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FTC revises HSR and interlocking directorate thresholds

The Federal Trade Commission has announced annual filing threshold revisions under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act that set new antitrust reporting standards.

Jay Levine, our colleague at Antitrust Law Source, provides perspective about the updated HSR requirements in his recent blog post. Read the full article here: “FTC revises HSR and interlocking directorate thresholds.”

Article sheds light on practice of private equity sponsored borrowers selecting lenders’ counsel

Andrew Ross Sorkin wrote an interesting article in Tuesday’s New York Times regarding the practice of private equity firms designating the legal counsel to be used by its lenders in a leveraged buyout financing. In other words, the private equity firms engaging in this practice are hand selecting, and paying the fees of, the lawyers that will be on the other side of the transaction negotiating on behalf of the banks against the private equity sponsored borrowers. This practice constitutes a clear conflict of interest that tilts the negotiations of the financing in favor of the private equity sponsored borrowers.…

Recent litigation illustrates the importance of keeping accurate stock records

Earlier this month, The Wall Street Journal published an article on the ongoing litigation in the wake of the 2014 sale of Tibco Software Inc. to Vista Equity Partners. The Tibco litigation involved an error in the calculation of the number of shares outstanding that resulted in Tibco shareholders receiving approximately $100 million less than the buyer was actually willing to pay. The Tibco litigation illustrates the importance of sound corporate record keeping, particularly with respect to stock issued and outstanding and the capitalization table of a company.…

Corruption and conspiracy charges hit sports world: DOJ indicts additional FIFA officials in corruption conspiracy

While the latest happenings in the governing world of soccer are not a typical blog topic for us, the legal issues and impacts are worth considering in a broader context. Soccer fan or not, certainly interesting times.

Late Thursday Attorney General Loretta Lynch announced that 16 additional defendants have been indicted in the on-going probe of FIFA, soccer’s world governing body. The superseding indictment names several high-ranking FIFA officials and charges corruption involving two generations of soccer officials in South and Central America over a 24 year period. The corruption scheme involves more than $200 million in bribes to win media and marketing rights for major tournaments.…

Real estate developers use Regulation A+ to raise capital

Regulation A+ is a potentially attractive way for real estate developers to raise up to $50 million for specific projects by selling debt or equity to the public without having to meet all of the requirements of a traditional initial public offering.

Several investment platforms for real estate development allow developers to market investment offerings to investors. At least two platforms, Fundrise and Groundfloor, have launched Regulation A+ offerings to raise capital, and the SEC has approved two of the Groundfloor offerings (a third was filed November 19). In fact, the second Groundfloor offering was approved in just 22 days from the date the offering statement was filed. Groundfloor claims to be the first real estate lending marketplace open to non-accredited investors. Fundrise claims to be the first online real estate investment available to anyone in the United States regardless of net worth. Below is a description of Regulation A+ and summaries of the types of real estate development offerings using Regulation A+ to raise capital.

 Regulation A+

Amended Regulation A, effective June 19, 2015 (Regulation A+) allows issuers to make public offerings up to $50 million in a 12-month period using general solicitation of, and advertising to, accredited and non-accredited investors. The issuer must file an offering statement and the offering circular with the SEC, which the SEC must approve (a “qualification”) before any sales can be made. Issuers are permitted to “test the waters” with potential investors to see if they are interested before filing with the …

New DOJ policies target corporate executives over companies

The U.S. Department of Justice (DOJ) issued new policies Sept. 9. One requires that companies disclose all facts relating to individual misconduct discovered during internal investigations or be considered uncooperative. This places pressure on corporations to turn over evidence against their own executives. The policy comes after ongoing criticism of the DOJ’s failure to prosecute individuals in the wake of the 2008 financial crisis.

The memorandum, issued by Deputy Attorney General Sally Q. Yates, marked the first major policy announcement of Attorney General Loretta Lynch since she took office in April. The Yates memorandum enumerates six key steps to strengthen prosecutions against individual defendants:…

U.S. Supreme Court clarifies liability for opinions in registration statements

Opinions in registration statements continue to be one of the most commonly litigated items under Section 11 of the Securities Act of 1933 (“Section 11”). On March 24, 2015, the U.S. Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund clarified a lower court split in the application of Section 11 to opinions in registration statements. The court held, in pertinent part:

1. A statement of opinion does not constitute an “untrue statement of … fact” simply because the stated opinion ultimately proves incorrect. Rather, for an opinion to constitute an “untrue statement of … fact” under Section 11, the opinion expressed must not have been sincerely held by the registrant

2. Section 11 liability only attaches to an omission of material fact in a registration statement if both (i) the registration statement omits material facts about the issuer’s inquiry into, or knowledge concerning, a statement of opinion, and (ii) those facts conflict with what a reasonable investor, reading the statement fairly and in context, would take from the statement itself.…

Bill governing M&A brokers should resurface in 2015

During 2014, Congress has gained momentum toward creating an exemption from federal broker-dealer registration for “M&A brokers” who facilitate mergers, acquisitions, sales and similar transactions involving privately held companies.

H.R. 2274 unanimously passed the U.S. House of Representatives, but the U.S. Senate did act on the bill. If passed, the measure would have permitted M&A brokers to be involved with the sale of certain privately held companies without being registered as a broker-dealer. A number of limitations apply to the type of transaction addressed in the bill, including:

  • The size of the privately held company
  • Company leadership; the buyer would need to be actively involved, directly or indirectly, in operating the business after closing
  • Client funds; the bill forbids the M&A broker to have custody of client funds

Observers expect the bill to be reintroduced in 2015.

Shortly after H.R. 2274 passed the U.S. House, the Securities and Exchange Commission issued the M&A broker no-action letter, which concluded that the staff of the SEC Division of Trading and Markets would not recommend enforcement action if, without registering as a broker-dealer, an M&A broker engaged in M&A activities if all of the no-action letter’s conditions were satisfied. Among those conditions are that the target company must be an operating company that is a “going concern,” the buyer must be involved in operating the business after closing, and an M&A broker cannot bind a party to an M&A transaction or provide financing for an M&A transaction.

State regulators, in collaboration with …

A compliance problem truly “Made in the USA”

Following the expiration of a public comment period last week, the ink is now dry on the Federal Trade Commission’s consent decree against Made in USA Brand, LLC, settling charges that the Columbus, Ohio-based company sold its “Made in USA” certification label to product-sellers without making any attempt to verify whether the companies’ products were actually made in the USA.

The FTC’s case against Made in USA Brand, LLC seems to present a pretty bright line for what not to do when labeling a product as “Made in USA.” According to the FTC, the company’s certification would have been just as easily obtainable by a computer chip factory in Shenzhen, China as it would have been by a furniture maker in Pennsylvania Dutch country. But determining whether a product is truly “Made in USA” is rarely as obvious as in these extreme examples. In our increasingly globalized economy, even the most seemingly simple products may be assembled in one country from parts manufactured in another country using components made in yet another country. Can any one of these countries really claim to have “made” the product?

Fortunately, the FTC has attempted to bring a pragmatic approach to this conundrum by allowing use of a “Made in USA” label as long as “all or virtually all” of a product is made domestically. Problem solved, right? Wrong. Enter California.…

Sixth Circuit case specifies additional language required in indemnification survival clauses in M&A agreements

A recent Sixth Circuit case, interpreting Ohio law, found that a merger agreement stating that the representations and warranties “shall survive…the Closing until… the second anniversary date of the Closing…,” without more, was not sufficient to modify the statute of limitations for breach of contract claims related to the merger agreement. Fortunately, this issue can be remedied in merger agreements with the addition of a provision expressly limiting when “actions,” “demands” or “claims” may be brought.

This article describes the Sixth Circuit case in greater detail and provides a sample contract provision that M&A parties can add to their M&A agreements to ensure that courts will respect the parties’ intent to modify the statute of limitations in the survival clause of the agreement.

Background of the Sixth Circuit case

Escue v. Sequent, Inc., 2014 FED App. 0412N (6th Cir. 2014), involved the acquisition of Better Business Solutions of Alabama, Inc. (“Better Business”) by Sequent, Inc. pursuant to a stock for stock merger that closed Jan. 1, 2007. On Dec. 18, 2008, the plaintiff, the sole shareholder of Better Business, sent a letter to the defendant corporation stating that he intended to sue the defendant corporation for breaching its representations and warranties. However, the lawsuit was not filed until September 2009.…

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

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.…

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

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.…

Beware of antitrust laws’ extraterritorial reach

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.…

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

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.…

FBI increases criminal fraud investigations by 65%, director reports

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.…

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

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.…

FINRA invites comment on rules that will govern limited corporate financing brokers

FINRA (the Financial Industry Regulatory Authority) is soliciting public comment on a proposed rule set (LCFB Rule 14-09) for firms that meet the definition of “limited corporate financing broker” (LCFB). An LCFB is a firm that engages solely in any one or more of the following activities:

  • Advising an issuer, including a private fund, concerning its securities offering or other capital raising activities
  • Advising a company regarding its purchase or sale of a business or assets or regarding its corporate restructuring, including a going-private transaction, divestiture or merger;
  • Advising a company regarding its selection of an investment banker
  • Assisting in the preparation of offering materials on behalf of an issuer
  • Providing fairness opinions
  • Qualifying, identifying or soliciting potential institutional investors

The rationale behind LCFB Rule 14-09 is that while LCFB firms may receive transaction-based compensation as part of their services, they do not engage in many of the types of activities typically associated with traditional broker-dealers. An LCFB firm would be prohibited from maintaining customer accounts, handling customer funds or securities, exercising investment discretion on behalf of a customer, or engaging in proprietary trading of securities or market-making activities.…

Affordable Care Act update: agencies extend reprieve for employer pay-or-play mandate

Hot off the press are the final regulations for the employer shared responsibility provisions of the Affordable Care Act (more commonly referred to as the “pay-or-play mandate”). In fact, the regulations are so new that they will not actually be published in the Federal Register until tomorrow, February 12. For those of you who are dying to get a first glimpse, a pre-publication version can be found here.

While the regulations are extensive (227 pages), many of the provisions of the proposed regulations have been retained. However, there are a couple important transition rules buried in the final regulations that provide a welcomed reprieve from the pay-or-play mandate for certain employers.…

FTC Revises HSR and Interlocking Directorate Thresholds

HSR Revisions

The Federal Trade Commission (FTC) recently announced the annual changes to the notification thresholds for filings under the Hart-Scott-Rodino Antitrust Improvements Act (HSR) as well as certain other values under the HSR rules.

As background, the HSR Act requires that acquisitions of voting securities or assets that exceed certain thresholds be disclosed to U.S. antitrust authorities for review before they can be completed. The “size-of-transaction threshold” requires that the transaction exceeds a certain value. Under certain circumstances, the parties involved also have to exceed “size-of-person thresholds.” This year’s values, which are adjusted annually based on changes in the GNP, take effect in mid-to-late February 2014. The FTC also adjusted the safe harbor thresholds that govern interlocking directorates in competing companies.

The most important change is that the minimum size-of-transaction threshold will increase from the current $70.9 million to $75.9 million. The size-of-person thresholds will also increase as follows.

  • For transactions valued between $75.9 million and $303.4 million, one party to the transaction must have $15.2 million in sales or assets and the other party must have $151.7 million in sales or assets, as reported on the last regularly prepared balance sheet or income statement.
  • For transactions valued at greater than $303.4 million, no size-of-person threshold must be met to require an HSR filing.

The filing fee thresholds have similarly increased as follows.

Filing FeeTransaction Value
$45,000$75.9 to $151.7 million
$125,000$151.7 to $758.6 million
$280,000$758.6 million or greater

Interlocking Directorates

Section 8 of the Clayton …

The Timken Board: Between a Rock and a Hard Place

On May 7, 2013, Timken Co. announced that its shareholders approved a nonbinding proposal from activist shareholders (Relational Investors and Calstrs—California State Teachers’ Retirement System, who together own 7.28% of the Company) to spin-off the Company’s steel business into a separate entity. The Company’s Board had opposed the proposal.

The Company said that 47% of outstanding shares (53% of the shares voted) were voted in favor of the plan to create a separate company, while 41% of outstanding shares (47% of the shares voted) voted against the proposal.

In a joint statement released on May 7, 2013, Relational and Calstrs stated that Timken’s Board "must now acquiesce to the will of the shareholders consistent with their fiduciary duties."  On the same date, Chairman Tim Timken Jr. stated, "We appreciate the thoughtful feedback we’ve received from our shareholders on the spin-off proposal as well as their broader input on corporate governance and capital allocation. The board will carefully evaluate the views of our shareholders and announce next steps within 45 days."

The real work for the Timken Board now begins.  The Board will need to work through their fiduciary duties to act in the best interests of all their shareholders and determine an appropriate course of action.  Merely acquiescing to shareholders’ favoring the nonbinding proposal will not necessarily fulfill their fiduciary obligations.  Prior to the vote, as part of their fiduciary obligations, the Board determined that the proposal and subsequent spin-off were not in the best interests of the shareholders.  The real question for them …

SEC’s New Investor Advisory Committee Holds First Meeting and Commission Aguilar Asks Members To Put Individual Retail Investors Foremost In Their Considerations

On June 12, 2012, the newly-formed Investor Advisory Committee of the SEC held its first meeting. SEC Chairman Mary Schapiro told the committee members that “you have made a commitment to ensuring that the voice of the investor remains front and center at the SEC,” while Commissioner Luis Aguilar, an ardent backer of the Committee, told members that their “work will be vital to the SEC and the American public,” asking them to focus on the needs of individual investors while noting that “only 15% of Americans trust the stock market.”…

SEC Announces the Formation of a New Investor Advisory Committee

On Monday, April 9, 2012, the SEC announced that it had formed the new Investor Advisory Committee and identified the 21 members who will serve on that Committee. The new Committee, mandated by Section 911 of the Dodd-Frank Act, replaces a prior Investor Advisory Committee. The Commission described the Committee as being "made up of individuals with a broad range of backgrounds and experiences."…

The JOBS Act – Creation of the “Emerging Growth Company”

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act of 2012, the JOBS Act. The Act implements measures relating to the IPO process and reporting requirements for a new category of issuer known as the “emerging growth company,” or EGC. The Act defines an EGC as a company with annual gross revenues of less than $1 billion during its most recent fiscal year. A company will retain its EGC status until the earliest of:

·         The first fiscal year after its annual revenues exceed $1 billion.

·         The first fiscal year following the fifth anniversary of its IPO.

·         The date on which the company had, during the previous three-year period, issued more than $1 billion in non-convertible debt.

·         The date on which the company qualifies as a large accelerated filer.

IPO Process

 

The Act amends applicable federal securities laws to exempt EGCs from:

·         The requirement to publicly file an IPO registration statement. An EGC may confidentially submit its registration statement and any amendments to the SEC.

·         The requirement to include three years of audited financial statements in an IPO registration statement. EGCs only need to include two years of audited financial statements. Likewise, the MD&A need only include two years of discussion and analysis.

·         Restrictions on communications ahead of public offerings, provided the EGC communicates only with qualified institutional buyers or accredited investors. This allows EGCs to “test the waters” before a contemplated offering.

The Act also eases the rules on research relating to …

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