On April 10, 2013, the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) jointly adopted rules that require broker-dealers, mutual funds, investment advisers and certain other regulated entities to adopt programs designed to detect “red flags” and prevent identity theft. These rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, that amended the Fair Credit Reporting Act (“FCRA”) to direct the SEC and the CFTC to adopt rules requiring regulated entities to address risks of identity theft. The 2003 amendments to the FCRA required other regulatory authorities to issue identity theft red flags rules, but did not authorize or require the SEC or the CFTC to issue their own rules.Continue Reading...
On March 7, 2012, the Staff of the Securities and Exchange Commission (the “Staff”) issued responses to a series of no-action requests seeking to exclude shareholder proxy access proposals. These no-action responses represent the first significant guidance from the Staff following the 2011 amendments to Rule 14a-8 that permit inclusion of proxy access proposals. The Staff permitted six companies to exclude precatory proposals that were based on a model prepared by a coalition of shareholders called the “United States Proxy Exchange.”1 The Staff did not permit exclusion, however, of a binding proposal submitted by Norges Bank Investment Management. That proposal would provide access to holders of 1% of a company’s stock for one year. In addition, the Staff did not agree that a company that had voluntarily adopted a proxy access bylaw could exclude a proposal on the basis that it had been substantially implemented.
On February 15, 2012, the Securities and Exchange Commission ("SEC") adopted new rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as required by Section 418 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). The new rules codify the SEC's July 12, 2011 order to increase the dollar amount tests applicable to qualified clients that may be charged performance fees under Rule 205-3. A copy of the SEC's adopting release is available here.
Institutional Shareholder Services (“ISS”) recently announced its updated voting policies for the 2012 proxy season. The policies will become effective for shareholder meetings held on or after February 1, 2012. While the policies cover various matters, we have summarized below certain policies relating to corporate governance matters that may be of particular interest to corporations.
On October 26, 2011, the Securities and Exchange Commission (“SEC”) adopted new rules under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), as required by Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The new rules create a new reporting form — Form PF — to be filed quarterly or annually by registered investment advisers that manage private funds, including hedge funds and private equity funds. A copy of the SEC’s adopting release is available here.
Earlier today, the U.S. Court of Appeals for the D.C. Circuit vacated the Securities and Exchange Commission's ("SEC") proxy access rules, which had been stayed pending the outcome of this litigation. The court found that the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters." In addition, the unanimous three-judge panel stated that "[b]y ducking serious evaluation of the costs that could be imposed upon companies from use of the rule by shareholders representing special interests, particularly union and government pension funds, we think the Commission acted arbitrarily."
As we previously explained, the proxy access rules would have permitted shareholders who collectively owned at least 3% of a company's shares for a period of three years to include nominees in a company's proxy materials. The court's decision is a rebuke to the SEC, but the SEC could request a rehearing, appeal to the supreme court or revise its analysis without necessarily changing the rules.
On May 25, 2011, the U.S. Securities and Exchange Commission (SEC) by a 3–2 vote adopted final rules implementing the whistleblower award program of Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).i New Regulation 21F requires the SEC to pay cash awards to whistleblowers who voluntarily supply the SEC with original information leading to a judicial or administrative action in which the SEC obtains monetary sanctions over $1 million, subject to certain limitations. Whistleblowers who provide such information are eligible for a cash award of from 10 to 30 percent of the monetary sanctions. Employers are prohibited from retaliating against individuals who provide the SEC with information about possible federal securities law violations, and victims of retaliation are granted an independent cause of action.
On January 25, 2011, the Securities and Exchange Commission ("SEC") proposed new rules under the Securities Act of 1933, as amended (the "Securities Act"), as required by Section 413(a) of the "Dodd-Frank Wall Street Reform and Consumer Protection Act" ("Dodd-Frank"). The proposal excludes the value of a person's primary residence for purposes of determining whether the person qualifies as an "accredited investor" on the basis of having a net worth in excess of $1 million. A copy of the SEC's Proposing Release is available here.
SEC Proposes Rules Relating to Investment Adviser Registration Exemptions and Reporting Requirements
On November 19, 2010, the Securities and Exchange Commission ("SEC") proposed new rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as required by Sections 403, 407, 408 and 410 of the "Dodd-Frank Wall Street Reform and Consumer Protection Act" ("Dodd-Frank"). If adopted as proposed, the "Exemptive Release" would define the scope of the registration exemptions available to advisers to venture capital funds, advisers to private funds with less than $150 million in assets under management in the United States, and foreign private advisers. The "Implementation Release" would require reporting by certain "exempt reporting advisers" (including advisers to venture capital funds and private funds with less than $150 million in assets under management in the United States). Further, the Implementation Release would expand the reporting requirements for registered investment advisers on Form ADV. A copy of the SEC's Exemptive Release is available here and a copy of the SEC's Implementation Release is available here.
The Securities and Exchange Commission recently adopted its final rule on "proxy access," perhaps the most sweeping reform in decades regarding the way directors of public companies are elected. On September 21, 2010, Hunton & Williams hosted a panel on the SEC's proxy access rule and related corporate governance implications of the Dodd-Frank Wall Street Reform Act. Panelists included a proxy solicitor, senior in-house counsel of a public company, an executive compensation consultant and our corporate governance attorneys.
On August 25, 2010, the Securities and Exchange Commission (“SEC”) adopted final rules to facilitate nominations of directors by shareholders, including so-called “proxy access” rules. As adopted, the rules permit any shareholder or group of shareholders that has owned three percent or more of the company’s voting stock for at least three years to include director nominees in that company’s proxy materials. Shareholders will be entitled to include the greater of one nominee or the number of nominees that represent twenty-five percent of the total number of the company’s directors. As explained in the SEC’s 451-page release, the rules are mandatory and will become effective sixty days after publication in the federal register, though the SEC granted a three-year reprieve to “smaller reporting companies.” The rules fundamentally affect the manner in which directors are elected and deserve close attention.
On March 15, 2010, Senator Christopher Dodd (D-CT) unveiled a revised draft of proposed legislation, the “Restoring American Financial Stability Act of 2010” (the “RAFSA”), for consideration by the Senate Committee on Banking, Housing, and Urban Affairs. The RAFSA includes expansive financial industry regulatory reforms, including the “Private Fund Investment Advisers Registration Act of 2010” (the “PFIARA”). The PFIARA, as proposed by Senator Dodd, is similar to a prior version of the PFIARA included in H.R. 4173, which passed the House of Representatives on December 11, 2009. If passed by Congress and signed into law in its present form, the PFIARA could have a significant impact on advisers to certain private funds, including hedge funds, private equity funds and permanent capital vehicles, by (1) requiring the registration of certain unregistered advisers under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and (2) imposing additional reporting and disclosure requirements on investment advisers, including those already registered under the Advisers Act. The Dodd version of the PFIARA lays out a framework for regulation of private fund advisors, but delegates to the SEC rulemaking authority for many of the details concerning the types of advisers that may face additional regulatory burden.
The House Financial Services Committee approved today legislation to regulate over-the-counter ("OTC") derivatives. Included in OTC derivatives are swaps which, under the legislation, will now mostly be traded on exchanges and certain swap participants will be required to register with the applicable governing commission. Additionally, the legislation lays out a parallel track regulatory framework with joint rulemaking authority residing in the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Should the SEC and CFTC be unable to issue joint rules within 180 days, the Treasury Department will have the ability to issue final rules.
Newly Proposed Financial Regulatory Reform Legislation Would Broaden SEC Powers, Create Federal Insurance Office
Three proposed pieces of financial regulatory reform legislation released today would collectively increase the U.S. Securities and Exchange Commission's (SEC) power and budget, require private advisers to hedge funds to register with the SEC, and create a Federal Insurance Office to assist policy makers in analyzing the insurance industry, according to today's press release by the House Financial Services Committee's Capital Markets Subcommittee Chairman Paul Kanjorski. The draft bills are for each of the following, the Investor Protection Act, the Private Fund Investment Advisers Registration Act, and the Federal Insurance Office Act.
Click here for today's press release outlining each of the proposed bills. Click here for the Investor Protection Act draft bill, click here for the Private Fund Investment Advisers Registration Act draft bill, and click here for the Federal Insurance Office Act draft bill.
Treasury Secretary Timothy Geithner outlined a set of compensation "principles" impacting publicly traded companies in a statement released today. Included in the principles are two pieces of proposed legislation which Congress would first need to pass in order to become law. The first, which is commonly referred to as "say on pay" legislation, would give the Securities and Exchange Commission (SEC) "authority to require companies to give shareholders a non-binding vote on executive compensation packages," according to today's statement The second piece of proposed legislation would give "the SEC the power to ensure that compensation committees are more independent, adhering to standards similar to those in place for audit committees as part of the Sarbanes-Oxley Act. At the same time, compensation committees would be given the responsibility and the resources to hire their own independent compensation consultants and outside counsel," also according to today's statement.
Click here for Treasury Secretary Geithner's statement, click here for the Treasury Department's "say on pay" fact sheet, and click here for the Treasury Department's "Providing Compensation Committees New Independence" fact sheet.