Yesterday, the SEC announced that it had adopted—without the scheduled open meeting, which was abruptly cancelled with only a cryptic statement—long-awaited new guidance on cybersecurity disclosure. The guidance addresses disclosure obligations under existing laws and regulations, cybersecurity policies and procedures, disclosure controls and procedures, insider trading prohibitions and Reg FD and selective disclosure prohibitions in the context of cybersecurity. The new guidance builds on Corp Fin’s 2011 guidance on this topic (see this Cooley News Brief), adding in particular new discussions of policies and insider trading. While the guidance was adopted unanimously, some of the Commissioners were not exactly enthused about it, viewing it as largely repetitive of the 2011 guidance—and hardly more compelling. Anticlimactic? See if you agree.
Today, SCOTUS handed down its decision in Digital Realty v. Somers, a case addressing the split in the circuits regarding the application of the Dodd-Frank whistleblower anti-retaliation protections: do the protections apply regardless of whether the whistleblower blows the whistle all the way to the SEC or just reports internally to the company? You might recall that during the oral argument, the Justices seemed to signal that the plain language of the statute was clear and controlling, thus suggesting that they were likely to decide for Digital, interpreting the definition of “whistleblower” in the Dodd-Frank anti-retaliation provision narrowly to require SEC reporting as a predicate. There were no surprises. As Justice Gorsuch remarked during oral argument, the Justices were largely “stuck on the plain language.” The result may have an ironic impact: while the win by Digital will limit the liability of companies under Dodd-Frank for retaliation against whistleblowers who do not report to the SEC, the holding that whistleblowers are not protected unless they report to the SEC may well drive all securities-law whistleblowers to the SEC to ensure their protection from retaliation under the statute—which just might not be a consequence that many companies would favor.
Depending on your point of view, you may have experienced either heart palpitations or increased serotonin levels when you heard, back in July 2017, that SEC Commissioner Michael Piwowar had, in a speech before the Heritage Foundation, advised that the SEC was open to the idea of allowing companies contemplating IPOs to include mandatory shareholder arbitration provisions in corporate charters. As reported, Piwowar “encouraged” companies undertaking IPOs to “come to us to ask for relief to put in mandatory arbitration into their charters.” (See this PubCo post.) As discussed in this PubCo post, at the same time, in Senate testimony, SEC Chair Jay Clayton, asked by Senator Sherrod Brown about Piwowar’s comments, responded that, while he recognized the importance of the ability of shareholders to go to court, he would not “prejudge” the issue. According to some commentators at the time, to the extent that these views appeared to indicate a significant shift in SEC policy on mandatory arbitration, they could portend “the beginning of the end of securities fraud class actions.” Then, in January of this year, the rumors about mandatory arbitration resurfaced in a Bloomberg article, which cited “three people familiar with the matter” for the proposition that the SEC is “laying the groundwork” for this “possible policy shift.” But in recent Senate testimony, Clayton reportedly put the kibosh on these signals.
In light of the recent fraud charges against audit firm partners and the PCAOB, what questions should audit committees ask their outside auditors?
Recent civil and criminal fraud charges against partners at KPMG and staffers at the PCAOB, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG,” have led some managements and audit committee members to consider whether there is more they should be doing to ensure that their outside audit firms are not plagued by similar concerns. This article from Compliance Week sifts through a speech by Helen Munter, PCAOB director of inspections and registration, to assemble a series of questions that, in light of these recent charges, may be appropriate for audit committee members to pose to their outside audit firms.
Yesterday, the SEC filed charges against six CPAs, including former staffers at the PCAOB and former partners of KPMG, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG.” All have now been separated from KPMG or the PCAOB, and the U.S. Attorney’s Office for the SDNY has filed criminal charges. Here is the press release, which advises that the “SEC stands ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized.”
SCOTUS hears oral argument in Somers v. Digital Realty Trust: Dodd-Frank whistleblower statute “says what it says”
Yesterday, in addition to hearing oral argument regarding state court jurisdiction over ’33 Act class actions (see this PubCo post), SCOTUS also heard oral argument in a second case, Somers v. Digital Realty Trust. This case addressed the split in the circuits regarding the application of the Dodd-Frank whistleblower anti-retaliation protections: do the protections apply regardless of whether the whistleblower blows the whistle all the way to the SEC or just reports internally to the company? Here is a link to the transcript of the oral argument for Digital Realty, which is discussed below.
Can SCOTUS make sense out of “gibberish”? SCOTUS hears oral argument in case addressing state court jurisdiction over ’33 Act cases
Yesterday, SCOTUS heard oral argument in Cyan Inc. v. Beaver County Employees Retirement Fund, which addressed whether state courts have jurisdiction over cases brought solely under the Securities Act of 1933. Here is the transcript of the oral argument for Cyan, which is discussed briefly below.
SCOTUS grants cert in case involving whistleblower statute and case involving state court jurisdiction over ’33 Act cases
SCOTUS will be hearing at least two cases of interest next term: one case, Somers v. Digital Realty Trust, will address the split in the circuits regarding whether the Dodd-Frank whistleblower anti-retaliation provisions apply regardless of whether the whistleblower blows the whistle all the way to the SEC or just internally at the company. The second case, Cyan Inc. v. Beaver County Employees Retirement Fund, will address whether state courts have jurisdiction over cases brought solely under the Securities Act of 1933 Act.
While there has certainly been a lot of debate about the merits and demerits of dual-class stock, one interesting angle was raised by Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance Delaware Law. In an interview reported in Bloomberg BNA, Elson predicts that expanded use of dual-class corporate structures will lead the Delaware courts to reconsider the business judgment rule. For companies with no- or low-vote classes of shares, is the business judgment rule in jeopardy?
by Cydney Posner A draft of the Financial CHOICE Act of 2017 (fka version 2.0), a bill to create hope and opportunity for investors, consumers, and entrepreneurs — a masterpiece of acronyming — has just been released (and weighs in at 593 pages). The bill, sponsored by Jeb Hensarling, Chair […]