SEC Announces New Enforcement Initiatives

By Arnold & Porter LLP | Posted on

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

On July 2, 2013, the Securities and Exchange Commission (SEC) announced three new enforcement initiatives: the Financial Reporting and Audit Task Force, the Microcap Fraud Task Force, and the Center for Risk and Quantitative Analytics. According to the SEC’s announcement, these initiatives are an effort to “build on its Division of Enforcement’s ongoing efforts to concentrate resources on high-risk areas of the market and bring cutting-edge technology and analytical capacity to bear in its investigations.” (more…)

General Solicitation and Other Changes to Regulation D: The Impact on Private Funds

By Ropes & Gray LLP | Posted on

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

On July 10, 2013, the Securities and Exchange Commission adopted an amendment to Rule 506 of Regulation D, promulgated under Section 4(a)(2) (previously Section 4(2)) of the Securities Act of 1933, to allow issuers to engage in “general solicitation” and “general advertising” in certain offerings made under Rule 506, so long as all purchasers of the securities in such offerings are accredited investors and certain other conditions are met (the “General Solicitation Amendment”). Congress directed the SEC to adopt the General Solicitation Amendment last year as part of the JOBS act. In a separate release, the SEC also adopted amendments to Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if “felons” and other “bad actors” participate in the Rule 506 offering (the “Bad Actor Amendment”). The General Solicitation Amendment and the Bad Actor Amendment will go into effect 60 days from publication in the Federal Register, which is expected within the next few days. The SEC has also proposed new rules intended to enhance the SEC’s ability to evaluate and monitor the development of market practices in Rule 506 offerings and address concerns that may arise in connection with allowing issuers to engage in general solicitation and advertising under Rule 506. (more…)

SEC Votes to Lift Ban on General Solicitation in Certain Private Placements

By Goodwin Procter LLP | Posted on

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

At an open meeting, the United States Securities and Exchange Commission (“SEC”) voted to adopt a previously proposed rule that will lift the ban on general solicitation in certain types of private securities offerings, including many offerings of interests in venture capital, private equity, real estate, hedge and other types of private investment funds (the “New Rule”).

For many private fund managers, the New Rule will substantially increase the scope of permitted fundraising activities.  Even for those fund managers that do not intend to conduct a general solicitation in connection with their fundraising activities, the New Rule may reduce the risks associated with inadvertent “foot faults” under prior rules.  It is expected that the New Rule will materially change the fundraising landscape for the private fund industry, and particularly will facilitate use of the Internet and traditional press as means to communicate information about offerings of fund interests.

The SEC also voted to (i) adopt rules that prohibit private placements by certain “bad actors” and (ii) propose for public comment a variety of rules (the “Additional Rules”) that would seek to limit opportunities for abuse of the New Rule and enhance the ability of SEC staff to monitor activities pursuant to, and compliance with, the New Rule.

Click here to read the entire update.

CFTC and European Commission Reach Deal on Cross-Border Derivatives

By James Kollar | Posted on

The Commodity Futures Trading Commission (CFTC) and European Commission (EC) have reached a landmark deal on regulating cross-border derivatives trading. The deal distributes responsibilities between US and European regulators in order to prevent the disruption of global markets.

The deal would allow European regulators to monitor the actions of international branches and subsidiaries of American companies and their derivatives deals that occur in the 28 countries of the European Union. The CFTC would defer regulatory monitoring of international derivatives to European agencies in cases where the rules are similar to those in the United States. (more…)

Controversial Proposal Dropped from Upcoming FINRA Meeting’s Agenda

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

A controversial proposal has been dropped from the agenda of the Financial Industry Regulatory Authority (FINRA) Board of Governors’ July 11 meeting.  The proposal suggests a new FINRA rule requiring disclosure to investors of enhanced compensation received when a registered person transfers their accounts to a new firm.  FINRA CEO Richard Ketchum said that investors “should be informed of conflicts involving recruitment packages when they make the important decision to move an account.” (more…)

Judge Rules Against Apple in e-Book Price Fixing Case; Separate Trial on Damages to Follow

By Luke Burton, J.D. Candidate 2015 | Posted on

Apple, Inc. failed to defend itself from the Department of Justice’s antitrust lawsuit for allegedly conspiring with five publishers to set the prices of e-books. Judge Denise Cote announced her decision on July 10, and ordered a separate trial to determine damages. Full text of the opinion can be found here.

Judge Cote’s decision came as no surprise to those who had been following the case closely, as she had previously stated her belief that the government would be able to prove its case. The ruling could expose the tech giant to treble damage claims from the 33 state attorney generals who joined the case, but some commentators say that any financial penalty from the suit will be “pocket change” to Apple. Nonetheless, Apple has already released a statement confirming that the company will appeal Judge Cote’s decision. (more…)

SEC Alleges Insider Trading in Onyx Buyout Bid

By James Kollar | Posted on

Recently, the Securities and Exchange Commission announced it had received an emergency court order to freeze the assets of a group of traders who earned $4.6 million in potentially illegal profits by trading in advance of the Sunday, June 30, 2013 announcement that Onyx Pharmaceuticals, Inc. had received, but rejected an acquisition offer from Amgen, Inc.

According to the SEC, the traders purchased risky call options in the three days leading up to Onyx’s announcement that it had rejected Amgen’s offer and was putting itself up for sale. After Onyx announced the attempted acquisition offer, its share price increased dramatically to over 50% of its previous value. (more…)

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…)