Securities and Financial Sector Legal Review

Corporate Governance Update – July 2014

Posted in Corporate Governance

Associate Raxak Mahat co-authored this article.

1. SEC Charges Company CEO and Former CFO With Hiding Internal Controls Deficiencies and Violating Sarbanes-Oxley Requirements

On July 30, 2014, the SEC announced charges against the CEO and former CFO of QSGI Inc., a Florida-based computer equipment company for misrepresenting to external auditors and the investing public the state of its internal controls over financial reporting. The SEC’s Enforcement Division alleges that CEO Marc Sherman and former CFO Edward L. Cummings (i) misrepresented in a management’s report accompanying the fiscal year 2008 annual report for QSGI Inc. that Sherman participated in management’s assessment of the internal controls, (ii) improperly certified that they had disclosed all significant deficiencies in internal controls to the outside auditors, and (iii) withheld from auditors and investors that Sherman and Cummings participated in a series of maneuvers to accelerate the recognition of certain inventory and accounts receivables in QSGI’s books and records by up to a week at a time.

2. Chamber Releases Disclosure Effectiveness Recommendations

On July 30, 2014, the U.S Chamber of Commerce’s Center for Capital Markets Competitiveness released a set of recommendations for the SEC as the agency considers how to make disclosure more effective. The report contains both near-term and long-term recommendations for improvement, and among the near-term recommendations are suggestions to address identified reporting requirements that are obsolete or duplicative of other disclosures (e.g., Item 101 of S-K disclosure of acquisitions, financial disclosure by geographic region, disclosure of where an investor can get copies of filings). Longer-term improvements suggested by the Center include addressing the problem of duplication among SEC filings, modernizing the presentation and delivery of public company reports, and reforming disclosures for CD&A and MD&A.

3. SEC Adopts Money Market Fund Reform Rules

On July 23, 2014, the SEC adopted amendments to the rules that govern money market mutual funds. The new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets and provide non-government money market fund boards new tools – liquidity fees and redemption gates – to address runs.

4. ISS Releases Survey for 2015 Policy Updates

On July 17, 2014, Institutional Shareholder Services Inc. (ISS), the most influential proxy advisory firm, opened its annual survey ahead of updating its policies. The survey closes on August 29th – and then the results are released a few weeks later. There is also an open 30-day comment period in October, with the final policy updates arriving sometime in November.

5. FASB Publishes Proposal to Eliminate Extraordinary Items from US GAAP

On July 15, 2014, the Financial Accounting Standards Board (FASB), issued an exposure draft of a proposed Accounting Standards Update (ASU) that would eliminate the concept of extraordinary items from US GAAP. The proposed ASU is part of a simplification initiative by the FASB to identify, evaluate and improve areas of US GAAP for which cost and complexity can be reduced, while maintaining or improving the usefulness of the information provided to users of financial statements.

6. SEC Charges Ernst & Young With Violating Auditor Independence Rules in Lobbying Activities

On July 14, 2014, the SEC charged Ernst & Young LLP with violations of auditor independence rules. The SEC’s order instituting a settled administrative proceeding found that an Ernst & Young subsidiary lobbied congressional staff on behalf of two audit clients. Such lobbying activities were impermissible under the SEC’s auditor independence rules because they put the firm in the position of being an advocate for those audit clients. Despite providing the prohibited legislative advisory services on behalf of the clients, Ernst & Young repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements. Ernst & Young agreed to pay more than $4 million to settle the charges.

7. FINRA Clarifies Filing Requirements under Rule 2210 for Certain Research Reports and FWPs

On July 11, 2014, FINRA issued Regulatory Notice 14-30, announcing that the SEC has approved amendments to FINRA Rule 2210 (Communications with the Public) that: (i) exclude from Rule 2210’s filing requirements research reports concerning only securities listed on a national securities exchange and (ii) clarify that free writing prospectuses that are exempt from filing with the SEC are not subject to Rule 2210’s filing or content standards, while the filing and content requirements of Rule 2210 do apply to free writing prospectuses required to be filed with the SEC pursuant to Securities Act Rule 433(d)(1)(ii). These amendments were effective immediately.

8. SEC Issues New C&DIs on Accredited Investor Definition and Rule 506(c) “Reasonable Steps” Verification Safe Harbors

On July 3, 2014, the SEC issued new compliance and disclosure interpretations (C&DIs) on the definition of accredited investor under Rule 501(a) and the safe harbors for taking “reasonable steps” to verify accredited investor status under Rule 506(c).

9. NASAA Proposes Model State Rule for Electronic Filing of Form D and Other Documents with State Securities Regulators

The North American Securities Administrators Association (NASAA) sought comment on a proposed model rule that would require issuers to electronically file SEC Form D and other state securities registration and notice filing materials with state securities administrators through a new multi-state electronic filing system currently being developed by NASAA.


Update: Judge Rakoff Approves Citigroup-SEC Settlement

Posted in Mortgage-Backed Securities, Notable Decisions

One final development in the Citigroup-SEC settlement saga.  Today, Judge Rakoff approved the $285 million proposed settlement of the SEC’s charges against Citigroup in connection with certain mortgage-backed securities transactions.  This follows the Second Circuit’s decision on June 4th to vacate Judge Rakoff’s decision that rejected the settlement.  In that 2011 decision, Judge Rakoff criticized the Citigroup-SEC settlement on a number of grounds, including that it allowed Citigroup to avoid admitting guilt.  He was no less critical of the Second Circuit in his opinion approving the settlement, stating that the Court of Appeals “has now fixed the menu, leaving this Court with nothing but sour grapes.”

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., U.S. District Court for the Southern District of New York, No. 11-cv-7387.  For additional commentary and analysis, see Judge Rakoff Says 2011 S.E.C. Deal With Citigroup Can Close, Approval of SEC-Citigroup Deal Leaves Rakoff With a Case of ‘Sour Grapes’, and U.S. Judge Reluctantly Approves SEC-Citigroup $285 Million Deal.

Corporate Governance Update – June 2014

Posted in Corporate Governance

Associate Michael Rueda co-authored this article.

1. SIFMA Guidance on Accredited Investor Verification

Last week, the Securities Industry and Financial Markets Association (SIFMA) issued guidance to registered broker-dealers and investment advisers on some accredited investor verification methods. The guidance includes a form of a Rule 506(c) accredited investor questionnaire as well as a form of written confirmation.

2. SEC Announces Fraud Charges Against Three Former Regions Bank Executives in Accounting Scheme

The Securities & Exchange Commission announced fraud charges against three former senior managers of Regions Bank for intentionally misclassifying loans that should have been recorded as impaired for accounting purposes. The SEC also entered into a deferred prosecution agreement with Regions Financial Corp., which substantially cooperated with the agency’s investigation and undertook extensive remedial actions. Regions will pay a total of $51 million to resolve parallel actions by the SEC, Federal Reserve Board, and Alabama Department of Banking.

3. SEC Charges Former Brokers with Trading Ahead of IBM-SPSS Acquisition

The SEC charged two additional brokers with trading on inside information ahead of the $1.2 billion acquisition of SPSS Inc. in 2009 by IBM Corporation. The SEC alleged that former brokers Benjamin Durant III and Daryl M. Payton illegally traded on a tip about the acquisition from Thomas C. Conradt, a friend and fellow broker in the New York office of a Connecticut-based broker-dealer. The SEC complaint, filed in federal court in Manhattan, seeks return of alleged ill-gotten trading gains of approximately $300,000, with interest, financial penalties, and permanent injunctions. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Durant and Payton. The SEC previously charged that Conradt and David J. Weishaus, another fellow broker and tippee, traded on confidential information that Conradt received from his roommate, Trent Martin, a research analyst who misappropriated it from an attorney working on the transaction. Martin, Conradt, and Weishaus settled with the SEC and pled guilty last year to related criminal charges in the matter.

4. SEC Adopts Cross-Border Security-Based Swap Rules

The SEC adopted the first of a series of rules and guidance on cross-border security-based swap activities for market participants. The new rules will be key to finalizing the remaining proposals. The rules will be effective 60 days after their publication in the Federal Register.

5. SEC Charges Hedge Fund Advisory Firm and Others in South Florida-Based Scheme to Misuse Investor Proceeds

The SEC charged a West Palm Beach, Fla.-based hedge fund advisory firm and its founder with fraudulently shifting money from one investment to another without informing investors. The firm’s founder and another individual later pocketed some of the transferred investor proceeds to enrich themselves.

6. SEC to Bring More Insider Trading Cases in Administrative Proceedings?

As noted in a recent Reuters article, the SEC is looking to bring more insider trading cases “as administrative proceedings in appropriate cases,” Andrew Ceresney, head of the SEC enforcement division, told the District of Columbia Bar. “We have in the past. It has been pretty rare. I think there will be more going forward.”

7. The SEC’s First Whistleblower Retaliation Case

The SEC has brought its first whistleblower retaliation case against Paradigm Capital Management, Inc. for engaging in prohibited principal transactions and then retaliating against the employee who reported the trading activity to the SEC. This is the first time the SEC has filed a case under its new authority to bring anti-retaliation enforcement actions. The SEC also charged the firm’s owner with causing the improper principal transactions.

8. PCAOB Adopts “Related Parties & Unusual Transactions” Auditing Standard

The PCAOB recently adopted Auditing Standard #18 that expands audit procedures required to be performed with respect to three important areas: (1) related party transactions; (2) significant unusual transactions; and (3) a company’s financial relationships and transactions with its executive officers. The standards also expand the required communications that an auditor must make to the audit committee related to these three areas. They also amend the standard governing representations that the auditor is required to periodically obtain from management. The standard and amendments require SEC approval. If approved, they will become effective for audits of financial statements for fiscal years beginning on or after December 15, 2014, including reviews of interim financial information and may be revised for small reporting companies.

9. SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities

The SEC announced that is has charged the co-owner of two Bitcoin-related websites for publicly offering shares in the two ventures without registering them. A SEC investigation found that Erik T. Voorhees published prospectuses on the Internet and actively solicited investors to buy shares in SatoshiDICE and FeedZeBirds. But he failed to register the offerings with the SEC as required under the federal securities laws. Investors paid for their shares using Bitcoin, a virtual currency that can be used to purchase real-world goods and services and exchanged for fiat currencies on certain online exchanges. The profits ultimately earned by Voorhees through the unregistered offerings totaled more than $15,000.


Update – The Middle Road Taken: The Supreme Court’s Halliburton II Decision

Posted in Securities Fraud and Class Actions

On June 23, 2014, the Supreme Court issued its Decision in Halliburton v. Erica P. John Fund (“Halliburton II”). The decision upholds the Court’s prior Basic v. Levinson decision allowing the fraud on the market theory that presumes reliance, however; the Court agreed with Halliburton that defendants could rebut the presumption pre-class certification with evidence that an alleged misrepresentation did not actually affect the stock price. According to Law360, the decision “will likely make it somewhat more difficult for plaintiffs to bring securities class actions, but it stopped short of closing a major door.”

Chief Justice Roberts delivered the opinion of the Court, joined by Justices Kennedy, Ginsburg, Breyer, Sotomayor and Kagan.  Justice Ginsburg filed a concurring opinion, in which Justices Breyer and Sotomayer joined.  Justice Thomas filed an opinion concurring in the judgment, which Justices Scalia and Alito joined.

By way of background, Plaintiffs alleged that Halliburton “made a serious of misrepresentations regarding its potential liability in asbestos litigation, its expected revenue from certain construction contracts, and the anticipated benefits of its merger with another company – all in an attempt to inflate the price of its stock,” which dropped after Halliburton made a series of corrective disclosures.  Plaintiffs filed a motion to certify a class, which the District Court denied.  This District Court (which was affirmed by the Fifth Circuit) found that Plaintiffs must prove “loss causation,” that is, a “causal connection between the defendants’ alleged misrepresentations and the plaintiffs’ economic losses in order to invoke Basic [v. Levinson]’s presumption of reliance and obtain class certification.”  In its 2011 opinion, the Supreme Court vacated the judgment, finding that nothing in Basic justified the Fifth Circuit’s requirement that Plaintiffs prove loss causation at the class certification stage.  On remand, Halliburton argued that it had presented the absence of any price impact caused by its misrepresentations, and thus, investors would have to prove reliance on an individual basis rather than take advantage of Basic, which should defeat certification of the class.  The District Court rejected this argument, and the Fifth Circuit affirmed, finding that Halliburton’s price impact evidence could be used at trial on the merits, but that Halliburton could not use such evidence at the class certification stage.

In its 2014 Decision, the Supreme Court considered Halliburton’s request to overrule Basic’s presumption of reliance and “to instead require every securities fraud plaintiff to prove that he actually relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock.”  Halliburton advanced several arguments that Basic should be overruled, principal among them the “efficient capital markets hypothesis.” Essentially, Halliburton argued that Basic’s view of the market efficiency (that prices of shares traded on developed markets reflect all publicly available information, including any material misrepresentations) is “no longer tenable.”  According to Halliburton, empirical evidence suggests capital markets are not fundamentally efficient. This evidence, citing to recent crashes, suggests that information affecting a stock price is not immediately incorporated into stock price. The Supreme Court declined to disturb Basic, finding it rested on a “modest” premise.  As the Court held, “[e]ven the foremost critics of the efficient-capital markets hypothesis acknowledge that public information generally affects stock prices.”

While the Supreme Court kept the Basic presumption alive, it did give defendants a weapon.  Overruling the Fifth Circuit, the Supreme Court held that defendants should be able to defeat the presumption at the class certification stage through evidence that the alleged misrepresentation did not affect the stock price – so-called “price impact evidence.”  The Court held:

The fact that a misrepresentation “was reflected in the market price at the time of [the] transaction” – that it had price impact – is “Basic’s fundamental premise.”  Halliburton I, 563 U.S. at __ (slip op., at 7).  It thus has everything to do with the issue of predominance at the class certification stage.  That is why, if reliance is to be shown through the Basic presumption, the publicity and market efficiency prerequisites must be proved before class certification.  Without proof of these prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.  But as explained, publicity and market efficiency are nothing more than prerequisites for an indirect showing of price impace. There is no dispute that at least such indirect proof of price impact “is needed to ensure that the questions of law or fact common to the class will ‘predominate.’”  Amgen, 568 U.S. at __ (slip op., at 10) (emphasis deleted); see id., at __ (slip op., at 16-17).  That is so even though such proof is also highly relevant at the merits stage

Accordingly, the Court held that Defendants may introduce either “direct” or “indirect” price impact evidence at the class certification stage. Practicallly speaking, this means both sides will rely on experts and price impact studies, which will likely increase costs, and potentially serve as a deterrent to plaintiffs.  As Justice Ginsburg wrote in her concurring opinion, “[t]he Court’s judgment, therefore, should impose no heavy toll on securities-fraud plaintiffs with tenable claims.”  It may, however, result in fewer cases brought by plaintiffs with weaker claims.

In the few days since the decision came out, there has been significant commentary on its reasoning and likely effects.

While the Supreme Court took a “middle road,” many wonder if this created more confusion.  Professor Charles Korsmo of Case Western Reserve University School of Law told the Volokh Conspiracy that the decision “renders an already confused area of the law even more convoluted…”  Among other things, he observed that “[t]he dispute is almost never over whether there actually was a stock drop; it is over whether the company fraudulently concealed the negative information.”

Law 360 noted that the decision leaves open what exactly must be proven to show price impact or the lack thereof:

Price impact studies ultimately will be a tool defendants use to try to defeat claims at the class certification stage, so questions about what exactly defendants need to prove will have to be answered, according to Boris Feldman, a partner at Wilson Sonsini Goodrich & Rosati PC. Is it enough for the defendant to show no price impact followed the false statement? Or will they also have to show there was no impact when the corrective disclosure was made?

The real winners here may be the experts.  Costs will likely increase on both the plaintiff and defendant side to reflect the costs of preparing “price impact studies” at the pre-certification stage.  Beyond the costs of an expert price impact study, commentators also raised the spectre of increased discovery costs. Reuters columnist Alison Frankel, spoke to David Boies, attorney for the Halliburton II plaintiffs. She reported,

Moreover, Boies pointed out, defendants who decide to raise price impact arguments to oppose class certification will have to face shareholders’ discovery demands on the merits of their defenses. That’s going to expose defendants to depositions and documents requests they won’t welcome, he said. “Plaintiffs are going to get a whole lot more information at the class certification stage,” Boies said.

In anticipating of the decision, D&O insurers already began taking action.  As Law 360 reported,

Anticipating a so-called middle-of-the-road ruling in Halliburton, American International Group Inc. had already offered D&O policyholders an “event study endorsement” that will apply a $0 retention toward the cost of class certification event studies — critical tools used in securities litigation to measure an isolated stock price movement.


A representative for AIG said the Halliburton ruling has not impacted the company’s new policy provision. The decision to provide full, upfront coverage for costs of a class certification event study can be seen as a bet on AIG’s part that the Supreme Court’s decision, though tempered, is likely to benefit at least a few defendants battling securities class actions, experts say.


Breaking: Supreme Court Decides Halliburton

Posted in Securities Fraud and Class Actions

Today, the Supreme Court issued its Decision in Halliburton v. Erica P. John Fund. The decision upholds the Court’s prior Basic v. Levinson holding allowing the fraud on the market theory that presumes reliance, however; the Court agreed with Halliburton that defendants could rebut the presumption pre-class certification with evidence that an alleged misrepresentation did not actually affect the stock price. According to Law360, the decision “will likely make it somewhat more difficult for plaintiffs to bring securities class actions, but it stopped short of closing a major door.”


We will update this post with more analysis.


Corporate Governance Update – May 2014

Posted in Corporate Governance




Recent studies indicate that over the past year companies have become more sensitive to environmental, social, and governance (ESG) concerns of shareholders. One article describes a study compiled by the Institutional Shareholder Services that relies on data from investor complaints lodged during recent proxy seasons and suggests that social responsibility investors (SRI) have been encouraged by company action.

Indeed, shareholder litigation after regulatory/enforcement action has increased and led to shareholder lawsuits in which directors have been named and claimants have sought damages for the environmental remediation costs the company incurred. Coupled with efforts this year by the United Nations Global Compact that encouraged investors to submit their sustainability desires to the World Federation of Exchanges, investors have been influencing companies’ attention to climate change and sustainability. Their actions may soon influence the ESG reporting standards required by the New York Stock Exchange.


On May 2nd 2014, the SEC issued an order staying the effective date for compliance with the portions of the Exchange Act Rule 13p-1 and Form SD that the Court of Appeals held would violate the First Amendment. However, with respect to portions not deemed to violate the First Amendment, companies were expected to file any report required under Rule 13p-1 on or before the due date.

The SEC order issuing stay can be found here.

The April 29th 2014 statement the order refers to can be found here.


On May 29th 2014, the SEC filed a petition seeking en banc rehearing of the conflict minerals decision. The original decision from April 14, 2014 found that the requirement that issuers report to the SEC and state on their website “that any of their products have not been found to be ‘DRC conflict free’” compelled speech and violated the First Amendment. Although en banc review is difficult to attain, the need for en banc review in the conflict minerals is heightened given that the appropriate level of scrutiny for deciding the First Amendment issue is already subject to en banc review in the American Meat Institute case.

The petition for the rehearing can be found here.


On May 22nd 2014, the SEC announced the latest in a series of cases against microcap companies, officers, and promoters arising out of a joint law enforcement investigation to unearth penny stock schemes with roots in South Florida. The SEC charged five penny stock promoters with conducting various manipulation schemes involving undisclosed payments to induce purchases of a microcap stock to generate the false appearance of market interest

An article elaborating upon these charges can be found here.


On May 16th 2014, in United States v. Joel Esquenazi and Carlos Rodriguez, the Eleventh Circuit Court of Appeals became the first court to address the definition of the term “instrumentality” (“entity controlled by the government of a foreign country that performs a function the controlling governments treats as its own”) as it appears in the Foreign Corrupt Practices Act (“FCPA”). The court, in addition to providing  a non-exhaustive list of factors to consider, also provided the following two-part test to determine whether an entity is an instrumentality of a foreign government: (1) whether a foreign government controls the entity in question and (2) whether an entity performs a function the foreign government treats as its own.

The DOJ and SEC view this decision as validating their broad interpretation of who qualifies as a “foreign official” under the FCPA. Esquenazi demonstrates that companies cannot rely on “public” or “private” labels to determine whether an entity is an instrumentality under the FCPA.

A more in-depth article on this topic can be found here.


On May 1st 2014, the SEC announced an enforcement action against the NYSE and two affiliated exchanges for their failure to comply with the responsibilities of self-regulatory organizations (SROs) to conduct their business operations in accordance with SEC-approved exchange rules and the federal securities law.

While the NYSE operates under the auspices of its own laws and the securities laws, as SROs, the NYSE exchanges must file all proposed rules and rule changes with the SEC. The SEC then publishes them for public comment before they take effect. The violations occurred over the period from 2008 to 2012 and breached Section 19 (b) and 19 (g) of the Securities Exchange Act.

More on this topic can be found here.


On May 19th 2014, at the NYC Bar Association’s Third Annual White Collar Crime Institute in New York, NY, Chair Mary Jo White presented a nuanced view of the following three key pressure points of some of the more significant issues in the current enforcement environment:

 1. the pressure of multiple regulators with overlapping mandates to pursue the same investigations and achieve coordination successes while avoiding unnecessary competition,

2. the decision of whether to charge individuals, entities, or both in order to both emphasize regulatory scrutiny for individuals and effectively hold corporations accountable for negligent and intentional wrongdoing, and

3. the range of remedies and ultimate resolutions, such as barring wrongdoers for periods of time, requiring admissions of wrongdoing in certain cases, and using monitors or independent compliance consultants to directly address root causes of misconduct.

The full transcript of Chair Mary Jo White’s speech can be found here.




On May 1st 2014, the SEC approved changes to FINRA’s rules to limit self-trading. FINRA Rule 5210 now requires firms to have policies and procedures in place that are reasonably designed to review their trading activity and prevent a pattern or practice of self-trades resulting from orders originating from a single algorithm or trading desk, as well as those related algorithms or trading desks.

FINRA stated that it will announce an effective date to reflect this change to FINRA Rule 5210 in a regulatory notice in the near future.


The SEC recently approved FINRA’s amendment to Rule 5110, commonly referred to as the “Corporate Financing Rule,” which addresses commercial fairness in underwriting and other arrangements for the distribution of securities. The amendment expands the circumstances in which termination fees and rights of first refusal are permissible, eliminates obligations of the issuer with respect to the payment of any termination fee, and eliminates the requirement to file offerings of certain types of ETF’s.

The SEC also approved FINRA’s amendment to Rule 5121, the Conflict of Interest Rule. The new amendment narrows the scope of the definition of “control.” Whereas “control” historically included being a holder of 10% or more of the debt of the issuer, the new rules narrows the scope of the definition to exclude holders of subordinated debt.




The 2014 proposed amendments to the General Corporation Law of the State of Delaware

(“DGCL”) would give corporations and their counsel increased flexibility in structuring transactions and in effecting various corporate acts.

These sections would provide the following changes:

1. Section 251(h) will clarify the requirements for accomplishing two-step takeovers without a back-end vote on the merger,

2. Section 141(f) will provide a means of enabling board and stockholder consents to be delivered in escrow,

3. Section 141(f) along with Section 228(c) will clarify the time frame that a person executing stockholder consent may provide consent,

4. Section 242 will simplify the process of implementing certain amendments to the certificate of incorporation,

5. Section 218 will relax the filing requirements in respect of voting trusts, and

6. Section 103(a)(1) will provide corporations a means of dealing with issues that arise when their incorporator has not duly completed the incorporation process and cannot be located to assist with any necessary corrective measures.

An in-depth discussion of the proposed amendments from Insights can be found here.


On May 2nd 2014, in Third Point LLC v. Ruprecht, et al. the Delaware Court of Chancery denied preliminary injunctive relief against Sotheby’s annual meeting, scheduled for May 6, 2014.

Plaintiffs claimed that the board had violated its fiduciary duties by (1) adopting a stockholder rights plan with a two-tiered trigger, capping stockholders who file Schedule 13Ds at 10% of the outstanding stock, but permitting passive investors who file Schedule 13Gs to acquire up to 20% of the outstanding stock; and (2) refusing to grant Third Point, the company’s largest stockholder, a waiver enabling it to acquire up to 20% of the outstanding stock.

On a preliminary basis, the Court held that Unocal, rather than Blasius, provides the appropriate framework of analysis. Under Unocal, the Court held that the majority-independent board showed that it acted reasonably in interpreting Third Point as a legally cognizable threat and responded reasonably

To read the full opinion, click here.




On May 2nd, 2014, the SEC announced that Chief Economist and Division of Economic Risk Analysis (DERA) Director Craig M. Lewis will leave the agency to return to his position as the Madison S. Wigginton Professor of Finance at Vanderbilt University’s Own Graduate School of Management.


On May 15th, 2014, the SEC announced that after a six-year tenure at the SEC, Chief Accountant Paul A. Beswick is leaving the agency to return to the private sector. During the transitional period, he will remain to help ensure continuity in the agency’s Office of the Chief Accountant (OCA).


On May 29th, 2014, the SEC announced that Stephanie Avakian has been named Deputy Director of its Division of Enforcement. She comes to the SEC from the law firm of Wilmer Cutler Pickering Hale and Dorr LLP, where she is a partner in the New York office and a vice chair of the firm’s securities practice.

Second Circuit Vacates Judge Rakoff’s Decision Rejecting Citigroup-SEC Settlement

Posted in Securities Fraud and Class Actions

Today, the Second Circuit Court of Appeals vacated Judge Rakoff’s November 28, 2011 Order, which criticized the Citigroup-SEC settlement on a number of grounds, including that it allowed Citigroup to avoid admitting guilt. We have covered this settlement extensively (see, here, here and here).

Circuit Judges Pooler, Lohier and Carney’s opinion found three specific errors by the District Court:

(i) the court found that the District Court had abused its discretion by requiring that the SEC “establish the ‘truth’ of the allegations against a settling party as a condition for approving the consent decrees.”

(ii) the court found that the District Court committed “legal error” when it “made no findings that the injunctive relief proposed in the consent decree would disserve the public interest, in part because it defined the public interests as ‘an overriding interest in knowing the truth.’” The court found that disagreement with the “SEC’s decisions on discretionary policy” — such as deciding to settle without admission of liability — was not a proper ground to find that the public interest was disserved.  However, the court also specifically found that the District Court did not “condition” approval of the settlement on an admission of liability.

(iii)  the court found that “to the extent the district court withheld approval of the consent decree on the ground that it believed the SEC failed to bring the proper charges against Citigroup, that constituted an abuse of discretion.”

Judge Lohier wrote a separate concurring opinion, observing that he would be inclined to reverse rather than vacate and remand, because it did not appear that any additional facts are necessary to determine that the proposed decree is “fair and reasonable” — however, Judge Lohier found no harm in  vacating and remanding to allow “the very able and distinguished District Judge to make that determination in the first instance.”

While the Second Circuit vacated the decision, in the almost 3 years since Judge Rakoff’s November 2011 order, there have been some changes in SEC policy.  In January 2012, as we reported, the SEC announced that it would require admissions in securities cases where defendants have been convicted of or admitted to criminal conduct in related proceedings.

Corporate Governance Update – April 2014

Posted in Corporate Governance

Associate Aartie Manansingh co-authored this post.

A. Confidential Treatment Requests:  THE DIVISION OF CORPORATE FinANCE  WILL NOT Directly Inform You If Granted CTRs Had “No Review”

On April 9th, 2014, the Division of Corporation Finance announced that, in cases where it has determined to grant a request for confidential treatment (CTR) without providing comments, it will no longer separately notify the applicant. Instead, the applicant must keep an eye on the company’s filing history on Edgar to look for an order indicating that the CTR was granted. The applicant still will receive a call or letter if there are comments to a CTR or if the CTR is denied.


On April 10th, 2014 the SEC’s Division of Corporation Finance issued new compliance and disclosure interpretations on intrastate crowdfunding. In summary, the C&DIs advised that:

1. Rule 147 does not prohibit general advertising or general solicitation. (See Question 141.03)

2. Use of a third-party internet portal to promote an intrastate offering does not preclude reliance on Rule 147 if the portal implements measure to ensure that offers of securities are made only to persons resident in the relevant state or territory. (See Question 141.04)

3. An issuer’s use of its own website or social media presence to offer securities would likely involve offers to residents outside the state making the offering inconsistent with Rule 147. (See Questions 141.05)

C. DOJ & FTC: Joint Antitrust Statement Encouraging Companies to Share Cyber Threats

In a joint policy statement issued on April 10th, 2014, the DOJ and FTC officially encouraged companies, including direct competitors, to share cyber threat information with one another. The latest announcement makes clear that, from the government’s perspective, sharing of cyber-related threat information should generally not implicate antitrust concerns.

 D.    D.C. Circuit Court Finds SEC’s Conflict Mineral Disclosure Rule Violates First Amendment

On April 14th, 2014, the U.S. Court of Appeals for the District of Columbia Circuit found that the SEC rule requiring issuers to disclose whether they use “conflict minerals” in their products is unconstitutional because it compels speech in violation of the First Amendment.

The court concluded that compelled disclosures of commercial information are subject to the same level of First Amendment scrutiny as are other regulations of commercial speech.

The conflict minerals disclosure rule, mandated by the Dodd-Frank Act, requires public companies to disclose whether they use conflict minerals (tantalum, tin, tungsten, and gold) and whether the minerals originated in the DRC or adjoining countries. It responds to concerns that conflict minerals mined in these “covered countries” help finance armed groups that are responsible for violence in the region.

E. Corp Fin Issues Conflict Minerals Guidance

On April 29th, 2014 the SEC issued a Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule to help guide companies in their compliance with Conflict Minerals Disclosures.

The statement notes that:

  • The June 2nd Deadline Remains the same – Companies are still required to file initial Form SDs by June 2nd
  • Companies are not required to characterize any products as “DRC conflict free” if they have not been found to be “DRC conflict free” or “DRC conflict undeterminable.”
  • For products that otherwise would have merited a label other than “DRC conflict free,” disclosure is required for the facilities used to produce the conflict minerals, country of origin and efforts to determine the mine or location of origin.
  • For companies that voluntarily decide to use “DRC conflict free” label, they must obtain a private sector audit.

F. Corp Fin Revises WKSI Waiver Policy Statement Again

On March 12th, 2014, the Division of Corporation Finance of the SEC issued revised guidance on well- known  seasoned issuer (WKSI) waivers. On April 24, 2014 the Division of Corporate Finance issued an additional Revised Statement on Well-Known Seasoned Issuer Waivers.

The newest April 2014 guidance clarifies the framework for determining whether a showing of good cause has been established in a WKSI ineligibility waiver request, specifying that:

“Where there is a criminal conviction or a scienter based violation involving disclosure for which  the issuer or any of its subsidiaries was responsible, the issuer’s burden to show good cause that  a waiver is justified would be significantly greater.”

This addition suggests that it will be more difficult to obtain a waiver where a criminal conviction or scienter-based disclosure violation is the underlying cause of ineligibility.

G. Heartbleed and Disclosure Requirements

As noted in this WSJ blog, companies may face liability in the wake of data security incidents that result from weak control and oversight. The recent “Heartbleed” flaw should serve as motivation for companies to implement comprehensive data security compliance programs.

The Division of Corporation Finance’s Guidance regarding disclosure obligations relating to cybersecurity risks notes that “cyber incidents can result from … unintentional events,” which might include prolonged exposure from security flaws such as Heartbleed, which remained undetected by companies for years. The guidance also notes that “[c]onsistent with the Regulation S-K Item 503(c) requirements for risk factor disclosures generally, cybersecurity risk disclosure provided must adequately describe the nature of the material risks and specify how each risk affects the registrant.”

H. Corp Fin Issues New “Legend for Twitter” & “Retweeting” Guidance

On April 21st, 2014 the Division of Corporation Finance issued 2 new Compliance & Disclosure Interpretations dealing with social media. The first CDI deals with how to affix legends to tweets and other social media communications where a limit exists to the number of characters or amount of text that can be included in a communication. (see Question 110.01). In short, an issuer does not have to include the entire legend if the communication includes an active hyperlink to the required legend and prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

The second CDI deals with retweeting or otherwise repeating another social media communication (see Question 110.02). In short, an issuer is not responsible for third party re-tweets. (“If the third party is neither an offering participant nor acting on behalf of the issuer or an offering participant and the issuer has no involvement in the third party’s re-transmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433, the re-transmission would not be attributable to the issuer.”)

I. the SEC’s Disclosure Reform Project

On April 11th, at the ABA Spring Meeting, the Division of Corporation Finance Director Keith Higgins delivered a speech outlining the SEC’s efforts on disclosure reform. In the speech, he noted that efforts to reduce the volume of disclosure is not the “sole end game”, particularly given that many investors have expressed an appetite for more information, not less. A new webpage created for this initiative solicits public “input and comments on how to improve disclosure and make it more effective.”

J. NYSE Proposal: Relaxation of Director Independence for Spin-Offs

On April 9th, 2014, Oliver Rust of Duane Morris explained how the NYSE has proposed to relax its bright-line director independence tests in limited circumstances, so that “a director may be deemed independent of a company that has been the subject of a spin-off transaction regardless of the fact that such director or his employer had a relationship with the former parent of such spun-off company.” The new interpretation is reflected in a rule filing that the NYSE has submitted to the SEC for approval.

K. European Commission proposes to strengthen shareholder engagement and introduce a “say on pay” for Europe’s largest companies

On April 9th, 2014, The European Commission published a proposal to amend the Shareholder Rights Directive  to improve corporate governance in EU companies traded on regulated markets. Some of the key elements include a “say on pay” policy, an annual remuneration report and improving shareholder oversight on related party transactions.

L. SEC Names David Gottesman as Deputy Chief Litigation Counsel

On April 15th, 2014, the Securities and Exchange Commission announced the appointment of David J. Gottesman as deputy chief litigation counsel in the Division of Enforcement.

NY AG Writes Critical Op Ed on High-Speed Trading

Posted in Enforcement Actions and Investigations, Regulatory Actions

New York Attorney General Eric T. Schneiderman yesterday penned an New York Daily News op ed criticizing high speed trading as using “questionable practices” and “driving up the cost for other purchasers of stock.”

Schneiderman’s op ed, available here, comes on the heels of his statements last month calling for “tougher regulations and market reforms intended to eliminate the unfair advantages commonly provided to high-frequency trading firms at the expense of other investors.”

The AG’s March 18th Press Release stated:

To address this imbalance in the markets, which now tilt in favor of high-frequency traders, Attorney General Schneiderman today called on the exchanges and other regulators to review the feasibility of certain market structure reforms that could help eliminate some of the fundamental unfairness in our markets. Currently, securities are traded continuously, so that orders are accepted and matched by price, with ties broken by which order arrives first. This system emphasizes speed over price, rewarding high-frequency traders for flooding the market with orders. One detailed proposal would seek to correct this imbalance by processing orders in batches in frequent intervals, to ensure that price – not speed – is the deciding factor in who obtains a trade.

According to the Daily News, Schneiderman appeared earlier this week on CBS This Morning (video here), where he stated that high frequency trading’s “race for speed” has a “destabilizing effect” and can produce “flashes, crashes and problems.”

In yesterday’s op ed, Schneiderman wrote that he is focusing on the firms that give high speed traders “special access” to get a sneak peak at the market, stating that “Our markets work best when everyone plays by the same set of rules.”




Corporate Governance Update – March 2014

Posted in Corporate Governance

Associate Krista Giannattasio co-authored this post.

A.   Reform on the Horizon for the Uniform Unclaimed Property Act

The Uniform Unclaimed Property Act (UUPA) was promulgated with the intention of abolishing the common law on abandoned property.  The UUPA provides a system for transferring intangible personal property and personal property in safety deposit accounts, held by an entity other than the rightful owner, to the state when it is deemed abandoned by the rightful owner.  The act was originally promulgated in 1954 by the Uniform Law Commission (ULC) as the Uniform Disposition of Unclaimed Property Act.  It was amended in 1966 and wholly revised in 1981 to become the UUPA.  The UUPA was last revised in 1995 and is due for a revision.  In anticipation of the revision, the Drafting Committee of the UUPA has noted 76 issues for consideration and has requested comments by April 22, 2014.

A  statement of the issues can be found here.

B.   PCAOB No Longer Pursuing Mandatory Audit Rotation in the United States

On February 6, James Doty, chairman of the Public Company Accounting Oversight Board (PCAOB), a non-profit corporation established by Congress to oversee the audits of public companies, reported to the SEC that the PCAOB was no longer contemplating the idea of requiring mandatory audit firm rotation.  However, Chairman Doty did announce that the PCAOB was continuing to look at other ways of strengthening auditor independence and skepticism.  As Europe continues to move forward with its concept of a mandatory 10-year rotation requirement, U.S. policymakers will likely monitor the effects of that initiative.

Although Europe’s mandatory auditor rotation rules are yet to be finalized, this initiative may impact multinational companies based in the United States.  The rotation requirement is limited to statutory audits of “public interest entities” (PIEs) in the European Union (EU). This could include some EU operations of U.S. multinationals, with the biggest effect likely in financial services.  Those affected may include:

(1)  EU companies listed on EU regulated markets (NOT U.S. companies solely because they are dual listed)

(2)  Credit institutions (banks) and insurance undertakings (whether or not listed)

(3)  Other entities that an individual EU Member State may choose to designate as a PIE (scope is still unknown)

C.   New York Stock Exchanges’ Annual Letter to Listed Companies

In mid-March, the New York Stock Exchange (NYSE) posted its annual letters to its domestic and foreign-listed companies on its website.  The letter to domestic companies contains reminders of several key annual meeting deadlines and important regulations for U.S. companies such as:

(1)  Broker search cards must be sent at least twenty business days before the record date for annual meetings (ten calendar days for special meetings);

(2)  Notification to the NYSE at least ten calendar days in advance of all record dates set for any purpose (any changes will require another ten-day notice);

(3)  Recommendation of a 30-day interval between the record date and meeting date;

(4)  Three copies of proxy materials must be sent to the NYSE when they are first sent to shareholders; and

(5)  Annual CEO affirmations are due thirty days after the annual meeting, and interim affirmations are required within five business days after the triggering event.

The letter also address the NYSE’s recent changes to the compensation committee independence standards, its timely alert policy, and transactions requiring supplemental listing applications and shareholder approval, especially those that may affect voting rights.

The letter to foreign-listed companies similarly contains helpful information including reminders with respect to record dates, submission of proxy materials, written affirmations, supplemental listing applications and the NYSE’s timely alert policy.  Foreign-listed companies that do not distribute proxies in accordance with U.S. rules are also reminded of the requirement to post a prominent undertaking on its website to provide all holders the ability, upon request, to receive a hard copy of the complete audited financial statements free of charge and to issue a press release announcing the annual report filing, including the company’s website address and alerting shareholders how to receive a free copy of the audited financial statements.

D.   Vestar Capital Partners to Acquire Institutional Shareholder Services

In a March 18, 2014 press release, Vestar Capital Partners, a private equity firm specializing in management buyouts, recapitalizations and growth equity investments, announced it will acquire Institutional Shareholder Services Inc. (ISS)  for $364 million dollars from MSCI Inc.  ISS is a leading provider of corporate governance solutions to the global financial community.  The company will operate independently with the current ISS executive team once the transaction is completed (it is expected to close in the second quarter).  ISS currently works with some 1,700 clients, including institutional investors who rely on ISS’s objective and impartial proxy research and data to vote portfolio holdings, as well as corporations focused on governance risk mitigation as a shareholder-value enhancing measure.  In response to the acquisition, Gary Retelny, President of ISS, stated, “[w]ith Vestar’s support, the management team looks forward to advancing ISS’s long-standing mission of providing world-class corporate governance solutions in an independent and transparent manner.  Clients will continue to see expanded product offerings, innovative solutions, and the same high level of service that ISS has delivered to institutional investors, corporations, and governance practitioners globally for nearly three decades.”

E.    Director Keith Higgins Speaks on Regulation D

On March 28, 2014, Keith Higgins, the director of the SEC’s Division of Corporation Finance, delivered a speech on Regulation D of the Securities Act of 1933.  Under the 1933 Act, any offer to sell securities must either be registered with the SEC or meet certain qualifications set out in Regulation D to exempt them from such registration.  Regulation D standards were relaxed six months ago in connection with the Jumpstart Our Business Startups Act (JOBS Act), enacted in 2012.  Notably, Section 201(a) of the JOBS Act requires the SEC to eliminate the prohibition on using general solicitation under Rule 506 where all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that the purchasers are accredited investors.  Since general solicitation became effective, almost 900 new offerings have been conducted in reliance on the exemption, raising more than $10 billion in new capital.  However, these 900 offerings pale in comparison to the  old “private” Rule 506 exemption (now called Rule 506(b)) which, during the same time period, was relied upon in over 9,200 new offerings that resulted in the sale of over $233 billion in securities.  Mr. Higgins gave three explanation as to why the new Rule 506(c) exemption has not caught on more widely with issuers:

(1)  Reasonable Steps to Verify. Some believe that the reluctance of issuers to use the new Rule 506(c) exemption is due to the rule requiring the issuer take “reasonable steps to verify” the accredited investor status of a purchaser.

(2)  Definition of “General Solicitation.” Many have criticized the “general solicitation” as too vague and creating uncertainty about whether a particular communication or activity is a form of general solicitation.

(3)  “Overhang” of the 2013 Regulation D Proposal.  Some have expressed concern that the proposed requirements and penalties under the 2013 Regulation D proposal may be applied retroactively to offerings conducted before the adoption of the proposal.


A.   Andy Bouchard:  Delaware’s New Chancellor

On March 20, 2014, Delaware Governor Markell announced the nomination of  Andre G. Bouchard to serve as the 21st Chancellor of the Court of Chancery.  If confirmed by the Delaware Senate, Mr. Bouchard will succeed the Honorable Leo E. Strine, Jr., who was sworn in as Chief Justice of the Delaware Supreme Court in February.  Mr. Bouchard is widely recognized as one of the country’s premier corporate law practitioners.  More information about Mr. Bouchard can be found here.

B.   Supreme Court Allows State-Law Securities Class Actions to Proceed

On February 26, 2014, in the case of Chadbourne & Parke LLP v. Troice, the Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not bar state-law securities class actions in which the plaintiffs allege that they purchased uncovered securities that the defendants misrepresented were backed by covered securities.  This case arose from a multibillion-dollar Ponzi scheme run by Allen Stanford and several of his companies.  Stanford and his associates sold the plaintiffs certificates of deposit (CDs) issued by his bank and then used the money for their personal gain.  Although these CDs were not covered securities under SLUSA, the defendants misrepresented that they were backed by highly marketable securities that were covered by the Act.  After the plaintiffs learned of the fraud, they brought state-law class actions against alleged participants.  In a 7-2 decision, the Supreme Court held that in order to satisfy SLUSA’s “connection” requirement, a misrepresentation must be “material to a decision by one or more individuals (other than the fraudster) to buy or sell a ‘covered security.”  Because the plaintiffs had alleged only “fraudulent assurances that [Stanford's] Bank owned, would own, or would use the victims’ money to buy for itself shares of covered securities,” there was not a “connection” between a material misstatement and the “purchase or sale of a covered security.”   Notably, this decision marks the first time the Court has held that a state-law suit pertaining to securities fraud is not precluded by SLUSA, suggesting some limits to the broad interpretation of SLUSA’s preclusion provision that the Court has recognized in previous cases.

C.   Supreme Court Hears Oral Arguments in Halliburton: Critical Issues for Securities Fraud Class Actions

On March 5, 2014, the Supreme Court heard oral arguments in the case of Halliburton Co. v. Erica O. John Fund, Inc.  The Supreme Court will consider whether to overrule or limit plaintiff’s ability to rely on the legal presumption that each would-be class member in a securities fraud class action relied on the statements challenged as fraudulent in the lawsuit, or the “fraud-on-the-market” theory adopted by the Court twenty-five years ago in Basic Inc. v. Levinson. Without this presumption, putative class action plaintiffs would face substantial barriers in bringing securities fraud class action lawsuits.  While the Court is not expected to rule on Halliburton until June of 2014, the questions posed by the justices hint at changes that may make it more difficult for the plaintiffs’ securities bar to get investor classes certified.  The transcript is available here.

D.   Supreme Court Rules in Private Company Whistleblower Case

On March 4, 2014, the Supreme Court decided Lawson v. FMR LLC.  In a 6-3 ruling that reversed a Fifth Circuit decision, the Court held that the anti-retaliation protection that the Sarbanes-Oxley Act of 2002 provides to whistleblowers applies to employees of a public company’s private contractors and subcontractors. The Sarbanes-Oxley Act was enacted in response to the collapse of the Enron Corporation to protect investors in public companies.  One function of Sarbanes-Oxley is to protect “whistleblowers,” providing that: “No [public] company…or any…contractor [or] subcontractor…of such company, may discharge, demote…[or] discriminate against an employee in the terms and conditions of employment because of [whistleblowing activity]” (18 U.S.C. § 1514A (a)).  In Lawson, the plaintiffs were former employees of a private company that contracted with publicly-traded mutual funds alleging that their employer, FMR LLC, retaliated against them for reporting putative fraud.  The Court’s holding extends far beyond the mutual-fund industry to cover other contractors, including law and accounting firms.

E.    Supreme Court to Review Omnicare: A Circuit Split

The Supreme Court has granted certiorari and will review Omnicare v. Laborers District Council Construction Industry Pension Fund next term.  The issue under consideration is whether, for purposes of a claim under Section 11 of the Securities Act of 1933, a plaintiff may plead that a statement of opinion was “untrue” merely by alleging that the opinion itself was objectively wrong, as the Sixth Circuit has concluded, or must the plaintiff also allege that the statement was subjectively false – requiring allegations that the speaker’s actual opinion was different from the one expressed – as the Second, Third, and Ninth Circuits have held.

F.    Kahn v. M&F Worldwide Corp.: Delaware Supreme Court Affirms In re MFW Shareholders Litigation

In Kahn, et al. v. M&F Worldwide Corp., et al., the Delaware Supreme Court affirmed the Court of Chancery’s decision in In re MFW Shareholders LitigationIn re MFW Shareholders Litigation granted summary judgment in favor of a board accused of breaching its fiduciary duties by approving a buyout by a 43.4% controlling stockholder, where the controlling stockholder committed in its initial proposal not to move forward with a transaction unless approved by a special committee, and further committed that any transaction would be subject to a non-waivable condition requiring the approval of the holders of a majority of the shares not owned by the controlling stockholder and its affiliates.  On appeal, the Delaware Supreme Court affirmed, holding that controlling stockholder buyouts can receive business judgment review if conditioned ab initio on dual procedural protections.  The Delaware Supreme Court adopted the Court of Chancery’s formulation of the standard, ruling that the business judgment standard of review will be applied in controlling stockholder buyouts if and only if: (i) the controlling stockholder conditions completion of the transaction on the approval of both a special committee and a majority of the minority stockholders, (ii) the special committee is independent, (iii) the special committee is empowered to freely select its own advisors and to say no definitively, (iv) the special committee meets its duty of care in negotiating a fair price, (v) the minority vote is informed, and (vi) there is no coercion of the minority.  The Delaware Supreme Court further held, however, that if “after discovery triable issues of fact remain about whether either or both of the dual procedural protections were established, or if established were effective, the case will proceed to a trial in which the court will conduct an entire fairness review.”

G.   In re Rural Metro Corporation Stockholders Litigation: Court of Chancery Holds Financial Advisor Liable for Aiding and Abetting Breaches of Fiduciary Duty

Regarding the case In re Rural Metro Corporation Stockholders Litigation, on March 7, 2014, the Delaware Court of Chancery held RBC Capital Markets, LLC liable for aiding and abetting breaches of fiduciary duty by the board of directors of Rural/Metro Corporation in connection with Rural’s acquisition by Warburg Pincus LLC.  In its ruling, the Court of Chancery found that RBC, in negotiating the transaction on behalf of Rural, had engaged in multiple conflicts of interest.  According to the Court of Chancery, RBC was motivated by its contingent fee and its undisclosed desire and efforts to secure the lucrative buy-side financing work in preparing valuation materials for Rural.  Because those valuation materials were included in Rural’s proxy statement, the Court found that RBC was also liable for aiding and abetting the board’s breach of its duty of disclosure.  The Court of Chancery also noted that RBC had failed to provide interim valuation materials to Rural’s board or its special committee, and that the directors failed in their duty to be sufficiently informed to allow them to make a decision that the sale of the company.  Notably, the Court of Chancery highlighted  that directors must maintain an “active and direct role” in the sale process “from beginning to end.”  The Court of Chancery saw Rural’s special committee as failing to discharge its duty by failing to provide “guidance about when staple financing discussions should start or cease,” failing to make “inquiries on that subject,” and failing to impose a “practical check on [the investment bank’s] interest in maximizing its fees.”  Finally, the Court of Chancery found that the potential for aiding and abetting liability for investment banks, which it characterized as “gatekeepers,” would “create a powerful financial reason for the banks to provide meaningful fairness opinions and to advise boards in a manner that helps ensure that the directors carry out their fiduciary duties when exploring strategic alternatives and conducting a sale process, rather than in a manner that falls short of established fiduciary norms.”