Federal Court Vacates SEC’s Extraction Payment Disclosure Rule

By Arnold & Porter LLP | Posted on

[Editor’s Note: The following update is authored by Arnold & Porter LLP]

On July 2, 2013, Judge John D. Bates of the U.S. District Court for the District of Columbia (the District Court) vacated a new rule promulgated by the Securities and Exchange Commission (the Commission) under the Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) that required oil, gas, and mining issuing companies to include in an annual report information about certain payments made to foreign governments or the U.S. government for the purpose of commercial development of oil, natural gas or minerals (the Rule). In its 30-page decision, the District Court found the Commission had, inter alia, “misread the statute to mandate public disclosure of the reports.” Judge Bates also found the Commission’s refusal to waive the Dodd-Frank Act’s disclosure requirements for countries that prohibit disclosure of payment information was “arbitrary and capricious.” The District Court vacated the Rule in its entirety and remanded the matter to the Commission for further proceedings. (more…)

SEC Settles with Fund Directors for Failure to Satisfy Valuation Responsibilities

By Ropes & Gray LLP | Posted on

[Editor’s Note: The following post is authored by Ropes & Gray LLP]

On June 13, 2013, the SEC filed an order settling administrative proceedings against eight former directors of five Regions Morgan Keegan open- and closed-end funds that had been heavily invested in securities backed by subprime mortgages in the lead-up to the 2008 financial crisis. In the Order, the SEC found that the directors caused the funds to violate Rule 38a-1 under the Investment Company Act of 1940, which requires funds to adopt and implement written policies and procedures reasonably designed to prevent violations of the federal securities laws. (more…)

Basel Committee Proposes New Capital Requirements for Banks’ Equity Investments in Funds

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

On July 5 the Basel Committee on Banking Supervision published a series of proposals to revise banks’ equity investments in funds.  The revised standards are meant to “more appropriately reflect the risk of a fund’s underlying investments and its leverage” and “help address risks associated with banks’ interactions with shadow banking entities.”  The proposals are “based on the general principle that banks should apply a look-through approach to identify the underlying assets whenever investing in schemes with underlying exposures such  as investment funds.”  (more…)

Weekly News Update: SEC Sues Over Unlawful Distribution of Securities and Announces New Enforcement Initiatives

By James Kollar | Posted on

The Securities and Exchange Commission recently announced charges against ten Argentine citizens who unlawfully sold millions of shares of Biozoom, Inc. in unregistered transactions. The SEC also obtained an emergency order to freeze assets in the U.S. brokerage accounts of the defendants. The ten Argentinians allegedly received more than one-third of Biozoom’s shares when the company changed their name from Entertainment Art and moved from producing leather bags to developing biomedical technology. In a one month span, the defendants then sold more than 14 million of the shares for a profit of almost $34 million, of which almost $17 million was wired to overseas bank accounts. Their U.S. brokerage accounts, which include approximately $16 million in cash, are subject to the asset freeze. According to the SEC’s complaint, the defendants claimed they had purchased their shares from Entertainment Art shareholders between November and March. However, the SEC has said that these agreements were false because the Entertainment Art shareholders had sold all of the stock three years earlier. “Today’s action, along with the SEC’s trading suspension order last week, demonstrate the SEC’s ability and commitment to act swiftly to halt ongoing illegal conduct and preserve assets,” Antonia Chion, associate director of SEC enforcement, said in the agency’s statement.

The Securities and Exchange Commission announced three new initiatives that will build on its Division of Enforcement’s ongoing efforts to concentrate resources on high-risk areas of the market and bring new technology and analytical capacity to bear in its investigations. The new Financial Reporting and Audit Task Force will be dedicated to detecting fraudulent financial reporting and is designed to enhance ongoing enforcement efforts related to accounting and disclosure fraud. The enforcement division also formed the Microcap Fraud Task Force to target abusive trading in securities by microcap companies, focusing on those that do not regularly report their financial results publicly. In addition, the SEC has created the Center for Risk and Quantitative Analytics, which will support and coordinate the division’s risk identification and assessment through data and analysis. The initiatives are an indication of the SEC’s increasingly vigorous approach to identifying fraud. “By directing resources, skill, and experience to high-impact areas, we will increase the potential for uncovering financial statement and microcap fraud early and bring more cases aimed at deterring these types of unlawful activity,” division co-director Andrew Ceresney said in the release.

SEC Forecasts an Increase in Whistleblower Cases and Awards

By Goodwin Procter LLP | Posted on

[Editor’s Note: The following post is authored by Goodwin Procter LLP]

On June 12, 2013, the U.S. Securities & Exchange Commission announced its second-ever whistleblower award under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Having received over 3,000 whistleblower tips in the first year of the revamped program, the SEC made its first whistleblower award in August of 2012 and is expected to issue an increasing number of awards in the coming months. (more…)

Court Vacates Resource Extraction Rule, Remands to SEC for Further Proceedings

By James Kollar | Posted on

Recently, a U.S. federal judge threw out a securities regulation requiring oil companies to disclose their payments to foreign governments for oil and gas rights.

The Securities and Exchange Commission’s extractive resources rule was added (Section 1504) to the 2010 Dodd-Frank Wall Street reform law. Human rights groups and other proponents of the law argue it would help combat corruption and wasteful spending in resource-rich nations. (more…)

FTC Wins Injunction Against Defendants Promising Mortgage Relief

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

Recently the FTC won injunctive relief after filing a complaint against ten phony mortgage relief operations.  The complaint alleges that three individuals and seven companies “prey on financially distressed homeowners by luring them into membership programs or loan modification services with promises that they will receive legal representation . . . to save their homes from foreclosure.”  Defendants charged up-front fees and then failed to follow through on their promise of services.  A temporary restraining order was issued against Defendants, freezing their assets and shutting down their businesses and websites.  (more…)

Delaware Court of Chancery Upholds Statutory and Contractual Validity of Exclusive Forum-Selection Bylaws

By Davis Polk & Wardwell LLP | Posted on

[Editor’s Note: The following update is authored by Davis Polk & Wardwell LLP]

Yesterday, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery upheld the statutory and contractual validity of bylaws separately adopted by the boards of directors of Chevron and FedEx that designated the Delaware courts as the exclusive forum for disputes regarding the internal affairs of the respective companies. The ruling should help clear the way for boards of directors to adopt exclusive forum-selection bylaws as a means to address the ever-increased and well-documented problem of multi- forum stockholder and derivative litigation. However, uncertainties remain (including, most notably, whether non-Delaware courts consistently will enforce such bylaws) that may cause some boards to await further developments before adopting such provisions. (more…)

Court Holds that Tolling Does Not Apply to a Securities Act Statute of Repose

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

Last week the Second Circuit decided an unsettled question of law in In re IndyMac Mortgage-Backed Sec. Litig.  The court held that the tolling rule does not extend to the three-year statute of repose in the 1993 Securities Act.  The court also held that non-party members of a would-be class cannot intervene to revive claims previously dismissed for lack of jurisdiction.  The court affirmed the District Court for the Southern District of New York’s denial of motions to intervene on behalf of plaintiffs not originally named in the class action.  (more…)

Dodd-Frank Progress Report

By Davis Polk & Wardwell LLP | Posted on

[Editor’s Note: The following post is authored by Davis Polk & Wardwell LLP]

The Davis Polk Dodd-Frank Progress Report is a monthly publication that uses empirical data to help market participants and policymakers assess the progress of the rulemaking and other work that has been done by regulators under the Dodd-Frank Act.

State of Play to Date

In the past month, no rulemaking requirements were due, no new rules were proposed to meet rulemaking requirements and one rulemaking requirement was finalized. (more…)