The National Law Forum

Snowy Owls and Constituted Authorities

On January 27, 2021, a snowy owl was seen in New York City’s Central Park for the first time in 130 years. Nine days later, on February 5, 2021, something almost as rare occurred – the Internal Revenue Service released a private letter ruling dealing with Section 103 of the Internal Revenue Code.^[1] In PLR 202105007, the IRS determined that a nonprofit corporation that amended its articles of incorporation to change its purposes and come under the control of a city became a “constituted authority,” within the meaning of Treas. Reg. 1.103-1(b), of the city that could issue tax-exempt bonds on behalf of the city.

The coincidence of these infrequent events involving ornithology and quasi-governmental entities calls to mind the field guide Johnny Hutchinson prepared on the tax classifications of various species of the latter, which was an homage to Roger Tory Peterson’s Field Guide to Birds, a seminal work in the canon of the former. February is a good time to brush up on both.

_{[1] of 1986, as amended.}

ARTICLE BY Michael A. Cullers of Squire Patton Boggs (US) LLP

For more, visit the NLR Tax section.

Biden Administration Requests Review of DOL’s Final “ESG” Rules for ERISA Fiduciaries – What Does that Mean for the DOL’s Final Proxy Voting Rules?

On October 30, 2020, the U.S. Department of Labor (the “DOL”) issued a final rule on “ESG” investing (summarized here) which requires ERISA plan fiduciaries to base investment decisions on financial factors alone, prohibits fiduciaries from selecting investments based on non-pecuniary considerations, and which could restrict “do-good” or “ESG” investing (the “ESG Rule”). However, the fate of the ESG Rule is currently unclear, as the Biden administration directed the DOL to review the rule in a fact sheet issued on January 20, 2021.

In a separate (but related) rulemaking, the DOL published in the Federal Register on December 16, 2020, a final rule confirming its position that ERISA’s fiduciary duties of prudence and loyalty apply to an ERISA plan fiduciary’s exercise of shareholder rights, including proxy voting, proxy voting policies and guidelines, and the selection and monitoring of proxy advisory firms (the “Proxy Voting Rule”). The Proxy Voting Rule went into effect on January 15, 2021 (although certain aspects of this rule have later compliance dates, as discussed below).

The ESG Rule and the Proxy Voting Rule were each structured in a manner that would amend the DOL’s “investment duties” regulation at 29 C.F.R. 2550.404a-1. When the DOL finalized the ESG Rule, it reserved a section of the amended regulation for the final Proxy Voting Rule. It is uncertain what action the Biden administration will take with respect to the ESG Rule following its review thereof, but it is very possible that the Proxy Voting Rule will have the same fate given how intertwined the two rules are.

The Proxy Voting Rule reflects the DOL’s attempt at clarifying its prior proxy voting guidance that “may have led to confusion or misunderstandings on the part of plan fiduciaries.” In particular, the DOL acknowledged that there is a view among some that ERISA plan fiduciaries are required to vote all proxies or exercise every shareholder right – the Proxy Voting Rule makes clear that is not the case. The Proxy Voting Rule instead takes a principles-based approach and details the obligations of fiduciaries when making such decisions in order to satisfy their duties of prudence and loyalty, which include the following:

act solely in accordance with the economic interest of the plan and its participants and beneficiaries;
consider any costs involved;
- relevant costs will depend on the facts and circumstances, and could include: direct costs to the plan of determining how to vote and actually submitting the vote; potential reduction of management fees by reducing the number of proxies voted that have no economic consequence for the plan; any out-of-the-ordinary costs or unusual requirements, such as may be the case of voting proxies on foreign corporation shares; or any opportunity costs of voting, such as forgone earnings from recalling securities on loan or any restrictions on selling the underlying shares.
not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective, or promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries;
evaluate material facts that form the basis for any particular proxy vote or other exercise of shareholder rights;
maintain records on proxy voting activities and other exercises of shareholder rights; and
exercise prudence and diligence in the selection and monitoring of persons (if any) who have been delegated authority to exercise shareholder rights, or who have been selected to advise or otherwise assist with the exercise of shareholder rights.
- note, however, that a fiduciary may adopt a practice of following the recommendations of a proxy advisory (or similar) firm only if the fiduciary first determines that the service provider’s proxy voting guidelines are consistent with the requirements above.

The Proxy Voting Rule also provides an optional safe harbor for plan fiduciaries that adopt and follow proxy voting policies with specific parameters that are prudently designed to serve the plan’s economic interest. The safe harbor is intended to reduce compliance burdens with respect to decisions as to whether to vote proxies, and does not apply with respect to decisions as to how to vote proxies. The safe harbor permits a plan to adopt either or both of the following (though these are not meant to be the exclusive means for compliance):

A policy to limit voting resources to particular types of proposals that the fiduciary has prudently determined are substantially related to the issuer’s business activities or are expected to have a material effect on the value of the plan’s investment in the issuer.
A policy of refraining from voting on proposals or particular types of proposals when the size of the plan’s holdings in the issuer relative to its total investment assets is below a quantitative threshold that the fiduciary prudently determines, considering the plan’s percentage ownership of the issuer and other relevant factors, is sufficiently small that the matter being voted upon is not expected to have a material effect on the investment performance of the plan’s portfolio (or plan assets under management in the case of an investment manager).

If adopted, a proxy voting policy must be reviewed periodically by the plan fiduciary, and may not prohibit the fiduciary from (i) voting the proxy, if the fiduciary prudently determines that the matter being voted upon is expected to have a material effect on the value of the investment or the investment performance of the plan’s portfolio (or plan assets under management in the case of an investment manager) after taking into account the costs involved, or (ii) refraining from voting the proxy, if the fiduciary prudently determines that the matter being voted upon is not expected to have such a material effect after taking into account the costs involved.

The Proxy Voting Rule also reiterates the DOL’s longstanding position that the responsibility for voting proxies rests with the plan trustee, unless the plan trustee is being directed by the plan’s named fiduciary or voting authority has been delegated to an investment manager. If authority to manage plan assets has been delegated to an investment manager, the investment manager will have the exclusive authority to vote proxies unless the applicable plan documents or investment management agreement specifically provide otherwise.

An investment manager of a pooled investment vehicle that holds assets of more than one employee benefit plan must either (i) reconcile (insofar as possible) any conflicts in the proxy voting policies of such plans, and vote (or abstain from voting) the relevant proxies in proportion to each plan’s economic interest in the pooled investment vehicle, or (ii) develop an investment policy statement consistent with the Proxy Voting Rule that the participating plans must accept before they are allowed to invest in the pooled investment vehicle.

The Proxy Voting Rule does not apply to shareholder rights that are passed through to participants and beneficiaries of individual account plans. In such a case, the plan trustee must follow the direction of the plan participant or beneficiary, but only if the direction is consistent with the plan terms and not contrary to ERISA.

The Proxy Voting Rule went into effect on January 15, 2021 and applies to the exercise of shareholder rights after such date; provided, that (i) fiduciaries that are not SEC-registered investment advisers have until January 31, 2022 to comply with the requirements to evaluate material facts providing the basis for exercising a shareholder right and to maintain records on proxy voting activities, and (ii) all fiduciaries have until January 31, 2022 to comply with the requirement to confirm that a proxy firm upon whom the fiduciaries intend to rely has proxy voting guidelines that comply with the Proxy Voting Rule and the requirements relating to investment managers of pooled investment vehicles.

The Proxy Voting Rule also removes from the Code of Federal Regulations the DOL’s Interpretive Bulletin 2016-01, which may have been interpreted to permit consideration of a broader set of factors when making determinations regarding proxy voting, as it no longer reflects the DOL’s views on the exercise of shareholder rights.

ARTICLE BY Ira G. Bogner, Seth J Safra and Adam W Scoll of Proskauer Rose LLP

For more, visit the NLR Labor & Employment

President Biden Revokes ‘Buy American and Hire American’ Executive Order

On January 25, 2021, President Joe Biden signed Executive Order (EO) 14005 entitled “Ensuring the Future Is Made in All of America by All of America’s Workers,” which directs federal government agencies to “maximize the use of goods, products, and materials produced in, and services offered in, the United States.” While this order directs all agencies to follow this policy via the federal procurement and budgetary process, it also revoked the “Buy American and Hire American” executive order (EO 13788), which President Trump signed on April 18, 2017. Otherwise known as BAHA, EO 13788 had a stated goal of protecting U.S. workers, promoting job growth, and protecting the integrity of the U.S. immigration system.

The BAHA executive order prompted several federal agencies to issue numerous policy memos, with the net result being substantial changes to adjudication standards for applications for various immigration benefits. In October 2017, following the directives of BAHA, U.S. Citizenship and Immigration Services (USCIS) issued an updated policy memo that altered the longstanding policy of deferring to prior adjudications where the petitioner, beneficiary, and underlying facts remained unchanged from a previously approved petition for the same employee. USCIS issued the updated policy to “help advance policies that protect the interests of U.S. workers.” The updated policy created additional challenges for employers to get routine extension of stay petitions approved for workers who were already in the United States and where there had been no significant changes in the job details subsequent to the last petition’s approval.

The BAHA executive order has resulted in an overall increase in the rates of requests for evidence (RFE) and case denials. As recently as fiscal year (FY) 2020, H-1B RFE rates reached almost 30 percent, down from slightly more than 40 percent in FY 2019. Furthermore, H-1B visa petition denial rates exceeded 26 percent in FY 2020 and 34 percent in FY 2019 for cases where an RFE had been issued. For L-1 visa petitions, RFE rates had reached slightly more than 54 percent in both FY 2020 and FY 2019. Petitions for L-1 visas saw denial rates exceeding 43 percent in FY 2020 and 49 percent in FY 2019 for cases where an RFE was issued. In contrast, pre-BAHA RFE rates hovered around 21 percent for H-1B petitions and just over 30 percent for L-1 petitions. Denial rates before BAHA were generally about 20 percent for H-1B petitions post-RFE, and L-1 visa petitions were denied at about a 33 percent rate after receiving an RFE.

It remains to be seen how USCIS visa petition adjudication standards will change in the coming years, and particularly whether RFE and denial rates will drop following the end of the Trump administration and the revocation of BAHA. However, employers can expect that there will be a shift in immigration policy under the Biden administration with a more favorable view towards high-skilled business immigration.

ARTICLE BY Brian D. Bumgardner and

Andrew G. Drozdowski of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

For more, visit the NLR Government Contracts, Maritime & Military Law section.

Cannabis and Bankruptcy: 2020 in Review

In 2020, bankruptcy court doors continued to be shut to cannabis companies. Perhaps most troubling is the continued bar for companies that are only tangentially involved in the state-legalized cannabis industry. Although outlier cases exist, and even though courts have hinted that bankruptcy may be appropriate for some cannabis-related individuals and companies in some situations, there is a consensus now that bankruptcy is generally not available to individuals and companies engaged, directly or indirectly, in the cannabis industry. Below are some of the most important decisions from 2020.

Burton v. Maney (9th Cir. BAP)

The year began with the Ninth Circuit Bankruptcy Appellate Panel’s decision in Burton v. Maney (In re Maney).[1] In Maney, husband and wife Chapter 13 debtors held a majority interest in a company, Agricann, LLC (“Agricann”), which was previously engaged in the cultivation and sale of cannabis. These activities were legal under Arizona law, but were illegal under the federal Controlled Substances Act, 21 U.S.C. § 801, et seq. (the “CSA”).

The bankruptcy court entered an order to show cause why the case should not be dismissed based on the debtors’ ownership interest in Agricann. In response, the debtors argued that Agricann was no longer operating and that no Agricann funds would be used to fund their Chapter 13 plan. However, Agricann was still a plaintiff in two state court lawsuits in which it sought damages for breach of contract relating to the cultivation and sale of cannabis. The bankruptcy court concluded that any recovery from the lawsuits would be derived from conduct violative of the CSA and that allowing the bankruptcy case to continue would likely require the court and the trustee to administer funds obtained in violation of the CSA. The appellate panel affirmed the dismissal of the case, finding that the debtors’ ownership interest in Agricann constituted “cause” for dismissal under section 1307(c) of the Bankruptcy Code.[2]

Notwithstanding the ultimate ruling, there are portions of the Maney opinion that ultimately may be helpful to cannabis debtors seeking bankruptcy relief. The appellate panel noted the tension between state-legalized cannabis and the CSA and the “difficult issues regarding how involved the debtor may be in [the cannabis] business and still be permitted to seek relief under the [Bankruptcy] Code.”[3] Importantly, the panel wrote:

The case law continues to evolve and few bright line rules have emerged from decisions published to date. One principle seems implicit in the case law, however; the mere presence of marijuana near a bankruptcy case does not automatically prohibit a debtor from bankruptcy relief.[4]

Further, the panel noted the varying degrees of connection that may exist between a debtor and cannabis and the discretion that bankruptcy courts have, at least in the Ninth Circuit, to determine whether a case should be dismissed when cannabis activity is present.[5] Finally, the panel implied that the bankruptcy court could have allowed the case to remain in bankruptcy but for the numerous other unresolved issues (e.g., the debts exceeded the limitations under section 109(e); the debtors’ failure to propose a confirmable plan in over a year).[6]

In re Pharmagreen Biotech, Inc. (Bankr. D. Nev.)

While the language in the Maney decision could arguably be read as opening the “bankruptcy door” a crack, the bankruptcy court’s decision in In re Pharmagreen Biotech, Inc., [7] appears, on its face, to slam the door shut.

In Pharmagreen, the court considered whether a U.S. company with plans on entering the legal Canadian cannabis market was eligible for protection under the U.S. Bankruptcy Code. The debtor was raising start-up capital to build a cannabis biotech complex in British Columbia and to obtain cannabis licensure in Canada. According to the debtor’s principal, the company had no actual cannabis operations and no plans to operate in the U.S. until federal cannabis laws were changed. Creditors, however, sought dismissal claiming that the debtor’s business model was based on cannabis operations in the U.S.

The bankruptcy court dismissed the case, pointing to a post-petition update published by the debtor that discussed the production of plantlets for cannabis and hemp. While the debtor argued that there were no ongoing operations and that any business plan was prospective only, the court sided with the moving creditors, stating:

But there’s a business and the business page indicating that Pharmagreen Biotech was producing cultures for marijuana, and marijuana is not illegal in the state of Nevada. But marijuana is illegal in the federal – in the federal system. So I am going to dismiss this case for the reasons set forth by [counsel for the moving creditors]. You just can’t – you can’t use the federal courts to protect marijuana cultivation.[8]

What sets Pharmagreen apart from other cannabis cases is that the debtor’s operations were allegedly going to be limited to Canada where the CSA clearly does not apply. It is unclear whether the court’s decision was based on conflicting evidence on this point. Nonetheless, the Pharmagreen decision can be read broadly to preclude bankruptcy for even those cannabis companies whose activity in the United States is passive only, with the actual cannabis cultivation or sales occurring extra-territorially.

In re Malul (Bankr. D. Colo.)

The bankruptcy court’s decision in In re Malul[9] begins colorfully enough:

If the uncertainty of outcomes in marijuana-related bankruptcy cases were an opera, Congress, not the judiciary, would be the fat lady. Whether, and under what circumstances, a federal bankruptcy case may proceed despite connections to the locally ‘legal’ marijuana industry remains on the cutting edge of federal bankruptcy law. Despite the extensive development of case law, significant gray areas remain. Unfortunately, the courts find themselves in a game of whack-a-mole; each time a case is published, another will arise with a novel issue dressed in a new shade of gray. This is precisely one such case.[10]

In Malul, the debtor received conditional approval to reopen her Chapter 7 case in order to include state court litigation claims arising from an equity investment in Heartland Caregivers, LLC (“Heartland”), a defunct Colorado cannabis company. The debtor also sought to exempt those state law claims from her estate. When objections were filed to the exemption, the debtor filed a motion to compel abandonment of the claims on the basis that the claims, or proceeds of the claims, were cannabis related and cannot be administered by the Chapter 7 Trustee. Ultimately, the U.S. Trustee filed a motion seeking to vacate the conditional reopening of the case, arguing that the debtor was impermissibly attempting to use the bankruptcy to improve her position in the state court litigation.

The issue before the bankruptcy court was whether the debtor’s claims were sufficiently connected to cannabis for the reopening to be vacated. The debtor argued that because Heartland was no longer operating, there was no continuing violation of section 841(c) of the CSA which makes it a federal crime to “manufacture, distribute, or dispense, or possess with intent to manufacture, distribute or dispense, a controlled substance[.]” However, the bankruptcy court held that the debtor’s original investment in Heartland was in violation of section 854 of the CSA, which made it a federal crime to solicit investments in Heartland in the first place. Accordingly, the debtor’s “mere possession of those rights and interests [in Heartland], and certainly her prosecution of litigation claims in furtherance of those rights and interests, constitute ongoing criminal violations of the CSA.”[11] The U.S. Trustee’s motion to vacate was granted. In a rejoinder to its opening and a call to Congressional action, the court wrote: “The Court may enjoy the opera, but anxiously awaits the fat lady’s song.”[12]

This may be one of those cases where bad facts make bad law. After all, the debtor certainly appeared to be acting in bad faith by seeking to reopen her bankruptcy case, not in order to better the position of her creditors, but to improve her own position in the state court litigation. Further, the debtor changed her position on her connection to cannabis, representing first that there were no assets or claims against third parties relating to cannabis, but then arguing that the claims should be abandoned because the claims “constitute unvested rights to proceeds derived from the overt and ongoing sale of marijuana.”[13] It is unclear just how much the Debtor’s bad faith contributed to the court’s conclusion that the Debtor violated section 854 of the CSA and that this required dismissal of the case.[14] Had the debtor not engaged in this bad faith behavior and had the debtor been more candid with the court, the decision may have come out differently.

In re Players Network (Bankr. D. Nev.)

In In re Players Network,[15] the court held that a debtor’s equity investment in a cannabis company constituted “cause” for dismissal under section 1112(b)(1) of the Bankruptcy Code.[16]

In Players Network, the debtor held a majority interest in Green Leaf Farm Holdings (“Green Leaf”), a cannabis producer. A creditor sought dismissal of the debtor’s case under section 1112(b)(1), arguing in part that the debtor could not propose a plan in good faith based on its equity ownership in Green Leaf. The bankruptcy court ultimately dismissed the case, in part because of the debtor’s interest in Green Leaf. Nonetheless, the court was careful to note that within the Ninth Circuit “there appears to be no per se rule precluding a Chapter 11 plan from being proposed in good faith based solely on the debtor’s relationship to commerce involving marijuana or cannabis products.”[17] Accordingly, there is language in Players Network (albeit dicta), similar to language in Maney, that arguably keeps open the possibility of a cannabis bankruptcy.

Where are We Now?

The bankruptcy courts continue to remain largely off limits to companies that operate in the cannabis space. This relegates struggling cannabis companies to other forms of relief, primarily assignments for the benefit of creditors under state law and state law receiverships. However, neither of these options provide cannabis companies with a stay, or the ability to restructure or maximize value through a “free and clear” sale as is available under section 363 of the Bankruptcy Code. Instead, these remedial provisions lead inextricably to liquidation of the struggling company, an outcome that may not be in the best interests of the company or its creditors. The situation is unlikely to change until the federal government legalizes cannabis. At that time, the cannabis industry will be able to utilize all options available under the Bankruptcy Code to the benefit of the industry itself as well as its creditors.

[1] BAP No. AZ-19-1126 (B.A.P. 9th Cir. Jan. 14, 2020).

[2] Section 1307(c) provides that “on request of a party in interest or the United State trustee and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title, or may dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause . . ..” 11 U.S.C. § 1307(c). A non-exhaustive list of factors establishing cause is set forth in section 1307(c)(1) – (11).

[3] In re Maney, at p. 10.

[4] Id. (emphasis added).

[5] Id. at p. 13.

[6] Id. at p. 17.

[7] No. 20-50780 (Bankr. D. Nev. Oct. 7, 2020).

[8] Transcript of Motion to Dismiss Case at 10, In re Pharmagreen Biotech, Inc., No. 20-50780 (Bankr. D. Nev. Sept. 30, 2020) at p. 10.

[9] In re Sandra C. Malul, No. 11-21140 (Bankr. D. Colo. March 24, 2020).

[10] Id. at p. 1.

[11] Id. at p. 19.

[12] Id. at p. 21.

[13] Id. at p. 6.

[14] In most situations in which a cannabis case is dismissed, the courts have based their rulings on violations of sections 841 and 843 of the CSA.

[15] No. 20-12890 (Bankr. D. Nev. Oct. 23, 2020).

[16] Section 1112(b)(1) of the Bankruptcy Code provides that “on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.” 11 U.S.C. § 1112(b)(1). Section 1112(b)(4) contains a non-exhaustive list of factor establishing cause.

[17] Id. at p. 9, n. 18.

ARTICLE BY Mark A. Salzberg of Squire Patton Boggs (US) LLP

For more, visit the NLR Bankruptcy & Restructuring section.

Failure to Fully Disclose Expert Opinions Results in Summary Judgment

Federal Rule of Civil Procedure 26(a)(2) requires retained expert witnesses to provide an expert report which gives “a complete statement of all opinions the witness will express and the basis and reasons for them.” Fed. R. Civ. P. 26(a)(2)(B)(i). If a party fails to disclose information required under Rule 26(a)(2), “the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). As a plaintiff in the Western District of Washington recently learned, failure to adhere to Rule 26 can be fatal to a case.

In Jacobson v. BNSF Railway Co., et al., No. C18-1722JLR, Plaintiff Teresa Jacobson brought suit on behalf of the estate of her deceased husband, a long-time railroad worker who died of renal cancer in 2015. Plaintiff alleged that BNSF was liable under the Federal Employers’ Liability Act (“FELA”) for negligently exposing her husband to known carcinogens in the course of his employment.

FELA claims arising out of exposure to toxic chemicals require expert testimony to establish that a carrier was negligent. Plaintiff in Jacobson disclosed only one expert, but one who was arguably qualified to supply all of the necessary testimony – a certified industrial hygienist who was board-certified in internal medicine, occupational medicine, and public health and general preventative medicine. Interestingly, the expert was also a licensed attorney. Plaintiff proposed to offer the expert’s testimony as to “the nature and extent of [Mr. Jacobson’s] injuries as well as their causation (general/specific)”; “the presence of known toxins on the railroad and the railroad’s knowledge concerning these carcinogens”; and “the railroad’s general failure to provide [Mr. Jacobson] with a safe place in which to work.” However, the expert’s written report said nothing about BNSF’s knowledge of toxic chemicals in decedent’s workplace or whether BNSF’s actions were reasonable in light of that knowledge.

BNSF moved for summary judgment, asserting that Plaintiff could not meet her burden on summary judgment because her expert’s report failed to offer any opinion on the element of breach. Plaintiff responded by arguing that her expert was qualified to offer an opinion on breach, and BNSF conceded that point. Plaintiff also cited the extensive discussion of causation in her expert’s report. However, she was unable to point to any part of the report that suggested BNSF had acted negligently. Therefore, the court barred Plaintiff from offering the expert’s testimony “about whether BNSF negligently breached its duty of care to Mr. Jacobson by failing to provide him a reasonably safe workplace.” Because Plaintiff had no other evidence that would raise a genuine issue of material fact as to the element of breach, the court granted BNSF’s motion for summary judgment.

Ultimately, this case is a cautionary tale about careless disclosure of expert opinions. It is not enough for litigants to understand what elements of their claims and defenses require expert testimony and disclose qualified experts on those points. Rather, the critical opinions must actually appear in the experts’ written reports.

ARTICLE BY Eric M. Friedman of Faegre Drinker

For more, visit the NLR Litigation / Trial Practice section.

Biden Directs Review of Immigration Policies, Seeks to Reduce Unnecessary Barriers

On the same day his nominee for Secretary of the Department of Homeland Security (DHS), Alejandro Mayorkas, was confirmed, President Joe Biden signed several Executive Orders regarding immigration, including one that directs complete review of policies.

The first, “Restoring Faith in Our Legal Immigration Systems and Strengthening Integration and Inclusion Efforts for New Americans,” is of particular interest to the business community. It sets up a task force to conduct a top-to-bottom review of recent changes that have created barriers to legal immigration, including employment based. This will include a review of the public charge rule, fee increases, and streamlining of the naturalization process, among others. Recognizing the difficulties created over the past four years by the many unpublicized rule, policy, and guidance changes, this Executive Order directs a comprehensive agency review of all immigration-related regulations, orders, guidance documents, policies, and other similar agency actions that impede access to fair and efficient adjudications. It likely will include a review of the policies that led to a 21% denial rate and a 47% Request for Evidence (RFE) rate for H-1B petitions in FY 2020.

The second looks to roll back damaging asylum policies and develop an effective strategy to manage asylum cases across the region.

The third creates a task force to reunify families that were separated at the border.

These latest Executive Orders build on changes already made since January 20, 2021, including:

By Proclamation, President Biden eliminated the Muslim and Africa Travel Bans;
By memorandum, he fortified the Deferred Action for Childhood Arrivals (DACA) program;
By Executive Order, the President revoked the prior administration’s “Buy American, Hire American” Executive Order, which provided the basis for changes that led to historically high levels of RFEs and denials of nonimmigrant visa petitions;
Rescinded a rule that would have eliminated the H-4 Employment Authorization Document (EAD) program that gives work authorization to spouses of certain H-1B workers in the Green Card process;
Withdrew the Strengthening the H-1B Visa Classification Program rule that would have enshrined rules the DHS itself predicted would lead to a 30% H-1B denial rate; and
Delayed for review a rule that would dramatically raise prevailing wages for H-1B, H-1B1, E-3, and PERM cases.

These Executive Orders and policy announcements are consistent with the administration’s stated goal of creating an immigration system that is more welcoming to immigrants and to the employers who rely on them. President Biden recognizes that “new Americans fuel our economy, as innovators and job creators, working in every American industry and contributing to our arts, culture, and government.”

ARTICLE BY Michael H. Neifach, Amy L. Peck and Otieno B. Ombok of Jackson Lewis P.C.

For more, visit the National Law Review Immigration section.

They Know What You Did Last Summer: DOJ Announces First Civil Settlement Involving PPP Borrower

The long-anticipated wave of civil enforcement actions involving participants in the Paycheck Protection Program (PPP) has begun.

On 12 January 2021, the U.S. Department of Justice (DOJ) announced the first civil settlement resolving fraud allegations against SlideBelts, Inc. (SlideBelts), a California e-retailer and manufacturer of fashion accessories, and its President and CEO, Brigham Taylor.¹ As we have discussed in prior alerts,² aggressive criminal and civil enforcement activity targeting PPP borrowers was a foregone conclusion given the minimal safeguards initially imposed by the U.S. Small Business Administration (SBA), the speed with which lenders disbursed loan proceeds, and reports indicating that more than US$4 billion in PPP funds are likely attributable to fraud.³ The SlideBelts settlement agreement⁴ (Settlement Agreement) demonstrates that DOJ is following through on its promises to make PPP enforcement against companies and individuals a top priority⁵ and that the government will use all criminal and civil tools available—including the False Claims Act⁶ (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act⁷ (FIRREA)—to pursue potential PPP fraud. We expect SlideBelts to be a harbinger of the type of enforcement actions U.S. Attorney’s Offices and DOJ’s Civil Division will bring and the positions they will take in coming months.

THE SLIDEBELTS SETTLEMENT

SlideBelts and Taylor agreed to pay US$100,000 in monetary penalties and return the US$350,000 PPP loan the company received to resolve allegations that they made false statements to federally insured banks in violation of the FCA and FIRREA. According to the Settlement Agreement, on 3 April 2020, SlideBelts submitted the first of three PPP loan applications to three different lenders, each containing the false representation that the company was not presently involved in a bankruptcy proceeding. Five days later, on 8 April, SlideBelts submitted a second PPP application to a different lender, again misrepresenting its bankruptcy status.

On 10 April, the first lender, which was also a creditor in the company’s ongoing Chapter 11 case, informed Taylor that SlideBelts had incorrectly answered the bankruptcy question on its PPP application. Taylor responded that the answer was an “[o]versight” but also told the lender that he thought the bankruptcy question was “an overreach” by SBA. On 14 April, Taylor contacted the lender again to indicate that he believed the question was inappropriate and requested approval of the application. When the lender refused and reiterated that the company was ineligible for a PPP loan due to its bankruptcy status, Taylor replied “that does make sense. All good!” Three hours later, he submitted a third loan application to a different lender, again falsely representing the company’s bankruptcy status.

Ultimately, the second lender approved the company’s PPP application and Taylor signed the US$350,000 note. DOJ alleges that based on his prior communications with the lender on the first application, Taylor knew that the lender considered the company’s bankruptcy status to be material to its decision to execute a note and that Taylor knew the company would automatically default on the PPP loan because the loan agreement provided for default in the event of the borrower’s bankruptcy.

On 22 April—the day after SlideBelts received the loan proceeds—Taylor informed the lender that the company may have inadvertently provided an incorrect answer to the PPP application’s bankruptcy question. But instead of returning the loan proceeds, on 30 April, SlideBelts asked the bankruptcy court to retroactively approve the PPP loan while again failing to disclose the company’s misrepresentation. On 16 June, SBA and the lender opposed the company’s motion. In response, SlideBelts petitioned the bankruptcy court to dismiss its case so that the company could “apply for [PPP] funds while the case is dismissed.”⁸ During a hearing on the company’s motion, which the bankruptcy court granted, SBA reiterated its position that SlideBelts was obligated to immediately return the loan. Eventually, on 8 July—more than two and a half months after receiving its PPP loan—SlideBelts returned the US$350,000 in loan proceeds to the lender.

DOL Ends PAID Program: Creating a Catch-22 for Employers; Cross Your Fingers or Come Clean?

Following the anticipated agenda of the new Biden administration, on January 29, 2021, the Department of Labor immediately ended the Payroll Audit Independent Determination program (the “PAID Program”) first launched in 2018 by the Department’s Wage and Hour Division. Ending the PAID Program signals that, under the new administration, the Wage and Hour Division will be increasingly focused on payroll policies and practices and will seek to penalize employers without first providing an opportunity to self-report and remedy mistakes.

Employers who fail to comply with the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA) expose themselves to liability for payment of any back wages owed, which are then doubled as liquidated damages, plus certain costs and fees, including attorney fees an employee incurs in pursuing an action against the employer. The PAID Program provided employers potential relief from the significant penalties resulting from a minimum wage or overtime violation, which often happens without any intent or malice on the employer’s part. Under the program, employers could audit their minimum wage and overtime payroll practices, and if such an audit uncovered any FLSA violations, the employer could self-report the same and work with the Department of Labor to ensure all back wage payments were made. Upon doing so, the employer would obtain a release of any FLSA claims relating to the error and avoid potential liability for liquidated damages, other civil penalties, and employees’ attorney fees.

With the PAID Program cancelled, employers who discover minimum wage and overtime violations are left with difficult choices as to remedying such violations. This cancellation, in fact, creates a catch-22 situation for employers—does the employer cross its fingers and hope the violation is never uncovered, or does it come clean and pay its employees back wages, only to signal the violation and open the door for a lawsuit and the associated liquidated damages, penalties and employee attorney fees? While individual circumstances would dictate how the employer should react, of course, losing the opportunity to remedy the situation, make the employees whole, and avoid multiplied liability is an unfortunate development for employers.

As the cancellation of the PAID Program is a likely harbinger of the Biden administration’s treatment of wage and hour issues, now is a good time to review your payroll policies to ensure compliance with the FLSA. This is particularly important for employers who offer pay differentials or other bonus-type payment programs, including those who provide such payments as a reward to their employees for in-person work during the COVID-19 pandemic.

ARTICLE BY Anthony J. Steffek of Davis|Kuelthau, s.c.

For more, visit the NLR Labor & Employment section

Rupture Rapture: Should the GameStop?

GameStop, a company described on January 26, 2021, in the Wall Street Journal as a “moribund mall retailer” that sold electronic games, but not very many with the closing of malls as a result of the growth of e-commerce, and even fewer after the shutdowns of non-essential shopping stores due to COVID, has seen its stock (listed on the New York Stock Exchange) share price rise in the last year from a low of $2.57 to $483.00. Almost all of that gain has occurred since Friday, January 22, 2021. What business development caused this? The simple answer to that question is NONE.

Rupture Rapture

Value and pricing have always been a part of capital markets. According to Aristotle in “The Politics” (Book I, Section 1259a) Thales of Miletus (c. 624 – c.548 BC) the pre-Socratic Greek mathematician, astronomer, and philosopher from Miletus in Ionia (now the Southwestern part of Turkey) had been taunted about the uselessness of philosophy, as he was quite poor. But Thales recognized from his astronomical studies in that 6^th century BCE year, that although it was still winter, there would be a “bumper” crop of olives. He raised a small sum of money and made deposits on all the olive presses in Miletus and the surrounding area. When the crop came in he controlled the presses and let them out (in the face of great demand) at prices he set, thereby making a substantial profit. Thales had “cornered” the market for olive presses; he set the pricing and he acted to prove that philosophers could be wealthy. So, his motives were both to accumulate wealth and status.

These two human needs: the desire for wealth and the desire for recognition have been the principal motivations across human history for certain market events. In the Golden Age in the Netherlands in the 17^th century, the ownership of beautiful tulips was the indicator of status, as by 1637 the price for some bulbs reached ten times the average annual income. This phenomenon was the basis for the Scottish journalist, Charles MacKay’s famed book (seen as the first socio/psychological study of market behavior) “Extraordinary Popular Delusions and the Madness of Crowds.” In 1711, a joint-stock company was organized in London to deal with British national debt and, after a 1713 grant of monopoly power, to supply slaves to the Caribbean islands where sugar cane was grown. That company (formally known as The Governor and Company of the merchants of Great Britain trading to the South Seas and other parts of America, and for the encouragement of the Fishery; and informally as The South Sea Company) began to deal in government debt arising from the War of Spanish Succession. Almost all the war expense was privately financed and, indeed, even the Bank of England was a private company. Seed capital was raised with a lottery and by 1719, shares were offered to the public. Gripped with speculative frenzy the share price rose from L 128 in January 1720 to a peak of almost L 1000 by summer, as everyone who was anyone fought to buy shares for fear of missing out on the expected great wealth. In the subsequent collapse, millions of pounds were lost, including as much as L 22,000 by Sir Isaac Newton who famously wrote: “I can calculate the movement of the stars, but not the madness of men.” The collapse of the South Sea Bubble led to the passage in 1720 of the Bubble Act which prohibited the formation of a joint-stock company without a royal charter.

In the United States, one of its first financial crises (after the success of Alexander Hamilton in nationalizing the debt after the victory against Great Britain and Washington’s resolution of the 1791-1794 Whiskey Rebellion) was the Panic of 1837, when speculative lending for land purchases in what is now the Midwest coincided with a sharp drop in cotton prices, and the real estate bubble burst. The real estate speculators had been seeking wealth and prestige that were presumed to flow with land ownership. This probably was the cause of Martin Van Buren, being a one-term president, as he was seen as slow to attempt to stabilize the market. After the recovery from 1837 and the chaos and death of the Civil War 1861-1865, America embarked on a Gilded Age in the 1870s and 1880s, the time of great industrial growth, especially in railroads (the Golden Spike was driven in Provo, Utah in 1869 to create transcontinental rail connections), and the rise of the so-called Robber Barons. Then, in 1890, the wheat crop in Argentina (whose international financial agent was the British firm, Baring Brothers) failed along with a political coup in Buenos Aires caused European investors (brought in by Baring Brothers) facing losses to trade in their investments in American stocks and holdings of dollars for physical gold. The resulting Panic of 1893 saw the collapse of over 500 banks and the bankruptcies of the Union Pacific, the Northern Pacific, and the Atchison, Topeka & Santa Fe Railroads. Unemployment reached 25% in Pennsylvania, 35% in New York, and 45% in Michigan. All this followed from what turned out to be a less than wise series of investment decisions by persons seeking wealth and with its position.

Once again in 1906, some very wealthy New Yorkers sought to increase their wealth by cornering the market on the stock of United Copper Company. Their effort was financed by loans from a number of New York City banks, led by borrowings from Knickerbocker Trust Company, New York’s third-largest bank. Also in 1906, Congress passed the Hepburn Act which created the Interstate Commerce Commission (“ICC”) to regulate railroad operations, including pricing. As the ICC assumed its activities, the prices of railroad company stocks fell. When the effort to corner the stock in United Copper failed in October 1907 the prices of shares traded on the NYSE plummeted 50% over three weeks from their 1906 highs. This was the so-called Knickerbocker Crisis (also known as the Panic of 1907), which caused the financial system to freeze until J.P. Morgan single-handedly organized the New York banks to save the American financial system. His success and the concern that there might not always be someone of his stature and wealth to “save the day” led to the passage in 1913 of the Federal Reserve Act and the creation of the Board of Governors of the Federal Reserve System (the “Fed”). Once again speculating investors had been seeking increased wealth and market power, and the prestige that comes with them.

After World War I, the United States breathed a collective sigh of relief as the country enjoyed an explosion of pent-up demand that led to the wealthy excesses of the “Roaring Twenties” so well captured in the works of F. Scott Fitzgerald. The Dow Jones Industrial Average increased six-fold from August 1921 until September 1929, and the Fed’s warning in March 1929 of excessive speculation went largely unheeded. It was said that even shoeshine boys and cab drivers were buying stock expecting (and hoping) to get rich. Some of this was also driven by a fear of losing out on great opportunities. As the famed international economist, Charles Kindleberger, has observed “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich. Unless it is to see a non-friend get rich.” The excessive speculation ended in the Crash in October 1929 and the onset of the Depression. This, in turn, led to the New Deal and the enactment, among many other pieces of Federal legislation, of the Glass-Steagall Act of 1933 (separating commercial banks from investment banks), the Securities Act of 1933, and the Securities and Exchange Act of 1934 (which created the Securities and Exchange Commission (“SEC”)).

After the United States recovered from the Depression, with the assistance of the economic necessity brought on by World War II, the economy once again began to hum as the Eisenhower administration promised “Peace, Progress, and Prosperity.” Despite the continuing Cold War America was thriving, and with that came waves of technological innovation, so that in the 1960s almost any company which ended in “tronics” as in “electronics” was seen as a winner. Once again investors drove up the prices of the so-called “Nifty Fifty;” companies whose stock would always gain at market price. Frequently, investors were disappointed. Then by 1994, some very bright men, including two Nobel Laureates, started Long-Term Capital Management (“LTCM”), which used computer algorithms to create portfolios using stocks and options. After achieving stunning returns for three years in 1998, LTCM lost $4.6 billion in four months as a result of the Russian financial crisis which had not been factored into their computations. The stock market fell precipitously and the American (and indeed, the world), the financial system almost came “unglued.” The Fed organized a rescue by raising $3.6 billion from 14 of the largest banks in the world. LTCM was liquidated in 2000, just in time to observe the famed “Dot.Com Bubble” burst in March 2000, after stocks traded on NASDAQ rose 400% from 1995 prices. Once again, investors chasing wealth and prestige, fearful of losing out on the “hot new thing” of Internet companies “rushed in where angels feared to tred.”

In a financial collapse, redux brought on by the “irrational exuberance” about homeownership and home speculation the worldwide Great Recession of 2007-2008 so graphically captured in the book and movie “The Big Short” brought bankruptcy and ruin to many who had sought wealth and prestige. People who could not afford the debt payments were allowed to borrow money to buy houses, the lending banks were not terribly concerned because Wall Street investment bankers had invented a way to package and resell mortgage loans in engineered pieces to institutions and to individual investors. Because they were pieces of mortgage loans they were seen as very secure and were in fact rated that way by the major rating agencies, When the bubble burst with the collapse of investment banks Bear, Stearns, and Lehman Brothers, the near bankruptcy of American International Group, the failure of Washington Mutual Saving Bank and Wachovia, the receiverships for Fannie Mae and Freddie Mac, and the regulatory enforced takeover of Merrill Lynch, unemployment soared and the United States Government, including the Fed, had to pump billions into the economy to stabilize it. The Great Recession also resulted in the passage of the Dodd-Frank Act, which added material constraints on many aspects of the financial system. Once again persons striving for the wealth associated with homeownership and the accompanying sense of belonging, along with bankers and service people eager to obtain outsized returns drove behavior, which in hindsight, turned out to be an extraordinary chain of bad decisions.

Even in the well-recognized market frauds using so-called “Pump and Dump” schemes, the motives are to obtain wealth. The fraud promoter selects a stock and issues all kinds of positive (not factually based) news and opinions aimed at getting investors to push up the price of the stock for fear of losing out on a “good thing.” Then, when the price is high enough the promoter “dumps” the shares on the enticed, eager, and unsuspecting, public. This type of fraud typically has involved “boiler rooms” and was graphically captured in the 2000 film of the same name. One of the most “famous” of these “boiler room” firms was Stratton Oakmont, whose co-founder, Jordan Belfort, turned his resulting criminal conviction into the basis for the Academy Award-nominated film, “The Wolf of Wall Street.” Here again, the outsized desire for riches and prestige led to very bad results.

Should the GameStop?

So what did/do the investors in GameStop (and a few other stocks) see that lures them into driving its price and the prices of some other companies unbelievably high? Since the March 2020 onset of the COVID pandemic actions by the Fed and Congressional legislation have pumped extraordinary amounts of money into the economy, much of it into the hands of individuals. As a result of the pandemic, much of the nation’s economy has been in a shut-down mode for ten months. The amount of sporting events has been greatly reduced and only a few fans in a few venues are allowed to attend in person. Travel other than by personal auto or private jet is quite a challenge, and there are NO cruises. On the other hand, casinos and on-line gaming have seen rapidly growing use as people try to overcome the boredom and sense of confinement brought on by the various shutdown orders. At the same time a Romanian immigrant, Vlad Tenev, and his co-founder started Robinhood Capital Management, a stock brokerage that reportedly allows one to buy and sell securities, including options without fees. Trading is done electronically and is apparently strongly embraced by younger investors. Indeed, one market commentator (Jim Cramer of CNBC’s “Mad Money”) has dubbed the many new retail investors using Robinhood and other inexpensive trading platforms the “Merry Men.” This all is occurring in a time of tremendous growth and use of social media, including the ability to “organize” so-called “flash mobs” and even the January 6, 2021, attack on the U.S. Capitol. MacKay’s observations about “the Madness of Crowds” may be particularly relevant to any attempt to understand these phenomena.

We know from statements on Twitter and text messages received by commentators on CNBC’s “Squawk Box” as well as those quoted in the Wall Street Journal that many if not most of the “investors” driving up the price of GameStop and the other companies involved are not interested in making money. They have been “organized” into the equivalent of a “flash mob” by statements on the Wall Street Bets sub-platform on the media platform sponsored by Reddit, a recently formed social media company. What drives them is learning that hedge funds that specialize in taking short positions in stock have sold billions of dollars worth of stock in these companies, where the hedge funds (often owned and controlled by billionaires) do not own the stock. Short selling is a gamble that the price of a stock will decline, and when the stock is not owned (a so-called “naked short”) the funds can lose billions if the price instead rises. Short selling does serve as an effective check on pricing exuberance. Apparently quite a number of the so-called “Reddit Mob” members had lost money when investments they made (e.g., reputedly in Nikola Corp., Wirecard AG, and Valeant Pharmaceuticals International, Inc., to name a few) when the stock of those chosen investments declined in value after short-sellers took their positions and published investment reports explaining why they thought the stock was overpriced. The “Reddit Mob” with the time, boredom, money, and participatory technological skills had collective anger and a sense of having been taken advantage of by billionaires who looked down on Mob members. They “organized” a series of what is known as a “Short Squeeze” to break or bankrupt the short-sellers. According to David Kostin of Goldman, Sachs & Company, Inc., in a February 1, 2021, report this is the biggest “Short Squeeze” in 25 years. And they have succeeded: one fund, Melvin Capital, reportedly sold out of its GameStop short position, taking a loss of 53% of its asset value (over $3 billion). Melvin Capital only survived after a capital infusion from two other funds, Citadel Capital Management, which lost 3% of its value, and Point 72, which lost 10% of its asset value. Citadel happens also to be an investor in Robinhood. Another short seller, Andrew Left’s Citron Research, announced that after 20 years of short investing and publishing opinions on shortable companies will do so no longer due to the threats of physical violence to him and to his family members, which the FBI is reportedly now investigating.

When Robinhood suspended the ability to trade stocks in 13 companies including GameStop on Thursday, January 28, 2021, its clients went wild, multiple class-action suits have reportedly been filed, and at least one person, David Portnoy of the online gambling company Bar Stools, accused Robinhood of “kowtowing” to the demands of a hedge fund (namely Citadel). In fact, it appears that Robinhood had a potential liquidity problem. Broker-dealers (“BDs”) like Robinhood, do not close the trades they handle. That is done by clearing firms, the most significant of which is the Depository Trust Company (“DTC”). DTC and other clearing firms require BDs to post cash collateral (cash or Treasuries, etc.) against the risk that transactions do not close. The amount required to be posted depends on several factors, including the price of a stock; the volume of trades in that stock; and the rate of price increase or decrease in the short run. DTC required Robinhood to put up substantial additional cash collateral in order to continue trading GameStop and other affected securities. Other BDs faced similar requirements. In the case of Robinhood, it reportedly raised $1 billion overnight and reopened trading in those stocks on Thursday the 2r, although with some limitations on permitted volume. However, the anger and outrage are more than evident, including caustic criticism from Rush Limbaugh (quoted in the New York Post), and Senators Elizabeth Warren and Ted Cruz. As of Monday, February 1, 2021, Robinhood has reduced the number of stocks still subject to trading limits to eight.

Some market participants and Alexis Ohanian, co-founder of Reddit, have asserted that this is all a result of “democratizing” the capital markets and net positive for the future. A report in the weekend edition of Wall Street Journal, for Saturday and Sunday, January 30-31, 2021, identified a 34-year-old former Massachusetts Mutual Life Insurance Co., marketing employee as the on-line “influencer” who triggered the interest in GameStop. He reportedly began buying GameStop shares at about $5 each in July 2019, seeing a chance that it might gain in profits through better use of e-commerce. But as he talked up his ideas on internet chat rooms, including Wall Street Bets, other “investors” joined in. This in turn provoked short-selling hedge funds to enter the fray. The hedge funds were gambling that GameStop had little “real” value above $5.00 per share so that they would profit when the market price returned to its July 2019 level. This enraged the “Reddit Mob” and through constant use of social media, they formed an investment bloc, albeit without objective structure.

American capital markets have since the beginning of economic studies relied on the self-control imposed on individuals by their own self-interest. That was and is the notion behind the idea of “The Invisible Hand” in Adam Smith’s “The Wealth of Nations.” Almost all of the regulations applicable to the capital markets rely on creating costs (both economic and reputational) for violations that generally deter misbehavior. Indeed, that fundamental precept is reflected in the cost/benefit analysis required as part of any new regulatory proposal. But the “Reddit Mob” is apparently NOT price-sensitive; i.e., they say that they do not care if they lose every dollar they spend, as long as the short sellers are routed. As Christopher Mims wrote in the weekend edition of the Wall Street Journal of Saturday/Sunday, January 30-31, 2021 (page B 4) “The Wall Street Bets members …are [an example of] what philosophers call “closed epistemic systems,” worldviews that are unaffected by the information that contradicts them. Its confirmation bias on steroids. It’s also the logic of a cult.” Those characteristics present an urgent need to reevaluate the traditional regulatory approach. There are some things that can readily be done, probably without legislation;

Greater transparency of short position sizes and holders, more immediately available (as is already the case in European markets)
Limitations on how much of a company’s stock can be shorted, even in a “naked short” to a maximum of the total or some percentage of the total number of shares outstanding (in some cases short-sellers have shorted more shares than exist)
Limitations and/or prohibitions on the use of options to increase the impact on pricing
Limit or end the ability to buy selected stocks on margin
Greater authority of regulators and/or exchanges to suspend the trading ability of specific shareholders, in addition to the authority to suspend trading in specific securities

Beyond these, new constraints need to be designed and implemented to constrain “Reddit Mob” attacks anywhere in the market. Under the 1968 Williams Act amendments to the Securities and Exchange Act of 1934, as amended, a person OR GROUP acting in concert who acquires 5% or more of the stock of a public company, must file disclosure documents with the SEC including an indication of intentions. In antitrust law, the concept of “conscious parallelism” is well-recognized as a basis for finding a “conspiracy in restraint of trade.” One wonders whether the SEC might espouse a similar view with respect to the “Reddit Mob,” such that their parallel (yet collective) actions might allow regulatory sanctions for actions that would be seen as suspect if done by a single individual. The SEC did issue a statement on Friday, January 29, 2021, which said (in part):

The Commission is closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days. …[E}xtreme price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.

Nietzsche warned, beware the attack of the sheep, (here organized on social media and seeking the rapture of revenge). Let us hope that the SEC will yet be the Good Shepherd.

ARTICLE BY Peter D. Hutcheon of Norris McLaughlin P.A.

For more, visit the NLR Securities & SEC section.

Biden Administration Issues “Regulatory Freeze” Memo

On January 20, 2021, the administration of President Joseph R. Biden, Jr. issued a “regulatory freeze” memorandum for the heads of executive departments and agencies to ensure that President Biden’s appointees or designees have an opportunity to review any new or pending rules (the Memo). Pursuant to the memo, rules that have been sent to the Office of the Federal Register but that have not yet been published must not be published until a department or agency head appointed or designated by the new administration reviews and approves the rule. In addition, the memo directs department and agency heads to consider postponing rules that have been published in the Federal Register but that have not yet taken effect to seek additional public comment on issues of fact, law and policy raised by the rules and thereafter to take appropriate action.

Although the SEC is not an executive department or agency but rather an independent regulatory agency of the U.S. federal government, there is, some ambiguity about whether the memo applies to SEC rules. In addition the SEC may choose to will voluntarily follow the memo’s directives and recommendations.

The regulatory freeze memo is available here.

ARTICLE BY John S. Marten, Nathaniel Segal and Jacob C. Tiedt of Vedder Price

For more, visit the NLR Election Law / Legislative News section.

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