The U.S. Supreme Court has unanimously ruled that pure silence in MD&A statements are not actionable in shareholder securities fraud cases. The case is important for issuers and shareholders alike for several reasons:Continue Reading U.S. Supreme Court Unanimously Holds Pure Omissions in Item 303 Disclosures Not Actionable under Private Securities Laws
Britt Latham
Britt Latham currently serves as co-chair of the firm’s Securities & Shareholder Litigation Practice Group. Britt has been involved in numerous high profile cases, including notably the successful representation of a public company involving the breach of a $1.5 billion merger agreement, and in significant federal securities, ERISA, and derivative multi-district litigation related to an investment fund loss in the wake of the financial crisis.
Hot SPAC Market Increases SEC Scrutiny and Litigation Risks
The market has seen a boom in the last two years for emerging companies going public through the use of special-purpose acquisition companies (SPACs). SPACs are attractive vehicles for allowing a private company to gain quicker access to public capital and avoid the traditional initial public offering (IPO) process. A SPAC starts as a public company through a traditional IPO but has no operations. The SPAC raises public funds under the premise that it will use those funds to find a target private company in which to invest. Once the target is identified, the SPAC goes through a business combination transaction (called a de-SPAC transaction) whereby the SPAC and private target engage in a merger transaction, with the result being the target survives as a public company.
The recent dramatic increase in using SPACs, however, has faced increased scrutiny. More recently, this trend has raised the attention of the U.S. Securities and Exchange Commission (SEC) along with plaintiff stockholder class action law firms. Directors and officers (D&O) insurance carriers are also adjusting their premiums and policy terms to account for these increased risks in using SPACs. Such rising concerns are only heightened by recent news reports of gaps in certain deals between returns for insiders versus later investors who suffer losses after a company becomes public via a SPAC.
This post highlights recent SPAC-related issues raised by the SEC and litigation filings, including potential conflicts with SPAC sponsors, accounting controls for targets, and the financial projections companies use when attracting support for a SPAC transaction. SPAC sponsors and potential SPAC target companies should be aware of these developments as they consider the booming SPAC market. Notwithstanding these headwinds, it is likely the SPAC market (particularly the de-SPAC market) will continue to be strong in 2021 as valuations continue to be attractive and given the reality that so many SPACs are in the market competing for targets.Continue Reading Hot SPAC Market Increases SEC Scrutiny and Litigation Risks
How Public Companies Can Protect Against SEC Scrutiny Related to COVID-19
This is a continuation of our series addressing steps companies can take to protect themselves during government enforcement actions related to COVID-19. For more information, see our previous articles addressing corporate best practices and the health care industry.
COVID-19 has affected the financial conditions and operations of all public companies, most in a negative way but some in very positive ways. Regardless of the impact, all public companies must consider the anticipated scrutiny they will receive from the U.S. Securities and Exchange Commission (SEC) and the possible risk they face from SEC Enforcement if they do not proceed with caution. While the rules and landscape may continue to evolve, it seems apparent at this point that SEC scrutiny related to COVID-19 is most relevant in the following ways.
1. SEC Enforcement’s role in monitoring relief funding. In a prior article, we discussed steps health care companies can take to protect themselves against government investigations related to COVID-19. But all companies that received relief funding must be careful.Continue Reading How Public Companies Can Protect Against SEC Scrutiny Related to COVID-19
Delaware Chancery Court Closes Off Potential Route Around Cyan
On December 19, 2018, the Delaware Chancery Court held that a business incorporated in Delaware could not use its corporate charter or bylaws to require that its shareholders bring any securities claims under the Securities Act of 1933 (the “1933 Act”) in federal court. The 1933 Act requires that any person selling or offering securities make certain disclosures through a registration statement approved by the Securities and Exchange Commission and provides a private right of action to securities purchasers to enforce its provisions.
Earlier this year, in Cyan, Inc. v. Beaver Cty. Empls. Ret. Fund, the United States Supreme Court concluded that federal law did not bar state courts from adjudicating class actions alleging only 1933 Act claims. Importantly, it also prohibited the removal of such class actions from state to federal court. As a result of the Supreme Court’s decision in Cyan, if a securities purchaser brings a 1933 Act class action in state court, a defendant corporation will find it difficult to have those federal claims heard in federal court.Continue Reading Delaware Chancery Court Closes Off Potential Route Around Cyan
Britt Latham and Brian Irving Outline SEC Enforcement Trends under Trump Administration
Bass, Berry & Sims attorneys Britt Latham and Brian Irving authored an article that was published in The D&O Diary that outlined and discussed the most important trends and developments related to SEC investigations and enforcement proceedings impacting the industry this past year and likely to impact the industry in the coming year. The article includes a discussion of lessons learned from the first year of the Trump administration.
The authors also point to disgorgement as another topic with a changing landscape, with the Supreme Court ruling in Kokesh v. SEC that disgorgement claims are subject to a five-year statute of limitations for enforcing fines, penalties or forfeitures.Continue Reading Britt Latham and Brian Irving Outline SEC Enforcement Trends under Trump Administration
Bass, Berry & Sims Securities and Shareholder Litigation Group Publishes 2017: A Look Ahead
While not necessarily as eventful as 2015, 2016 saw courts interpret and build upon major decisions from prior years, and have set up at least one important issue for consideration by the U.S. Supreme Court. 2016 also featured several important legal developments that should continue to impact both private litigation and public enforcement throughout 2017, including:
- SEC Whistleblower Program. By the time the SEC closed its 2016 fiscal year in September, it had filed a record number of enforcement actions. In addition, the SEC’s whistleblower program awarded more than $57 million to 13 whistleblowers during the year, almost as much as in all previous years combined. The big question will be whether the Trump administration will allow this trend to continue.