Auction Rate Securities Law Alert

Posted on January 30, 2009 by Porter Wright

The collapse of the market for auction rate securities (“ARS”) left investors who thought they had a safe, liquid investment with illiquid securities. While there have been a number of government settlements with sellers of ARS, the agreements have focused on providing a recovery for small investors, leaving corporate and institutional purchasers of these securities to pursue their own remedies. Nevertheless, there are meaningful opportunities for corporate purchasers of these securities to recover their investments. Prompt action is required, as described further in this Porter Wright Law Alert.

 
 

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Steve Jobs and the Intersection of Privacy and Corporate Disclosures

Posted on January 23, 2009 by Jack J. Gravelle

Several news outlets are reporting that the SEC is investigating Apple, presumably in connection with recent announcements about Steve Jobs’ medical issues.  Jobs was diagnosed with pancreatic cancer in 2003, which was publicly disclosed almost a year later when he announced he was cured following surgery.  In June 2008, the press raised concerns over Jobs’ illness again, and he said he just had a “common bug.” On January 5, 2009, Apple announced that Jobs merely has a “hormonal imbalance” that is easily treatable, only to announce nine days later that he would take a six-month medical leave of absence.  The Apple stock price has gone up with the good announcements and down with the bad.

It seems callous that the SEC would investigate a revered business leader guarding his privacy while fighting cancer, but the issue is the disclosure of material facts.  Once the company decides they should make an announcement about material facts or correct rumors in the marketplace, they cannot be misleading.

Does a public company have to disclose big news as soon as it happens? Generally, no. But, the duty to disclose could arise for a variety of reasons, including if (i) a periodic filing must be made such as an 8-K, (ii) information has leaked out that is attributable to the Company, (iii) a previous statement is now inaccurate, or (iv) disclosure is required by a securities exchange listing requirement.

Once the duty to disclose arises, securities laws give no weight to the privacy rights of an executive.  Maybe they should, but such an approach would be counter to the current framework.  The problem for a company like Apple, whose stock price is directly linked to the leadership of their CEO, is that they want to assure the market that Jobs is fine.  After they do that, they potentially cause a situation where they must tell the market when he is not fine.
 

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2009 SEC Trends

Posted on January 16, 2009 by Jack J. Gravelle

What does 2009 hold in store for the SEC? A good indicator is Mary Schapiro’s testimony to the Senate Nominating Committee yesterday. Ms. Schapiro is President-elect Obama’s nominee to serve as Chairman of the SEC.

In contrast to previous sentiments as head of FINRA that she would like to reduce overly burdensome regulation (according to the New York Times), Ms. Schapiro called for more regulation and more oversight in her statements to the Senate. Whether genuine or not, and despite previous comments to the contrary, it would be difficult for her to argue that in the current economy and following the Bernie Madoff scandal what the SEC needs is less oversight power.

Specifically, Schapiro called for:

  • Registration of hedge funds;
  • More oversight of insurance companies, which are mostly regulated by state law;
  • More regulation for credit rating agencies;
  • More regulation of credit default swaps, which are at their core privately negoiated contracts that do not have the same type of market transparency associated with securities;
  • Reexamination of U.S. corporations adopting international accounting standards;
  • Reexamination of a short-selling uptick rule, which would presumably prohibit short selling if the price of a stock has already started moving down; and
  • Consideration of an easier process for dissenting shareholders (with significant but not controlling ownership) to propose and elect directors.
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2009 Board of Director Trends

Posted on January 9, 2009 by Jack J. Gravelle

As 2009 begins, perhaps the best indicator of board structure and corporate governance trends is the annual review of boards of directors recently completed by RiskMetrics Group. RiskMetrics has compiled data from last year’s proxy statements at S&P 1,500 companies, yielding the following trends:

  • 50% of companies continue to have classified boards, down 2% from last year.
  • 46% of companies have CEOs that do not serve as the leader of the board of directors, up 5% from last year. But, 8% fewer boards than two years ago have the position of some type of “lead” director. Perhaps companies that have different people serving as CEO and chairman of the board see no need to have a lead director; although, RiskMetrics reports only 48% of non-CEO board chairs were considered independent last year (a 10% increase from 2007).
  • 88% of companies have a board committee formally charged with CEO succession planning, up 8% from last year.
  • 17% of individual directors sit on two or more S&P 1,500 boards, up 5% from last year. It’s difficult to guess what this means, if anything, considering institutional shareholders tend to encourage not being on multiple boards. A closer look at the numbers reveals only the percentage of directors on two boards has increased, not the percentage on more than two boards. Could the up-tick reflect fewer qualified candidates? Fewer willing candidates?

Not surprisingly, most of the trends reflect policies and practices that are supported by the powerful institutional investor advisers.
 

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