Corporate Law

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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

President Trump has repeatedly used his Twitter account to single out companies for criticism of their business practices, raising the question for a broad range of public companies of how to prepare for and potentially respond to such criticism. Of course, rhetorical attempts by politicians to influence the conduct of private enterprise – commonly referred…

The Supreme Court’s unanimous decision this week in Salman v. United States, No. 15-268, 580 U.S. __ (Dec. 6, 2016), clarified what constitutes a “personal benefit” for purposes of insider trading liability.  In its first merits ruling in an insider trading case in two decades, the Court affirmed the Ninth Circuit’s holding that the personal benefit requirement may be met when an inside tipper simply gifts confidential information to a trading relative or friend.  In so holding, the Supreme Court significantly narrowed a key aspect of the Second Circuit’s landmark insider trading decision in United States v. Newman, which had required prosecutors to prove that the tipper received something “of a pecuniary or similarly valuable nature”—a more difficult standard to meet.

Before Newman was decided, the United States Attorney’s Office for the Southern District of New York had prioritized insider trading prosecutions, obtaining dozens of convictions and over a billion dollars in fines since 2009.  After Newman, however, prosecutors were forced to dismiss several indictments, and some commentators wondered what the future held for insider trading prosecutions.  The Supreme Court’s recent decision should reduce that uncertainty and may bring a renewed focus on insider trading investigations.
Continue Reading Supreme Court Clarifies Insider Trading Liability for Confidential Tips

Appraisal rights in public M&A transactions have recently garnered greater attention, particularly in Delaware.  As a result, more attention is being paid to the possible inclusion of a closing condition protecting the acquiror against excessive use of appraisal rights, and this should lead to careful attention being paid to the negotiation and drafting of any such conditions and related provisions.  Discussed below are some of the reasons for this greater attention, and suggestions regarding negotiating and drafting such provisions.
Continue Reading Negotiating Appraisal Conditions in Public M&A Transactions

Part 2:  Risks Associated with Transfers of Personal Data and Post-Closing Integration

One aspect of mergers and acquisitions that is receiving growing attention is the relevance of privacy issues[1] under U.S. and European Union (“EU”) laws as well as the laws of a growing number of other jurisdictions.[2]  This two-part blog post discusses the principal M&A-related privacy risks and highlights certain “traps” that are often overlooked.  In Part 1, we discussed risks associated with a target’s pre-closing privacy-related liabilities and considered ways to mitigate these risks through adequate diligence and privacy-related representations in M&A agreements.  In this Part 2, we discuss the risks associated with transferring or disclosing personally-identifiable information (“personal data”) of an M&A target (or a seller) to a purchaser (or prospective purchaser) and those associated with the purchaser’s post-acquisition use of such personal data.Continue Reading Privacy in M&A Transactions: Navigating the Traps, Part 2

Part 1: Risks Associated with the Target’s Pre-Closing Privacy-Related Liabilities

One aspect of mergers and acquisitions that is receiving growing attention is the relevance of privacy issues[1] under U.S. and European Union (“EU”) laws as well as the laws of a growing number of other jurisdictions.[2]  This two-part blog post discusses the principal M&A-related privacy risks and highlights certain “traps” that are often overlooked.  In this Part 1 of the post, we discuss risks associated with a target’s pre-closing privacy-related liabilities and consider ways to mitigate these risks through adequate diligence and representations in M&A agreements.  In Part 2, we will discuss the risks associated with transferring or disclosing personally-identifiable information (“personal data”) of an M&A target (or a seller) to a purchaser (or prospective purchaser) and those associated with the purchaser’s post-acquisition use of such personal data.Continue Reading Privacy in M&A Transactions: Navigating the Traps

In a decision with important consequences for merger and acquisition transactions and the litigation resulting from those transactions, a divided New York Court of Appeals held last week that the common interest doctrine applies only to post-signing, pre-closing communications between parties to a merger agreement if they relate to pending or anticipated litigation.  Other communications between separately represented parties to a merger (or other commercial transaction) are not entitled to privilege under New York law.
Continue Reading New York’s Highest Court Holds Common Interest Doctrine Inapplicable to Commercial Transactions Absent Litigation

Shareholder activists, and the institutional investors who are increasingly supporting them, continue to press public company boards to take bold steps to unlock the value contained in their various businesses.  While some companies may have assets or business lines ripe for divestiture or spin off, targets of shareholder activism are often resistant to the clarion call to the “pure play” evolution process – and for good reason.  For many companies, in particular in the technology, media and telecommunications (TMT) space, maintaining diverse business lines can serve a strategic purpose despite different growth trajectories, profitability and trading multiples.  Furthermore, the spin-off/divestiture route may pose other challenges – such as the embryonic nature of a new division, the absence of sufficiently developed operations to be a full-fledged standalone company, adverse tax consequences of a separation or a desire to maintain control – which make a spin-off or divestiture undesirable or untimely.
Continue Reading Is Tracking Stock, Often Considered a Bygone Darling of the 90’s Tech Boom, in Line for a Comeback?

Recently released proposed regulations that would classify certain intragroup loans as equity for U.S. tax purposes could have very significant consequences for M&A transactions, private equity investments and restructurings.  If adopted in their present form, the proposed regulations would eliminate strategies that have been widely used in cross-border transactions.  However, the proposal could also have unpredictable consequences for the day-to-day funding practices of both U.S. and foreign-owned multinational groups.  Moreover, the proposal would impose burdensome documentation and substantiation requirements on intragroup loans as a necessary condition to having the loans respected as debt for tax purposes (regardless of whether as a legal and economic matter the loans are debt).
Continue Reading Not Just Inversions: Proposed Changes in the Tax Treatment of Related-Party Debt Will Affect M&A Transactions, Restructurings and Financings