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

The SEC’s Office of Compliance Inspections and Examinations, or OCIE, recently issued a risk alert titled “Examinations of Advisers and Funds That Outsource Their Chief Compliance Officers.”  According to the alert, OCIE staff have noted a growing trend in the investment management industry: outsourcing compliance activities to third parties, such as consultants or law firms. Some investment advisers and funds have outsourced all compliance activities to unaffiliated third parties, including the role of their chief compliance officers, or CCOs.

OCIE staff conducted nearly 20 examinations as part of an Outsourced CCO Initiative that focused on SEC-registered investment advisers and investment companies that outsource their CCOs to unaffiliated third parties. The purpose of the risk alert was to share the staff’s observations from these examinations and raise awareness of the compliance issues observed by the staff.

During these examinations, the staff observed instances in which the outsourced CCO was generally effective in administering the registrant’s compliance program, as well as fulfilling his/her other responsibilities as CCO.

However, the staff also observed that certain outsourced CCOs could not articulate the business or compliance risks of the registrant or, to the extent the risks were identified, whether the registrant had adopted written policies and procedures to mitigate or address those risks. In some instances, the risks described to the staff by the registrant’s principals were different than the risks described by the outsourced CCO.

Although the SEC’s rules do not expressly require compliance policies and procedures to contain specific elements, OCIE believes the Commission has made clear that it expects an adviser’s policies and procedures, at a minimum, to address ten core areas to the extent that they are relevant to the adviser’s business. The staff observed certain instances where the registrants did not appear to have adopted, implemented, and/or adhered to policies and procedures that were reasonably designed to prevent the violation of applicable regulations or that were relevant in light of the registrant’s business and operations.

OCIE believes that certain outsourced CCOs infrequently visited registrants’ offices and conducted only limited reviews of documents or training on compliance-related matters while on-site. According to the OCIE such CCOs had limited visibility and prominence within the registrants’ organization, which appeared to result in the CCOs also having limited authority within the organization to, among other things, improve adherence to the registrants’ compliance policies and procedures. Limited authority also appeared to affect the outsourced CCOs’ ability to implement important changes in disclosure regarding key areas of client interest, such as advisory fees.

OCIE believes that advisers and funds with outsourced CCOs should review their business practices in light of the risks noted in the risk alert to determine whether these practices comport with their responsibilities as set forth in the SEC’s compliance rules. The staff anticipates that, by sharing these examination observations, it will assist registrants in assessing whether their compliance programs have weaknesses, particularly with respect to identifying applicable risks and ensuring that the firm’s compliance program encompasses all relevant business activities.

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.

On November 23, 2015, the Consumer Financial Protection Bureau (CFPB) issued CFPB Compliance Bulletin 2015-06 to provide companies with guidance related to their obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E, when obtaining consumer authorizations for preauthorized electronic fund transfers (EFTs) from a consumer’s account.

EFTA Background

The purpose of the EFTA is to protect consumers engaging in EFTAs, defined broadly to include any transfer of funds initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.  The CFPB is authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act to enforce the EFTA and Regulation E.

Consumer Authorization for Preauthorized EFTs

The EFTA and Regulation E require entities to obtain consumer authorization for preauthorized EFTs.  Preauthorized EFTs refers to an “electronic fund transfer authorized in advance to recur at substantially regular intervals.”  Regulation E requires that preauthorized EFTs from a consumer’s account be authorized “only by a writing signed or similarly authenticated by the consumer.”  The consumer authorization can be obtained in paper form or electronically.  Further, the “writing and signature requirements . . . are satisfied by complying with the [E-Sign Act] which defines electronic records and electronic signatures.”  In addition, companies can obtain signed, written authorization from consumers over the phone if the E-Sign Act requirement for electronic records and signatures are met.

The company must also provide a copy of the authorization to the consumer.  Specifically, the terms of the authorization must be provided in paper form or electronically.  The bulletin emphasizes that two of the most important terms of an authorization are the timing and amount of the recurring transfers from the consumer’s account.  In fact, the bulletin points out that in at least one CFPB examination, the examiners discovered that consumer notices the company provided were not sufficient, because the notices failed to disclose key terms including the recurring nature of the preauthorized EFTs and the amount and timing of all the payments to which the consumer agreed.

You can view the CFPB Compliance Bulletin 2015-06 here:  http://files.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-for-consumer-authorizations-for-preauthorized-electronic-fund-transfers.pdf.

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.

On November 24, 2015, Republican members of the House of Representatives’ Financial Services Committee issued a report titled Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending, which blasts the Consumer Financial Protection Bureau (CFPB) for knowingly using unsound or weak methodology in challenging auto lending practices based on allegations of discrimination.

Among other things, the House report calls into question the statistical methods the CFPB used to allege racial discrimination in the auto lending industry.  In addition, the report challenges the CFPB’s reliance on the legal theory known as “disparate impact” to take action against auto lending companies for alleged discriminatory lending practices.  In a bit of irony, the report also accuses the CFPB of pursuing “its radical enforcement strategy using ‘unfair, abusive, and deceptive,’ tactics,” which is the very standard the CFPB is charged with enforcing against financial industry participants.

Representative Jeb Hensarling, Chairman of the Financial Services Committee, blasted the CFPB in a statement accompanying the release of House report, stating that the CFPB “is irresponsibly branding companies with the stigma of racial discrimination based on nothing more than junk science that even CFPB senior officials acknowledged is gravely flawed.  Why?  To cudgel those companies into enormous monetary settlements without ever having to go to court.  If it sounds like a shake down, that’s because it is.”

House of Representatives Takes Action to Nullify CFPB’s Auto Financing Guidance

The House report on auto lending was released on the heels of a November 18, 2015, House of Representatives vote to nullify CFPB Bulletin 2013-02, related to indirect auto lending.  CFPB Bulletin 2013-02 essentially provides guidance to the auto lending industry related to compliance with the Equal Credit Opportunity Act.  However, many have viewed the Bulletin as CFPB’s way of indirectly attempting to supervise the auto industry, which is expressly prohibited by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Further, although CFPB Bulletin 2013-02 is technically nonbinding and only serves as guidance to the industry, the Bulletin effectively functions as a rule because industry participants run the risk of an enforcement action or other adverse action if they fail to comply with its mandates.  As such, H.R. 1737 expressly states that CFPB Bulletin 2013-02 “shall have no force or effect.”

CFPB Has a History of Facing Scrutiny for its Methodology

This is not the first time that the CFPB’s methodologies supporting its initiatives have been called into question.  For instance, in March 2015, the CFPB released its Arbitration Study: Report to Congress 2015, which is a report on a study conducted by the CFPB to evaluate the impact of arbitration provisions on consumers.  As a result of the study, the CFPB is currently considering proposals for new rules that, among other things, would prohibit the use of arbitration clauses that include class action waivers.  However, the CFPB’s study has been widely criticized as having relied on insufficient data and ignoring other information that would lead to conclusions not favorable to the CFPB’s initiative to eliminate class action waivers.  One such critique, titled The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and Critique, was issued by law professors from the University of Virginia School of Law and George Mason University School of Law.

You can view the Financial Services Committee’s Unsafe at Any Bureaucracy: CFPB Junk Science and Indirect Auto Lending Report here:  http://financialservices.house.gov/uploadedfiles/11-24-15_cfpb_indirect_auto_staff_report.pdf.

You can view Chairman Jeb Hensarling’s press release here:  http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=399984.

You can view more information on H.R. 1737 – Reforming CFPB Indirect Auto Financing Guidance Act here: https://www.congress.gov/bill/114th-congress/house-bill/1737/text.

You can view CFPB Bulletin 2013-02 here: http://files.consumerfinance.gov/f/201303_cfpb_march_-Auto-Finance-Bulletin.pdf.

You can view The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and Critique here: http://mercatus.org/sites/default/files/Johnston-CFPB-Arbitration.pdf.

 

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 Prairie Capital III, L.P. v. Double E Holding Corp. the Delaware Court of Chancery examined exclusive representations and integration clauses, omissions and exclusive remedies provisions.  The opinion notes:

  • Delaware law enforces clauses that identify the specific information on which a party has relied and which foreclose reliance on other information. A party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a “but we did rely on those other representations” fraudulent inducement claim.
  • If a party represents that it only relied on particular information, then that statement establishes the universe of information on which that party relied. Delaware law does not require magic words.
  • In an arms’ length contractual setting a party begins the negotiation process without any affirmative duty to speak. Therefore, any claim of fraud in an arms’ length setting necessarily depends on some form of representation. A fraud claim in that setting cannot start from an omission. For arms’ length counterparties, therefore, contractual provisions that identify the representations on which a party exclusively relied define the universe of information that is in play for purposes of a fraud claim. A party may use external sources of information to plead that a contractually identified fact was false or misleading, but a party cannot point to extra-contractual information and escape the contractual limitation by arguing that the extra-contractual information was incomplete.
  • Recasting an allegation as an omission should not enable a party to circumvent an agreed-upon informational definition. Representation-limiting language defines the universe of information on which the contracting party relied. If the contract says that the buyer only relied on the representations in the four corners of the agreement, then that is sufficient. The party may prove that the representations in the four corners of the agreement were false or materially misleading, but the party cannot claim that information it received outside of the agreement, which was not the subject of a contractual representation, contained material omissions.
  • The contract had an exclusive remedies provision that carved out fraud. According to the court, the exclusive remedies provision recognizes that a party is not limited to the indemnification framework when it sues for fraud, but the provision does not address the representations that a party can rely on in those circumstances. Other provisions in the stock purchase agreement, such as the exclusive representations clause, perform that function. The exclusive remedies provision does not alter the contractual universe of information on which a fraud-claim can be based.

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.

Two new Volcker Rule FAQs has been issued.  The first addresses an issue where a banking entity terminates a market-making business that it conducted as a Volcker Rule permitted activity, and how the bank can exit residual positions from its prior market-making activity.   According to the FAQ, the banking entity may hold and dispose of these residual market-making positions, provided (i) the banking entity hedges the risks of any such positions in accordance with the risk-mitigating hedging exemption and (ii) the banking entity sells or unwinds the residual market-making positions as soon as commercially practicable.

The second FAQ establishes at what point in time a banking entity becomes subject to the final rule with respect to a covered transaction with a covered fund, and provides guidance regarding existing covered transactions.  The FAQ states as a general matter, on or after July 21, 2015, a banking entity may not enter into a covered transaction with a covered fund where the banking entity serves as investment manager, investment adviser, or sponsor to the covered fund.  The conformance period for legacy investments in and relationships with a covered fund (i.e., investments made and relationships entered into by a banking entity prior to December 31, 2013) currently ends on July 21, 2016.  Staffs of the Agencies would expect a banking entity to engage in good-faith efforts during the conformance period to ensure that its investments in and relationships with legacy covered funds conform to the final rule by the end of the applicable conformance period.

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.

If you are planning to move into the crowdfunding consulting or platform area make sure you are familiar with the SEC broker-dealer rules, which require registration before performing broker-dealer services.  If you plan on crowdfunding an equity offering, you want to make sure all of your service providers are properly licensed.  The SEC has commenced this enforcement action which makes the point that there is no pass for crowdfunders and that they will vigilantly enforce the broker-dealer rules as interpreted by the SEC.

Here are some examples of activities  the SEC believes the defendants in the enforcement action engaged in which are hallmarks of being a broker dealer:

  • structure the terms of proposed offerings;
  • prepare offering memoranda and registration statements;
  • help customers qualify to sell securities under Regulation A;
  • ensure proposed offerings comply with all applicable laws;
  • market the offered securities to potential investors, including registered investment advisers and venture capitalists;
  • identify and screen potential investors;
  • provide an online portal for investors to purchase customers’ securities;
  • handle investor payments online;
  • transfer and hold digital stock certificates;
  • purchase customers’ securities not sold to investors; and
  • provide a secondary market for customers’ securities.

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.

 

JH Partners, LLC, a private equity sponsor, recently agreed to settle SEC charges.  According to the SEC the proceedings arose from negligent breaches of fiduciary duty by JHP, an investment adviser to several private equity funds (the “Funds”). According to the SEC:

  • From at least 2006 to 2012, JHP and certain of its principals loaned approximately $62 million to the Funds’ portfolio companies to provide interim financing for working capital or other urgent cash needs. By doing so, JHP and its principals in certain cases obtained interests in portfolio companies that were senior to the equity interests held by the Funds.
  • JHP also caused more than one Fund to invest in the same portfolio company at differing priority levels and/or valuations, potentially favoring one Fund client over another.
  • JHP did not adequately disclose to the advisory boards of the affected Funds the potential conflicts of interest created by the undisclosed loans and cross-over investments.
  • JHP failed to adequately disclose to, or obtain written consent from, its client Funds’ advisory boards when certain of their investments exceeded concentration limits in the Funds’ organizational documents.

JHP did not admit or deny the SEC charges.

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.

 

On November 24, 2015, the Consumer Financial Protection Bureau (CFPB) released its latest Monthly Complaint Report for October 2015, which provides an overview of three-month trends in consumer complaints.  This Monthly Report also highlights consumer complaints related to “bank accounts and services” and consumer complaints from Connecticut.

Bank Accounts or Services Complaint Spotlight

According to the Monthly Complaint Report, the CFPB handled more than 749,400 consumer complaints between July 21, 2011, and November 1, 2015.  Approximately 75,300 complaints related to “bank accounts or services.”  Consumers select the “bank accounts or services” category to describe their complaint if it relates to a deposit account or service offered by banks, credit unions, or nonbank companies.  The issues consumers complained about related to bank accounts or services include:

  • Problems opening and managing accounts: approximately 44% of the “bank accounts or services” complaints relate to consumers being unable to open an account and not being informed about the basis for the denial.
  • Issues related to depositing and withdrawing funds: consumers complained about restrictions being placed on their accounts, such as holds being placed on deposited checks and restrictions on deposits using mobile wallets.

The Monthly Complaint Report indicates that Bank of America, Wells Fargo, and JPMorgan Chase were the most complained about companies related to bank accounts or services.

National Complaint Overview

Across all consumer financial products and services regulated by the CFPB, the Monthly Complaint Report includes the following statistics for October 2015:

  • 24,300 consumer complaints were submitted;
  • consumer complaints increased 6% between September 2015 and October 2015;
  • the most complained about consumer financial product or service was debt collection, which accounted for approximately 28 percent of all complaints;
  • credit reporting was the second most complained about consumer financial product or service;
  • complaints related to prepaid products rose 193 percent in a year-to-year comparison for the time period of August to October;
  • complaints related to payday loans showed the greatest percentage decrease in a year-to-year comparison for the time period of August to October;
  • Idaho had the greatest complaint volume increase year-to-year, with a percentage increase of 66%; and
  • Equifax, TransUnion, and Experian were the top three most complained about companies between June and August 2015.

Connecticut Complaints

In addition to providing national consumer financial complaint trends, the Monthly Complaint Report also highlights complaints originating from the Hartford, Connecticut metro area.  Of the 749,400 complaints that have been submitted to the CFPB, 8,300 originated from Connecticut and 2,500 from the Hartford metro area.  Consumer complaints submitted by Connecticut consumers revealed the following:

  • Mortgage-related complaints comprised the most common financial product or service complained about, making up nearly 28 percent of all Connecticut based complaints;
  • Connecticut consumer complaints largely mirror national trends, with 21 percent related to debt collection; and
  • Connecticut consumers complained most about Bank of America, Wells Fargo, Equifax, and Experian.

CFPB’s Consumer Complaint Database

In June 2012, the CFPB launched its Consumer Complaint Database, which permits consumers to submit complaints about consumer financial products and services.  Once the CFPB receives a complaint it forwards the complaint to the relevant company for a response.  Companies generally have 15 days to respond to the complaint, unless an extension is secured in the meantime.  The consumer complaint and company’s response, if one is provided, is published on the public facing Consumer Complaint Database, which can be accessed and viewed by the public.  The information provided on the database can be valuable to not only consumers, but also to companies.  For example, it provides a valuable tool for companies to understand how consumers view the quality of the company’s products and services.  It also provides companies with an opportunity to evaluate whether complaint trends suggest that problems exist with certain products and services that need to be addressed to avoid or minimize regulatory action.  As such, although the Consumer Complaint Database is not generally viewed favorably by financial industry companies, it can provide valuable information.

For more information on the CFPB’s consumer complaint process go here: https://www.stinson.com/Resources/PDF_Files/Navigating_CFPBs_Consumer_Complaint_Process.aspx.

You can view the CFPB’s Monthly Complaint Report here:  http://files.consumerfinance.gov/f/201511_cfpb_monthly-complaint-report-vol-5.pdf.

You can view the CFPB’s Consumer Complaint Database here: http://www.consumerfinance.gov/complaintdatabase/.

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.

 

ISS has issued a series of 26 FAQs on its Equity Plan Scorecard, or EPSC.  The basic EPSC policy has not changed, but effective for meetings as of Feb. 1, 2016, the FAQs state the following adjustments will apply to EPSC evaluations:

  • The “IPO” model is re-named “Special Cases,” to analyze companies with less than three years of disclosed equity grant data (generally, IPOs and bankruptcy emergent companies).
  • In addition, a new Special Cases model that includes grant practice factors other than burn rate and duration will apply to Russell 3000/S&P 500 companies. Maximum pillar scores for this model are as follows:
    • Plan Cost: 50
    • Plan Features: 35
    • Grant Practices: 15
  • The Plan Features factor “Automatic Single-Trigger Vesting” is renamed “CIC Vesting,” with the following scoring levels:
    • Full points if plan provides for: with respect to outstanding time-based awards, either no accelerated vesting or accelerated vesting only if awards are not assumed/converted; AND with respect to performance-based awards, either forfeiture or termination of outstanding awards or vesting based on actual performance as of the CIC and/or on a pro-rata basis for time elapsed in ongoing performance period(s).
    • No points if plan provides for: automatic accelerated vesting of time-based awards OR payout of performance-based awards above target level.
    • Half points if plan provides for any other vesting terms related to a CIC.
  • The period required for full points with respect to the Post-Vesting/Exercise Holding Period Plan Feature is 36 months (versus 12 months previously) or until employment termination; half of full points will accrue for a holding period of 12 months.
  • Additionally, certain factor scores have been adjusted, per ISS’ proprietary scoring model. The maximum of 100 total points and threshold of 53 points to receive a favorable recommendation (absent egregious factors) are unchanged.

ISS has also updated its governance scoring product referred to as QuickScore.  In the United States, QuickScore subscribers will now be able to determine whether portfolio companies across the Russell 3000 allow for proxy access, or investors’ ability to nominate corporate board members. For this iteration of QuickScore, the factor is being provided for screening purposes only and will not be scored.

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.

On November 18, 2015, the Consumer Financial Protection Bureau (“CFPB”) announced that it initiated an administrative proceeding against online lender Integrity Advance, LLC, and its CEO, for allegedly deceiving consumers about the cost of short-term loans.

From May 2008 through December 2012, Integrity Advance originated and serviced short-term online loans ranging from $100 to $1,000.  The CFPB alleges that Integrity Advance engaged in unfair and deceptive practices related to the origination and servicing of the loans, in violation of the Truth in Lending Act, Electronic Fund Transfer Act, Dodd-Frank Wall Street Reform and Consumer Protect Act.

Specifically, CFPB alleges that Integrity Advance unlawfully:

  • Hid the total cost of loans from consumers by only disclosing the cost of repayment based on a single payment, even though upon default the loans would rollover up to four times causing additional fees and costs to accrue, which were not disclosed;
  • Required consumers to agree to repay their loans via pre-authorized Automated Clearing House (“ACH”) payments; and
  • Hid a provision in loan agreements that allowed the company to use remotely created checks if a consumer revoked authorization for ACH payments.

CFPB’s Notice of Charges which was filed against Integrity Advance was initiated in an administrative forum and will be tried by an Administrative Law Judge.  The Notice of Charges is not yet publicly available, but it may be published on the CFPB’s website ten days after service on Integrity Advance, if permitted by the hearing officer.

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.