Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

By Timothy McTaggart and Zane Gilmer

On July 28, 2016, the Consumer Financial Protection Bureau (CFPB) released an outline of proposals and alternatives under consideration for regulating debt collection practices. The outline’s release triggers the formation of a panel pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), from which the CFPB will seek and receive input related to its proposals.

The outline and proposals are extensive and would represent a comprehensive reframing of debt collection practices under the Fair Debt Collections Practice Act of 1977 (FDCPA). Stinson Leonard Street’s August 10, 2016 article provides a general overview of many of the key proposals as well as a few issues that would be generated by these proposals, should they be adopted and finalized as rules.

Of particular concern to industry and consumer groups is the lack of clarity as to whether the CFPB intends to try to harmonize its new requirements with existing federal laws, especially the Telephone Consumer Protection Act. An additional concern is a lack of clarity concerning whether the CFPB intends to expressly preempt state law—or have its proposal have the effect of preempting state law—in areas such as restrictions on time-barred debt sales and other changes related to time-barred debt. This would prevent state law contractual remedies from being used, as well as involve CFPB action to treat time-barred debt as “extinguished” debt, even though state law ordinarily does not extinguish debt in such circumstances.

For a complete analysis of this topic, view our full article: “CFPB Presents New Regulatory Requirements for Third-Party Debt Collectors.”

By Zane Gilmer and Liz Kramer

On May 5, 2016, the Consumer Financial Protection Bureau (CFPB) announced a long awaited and highly controversial proposed rule that, if adopted, would prohibit certain financial services companies from banning consumer class actions as part of mandatory pre-dispute arbitration agreements and require companies to report certain arbitration data to the CFPB. If the proposed rule is finalized, it will have a significant impact on the financial industry. Below are the top five things financial institutions need to do to prepare for the rule.

SUBMIT COMMENTS ON THE PROPOSED RULE

As an initial response to the CFPB’s actions, financial institutions must take steps to understand the full scope and ramifications of the proposed rule and those institutions that will be subject the rule should consider submitting comments to the CFPB, either directly or through industry groups, such as bankers associations. Because the rule is so broad and relates to so many types of products and services and providers, there are many opportunities to provide comments to attempt to limit the scope of the final rule. Affected institutions should consult with counsel, such as our team at Stinson Leonard Street LLP, to develop and submit appropriate comments by the deadline of August 22, 2016.

REVIEW AFFECTED CONSUMER AGREEMENTS

Financial institutions must review their consumer finance contracts to get a better understanding of which agreements may be affected. The proposed rule only applies to specific types of products and services. For example, the proposed rule is designed to target financial products and services in the “core consumer financial markets” of lending money, storing money, and moving or exchanging money. Thus, it is possible that certain agreements related to one type of product or service would be subject to the proposed rule, but other agreements related to different products and services would not be subject to the rule. To ensure that appropriate steps are taken related only to affected agreements, financial institutions should work with experienced counsel to identify those agreements.

KEEP OR TOSS CLASS ACTION WAIVER?

The next step is for financial institutions to take a hard look at whether they want to keep that class action waiver and/or arbitration clause in the standard consumer agreements they will use a year from now. The proposed rule essentially precludes enforcement of class action waivers in arbitration agreements. That leaves companies facing at least these key questions: A) Are the other benefits of arbitration worth keeping the arbitration clause, even without the class action waiver? It may be that the confidentiality of arbitration, plus its informality and potential efficiency still make that a preferable forum to court. (Note that if the agreement continues calling for arbitration, the company will have to report on its arbitrations to the CFPB.) But, if avoiding class actions was the primary reason the company adopted an arbitration clause, it may just be time to chuck it. B) Is it possible to seek similar benefits outside the arbitration clause? Maybe under the governing state law the agreement can waive jury trials, or even waive class actions, outside the context of an arbitration clause. C) Wait and see? If a company wants to wait and see if this new CFPB regulation survives the inevitable court challenge and/or the next Administration, there is always the option of leaving the class action waiver intact, but adding some backup language elsewhere in the agreement about waiving juries (or otherwise making the court process more palatable).

ADD NEW CLASS ACTION WAIVERS?

The proposed rule does not affect any agreements currently in existence, or even those entered into for the first 211 days after the rule is published. Therefore, companies who have not previously used class action waivers, but whose existing agreements allow them to make modifications or who will contract with a significant number of consumers in the next year, may want to consider whether now is the time to require individual arbitration in their standard agreements.

WAIT AND WATCH

Because the proposed rule is still in the comment period there is a chance that the final rule will vary slightly from the proposal. Thus, it is important to continue watching for updates on any proposed changes and what the final rule actually says. In addition, because the proposed rule is extremely controversial, if the final rule substantially limits the use of class action waivers in arbitration agreements—as the current proposal seeks to do—there will likely be litigation challenging the rule as well as the rulemaking process, which could ultimately affect the scope and enforceability of the rule. Stay tuned.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

Zane Gilmer is a member of the firm’s Financial Services & Class Action Litigation practice groups. His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce.  Mr. Gilmer works from the firm’s Denver office and he can be reached at zane.gilmer@stinson.com or 303.376.8416.

Liz Kramer is a member of the firm’s Business Litigation practice group. Ms. Kramer works from the firm’s Minneapolis office and she can be reached at liz.kramer@stinson.com or 612.335.1927.

The Consumer Financial Protection Bureau (CFPB) had another busy week.  Here is an overview of what the CFPB was up to recently:

Enforcement Actions and Litigation

Enforcement Action Against Santander Bank

On July 14, 2016, the CFPB announced an administrative consent order against Santander Bank, N.A., to resolve alleged illegal overdraft service practices.

In 2010, new federal rules took effect that prohibited banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless the consumers affirmatively opted in for that service.  If consumers did not opt in then the banks and credit unions could decline the transaction due to insufficient funds, but the consumers in those situations would not be charged an overdraft fee.

The CFPB alleged that from 2010 to 2014, Santander marketed and enrolled consumers in its “Account Protector” overdraft service for ATM and one-time debit transactions, and charged those consumers $35 per overdraft, without the consumers’ consent.  Specifically, the CFPB found that Santander’s illegal and improper practices included:

  • Signing consumers up for overdraft service without their consent;
  • Deceiving consumers into believing that the overdraft service was free;
  • Deceiving consumers about the fees they would face if they did not opt in;
  • Falsely claiming the call was not a sales pitch; and
  • Failing to stop its telemarketer’s deceptive tactics.

Pursuant to the consent order, Santander must:

  • Contact all consumers associated with Santander’s telemarketing program and verify that each consumer wants to “opt-in”;
  • Not use a vendor to conduct outbound telemarketing of overdraft services to consumers;
  • Increase oversight of all third-party telemarketers, including developing and implementing new or revised policies governing those relationships; and
  • Pay a $10 million penalty to the CFPB’s Civil Penalty Fund.

Settlement with World Law Group

On July 19, 2016, the CFPB and three individuals related to World Law Group reached a stipulated $107 million settlement, concerning allegations that the defendants charged consumers advanced fees for debt relief services.  The $107 million settlement is with three individuals, which payment will be suspended if those individuals turn over frozen assets in their personal bank accounts, commercial property, and approximately a dozen vehicles.  The agreement also prohibits the defendants from telemarketing or assisting others in telemarketing any consumer financial product or service, and they cannot sell, advertise, or own debt relief products.

The case is CFPB v. Orion Processing LLC, et al., No. 1:15-cv-23070, in the U.S. District Court in the Southern District of Florida.

Summary Judgment Win Against Mortgage Legal Group LLP

On July 20, 2016, a Wisconsin federal judge partially granted the CFPB’s motion for summary judgment against Mortgage Legal Group LLP.  The CFPB alleged that Mortgage Legal Group LLP scammed struggling homeowners in connection with foreclosure proceedings, including misrepresenting their services and collecting advance fees for their services.  The judge’s ruling found that the retainer fee charged by Mortgage Legal Group LLP amounted to advance fees and the amount of restitution and disgorgement the entity should face should be decided by net revenues the entity received, which amounted to approximately $18.3 million.  The parties have until August 2, 2016, to propose to the court possible trial dates for the remaining legal issues.

Amicus Brief in Spokeo Case

On July 13, 2016, the CFPB filed an amicus brief in Robins v. Spokeo, Inc., which is pending in the U.S. Court of Appeals for the Ninth Circuit.  The issue in the case is essentially one of standing to bring a claim in federal court and whether a litigant has shown that they suffered “real” and “concrete” harm as a result of the defendant’s alleged actions.  Specifically, the issue relates to the plaintiff’s claim that the defendant’s website operator willfully violated the Fair Credit Reporting Act (“FCRA”) by publishing inaccurate personal information about plaintiff at a time when he was seeking employment.  The Ninth Circuit originally held that it was constitutional for Congress to treat FCRA violations as “concrete, de facto injuries” that satisfy, without more, the injury in fact requirement for Article III standing.  In May, the U.S. Supreme Court issued an opinion holding that the Ninth Circuit’s analysis was incomplete, because although the Ninth Circuit had addressed the particularization of plaintiff’s alleged injuries to establish injury in fact, it failed to address the concreteness of the alleged injury.  Thus, the U.S. Supreme Court vacated the Ninth Circuit’s judgment and remanded the case for the Ninth Circuit to consider whether “the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement” for Article III standing.

The CFPB’s amicus brief in support of the plaintiff, which addresses the issue remanded by the U.S. Supreme Court.  In general, the CFPB’s brief argues that Congress’s decision to grant consumers a right of action for the dissemination of a false consumer report if it resulted from a consumer reporting agency’s willful failure to following reasonable procedures demonstrates Congress’s belief that such dissemination of inaccurate information presents an unacceptable risk of harm to consumers.  As such, the CFPB’s brief urges the Ninth Circuit to find that the plaintiff has met the requirements for Article III standing.

Announcements

On July 20, 2016, CFPB Director Richard Cordray participated in a press call related to student loan servicing (transcript here).  Cordray’s discussion centered on efforts the CFPB is taking and plans to take related to regulating the student loan servicing industry.  The CFPB has made clear in the past that student loan servicing is a top priority for the bureau.  Among other things, Cordray emphasized that student loan borrowers should be able to expect high-quality service and clear, consistent, and personalized information about repayment plans.  Further, Cordray mentioned The Joint Statement of Principles on Student Loan Servicing that the bureau released to help provide the framework for servicing reform.  According to Cordray, “[w]hen implemented, these servicing standards will bring us closer to more consistency, transparency, actionability, and accountability in this important marketplace.”  The takeaway from this discussion is that the CFPB continues to look at ways to regulate the student loan servicing industry and it will likely continue to take steps to do just that in the near term.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

Zane Gilmer is a member of the firm’s litigation practice group.  His practice focuses on business litigation and compliance and he is a member of the firm’s CFPB taskforce.  Zane works out of the firm’s Denver office and he can be reached at zane.gilmer@stinson.com or 303.376.8416.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

In connection with the SEC meeting of the Advisory Committee on Small and Emerging Companies, the SEC posted a presentation which deals in part on secondary trading of Regulation A+ securities. Among other things, it includes slides showing secondary trading activity in two Regulation A offerings – Elio Motors and Coastal Banking Company.  The Elio chart shows some volatility.  The offering was made at $12.00 per share, trading opened at $14.00 per share, there was a high of over $55 per share, and recent trades at around $20 per share.

In other news of note, Chair White advised that there had been over 60 Regulation Crowdfunding offerings with a total of $4.4 million in funds committed by investors. She also noted twelve funding portals have registered with the Commission and become members of FINRA.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has issued a new Compliance and Disclosure Interpretation (8-K 103.11) that clarifies the interaction between the investment intent exemption in the HSR rules and the ability to file a Schedule 13G.

The CDI poses the following question:

The Hart-Scott-Rodino (“HSR”) Act provides an exemption from the HSR Act’s notification and waiting period provisions if, among other things, the acquisition of securities was made “solely for the purpose of investment,” with the acquiror having “no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.” 15 U.S.C. 18a(c)(9); 16 C.F.R. 801.1(i)(1). Does the fact that a shareholder is disqualified from relying on this HSR Act exemption due to its efforts to influence management of the issuer on a particular topic, by itself, disqualify the shareholder from initially reporting, or continuing to report, beneficial ownership on Schedule 13G?

The SEC answers the question as follows:

No. The inability to rely on the HSR Act exemption alone would not preclude a shareholder from filing on Schedule 13G. Instead, eligibility to use Schedule 13G under Exchange Act Rule 13d-1(b) or 13d-1(c) will depend, among other things, on whether the shareholder acquired or is holding equity securities with the purpose or effect of changing or influencing control of the issuer. This determination is based upon all the relevant facts and circumstances.

The subject matter of the shareholder’s discussions with the issuer’s management may be dispositive in making this determination, although the context in which the discussions occur is also highly relevant. For example:

  • Generally, engagement with an issuer’s management on executive compensation and social or public interest issues (such as environmental policies), without more, would not preclude a shareholder from filing on Schedule 13G so long as such engagement is not undertaken with the purpose or effect of changing or influencing control of the issuer and the shareholder is otherwise eligible to file on Schedule 13G. See Release No. 34-39538 (Jan. 12, 1998)(stating that a shareholder’s proposal or soliciting activity relating to such topics generally would not cause a loss of Schedule 13G eligibility).
  • Engagement on corporate governance topics, such as removal of staggered boards, majority voting standards in director elections, and elimination of poison pill plans, without more, generally would not disqualify an otherwise eligible shareholder from filing on Schedule 13G if the discussion is being undertaken by the shareholder as part of a broad effort to promote its view of good corporate governance practices for all of its portfolio companies, rather than to facilitate a specific change in control in a particular company.
  • By contrast, Schedule 13G would be unavailable if a shareholder engages with the issuer’s management on matters that specifically call for the sale of the issuer to another company, the sale of a significant amount of the issuer’s assets, the restructuring of the issuer, or a contested election of directors.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The SEC has approved a final rule amending its rules of practice for administrative proceedings. The changes make incremental improvements but fall short of what is necessary to make the proceedings more fair.  Among other things, the final rules would adjust the timing of administrative proceedings and give parties additional opportunities to take depositions of witnesses:

  • Initial decision of hearing officer and timing of hearing (Rule 360): Under amended Rule 360, orders instituting proceedings would designate the time period for preparation of the initial decision as 30, 75 or 120 days from the completion of post-hearing or dispositive motion briefing or a finding of a default. Amended Rule 360 also would extend the length of the prehearing period from the current four months to a maximum of 10 months for cases designated as 120-day proceedings, a maximum of six months for 75-day cases, and a maximum of four months for 30-day cases.
  • Depositions upon oral examination (Rule 233): Amended Rule 233 would permit parties in 120-day proceedings the right to notice three depositions per side in single-respondent cases and five depositions per side in multi-respondent cases, and would permit each side to request an additional two depositions under an expedited procedure.
  • Answer to allegations (Rule 220): Amended Rule 220 would require a respondent to disclose in its answer to an order instituting proceedings whether the respondent is asserting any “reliance” defense and whether the respondent relied on the advice of counsel, accountants, auditors, or other professionals in connection with any claim, violation alleged, or remedy sought.
  • Dispositive motions (Rule 250): Amended Rule 250 would provide that three types of dispositive motions may be filed at different stages of an administrative proceeding and would set forth the standards and procedures governing each type of motion.
  • Evidence (Rule 320): Amended Rule 320 would exclude evidence that is irrelevant, immaterial, unduly repetitious, or unreliable and would provide that hearsay may be admitted if it is relevant, material, and reliable.
  • Other: The amendments also would address, among other things, procedures for the service of the order instituting proceedings in foreign jurisdictions, disclosures regarding expert witnesses and reports prepared by expert witnesses, and procedures governing appeals to the Commission.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

Lennar Corporation became the first to make a filing using the SEC’s newly permitted Inline XBRL format in this Form 10-Q.

The SEC permitted use of the new format in an order dated June 13, 2016.   Inline XBRL requires embedding XBRL data in the text of a filing rather than tagging data in a separate instance document filed as an exhibit.  The SEC believes Inline XBRL may increase the efficiency and effectiveness of the filing preparation and review process and, by saving time and effort spent on the these processes, may, over time, reduce the cost of compliance with XBRL requirements.  In particular, the SEC believes that Inline XBRL makes it possible for preparers to view XBRL meta data within the HTML filing itself. By facilitating the review of XBRL data, the SEC believe that Inline XBRL could decrease the overall time required to comply with the XBRL data filing requirement and may better equip preparers to detect and correct XBRL data errors.

The SEC also believes permitting filing in the Inline XBRL format is intended to improve XBRL data quality. In particular, the elimination of a separate instance document should reduce the incidence of re-keying errors. Additionally, Inline XBRL might eliminate unnecessary or inappropriate custom tags intended to make XBRL data look similar to an HTML document when “rendered” by software into a human-readable presentation. With Inline XBRL, companies would have less of an incentive to create custom tags solely to mimic the appearance of an HTML filing. To the extent that permitting filing using Inline XBRL might improve data quality, it may contribute to wider use of XBRL data by market participants and may enhance the benefits that are associated with XBRL more generally.

While I was initially confused by the SEC order and its benefits, viewing the Lennar example makes it much more understandable.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

A review of recent SEC comments on merger proxy statements indicates many of these comments were typical, and some are variations on a theme:

  • Rule 14a-6(a) requires that the form of proxy be on file for ten calendar days, yet no form of proxy appears to have been transmitted. Please amend the filing to include the form of proxy, or advise. In addition, please ensure that both the preliminary proxy statement and form of proxy are clearly marked as being preliminary. See Rule 14a-6(e)(1).
  • We note the statement in the first sentence of the tenth paragraph of the opinion attached as Annex C that [the financial advisors] and Company’s opinion may not be used without its prior written consent. Please revise the disclosure in this section to state, if true, that [the financial advisor] and Company has consented to the use of its opinion in this document.
  • We note the limitations on reliance by shareholders in the fairness opinion provided by the [financial advisor]. Specifically, we note the statements that the opinion is furnished for the use of the Special Committee and “may not be used for any other purpose without the [financial advisors] prior written consent.” Additionally, we have similar concerns with the statement that the opinion “should not be construed as creating any fiduciary duty on [the financial advisor’s] part to any party.” Please have the advisor revise the opinion to remove these limitations on reliance by shareholders. Alternatively, please disclose the basis for the advisor’s belief that shareholders cannot rely upon the opinion to support any claims against the [financial advisor] arising under applicable state law.
  • We note the disclaimer [that the parties and their financial advisors] do not assume “any responsibility for the validity, accuracy or completeness” of the projections. Please revise to eliminate the statement that these parties do not bear any responsibility for disclosure that was prepared and included in this Schedule 14A.
  • We note the disclosure on page X that ABC does not intend to revise its projections. Please revise this disclosure, as publicly available financial projections that no longer reflect management’s view of future performance should either be updated or an explanation should be provided as to why the projections are no longer valid.
  • We noticed the inclusion of cautionary language that indicates that XYZ undertakes no obligation to update… “even in the event that any of the assumptions underlying the financial projections are shown to be in error or change except to the extent required by applicable federal securities law.” Please advise us as to the circumstances that could arise where all of the assumptions shown are in error yet XYZ would bear no obligation to update. To the extent that no such circumstances exist, please revise the disclosure to remove the implication that compliance with the federal securities law is the exception in such instances, especially in the context of the proposed transaction. Consequently, it appears that XYZ does have an ongoing obligation to update and that the disclaimer appears to have been incorrectly cited as a matter of fact and law.
  • We note your disclosure that “information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement.” Please be advised that, notwithstanding the inclusion of a general disclaimer, you are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make statements in the proxy statement not misleading.
  • We note your statement that investors “are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties and covenants or any descriptions…” While we recognize that you also advise investors to read your SEC disclosures, we believe that the cited language strongly implies that the information contained in the merger agreement is not disclosure subject to the federal securities laws. Please revise to remove this implication. We will not object if you advise readers that the information in the merger agreement should be read in conjunction with the other disclosures in the company’s filings with the SEC.
  • Please delete the XXX sentence in the second paragraph of this section, as well as the statement that the merger agreement’s inclusion in the filing is not intended “to provide investors with any other factual information regarding ABC, DEF, XYZ or their respective business,” as they inappropriately imply that readers should not rely on the representations, warranties and covenants described in this section and in the merger agreement.
  • We note that you may employ various methods to solicit proxies, including by telephone, electronic mail, letter, facsimile or in person. Be advised that all written soliciting materials, including any e-mails or scripts to be used in soliciting proxies over the telephone or any other medium, must be filed under the cover of Schedule 14A on the date of first use. Refer to Rule 14a-6(b) and (c). Please confirm your understanding.
  • Throughout this section you discuss that the board considered “potential standalone strategic alternatives.” Please expand your discussion of the nature of these alternatives and why other transactions were favored over these alternatives.
  • Please tell us what consideration you have given to including risk factor disclosure about the impact of the exclusive forum provisions in the merger agreement and your partnership agreement, on investors.
  • Please disclose here the total amounts your directors and executive officers may potentially receive in connection with the proposed merger, including potential change in control payments.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The Fix Crowdfunding Act (H.R. 4855) passed the House of Representatives by a vote of 394 to 4. It doesn’t look much like the original bill we reported on here. As passed by the House, the bill allows special purpose vehicles, called “crowdfunding vehicles” to engage in crowdfunding, and to make investments in a crowdfunding issuer, subject to significant limitations. It also makes the Exchange Act registration exemption for crowdfunded issuers unconditional if the issuer has a public float of less than $75 million.

The Supporting America’s Innovators Act of 2016 (H.R. 4854) creates an exemption from the Investment Company Act for funds with up to 250 investors, so long as they are a venture capital fund, as defined in Section 203(l) of the Investment Advisers Act, and have no more than $10 million in invested capital. The bill passed the house with a vote of 388 to 9.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has approved Nasdaq’s proposed Rule 5250(b)(3) regarding disclosure of so called golden leash arrangements. The Rule requires each listed company to publicly disclose the material terms of all agreements or arrangements between any director or nominee for director on the company’s board and any person or entity other than the company relating to compensation or other payment in connection with that person’s candidacy or service as a director.  The Rule also requires disclosure of all such agreements and arrangements by no later than the date on which the company files or furnishes a definitive proxy or information statement subject to Regulation 14A or 14C under the Act in connection with the company’s next shareholders’ meeting at which directors are elected (or, if they do not file proxy or information statements, no later than when the Company files its next Form 10-K or Form 20-F).

The Rule requires a listed company to disclose this information either on or through the company’ website or in the definitive proxy or information statement for the next shareholders’ meeting at which directors are elected (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F). The Rule states that a company must make the disclosure required by the rule at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.

The Rule was controversial as it made its way through the rulemaking sausage machine, with the Securities Regulation Committee, Bar of the City of New York opposing the Rule and the Society for Corporate Governance (formerly known as The Society of Corporate Secretaries & Governance Professionals) supporting the Rule.

Opponents of the Rule noted that the SEC rules already required disclosure of much the same information. The SEC responded by noting that it is not unusual for national securities exchanges to adopt disclosure requirements in their listing rules that supplement or overlap with disclosure requirements otherwise imposed under the federal securities laws. For example, notwithstanding the requirements imposed by the federal securities laws to report certain material events shortly after they occur on Form 8-K, national securities exchanges maintain separate, broader disclosure rules that require prompt disclosure of material information.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.