18 Law Professors Urge SCOTUS to Find that Plaintiffs Need Not Prove Materiality at the Class Certification Stage

By Joseph Santiesteban, J.D. Candidate 2014 | October 22, 2012 at 08:14 am

A few weeks ago, eighteen law professors, including Berkeley Law Professor Robert Bartlett, filed an amicus brief in support of respondents in the pending Supreme Court case, Amgen, Inc. v. Conn. Retirement Plans and Trust Funds. Before the Court is whether plaintiffs using a “fraud-on-the-market” theory of reliance in a securities fraud (10b-5) class action must prove the “materiality” of alleged misstatements at the class certification stage. The brief argues that the histories of FRCP Rule 23 and the fraud-on-the-market presumption show that plaintiffs do not.

Under FRCP Rule 23, plaintiffs in a securities class action are required to show that the elements of a rule 10b-5 claim, including reliance, are common to the class. Reliance typically is shown through invoking the fraud-on-the-market presumption. The presumption, as articulated in the Supreme Court case Basic, Inc. v. Levinson, is based on the theory that most publicly available information is reflected in a stock’s price. Thus, a company’s public material misstatements are reflected in the price at which investors bought the security. “[A]n investor’s reliance on any public material misrepresentations, therefore, may be presumed.” The Court went on to state that materiality is an objective standard, “involving the significance of an omitted or misrepresented fact to a reasonable investor.” The Court did not hold, however, whether a showing of materiality is required to invoke the presumption. (more…)

The JOBS Act’s Public/Private Contradiction

By Ian Peck, LL.M. Candidate, 2013 | October 19, 2012 at 07:22 am

The JOBS Act, which became law on April 5, 2012, is designed to lessen the burden for small companies to gain access to investor capital in hopes that these firms will drive American job creation. The law is really more of a series of distinct initiatives rather than a cohesive piece of legislation that points in the same direction. This reality is nowhere more apparent than in the contradiction at the heart of the JOBS Act. That is, while Title I of the JOBS Act makes it less burdensome for “emerging growth companies” to conduct an initial public offering, many of those same firms will now, thanks to the JOBS Act, be able to remain private longer. This post will discuss the JOBS Act mechanisms that create this contradiction and offers a possible explanation for why it exists. (more…)

Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | October 18, 2012 at 08:16 am

DOJ and FTC leniency for failing to file Hart-Scott-Rodino notifications may be over. The passive investment exception to the Hart-Scott-Rodino Act’s reporting requirements excuses notification when the acquirer will hold not more than 10 percent of the outstanding shares solely for investment purposes. Biglari Holdings, Inc. viewed its investment in Cracker Barrel as passive and did not timely notify the FTC or DOJ. The agencies, however, did not view Biglari’s investment as passive, indicating Biglari’s attempt to attain “a board seat was alone sufficient to show that Biglari was not a passive investor.” Goodwin Proctor has an analysis of this recent shift in regulatory strategy in a recent client aler.

California has become the third state to regulate employer access to the social media accounts of applicants and employees. The law, A.B. 1844, is set to take effect on January 1, 2013. The law prohibits employers from requesting or requiring employees or applicants to 1) disclose their username or password, 2) access their private information in presence of employer, or 3) divulge any personal social media information. There are some exceptions. In a recent client alert, Wilson Sonsini suggests that the law “contains many undefined and unclear provisions that create potential landmines for California employers.”

On its Words of Wisdom blog, Latham & Watkins has a series on complying with SEC’s XRBL requirement, “part of the family of interactive reporting standards required by the SEC.” The most recent installment covers what types of filings must include an interactive data file and just as important, what to do if you are going to be late.

BCLBE Symposium Recap: New Models and Multifamily Properties

By Christopher Hammond, J.D. Candidate 2015 | October 16, 2012 at 07:42 am

This is a second post summarizing the Berkeley Center for Law, Business and the Economy and Philomathia Foundation Forum on unlocking capital for energy efficient improvements. The previous post is here.

Throughout the forum, many presenters agreed that multifamily units present an especially appealing opportunity for increasing investments in green renovations. With reasonable up-front capital costs, these improvements often drive down operating expenses and generate an attractive return at relatively low risk for both property owners and independent investors.

Sadie McKeown, senior vice president of The Community Preservation Corporation, stressed that savings from energy efficient retrofits to multifamily units often exceed the additional loan payments, especially when the projects are financed with inexpensive mortgage capital. Once the industry has developed energy savings benchmarks, McKeown predicted that many building owners would be willing to go forward with such projects. From her own experience, she noted that many multifamily properties only require $1,500 to $4,000 per unit, but yield consistent cost savings. If financed through traditional mortgage markets, with capital improvements amortized over 20 or 30 years, even modest energy expense reductions will cover the costs. (more…)

The Current State of the JOBS Act, Part II

By Renee Pesiri, J.D. Candidate 2013 | October 15, 2012 at 09:00 pm

IV. The JOBS Act’s Implications

The Act makes it easier for smaller companies to gain access to financing through the public market. These small companies will be able to expand, generating more jobs and leading to economic growth. However, some companies may not be ready to go public from a disclosure standpoint. If a small company wants to have the advantage of being a publicly traded company, the Act provides a way to do that, but there is much more regulatory scrutiny involved, so the company must be sure it has an experienced general counsel and an effective corporate secretary able to file all the necessary paperwork and deal with required disclosures. Companies should be wary and make sure they are properly prepared to go public, and not do so just because they have this window of opportunity. It is too soon to tell what will happen when the capital markets are made more accessible to smaller firms. (more…)

Mortgage Closing Costs May Rise Under the New Rules to Prevent Illegal House “Flipping”

By Mark Rutter, J.D. Class of 2015 | October 12, 2012 at 07:00 am

In August 2012, six federal financial regulatory agencies issued a proposed rule to implement Section 1471 of the Dodd-Frank Act which sets forth appraisal requirements for “higher-risk” mortgage loans.

The intended purpose of the proposed rule is to tighten valuation standards for homes in order to reduce the risk of appraisal fraud, a move meant to reassure creditors, borrowers, and investors alike. Section 1471 was created as part of Congress’ intention to prevent the use of false or inflated appraisals in obtaining mortgages. If the proposed rule is finalized without amendment, lenders seeking to issue high-risk mortgage loans will be “unable to value properties on the basis of broker-price opinions, automated valuations, or drive-by appraisals”. The proposed rule would affect mortgages with annual percentage rates (APRs) at designated levels above the Average Prime Offering Rate (APOR). First-lien loans (such as standard mortgages) with an APR 1.5 percentage points above the APOR would be classified as a higher risk mortgage under the proposed rule, while first-lien jumbo loans with APRs 2.5 percentage points above, and subordinate-lien loans with an APR 3.5 percentage points above the APOR would similarly be considered higher-risk.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | October 11, 2012 at 12:05 pm

Last week, we learned that whistleblowers that use snail mail for disclosing alleged violations to the SEC are still protected. This week, Bingham suggests that three courts have adopted even more relaxed disclosure restrictions, which in some cases, include “internal reports of wrongdoing.” Bingham reviews all three cases here.

Earlier this year, the SEC directed the national securities exchanges to require listed companies’ compensation committee members to be independent and to implement standards for determining when a compensation committee member is independent. A few weeks ago, both the NASDAQ and NYSE submitted their proposals. In a recent client alert, Wilson Sonsini has the specifics of these updated requirements, as well as information on when and how the NYSE and NASDAQ will implement them.

Late last month, the Division of Corporation Finance of the SEC published some additional guidance in Q&A format on who qualifies as an emerging growth company (EGC) under Title I of the JOBS act. Highlights include that while it is acceptable for a non-EGC to spin off a subsidiary that will qualify as an EGC to take advantage of the reduced filing requirements, such efforts will be “questioned” by the SEC. There is also some guidance on how the SEC will apply the $1 billion annual revenue test. Katten Muchin Rosen has a summary of the updates here.

The Current State of the JOBS Act

By Renee Pesiri, J.D. Candidate 2013 | October 10, 2012 at 10:15 am

I. Background of JOBS act.

On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “Act”) (H.R. 3606) into law. This bipartisan legislation is intended to stimulate jobs growth in the United States by allowing smaller companies to raise capital, both privately and publicly, with greater ease and fewer restrictions by relieving them of some of the regulations currently applicable to private offerings, initial public offerings, and certain newly public companies. This Act focuses on emerging growth companies, as defined, by allowing them flexibility as to the timing of entering the public offering market.

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BCLBE Symposium Recap: Unlocking Capital for Efficiency Improvements

By Christopher Hammond, J.D. Candidate 2015 | October 9, 2012 at 05:59 am

Last Friday, October 5, 2012, the Berkeley Center for Law, Business and the Economy co-hosted a symposium in San Francisco, entitled: “Where is the money? Unlocking Capital for Real Estate Efficiency Improvements.”

The event included presentations from leaders in law, finance, energy, and policy—all addressing the lack of adequate funding models for energy efficient remodels and retrofits. Panels throughout the day covered energy improvement risk from owners’ and lenders’ perspectives, underwriting challenges, recent technology improvements to fill critical data gaps, bond and secondary markets, and state and federal financing policies and initiatives. United States Senator Ron Wyden, D-Oregon, and John Chiang, California’s State Controller, were in attendance. This is the first in a series of posts that will summarize the event, its recommendations and forecasts. (more…)

London’s Changing Market Regulation

By Constance Descout, LLM Candidate 2013 | October 8, 2012 at 09:15 am

Since the start of the financial crisis in 2007, England’s tripartite model of financial regulation—where the HM treasury, Bank of England and Financial Services Authority (FSA) shared responsibility for financial regulation—has been widely criticized for failing to prevent or adequately respond to the financial crisis. Critics argue that the crisis revealed the need to incorporate macro-prudential regulation into the financial system. Earlier this year, the British government decided to change the operating model, and on September 18, it solicited comments on this reform effort.

On January 26, 2012, the government published the Financial Services Bill, which introduced a new model of firm regulation to replace and strengthen the existing regulatory architecture.

The Bill introduced the creation of three new entities: the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The FPC will be charged with regulating the financial system as a whole using macro-prudential prudential powers. The PRA and FCA will regulate individual financial institutions, though each with different responsibilities. (more…)