New York Comptroller Seeks Qualcomm’s Records on Political Giving; SEC Contemplating Political Contribution Disclosure Rules

A “books and records” action brought by New York’s comptroller to determine how Qualcomm Incorporated “is spending corporate funds in the political arena” may create a precedent for shareholders seeking to force corporate disclosure of political contributions.

The suit was brought last week in Delaware Chancery Court by Comptroller Thomas DiNapoli as trustee of the New York State Common Retirement Fund, a shareholder of Qualcomm. The complaint cites to recent studies concluding that “corporate political spending is negatively correlated with enterprise value” and may indicate “more widespread control and governance deficiencies.”

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SEC Staff Issues Wells Notice to Netflix and Its CEO

The Wall Street Journal and other news outlets reported late yesterday that Netflix, Inc. filed a Form 8-K disclosing that each of Netflix and its CEO, Reed Hastings, had received a Wells notice from the staff of the Securities and Exchange Commission relating to an alleged violation of Regulation Fair Disclosure (FD) in connection with a Facebook post by Hastings on July 3, 2012. Hastings’ Facebook post stated that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June. When House of Cards and Arrested Development debut, we’ll blow these records away.”

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SEC Rule Proposal Would Permit Public Offerings in “Private Placements” and Facilitate Capital Formation

As required by the JOBS Act, the U.S. Securities and Exchange Commission has proposed rules to eliminate the prohibition on general solicitation and general advertising in private placements exempt from registration by Rule 506 under the Securities Act of 1933, as long as all purchasers of the securities are accredited investors. The elimination of the prohibition on general solicitation and general advertising will result in issuers being able to attract a wider variety of investors with less cost. Increased competition for quality investments could also improve terms for issuers, reducing their cost of capital.

The firm’s client alert regarding the SEC’s proposal may be accessed here.

SEC Report to Congress On Decimalization: Prelude or Punt?

On July 20, 2012, as required by Section 106 of the JOBS Act, the SEC released its study on the effects of decimalization (i.e., the trading and quoting of securities in increments of $.01) on initial public offerings and the liquidity of small-cap and middle-cap company securities.

In conducting its study, the SEC took a three-pronged approach consisting of (a) a review of empirical studies regarding tick size and decimalization, (b) participation in discussions held as part of a meeting of the SEC Advisory Committee on Small and Emerging Companies concerning the impact of market structure on small- and mid-cap companies and on IPOs, and (c) a survey of tick-size conventions in non-US markets.

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Update on Say-on-Pay Developments

There have been 40 failed say-on-pay votes thus far in 2012. Shareholders have disapproved executive compensation systems at companies such as Big Lots (31% approval), Cooper Industries (30%), Simon Property Group (27%), Pitney Bowes (35%) and Chiquita Brands (20%). Sometimes support from ISS is not enough – shareholders at Safety Insurance Group (42%) failed to approve a say-on-pay proposal even with an approval recommendation from ISS.

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Political Spending Stockholder Resolution Early Returns – Low Vote/High Settlement

Perhaps not surprising in an election year, the hottest trend in stockholder proposals this proxy season has been submission of resolutions focused on political spending. As reported in this Washington Post article, the Sustainable Investments Institute, a Washington nonprofit that tracks stockholder resolutions, found that approximately one-third of stockholder resolutions this proxy season related to political spending disclosure. In general, these resolutions focus on disclosure of all political spending using corporate funds, including payments made to 501(c)(4) trade organizations that engage in lobbying or political campaigning.

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Give Us Your Tired, Your Poor, Your Companies Seeking Capital… The JOBS Act: A New Path to Prosperity or an Opening for Securities Fraud?

After years of (perhaps excessive) regulation aimed at promoting transparency and accountability, the JOBS Act, signed by the President and overwhelmingly passed by Congress, undoes many of these requirements for companies that have the least experience in providing appropriate information upon which an investor can base its investment decision. It may also open the gateway for investors who arguably aren’t armed with the financial knowledge to protect themselves – they may just put it all on red and let it ride.

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Chancellor Strine’s El Paso Opinion Critical of CEO and Goldman Sachs, Provides Guidance on M&A Conflicts of Interest

Chancellor Strine rebuked Goldman Sachs and El Paso CEO Doug Foshee on the record and agreed with disgruntled shareholders that the sale process was likely tainted by breaches of fiduciary duty, but in the end, the Chancellor declined to enjoin a stockholder vote on the proposed $31 billion acquisition of El Paso by Kinder Morgan.

The opinion, issued February 29, 2012 in the case of El Paso Corporation Shareholder Litigation in the Chancery Court of Delaware, has been widely cited and discussed for its criticism of Goldman Sachs and Foshee for maintaining conflicts of interest through the negotiation process with Kinder Morgan. In that regard, the opinion is instructive to conscientious boards, management and professionals.

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Is the STOCK Act Headed to the President’s Desk?

According to today’s Wall Street Journal, it appears that Congress will agree on a version of the Stop Trading on Congressional Knowledge Act of 2012 (the “STOCK Act”) in the next week. So far, each of the House and the Senate has passed a version of the STOCK Act, with one of the most notable differences in the Senate and House versions centering around the treatment of “political intelligence firms,” which gather information about pending legislation for their clients, typically hedge funds and other market participants. The Senate bill requires political intelligence firms to register and report on their activities in a manner similar to lobbyists but the House bill does not. According to The Wall Street Journal article, the Senate intends to pass the House version of the bill, which means that the political intelligence firm registration provisions will not make it into the final bill.

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SEC Commissioners Comment on Political Expense Disclosure

As a follow-up to our post of February 7th regarding increased stockholder interest in the disclosure by public companies of their political expenditures and activities, we note that in a speech to securities law practitioners on February 24, 2012, SEC Commissioner Luis A. Aguilar called for the SEC to adopt rules requiring public companies to provide uniform and consistent disclosure of their corporate political expenditures. “Requiring transparency for corporate political expenditures cannot wait,” Commissioner Aguilar stated, citing the SEC’s responsibility to “ensure that investors are not left in the dark while their money is used without their knowledge or consent.”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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