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Biz Law Today

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

Supreme Court Affirms Conviction of Indirect Tippee Trading on Insider Information

Posted in SEC, Securities

Words insider trading written on a book.Insider trading tippee liability still alive and well

Since the U.S. Court of Appeals for the Second Circuit decision in United States v. Newman in 2015, there has been uncertainty as to whether insider trading cases could be successfully leveled against persons who were not directly involved as corporate insiders or were several steps removed from the source of inside information. The Newman decision had seemingly severely limited the long-held insider trading standards espoused by the Supreme Court in the 1983 case, Dirks v. SEC. Continue Reading

Material Adverse Change (“MAC”) Clauses in Light of the Yahoo Data Breach

Posted in Corporate Entities, Technology

Data Breach Unsecured Warning Sign ConceptThis post was authored by Sierra Kresin, an intern for Becker & Poliakoff who is based out of the firm’s Morristown, New Jersey office.

Oftentimes in large corporate acquisitions, there is a delay period between the time the merger agreement is entered into by the parties and the time that the transaction is completed and the purchase price is paid. One effect of this delay is that if one of the parties suffers a serious financial decline or downturn in business, the deal may become unattractive to the other party. Therefore, merger agreements commonly protect parties against this possibility by including a “material adverse change” (“MAC”) clause. Under such a clause, if one party suffers a material adverse change before the conclusion of the transaction, the other party may cancel the deal without repercussion.

The standard definition of a MAC includes any event, circumstance, fact, change, development, condition, or effect that has had or could reasonably be expected to have a material adverse effect on the business. The parties to a merger agreement generally do not define the meaning of a “material adverse effect” because they want the clause to cover all unknown and unforeseen situations. Generally, the parties rely upon the courts to determine when such an event has occurred. Courts often consider the present and future earnings of the affected company to determine if a MAC has occurred. The parties may also list exclusions to a MAC clause, such as changes to the national economy or terrorist attacks. Continue Reading

Gift Policies for Broker-Dealers May Undergo Changes from FINRA

Posted in Broker-Dealer, FINRA

Stack of presentsFINRA is proposing a change to its rules that could alter the landscape of registered persons providing gifts, gratuities, and non-cash compensation given to or received from clients.

The current rules are contained in FINRA Rule 3220 (Influencing or Rewarding Employees of Others).

In August, 2016, FINRA released for comment a proposal to make changes to its rules regarding gifts by member firms. See Notice to Members 16-29. FINRA is proposing two new rules, FINRA Rule 3221 (Restrictions on Non-Cash Compensation), and FINRA Rule 3222 (Business Entertainment). FINRA is proposing amendments to the gifts, gratuities, and non-cash compensation rules to, among other things: (1) consolidate the rules under a single rule series in the FINRA rulebook; (2) increase the gift limit from $100 to $175 per person per year and to include a de minimis threshold below which firms would not have to keep records of gifts given or received; (3) amend the non-cash compensation rules to cover all securities products, rather than only direct participation programs (“DPPs”), variable insurance contracts, investment company securities, and public offerings of securities; and (4) incorporate existing guidance and interpretive letters into the rules. Continue Reading

Delaware Courts Clarify Standards of Review Applicable to Shareholder M&A Lawsuits

Posted in Corporate Entities

Judges chair in court roomThis 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.

When shareholders bring a lawsuit following a merger or acquisition of their company, Delaware courts apply one of two standards of review—the “business judgment rule” or the “entire fairness standard.” The business judgment rule allows the court to assume that in making the business decision, the directors of the corporation acted on an informed basis, in good faith, and in the honest belief that the transaction was in the best interest of the company. Under this standard, it is much easier for a lawsuit to get dismissed because shareholders must attack this presumption. On the other hand, the entire fairness standard requires that the directors not only believed that the transaction was entirely fair, but that the transaction was actually objectively fair, independent of the board’s beliefs. Under this standard, courts scrupulously analyze whether the transaction involved both fair dealing and a fair price. Therefore, the burden falls upon the board of directors to prove that they followed a fair process and achieved a fair price. Continue Reading

Delaware Court Provides Guidance on Shareholder Inspection Rights

Posted in Corporate Entities

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.

Recently, the Delaware Chancery Court provided additional guidance on the evolving rules governing a shareholder’s right to inspect a corporation’s books and records. The high profile case, captioned Amalgamated Bank v. Yahoo! Inc., both clarified and expanded those rights.

In the case, Amalgamated Bank demanded to inspect Yahoo’s books and records in order to investigate potential mismanagement and corporate wrongdoing in connection with the payment of compensation to Yahoo’s officers and directors. Specifically, Amalgamated Bank sought information related to the hiring, compensation package, and subsequent termination of Henrique de Castro, Yahoo’s former Chief Operating Officer. Amalgamated Bank sought not only corporate “books and records” as provided for in Section 220 of the Delaware General Corporate Law, but also emails and other electronically stored files of Yahoo’s Chief Executive Officer, Marissa Mayer. Continue Reading

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