Source: https://www.cadwalader.com/resources/clients-friends-memos
Timestamp: 2019-04-21 01:25:52+00:00

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In Stobart v Tinkler  EWHC 258 (Comm), the high court has taken an extremely restricted view of the freedom of a dissident director to take his case outside the boardroom. At the same time, the court largely endorsed the freedom of the board to silence that director with respect to public statements.
Will 2019 be the year that federal lawmakers block U.S. law enforcement and regulatory agencies from enforcing marijuana prohibitions in states where marijuana is legal and finally resolve the divergence between state and federal law regarding marijuana? Two bills currently making their way through Congress suggest this might be the case.
In Vintage Rodeo Parent, LLC v. Rent-A-Center, Inc., C.A. No. 2018-0928-SG (Del. Ch. Mar. 14, 2019), Vice Chancellor Glasscock of the Delaware Court of Chancery found that Rent-A-Center, Inc. properly terminated its merger agreement with Vintage Capital Management LLC after Vintage failed to submit a notice to extend the drop-dead date for its pending $1.37 billion buyout of Rent-A-Center. In doing so, the Court strictly interpreted the express language of the merger agreement and permitted Rent-A-Center to unilaterally terminate the merger by delivering a termination notice only hours after the extension deadline passed.
This memorandum provides an update regarding the further delay in the application of the transparency regulatory technical standards (“RTS”) (which include the new reporting templates) under the EU Securitisation Regulation.
On March 18, 2019, Judge Stuart M. Bernstein of the United States Bankruptcy Court for the Southern District of New York issued a decision enforcing a mortgage lender’s claim for a prepayment premium (a/k/a make-whole or yield maintenance premium) notwithstanding the lender’s prepetition acceleration of the loan due to the debtor’s default. In re 1141 Realty Owner LLC (“1141 Realty”).
On March 20, 2019, the Supreme Court of the United States ruled in the case of Obduskey v. McCarthy & Holthus LLP No. 17-1307 that a law firm conducting non-judicial foreclosure proceedings is not a “debt collector” under the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”), other than for a limited purpose.
Two UK regulatory bodies are currently consulting on changes to their shareholder engagement or stewardship rules. The FRC is consulting on a revised version of its Stewardship Code and the FCA is consulting on its proposals implementing the shareholder engagement requirements of the EU’s Revised Shareholder Rights Directive.
California’s ambitious new data privacy law, the California Consumer Privacy Act of 2018 (“CCPA”), will go into effect on January 1, 2020 and promises to bring a new era of digital regulation to America’s shores. Financial institutions that just navigated their way through implementing the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018, may be uneasy about the prospect of complying with yet another new data privacy compliance regime. They will find some comfort in the fact that many of the systems and processes designed for GDPR compliance will serve their needs under the CCPA as well. However, between now and the go-live date of the CCPA, U.S. federal and state laws and regulations are likely to continue to evolve and expand, and financial institutions will need to prepare for CCPA implementation while staying abreast of other fast-moving developments.
The U.S. Securities and Exchange Commission (the “SEC”) approved a final rule on December 18, 2018 implementing Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The new rule will require a public company to disclose whether, and to what extent, it has adopted practices or policies regarding the ability of employees, officers, and directors to engage in certain hedging transactions with respect to the company’s equity securities.
From April 2020 depositaries under the EU Alternative Investment Fund Managers Directive (“AIFMD”) will need to obtain independent legal advice regarding the protections under U.S. insolvency law afforded to the assets under the control of U.S. sub-custodians who wish to act as delegates of the AIFMD depositary.
The AIFMD is the EU regime which regulates EU managers of unregulated funds. The background to the AIFMD’s depositary provisions and its delegation requirements in this context is outlined below.
On 31 January 2019, the European Securities and Markets Authority (“ESMA”) published an Opinion (the “Opinion”) containing a revised set of draft disclosure technical standards (the “Disclosure Technical Standards”) and a first set of Questions and Answers under the EU Securitisation Regulation (the “Q&As”). The Q&As mainly focus on issues arising from the templates annexed to the draft Disclosure Technical Standards.
These revised Disclosure Technical Standards have been produced as a result of a letter sent by the European Commission to ESMA dated 30 November 2018 (the “Commission’s Letter”), in which the Commission stated that it only intended endorsing ESMA’s draft Disclosure Technical Standards once certain amendments had been made.
On November 30, 2018, the Administrator of the Colorado Uniform Consumer Credit Code (the “Administrator”) took Colorado’s longstanding litigation against marketplace lenders Avant and Marlette to a new level, adding as defendants certain securitization trusts that had acquired Avant or Marlette loans. By threatening the buyers of marketplace loans, the Administrator is escalating the pressure on Avant and Marlette–and indirectly the pressure on other marketplace lenders that extend credit to Colorado consumers.
On November 30, 2018, Judge Nelson S. Román of the United States District Court for the Southern District of New York issued a decision affirming the dismissal of certain claims brought by senior secured creditors against junior secured creditors concerning the alleged breach of standstill and turnover provisions in an intercreditor agreement that governed the creditors’ relationship as creditors with recourse to common collateral.
The European Securities and Markets Authority (“ESMA”) published on its website late on 18 December 2018, a letter from the European Commission to ESMA dated 30 November 2018 (the “Commission’s Letter”), in which the Commission stated that it only intended endorsing the draft technical standards on disclosure requirements under the EU Securitisation Regulation prepared by ESMA, once certain amendments have been made.
The draft technical standards that the Commission has declined to endorse at this stage are those annexed to ESMA’s August 2018 Final Report (the “Final Report”) which draft technical standards included detailed draft reporting templates (the “draft Disclosure Technical Standards”).
On December 13, 2018, the Internal Revenue Service issued proposed regulations that eliminate certain types of withholding under Sections 1471-1474 of the tax code, which are commonly referred to as FATCA. Under the proposed regulations, gross proceeds from the sale or other disposition of an asset will not be subject to FATCA withholding, and passthru payments will not be subject to FATCA withholding any earlier than two years after the publication of final regulations that define the term “foreign passthru payment.” The proposed regulations also eliminate FATCA withholding on certain insurance premiums and provide other helpful guidance.
James L. Dolan, owner of New York’s Knicks and Rangers and Executive Chairman of Madison Square Garden Company, has agreed to pay $609,810 in civil penalties to settle Federal Trade Commission allegations that Dolan violated the premerger notification and waiting period requirements of the Hart-Scott-Rodino Act of 1976 when he acquired voting securities of MSG in 2017.
The Federal Trade Commission convened a hearing on December 6, 2018 to better understand the possible anticompetitive implications of institutional investors holding non-controlling amounts of voting securities in competing firms. The hearing, entitled “Corporate Governance, Institutional Investors, and Common Ownership,” was presided over by FTC Commissioners Noah Joshua Phillips and Rohit Chopra and featured remarks by Securities and Exchange Commission Commissioner Robert J. Jackson, Jr.
The Commodity Futures Trading Commission issued a release that would make significant revisions to the regulatory requirements that apply under Part 37 of the CFTC Rules to the trading of swaps and to the market places that offer “exchange trading” of swaps. Beyond amending the Existing Rules, the SEF Proposing Release would substantially reinterpret two statutory terms: (i) the definition of a “swap execution facility” in CEA Section 1a(50) and (ii) the meaning of the phrase “makes the swap available to trade” in Section 2(h)(8) of the Commodity Exchange Act.
On 30 November 2018, the European Supervisory Authorities published a joint statement regarding: (i) the reporting templates that will be required under Article 7 of the Securitisation Regulation; and (ii) the amendment to Article 14 of the Capital Requirements Regulation and its effect on the application of obligations in the Securitisation Regulation. This memorandum discusses the potential impact of this joint statement.
On November 8, 2018, Judge Vyskocil of the U.S. Bankruptcy Court for the Southern District of New York issued a decision dismissing the involuntary petition that had been filed against Taberna Preferred Funding IV, Ltd. (“Taberna”), a non-recourse CDO, thus ending a nearly seventeen-month-long saga that was followed closely by bankruptcy practitioners and securitization professionals alike.
On October 16, 2018, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued a post-trial opinion in In re PLX Technology Inc. Stockholder Litigation, a dispute arising from the August 2014 merger between PLX Technology (“PLX” or the “Company”) and Avago Wireless (U.S.A.) Manufacturing Inc. (“Avago”), now known as Broadcom Inc. The Court held that PLX’s directors had breached their fiduciary and disclosure duties in connection with the merger, and that Potomac Capital Partners II, L.P. (“Potomac”), an activist hedge fund that pushed for the sale of PLX to Avago, had knowingly participated in that breach.
Last week, the federal banking agencies issued two notices of proposed rulemaking designed to lessen regulatory requirements on small and regional banking organizations. Together, these two proposals would establish a revised framework for applying prudential, capital, and liquidity standards to large U.S. banking organizations based on risk, consistent with the mandate imposed by Congress in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Relief Act”) enacted earlier this year.
In September 2017, the Bureau of Consumer Financial Protection brought an enforcement action against the National Collegiate Student Loan Trusts for alleged violations of consumer financial protection laws in connection with student loan debt collection practices. The action, titled Consumer Financial Protection Bureau v. The National Collegiate Student Loan Master Trust, was brought in the United States District Court for the District of Delaware.
The Chancellor of the Exchequer delivered the United Kingdom (“UK”) Budget for 2018 on 29 October 2018. The Budget was delivered against the backdrop of the UK’s negotiations with the European Union concerning Brexit.
On October 19, 2018, the Internal Revenue Service (the “IRS”) and the Treasury Department issued proposed regulations relating to the new Opportunity Zone program. The Opportunity Zone program is intended to encourage investments in economically distressed qualified opportunity zones (“QOZs”) by allowing taxpayers to defer and, in some cases, reduce or eliminate tax on capital gains if they reinvest their gains within 180 days in qualified opportunity funds (“QOFs”), which, in turn, generally are required to invest at least 90% of their assets in (1) certain business property located in a QOZ (“QOZ Business Property”) and/or (2) equity in certain entities that hold QOZ Business Property (“QOZ Subsidiaries” and, together with QOZ Business Property, “QOZ Property”).
On October 16, 2018, the New York State Court of Appeals held that contractual attempts to extend the statute of limitations for causes of action involving breaches of contract are unenforceable because they violate New York law and public policy.
On October 11, 2018, the Securities and Exchange Commission (“SEC”) signaled that it is getting back into the Title VII game, by voting to re-open the comment period and request additional comment on rulemakings to adopt margin, capital, and collateral segregation requirements applicable to security-based swap dealers (“SBSDs”). The re-opening of the comment period is the first step that the SEC has taken towards implementing the statutory regime for SBSDs in over two years and also the first step under Chairman Jay Clayton.
This briefing reviews developments in European CMBS since the financial crisis and focuses on (1) 2011-15 European CMBS transactions (“2011-15 European CMBS”); (2) 2017-18 European CMBS (“2017-18 European CMBS”); and (3) other innovative structures that have recently been introduced to the European market, such as bond issues backed by real estate, which draw upon features from products outside the scope of traditional European CMBS.
On September 18, 2018, the three federal banking agencies – the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation – jointly announced a proposed regulation implementing Section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Section 214 effectively provides relief to banking organizations with acquisition, development or construction (ADC) lending exposure by narrowing the types of exposures that constitute a “high volatility commercial real estate exposure”, a concept relevant for determining the capital charge for such a loan under U.S. bank capital regulations.
The Internal Revenue Service (the “IRS”) recently issued Notice 2018-68 (the “Notice”) that provides guidance regarding the application of Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”) following the amendments contained in the 2017 Tax Cuts and Jobs Act (the “TCJA”). While helpful in clarifying certain issues, the Notice narrowly interprets key aspects of the amended Section 162(m) in a manner that is likely to increase the complexity of compliance and greatly restrict eligibility for grandfathering of pre-TCJA compensation arrangements.
Last year, a group of U.S. military veterans and the relatives of troops killed in Iraq filed a lawsuit against several large international pharmaceuticals, accusing them of aiding and abetting terrorism by selling products to Iraq’s Ministry of Health which were used to finance operations by the notorious Mahdi Army Group. In early 2018, a woman injured in the 2015 Paris attacks by the Islamic State of Iraq and the Levant sued Facebook, Twitter, and Google, alleging that the social media platforms assisted terrorists by allowing them to recruit members, distribute propaganda, and coordinate activities. These are just two recent examples of U.S. companies facing potential exposure under the Antiterrorism Act (“ATA”), a decades-old statute designed to permit terrorist victims to seek compensation from their attackers.
On 22 August 2018, the European Securities and Markets Authority (“ESMA”) published its Final Report on the technical standards on disclosure requirements under the EU Securitisation Regulation (the “Final Report”). This annexed final draft technical standards on the disclosure requirements under the Securitisation Regulation (the “draft Disclosure Technical Standards”) (consisting of draft Disclosure RTS and draft Disclosure ITS).
On August 13, 2018, Vice Chancellor Travis Laster of the Delaware Court of Chancery ordered Domain Associates, LLC, a venture capital firm, to pay its former member, Nimesh Shah, the fair value of his 12.1% member interest as of the date he was forced to withdraw from the LLC, potentially worth millions of dollars, rather than the value of Shah’s capital account, which was only a few hundred thousand dollars.
Two recent decisions by the Delaware Court of Chancery underscore that the outcome of an appraisal proceeding often will turn on the quality of a company’s sale process. While recent Delaware Supreme Court appraisal jurisprudence supports relying on the negotiated merger transaction price as the most reliable evidence of a seller’s fair value, flaws in the sales process, even if not rising to the level of a breach of fiduciary duty by the seller’s board, can lead the court to reject reliance on merger consideration.
On July 26, 2018, Vice Chancellor Glasscock of the Delaware Court of Chancery denied in part and granted in part Defendants’ motion to dismiss in Sciabacucchi v. Charter Communications Corporation et al. The action challenged certain transactions between Charter Communications, Inc. and its largest stockholder, Liberty Broadband Corporation, which owned approximately 26% of Charter’s outstanding common stock and had the right to designate four of ten directors on Charter’s Board.
On 31 July 2018, the European Banking Authority (“EBA”) published its final draft Regulatory Technical Standards on the risk retention requirements (the “draft Risk Retention RTS”) under the EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” securitisation (the “Securitisation Regulation”).
On June 11, 2018, in China Agritech, Inc. v. Resh, the United States Supreme Court held that the American Pipe tolling doctrine, which suspends the running of the statute of limitations applicable to the claims of individual class members during the pendency of a putative class action, does not toll the limitations period with respect to later-filed class actions.
On 14 May 2018, the Basel Committee on Banking Supervision (the “Basel Committee”) and the Board of the International Organization of Securities Commissions (“IOSCO”) issued criteria for identifying “simple, transparent and comparable” (“STC”) short-term securitisations (the “Short-Term STC Criteria”).
On May 30, the Federal Reserve issued a proposal (the “Proposed Regulations”) to revamp regulations implementing the Volcker Rule, a centerpiece of the Dodd-Frank Act. The 373-page proposal, developed jointly with the other federal banking agencies and the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (collectively, the “Agencies”), comes four and a half years after the original regulations were adopted.
Yesterday, President Trump signed into law the most significant banking legislation since the enactment of the Dodd-Frank Act in 2010. The bill – named the Economic Growth, Regulatory Relief, and Consumer Protection Act – passed its final legislative hurdle earlier this week when it was approved by the U.S. House of Representatives. Identical legislation passed the U.S. Senate last March on a bipartisan basis. The law makes targeted, but not sweeping, changes to several key areas of the Dodd-Frank Act.
A recently filed California lawsuit raises the stakes in the ongoing challenge to the “bank origination model.” The lawsuit, Barnabas Clothing, Inc. v. Kabbage, Inc., was filed on March 22, 2018 in Superior Court in Los Angeles and recently removed to the federal court.1 Barnabas alleges violations of state usury, false advertising, and unfair competition laws, and asserts two federal Racketeer Influenced and Corrupt Organizations (“RICO”) Act claims. Barnabas seeks to certify a class on behalf of all California-based Kabbage borrowers and requests various relief, including that the court void the Kabbage loans.
On April 18, the SEC approved the publication of three releases (the “Releases”) proposing new regulatory requirements that are intended to expand and clarify the duties that broker-dealers and investment advisers owe to their clients under the Securities Exchange Act of 1934 (the “Exchange Act”) and the Investment Advisers Act of 1940 (the “Advisers Act”), respectively. The Releases were adopted by a 4-1 vote (Commissioner Stein voting no), with even the Commissioners who voted to publish the Releases expressing concerns about their substance, albeit for opposing reasons.
The first section of this memorandum provides an overview of the Releases, their significance and background to their issuance. The next three sections of the memorandum describe each of the Releases in turn. The final section of this memorandum discusses the differing viewpoints of the Commissioners and the underlying policy debates informing those viewpoints.
On March 28, 2018, in In re Tesla Motors, Inc. Stockholder Litigation, the Delaware Court of Chancery denied a motion to dismiss a lawsuit brought by stockholders of Tesla Motors, Inc. (“Tesla” or the “Company”). The plaintiffs alleged that Tesla’s Board of Directors, along with its Chairman and CEO, Elon Musk, breached their fiduciary duties by approving the $2.6 billion acquisition of SolarCity, which allegedly benefitted SolarCity stockholders to the detriment of Tesla stockholders.
Last week, Colorado courts issued several new rulings related to marketplace lending. First, the federal court in Colorado remanded another enforcement action brought by the Administrator of the Colorado Consumer Credit Code against Marlette Funding (“Marlette”), which had been doing business as a marketplace lender in Colorado under the name Best Egg. Second, the federal court dismissed two parallel actions brought in federal court brought by WebBank and Cross River Bank to halt the state court proceedings. These recent rulings illustrate the risks that persist in some states for marketplace lenders utilizing the bank origination model.
In a trio of appraisal decisions, Delaware courts declined to use the deal price as the best evidence of fair value, instead using discounted cash flow analyses (“DCF”) and the unaffected market price to determine fair values below the merger consideration. Building on the trend reflected in the Delaware Supreme Court’s high-profile 2017 decisions in Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd. and DFC Global Corp. v. Muirfield Value Partners (discussed in our 2017 year-in-review), L.P., the Delaware Court of Chancery’s recent decisions in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. and In re Appraisal of AOL Inc., and the Delaware Supreme Court’s decision in Merlin Partners, L.P. v. SWS Group, Inc. further underscore the ability of companies and their boards to successfully contest dissenting shareholders seeking appraisal.
Recent events have made it clear that there is an increased regulatory focus on the conduct of investment professionals in the wealth-management industry. The Securities and Exchange Commission (“SEC”) in particular has emphasized that certain activities by investment advisers directly impacting retail investors, such as inadequate fee disclosure, dubious sales practices and inappropriate steering to unsuitable strategies and products, is a top enforcement priority under the leadership of SEC Chairman Jay Clayton.
The U.S. Attorney for the Southern District of Florida has recently decided to intervene in a lawsuit brought under the Federal False Claims Act and initiated by a whistleblower. The U.S. Attorney has filed his own complaint-in-intervention. (U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, No. 15-cv-62617, S.D. Fla.) What is significant about this case is that the federal government has also named a private equity (“PE”) firm (Reardon, Lewis & Haden, Inc., or RLH) as a defendant.
The Chancellor of the Exchequer delivered his first Spring Statement on 13 March 2018. As much of the United Kingdom Government’s substantive taxation measures will, as announced last year, be introduced in an Autumn budget, the Spring Statement contained very few substantive taxation measures.
Marketplace Lending Update: Who’s My Lender?
Over the last several weeks, two notable cases in federal court challenging certain aspects of the business model of marketplace lending companies headed down separate paths. First, in an action brought against Kabbage, Inc. and Celtic Bank Corporation in the United States District Court for the District of Massachusetts, the parties agreed to, and the Court approved, a stipulation staying the proceedings pending an arbitrator’s review of whether the claims in that action are covered by the arbitration provisions in the governing loan agreements. Second, in an action against marketplace lender Avant in the United States District Court for the District of Colorado, the Court accepted a magistrate judge’s recommendation to remand the case to state court over Avant’s objection.
In December 2017, the UK Financial Reporting Council (the “FRC”) proposed revisions to the UK Corporate Governance Code. These revisions will impact companies with a Premium Listing of equity shares in the UK, which are required under the Listing Rules to state in their annual report and accounts how they have applied the Code. The revisions are designed to achieve long-term company growth through enhanced corporate accountability mechanisms and are aimed at consolidating the UK’s reputation as a leading environment for transparent and efficient international business. Many of the proposed revisions, if enacted, would facilitate greater alignment between UK and US corporate governance law and regulations.
A whistleblower is not a whistleblower unless he reports suspected securities law violations to the SEC. And, if the whistleblower does not report suspected misconduct to the SEC, the whistleblower is not protected against retaliation by the employer. So said the Supreme Court on February 21, 2018, in Digital Realty Trust, Inc. v. Somers; the Supreme Court ruled that the Dodd-Frank Act’s whistleblower anti-retaliation provisions apply only to individuals who have reported possible securities law violations to the U.S. Securities and Exchange Commission (“SEC”).
On February 9, 2018, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously ruled in favor of the Loan Syndications and Trading Association (“LSTA”) in its lawsuit against the Securities and Exchange Commission (“SEC”) and the Board of Governors of the Federal Reserve System (“FRB”) over the application of U.S. credit risk retention requirements to managers of open-market collateralized loan obligations (“CLOs”).
On February 1, 2018, the Delaware Court of Chancery granted defendants’ motion to dismiss an action brought by minority unitholders of Trumpet Search, LLC (“Trumpet” or the “Company”). The defendants were other unitholders that collectively held a majority of the membership units in Trumpet and, under the governing operating agreement (“OA”), had the power to appoint four of the seven managers on the Trumpet board of directors. Vice Chancellor Glasscock’s decision, Christopher Miller et al. v. HCP & Co., et al., C.A. No. 2017-0291-SG (Del. Ch. Feb. 1, 2018), is a powerful reminder that the broad freedom of contract that Delaware law accords entities such as LLCs offers both the promise of great latitude to contracting parties and the threat of serious pitfalls for parties that fail to carefully protect their interests in the agreement. The decision also underscores the limits on an implied covenant breach claim under Delaware law.
The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar-jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”); the revised thresholds will become effective 30 days after the date of their publication in the Federal Register. These changes increase the dollar thresholds necessary to trigger the HSR Act’s premerger notification reporting requirements. The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.
Delaware courts have recently issued decisions that have fundamentally altered corporate governance litigation. In 2016, the Court of Chancery changed the landscape for resolution of class actions on the basis of “disclosure-only” settlements, i.e., settlements without any monetary payment to the class.
What do the principles of patent exhaustion have to do with the convenience of disposable consumer products such as individual coffee/tea/beverage pods, disposable diagnostic test strips, refillable ink cartridges and the like? Although transparent to consumers, these principles are important to the innovative companies creating these products and protecting them through IP rights. How a company controls the proprietary rights to make and/or market these components can have profound consequences on maintaining its competitive edge in the marketplace.
Related Attorney(s): Howard Wizenfeld, Dorothy Auth Ph.D.
The securities litigation and regulatory landscape in 2017 defies simple categorization. Plaintiffs filed 226 new federal class actions in the first half of 2017, more than double the average rate over the last 20 years, and an additional 99 federal class actions in the third quarter of 2017. In contrast, new SEC enforcement proceedings declined.
In a December 8th decision (Sarissa Capital Domestic Fund LP, et. al. v. Innoviva, Inc.), the Delaware Court of Chancery ruled in favor of Sarissa Capital Domestic Fund LP and certain of its affiliates in concluding that Sarissa and Innoviva, Inc. entered into a binding, oral agreement to settle a proxy contest prior to Innoviva’s 2017 annual meeting of shareholders.
On December 20, 2017, the Senate and House of Representatives passed H.R. 1, known as the “Tax Cuts and Jobs Act” (“Tax Reform Bill”). President Trump is expected to sign the Tax Reform Bill by early January. The Tax Reform Bill would represent the most significant revision to the tax code in over thirty years. Our summary below highlights several of the most significant changes that will impact taxpayers.
On 15 December 2017, the European Banking Authority (“EBA”) published a consultation paper (the “Consultation Paper”) containing draft Regulatory Technical Standards on the risk retention requirements(the “Risk Retention RTS”) under the EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” securitisation (the “Securitisation Regulation”).
On December 20, 2017, the Senate and House of Representatives passed H.R. 1, known as the “Tax Cuts and Jobs Act” (“Tax Reform Bill”). President Trump is expected to sign the Tax Reform Bill by early January. The Tax Reform Bill would represent the most significant revision to the tax code in over thirty years. Our summary below highlights the key provisions in the Tax Reform Bill that will impact not-for-profit, tax-exempt organizations. Several other provisions are summarized in our Tax Update, “Fifteen Key Provisions in the Final Tax Reform Bill.” Most changes are generally effective as of 2018.
On December 14, the Delaware Supreme Court released a long-awaited opinion in Dell Inc. v. Magnetar Global Event Driven Master Fund Ltd. that reversed and remanded a high-profile appraisal case decided by the Delaware Court of Chancery in 2016. The Delaware Supreme Court built on its recent opinion in DFC Global Corporation v. Muirfield Value Partners L.P. to reiterate the potential for negotiated merger consideration to constitute the most important evidence of fair value in appraisal actions.
On December 2, 2017, the Senate passed a tax reform bill that differs in some key aspects from the tax reform bill the House approved on November 16, 2017. A House and Senate conference committee will begin work to resolve the differences between the House and Senate bills. Once the conference committee has reached an agreement, both the House and Senate must vote to pass a final bill in identical form before President Trump can sign the tax reform bill into law. Key provisions of the Senate bill are summarized below. We will update you as significant developments unfold.
On November 15, 2017, audit, tax and consulting firm PwC published a thought leadership piece titled: “Sub-line facilities: end of the road?” (the “Article”). While the subscription credit facility (“Subscription Facility”) market has become accustomed to seeing inflammatory headlines in the financial press in recent years, it is somewhat unsettling to see a thought leadership piece from the likes of PwC bear such an ominous title. PwC is an experienced, global, preeminent financial institution with countless touch points with the private equity industry. The Article’s title suggests that PwC’s audit or tax practices might have recent experiences or observations that support such a dire headline. Reading the article, however, that does not at all appear to be the case.
On November 1, 2017, the staff of the Division of Corporate Finance of the Securities and Exchange Commission published Staff Legal Bulletin No. 14I. SLB 14I provides additional guidance to companies and shareholders regarding circumstances in which the Staff will consider granting no-action relief for a company to exclude a shareholder proposal from its proxy statement pursuant to Rule 14a-8.
On November 14, 2017, Senate Finance Committee Chairman, Orrin Hatch (R-Utah), released his modified tax reform plan (“Senate Bill”), which adopts some of the House Bill proposals (as amended) (“House Bill”), but also includes some important differences as highlighted below. Discussions are ongoing and the notable provisions summarized below may change and/or be replaced by new provisions. We will update you as significant developments unfold.
On November 2, 2017, Republicans in the U.S. House of Representatives unveiled their tax reform bill (the “Bill”), entitled the “Tax Cuts and Jobs Act.” The Bill proposes significant changes to the current U.S. federal income tax regime affecting businesses and individuals, several of which we summarized in previous updates. This update focuses on the key provisions in the Bill (as amended by House Ways and Means Chair Kevin Brady) that would impact not-for-profit, tax-exempt organizations. The proposed changes would be generally effective for tax years beginning after 2017.
On November 2, 2017, Republicans in the House of Representatives released their long-anticipated tax reform bill (the “Bill”). The Bill, which is entitled the “Tax Cuts and Jobs Act,” includes significant changes to the current U.S. federal income tax regime, several of which we summarized in a previous update. This update summarizes provisions in the Bill that could, if enacted in their current form, significantly affect securitization vehicles and investment funds.
On November 2, 2017, Republicans in the House of Representatives released their long-anticipated tax reform bill (the “Bill”) which includes significant changes to the current U.S. federal income tax regime for businesses and individuals. While other members of the House of Representatives will comment on this Bill and significant changes are expected, the provisions noted below warrant close attention.
Auditors of public companies will be required to move beyond a simple “pass or fail” opinion and include significant new information in audit reports under rules proposed this year by the Public Company Accounting Oversight Board (the “PCAOB”) and recently approved by the Securities and Exchange Commission (the “SEC”).
On 26 October 2017, the European Parliament voted in plenary session to adopt the EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Securitisation Regulation”). The European Parliament also voted to adopt the EU regulation amending the Capital Requirements Regulation (the “CRR”) (the “CRR Amendment Regulation”) (together, the “Regulations”).
On October 11, 2017, the Fund Finance Association (the “FFA”) hosted its 3rd Annual European Fund Finance Symposium (the “Conference”) at the Landmark Hotel in London. Forty-two market participants sponsored the Conference and 444 people attended, both substantial increases over years past. There were multiple panel sessions covering topics including private equity fund formation, subscription credit facility transaction structures (“Facilities”), Hybrid and NAV facilities (“NAV Facilities”) and forecasts for future market developments. This article provides a market update of the European Fund Finance market for those unable to attend the Conference.
In the wake of last month’s historic cyber breach of Equifax, which resulted in the theft of sensitive personal information belonging to over 140 million Americans, states have wasted no time in seeking a greater role in regulating cybersecurity risk. Historically, while state consumer agencies and attorneys general have enforced notification requirements for victims of cyberattacks where consumer data was compromised, significant enforcement actions have been the purview of federal agencies such as the Federal Trade Commission, the U.S. Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. However, given the scope of recent breaches and the sensitivity of the information that was stolen, states have recently stepped up and launched their own investigations and enforcement actions, and have imposed new data protection standards on various types of businesses.
Ending months of speculation about when regulators would wade into the world of Bitcoin and other digital currencies, the U.S. Securities and Exchange Commission (“SEC”) recently brought its first enforcement actions against two Initial Coin Offerings (“ICOs”) which it alleges effectively operated as high-tech Ponzi schemes. The two investment schemes, both run by the same New York businessman, Maksim Zaslavskiy, solicited money from investors in exchange for digital currency (“tokens” or “coins”) which were purportedly tied to investments in real estate and diamonds that would appreciate in value over time.
As of August 28, 2017, insurance companies, banks, and other financial services companies regulated by the New York Department of Financial Services (“DFS”) must comply with an initial wave of new cybersecurity requirements intended to protect customer data, including maintaining written cybersecurity policies and procedures, designating a Chief Information Security Officer, and providing notice to the DFS of certain cybersecurity events.
In its latest effort to combat money laundering within the real estate sector, the Financial Crimes Enforcement Network (“FinCEN”) has issued a new Geographic Targeting Order (“GTO”) broadening its scrutiny of shell companies used to purchase luxury residential property in several key U.S. markets.
On Tuesday, August 22, 2017, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded an order by the Federal Energy Regulatory Commission authorizing the construction and operation of the Southeast Market Pipelines Project.
On August 18, 2017, the Delaware Court of Chancery granted defendants’ motion to dismiss a class action brought by former minority stockholders of Martha Stewart Living Omnimedia, Inc. against Martha Stewart and Sequential Brands Group, Inc.
A bill of lading is an old form of legal document. As merchants in the seventeenth and eighteenth centuries ceased accompanying their goods on ships and entrusted their proper delivery to the carrier, a need arose for a tangible and transferable document evidencing which party was entitled to receive the goods at their destination.
Creating a potential new impediment for collaboration between UK and US investigators, the Court of Appeals for the Second Circuit in New York recently held that evidence derived from compelled testimony cannot be used in a criminal case in the United States, even if the testimony was lawfully obtained in the foreign jurisdiction. In overturning the convictions of two former Rabobank traders charged with manipulation of the London Interbank Offered Rate, the Second Circuit in United States v. Allen adopted a broad view of the Fifth Amendment right against involuntary self-incrimination as it applies to statements made to foreign regulators and law enforcement. The decision will make it more likely that compelled statements made to investigators in the UK and elsewhere will be inadmissible against criminal defendants in the US.
On June 19, 2017, the Fund Finance Association hosted the inaugural Asia-Pacific Fund Finance Symposium at the Four Seasons Hotel in Hong Kong (the “Conference”). Twenty different market participants sponsored the Conference and 247 people attended, including an impressive turn‑out from private equity fund sponsor personnel.
The EU legislative institutions have now agreed compromise amendments to the proposed EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” (“STS”) securitisation. They have also agreed compromise amendments to the proposed regulation amending the Capital Requirements Regulation, which includes a new hierarchy of approaches for calculating exposures to securitisation transactions and provisions designed to result in the regulatory capital requirements for exposures to STS securitisations being lower than those for non-STS securitisations. This memorandum discusses the compromises reached on these EU regulations.
Legislation passed by the U.S. House of Representatives threatens to shake up the Securities and Exchange Commission’s enforcement program in a historic manner.
Last week’s massive ransomware attack should serve as a wake-up call that companies across all industries and regions must take the threat of global cyber attacks seriously. Although investigators are still uncovering details, three key lessons have emerged for businesses seeking to protect themselves.
On 4 May 2017, the European Commission (the “Commission”) adopted a proposal for a Regulation amending Regulation (EU) No 648/2012 (“EMIR”) as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (the “Proposal”).
The most important Park doctrine case in over forty years may be heading to the Supreme Court – but not if the federal government has its way. The Responsible Corporate Officer doctrine (“RCO doctrine”), commonly referred to as the Park doctrine, permits the government to prosecute employees for corporate misconduct when they are in a “position of authority” and fail to prevent or correct a violation of the Food, Drug and Cosmetic Act (“FDCA”).
Two recent decisions from the Delaware Court of Chancery faithfully apply the Delaware Supreme Court’s holding in Corwin v. KKR Financial Holdings LLC. No surprise there. Corwin held that when “a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” That is so even if, pre-Corwin, an all-cash merger otherwise would have been subject to enhanced scrutiny under Revlon.
On 5 April 2017, the UK Department for Business, Energy & Industrial Strategy (the “Department”) issued a call for evidence (the “proposal”) for a public register (the “foreign ownership register”) detailing the beneficial ownership of foreign companies or foreign entities that own or buy UK property, or that participate in certain UK central government procurement activities. The proposal responds to recent pressure on the UK government to enhance the transparency of foreign property investment, and is the latest global effort to increase transparency and prevent legal entities being used to camouflage money laundering and other corrupt activities.
Potentially signaling the end of the short-lived stint by the Federal Communication Commission (“FCC”) to regulate consumer data privacy on the internet, the Trump Administration recently repealed Obama-era data privacy and security rules for broadband providers. The action, passed by Congress and signed by President Trump pursuant to the Congressional Review Act, completely rescinds the rules that would have gone into effect later this year.
Last year’s proposed comprehensive framework for cybersecurity rules for large financial institutions is suddenly facing an uncertain future.
The EU’s New Data Protection Regulation – Are Your Cybersecurity and Data Protection Measures up to Scratch?
In the context of increasing cyber-attacks on major corporate organisations, small businesses and government, data protection and cybersecurity is a hot topic. Added to this, the GDPR—a strict new regulatory regime in Europe—will commence in May 2018 and has implications for both non-European and European-based organisations.
Even before President Trump’s nomination of Jay Clayton as the next Chairman of the Securities and Exchange Commission (“SEC” or “Commission”), signs have been appearing that changes are afoot within the Division of Enforcement (“Enforcement Division”). The power of Enforcement Division attorneys in the field to issue subpoenas and open new investigations was recently scaled back, and now will require personal sign-off by the Director of Enforcement in Washington, D.C.
Over the past few years, private equity funds and hedge funds have increasingly employed tactics traditionally employed by the other as part of their value maximization strategies. Underscoring this convergence has been a willingness by private equity funds to incorporate a “toehold” accumulation strategy into their investment model.
The New York Department of Financial Services (“DFS”) recently released the much-anticipated final version of its “first-in-nation” cybersecurity rules that it first announced in the fall of last year.1 The rules require a wide range of insurance, banking, and financial services companies to adopt robust cybersecurity programs to protect sensitive and confidential data from theft or harm by cybercriminals.
New York is joining a small but growing list of states seeking to regulate the “bank-origination” method of online lending.
As we have previously written, President Trump and the Republican-majority Congress have various levers to rapidly revise and reverse the previous administration’s policies, short of legislative change. Such mechanisms include the Congressional Review Act and various forms of executive action, including executive orders, discretionary agency directives and enforcement decisions. These executive actions are likely the beginning of a series of changes intended to reduce the regulatory burden on U.S. financial markets.
This memorandum discusses the two executive actions and their significance within a broader agenda to reshape financial regulation.
On January 10, 2017, the National Institute of Standards and Technology (“NIST”) released a proposed update to its popular cybersecurity blueprint for organizations and businesses, known as the Framework for Improving Critical Infrastructure Cybersecurity (the “Framework”). The updated Framework, titled “Draft Version 1.1,” includes, among other things, new provisions for assessing the cybersecurity risk posed by third-party vendors and the addition of a new section on measuring the cost effectiveness of cybersecurity programs.
The U.S. Court of Appeals for the Second Circuit issued its ruling in Marblegate Asset Management, LLC v. Education Management Corp. that provided much needed clarity to creditors and issuers involved in out-of-court restructurings affecting noteholders. The issue for the court was whether Education Management Corp. violated the Trust Indenture Act (the “TIA”) when it implemented a restructuring that impaired the rights of one of its unsecured noteholders, Marblegate Asset Management, LLC.
The election of President Donald J. Trump, combined with Republican control of Congress, makes fundamental U.S. federal income tax reform more likely than at any time since the enactment of the Tax Reform Act of 1986.
On 17 January 2017, the UK Serious Fraud Office, the US Department of Justice, and the Brazilian Ministério Público Federal announced an $800 million global settlement with Rolls-Royce plc and Rolls-Royce Energy Systems Inc., resolving allegations of a long-running scheme to bribe foreign officials in South America, the Middle East, Eastern Europe and Asia in exchange for assistance in obtaining government contracts. In addition to the payment of disgorgements and fines – the largest ever imposed under the UK’s Bribery Act 2010 – Rolls-Royce has agreed to implement a number of compliance measures and reporting requirements pursuant to deferred prosecution agreements with UK, US, and Brazilian authorities. The joint settlement, which was spearheaded by the SFO, heralds a new era in global cooperation and coordination in the enforcement of bribery and corruption laws.
The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar jurisdictional thresholds in Section 7A of the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”). The revised thresholds will become effective 30 days after the date of their publication in the Federal Register.
In a case of “cyber meets securities fraud,” the United States Attorney’s Office for the Southern District of New York (“SDNY”) recently indicted three foreign nationals on charges of insider trading, wire fraud, and computer hacking for allegedly trading on information they stole from the computer networks of two major New York law firms. A parallel enforcement action brought by the Securities and Exchange Commission – its first time bringing civil charges based on the hacking of a law firm’s computer network – alleges insider trading and other violations of the Securities Exchange Act of 1934.
2016 was an active year in securities litigation. In the first half of 2016 alone, plaintiffs filed 119 new federal class action securities cases. It was also a busy year for SEC enforcement proceedings, with a record 868 cases filed, 548 of which were independent enforcement actions (as opposed to follow-up actions or cases based on delinquent regulatory filings). This continued the trend of growth in SEC enforcement activity, as independent actions have increased by nearly 61% since 2013.
2016 saw many notable developments in corporate governance litigation and related regulatory developments.
The constitutionality of the SEC’s in-house administrative proceedings is in doubt following the 10th Circuit Court of Appeals’ ruling in Bandimere v. SEC. In Bandimere, a three-judge panel held, by a 2-1 decision, that SEC administrative law judges (“ALJs”) are inferior officers under the Appointments Clause of the Constitution and that they must be appointed in accordance with that clause, rather than hired as employees. The decision directly conflicts with the August 2016 holding of the Court of Appeals for the D.C. Circuit in Raymond J. Lucia Cos. v. SEC. This circuit split sets the stage for a potential Supreme Court review of the SEC’s administrative proceedings.
The New York Department of Financial Services (“DFS”) recently issued a revised version of the cybersecurity rules that it first announced in the fall of last year. The rules apply to a wide range of insurance, banking, and financial services companies under the DFS’s supervision and require them to adopt robust cybersecurity programs to protect sensitive and confidential data from theft by cybercriminals.
Much has happened since the election of Donald J. Trump as the 45th President of the United States and the return of both houses of Congress to Republican control. The Trump transition team has repeatedly declared its intention to “dismantle” the Dodd-Frank Act (“Dodd-Frank” or “Act”), in the interim calling for an immediate moratorium on new rulemaking not required for emergencies to allow for a systematic review before further action is taken.
On December 16, 2016, the Delaware Court of Chancery issued a post-trial opinion in an appraisal proceeding arising from the acquisition of Lender Processing Services, Inc. (“LPS” or the “Company”) by Fidelity National Financial, Inc. (“Fidelity”). In his opinion in Merion Capital LP et al. v. Lender Processing Services Inc., C.A. No. 9320-VCL (Del. Ch. Dec. 16, 2016), Vice Chancellor Laster held that the “fair value” of the Company’s stock at the effective time of the merger was the $37.14/share merger price.
The Supreme Court in Shaw v. United States recently held that the federal bank fraud statute does not require that defendants cause, or intend to cause, an actual financial loss to the financial institutions they seek to defraud. The Supreme Court’s decision helped resolve a longstanding dispute over whether the bank fraud statute requires that a defendant intend not only to trick a bank into giving money to the defendant, but also to cause the bank to suffer a financial loss. In addition – and perhaps inadvertently – the Supreme Court also confirmed the bank fraud statute’s place among the tools that federal law enforcement can use to tackle cybercrime.
The election of Donald J. Trump as the 45th President of the United States, along with Republican control of the majority of both the House of Representatives and the Senate, will likely result in significant changes in U.S. financial services, energy, and commodities laws and markets.
The European Parliament’s Committee on Economic and Monetary Affairs (“ECON”) has today agreed compromise amendments (the “Compromise Amendments”) to the proposed EU regulation intended to lay down common rules on securitisation and create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Regulation”).
Friends and relatives of corporate insiders who knowingly receive and trade on inside information now confront greater exposure for federal securities laws violations. On December 6, 2016, the Supreme Court held in United States v. Salman that “tippees” who trade on material non-public information may be found criminally liable even when there is no evidence of a pecuniary or tangible benefit to the insider who tipped.
In a settlement highlighting the need for public companies to implement – and adhere to – effective internal controls, United Airlines “United” recently paid a $2.4 million civil penalty to the Securities and Exchange Commission “SEC” for failing to follow its own compliance policies and procedures designed to prevent corrupt payments.
On December 2, the U.S. Internal Revenue Service issued Notice 2016-76, which phases in the application of withholding on dividend equivalent payments under section 871(m). Under the notice, withholding applies only to delta-one transactions in 2017, and applies to other U.S. equity transactions beginning after 2017.
The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, has raised the possibility that current Treasury regulations may be modified or nullified.
After a conventional presidential campaign, determining the policy priorities and direction of the incoming administration with respect to the Justice Department’s white collar law enforcement responsibilities can be a relatively straightforward process. Confident prediction this election year, however, is tempered by the lack of comprehensive Trump Administration policy releases addressing these issues.
On 23 November 2016, the European Central Bank (the “ECB”) launched a public consultation in relation to draft guidance for Eurozone banks intended to develop clear and consistent definitions, measures and monitoring with regard to leveraged transactions. The draft guidance sets out how the ECB expects banks to maintain the credit quality of their leveraged transactions and to monitor related risks to their balance sheets. The consultation period runs until 27 January 2017.
The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, will likely result in significant changes in U.S. financial services, energy, and commodities laws and markets. The most sweeping changes may require legislation and may generate controversy within Congress – in particular in the U.S. Senate.
Investors considering engaging with management should take note of a recent informal interpretation received from the FTC’s Premerger Notification Office (PNO) advising that certain seemingly “passive” behavior is inconsistent with the “investment-only” exemption freeing acquirers of voting securities from the reporting and notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act).
On October 13, 2016, Treasury and the IRS issued important new final and temporary regulations (the “Regulations”) under section 385 of the Internal Revenue Code addressing the treatment of intercompany debt for U.S. federal income tax (“U.S. tax”) purposes. The Regulations generally will apply to taxable years ending after January 18, 2017, while the documentation requirements described below will apply to debt instruments issued after December 31, 2017. The proposed version of the Regulations, issued in April 2016, attracted controversy due to its broad reach and strict requirements as well as arguments that the rules exceeded the authority granted to Treasury by Congress.
On October 13, 2016, Treasury and the IRS issued new final and temporary “anti-inversion” regulations under section 385 of the Internal Revenue Code that could treat certain purchasers of notes issued by securitizations as having exchanged their notes for stock in certain related domestic entities.
Since the Second Circuit Court of Appeals’ December 2014 decision in United States v. Newman, the government’s ability to aggressively pursue insider trading cases involving tipping has been in doubt. But, on October 5, the Supreme Court heard oral arguments in Salman v. United States, a case that should clarify the government’s burden in proving insider trading cases against tippers and tippees.
On September 23, 2016, the Board of Governors of the Federal Reserve System (the “FRB”) issued a proposed regulation concerning the ability of a financial holding company (“FHC”) to engage in physical commodities activities (the “Commodities Proposal”). The Commodities Proposal follows an advanced notice of proposed rulemaking issued by the FRB more than two years ago in early 2014.
On October 22, 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development (the “Agencies”) released a joint final rule (the “Rule”) implementing the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934. The adopting release was published in the Federal Register on December 24, 2014 (the “Release”). References to sections of the Rule set forth below are to the version of the common rule published in the Federal Register (79 Fed. Reg. 77602 (December 24, 2014)).
Facing pressure from industry practitioners and in the wake of constitutional challenges in multiple jurisdictions, the Securities and Exchange Commission (“SEC”) recently amended its Rules of Practice that apply to proceedings before an administrative law judge (“ALJ”).
The Basel Committee on Banking Supervision (the “Basel Committee”) published an updated version of the “Basel III Document – Revisions to the securitisation framework” on 11 July 2016 (the “Amended Securitisation Framework”). This now includes alternative regulatory capital treatment for securitisation transactions which meet the criteria for identifying simple, transparent and comparable securitisations. In this Clients & Friends Memo we discuss the background to this document and consider the amendments which have been made and how they will affect securitisation transactions.
Choice real estate markets such as New York, Miami, Los Angeles, San Francisco, San Diego, and San Antonio may offer enticing amenities like buzzing nightlife or sunny beaches, but thanks to the Financial Crimes Enforcement Network (“FinCEN”), they now also come with an extra dose of law enforcement scrutiny. On July 27, 2016, FinCEN expanded the locales in which Geographic Targeting Orders (“GTO”) will temporarily require U.S. title insurance companies to identify the natural persons (the “beneficial owners”) behind legal entities used to make “all cash” purchases of high-end residential real estate in those six metropolitan areas.
On June 13, 2016, the U.S. Supreme Court again reversed a decision of the Federal Circuit—the Circuit specially designated to hear all patent appeals—this time, in articulating the test for determining whether to award enhanced damages for willful patent infringement in Halo Electronics, Inc. v. Pulse Electronics, Inc.
Related Attorney(s): Dorothy Auth Ph.D.
On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”), marking one of largest changes to intellectual property law since the America Invents Act of 2011. This legislation will allow companies to more rigorously protect their trade secrets which are defined as any information that is not generally known to the public, whose holder has made reasonable efforts to maintain its secrecy, where an independent economic value is derived from that secrecy.
Related Attorney(s): Dash Cole, Dorothy Auth Ph.D.
On July 1, the U.S. Internal Revenue Service issued Notice 2016-42, which proposes changes to the qualified intermediary (QI) agreement to address cascading U.S. withholding tax on dividends and “dividend equivalents” received and paid by qualified derivatives dealers (QDDs) with respect to U.S. equity securities.
Citing the ongoing risk of terrorist and cyber-attacks, the 2008 financial crisis, and Hurricanes Katrina and Sandy, the SEC has issued proposed rules under the Investment Advisers Act of 1940 that would require investment advisers to establish business continuity and transition plans to be utilized in the event of a data loss, system failure, or other significant business disruption. The proposed rules for investment advisers, similar to business continuity plan rules already mandated by FINRA, the CFTC, and the NFA, would require that such plans be risk-based, documented in written policies and procedures, and reviewed at least annually. The proposed rules would also amend the existing books and records requirements to impose new recordkeeping obligations relating to business continuity and transition plans. If approved, they would convert what is currently an industry best practice to a requirement for all SEC-registered investment advisers.
On June 22, 2016, the Office of Inspector General (“OIG”) issued two communications that underscore its continued focus on fraud in home health care, along with the role of physicians as “gate keepers” in authorizing Medicare-covered services and facilitating improper billing across the care spectrum.
On Monday, June 27, 2016, the Supreme Court of the United States denied the petition for certiorari in Midland Funding LLC v. Madden, No. 15-610. The Supreme Court’s denial leaves intact the unusual – and troubling – decision by the U.S. Court of Appeals for the Second Circuit, Midland Funding, LLC v. Madden. In that case, the Second Circuit held that the application of state usury laws to nonbank assignees is not preempted by Section 85 of the National Bank Act (the “NBA”), but rather such assignees remain subject to state usury limits. The Second Circuit’s decision suggests that a nonbank assignee of a bank-originated loan might not be able to collect the amount of interest contracted for by the originating national bank if the rate of interest exceeds the usury rate otherwise applicable to the assignee.
In its referendum held on 23 June 2016, the UK voted to leave the European Union (“Brexit”). On the following day, David Cameron announced that he will resign as Prime Minister on the election of a new Conservative Party leader and that such leader should be elected prior to the Conservative Party annual conference which starts on 2 October 2016. David Cameron said that he will leave it to his successor formally to notify the European Council of the UK’s intention to withdraw from the European Union.
On June 9, 2016, a divided New York Court of Appeals in a much-anticipated ruling held that the attorney-client privilege can only be maintained for communications involving third parties in situations where litigation is pending or reasonably anticipated. The decision reversed an intermediate appeals court’s expansion of the privilege to situations where the parties shared a “common legal interest” short of pending or reasonably anticipated litigation.
On 6 June 2016, Paul Tang MEP, the Rapporteur of the Committee on Economic and Monetary Affairs (“ECON”) of the European Parliament, published a “Draft Report”, consisting mainly of draft amendments (the “Proposed Amendments”) to the EU's proposal for a regulation intended to lay down common rules on securitisation and create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Regulation”).
The Consumer Financial Protection Bureau (“CFPB”) last week announced long-awaited proposed rules governing payday loans and other high-cost credit products, including that lenders must take steps to ensure prospective borrowers have the ability to repay them.
On 19 May 2016, the Committee on Economic and Monetary Affairs of the European Parliament (“ECON”) published a working document on the European Commission’s proposal for a regulation (the “Proposed Regulation”) intended to harmonise risk retention, transparency and due diligence requirements applying to securitisations and to create a legal framework to encourage “simple, transparent and standardised” securitisations (“STS securitisations”).
On May 19, 2016, the United States Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission (“SEC”) announced insider trading charges against Las Vegas sports bettor William (“Billy”) Walters and former Dean Foods chairman Thomas Davis for allegedly trading on nonpublic company information. Tellingly, no charges were brought against professional golfer Phil Mickelson, who was named as a relief defendant and agreed to repay close to $1 million in trading profits made as part of the alleged scheme.
Last week, decisions by the United States Supreme Court and the Northern District of Georgia provided further guidance regarding the narrow path required for a class action plaintiff to successfully establish Article III standing in a data breach claim brought in federal court.
On May 10, 2016, the Treasury Department issued proposed regulations that, if approved, will require business entities formed in the United States that are owned by a single foreign person to obtain an employer identification number (“EIN”), maintain adequate records of certain transactions, and file information returns with the Internal Revenue Service (“IRS”).
On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued the final version of its long-awaited “Customer Due Diligence Rules” under the Bank Secrecy Act. The final rules impose a new requirement on “covered financial institutions” – which include banks, broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities – to identify the beneficial owners who own or control certain legal entity customers at the time a new account is opened.
On May 5, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule to prohibit providers of certain consumer financial products and services from using arbitration clauses to block consumers from filing or participating in class action lawsuits. In addition, the proposed rule would impose a reporting obligation on providers of covered consumer financial products or services, requiring that certain materials filed in arbitration cases be submitted to the CFPB.
On April 13, 2016, the U.S. Securities and Exchange Commission issued a concept release on the business and financial disclosures required by Regulation S-K. The release is part of an ongoing comprehensive evaluation by the SEC of disclosure requirements in response to statutory mandates in the FAST Act and JOBS Act (more information on which can be found at the Disclosure Effectiveness Initiative). This review also includes the Report on Review of Disclosure Requirements in Regulation S-K and forthcoming reports on Regulation S-X.
The Corporation Law Section of the Delaware State Bar Association recently approved proposed legislation to amend the General Corporation Law of the State of Delaware (the “DGCL”). Among the proposed changes are amendments that would mitigate some of the risks presented by stockholder appraisal actions by barring appraisal claims that do not meet certain minimum thresholds. In addition, the proposed legislation would allow companies to limit the amount of statutory interest payable to stockholders who seek appraisal by making discretionary payments to such stockholders prior to the final value determination by a court. If adopted by the Delaware General Assembly, these amendments would apply to merger agreements entered into on or after August 1, 2016.
On March 28, 2016, the U.S. District Court for the District of Massachusetts held that two private equity funds within Sun Capital were jointly and severally liable under the Employee Retirement Income Security Act of 1974, as amended (ERISA), for the $4.5 million multiemployer pension plan withdrawal liability of a portfolio company. This landmark decision appreciably changes the landscape for private equity investment in companies with pension plans or potential pension liabilities.
On April 4, 2016, Treasury released new rules making it more difficult for some U.S. companies to invert (“Serial Inversion Regulations”), Proposed Regulations limiting the effectiveness of “earnings stripping” techniques (“Earnings Stripping Regulations”), and Final and Temporary Treasury Regulations incorporating rules previously described in Notices 2014-52 and 2015-79.
We are pleased to inform you of a very favorable recent caselaw development in the no-fault insurance area, in which our firm played a significant role. Specifically, on March 24, 2016, in the case of Liberty Mutual Fire Insurance Company, et al. v. Shapson, et al., the United States District Court for the Eastern District of New York (Honorable Eric N. Vitaliano) rejected certain defendants’ attempt to stay or dismiss an insurer’s federal lawsuit seeking declaratory relief stemming from a major no-fault fraudulent scheme involving the fraudulent incorporation of providers, unlawful fee-splitting and other improper conduct.
A bill recently introduced in the New York State Assembly would impose additional tax on carried interest. The taxation of carried interest has been widely discussed over the last decade, with a number of bills introduced (but not enacted) in Congress that generally would tax such carried interest at ordinary Federal income tax rates (rather than at lower capital gain rates).
The recent decision by the United States District Court for the Southern District of New York in Citibank, N.A. v. Norske Skogindustrier ASA could be an important consideration for future drafting and interpretation of debt agreements. While the Court’s decision is in the context of a preliminary injunction motion, the opinion provides useful guidance for parties potentially undertaking a refinancing exchange offer, and for parties who may seek to challenge such an exchange. Given the increasing need for companies in distressed industries to exchange debt and extend maturities, parties facing a potential debt exchange should consider the Norske Skog court’s indenture analysis.
On March 11, 2016, Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware issued an opinion in the Energy Future Holdings bankruptcy that resolved an intercreditor dispute over $90 million in proceeds to be distributed under the plan of reorganization. The Court determined that distributions under a plan of reorganization and monthly adequate protection payments made pursuant to a cash collateral order were governed solely by the plan and order, and were not required to be distributed in accordance with a waterfall provision in an intercreditor agreement.
The Chancellor of the Exchequer delivered the UK Budget for 2016 on 16 March 2016.
In this Client and Friends Alert we have outlined the key tax measures that we expect to be of interest to Cadwalader’s clients and friends.
The Board of Governors of the Federal Reserve System ("FRB") has requested comments on reissued proposed rules that would establish a single-counterparty credit limits ("SCCL") for domestic and foreign bank holding companies with $50 billion or more in total consolidated assets. The proposed rules are intended to implement Section 165(e) of the Dodd-Frank Act, which requires the FRB to impose limits on the amount of credit exposure that such domestic or foreign bank holding companies can have to unaffiliated companies in order to reduce the number of risks that might arise from the companies' failure.
Comments on the proposed regulations must be submitted by June 3, 2016.
In times of financial turbulence, politicians, regulators and the media make the case for tighter controls of the markets. However, with new regulatory powers coming in and the resulting extra layer of complexity that their application brings, investors have their reasons not to put their trust in regulators. As seen with recent developments in Portugal and Italy, a number of competing motivations surround the rescue of financial institutions. The old maxim – “Put your trust in God, but keep your powder dry” - may be applied to describe investor sentiment in an environment where treating senior investors equitably has not been a priority for local regulators.
On January 19, 2016, the United States Supreme Court granted certiorari in United States v. Salman, in which the Ninth Circuit Court of Appeals held that the government may prove a “personal benefit” to a tipper of inside information—a necessary element of an insider trading case involving tipping—by showing evidence that an insider made a “gift” of confidential information to a trading relative or friend.
The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); the revised thresholds are expected to become effective in late February 2016, 30 days after the date of their publication in the Federal Register. These changes increase the dollar thresholds necessary to trigger the HSR Act’s premerger notification reporting requirements. The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.
A record-setting year for M&A deal activity, 2015 also yielded several important legal decisions and highlighted significant trends that are likely to influence M&A market participants in 2016 and beyond.
On January 13, 2016, the Financial Crimes Enforcement Network (“FinCEN”) announced that it had issued a Geographic Targeting Order (“GTO”) which will temporarily require certain title insurance companies to report the identity of natural persons who make “all-cash” purchases of high-value residential real estate through shell companies in New York County (Manhattan) and Miami-Dade County.
On 21 December 2015 the European Banking Authority (“EBA”) published its final guidelines on sound remuneration policies (the “Guidelines”), together with its opinion on proportionality (the “EBA Opinion”).
The Guidelines and EBA Opinion are likely to be of particular relevance to a number of smaller regulated investment firms, since the EBA’s intention is that they will no longer be able to disapply the so-called “bonus cap” on the basis of “proportionality”.
U.S. companies listed on the NASDAQ and NYSE, as well as certain listed companies in Canada and Europe, with annual shareholder meetings scheduled between March 1, 2016 and June 30, 2016 may now register through January 31, 2016 to receive an Issuer Data Report (IDR) from Glass Lewis. The IDR service has per country participation limits and is available to eligible companies on a first-come, first-served basis. The registration period for a country will end prior to January 31, 2016 if the participation limit for that country is reached.
On December 31, 2015, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued regulations implementing Executive Order 13694 of April 1, 2015, which authorized the imposition of economic sanctions on individuals and entities determined to be responsible for, complicit in, or benefitting from significant cyber attacks or cyber theft.
In a December 21, 2015 transcript ruling, the Delaware Chancery Court invalidated the provisions of VAALCO Energy, Inc.’s charter and bylaws that allow for removal of directors only “for cause” even though VAALCO’s board is not classified. Vice Chancellor Laster ruled that the charter and bylaw provisions conflicted with the plain reading of Section 141(k) of the Delaware General Corporation Law, which states that stockholders may remove directors from the board with or without cause except where the board is classified or directors are elected by cumulative voting.

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