1. Final SEC whistleblower rules, here, will be effective August 12, 2011. A brief outline:
  • Whistleblowers who provide voluntary, original information to the SEC that leads to SEC sanctions over $1 million can earn a bounty.
  • Whistleblowers need not report concerns to the company first, but internal reporting is a factor the SEC will consider when determining the size of the bounty, and the whistleblower may get credit for its information and additional information the company self-reports after the whistle is blown.
  • If your job is compliance, including internal and external lawyers and accountants, you are not eligible for a bounty, except if the SEC really wants to give you one. (Or, more formally stated, if your disclosure was necessary to prevent “substantial injury to the financial interest of property of the entity or investors” or “conduct that will impede an investigation of the misconduct.”)

Many had hoped internal reporting would be a prerequisite to a bounty, but alas, no. If you are overcome by the prospect of wading through the 305-page release, have no fear. The nation’s law firms have, as usual, come to the rescue. A few summaries of the rule are here, here, here, here, here, here . . .. Perhaps not surprising, the “what to do now” sections of law firm memos amount to little more than “make sure your internal whistleblower program works,” although some add that you should make sure it works before the end of the 120-day “look-back” in the rules. (If a whistleblower reports to the SEC within 120 days of reporting internally, the SEC uses the internal reporting date, not the later reporting date to the SEC, to determine priority over another whistleblower who reports the same information directly to the SEC.)

  1. Generally in the vein of SEC enforcement efforts, note the SEC’s first ever use of a deferred prosecution agreement, here, for FCPA violations, a tool it announced last year to encourage companies to provide information about misconduct and assist with an SEC investigation.
  2. A summary of “Say on Pay So Far,” which touches on ham-fisted ISS voting policies, among other things, is here. One answer to the question “so what if my shareholders don’t like my pay practices” is, apparently, “litigation.” See, for example, the summaries here and here about the lawsuit against Umpqua Bank being litigated mere blocks from ICYMI’s world headquarters in Portland.
  3. The SEC proposed, here, Rule 506 “felon and bad actor” provisions that implement Dodd-Frank Section 926. Under the proposed rules, anyone with a disqualifying event, including one that occurred before the rules are adopted, can no longer rely on Rule 506, the mother of all private placement exemptions. Events that disqualify include criminal convictions, injunctions and restraining orders, SEC disciplinary orders, suspension or expulsion from a securities exchange, and “U.S. Postal Service false representation orders,” whatever those are.
  4. Nasdaq proposed additional listing requirements, here, for companies that go public through shell company transactions. Among other things, the shares of the combined company must have traded on the OTC market or another national securities exchange for six months and maintained a bid price of at least $4.00 for at 30 of the last 60 trading days.
  5. It’s always useful to remind those around you of the perils of insider trading—not only “bad,” as we say in the legal business, but often easily caught. Summaries of recent enforcement actions, some brought only on evidence of “suspicious trading” and some involving misappropriation by family members, are here. Of course, not all who illegally trade are particularly subtle or, you know, smart: see here.
  6. In a speech that likely caught the attention of accounting firms, new PCAOB chair Jim Doty lamented, here, the persistent lack of auditor independence and skepticism, going so far as to suggest mandatory audit firm rotation.
  7. In a narrow 5-4 vote, the U.S. Supreme Court held, in Janus v. FDT, here, that an investment fund manager will not be held liable under Rule 10b-5 for material misstatements in the prospectus for one of its funds. The fund and not the manager, which was a distinct legal entity, “made” the statements in the prospectus, reasoned the Court. Devious lawyers salivate at the prospect of operating all public companies through separate management companies, allowing them to make grand statements without cowering in the safe harbor of ’33 Act Section 27A, unlike their wimpy competitors. (No, not really. No one is salivating or planning any such thing.)
  8. Finally, the SEC re-adopted Rules 13d-3 and 16a-1, here, to ensure existing beneficial ownership rules continue to apply to persons who purchase or sell security-based swaps after the effective date of new Section 13(o) of the ’34 Act, which was superfluously added by Dodd-Frank.