez v. Halliburton, Inc., ARB No. 09-002 (Sept. 12, 20001), here, the kind of company “adverse action” that could form the basis for a whistleblower retaliation claim under Section 806 of the Sarbanes-Oxley Act, holding that identifying a whistleblower by name to his superiors and co-workers, in contravention of the anonymous reporting system required by SOX (which the Board said is a term and condition of employment), may be enough to support a claim even if a plaintiff can’t show “tangible consequences” of retaliation. Recall that, in addition to requiring the much-discussed SEC bounty program (see here), Dodd-Frank added a new cause of action under the Securities Exchange Act of 1934 for whistleblowers who suffer employment retaliation after sharing information about potential securities law violations with the SEC, which allows suit directly in federal court before exhausting administrative remedies; expanded the statute of limitations to up to 10 years; and provided that prevailing whistleblowers can win reinstatement, attorney's fees and double back pay with interest. 
  4. To cap off our foray into the world of litigation, a summary outline of the U.S. Supreme Court’s “active year in federal securities cases” (apparently, we shouldn’t expect any more this year) is here.
  5. FINRA published, here, a reminder that NASD Rule 2711 prohibits firms from exchanging favorable ratings to investment banking clients, and warns that scrutiny is heightened when “an issuer has communicated an expectation of favorable research as a condition of participating in an offering.” In the release, FINRA specifies its concern: AIG CEO Robert Benmosche’s complaints to senior I-bank executives about unfavorable ratings and his statement that “[F]or the next offering, I want to make sure there is a clear understanding of who AIG is and our trajectory, and why AIG is a stock that investors should own . . .. If I’m confident they can articulate that well, they will have a chance [at being selected as an offering participant]”. 
  6. Finally, an editorial comment on the “Occupy [insert metropolitan area of your choice]” movement, summarized by a siting in Portland, OR, of two signs held by side by side protesters: “End the FED” and “End Hunger.” To us, an accurate statement of the divergent, though not necessarily inconsistent, interests represented at the protest.