Over the past several months, the SEC has issued new and updated regulations that are likely to have an impact on your business now and in the near future. The compilation of articles in this eBook — SEC Updates: Staying Ahead of the Regulatory Curve — discuss three important SEC regulatory changes:
- Using social media for Regulation FD — A SEC report says some companies can comply with Regulation Fair Disclosure by posting information on social media channels such as Facebook and Twitter. To avoid penalties, ask yourself a few key questions before assuming social media could be an acceptable method for your company to communicate with investors.
- Conflict minerals reporting — The process of tracking the components of your products to their source of origin is an extremely arduous and time-consuming task. Public companies — and private companies that provide materials to public companies — should start the inquiry process now.
- Compensation committee independence — An SEC rule designed to promote the independence of compensation committee members, consultants and advisers goes into effect July 1. Is your board ready to grapple with potential conflicts of interest or other independence concerns that could make some compensation committee members ineligible to serve?
Download our SEC Updates: Staying Ahead of the Regulatory Curve eBook.
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On June 13, 2013, the Securities and Exchange Commission (“SEC”) charged Revlon with violating federal securities laws when the company misled shareholders during a going private transaction. Specifically, the SEC found that Revlon violated Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3(b)(1)(iii), which prohibits issuers and their affiliates in going private transactions from directly or indirectly engaging in any act, practice, or course of business that operates or would operate as a fraud or deceit.
In its investigation, the SEC found that in connection with a voluntary exchange offer to satisfy a significant debt to its controlling shareholder, Revlon erected “informational barriers” or engaged in what one employee termed as "ring fencing" that deprived the Revlon independent board members from knowing critical information (i.e., a third-party financial adviser found that the consideration offered in the transaction was inadequate for tendering 401(k) shareholders). The trustee administering Revlon’s 401(k) plan determined that 401(k) members could only tender their shares if a third-party financial adviser made an "adequate consideration determination," which involved assessing whether the value of the preferred stock 401(k) participants would receive was at least equal to the fair market value of the exchanged common stock shares.
The SEC’s order determined that, in an attempt to avoid a potential disclosure obligation, Revlon undertook a number of actions to avoid receiving the adequate consideration determination from the third-party adviser, including the following:
- Revlon amended the trust agreement it had with the trustee to ensure that
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H.R. 2274, the Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2013, was introduced in the U.S. House of Representatives by Rep. Bill Huizenga on June 6, 2013. The bill is intended to reduce the regulatory costs incurred by buyers and sellers of smaller privately held companies for professional business brokerage services. The legislation would create a simplified system for registration through a public notice filing with the Securities and Exchange Commission ("SEC") and would require appropriate client disclosures, pertaining to “M&A brokers” and their associates. An M&A broker relying on this legislation would not be permitted to (i) receive, hold, transmit or have custody of the funds or securities to be exchanged in the transfer of ownership of an “eligible privately held company,” or (ii) engage on behalf of an issuer in a public offering of securities.
An “M&A broker” means a broker engaged in the business of effecting the transfer of ownership of an eligible privately held business , whether acting for the seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company, if the broker reasonably believes that (i) upon consummation of the transaction, the acquirer, acting alone or in concert with, will control and, directly or indirectly, will be active in the management of the eligible privately held company or the business conducted with the assets of the eligible privately held company; and (ii) if the …
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