Corporate and Financial Weekly Digest - June 11, 2010 (Blog)

SEC Issues New Compliance and Disclosure Interpretations

Posted on June 11, 2010 by Robert L. Kohl Co-authored by David S. Kravitz

On June 4, the Securities and Exchange Commission's Division of Corporation Finance added new Compliance and Disclosure Interpretations (C&DIs) and revised or withdrew others.

Included in the SEC's new C&DIs is the following guidance:

The new Item 5.07 of Form 8-K requirement to report the number of shareholder votes cast for, against or withheld applies to any matter submitted to a vote of security holders, through the solicitation of proxies or otherwise. Although Rule 415(a)(4) permits an issuer to register an "at-the-market" offering of equity securities without identifying an underwriter in its registration statement, the SEC has not changed its interpretation that market makers, specialists or ordinary broker-dealers that purchase registered equity securities as principal from an issuer or sell such equity securities for the issuer as an agent will ordinarily be deemed a statutory underwriter within the meaning of Section 2(a)(11) of the Securities Act of 1933 (Securities Act), even in the absence of any written agreement with the issuer. Continue Reading...

Tags: SEC/Corporate

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SEC Approves New Stock-by-Stock Circuit Breakers Rules

Posted on June 11, 2010 by Janet M. Angstadt

On June 10, the Securities and Exchange Commission announced that it approved rules requiring the exchanges and the Financial Industry Regulatory Authority to implement new stock-by-stock circuit breakers. Under the rules, if a stock in the S&P 500® Index experiences a 10% change in price over the preceding five minutes, trading in such stock will be paused for a five-minute period. The pause is designed to allow the markets to attract new trading interest in the paused stock and provide time for buyers and sellers to trade at rational prices. The SEC anticipates that the exchanges and FINRA will begin implementing the rules as early as June 11.

The rules were first proposed jointly by the exchanges and FINRA in response to the May 6 market plunge, in which severe price volatility led to a large number of trades being executed at prices more than 60% below pre-decline prices. The rules will be in effect on a pilot basis until December 10 and will be limited to stocks in the S&P 500® Index, but SEC Chairman Mary Schapiro "hope[s] to rapidly expand the program to thousands of additional publicly traded companies." In addition to the new stock-by-stock circuit breaker rules, the SEC is working with the exchanges to consider re-calibrating market-wide circuit breakers currently in place, none of which were triggered on May 6.

To read the SEC's order addressed to the exchanges, click here . To read the SEC's order addressed to FINRA, click here .

Tags: Broker Dealer

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CFTC Proposes Rules Requiring Equal Access to Co-Location Services

Posted on June 11, 2010 by Kevin M. Foley Co-authored by Christian B. Hennion

The Commodity Futures Trading Commission has published for comment proposed rules requiring a designated contract market (DCM) offering co-location or proximity hosting services to ensure that all market participants have equal access to such services. Under the proposed rules, access to co-location services must be "equitable, open and fair," and may not be offered on a discriminatory basis to select market participants or select categories of market participants. To this end, the proposed rules would also require that fees charged for co-location services be imposed in a uniform, non-discriminatory manner. "Fees shall not be used as an artificial barrier to access by any market participants." The proposed rules further provide that a DCM that offers co-location services must disclose monthly to the public on its website the longest, shortest and average latencies for each connectivity option provided by the designated contract market. This latter information would permit a market participant to assess whether incurring the benefit of co-location services is worth the cost.

Comments on the proposed rules must be submitted by July 12.

The CFTC proposal may be accessed here .

Tags: CFTC

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Receipt of Stock Options Insufficient to Show Continuation of Alleged Conspiracy

Posted on June 11, 2010 by Bruce M. Sabados Co-authored by Brian Schmidt

The U.S. District Court for the District of South Carolina set aside the convictions of two employees of Medical Manager Corporation for conspiracy to commit mail, wire and securities fraud. In the indictment, the government asserted, among other things, that the defendants had conspired to manipulate the company's revenue and earnings to fraudulently inflate the market price of its stock and to use the fraudulently inflated stock to facilitate the acquisition of certain target companies. After a jury trial in which the defendants were convicted, the defendants moved to set aside the verdict on the ground that the statute of limitations had started to run when a merger that allegedly resulted from the conspiracy was consummated.

The government argued that the statute of limitations had not run because the conspiracy continued as long as the defendants received benefits from it, pointing to the receipt of stock options by the defendants several years after the merger. The district court rejected the government's argument, holding that the court "cannot accept the de facto position that but for the conspiracy, defendants would not have received stock options." In so holding, the court pointed out that the company was successful and that employees who were not alleged to be part of the conspiracy also received options. In addition, the court held that the receipt of the options was not evidence of a continuing conspiracy because the government had not introduced any evidence that the value of the stock options had been inflated as a result of the alleged fraud. (United States v. Kang, Crim. No.: 9:05-CR-00928, 2010 U.S. Dist LEXIS 53003 (D.S.C. May 27, 2010))

Tags: Litigation

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Second Circuit Holds That Interpreting Contract as Requiring Exclusivity Would Be Illogical

Posted on June 11, 2010 by Bruce M. Sabados Co-authored by Brian Schmidt

The U.S. Court of Appeals for the Second Circuit has affirmed a district court ruling that held that the "plain meaning" of the contract between AT&T Corporation and KATEL Limited Liability Company with respect to...