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August 2013


From the editors of CCH Federal Securities Law Reporter, CCH Blue Sky Law Reporter and the securities publications of Aspen Publishers, this update describes important developments covered in these publications, as well as timely topics of interest generally to federal and state securities practitioners. This update includes a preview of IPO Vital Signs, an advanced IPO research analysis tool, for IPO professionals and pre-IPO companies and a preview of RBsource, a new all-in-one online securities law resource, powered by the Securities Redbook. Finally, please see the “Hot Topic of the Month,” for research tips and references to CCH and Aspen source material on point.

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Securities Regulation Daily

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Financial Reform Resources



CCH Federal Securities Law Reporter

SEC rescinds program for supervising investment bank holding companies. The SEC has rescinded Exchange Act rules that established a program for supervising investment bank holding companies. The Dodd-Frank Act eliminated the applicable section effective July 21, 2011. The SEC is also rescinding certain exemptive provisions in the broker-dealer risk assessment rules and the delegation of authority that relates to the rules that are being rescinded. Release No. 34-69979 is reported at ¶80,326.

SEC adopts final rule on retail foreign exchange transactions. The SEC finalized a rule allowing registered broker-dealers to conduct a retail foreign currency exchange (forex) business, provided they comply with relevant laws and regulations. The rule release explains how existing regulations apply to retail forex transactions. Although the rule is final, it will expire on July 31, 2016, if the SEC does not take further action. Release No. 34-69964 is reported at ¶80,324.

SEC lifts ban on general solicitations in private offerings. The SEC commissioners, in a split vote, adopted a rule to eliminate the ban on general solicitation and general advertising in Rule 506 offerings. The vote was also split on the issuance of a proposal to provide additional protections to investors in private offerings. Commissioner Luis Aguilar opposed the rule lifting the ban on general solicitation because it does not offer sufficient investor protections, in his view. Commissioners Troy Paredes and Daniel Gallagher opposed the proposed amendments to the private offering rules because of the new regulatory burdens they would impose. In their view, the new requirements would thwart the objectives of the JOBS Act. The commissioners voted unanimously to adopt a rule to disqualify felons and other bad actors from participating in Rule 506 securities offerings.

The changes to Rule 506 will permit issuers to use general solicitation and general advertising to offer their securities as long as they take reasonable steps to verify that the investors are accredited investors. The reasonableness of that determination will be based on an objective assessment by the issuer. The rule includes a non-exclusive list of methods that investors may use to satisfy the verification requirement, as requested during the comment period.

Section 926 of the Dodd-Frank Act requires the SEC to adopt rules to prohibit the use of the Rule 506 exemption for any securities offerings in which certain felons or other bad actors are involved. The new rules were to be substantially similar to those found in Regulation A. The final rule adopted today would prohibit an issuer from relying on the Rule 506 exemption if it or any other person covered by the rule has a disqualifying event. The disqualification rule covers the issuer, its predecessors, and affiliated issuers.

The rule proposal relating to private placements is intended to enhance the SEC’s ability to assess developments in the market once the ban on general solicitation is lifted. Under the proposal, issuers would be required to file advance notices of sales 15 days prior to an offering and within 30 days after the conclusion of the offering. Issuers would be required to disclose their websites, the securities that are being offered, the types of investors in the offering, the use of proceeds, the types of general solicitation used, and the methods used to verify the accredited-investor status of their investors. Release No. 33-9415 (ban on general solicitation) is reported at ¶80,321, Release No. 33-9414 (disqualification of felons) is reported at ¶80,322, and Release No. 33-9416 (investor-protection proposal) is reported at ¶80,323.

SEC resource extraction payment disclosure provision vacated. A federal district court judge vacated and remanded the SEC regulation implementing the resource extraction payment disclosure provisions of the Dodd-Frank Act because the Commission misread the statute to mandate public disclosure and its decision to deny any exemption from the disclosure requirement was, given the limited explanation provided, arbitrary and capricious. The Commission fundamentally miscalculated the scope of its discretion at critical junctures, said the court, viewing itself as shackled by the words “report” and “compilation,” when neither could be read to limit its authority. Now informed that it does have more authority under the statute than it thought it had, the Commission may well strike a different balance.

Co-authored by Senators Ben Cardin (D-Md) and Richard Lugar (R-Ind), Section 1504 of the Dodd-Frank Act, codified as Section 13(q) of the Exchange Act, directed the SEC to adopt regulations requiring resource extraction issuers engaged in the development of oil, natural gas, or minerals to disclose, in an annual report, payments made to the federal government or foreign governments.

There was no dispute that the Commission viewed itself as bound to make the annual reports on resource extraction payments publicly available. Since the SEC believed it had no discretion in this area, said the court, no deference to its interpretation was warranted. Deference to an agency’s statutory interpretation is only appropriate when the agency has exercised its own judgment, not when it believes the interpretation is compelled by Congress.

The court had to determine whether public disclosure of the full payment information is compelled by the statute, that is, in Chevron terms, whether Congress has directly spoken to the precise question at issue. If not, the Commission’s decision cannot stand.

Section 13(q) provides that the Commission must issue final rules requiring each resource extraction issuer to include in an annual report information relating to any payment made to a government for the commercial development of oil, natural gas, or minerals. The statute’s plain language poses an immediate problem for the Commission, noted the court, because it says nothing about the public filing of these reports. Thus, the Commission’s argument that the statute unambiguously requires public filing is, in the court’s view, “a climb up a very steep hill.”

Section 13(q) also states that, to the extent practicable, the Commission must make available online, to the public, a compilation of the information required to be submitted under the rules issued under the annual report provision. According to the court, a natural reading of this provision is that, if disclosing some of the information publicly would compromise commercially sensitive information and impose high costs on shareholders and investors, then the SEC may selectively omit that information from the public compilation. The Commission points to nothing prohibiting that reading, noted the court.

Indeed, reasoned the court, the Commission’s approach reads the “to the extent practicable” limit out of the statute since, if it is not practicable to make a compilation available, it is likely impracticable to make all the information available through full disclosure of the annual reports themselves and, conversely, once the full reports were public, there would be little to make compilation of them online impracticable.

Thus, the court concluded that Section 13(q) requires disclosure of annual reports but says nothing about whether the disclosure must be public or may be made to the Commission alone. Neither the dictionary definition nor the ordinary meaning of “report” contains a public disclosure requirement. And Section 13(q) expressly addresses public availability of information by establishing a different and more limited requirement for what must be publicly available than for what must be annually reported. Topping things off, continued the court, the Exchange Act as a whole uses the word “report” to refer to disclosures made to the Commission alone. If this is Congress’s way of unambiguously dictating that reports must be publicly filed, observed the court, it is a peculiar one indeed.

Faced with these powerful indicia that Congress left the public availability of reports unspecified, the Commission offered no persuasive arguments that the statute unambiguously requires public disclosure of the full reports. Rather than a compilation of the annual reports, explained the court, the statute requires a compilation of the information in the reports, weakening any inference that the reports themselves, unedited and retaining their independent character, must be pulled together. A compilation of something non-discrete, like information, data, or facts, normally entails substantial selection.

Rejecting the Commission’s argument that there is nothing for it to do with the information except provide it to the public, the court noted that the Commission has a duty to evaluate the information to determine the extent to which disclosing it in a compilation would be practicable, and then use it to make such a compilation. Similarly rejected was the intervenor’s contention that the senatorial proponents of Section 13(q) expressed the intent for public disclosure throughout the legislative and administrative process. Such a contention, posited the court, improperly rests on post-enactment comments by individual legislators. Post-enactment legislative history, which the court called a contradiction in terms, is not a legitimate tool of statutory interpretation.
The Commission made another serious error that independently invalidates the regulation by its arbitrary and capricious denial of any exemption for countries that prohibit payment disclosure.

The Commission declined to adopt an exemption for countries prohibiting disclosure, explaining that such an exemption would be inconsistent with the structure and language of Section 13(q) and could undermine the statute by encouraging countries to adopt laws specifically prohibiting the disclosure required under the final rules or interpret existing laws as having the same effect.

Congress has endowed the Commission with authority to make exemptions from certain Exchange Act provisions, including Section 13(q), said the court. Aside from any statutory duty to act, moreover, an agency’s decision as to exemptions must, like other decisions, be the product of reasoned decision making.

The Commission’s primary reason for rejecting an exemption does not hold water, said the court. The Commission argued that an exemption would be inconsistent with the structure and language of Section 13(q). But this argument ignores the meaning of “exemption,” noted the court, which, by definition, is an exclusion or relief from an obligation, and hence will be inconsistent with the statutory requirement on which it operates.

Applied more specifically, moreover, the Commission’s argument is simply incorrect. If the statutory provision itself must evidence some openness to exemption, explained the court, Section 13(q) does just that. It emphasizes practicability, requiring a compilation only to the extent practicable. And it provides that the Commission’s rule must support the commitment of the federal government to international transparency promotion efforts to (and only to) the extent practicable.

The Commission’s view of the statute’s purpose of international transparency at all costs, exemptive authority or not, thus contradicts what Section 13(q) says on the very question. That is not to say that Section 13(q)’s purpose is irrelevant to the exemption analysis, acknowledged the court, since it may be entirely reasonable for the Commission to conclude that requiring disclosure from a certain issuer or about a certain country goes to the heart of the provision’s goal, and that the burden reduction is not worth this loss. But here, the Commission impermissibly rested on the blanket proposition that avoiding all exemptions best furthers Section 13(q)’s purpose. It did not consider whether a certain country or certain issuer that represents a high portion of the burden on competition and on investors is sufficiently central to that purpose to make an exemption unwarranted.

The court also acknowledged that a broadly written exemption could eviscerate Section 13(q) by allowing any country to avoid disclosure by enacting a law returning, in effect, to the EITI voluntary compliance regime Congress sought to augment. But the court hastened to note that this does not suffice to support a decision costing many billions of dollars and (in the Commission’s own analysis) burdening competition.

The Commission could have limited the exemption to the four countries cited by the commentators or to all countries that prohibited disclosure as of a certain date, fully addressing this concern. Given the proportion of the burdens on competition and investors associated with this single decision, said the court, a fuller analysis was warranted. A general statement about incentive problems associated with a broad version of the exemption does not satisfy the requirement of reasoned decision making when, by the Commission’s own estimates, billions of dollars are on the line.

Following the district court’s decision, the U.S. Chamber of Commerce called the ruling a victory for consumers and for the nation’s energy security. The SEC’s resource extraction rule would have placed U.S. oil and natural gas companies at a huge disadvantage around the world by forcing them to turn over their playbooks for how they bid and compete against foreign, state-owned companies. In addition, compliance with the SEC rule would violate the law in several countries in which U.S. firms do business. The court ruled today that the SEC misread the statute to mandate public disclosure of reports regarding how companies operate, noted the Chamber; instead of publicly releasing information, for instance, the SEC could have simply required companies to file confidential reports. American Petroleum Institute v. SEC (DC DofC) is reported at ¶97,545.

American Pipe tolling did not apply to Securities Act’s statute of repose. The Second Circuit Court of Appeals has held that the tolling rule set forth by the U.S. Supreme Court in American Pipe & Construction Co. v. Utah does not apply to the three-year statute of repose contained in Securities Act Section 13. The appellate panel held that permitting a plaintiff to file a complaint or intervene after Section 13’s repose period has run would necessarily enlarge or modify a substantive right and thereby violate the Rules Enabling Act. Accordingly, the Second Circuit affirmed the district court’s denial of the proposed intervenor’s motions to intervene.

The lead plaintiff and other putative class members had alleged that the defendants, IndyMac MBS, Inc. and certain related persons, had made fraudulent misrepresentations and omissions in the offer and sale to the plaintiffs of mortgage pass-through certificates. Following the dismissal of certain claims, as well as the expiration of the three-year statute of repose under Section 13, several putative class members sought to intervene in order to revive the dismissed claims. The proposed intervenors argued that the American Pipe tolling rule operated to preserve their right to sue. Under American Pipe, the commencement of a class action suspends the statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.

The intervenors argued that American Pipe’s tolling rule, which has long been accepted in the context of statutes of limitations, applied equally to the statute of repose in Section 13. The intervenors further argued that, in the event that the tolling did not apply, they could nevertheless “relate back” their proposed amended complaint to the dismissed amended complaint by operation of Federal Rule of Civil Procedure Rule 15(c). After the district court denied the motions to intervene, reasoning that the Section 13 repose period had expired and could not be tolled under American Pipe or extended by operation of Rule 15(c), the intervenors appealed.

The Second Circuit panel noted that courts have repeatedly recognized that the three-year limitations period in Section 13 is a statute of repose.

Accordingly, these courts have characterized that limitations period as “absolute” and not subject to equitable tolling. The Second Circuit also noted, however, that the Supreme Court’s opinion in American Pipe does not explicitly state whether the high court was recognizing “judicial tolling,” grounded in principles of equity, or “legal tolling,” based on the requirements for class actions in Federal Rule of Civil Procedure 23. If American Pipe’s tolling rule is “equitable” in nature, the appellate panel observed, it would not apply to statutes of repose.

The Second Circuit declined, however, to search for “hidden meanings” in American Pipe. If American Pipe’s tolling rule is properly classified as “equitable,” then application of the rule to Section 13’s three-year repose period would be barred by the Supreme Court’s holding in Lampf, which states that equitable tolling principles do not apply to that period. And even if the American Pipe tolling rule is assumed to be “legal,” extending the rule to the statute of repose in Section 13 would be barred by the Rules Enabling Act, which forbids interpreting Rule 23 to abridge, enlarge, or modify any substantive right.

The court declined to follow the intervenors’ suggestion that a failure to extend American Pipe tolling to the statute of repose in Section 13 could burden the courts and disrupt the functioning of class action litigation. Given the sophisticated, well-counseled litigants involved in securities fraud class actions, the appellate court was not persuaded that such adverse consequences would inevitably follow. Moreover, the appellate panel observed, only Congress could address any such problems, as judges may not deploy equity to avert the negative effects of statutes of repose.

Next, the appellate court turned to the question of whether the three proposed intervenors could intervene to bring certain claims, despite the Section 13 statute of repose and the absence of any currently named plaintiff with standing to bring the same claims. The appellate court held, however, that the Rule 15(c) “relation back” doctrine does not permit members of a putative class, who are not named parties, to intervene in the class action as named parties in order to revive claims that were dismissed from the class complaint for want of jurisdiction.

The Second Circuit panel reasoned that the proposed intervenors’ ability to join the suit was foreclosed by the long-recognized rule that an intervening claim cannot confer subject matter jurisdiction over the action it seeks to join. Prior to class certification, the district court had dismissed for lack of constitutional standing all claims in the amended complaint arising from offerings that the only named plaintiffs in the suit had not purchased. As the district court lacked jurisdiction over the very claims later asserted by the proposed intervenors, that defect could not be cured by later intervention.

The appellate court emphasized that its holding was consistent with the purposes of the Private Securities Litigation Reform Act. Although the PSLRA provides that a district court should appoint as lead plaintiff the member that is most capable of adequately representing the interests of class members, nothing in the PSLRA indicates that district courts must choose a lead plaintiff with standing to sue on every available cause of action. Moreover, the appellate court stated, the PSLRA was not intended to excuse sophisticated parties such as the proposed intervenors from being diligent and keeping abreast of developments in the case, especially when the class is not certified. In re IndyMac Mortgage-Backed Securities Litigation (2ndCir) is reported at ¶97,538.

CCH Blue Sky Law Reporter  

Indiana permits custodial IAs to choose fin. audit report filing method. Indiana-registered investment advisers having custody of their clients’ funds or securities may, at the Commissioner’s discretion, meet the annual audit requirement by either: (1) filing a GAAP-prepared audited balance sheet as of their fiscal year-end but not later than 120 days thereafter, accompanied by an independent C.P.A.’s or public accountant’s opinion; or (2) filing an independent C.P.A.’s or public accountant’s surprise audit report(s) of the investment advisers’ client funds. NOTES: (1) the audited balance sheet or surprise audit must include an audit of pooled investment vehicles and/or private investment funds for investment advisers that have custody over them; and (2) this “choice of audit” policy does not waive the requirement that Indiana-registered investment advisers file, on request, a financial condition statement for their most recent fiscal year. ¶24,723.

Texas incorporates new S&P name and makes dealer/agent exam changes. The name Standard and Poor’s Corporation Records, as changed to S&P Capital IQ Standard Corporation Descriptions, was incorporated by the Texas Securities Board which also amended the dealer/agent written exam rule to indicate that the Psychological Corporation is no longer a state securities exam administrator. ¶55,557 and ¶55,591B.

Virginia adopts BD, agent, IA, IA rep., securities registration and exemption changes. Amendments to broker-dealer, agent, investment adviser and investment adviser representative registration and post-registration requirements, and changes to federal covered adviser notice requirements, were adopted by the Division of Securities and Retail Franchising of the Virginia Corporation Commission, along with changes adding a stock exchange exemption for options and warrants, repealing certain existing exchange listing exemptions, incorporating a NASAA policy statement and defining additional securities-related terms. ¶60,404 through ¶60,465.

Real estate broker not liable as a “seller” of TIC interests. The Washington Court of Appeals has held that a real estate broker and his employer were not liable under the Washington Securities Act (Act) for their role in referring tenancy-in-common (TIC) interests. Although the plaintiffs claimed that the real estate broker had violated the Act by making material misrepresentations and omissions and selling unregistered securities as an unregistered securities broker, the appellate court ruled that the real estate broker could not be considered a "seller" under the Act solely because he had referred the plaintiffs to the issuer and had received a referral fee.

The appellate court reasoned that the broker’s actions were not a "substantial contributive factor" in the sale of a security under the test adopted by the Washington Supreme Court because: (1) a number of additional factors contributed to the sale of the TIC interests; (2) the referral did not demonstrate that the broker had engaged in a continuous or active operation up to the time of sale; and (3) the two-week lapse of time between the referral and the sale suggested that the broker’s conduct was not a substantial contributive factor in the transaction. Accordingly, the trial court properly concluded that the broker was not a seller under the Act. As the employer necessarily did not control a seller under the Act, the plaintiffs’ control person liability claim likewise failed. Viewpoint-North Stafford LLC v. CB Richard Ellis, Inc. is reported at ¶75,037.

Aspen Federal Securities Publications  

Investment Adviser’s Legal and Compliance Guide, Second Edition, by Terrance J. O'Malley and John H. Walsh. The new Second Edition is now available online. The Second Edition of this popular treatise reflects the most current discussion of legal and compliance topics for investment advisers, including fundamental issues arising under the Adviser Act, and incorporates the latest SEC guidance provided in rule releases, policy statements, no-action letters, and SEC staff speeches. In addition to updating all areas of the Guide to reflect the most recent changes to the Advisers Act, rules, and applicable SEC guidance, the Second Edition contains information about the use of social media, including restrictions on the use of social media for marketing purposes (§ 2.01[C]); a review of limitations on the use of “backtested” performance in advertisements (§ 2.02[D]); updated information on the SEC Pay-to-Play Rule (§ 2.04); updated guidance on the content of advisory agreements (§ 3.02[A]); a review of the SEC’s risk alert on custody-related deficiencies (§ 3.03[B]); information about the SEC’s new Identity Theft Prevention (or “Red Flags”) rules (§ 3.05[D]); a full revision of Chapter 6 with a specific focus on unique issues arising in connection with the management of private funds, including hedge funds and private equity funds; updated information on the retention of e-mails (§ 7.02); significant updates to Chapter 8 on compliance examinations, including new information about the SEC's authority to conduct examinations (§ 8.01), the types of examinations performed by the SEC staff (§ 8.02), and how the SEC staff selects advisers for examination (§ 8.03); Chapter 8 also contains new information about the examination process and results (§§ 8.04-8.06); a new compliance checklist tool for reviewing advertisements (Appendix D); updates to the compliance requirements summary chart, the record retention chart, and the compliance calendar (Appendices A, B, and C, respectively); Form ADV (Appendix E); updates to the SEC guidance (Appendices F, H, I, L, and O) and rules (Appendix W); and a new appendix with the Investment Adviser Association’s Best Practices for Investment Adviser Codes of Ethics (Appendix X).

Meetings of Stockholders by Jesse A. Finkelstein, R. Franklin Balotti, and Gregory P. Williams. The 2013 Supplement is now available online. Over the years, the SEC has increasingly used proxy rules as a mechanism for implementing policies and adjusting the rights of shareholders and management. This latest supplement to Meetings of Stockholders reflects statutory, case law, and other developments in the area of stockholders’ meetings and contains updates to many of the discussions regarding these meetings including: Conducting a Contested Stockholder Meeting has been updated to includes discussions on various topics such as voting advisory services, types of contests, and short slates (Chapter 12); Preparation of Proxy Materials has been revised and updated to includes discussions on topics such as nominating committee, compensation committee, and private right of action (Chapter 4); Institutional Investors and Shareholder Activism has been updated to include discussion of issues such as the shareholder meeting (Chapter 5); and extensive case law updates in Chapters 2, 3, 9, and 11.


IPO Vital Signs

IPO Vital Signs, an advanced IPO research analysis tool, assists IPO professionals and pre-IPO companies satisfy their most challenging research needs and answers hundreds of mission critical questions for all the players in the IPO process. IPO Vital Signs’ tabular data analyses focus on issues surrounding client advisement, deal negotiation, and prospectus disclosure.

IPO Week in Review, a weekly e-newsletter to keep professionals up to date with recent filing and going public activity, is an important element of the IPO Vital Signs system or is available by separate subscription. Coverage includes a monthly feature article on recent trends in going public in the U.S.

To see how an IPO Vital Sign works click on the Vital Sign title below:



#717 - Days in IPO Registration
Gauge how long it could take to go public based on:

  • SIC Code
  • Issuer's HQ Country/State
  • SEC Form Filed
  • Offer Amount
  • Issuer’s Law Firm


Hint! Click on any of the column headings to re-sort the entire table of data. Then scroll down the list to find relevant SICs, locations, filing forms, ranges of offer amounts, and IPO issuer’s law firms.


A new research tool powered by the Securities Redbook (Securities Act Handbook), RBsource offers you securities laws, rules, regulations and forms together with related SEC guidance and interpretations. With RBsource, you will have SEC guidance related to a specific law, regulation or rule at your fingertips without the need of further searching or browsing. RBsource uniquely associates related content, going beyond the limits of standard searching making research more streamlined and productive. This intuitive research tool will drastically reduce your research time and provide the unparalleled confidence expected from the trusted Securities Act Handbook.

SEC Rulemaking Activity

  • 33-9415—Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (July 10, 2013).

In the first of its JOBS Act rulemakings, the SEC formally lifted the ban on general solicitation and advertising for offerings under Securities Act Regulation D and Rule 144A. Although these offerings may now be widely advertised, the securities offered must be sold only to qualified institutional buyers and accredited investors.

  • 33-9414—Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings (July 10, 2013).

The SEC implemented Dodd-Frank Act Section 926 by amending Securities Act Regulation D to provide for the disqualification of bad actors. The new rules track existing ones under Securities Act Regulation A.

  • 34-69964—Retail Foreign Exchange Transactions (July 11, 2013).

Registered broker dealers may now engage in the retail forex business under new Exchange Act Rule 15b12-1. Broker-dealers must still comply with other relevant Exchange Act and SRO rules. Rule 15b12-1 mirrors a prior interim final temporary rule and is effective only from July 16, 2013 to July 31, 2016.

  • 34-69979—Rescission of Supervised Investment Bank Holding Company Rules (July 12, 2013).

The SEC has implemented Dodd-Frank Act Section 617, which repealed Exchange Act Section 17(i), by rescinding Exchange Act rules that had created a framework for a broker-dealer’s holding company to opt for SEC oversight as a supervised investment bank holding company.

  • 33-9433—Adoption of Updated EDGAR Filer Manual (July 25, 2013).

Regulation ST Rule 301 has been amended to add submission form types that will accommodate Form SD filings regarding conflict minerals and to implement revisions to Form 13H.

  • 34-70049—Delegation of Authority to Director of the Division of Enforcement (July 26, 2013).

This release gave the SEC’s enforcement co-directors new powers to appoint fair funds and disgorgement plan administrators to disburse amounts collected in administrative proceedings.

  • 33-9416—Amendments to Regulation D, Form D and Rule 156 (July 10, 2013).

On the same day the SEC adopted final Dodd-Frank Act and JOBS Act rules allowing the general advertising and solicitation of certain securities offerings and barring bad actors, the SEC proposed to collect more information about market participants’ behavior in these offerings. The release also includes rules that would boost investor protections, if adopted.

The Road Ahead

Upcoming rulemaking activity will continue to reshape the securities regulation landscape. The items below are a selection of expected near-term regulatory actions. The SEC’s schedule is subject to change at any time. RBsource includes daily updates to securities regulations affected by final Commission action.

Securities practitioners can expect more Dodd-Frank Act and JOBS Act rules. SEC Chairman Mary Jo White said at the July 2013 Investor Advisory Committee meeting that her top priority is to finish Congressionally-mandated rulemakings. Specifically, the SEC may adopt final cross-border security-based swaps rules and could propose crowdfunding rules. Other key rulemakings will focus on money market fund reform and proposed Regulation SCI.

The SEC also will soon take on new personnel. The Senate banking committee in July held confirmation hearings on Michael Sean Piwowar and Kara Marlene Stein who are to replace Commissioners Troy A. Paredes and Elisse B. Walter. The banking committee also heard from Mary Jo White, who has been nominated to serve a full term to expire June 5, 2019 when her predecessor’s term ends June 5, 2014.


Hot Topic of the Month

This month's hot topic is aiding and abetting liability for secondary actors. In 1994, the U.S. Supreme Court held that the federal securities laws do not provide investors with a private right of action against persons who aid and abet violations of the antifraud provisions of the Exchange Act. According to the Court, the antifraud statute does not proscribe giving aid to one who commits a manipulative or deceptive act. Further, from the fact that Congress did not attach private aiding and abetting liability to any of the express provisions of the securities acts, it was inferred that Congress likely would not have attached aiding and abetting liability to Section 10(b) had it provided a private remedy under that statute.

In 2008, the Court revisited this issue with regard to claims for "scheme liability.” The Court found that parties involved in a series of allegedly fraudulent transactions who made no public statements or misrepresentations could not be liable to investors in a private action. The Court concluded that the acts of the non-speaking parties, which were not disclosed to the investing public, were too remote to satisfy the reliance requirement.

In 2011, the Supreme Court reaffirmed the 1994 opinion and ruled that a mutual fund investment adviser cannot be held liable in a private action under Rule 10b-5 for false statements included in its client mutual funds' prospectuses. For purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not "make" a statement in its own right.

The SEC has the express authority in Exchange Act Section 20(e) to bring enforcement actions seeking injunctive relief or money penalties against persons who knowingly provide substantial assistance to persons who violate the securities laws. Congress refused to restore private aiding and abetting liability actions, feeling that would be contrary to the goal of reducing meritless securities litigation.

In 2012, the 2nd Circuit, in SEC v. Apuzzo, discussed what the SEC must prove in order to establish aiding and abetting liability. In order for a defendant to be liable as an aider and abettor in a civil enforcement action, the SEC must prove: (1) the existence of a securities law violation by the primary (as opposed to the aiding and abetting) party; (2) knowledge of this violation on the part of the aider and abettor; and (3) “substantial assistance” by the aider and abettor in the achievement of the primary violation. To satisfy the "substantial assistance" component of aiding and abetting, the SEC must show that the defendant in some sort associated himself with the venture, that he participated in it as in something that he wished to bring about, and that he sought by his actions to make it succeed.

We publish related information in a wide range of resources (e.g., Federal Securities Law Reporter, Aspen Insights, Securities Regulation – Loss, Seligman & Paredes, etc.), and document types (laws, regulations, releases, newsletter articles, treatise discussion). For example:

  • Federal Securities Law Reporter
    • Exchange Act Rule 10b-5 at ¶22,725
    • Exchange Act Rule 20(e) at ¶26,338
    • SEC v. Apuzzo (2ndCir), is reported at ¶96,962
    • Janus Capital Group, Inc. v. First Derivatives Traders (US-Sup-Ct), is reported at ¶96,372
    • Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.(US-Sup-Ct) is reported at ¶94,556
    • Central Bank of Denver, N.A. v. First Interstate Bank of Denver (US-Sup-Ct), is reported at ¶98,178
    • CCH Explanations (e.g. ¶22,779)