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Federal Securities Law Blog

Information on federal securities laws, news and developments

SEC adopts money market fund reform

Posted in SEC News

On July 23, 2014, the Securities and Exchange Commission announced that it adopted amendments to the rules governing money market mutual funds. Read a copy of the final rules.

These amendments complete some long-awaited steps to make structural and operational reforms to address risks of investor runs in money market funds to address investor runs out of funds as occurred during the 2008 financial crisis. Specifically, the new rules require institutional prime money market funds to value the funds on a floating net asset value rather than a fixed $1 share price. Additionally, the rules allow money market funds boards to impose liquidity fees and redemption gates during periods of financial stress.

The final rules provide a two-year transition period to enable both funds and investors time to fully adjust their systems, operations and investing practices.

Should entrepreneurs care about crowdfunding? It depends on the crowd.

Posted in Executive Officer Matters, General Business News, JOBS Act, SEC News

It has been more than two years since the JOBS Act was passed and almost nine months since the SEC proposed crowdfunding rules — but still no final rules. Should entrepreneurs care? Probably not. The proposed SEC rules are burdensome. The rules limit the total amount raised to $1 million in any rolling 12-month period, and moderate-income investors would be limited to a $5,000 investment (at the most). Additional proposed rules require audited financials (for some offerings), limits on advertising, and filings with the SEC, among other requirements. Entrepreneurs with great ideas should not settle for these types of investments.

Crowdfunding for accredited investors already exists, and it may fill an important funding gap for growing businesses that have not attracted angel investors and are not ready for venture capital or private equity. Not all startups are tech based, and not all angel investors in a particular entrepreneur’s community know what a good investment looks like. But a well-curated accredited crowdfunding platform can provide exposure to a lot of potential accredited investors. Continue Reading

Citigroup’s $7 billion settlement allows them to “focus on the future”

Posted in General Business News, Market Crisis Cases, Shareholder News

U.S. Attorney General Eric Holder and Citigroup announced today that Citigroup will pay
$7 billion to settle a U.S. Department of Justice (DOJ) investigation into allegations that it defrauded investors by selling shoddy mortgages ahead of the financial crisis. The civil settlement does not rule out future criminal charges again Citigroup or individual employees. Citigroup stock rose 1.49% Monday in early trading following the announcements.

Citigroup will pay a $4 billion civil penalty to the DOJ, $500 million to the Federal Deposit Insurance Corp. and will set aside $2.5 billion in “consumer relief” to assist struggling mortgage holders. The settlement covers not only residential mortgage-backed securities but also collateral debt obligations (CDOs) issued between 2003 and 2008. The relief to consumers will include Citigroup receiving credit for modifying mortgages for struggling borrowers. The settlement marks a reversal from mid-June when the DOJ had threatened filing suit unless Citigroup significantly raised its offer. Continue Reading

Beware of antitrust laws’ extraterritorial reach

Posted in General Business News, Trends

In an increasingly global economy, it is becoming more and more common for a product to be sold outside of the U.S., yet find its way back into the states, either as a resale product or as part of a finished downstream product. The question then becomes, does U.S. antitrust law apply to that foreign sale? The answer largely depends on the scope of the Foreign Trade Antitrust Improvements Act (FTAIA), the law that governs such conduct. Not surprisingly, the U.S. Department of Justice (DOJ) and plaintiffs’ bar have been pushing for an expansive reading of the law, so more such sales would be governed by American antitrust law. The 2nd U.S. Circuit Court of Appeals just gave them a boost in a case recently decided — Lotes Co., Ltd. v. Hon Hai Precision Industry, Co., Ltd. A quick background on FTAIA and the Lotes case will help you understand why all of this matters to you.

Background

The FTAIA governs the extraterritorial reach of U.S. antitrust laws. Its original, ostensible purpose was to limit the extraterritorial reach, so the U.S. did not play the role of a global antitrust cop. According to the FTAIA, any non-domestic commerce that is not a direct import to the U.S. is outside the scope of U.S. antitrust laws — unless the foreign sale:

(a) has a “direct, substantial, and reasonably foreseeable effect” on the U.S. domestic market or the U.S. export market and

(b) “gives rise to” an antitrust claim by the plaintiff.

 The problem, though, is the definition of the terms “direct” and “substantial” and they are at the heart of an interpretative debate among the federal courts of appeals. Continue Reading

Can you afford the risk of not having a captive insurance company?

Posted in General Business News

Captive insurance companies have a long history worldwide and in the United States. A majority of states have captive insurance legislation in place and onshore jurisdictions such as Vermont, Utah, Delaware, Tennessee, Arizona and Connecticut promote their captive legislation as an economic engine to attract new businesses.

In general, a captive insurance company is a wholly owned subsidiary that insures or reinsures only the risks of its parent company and its affiliates. Captives can take other forms, such as protected cell, association or group captives — but all offer the owner an opportunity to stabilize premium payments, address policyholder needs and address cost prohibitive or unavailability insurance coverage.

The ownership of captive insurance companies is no longer confined to Fortune 500 companies. In 2013, protected cell captives and small captives, also known as 831(b) captives, experienced strong growth. The expanded use of small captives allowed middle market companies to reap the benefits of a captive arrangement on a cost effective basis. Continue Reading

FBI increases criminal fraud investigations by 65%, director reports

Posted in Criminal Charges in Securities Cases, General Business News, Insider Trading

FBI Director James Comey shared the bureau’s enforcement trends and objectives at the New York City Bar Association’s Third Annual White Collar Crime Institute on May 19.

Comey recognized that although counter-terrorism is still a top priority for the agency, white-collar cases are receiving significant focus and resources. In the mortgage industry, agents are investigating foreclosure rescue companies preying on stressed homeowners and criminals who target senior citizens with the lure of reverse mortgages. In money laundering, enforcement targets are involved in a buying anonymous prepaid credit cards, using of “virtual currency” to transfer money and using smaller institutions to inject money into the banking system. In securities markets, the FBI also is targeting micro-cap market manipulation, insider trading and accounting fraud.

Comey emphasized in his remarks that the FBI has received additional resources from Congress, which allowed the agency to hire 2,000 people this year. In addition, he disclosed that more than 1,300 agents are working more than 10,000 white collar crime cases. These figures represent a 65% increase in the number of criminal fraud cases investigated by the FBI since 2008. Continue Reading

U.S. Supreme Court says restitution depends on property a lender loses, not collateral the lender receives

Posted in General Business News

In the unanimous ruling Monday, the U.S. Supreme Court resolved a split in circuits regarding the interpretation of the Mandatory Victim’s Restitution Act (MVRA). In Robers v. United States, the high court confirmed that for purposes of calculating restitution, the return to the lender of collateral securing a fraudulent loan is not completed until the victim lender receives money from the sale of the collateral.

In 2010, Robers was convicted in federal court of conspiracy to commit wire fraud relating to two houses that Robers purchased by submitting fraudulent loan applications. When Robers failed to make loan payments, the banks foreclosed on the mortgages and, in 2006, took title to the two houses. The houses were sold in 2007 and 2008 in a falling real estate market. At sentencing, Robers was ordered to pay restitution of approximately $220,000, equal to the loan amount, minus the money that the banks had received from the sale of the two homes.

On appeal, Robers challenged the sentence imposed pursuant to the MVRA and argued that the MVRA required the court to determine the amount of loss based upon fair market value of the homes on the date that the lenders obtained title to the house, as opposed to the fair market value on the date that the properties were sold. Continue Reading

Keeping up with the dot-anythings

Posted in e-Books, Porter Wright News

For the past several weeks, our colleagues at Technology Law Source have been working hard to keep readers apprised of developments related to The Internet Corporation for Assigned Names and Numbers’ new generic top-level domain (gTLD) program. This program, which is essentially redefining the face of the Internet, is likely to impact any business — or, indeed, any entity — with a web presence. If you haven’t been able to keep up with the hundreds of gTLDs already delegated this year, download this hot-off-the-press e-book: Protecting Your Brand in a New gTLD World.

You also may want to subscribe to Technology Law Source (use the “Subscribe by email” prompt in the left column of the site) to receive weekly updates about the evolution of the gTLD program and the dot-anythings launching each month.

 

SEC issues statement on the recent Court of Appeals decision on the Conflict Minerals Rule

Posted in Corporate Governance, Dodd-Frank Act, SEC News

We reported previously on the ruling by the United States Court of Appeals for the District of Columbia Circuit striking down the part of the SEC’s conflict minerals rules that requires a registrant to describe its products as not “DRC conflict free” and upholding the remainder of the conflict minerals rules. Many observers have been eagerly awaiting the SEC’s response to this decision, including whether the SEC will delay the implementation of the conflict minerals rules.

On April 29, 2014, the SEC issued its response to the court’s decision in the conflict minerals rules challenge. In short, the SEC affirmed the June 2, 2014 deadline for registrants to file Form SD and their conflict minerals reports. Consistent with the court’s ruling, the SEC stated that registrants will not be required to describe their products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.”

If a registrant voluntarily elects to describe any of its products as “DRC conflict free” in its conflict minerals report, it would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as required by the conflict minerals rules. Pending further action from the SEC, an IPSA will not be required unless a registrant voluntarily elects to describe a product as “DRC conflict free” in its conflict minerals report.

Compliance with the conflict minerals rules can be a substantial undertaking. Registrants need to continue their compliance efforts and be prepared for the June 2, 2014 deadline.

First conflict mineral report filed on Form SD

Posted in Corporate Governance, SEC News

On April 24, 2014, Siliconware Precision Industries Co., Ltd. (Siliconware) earned the distinction of being the first registrant to file a conflict minerals report on Form SD. Here are links to Siliconware’s Form SD and its conflict minerals report. Although the filing deadline is not until June 2, 2014, this example gives registrants a glimpse of what conflict minerals disclosure might look like.

Siliconware reported that its due diligence efforts showed a portion of its products to be “DRC conflict undeterminable” and the remainder to be “DRC conflict free,” as those terms are defined in the Exchange Act. Siliconware chose to use these terms, which were prescribed in the conflict minerals rules, notwithstanding the fact that the requirement to use those specific terms was recently struck down by U.S. Court of Appeals on First Amendment grounds.

Registrants should continue to monitor conflict minerals reports of other registrants as they are filed in order to get a sense of market practice for the conflict minerals disclosure.