Corporate And Financial Weekly Digest - February 5, 2010

Article by Robert L. Kohl and David A. Pentlow

SEC/CORPORATE

SEC Publishes Interpretive Guidance on Disclosure Related to Climate Change

As described in the January 29 edition of Corporate and Financial Weekly Digest (http://tinyurl.com/yjsu5kz ), the Securities and Exchange Commission recently approved guidance on disclosure related to the effects on public companies of climate change and regulation concerning climate change.

The text of the SEC's guidance regarding climate change was published on February 2 and can be viewed by clicking here (www.sec.gov/rules/interp.shtml).

SEC Approves NASDAQ's Proposed Rules to Modify Delisting Procedures

On January 29, the Securities and Exchange Commission approved NASDAQ's proposal to amend its listing procedures to modify the timeframes for certain compliance periods and for a company to submit a plan to regain compliance. Below is a summary of the final rules.

The final rules increase the number of consecutive trading days of below required market value of listed securities that would trigger non-compliance from 10 days to 30 days. The final rules also increase the period for regaining compliance for companies that are non-compliant with market value of listed securities test and market value of publicly traded shares test from 90 days to 180 days. Under the final rules, the maximum amount of time that a company has to regain compliance after failing to meet the market value of listed securities or market value of publicly held shares requirements is 18 months, assuming the 180-day compliance period is exhausted, an appeal to a Hearing Panel is taken, and after further review by the NASDAQ Listing Council the delisting is stayed and an extension granted.

NASDAQ also increased the number of calendar days for noncompliant companies to submit a plan for compliance to the NASDAQ staff from 15 to 45, with the staff permitted to grant up to a 5-day extension for good cause shown.

Click here (www.sec.gov/rules/sro/nasdaq/2010/34-61446.pdf) for the Final Rules.

LITIGATION

Securities Fraud Claim Under PSLRA Not "Frivolous"; Sanctions Unwarranted

Michael Fishoff sued his former employer, Coty Inc., for alleged violations of the federal securities laws arising from Mr. Fishoff's attempt to exercise options awarded to him pursuant to the company's Long Term Incentive Plan. Mr. Fishoff alleged that Coty's executives exercised their options in advance of a predicted decline in the company's stock value, but improperly prevented him from exercising his options under the same conditions. The U.S. District Court for the Southern District of New York dismissed Mr. Fishoff's securities fraud claims in June 2009, finding that he failed to meet the heightened pleading standards for fraud under the Private Securities Litigation Reform Act (PSLRA) and Federal Rule of Civil Procedure 9(b). Coty subsequently sought sanctions against Mr. Fishoff pursuant to Federal Rule of Civil Procedure 11 and the PSLRA.

Under Rule 11, when an attorney presents a pleading, written motion or other paper to a court, that attorney certifies that the claims, defenses and other legal contentions contained therein are warranted by existing law or by a non-frivolous argument for extending, modifying or reversing existing law, or for establishing new law. An attorney who does not comply with Rule 11 is subject to sanctions. The PSLRA requires that, at the conclusion of a securities class action, the court must include specific findings in the record as to whether each party and each counsel complied with Rule 11. If Rule 11 was violated, sanctions under the PSLRA are mandatory.

In its sanctions motion, Coty argued that Mr. Fishoff's securities fraud claim and opposition to its motion to dismiss were "frivolous" because, under an objective standard of reasonableness, it was clear that there was "no chance of success and no reasonable argument to extend, modify or reverse the law as it stands." Although the court dismissed Mr. Fishoff's securities fraud argument, it did not find the claim "frivolous," concluding that while Mr. Fishoff failed to adequately plead scienter, scienter is the most difficult and controversial aspect of a securities fraud claim. Accordingly, the court concluded that sanctions against Mr. Fishoff under Rule 11 and the PSLRA were unwarranted. (Fishoff v. Coty Inc., No. 09 Civ. 628 (SAS), 2010 WL 305358 (S.D.N.Y. Jan. 25, 2010))

SEC Enforces New Rule on Short Selling

The Securities and Exchange Commission recently charged two California investment advisery firms, AGB Partners LLC and Palmyra Capital Advisors LLC, with engaging in improper short selling of securities in advance of their participation in a company's secondary offering, in violation of Rule 105 of Regulation M. In...