But no one goes to jail for insider trading, right? Wrong

Schultz “Jason” Chan, former director of biostatistics at Akebia Therapeutics, Inc. (Nasdaq: AKBA), was sentenced to three years in prison following his conviction for insider trading. Chan was convicted of providing material non-public information about Akebia to former Merrimack Pharmaceuticals (Nasdaq: MACK) employee Songjiang Wang. Wang was also convicted of insider trading based on providing material non-public information about Merrimack to Chan; Wang is set to be sentenced on November 13,… More

SEC staff clarifies cross-border exemptions

Last week, the SEC staff published new compliance and disclosure interpretations clarifying some of the inner workings of exemptions for certain cross-border business combinations, exchange offers and rights offerings. These exemptions are available for specified transactions involving foreign companies whose US ownership falls below 40% or 10% of total ownership, with the latter group being afforded significantly greater relief. When the SEC originally adopting these exemptions, it sought to induce parties to include US investors in transactions where they would typically be excluded in order to avoid the burdens of complying with US securities laws.… More

Victim of cyber-theft? Maybe you violated the Exchange Act, too

The SEC recently reminded public companies that they have an affirmative obligation to prevent cyber-theft and that failing to do so could mean that their internal controls are ineffective, a violation of the Securities Exchange Act of 1934.

In an October 16, 2018 investigative report describing recent cyber-related frauds against nine public companies, the SEC noted that public companies must maintain a system of internal accounting controls sufficient to provide reasonable assurance that “access to assets is permitted only in accordance with management’s general or specific authorization.” In each of the nine cases,… More

Is your director compensation program vulnerable to attack?

A recent case offers a fresh reminder that directors must satisfy their fiduciary obligations when setting their own compensation.

In a derivative action against the non-employee directors of OvaScience, Inc., a stockholder alleged that the non-employee directors had breached their fiduciary duties and wasted corporate assets by paying themselves excessive compensation.  In 2015, for example, all of OvaScience’s non-employee directors received compensation of at least $300,000 (substantially all of which represented the fair value of equity awards granted during the year),… More

SEC staff clarifies new Form 10-Q requirement

Yesterday the SEC staff issued CD&I 105.09, which clarifies the date by which issuers must comply with the new requirement to present changes in stockholders’ equity in their interim financial statements.  Initially, there was concern that the requirement would be effective shortly before many companies would ordinarily file their Forms 10-Q for the quarter ending on September 30.  The new CD&I clarifies that the staff will not object if issuers comply with the new requirement for the first quarter that begins after the effective date of the new rule,… More

Related-party transaction disclosures aren’t always obvious

Related-party transactions are often easy to spot:  the company is on one side of a contract, and a director or officer, or a company they control, is on the other side. But some transactions are less obvious.

The SEC recently brought a settled proceeding against John D. Schiller, Jr., the former CEO of Energy XXI Ltd., a now-defunct Nasdaq-listed issuer, for failing to disclose millions in personal loans from companies that did business with EXXI or the owners of those companies.… More

The SEC amends rules to simplify some disclosures

On August 17, the SEC adopted amendments to its rules and regulations to simplify public company disclosures by eliminating duplicative, outdated or overlapping requirements. Most of the changes are highly technical, and in many cases SEC rules will still require substantially the same disclosure, although perhaps in a new location. Some of the minor but helpful changes for most companies include:

  • in the company’s description of its business,…
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Wearing two hats: Elon Musk as a case study

Much has already been written about Elon Musk’s famous tweet offering to take Tesla private. Most of the coverage has focused on whether he violated Regulation FD’s prohibition on selective disclosure by communicating material nonpublic information through Twitter, rather than a more recognized channel of communication, or whether he violated Rule 10b-5 by lacking a sufficient basis for his claim to have “funding secured.”

What is perhaps more surprising is that,… More

Many new smaller reporting companies eligible for disclosure relief in their next Form 10-Q

Companies that will qualify as “smaller reporting companies” for the first time under the SEC’s recently revised definition should consider whether to take advantage of the simplified reporting requirements that will become available to them on September 10, the effective date of the new rule. For example, a calendar-year issuer that qualified as a smaller reporting company as of June 29, 2018 (the last business day of its second fiscal quarter) can comply with the smaller reporting company disclosure requirements in its Form 10-Q for the third quarter of 2018. … More

SEC Enforcement Action Targets Unsupported Financial Projections

On August 7, 2018, the SEC brought a settled cease-and-desist proceeding against Ribbon Communications Inc., the successor to Sonus Networks, Inc., and two of its executives for issuing quarterly guidance that was not reasonably based on the available facts.

In October 2014, Sonus announced that it expected to generate $74 million of revenue in the first quarter of 2015. Sonus reaffirmed this guidance on January 8,… More