Corporate governance - Vigil

Over the last decade, a wide consensus has emerged regarding the changing structure of the venture capital industry. For example, with a few notable exceptions, most traditionally structured venture capital firms have delivered uninspiring returns. This has not only led to a significant decrease in the number of venture capital funds, but also has steered many funds toward the less risky and growth stage companies.

On July 29, 2016 the Federal Deposit Insurance Corporation (“FDIC”) released its proposed Guidance on Managing Third-Party Risk (“Proposal”). [1] The Proposal is directed primarily at banks whose primary federal regulator is the FDIC that maintain partnerships with third-party firms (e.g., marketplace lenders) in connection with their provision of credit products. The FDIC has stated that it will accept written comments on the Proposal until October 27, 2016.The Proposal is significant, both in terms of its regulatory policy and practical implementation implications. This post provides background context and select considerations for banking, specialty finance, and financial technology (“FinTech”) firms to consider as they grapple with the Proposal’s implications.

In a recent article entitled Price Impact, Materiality, and Halliburton II, Drew Roper and I discuss various themes and issues that have arisen in the lower court rulings applying the Supreme Court’s ruling in Halliburton v. Erica John Fund, Inc., 134 S. Ct. 2398 (2014) (“Halliburton II”). The Supreme Court’s decision in this important case reaffirmed the availability of the fraud-on-the-market presumption of “reliance” for purposes of a Rule 10b-5 class certification. At the same time, the Court held that defendants could rebut the presumption if they could provide “direct evidence” that the alleged misrepresentations did not in fact impact the price of the security (i.e., a lack of price impact).

Private-equity (“PE”) sponsored issuers are estimated to have represented nearly a quarter of all US-issuer IPOs in 2015, with that proportion being even higher in prior years. The relationship of PE sponsor to IPO issuer presents a core group of issues and a short list of recurring themes in the SEC review and comment process. [1] For certain of these issues, the SEC staff has issued substantially identical comments to multiple PE-backed issuers, suggesting that they have developed models for reviewing PE-backed IPOs. In advance of an initial IPO registration statement filing, and when structuring pre- and post-IPO relationships, PE sponsors and their counsel should consider these trending comments and likely areas of SEC scrutiny in order to avoid potential IPO disclosure difficulties and to guide the drafting of IPO registration statement disclosure.

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Since our last blog post on the changing landscape of disclosure-only settlements in the Delaware Court of Chancery, there have been developments in several areas, including the continued lower filing rates for shareholder litigation in Delaware, the adoption of the Trulia “plainly material” standard for supplemental disclosures by the Seventh Circuit, and the lower standard for disclosures required in order for plaintiffs’ lawyers to be awarded a fee in the mootness context.

On August 9, 2016, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit issued Lucia v. SEC, a significant decision that holds that the Securities and Exchange Commission’s (“SEC” or “Commission”) use of administrative law judges (“ALJs”) is constitutional. In so doing, the D.C. Circuit ruled that the SEC’s use of ALJs does not violate the Appointments Clause of the Constitution because, rather than acting as officers of the United States, the SEC’s ALJs act as employees who lack the authority to issue “final decisions.” With at least one similar case pending in another Circuit, and a number of appeals challenging the constitutionality of Administrative Proceedings (APs) pending before the Commission itself, Lucia is an important precedent-setting decision.

Chris Cernich, who has been instrumental in determining the outcome of some of America's most hotly contested mergers and proxy contests as head of special situations research at Institutional Shareholder Services, said he has left the advisory firm.