Securities Regulation Daily Wrap Up, STRATEGIC PERSPECTIVES—Securities Regulation Daily’s top ten developments for May 2016, (Jun. 3, 2016)
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Friday, June 3, 2016

Securities Regulation Daily Wrap Up, STRATEGIC PERSPECTIVES—Securities Regulation Daily’s top ten developments for May 2016, (Jun. 3, 2016)

By Matthew Garza, J.D.

The launch of crowdfunding this month has the industry waiting to see if this new experiment in capital-raising boosts markets and creates jobs, as anticipated by legislators in passing the JOBS Act, or creates more fraud and heartache for investors. A Second Circuit decision provided a boost for the SEC’s administrative enforcement regime, and a vote in the Senate Banking Committee moved the Commission one step closer to a full slate. A big decision from the Delaware Court of Chancery validated the strategy to use appraisal rights in Delaware to boost investor compensation in corporate mergers and served as a lesson for careful use of voting mechanisms in these large deals. Securities Regulation Daily covered these and other big stories in depth in May.

1. CROWDFUNDING

Crowdfunding experiment begins: Ballard Spahr’s Debbie Klis looks ahead

Legal experts, like Ballard Spahr LLP’s Debbie A. Klis, are looking ahead to how clients might best use the SEC’s Regulation Crowdfunding, which became effective on May 16. Securities-based crowdfunding formally launched with its goal of opening investments in early stage companies to virtually all investors, not just to institutions, angels, or other accredited investors. With the final rules in place, the legal bar to federally-authorized securities-based crowdfunding has lifted. See our full coverage.

2. ENFORCEMENT

Opponents of SEC’s ALJ regime dealt appellate setback

A panel of the Second Circuit Court of Appeals rejected arguments from prominent businesswoman Lynn Tilton regarding the ability of respondents in SEC administrative proceedings to force constitutional arguments to be heard in federal district court. The divided panel sided with the lower court’s finding that it did not have subject matter jurisdiction. See our full coverage.

3. MERGERS AND ACQUISITIONS

Dell dissenters rejoice: appraisal values company at 25 percent above merger price

Dell shareholders who dissented from the 2013 management buyout were vindicated by the Delaware Chancery Court's ruling in the appraisal case. Numerous factors in the pre- and post-signing phases of the merger negotiations meant that the merger consideration of $13.88 per share was not the best evidence of a fair price. Opting instead for a discounted cash flow analysis, the court arrived at $17.62 per share as the fair value of the company on the closing date. See our full coverage.

4. MERGERS AND ACQUISITIONS

Voting mishap deprived Dell investors of appraisal rights

Investors lost their right to an appraisal in Dell's merger when T. Rowe Price's voting system generated instructions to vote the investors' shares in favor of the transaction. Distinguishing some cases where petitioners seeking appraisal were not required to trace the vote of specific shares, the Delaware Court of Chancery held that because the evidence established how the shares had been voted, the petitioners bore the burden of proving that the record holder had not voted their shares in favor of the merger. See our full coverage.

5. INVESTMENT ADVISERS

Senate votes to nullify DOL’s fiduciary rule

The Senate voted to approve Joint Resolution 88, which disapproves and nullifies the Department of Labor’s rule that includes a new definition of “fiduciary” for professionals providing retirement investment advice. However, like the House of Representatives, the Senate failed to achieve the two-thirds majority required to override the President’s promised veto of the joint resolution. The rule was later challenged in court by the Chamber of Commerce. See our full coverage.

6. SEC NEWS

SEC nominees move forward in confirmation process

The Senate Banking Committee has voted to approve several executive nominations for a full Senate vote, including Lisa Fairfax and Hester Peirce for the SEC, according to a statement by the committee’s ranking Democrat. Also moving forward are Jay Lerner for FDIC inspector general, Amias Gerety for assistant secretary of the Treasury, and Rhett Jeppson for director of the U.S. Mint. Frustrated with slow pace of approvals, senior committee Sen. Sherrod Brown (D-Ohio) says he will continue to push to clear the remaining backlog of nominations. See our full coverage.

7. BROKER-DEALERS

Raymond James fined $17 million for anti-money laundering compliance deficiencies

Two Raymond James affiliated entities have agreed to settle FINRA charges related to alleged failures of the firms’ anti-money laundering programs and procedures. Raymond James & Associates (RJA) will pay $8 million, while Raymond James Financial Services, Inc. (RJFS), will pay $9 million. The former AML compliance officer of RJA also agreed to settle charges with a $25,000 fine and a three-month suspension. See our full coverage.

8. INSIDER TRADING

Former director, gambler charged with insider trading; pro golfer returns profits

The SEC and the Department of Justice announced insider trading charges against two men relating to the 2013 spinoff of a subsidiary of Dean Foods and other confidential information. Professional golfer Phil Mickelson, who had been tipped by one of the defendants, was named as a relief defendant in the SEC’s case and agreed to repay the nearly $1 million he made as a result of the tip. See our full coverage.

9. SWAPS

CFTC adopts cross-border approach for uncleared swaps margin requirements

In a long-anticipated rulemaking, the CFTC issued a final rule specifying how rules requiring margin for uncleared swaps transactions apply in the cross-border context. As explained in the adopting release and a fact sheet, the final rule generally requires covered swaps entities (CSEs) to comply with the CFTC’s margin requirements for all uncleared swaps in cross-border transactions, with a limited exclusion for certain non-U.S. CSEs. The exclusion is not available to non-U.S. CSEs that are consolidated with a U.S. parent. Importantly, the rule allows for certain substituted compliance with margin requirements in a foreign jurisdiction if the CFTC determines that the foreign jurisdiction’s requirements are comparable to the CFTC’s requirements. See our full coverage.

10. FRAUD AND MANIPULATION

Countrywide’s Hustle wasn’t fraud after all

Knowingly and intentionally selling to Fannie Mae and Freddie Mac mortgages that did not meet the agreed-on standards was not fraud, the U.S. Court of Appeals for the Second Circuit has decided. Since there was no proof that Countrywide Financial Corp. intended to sell substandard mortgages when they signed the contracts, the government had merely shown a subsequent intentional breach of contract, the court said. As a result, an award of more than $1.2 billion in penalties was vacated. See our full coverage.

MainStory: BrokerDealers CorporateGovernance Enforcement FinancialIntermediaries FraudManipulation InvestmentAdvisers JOBSAct SECNewsSpeeches SecuritiesOfferings Swaps

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