Corporate And Financial Weekly Digest - September 19, 2008

SEC/Corporate

Robert L. Kohl, Mark A. Conley, Jeffrey R. Patt & Palash I.

Pandya

SEC Launches Voluntary Online Filing System for Form D

On September 15, the Securities and Exchange Commission began

accepting filings of Form D through its EDGAR filing system as part

of the SEC's overall efforts to reduce unnecessary paper

filings and regulatory burdens, particularly for smaller

companies.

As reported in the February 8, 2008 edition of Corporate and

Financial Weekly Digest, the new rules adopted by the SEC

earlier this year provide for online filing and simplification of

Form D notices. Under the new rules, between September 15, 2008 and

March 16, 2009, issuers may file a Form D either electronically or

on paper. After March 16, 2009, electronic filing of a Form D will

become mandatory. During this six-month "phase-in"

period, issuers may file either the revised Form D (referred to as

"Form D") or Temporary Form D (the old Form D with

certain revisions). Both forms can be found at www.sec.gov/info/smallbus/cfformd.htm .

The SEC is encouraging Form D filers to use the voluntary system

and inform SEC staff about their experiences. The SEC staff expects

adjustments will be made to the system to increase its utility and

user-friendliness before the online filing of Form D becomes

mandatory. Filers can report their experiences to the SEC's

Office of Small Business Policy in its Division of Corporation

Finance at smallbusiness@SEC.gov.

The SEC staff is continuing to work with the North American

Securities Administrators Association to link its Form D filing

system with a system built by state securities regulators that

would accept state Form D filings. No timetable has been adopted

for linking the two systems.

http://www.sec.gov/news/press/2008/2008-199.htm

http://www.sec.gov/rules/final/2008/33-8891.pdf

RiskMetrics, ISS Parent, Recommends Against CVS Tender Offer

for Longs

RiskMetrics Group, the parent of the proxy advisory service ISS,

on September 12 recommended that shareholders of Longs Drug Stores

not tender their shares in the tender offer launched by CVS.

According to reports published by MarketWatch and The

Investor's Business Daily, RiskMetrics was concerned

primarily that "It does not appear that Longs made any attempt

to play suitor against suitor. Longs appeared to place a priority

on speed and certainty of closing." Additionally, the reports

indicate that RiskMetrics was concerned that Longs' real estate

portfolio was undervalued in the CVS offer.

It is noteworthy that ISS has made a recommendation relating to

a tender offer.ISS historically tended not to oppose M&A

transactions, although in recent years it has become more vocal,

especially in 2007 when it opposed Mitel Networks' offer for

Inter-Tel in June, Eisner/Madison Dearborn's offer for Topps in

August and URS' offer for Washington Group in August. However,

these recommendations, and indeed most of ISS' advisory work,

has related to shareholder voting scenarios, not tender offers. It

is possible that RiskMetrics may have felt the CVS offer presented

a uniquely compelling case to RiskMetrics. Nonetheless, market

participants should be on the lookout for continuing active

participation by RiskMetrics, which may attempt to leverage

ISS' importance in proxy contests into new arenas.

http://www.marketwatch.com/News/Story/riskmetrics-advises-clients-against-cvs/story.aspx?guid=%7BEBC036F5-32E9-4FDD-9255-4E910A228175%7D&siteid=msn

Litigation

Alan R. Friedman & Jean C. Choi

Outside Consultant Held Primarily Liable for Securities Fraud

in SEC Filings

The Tenth Circuit affirmed the grant of summary judgment in

favor of the Securities and Exchange Commission in an enforcement

action against a consultant and his consulting firm alleging

violation of, among other provisions, Section 10(b) of the

Securities and Exchange Act and Rule 10b-5 relating to material

misstatements and omissions in a public company's SEC filings.

The alleged fraud concerned the non-disclosure in SEC filings of

(i) a stock sale agreement between the company and an offshore

"boiler room" which allowed the boiler room to retain 70%

of the sales proceeds, and (ii) the consultant's right to a

finder's fee equal to 10% of the proceeds received by the

company from the sales made by the boiler room.

In granting summary judgment to the SEC, the District Court

ruled that the defendants could be held liable as primary violators

of Section 10(b) and Rule 10b-5. On appeal, defendants argued that

the ruling was mistaken because the SEC had only shown that the

company, but not also the defendants, made the material

misstatements or omissions underlying the SEC's claims.

In affirming the District Court's decision, the Tenth

Circuit stated that the relevant question was whether the

consultant, as a secondary actor (i.e., someone who did not sign or

certify the filings), could fairly be said to have "made"

the misrepresentations and whether he knew or should have known

that such statements would reach investors. After rejecting a

"brightline" requirement that misstatements be expressly

"attributed" to a secondary actor for such an actor to be

held primarily liable, the Tenth Circuit ruled that because (i) the

consultant played an integral role in preparing the filings in

issue, (ii) the documents were filed as drafted by the consultant,

and (iii) the consultant was hired for the very purpose of

preparing the filings and knew that they would be available to

investors, the consultant could fairly be said to have caused the

company to make the misstatements, and thus, could properly be held

primarily liable. (S.E.C. v. Wolfson, No. 06-4035, 2008 WL

4053027 (10th Cir. Sept. 2, 2008))

Complaint Failed to State Loss Causation

A federal district court dismissed a class action complaint

brought by investors against China's largest insurance company

and its officers and directors for violations of Section 10(b) of

the Securities and Exchange Act. The lawsuit was brought on behalf

of all investors who purchased the company's shares on the New

York Stock Exchange and the Hong Kong Stock Exchange (HKSE) during

the class period. Plaintiffs alleged that the company failed to

disclose in its prospectus either an ongoing Chinese government

audit or the Securities and Exchange Commission's investigation

of the company's predecessor for alleged accounting

irregularities. Plaintiffs claimed that these non-disclosures

artificially inflated the company's stock and caused plaintiffs

to suffer loss when the stock price dropped after the press

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