Category: Securities Law

2nd Conflict Minerals Reporting and Supply Chain Transparency Conference- June 23-25, Chicago, IL

The National Law Review is pleased to bring you information about the 2nd Conflict Minerals Reporting and Supply Chain Transparency Conference, June 24-25, 2014, presented by Marcus Evans.Conflict-Minerals-250-x-250

Click here to register.

Where

Chicago, IL

When

June 24-25, 2014

What

The 2nd Sustaining Conflict Minerals Compliance Conference will break down each SEC filing requirement as well as examine direct filing examples from specific companies. Discussions will tackle key issues including refining conflict minerals teams to create a more successful conflict minerals management program, managing and developing consistent communication within the supply chain, and building an IT program that will continue to secure data from the various levels of the supply chain.

This conference will allow organizations to benchmark their conflict minerals management program against their peers to more efficiently meet SEC expectations and amend their program for future filings. Seating is limited to maintain and intimate educational environment that will cultivate the knowledge and experience of all participants.

Key Topics
  • Scrutinize the Securities and Exchange Commission (SEC) requirements and evaluate external resources for a more efficient conflict minerals rule with Newport News Shipbuilding, Huntington Ingalls Industries
  • Engineer a sustainable conflict minerals program for future filings with Alcatel-Lucent
  • Integrate filings and best practices from the first year of reporting with BlackBerry
  • Maintain a strong rapport with all tiers of your supply chain to increase transparency with KEMET
  • Obtain complete responses moving throughout the supply chain with Global Advanced Metals

Register today!

SEC (Securities and Exchange Commission) Gives Insider Trader a $30,000 Slap On The Wrist

DrinkerBiddle

On April 23, 2014, the SEC agreed to settle insider trading charges against Chris Choi, a former accounting manager at Nvidia Corporation who allegedly set into motion a trading scheme that reaped nearly $16.5 million in illicit profits and avoided losses. Given the amount of the purported loss, the fact that Choi was the original “tipper,” and the fact that nearly every other member of the scheme has been indicted, the Choi settlement seems like nothing more than a slap on the wrist: a $30,000 penalty without admitting to the insider trading allegations. The Choi settlement also represents a notable departure from the SEC’s recent insider trading fines and penalties against “tippers.”

According to the SEC’s complaint, on at least three occasions during 2009 and 2010, Choi tipped material nonpublic information about Nvidia’s quarterly earnings to his friend Hyung Lim. SEC v. Choi, No. 14-cv-2879 (S.D.N.Y. Apr. 23, 2014). Lim passed the information along to Danny Kuo, a hedge fund manager at Whittier Trust Company, who passed the information to his boss and to a group of managers at three other hedge funds.

Kuo and the other tippee-hedge fund managers used Choi’s information to trade in advance of Nvidia earnings announcements and reaped trading gains and/or avoided losses of approximately $16.5 million.

The SEC alleged that Choi was liable for this trading because he “indirectly caused trades in Nvidia securities that were executed” by the hedge funds and “did so with the expectation of receiving a benefit and/or to confer a financial benefit on Lim.” The SEC charged him with violations of Section 10(b) of the Exchange Act (and Rule 10b-5) and Section 17(a) of the Securities Act.

Choi, without admitting or denying the SEC’s allegations, agreed to settle the matter and to the entry of an order: (1) permanently enjoining him from violations of Section 10(b), Rule 10b-5, and Section 17(a); (2) barring him from serving as an officer or director of certain issuers of securities for five years; and (3) ordering him to pay a $30,000 penalty.

Not only is Choi’s settlement a significant departure from the resolutions obtained by his “downstream” tippees, a number of whom were convicted on criminal charges of insider trading, it is a departure from recent SEC “tipper” settlements. For example:

  • A former executive at a Silicon Valley technology company, who allegedly tipped convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge fund to make nearly $1 million profit, agreed to pay more than $1.75m to settle the SEC’s insider trading charges. See SEC Charges Silicon Valley Executive for Role in Galleon Insider Trading Scheme.
  • A physician who served as the chairman of the safety monitoring committee overseeing a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies, who allegedly tipped a hedge fund manager with safety data and eventually data about negative results in the trial approximately two weeks before they became public, which allowed the hedge fund to make nearly $276 million in gains, agreed to pay more than $234,000 in disgorgement and prejudgment interest to settle the SEC’s insider trading charges. The physician’s penalty may have been mitigated by the fact that he cooperated with and received a non-prosecution agreement from the U.S. Attorney’s Office in a parallel criminal action. See SEC Charges Hedge Fund Firm CR Intrinsic and Two Others in $276 Million Insider Trading Scheme Involving Alzheimer’s Drug.
  • A former executive director of business development at a pharmaceutical company located in New Jersey, who allegedly tipped a hedge fund manager (a friend and former business school classmate) with material nonpublic information regarding the company’s anticipated acquisition that allowed the manager to make nearly $14 million in gains, escaped criminal prosecution and agreed to pay a $50,000 penalty to settle the SEC’s insider trading charges. See SEC Charges Pharmaceutical Company Insider and Former Hedge Fund Manager for Insider Trading, Resulting in Approximately $14 Million in Profits.

There are a few reasons the SEC may have settled with Choi for such a small civil penalty. First, the SEC recently settled with Lim, the second chain in the insider trading scheme. Lim tentatively agreed to disgorgement or to pay a penalty once he has completed his cooperation with the U.S. Attorney’s Office for the Southern District of New York and has been sentenced in its pending, parallel criminal action¾ i.e., United States v. Lim, 12-cr-121 (S.D.N.Y.). It also could be Choi’s limited financial means. We likely will never know the reason for the SEC’s agreed-upon resolution, but the fact of the resolution may have some value to other defendants.

Article By:

William L. Carr
Kevin A. Wisniewski
Of:
Drinker Biddle & Reath LLP

 

Conflict Minerals Rule Update: D.C. Circuit Court Denies Request for Stay

Andrews Kurth

As most readers are likely aware, on April 14, 2014, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) dismissed a variety of challenges to the SEC’s conflict minerals rule, but found unconstitutional the rule’s requirement that issuers report, in a conflict minerals report to be filed with the SEC and posted on the issuer’s publicly available website, that any of their products have “not been found to be ‘DRC conflict free.’” Following the SEC’s partial stay of the aspects of the conflict minerals rule the court found to be unconstitutional,1 the appellants in the litigation as to the rule’s validity petitioned the D.C. Circuit for an emergency stay of the entire rule. On May 14, 2014, the D.C. Circuit denied the emergency motion without explanation.2

As a result of this development, issuers subject to reporting obligations under the rule should be working on finalizing their Form SDs and any necessary conflict minerals reports. Issuers must file these forms and reports with the SEC by the June 2, 2014 filing deadline. Issuers should prepare their reports in accordance with the guidance provided in the recent statement (Statement) of the Director of the SEC’s Division of Corporation Finance (CorpFin)3 that indicated that the CorpFin staff expects that filed Form SDs and conflict minerals reports will comply with and address those portions of the rule that the D.C. Circuit upheld and that provided guidance on the disclosure to be provided in Form SDs and conflict minerals reports in light of the D.C. Circuit’s April decision.

As the D.C. Circuit’s April decision created many interpretive questions that the Statement did not fully answer, issuers should stay tuned to see if CorpFin issues further disclosure guidance as the filing deadline nears.

1. See SEC, Order Issuing Stay In the Matter of Exchange Act Rule 13p-1 and Form SD, Rel. No. 34-72079 (May 2, 2014), available at http:// www .sec.gov/rules/other/2014/34-72079.pdf. Only the requirement that issuers report in a conflict minerals report to be filed with the SEC and posted on the issuer’s publicly available website that any of their products have “not been found to be ‘DRC conflict free’” is stayed. Please see our client alert dated May 2, 2014, SEC Issues Partial Stay of Conflict Minerals Rule.

2. nchorOrder, Nat’l Assoc. of Mfrs. v. SEC, No. 13-5252 (D.C. Cir. May 14, 2014).

3. nchorSee Keith F. Higgins, Director, SEC Div. of Corp. Fin., Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule (Apr. 29, 2014), available at www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370541681994. Please see our client alert dated May 2, 2014, The Conflict Minerals Rule: Important Recent Developments, for a discussion of the guidance provided in the Statement.

Article By:

Dudley W. Murrey
G. Michael O’Leary
Eric R. Markus
Of:
Andrews Kurth

SEC (Securities and Exchange Commission) Guidance on the Testimonial Rule and Social Media

Godfrey Kahn

In March 2014, through question and answer format, the Division of Investment Management issued an Investment Management Guidance Update on an adviser’s or investment advisory representative’s (IAR) ability to use social media and to promote client reviews of their services that appear on independent, third-party social media sites.

Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1) (the testimonial rule) prohibit investment advisers or IARs from publishing, circulating, or distributing any advertisement that refers to any testimonial concerning the investment adviser or any advice, analysis, report, or other service rendered by such investment adviser. While the rule does not define “testimonial,” the staff previously has interpreted it to mean a “statement of a client’s experience with, or endorsement of, an investment adviser.”

Third Party Commentary. The guidance clarifies that in certain circumstances, an investment adviser or IAR may publish public commentary from an independent social media site if (i) the social media site’s content is independent of the investment adviser or IAR, (ii) there is no material connection between the social media site and the investment adviser or IAR that would call the site’s or the commentary’s independence into question, and (iii) the investment adviser or IAR publishes all of the unedited comments appearing on the independent social media site. The staff explained that publishing commentary that met these three criteria would not implicate the concerns of the testimonial rule and, therefore, an investment adviser or IAR could include such commentary in an advertisement.

Inclusion of Investment Adviser Advertisements on Independent Sites. The guidance also addresses the existence of an investment adviser’s or IAR’s advertisement on an independent site and notes that such presence would not result in a prohibited testimonial provided that (i) it is readily apparent to the reader that the advertisement is separate from the public commentary and (ii) advertising revenue does not influence, in any way, the determination of which public commentary is included or excluded from the independent site.

Reference by Investment Adviser to Independent Social Media Site Commentary in a Non-Social Media Advertisement (e.g., radio or newspaper). In the guidance, the staff explained that investment advisers or IARs could reference, in a non-social media advertisement, an independent social media site. For example, an adviser could state in its newspaper ad “see us on Facebook or LinkedIn” to signal to clients and prospective clients that they can research public commentary about the investment adviser on an independent social media site. In contrast, however, the investment adviser or IAR may not publish any testimonials from an independent social media site in a newspaper, for example, without implicating the testimonial rule.

Client Lists. The guidance also addressed posting of “contacts” or “friends” on the investment adviser’s or IAR’s social media site. Such use is not prohibited, provided that those contacts or friends are not grouped or listed in a way that identifies them as current or former clients. The staff carefully noted, however, any attempts by an investment adviser or IAR to imply that those contacts or friends have received favorable results from the advisory services would implicate the testimonial rule.

Fan/Community Pages. The guidance stated that a third-party site operating as a fan or community page where the public may comment ordinarily would not implicate the testimonial rule. However, the guidance cautioned investment advisers or IARs to consider the material connection and independence rules discussed above prior to driving user traffic to such a site, including through the publication of a hyperlink.

Sources: Investment Management Guidance Update, No. 2014-4, Guidance on the Testimonial Rule and Social Media (March 2014); Investment Company Institute Memorandum Regarding the Advisers Act Testimonial Rule and Social Media Guidance (April 1, 2014).

Article By:

Christopher M. Cahlamer
Elizabeth J. Chandler
Laura A. Hawkins
Susan Hoaglund
Helge Lee
Of:
Godfrey & Kahn S.C.

2nd Conflict Minerals Reporting and Supply Chain Transparency – June 23-25, Chicago, IL

The National Law Review is pleased to bring you information about the 2nd Conflict Minerals Reporting and Supply Chain Transparency Conference, June 24-25, 2014, presented by Marcus Evans.Conflict-Minerals-250-x-250

Click here to register.

Where

Chicago, IL

When

June 24-25, 2014

What

The 2nd Sustaining Conflict Minerals Compliance Conference will break down each SEC filing requirement as well as examine direct filing examples from specific companies. Discussions will tackle key issues including refining conflict minerals teams to create a more successful conflict minerals management program, managing and developing consistent communication within the supply chain, and building an IT program that will continue to secure data from the various levels of the supply chain.

This conference will allow organizations to benchmark their conflict minerals management program against their peers to more efficiently meet SEC expectations and amend their program for future filings. Seating is limited to maintain and intimate educational environment that will cultivate the knowledge and experience of all participants.

Key Topics
  • Scrutinize the Securities and Exchange Commission (SEC) requirements and evaluate external resources for a more efficient conflict minerals rule with Newport News Shipbuilding, Huntington Ingalls Industries
  • Engineer a sustainable conflict minerals program for future filings with Alcatel-Lucent
  • Integrate filings and best practices from the first year of reporting with BlackBerry
  • Maintain a strong rapport with all tiers of your supply chain to increase transparency with KEMET
  • Obtain complete responses moving throughout the supply chain with Global Advanced Metals

Register today!

2nd Conflict Minerals Reporting and Supply Chain Transparency – June 23-25, Chicago, IL

The National Law Review is pleased to bring you information about the 2nd Conflict Minerals Reporting and Supply Chain Transparency Conference, June 24-25, 2014, presented by Marcus Evans.Conflict-Minerals-250-x-250

Click here to register.

Where

Chicago, IL

When

June 24-25, 2014

What

The 2nd Sustaining Conflict Minerals Compliance Conference will break down each SEC filing requirement as well as examine direct filing examples from specific companies. Discussions will tackle key issues including refining conflict minerals teams to create a more successful conflict minerals management program, managing and developing consistent communication within the supply chain, and building an IT program that will continue to secure data from the various levels of the supply chain.

This conference will allow organizations to benchmark their conflict minerals management program against their peers to more efficiently meet SEC expectations and amend their program for future filings. Seating is limited to maintain and intimate educational environment that will cultivate the knowledge and experience of all participants.

Key Topics
  • Scrutinize the Securities and Exchange Commission (SEC) requirements and evaluate external resources for a more efficient conflict minerals rule with Newport News Shipbuilding, Huntington Ingalls Industries
  • Engineer a sustainable conflict minerals program for future filings with Alcatel-Lucent
  • Integrate filings and best practices from the first year of reporting with BlackBerry
  • Maintain a strong rapport with all tiers of your supply chain to increase transparency with KEMET
  • Obtain complete responses moving throughout the supply chain with Global Advanced Metals

Register today!

Risky Business: Target Discloses Data Breach and New Risk Factors in 8-K Filing… Kind Of

MintzLogo2010_Black

After Target Corporation’s (NYSE: TGT) net earnings dropped 46% in its fourth quarter compared to the same period last year, Target finally answered the 441 million dollar question – To 8-K, or not to 8-K?  Target filed its much anticipated Current Report on Form 8-K on February 26th, just over two months after it discovered its massive data breach.

In its 9-page filing, Target included two introductory sentences relating to disclosure of the breach under Item 8.01 – Other Events:

During the fourth quarter of 2013, we experienced a data breach in which certain payment card and other guest information was stolen through unauthorized access to our network. Throughout the Risk Factors in this report, this incident is referred to as the ‘2013 data breach’.

Target then buried three new risk factors that directly discussed the breach apparently at random within a total of 18 new risk factors that covered a variety of topics ranging from natural disasters to income taxes.  Appearing in multiple risk factors throughout the 8-K were the following:

  • The data breach we experienced in 2013 has resulted in government inquiries and private litigation, and if our efforts to protect the security of personal information about our guests and team members are unsuccessful, future issues may result in additional costly government enforcement actions and private litigation and our sales and reputation could suffer.
  • A significant disruption in our computer systems and our inability to adequately maintain and update those systems could adversely affect our operations and our ability to maintain guest confidence.
  • We experienced a significant data security breach in the fourth quarter of fiscal 2013 and are not yet able to determine the full extent of its impact and the impact of government investigations and private litigation on our results of operations, which could be material.

An interesting and atypically relevant part of Target’s 8-K is the “Date of earliest event reported” on its 8-K cover page.  Although Target disclosed its fourth quarter 2013 breach under Item 8.01, Target still listed February 26, 2014 as the date of the earliest event reported, which is the date of the 8-K filing and corresponding press release disclosing Target’s financial results.  One can only imagine that this usually benign date on Target’s 8-K was deliberated over for hours by expensive securities lawyers, and that using the February earnings release date instead of the December breach date was nothing short of deliberate.  Likely one more subtle way to shift the market’s focus away from the two-month old data breach and instead bury the disclosure within a standard results of operations 8-K filing and 15 non-breach related risk factors.

To Target’s credit, its fourth quarter and fiscal year ended on February 1, 2014, and Target’s fourth quarter included the entirety of the period during and after the breach through February 1.  Keeping that in mind, Target may not have had a full picture of how the breach affected its earnings in the fourth quarter until it prepared its fourth quarter and year-end financial statements this month.  Maybe the relevant “Date of earliest event” was the date on which Target was able to fully appreciate the effects of the breach, which occurred on the day that it finalized and released its earnings on February 26.  But maybe not.

Whatever the case may be, Target’s long awaited 8-K filing is likely only a short teaser of the disclosure that should be included in Target’s upcoming Form 10-K filing.

Article by:

Adam M. Veness

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

American Conference Institute National Forum on Securities Litigation & Enforcement – Feb. 27-78, 2014

The National Law Review is pleased to bring you information about the upcoming American Conference Institute National Forum on Securities Litigation & Enforcement. Only one week away from the event!

ACI Securities

When

Thursday, February 27 – Friday, February 28 ,2014

Where

Washington, D.C.

ACI’s 3rd National Advanced Forum on Securities Litigation and Enforcement, this time in Washington, DC, is the only event in the industry where experienced in-house counsel, leading litigators, renowned jurists, and regulatory and enforcement officials from federal and state agencies will assemble in our nation’s capital to provide the highest level insights on the most current developments in the field.

Now, more than ever, lenders/issuers, officers and directors, underwriters, auditors, investment managers and broker-dealers need to know how to prepare for and respond to litigation, and how to deal with regulation and enforcement initiatives from various federal and state agencies.

In response, ACI has developed the 3rd installment of its lauded Securities Litigation and Enforcement conference, which will provide practitioners with the knowledge and expert strategies that they need in order to prepare for and defend against the newest claims and claimants.

Join us in Washington, DC, and hear from a highly regarded faculty featuring in-house counsel from the top financial services companies and leading outside counsel from law firms that excel in securities litigation, renowned judges, and key government bodies, including SEC, FINRA, PCAOB, U.S. Attorney’s Offices (EDNY & SDNY), and various state securities departments.

ACI's 3rd National Forum on Securities Litigation & Enforcement – February 27-28, 2014

The National Law Review is pleased to bring you information about the upcoming American Conference Institute National Forum on Securities Litigation & Enforcement.

ACI Securities

When

Thursday, February 27 – Friday, February 28 ,2014

Where

Washington, D.C.

ACI’s 3rd National Advanced Forum on Securities Litigation and Enforcement, this time in Washington, DC, is the only event in the industry where experienced in-house counsel, leading litigators, renowned jurists, and regulatory and enforcement officials from federal and state agencies will assemble in our nation’s capital to provide the highest level insights on the most current developments in the field.

Now, more than ever, lenders/issuers, officers and directors, underwriters, auditors, investment managers and broker-dealers need to know how to prepare for and respond to litigation, and how to deal with regulation and enforcement initiatives from various federal and state agencies.

In response, ACI has developed the 3rd installment of its lauded Securities Litigation and Enforcement conference, which will provide practitioners with the knowledge and expert strategies that they need in order to prepare for and defend against the newest claims and claimants.

Join us in Washington, DC, and hear from a highly regarded faculty featuring in-house counsel from the top financial services companies and leading outside counsel from law firms that excel in securities litigation, renowned judges, and key government bodies, including SEC, FINRA, PCAOB, U.S. Attorney’s Offices (EDNY & SDNY), and various state securities departments.

Let the Light of Day Shine Re: SEC (Securities and Exchange Commission) Insider Trading Case

Barnes Burgandy Logo

We want to spend a moment talking about an old subject—the Securities and Exchange Commission’s insider trading case against Mark Cuban—and Cuban’s new business venture that has resulted from that case. The case, the SEC’s handling of the matter, and Cuban’s reactions (then and now) say a lot about how “the G” does business and may even be revelatory in the future.

As you recall, the SEC charged Cuban with insider trading in 2008. The case was originally dismissed by the trial court. The Fifth Circuit Court of Appeals reinstated the case, concluding that the inquiry into whether Cuban had, in fact, traded on the basis of material, non-public information was simply too fact-intensive for the trial court to have decided without a full factual inquiry.

This, of course, is the problem with fraud-based government enforcement: the question of a person’s intent is difficult to determine without an expensive factual inquiry—and the costs of such an inquiry (combined with the potential consequences) are so high that many people settle with the G rather than seek to exonerate themselves. Historically, the SEC “extorted” settlements (not our view, necessarily, see Al’s Emporium Commentary in the Wall Street Journal Online Edition as of October 19, 2010) in reliance on this heavy burden. At the heart of the SEC’s effort was the “no admit or deny” settlement.

In these settlements, the SEC would recite each allegation of wrongdoing against a defendant as well as the terms under which the defendant had settled the charges. The defendant would neither admit nor deny the SEC’s allegations. Since Mary Jo White took over at the helm of the SEC in April 2013, she purportedly has set a new course, requiring that defendants must admit wrongdoing in more and more settlements—whether or not that changes the seemingly extortive nature of these cases remains to be seen.

But Cuban, with his seemingly unlimited resources and non-retiring personality, would not be extorted. He fought back, all the way through trial, and won. Ultimately, a jury of Cuban’s peers concluded (among other things) that the SEC had not proven that Cuban received confidential information, that he traded on such information, or that he had acted knowingly or recklessly (with “fraudulent intent”) when trading. (See the Associated Press’ “Big Story” on October 16, 2013, which has a digital recreation of the jury verdict form).

When he walked out of the courtroom, Cuban went ballistic on the SEC. See his comments on YouTube – his specific comments about the SEC are found beginning about the 50th second of the clip.

“When you put someone on the stand and accuse them of being a liar, it is personal,” he said, criticizing specific members of the SEC’s staff and, generally, the SEC’s enforcement practices. Since then, Cuban has reinforced his criticism, stating: “There’s such a revolving door, and [the SEC] was run by attorneys with an attorney’s mind-set looking for their next job. It’s a résumé builder,” [Cuban] said. “No wonder they say or do whatever they damn well please. I’m like, ‘OK, I’m going to start calling them out by name.” (WSJ’s Law Blog)

Cuban isn’t stopping with these castigatory remarks. He is putting his money where his mouth is. Cuban’s latest business venture is to publicize SEC trial transcripts (which are not generally publicly available). Cuban hopes that, by publicizing trial tactics and tactics he believes are problematic, he will change the way this agency of the G does business.

Article by:

Vincent P. (Trace) Schmeltz III

Of:

Barnes & Thornburg LLP