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Biz Law Today

Information, insight, and commentary on relevant, current, and sometimes weird issues affecting capital formation concerns

New York Court Finds Certain Letter of Intent to be an Unenforceable “Agreement to Agree”

Posted in Corporate Entities

Business notesThis post was authored by Sierra Kresin, an intern for Becker & Poliakoff who is based out of the firm’s Red Bank, New Jersey and New York offices.

Recently, the Supreme Court of New York, Appellate Division, Second Department reversed a lower court’s ruling that a letter of intent regarding a potential joint venture created a legally binding agreement.[1] The letter of intent provided that the parties “shall negotiate to arrive at mutually acceptable Definitive Agreements” and that “each reserve the right to withdraw from further negotiations at any time….” When the negotiations broke down, plaintiff alleged that there was a breach of contract.

Reversing the lower court’s ruling, the Appellate Division held that it is “well settled in the common law of contracts in this State that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” Here, the language of the letter indicated to the court that the letter was not a binding contract, but a mere “agreement to agree.” Therefore, the lower court should have granted defendants’ motion to dismiss the complaint. Continue Reading

SEC Sanctions Company for Severance Agreements that Removed Incentives for Whistleblowing

Posted in Corporate Entities, Employment, SEC

WhistleblowerEarlier this week, the SEC announced that it was imposing sanctions on a company that included provisions in severance agreements which would remove financial incentives in the event that the departing employees participated in whistleblowing programs. The company’s severance agreements required departing employees to waive their ability to apply for and obtain monetary awards from the SEC’s Whistleblower Program if they wanted to receive severance payments and other post-employment benefits from the company.

The company had originally added this language to its severance agreements in response to the SEC’s adoption of its Whistleblower Program.

As stated by the SEC, the purpose of the SEC’s Whistleblower Program is to encourage whistleblowers to report potential securities law violations to the SEC. The Program promises financial awards and confidentiality in exchange for whistleblowers’ information. In this case, even though the SEC was unaware of any instances in which a former employee of the company did not submit whistleblower information to the SEC, nor was it aware of any instances of actual enforcement of the waiver provision by the company, merely having the language in the severance agreements was sufficient to cause a violation of Rule 21F-17 under the Exchange Act. Continue Reading

FINRA Proposes Amendment Regarding Customer Confirmations

Posted in Broker-Dealer, FINRA, Securities

Showing business and financial reportFINRA has filed with the SEC a proposed rule change to amend FINRA Rule 2232 (Customer Confirmations). The new rule would require FINRA members to disclose additional pricing information on retail customer confirmations relating to transactions in fixed income securities. According to FINRA, some retail customers (i.e., not institutional customers) pay materially higher mark-ups or mark-downs than other retail customers for the same fixed income security. FINRA believes that this new amendment would serve to assist customers in evaluating the cost and quality of the execution service that FINRA members provide, as well as promote transparency into firm’s pricing practices, and encourage communications between firms and their customers about the pricing of these types of transactions. You can read the entire proposed rule change here.

FINRA Investor Alert Helps Investors Understand Different Types of Stock Trading Orders

Posted in Broker-Dealer, FINRA, Securities

Stock exchange graph background, 3D illustrationThis post was authored by Sierra Kresin, an intern for Becker & Poliakoff who is based out of the firm’s Red Bank, New Jersey and New York offices.

According to a recent study released by the FINRA Investor Education Foundation, although most Americans understand the importance of saving and investing, many do not possess the basic financial knowledge needed to make sound financial decisions. FINRA, the largest independent regulator for all securities firms doing business in the United States, is dedicated to market integrity and investor protection. As part of its ongoing investor-education efforts, FINRA has issued an Investor Alert to help investors understand the different types of orders that can be used when making a trade. Understanding the nuances of the different types of orders is important because it gives investors the power to exercise some control over the price and timing. FINRA’s Investor Alert highlights three types of orders: market orders, limit orders, and stop orders. Continue Reading

FINRA Issues Investor Alert Regarding Boiler Room-Style Calls

Posted in Broker-Dealer, FINRA, Securities

Senior Man Giving Credit Card Details On The PhoneFINRA has issued an investor alert warning investors to be wary of boiler room-style calls. According to the alert, FINRA has recently seen an increase in aggressive, high pressure sales pitches from cold callers who try to con investors, particularly senior citizens, into buying low-priced securities and other speculative investments.

Although not all of these scams involve low-priced securities, that can be a warning sign. Cold callers frequently try to pressure investors into buying shares by promising high returns on investments, when in reality, the shares are worth next to nothing. Cold callers may also state that they work for an organization that offers stock recommendations when in fact they are not registered with FINRA. They may use fake names and credentials to try gain the investor’s trust, or use Caller ID “spoofing” to make it appear as if the call comes from a respectable broker-dealer.

One of the key things you can do to protect yourself is to verify that the broker or firm is registered with FINRA and has a reputable background by using FINRA BrokerCheck. FINRA also warns against sending checks to PO boxes or addresses that are not associated with a registered broker-dealer. Further, it warns against making wire transfers or putting investment purchases on a credit card if a cold caller asks you to do so.

New Legislation Creates Centralized Partnership Audit Regime

Posted in Corporate Entities, Legislation, Tax

Businessman Working At DeskThis post was authored by Jim Mahon, Esq. (jmahon@bplegal.com) and Guy Novo, Esq. (gnovo@bplegal.com), with help from intern Sierra Kresin.

Corporate income is considered to be taxed twice—once at the corporate level and a second time when earnings paid out to the corporation’s shareholders are taxed. Partnerships and LLCs (which receive the tax advantages of partnerships while maintaining the limited liability of corporations) are able to avoid this double taxation by using a “pass-through” system. Under this system, partnerships and LLCs are not subject to federal income tax at the entity level; instead, the tax responsibility for the profits or losses is passed through to the partners to include on their individual tax returns. However, new legislation repealing the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) will result in partnership audits now being assessed and collected straight from the entity itself. The new legislation, known as the Bipartisan Budget Act of 2015, creates a centralized partnership audit regime and will apply to returns filed for the taxable years beginning after December 31, 2017. Continue Reading

World’s Leading CEOs and Investors Publish Letter on Corporate Governance Principles

Posted in Corporate Entities

Folder with label Corporate Governance and charts.This post was authored by Sierra Kresin, an intern for Becker & Poliakoff who is based out of the firm’s Red Bank, New Jersey and New York offices.

Last summer, a group of the world’s leading CEOs and investors met in secret to discuss the health of America’s publicly traded companies and examine their corporate governance in order to address the growing disconnect between shareholders and management. The group included Warren Buffet (Berkshire Hathaway), Jamie Dimon (JP Morgan Chase), Mary Barra (General Motors), Larry Fink (BlackRock), Jeff Immelt (General Electric), Lowell McAdam (Verizon), and many others. On July 21, 2016 the group published a letter in the New York Times detailing what they consider to be essential and commonsense corporate governance principles. Continue Reading

FINRA’s 2015 Annual Report Shows That Securities Regulation is Big Business

Posted in Broker-Dealer, FINRA

Silhouette businesspeople entering office buildingThe Financial Industry Regulatory Authority (“FINRA”) has released its 2015 Year in Review and Annual Financial Report dated June 30, 2016 which you can find here. At first glance it reads more like an annual financial report to shareholders similar to a Fortune 500 company. For 2015, FINRA reported revenues of almost $445 million and a net loss of $39.5 million, as compared to 2014 when it reported revenues of $428 million and showed a profit of $129 million. The loss in 2015 was primarily driven by planned improvements related to FINRA’s continuing efforts to migrate to the cloud, which they claim will generate cost savings in future years, and expanding investor protection through cross-market, cross-product, and options surveillances. Additionally, they invested in an advertising campaign aimed at increasing investor awareness about BrokerCheck and promoting it to the public as a free tool to obtain critical information about brokers. As of December 31, 2015, FINRA was charged with regulating nearly 4,000 brokerage firms, approximately 162,700 branch offices, and more than 643,000 registered securities representatives. Continue Reading