On June 15, 2017, the Securities and Exchange Commission (the “SEC”) entered an order (the “Order”) instituting cease-and-desist proceedings against the former CEO and CFO (the “Respondents”) of UTi Worldwide Inc. (the “Company”). The Respondents each agreed to pay a civil money penalty of $40,000 to settle the proceeding, which found that they caused the Company to violate Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by failing to comply with the requirement of Regulation S-K Item 303 that it disclose “any known trends or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” Continue Reading Trend Disclosure Under S-K 303: How Far Does the Eye Have to See?
As passive investing via funds that track market indices continues to grow, the terrain where investors are fighting battles over governance reform is now expanding beyond contested stockholder meetings and into debates over the criteria for eligibility of issuers for inclusion in these indices. Indeed, in this era of index fund investing, a company focused on the future trading price of its shares should be much more concerned about gaining entry into and maintaining eligibility for indices than whether there will be a withhold vote recommendation on the members of its governance committee. If this direction continues to gain traction, we could end up with a market dominated by passive strategy investing where the current importance of familiarity with the hot button governance concerns of proxy advisory firms and institutional investors becomes subsidiary to understanding how to navigate new, governance-related eligibility requirements of major equity indices. Continue Reading Index Eligibility as Governance Battlefield: Why the System is Not Broken and We Can Live With Dual Class Issuers
In 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-01, which adopts a new standard that will require companies to generally change the way they account for equity investments of less than 20%. Continue Reading Accounting for Minority Equity Investments: A Small Change with Significant Implications
Investors frequently negotiate for a redemption right to ensure at least some return on preferred stock investments in a “sideways situation”—where the target company is neither a huge success nor an abject failure. Continuing a consistent theme in recent Delaware jurisprudence, the Delaware Court of Chancery declined to dismiss a complaint alleging directors breached their duty of loyalty in taking steps to satisfy an investor’s redemption request.
When a corporation sells corporate assets to its (or an affiliate of its) controlling stockholder, Delaware courts generally will review that transaction under the exacting “entire fairness” standard. But what if the corporation’s minority stockholders are given the opportunity to participate along with the controlling stockholder in the purchase of the corporate assets pro rata to the extent of their stock ownership? Continue Reading Chancery Court Suggests that Rights Offerings May Limit Liability in Transactions with Controlling Stockholders
In one of its recent issues devoted to the 2017 Tulane Corporate Law Institute, The M&A Journal included an article titled “A Sleepy Topic: The Return of Appraisal Rights.”
The article was based on the slides prepared by the members of a Tulane panel on appraisal rights moderated by Cleary Gottlieb partner Victor Lewkow and including The Honorable Andre G. Bouchard, Chancellor of the Delaware Court of Chancery; David J. Margules from Ballard Spahr; Robert S. Saunders from Skadden, Arps, Slate Meagher & Flom; and Eric M. Swedenburg from Simpson Thacher & Bartlett. Victor thanks them all.
Read the full article here.
On May 18, 2017, the European Commission fined Facebook €110 million for providing incorrect or misleading information during its 2014 investigation of its acquisition of WhatsApp. The magnitude of the fine dwarfs the few penalties the Commission has imposed in the past for similar infractions and, as Commissioner Vestager made clear, “sends a clear signal to companies that they must comply with all aspects of EU merger rules, including the obligation to provide correct information.”
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The past four years of merger enforcement at the federal antitrust agencies saw more litigated challenges than we’ve seen in a long time. This came about because President Obama made a commitment to merger enforcement and appointed senior officials in the agencies who would carry out his vision. Our partner Dave Gelfand, who oversaw litigation at the DOJ Antitrust Division for three of those years, and our associate Grant Bermann, who focuses on antitrust law, discuss the cases from this period, and the context in which they were brought, in a piece just published in a leading international antitrust publication, Global Competition Review Magazine. The article can be found here.
Questions for Boards and Management
On April 10, 2017 Wells Fargo released the independent directors’ report on sales practices at its community bank. While the report covers familiar elements of the widely-publicized accounts-creation problems at the bank, it also takes an inside look at the organization to determine what caused the problems in the first place and what allowed them to persist for years before last fall’s regulatory enforcement actions. The report cites the following as principal causes: Continue Reading With the Benefit of Hindsight: The Wells Fargo Sales Practices Investigation Report
When reviewing a corporation’s financial statements and internal controls, independent auditors frequently request copies of materials that were prepared for ongoing or anticipated litigation. Auditors may wish to examine reports from internal investigations, legal opinions addressing potential liabilities, or presentations about prospective litigation prepared for the board of directors, among other materials. Indeed, it is becoming more and more common for auditors to conduct their own “shadow investigation” of a company’s internal investigation and, as part of that shadow investigation, to request access to the internal investigation’s underlying work product: the collection of documents that the company’s lawyers have deemed “key,” the analysis of transactions tested by forensic accountants working at counsel’s direction, and notes from interviews conducted by counsel in the course of the investigation. Auditors may make similar requests when investigating the possibility of “illegal acts” at a company, as required under Section 10A of the Securities Exchange Act of 1934. Continue Reading Audits and Adversaries: Making Disclosures to Your Auditors Without Waiving Your Privilege