The trial for United States v. Apple Inc. begins on June 3rd, with some saying that the case will “effectively set the rules for internet commerce.” The Government alleges that Apple conspired with five publishing companies to increase prices while simultaneously plotting to increase market share vis-à-vis Amazon. The five publishing companies originally named in the suit have since reached a settlement with the Justice Department in which they will pay a collective $164 million to recompense consumers harmed by the price-fixing scheme. (more…)
Custom (Go-) Shopping
[Editor’s Note: The following post is authored by Kirkland & Ellis LLP]
The Delaware courts have often repeated the bedrock principle that there is no one path or blueprint for the board of a target company to fulfill its Revlon duties of seeking the highest value reasonably available in a sale transaction. The courts have usually deferred to the judgment of the directors as to whether the requisite market-check is best achieved by a limited pre-signing process, a full-blown pre-signing auction or a post-signing fiduciary out. However, as evidenced in the recent decision by VC Glasscock in NetSpend, it is equally true that the courts will also not automatically bless a sale process simply because the deal protection provisions fall with- in the range of “market” terms. Especially in a single-bidder sale process, the courts will continue to seek evidence of a fully informed and thoughtful approach by the target board to the sale process and deal protection terms with the goal of maximizing value for shareholders. (more…)
Weekly News Update: SEC Warns Mutual Fund Directors and Announces More Charges in Venezuelan Bank Kickback Scheme
Recently, the Securities and Exchange Commission settled charges against eight former directors of Morgan Keegan bond mutual funds for failing to control the portfolio managers they administered, allowing for mortgage assets to be overvalued prior to the 2007 financial crisis. Under federal securities laws, fund directors are responsible for determining the fair value of portfolio securities for which market quotations are not readily available. In addition, fund directors must determine the methodologies to be used to fair value securities and must periodically reevaluate the appropriateness of those methodologies. The SEC order finds that the eight directors failed to make a diligent effort to understand how fair values were being determined. Furthermore, the directors delegated this responsibility to a valuation committee without providing adequate guidance on how fair-valuation determinations should be made, resulting in the funds having overstated value of their securities. While no fines were imposed on the former directors, the SEC order required that the eight men, cease and desist from committing or causing any future violations. “Our settlement sends a clear warning of our commitment to enforce the duty of mutual fund directors and trustees to closely oversee the process of valuing securities held by their funds,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement.
In May, the SEC announced charges against four individuals in an alleged “pay-to-play” scheme in which the global markets group from brokerage firm Direct Access Partners (DAP) executed fixed-income trades for customers in foreign sovereign debt. This generated $66 million in revenue from transaction fees related to fraudulent trades they executed for state-owned Venezuelan bank Banco de Desarrollo Económico y Social de Venezuela (Bandes). Recently, the SEC has charged the former head of DAP’s Miami office, Ernesto Lujan, for his integral role in the massive scheme to secure the bond trading business of Bandes. According to the SEC, Lujan and others allegedly deceived DAP’s clearing brokers, executed internal wash trades, positioned another broker-dealer in the trades to conceal their role in the transactions, and engaged in massive roundtrip trades to pad their revenue. In a parallel action, Mr. Lujan was recently arrested for felony charges related to the conspiracy to bribe the Vice President of Finance at Bandes, according to the U.S. Attorney’s Office for the Southern District of New York. The SEC’s amended complaint filed in federal court in Manhattan charges Lujan and the other defendants with fraud and seeks final judgments that would require them to return ill-gotten gains with interest and pay financial penalties.
SEC Proposes Amendments to Money Market Fund Rates
[Editor’s Note: The following post is authored by Davis Polk & Wardwell LLP]
On June 5, 2013, the Securities and Exchange Commission (the “SEC”) proposed amendments to rules under the Investment Company Act of 1940 (the “Investment Company Act”) and related requirements that govern money market funds (“MMFs”). The SEC’s proposal is the latest action taken by U.S. regulators as part of the ongoing debate about systemic risks posed by MMFs and the extent to which previous reform efforts have addressed these concerns. (more…)
Revlon Settles SEC Charge Regarding a “Going Private Transaction”
Recently the SEC investigated Revlon, Inc., and found that Revlon “engaged in various acts described as ‘ring-fencing’ . . . to avoid receiving an opinion from a third-party financial advisor who ultimately found that the terms of Revlon’s proposed ‘going-private’ transaction did not provide for adequate consideration.” Without admitting or denying guilt, Revlon is settling the charge by paying an $850,000 penalty. (more…)
FTO Analysis Necessary for Crowdfunding
Financing through crowdfunding is an attractive way for startups and small businesses to raise capital by receiving small amounts from a large number of investors. The method will only increase in popularity after the SEC finalizes the provisions for equity-based crowdfunding. There are, however, potential IP problems inherent in crowdfunding. In order to attract investors, companies have to publicly disclose detailed information about their business. Competitors can then use this information to find IP violations and sue the budding business. In order to prevent or prepare for this situation, companies using crowdfunding should conduct a thorough freedom to operate (FTO) analysis. (more…)
Reform of the German Competition Law: Overview of Relevant Changes
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
On June 5, 2013, a committee of the two Houses of the German Parliament reached a long- awaited compromise on the reform of the German competition law. The 8th Amendment Bill of the German Act against Restraints of Competition (ARC) is now expected to be formally adopted and enter into force in the month of July this year. (more…)
Swaps Pushout Rule: Federal Reserve Clarifies Treatment of U.S. Branches of Foreign Banks
[Editor’s Note: The following post is authored by Davis Polk & Wardwell LLP]
The Federal Reserve has issued an interim final rule clarifying the treatment of uninsured U.S. branches and agencies of foreign banks under Section 716 of the Dodd-Frank Act (“Swaps Pushout Rule”). The interim final rule clarifies that, for purposes of the Swaps Pushout Rule, all uninsured U.S. branches and agencies of foreign banks are treated as insured depository institutions. Accordingly, a foreign bank swap dealer’s uninsured U.S. branch or agency will benefit from the Swaps Pushout Rule’s exemptions, transition period and grandfathering provisions to the same extent as an insured depository institution. The interim final rule also establishes a process for uninsured state branches and agencies of foreign banks and state member banks to apply to the Federal Reserve for a transition period from the July 16, 2013 effective date of the Swaps Pushout Rule. The interim final rule became effective on June 5, 2013, and comments on the rule are due on August 4, 2013. (more…)
Stock Dilution as Derivative or Direct Claim?
In Carsanaro v. Bloodhound Technologies, Inc., the Vice Chancellor of the Delaware Court of Chancery held that stock dilution claims can be direct when there is a breach of the duty of loyalty by the rest of the board. This decision expands stockholder’s rights to bring claims since derivative claims can only be brought in the name of a corporation and are subject to stricter pleading rules.
Carsanaro also helps reconcile the distinction between direct and derivative claims. Previously, the two main tests came from Tooley and Gentile. Under Tooley’s special injury test, the stock dilution claim can be both derivative and direct; however, the Gentile decision takes the traditional view that stock dilution is characterized as a derivative claim. (more…)
CFPB Finalizes Rule on Mortgage Loan Originator Compensation and Qualifications
[Editor’s Note: The following post is authored by Arnold & Porter LLP]
I. BACKGROUND
On January 20, 2013, the Consumer Financial Protection Bureau (CFPB) issued its final rule (the Final Rule) regarding mortgage loan originator compensation and qualification requirements1 under the Truth in Lending Act (TILA), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The Final Rule modifies existing compensation and qualification requirements under Regulation Z. It prohibits a creditor from compensating a loan originator based on a term of a transaction or a “proxy” for a term of a transaction. It also codifies the existing ban on “dual compensation,” in which a loan originator receives compensation from the consumer and an additional party other than the originator’s organization, but creates an exception allowing a loan originator organization to pay its employees or contractors a commission provided that the commission is not based on a term of a loan. The Final Rule provides a complete exemption from the statutory ban on the consumer payment of upfront points and fees. The Final Rule also includes requirements regarding loan originator qualifications, licensing, and recordkeeping, and implements statutory provisions regarding mandatory dispute resolution and the financing of credit insurance in connection with a residential mortgage loan. (more…)