On May 22, 2020, Judge Paul G. Gardephe of the Southern District of New York, in Kirschner v. JPMorgan Chase, reaffirmed that syndicated bank loans are not securities. In Kirschner, the plaintiff alleged that a $1.77 billion syndicated bank loan made to Millennium Laboratories LLC (Millennium), a California-based urine testing company and subsequently sold to 70 institutional investors was, in fact, a security — affording it additional protections under the certain state “blue sky” securities laws. The plaintiff alleged that defendants J.P. Morgan Chase Bank, N.A., J.P. Morgan Securities LLC, Citibank, N.A., Citigroup Global Markets, Inc., Bank of Montreal, BMO Capital Markets Corp., SunTrust Bank and SunTrust Robinson Humphrey, Inc., sold debt obligations to the investors but “misrepresented or omitted…material facts in the offering materials they provided and communications they made to Investors regarding the legality of [Millennium’s] sales, marketing, and billing practices” and “the known risks posed by a pending government investigation into the illegality of such practices.” Shortly after the closing of the loan transaction, Millennium lost an important litigation matter that resulted in a $500 million decrease to its valuation and, in addition, entered into a $256 million settlement with the Department of Justice (DOJ) over claims related to alleged healthcare law violations. Within a month of finalizing the DOJ settlement, Millennium defaulted on the loan and filed for bankruptcy. (more…)
The U.S. and many other countries are stuck in, or just emerging, from stay-at-home orders that, among countless other consequences, have largely shut down the pipeline for new investment in early stage ventures. According to PitchBook, after a robust investment market in the 4th quarter of 2019 and 1st quarter of 2020, the amount of new financings since the pandemic began has fallen off a cliff, with steep declines in both numbers of completed deals and total dollars invested compared to April 2019. To those of us who lived through previous downturns, this change feels a lot like the dot com bust circa 2000 or the “Great Recession” that followed the global financial crisis of 2008 all over again.
In June 2019, the Securities and Exchange Commission (the SEC) published a concept release (the Concept Release) that sought public comment on how to improve the framework for private securities offerings under the Securities Act of 1933 (the 1933 Act), with the goal of encouraging capital formation as well as opening up investment opportunities to a broader group of investors. After receipt and consideration of comments on the Concept Release, on December 18, 2019, the SEC issued a release in which it proposed expansion of the definition of an “accredited investor” in Rule 501(a) of Regulation D of the 1933 Act in an effort to further the goals discussed in the Concept Release. The SEC’s proposed rule changes are designed to modernize and broaden the criteria by which both individual and institutional investors can participate in private securities offerings. (more…)
A recent decision by the U.S. Court of Appeals for the Third Circuit offers an important reminder of the distinction between the roles (and exposure to liability) of corporate directors and board observers. In a precedential opinion on a matter that previously lacked judicial guidance, the appeals court held that as a matter of law the functions of the defendant nonvoting board observers were not “similar” to the functions of board directors for purposes of imposing liability under Section 11 of the Securities Act of 1933.
By: Lori Smith
The other day I had a client ask me to review some form documents that another party wanted to use in connection with the client’s website. The basis of the request was that he thought I had prepared, or at least reviewed, these documents when they were originally created – over 10 years ago (coincidentally I had reviewed them, but had been somewhat critical, in part, at that time as off-market). This got me thinking about how many companies (and lawyers) rely on templates or precedential deal documents collected over many years, without thinking about the specific facts and circumstances of the deal they are doing or the passage of time and how that might implicate the need for updates and revisions.
By: Jamie Wang
On December 18, 2018, the Securities and Exchange Commission (SEC) announced that it had approved and adopted final rules requiring public companies to disclose, in proxy or information statements for election of directors, any of their policies and practices regarding the ability of the company’s employees, officers and directors to engage in certain hedging transactions with respect to the company’s equity securities. The final rules implement provisions of Section 14(j) of the Securities Exchange Act of 1934, which was added pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The effective date of the new rules is 30 days after publication in the federal register. As noted in the release of the final rules, the new requirements are intended to provide shareholders with information, at the time that they are asked to elect directors, about whether employees, officers or directors may engage in transactions that could reduce the extent to which their equity holdings and equity compensation are aligned with shareholders’ interests.
Delaware Chancery Court Invalidates Charter Provisions Requiring Federal Forum Selection for Claims Under The Securities Act Of 1933
By: Marc Casarino
On December 19, 2018, The Delaware Court of Chancery held in Sciabacucchi v. Salzberg  that Delaware corporations cannot use charter or bylaw provisions to mandate that claims under the Securities Act of 1933 (‘33 Act) must be pursued in federal court. Such federal forum selection provisions have become a frequent component of corporate constitutive documents. This largely has been in response to increasing pursuit of state court actions asserting ‘33 Act claims and particularly after the Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund  – which clarified that ‘33 Act claims may be pursued in either state or federal court.
Becoming a Smaller Reporting Company: SEC Issues Compliance Guide on Expanded Smaller Reporting Company Definition
On August 10, 2018, the U.S. Securities and Exchange Commission (SEC) issued a Small Entity Compliance Guide for Issuers (the Guide) on the recently amended smaller reporting company (SRC) definition. On June 28, 2018, the SEC adopted amendments to the definition of SRC which expand the number of companies that qualify as SRCs and can thereby take advantage of the scaled disclosure requirements applicable to such companies. The expanded definition of SRC will be effective on September 10, 2018. (more…)
SEC Issues Final Rule Increasing the Rule 701 Disclosure Threshold and Requests Comments on Modernizing Compensatory Arrangements
The U.S. Securities and Exchange Commission (SEC) recently issued a final rule amending Rule 701, promulgated under the Securities Act of 1933 (the Securities Act). Rule 701 provides an exemption from the registration requirements of Section 5 of the Securities Act for offers and sales of securities under certain compensatory arrangements and covers securities offered or sold by a non-reporting company (including a foreign private issuer) to its employees, officers, directors, partners, trustees, consultants and advisors. The amendment increases the threshold for delivery of additional disclosures from $5 million in aggregate sales price or amount of securities sold during any consecutive 12-month period to $10 million. We previously discussed the Economic Growth Regulatory Relief and Consumer Protection Act and the proposed changes to Rule 701 in more detail in the article, “The Economic Growth, Regulatory Relief and Consumer Protection Act Amends a Key Provision of Rule 701”. (more…)
Special purpose acquisition companies (SPACs) have experienced a renewed popularity over the past couple of years due to favorable capital markets conditions. A SPAC is a publicly traded acquisition and investment vehicle which is sponsored by an experienced team of investors or parties with significant operating experience who invest the seed capital for the SPAC. The SPAC has no current business operations and has gone public through an initial public offering to raise a desired amount of investment capital for the purpose of doing an acquisition or merger. A SPAC is in some ways similar to the use of a reverse merger to take a private company public in that its ultimate goal is the same – at the end of the day, the acquisition target becomes a publicly traded company through acquisition by, or merger with, the SPAC. (more…)
- Department of Labor Releases Fiduciary Guidance
- Move Over California, Delaware Law Applies to Internal Corporate Affairs
- Successor Liability in the Pandemic Era
- Businesses Should Strike the Proper Balance Between Their Desire for Management Autonomy With Sensitivity to Social Justice Issues
- Cannabis Reform Introduced as a Response to the COVID-19 Crisis