Clients & Friends Memos

On March 28, 2018, in In re Tesla Motors, Inc. Stockholder Litigation, the Delaware Court of Chancery denied a motion to dismiss a lawsuit brought by stockholders of Tesla Motors, Inc. (“Tesla” or the “Company”).  The plaintiffs alleged that Tesla’s Board of Directors, along with its Chairman and CEO, Elon Musk, breached their fiduciary duties by approving the $2.6 billion acquisition of SolarCity, which allegedly benefitted SolarCity stockholders to the detriment of Tesla stockholders.

Last week, Colorado courts issued several new rulings related to marketplace lending.  First, the federal court in Colorado remanded another enforcement action brought by the Administrator of the Colorado Consumer Credit Code against Marlette Funding (“Marlette”), which had been doing business as a marketplace lender in Colorado under the name Best Egg.  Second, the federal court dismissed two parallel actions brought in federal court brought by WebBank and Cross River Bank to halt the state court proceedings.  These recent rulings illustrate the risks that persist in some states for marketplace lenders utilizing the bank origination model. 

On 2 March 2018, the Court of Appeal handed down its highly-anticipated judgment in Property Alliance Group (“PAG”) v Royal Bank of Scotland (“RBS”), dismissing all of PAG’s grounds of appeal and overturning a finding of fraudulent misrepresentation against RBS. The case has been closely watched as it was the first claim for damages arising from LIBOR manipulation to reach trial. Although PAG was unsuccessful on the facts, the Court of Appeal decision carries potentially significant consequences, in particular for LIBOR setting banks.

In a trio of recent appraisal decisions, Delaware courts declined to use the deal price as the best evidence of fair value, instead using discounted cash flow analyses (“DCF”) and the unaffected market price to determine fair values below the merger consideration. Building on the trend reflected in the Delaware Supreme Court’s high-profile 2017 decisions in Dell, Inc. v. Magnetar Glob. Event Driven Master Fund Ltd. and DFC Global Corp. v. Muirfield Value Partners (discussed in our 2017 year-in-review), L.P., the Delaware Court of Chancery’s recent decisions in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. and In re Appraisal of AOL Inc., and the Delaware Supreme Court’s decision in Merlin Partners, L.P. v. SWS Group, Inc. further underscore the ability of companies and their boards to successfully contest dissenting shareholders seeking appraisal. 

Recent events have made it clear that there is an increased regulatory focus on the conduct of investment professionals in the wealth-management industry.  The Securities and Exchange Commission (“SEC”) in particular has emphasized that certain activities by investment advisers directly impacting retail investors, such as inadequate fee disclosure, dubious sales practices and inappropriate steering to unsuitable strategies and products, is a top enforcement priority under the leadership of SEC Chairman Jay Clayton.

The U.S. Attorney for the Southern District of Florida has recently decided to intervene in a lawsuit brought under the Federal False Claims Act and initiated by a whistleblower. The U.S. Attorney has filed his own complaint-in-intervention. (U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, No. 15-cv-62617, S.D. Fla.) What is significant about this case is that the federal government has also named a private equity (“PE”) firm (Reardon, Lewis & Haden, Inc., or RLH) as a defendant.

On March 15, 2018, the Federal Energy Regulatory Commission (“FERC”) issued an order on remand disallowing an income tax component in cost-of-service rates charged by an interstate oil pipeline owned by a master limited partnership (“MLP”), and announced that FERC was reassessing its policy regarding income tax allowances in cost-of-service rates for other types of pass-through entities providing transmission or transportation services. FERC also took several actions directed at reflecting in certain jurisdictional cost-of-service rates the effects of the federal income tax rate reductions under the Tax Cuts and Jobs Act of 2017. FERC’s actions on these topics are reviewed below.

The Chancellor of the Exchequer delivered his first Spring Statement on 13 March 2018. As much of the United Kingdom Government’s substantive taxation measures will, as announced last year, be introduced in an Autumn budget, the Spring Statement contained very few substantive taxation measures.

Over the last several weeks, two notable cases in federal court challenging certain aspects of the business model of marketplace lending companies headed down separate paths.  First, in an action brought against Kabbage, Inc. and Celtic Bank Corporation in the United States District Court for the District of Massachusetts, the parties agreed to, and the Court approved, a stipulation staying the proceedings pending an arbitrator’s review of whether the claims in that action are covered by the arbitration provisions in the governing loan agreements.  Second, in an action against marketplace lender Avant in the United States District Court for the District of Colorado, the Court accepted a magistrate judge’s recommendation to remand the case to state court over Avant’s objection.

In December 2017, the UK Financial Reporting Council (the “FRC”) proposed revisions to the UK Corporate Governance Code. These revisions will impact companies with a Premium Listing of equity shares in the UK, which are required under the Listing Rules to state in their annual report and accounts how they have applied the Code. The revisions are designed to achieve long-term company growth through enhanced corporate accountability mechanisms and are aimed at consolidating the UK’s reputation as a leading environment for transparent and efficient international business. Many of the proposed revisions, if enacted, would facilitate greater alignment between UK and US corporate governance law and regulations.

A whistleblower is not a whistleblower unless he reports suspected securities law violations to the SEC.  And, if the whistleblower does not report suspected misconduct to the SEC, the whistleblower is not protected against retaliation by the employer. So said the Supreme Court on February 21, 2018, in Digital Realty Trust, Inc. v. Somers; the Supreme Court ruled that the Dodd-Frank Act’s whistleblower anti-retaliation provisions apply only to individuals who have reported possible securities law violations to the U.S. Securities and Exchange Commission (“SEC”).

In a recent decision, the Chancellor of the High Court in Bilta v RBS confirmed that in certain circumstances litigation privilege may protect from disclosure documents created in the context of an internal investigation. The decision stands in contrast to the 2017 decision of the High Court in SFO v ENRC, which generated significant commentary and some criticism because it was perceived to have narrowed the circumstances in which litigation privilege could arise in the context of internal investigations.

On February 9, 2018, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously ruled in favor of the Loan Syndications and Trading Association (“LSTA”) in its lawsuit against the Securities and Exchange Commission (“SEC”) and the Board of Governors of the Federal Reserve System (“FRB”) over the application of U.S. credit risk retention requirements to managers of open-market collateralized loan obligations (“CLOs”).

On February 1, 2018, the Delaware Court of Chancery granted defendants’ motion to dismiss an action brought by minority unitholders of Trumpet Search, LLC (“Trumpet” or the “Company”). The defendants were other unitholders that collectively held a majority of the membership units in Trumpet and, under the governing operating agreement (“OA”), had the power to appoint four of the seven managers on the Trumpet board of directors. Vice Chancellor Glasscock’s decision, Christopher Miller et al. v. HCP & Co., et al., C.A. No. 2017-0291-SG (Del. Ch. Feb. 1, 2018), is a powerful reminder that the broad freedom of contract that Delaware law accords entities such as LLCs offers both the promise of great latitude to contracting parties and the threat of serious pitfalls for parties that fail to carefully protect their interests in the agreement. The decision also underscores the limits on an implied covenant breach claim under Delaware law.

The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar-jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”); the revised thresholds will become effective 30 days after the date of their publication in the Federal Register.  These changes increase the dollar thresholds necessary to trigger the HSR Act’s premerger notification reporting requirements.  The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.

Delaware courts have recently issued decisions that have fundamentally altered corporate governance litigation.  In 2016, the Court of Chancery changed the landscape for resolution of class actions on the basis of “disclosure-only” settlements, i.e., settlements without any monetary payment to the class. 

What do the principles of patent exhaustion have to do with the convenience of disposable consumer products such as individual coffee/tea/beverage pods, disposable diagnostic test strips, refillable ink cartridges and the like? Although transparent to consumers, these principles are important to the innovative companies creating these products and protecting them through IP rights. How a company controls the proprietary rights to make and/or market these components can have profound consequences on maintaining its competitive edge in the marketplace.

The securities litigation and regulatory landscape in 2017 defies simple categorization.  Plaintiffs filed 226 new federal class actions in the first half of 2017, more than double the average rate over the last 20 years, and an additional 99 federal class actions in the third quarter of 2017.  In contrast, new SEC enforcement proceedings declined.

In a December 8^th decision (Sarissa Capital Domestic Fund LP, et. al. v. Innoviva, Inc.), the Delaware Court of Chancery ruled in favor of Sarissa Capital Domestic Fund LP and certain of its affiliates in concluding that Sarissa and Innoviva, Inc. entered into a binding, oral agreement to settle a proxy contest prior to Innoviva’s 2017 annual meeting of shareholders.

On December 20, 2017, the Senate and House of Representatives passed H.R. 1, known as the “Tax Cuts and Jobs Act” (“Tax Reform Bill”).  President Trump is expected to sign the Tax Reform Bill by early January.  The Tax Reform Bill would represent the most significant revision to the tax code in over thirty years.  Our summary below highlights several of the most significant changes that will impact taxpayers.

On 15 December 2017, the European Banking Authority (“EBA”) published a consultation paper (the “Consultation Paper”) containing draft Regulatory Technical Standards on the risk retention requirements(the “Risk Retention RTS”) under the EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” securitisation (the “Securitisation Regulation”).

On December 20, 2017, the Senate and House of Representatives passed H.R. 1, known as the “Tax Cuts and Jobs Act” (“Tax Reform Bill”).  President Trump is expected to sign the Tax Reform Bill by early January.  The Tax Reform Bill would represent the most significant revision to the tax code in over thirty years.  Our summary below highlights the key provisions in the Tax Reform Bill that will impact not-for-profit, tax-exempt organizations. Several other provisions are summarized in our Tax Update, “Fifteen Key Provisions in the Final Tax Reform Bill.” Most changes are generally effective as of 2018.

On December 14, the Delaware Supreme Court released a long-awaited opinion in Dell Inc. v. Magnetar Global Event Driven Master Fund Ltd. that reversed and remanded a high-profile appraisal case decided by the Delaware Court of Chancery in 2016.  The Delaware Supreme Court built on its recent opinion in DFC Global Corporation v. Muirfield Value Partners L.P. to reiterate the potential for negotiated merger consideration to constitute the most important evidence of fair value in appraisal actions.

On December 2, 2017, the Senate passed a tax reform bill that differs in some key aspects from the tax reform bill the House approved on November 16, 2017. A House and Senate conference committee will begin work to resolve the differences between the House and Senate bills.  Once the conference committee has reached an agreement, both the House and Senate must vote to pass a final bill in identical form before President Trump can sign the tax reform bill into law.  Key provisions of the Senate bill are summarized below.  We will update you as significant developments unfold.

On November 15, 2017, audit, tax and consulting firm PwC published a thought leadership piece titled:  “Sub-line facilities: end of the road?” (the “Article”).  While the subscription credit facility (“Subscription Facility”) market has become accustomed to seeing inflammatory headlines in the financial press in recent years, it is somewhat unsettling to see a thought leadership piece from the likes of PwC bear such an ominous title.  PwC is an experienced, global, preeminent financial institution with countless touch points with the private equity industry.  The Article’s title suggests that PwC’s audit or tax practices might have recent experiences or observations that support such a dire headline.  Reading the article, however, that does not at all appear to be the case.

The Chancellor of the Exchequer delivered the UK Budget for 2017 on 22 November 2017.  Delivered against the backdrop of the UK’s ongoing negotiations to exit from the European Union, the Budget featured a significant downgrading of UK economic growth forecasts alongside a more encouraging reduction of public borrowing to less than 2 per cent of national income by 2020-2021. 

In this challenging economic situation, the Chancellor’s Budget navigated a careful passage in tax policy terms.  While there were some eye-catching proposals, including the abolition of stamp duty on real estate purchases of up to £300,000 for first-time buyers, the Government’s overall message in the Budget to the UK’s corporate and financial sectors was one of continuity rather than radical change.

On November 1, 2017, the staff of the Division of Corporate Finance of the Securities and Exchange Commission published Staff Legal Bulletin No. 14I.  SLB 14I provides additional guidance to companies and shareholders regarding circumstances in which the Staff will consider granting no-action relief for a company to exclude a shareholder proposal from its proxy statement pursuant to Rule 14a-8.

On November 14, 2017, Senate Finance Committee Chairman, Orrin Hatch (R-Utah), released his modified tax reform plan (“Senate Bill”), which adopts some of the House Bill proposals (as amended) (“House Bill”), but also includes some important differences as highlighted below.  Discussions are ongoing and the notable provisions summarized below may change and/or be replaced by new provisions.  We will update you as significant developments unfold.

The Chancellor of the Exchequer's first Autumn Budget under the new budget timetable, which sees the Autumn Statement replaced with an Autumn Budget (and the Spring Budget replaced with a Spring Statement), will be announced on Wednesday 22 November 2017.  This Clients & Friends Memo considers tax announcements which might be made in the Autumn Budget

On November 2, 2017, Republicans in the U.S. House of Representatives unveiled their tax reform bill (the “Bill”), entitled the “Tax Cuts and Jobs Act.” The Bill proposes significant changes to the current U.S. federal income tax regime affecting businesses and individuals, several of which we summarized in previous updates. This update focuses on the key provisions in the Bill (as amended by House Ways and Means Chair Kevin Brady) that would impact not-for-profit, tax-exempt organizations. The proposed changes would be generally effective for tax years beginning after 2017.

On November 2, 2017, Republicans in the House of Representatives released their long-anticipated tax reform bill (the “Bill”).  The Bill, which is entitled the “Tax Cuts and Jobs Act,” includes significant changes to the current U.S. federal income tax regime, several of which we summarized in a previous update.  This update summarizes provisions in the Bill that could, if enacted in their current form, significantly affect securitization vehicles and investment funds.

On November 2, 2017, Republicans in the House of Representatives released their long-anticipated tax reform bill (the “Bill”) which includes significant changes to the current U.S. federal income tax regime for businesses and individuals. While other members of the House of Representatives will comment on this Bill and significant changes are expected, the provisions noted below warrant close attention.

Auditors of public companies will be required to move beyond a simple “pass or fail” opinion and include significant new information in audit reports under rules proposed this year by the Public Company Accounting Oversight Board (the “PCAOB”) and recently approved by the Securities and Exchange Commission (the “SEC”).

On 26 October 2017, the European Parliament voted in plenary session to adopt the EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Securitisation Regulation”). The European Parliament also voted to adopt the EU regulation amending the Capital Requirements Regulation (the “CRR”) (the “CRR Amendment Regulation”) (together, the “Regulations”).

President Donald Trump has indicated his intent to nominate Joe Simons, a long-time antitrust lawyer, to chair the Federal Trade Commission (FTC). The President also has indicated his intent to nominate Rohit Chopra as an FTC Commissioner.  Mr. Chopra, formerly of the Consumer Financial Protection Bureau (CFPB) and currently with the Consumer Federation of America, is a close ally of Senator Elizabeth Warren.

On October 11, 2017, the Fund Finance Association (the “FFA”) hosted its 3^rd Annual European Fund Finance Symposium (the “Conference”) at the Landmark Hotel in London.  Forty-two market participants sponsored the Conference and 444 people attended, both substantial increases over years past.  There were multiple panel sessions covering topics including private equity fund formation, subscription credit facility transaction structures (“Facilities”), Hybrid and NAV facilities (“NAV Facilities”) and forecasts for future market developments.  This article provides a market update of the European Fund Finance market for those unable to attend the Conference.

On October 11, 2017, the United States District Court for the District of Columbia declined to vacate the U.S. Army Corps of Engineers’ Environmental Assessment of the Dakota Access Pipeline while the agency addresses, on remand, certain deficiencies in the EA identified in a prior ruling. The court’s decision—which permits the EA and a related easement granted by the Corps to remain in effect—will allow the pipeline to continue operating during the remand period.

In the wake of last month’s historic cyber breach of Equifax, which resulted in the theft of sensitive personal information belonging to over 140 million Americans, states have wasted no time in seeking a greater role in regulating cybersecurity risk. Historically, while state consumer agencies and attorneys general have enforced notification requirements for victims of cyberattacks where consumer data was compromised, significant enforcement actions have been the purview of federal agencies such as the Federal Trade Commission, the U.S. Department of Justice, the Securities and Exchange Commission, and the Commodity Futures Trading Commission. However, given the scope of recent breaches and the sensitivity of the information that was stolen, states have recently stepped up and launched their own investigations and enforcement actions, and have imposed new data protection standards on various types of businesses.

Ending months of speculation about when regulators would wade into the world of Bitcoin and other digital currencies, the U.S. Securities and Exchange Commission (“SEC”) recently brought its first enforcement actions against two Initial Coin Offerings (“ICOs”) which it alleges effectively operated as high-tech Ponzi schemes.  The two investment schemes, both run by the same New York businessman, Maksim Zaslavskiy, solicited money from investors in exchange for digital currency (“tokens” or “coins”) which were purportedly tied to investments in real estate and diamonds that would appreciate in value over time.

On 30 September 2017, Part 3 of the UK Criminal Finances Act 2017 (the “CF Act”) came into force creating new corporate offences for failing to prevent the facilitation of UK or overseas tax evasion.  Similar to the standard set forth for bribery in the UK Bribery Act 2010 (the “Bribery Act”), the new tax offences effectively impose strict liability on a company whose employees are found to have facilitated tax evasion, unless the company can show it had reasonable prevention procedures in place.  At the same time, the law creates new measures, which are set to come into effect in the near future, aiming to tackle money laundering and corruption, facilitate the recovery of the proceeds of crime and terrorist financing and provide authorities with new investigative and recovery powers.  It is the latest effort in a global trend among UK, US, and other international regulators to aggressively battle tax evasion, money laundering, and other financial crimes worldwide

On September 28, 2017, the Department of Energy (“DOE”) issued a Notice of Proposed Rulemaking (“NOPR”) proposing that Federal Energy Regulatory Commission (“FERC”) exercise its authority under sections 205 and 206 of the Federal Power Act (“FPA”) to direct regional grid operators to revise their wholesale electricity market rules to pay nuclear and coal-fired power plants for contributing to grid reliability.

On September 7, 2017, Equifax, one of the country’s three primary credit reporting bureaus, announced it had suffered a major cybersecurity breach that could potentially affect half of the U.S. population.   According to the company, it learned on July 29, 2017, that in mid-May 2017, hackers had gained access to its information systems and stole Social Security numbers, birth dates, addresses, and driver’s license numbers for approximately 143 million of its customers, along with credit card numbers for over 200,000 customers.  Since then, it has been separately reported that during the approximately five weeks between discovery of the breach and public disclosure, three senior executives sold approximately $1.8 million in Equifax shares.   Meanwhile, since Equifax’s announcement, the company has lost $4 billion in market value, spurring at least one securities class action lawsuit along with a wave of consumer class action lawsuits and scrutiny by Congress.   In a

As of August 28, 2017, insurance companies, banks, and other financial services companies regulated by the New York Department of Financial Services (“DFS”) must comply with an initial wave of new cybersecurity requirements intended to protect customer data, including maintaining written cybersecurity policies and procedures, designating a Chief Information Security Officer, and providing notice to the DFS of certain cybersecurity events.

On September 1, 2017, the Department of Energy (“DOE”) issued a Notice of Proposed Rulemaking (“NOPR”) proposing to revise its regulations to expedite the application and approval process for small-scale exports of natural gas.

On August 24, 2017, the Office of Inspector General (“OIG”) of the Department of Health and Human Services (“HHS”) issued an “Early Alert” that disclosed the preliminary results of its ongoing review of abuse of Medicare beneficiaries in skilled nursing facilities.  Specifically, OIG determined: (i) that a significant number of incidents of potential abuse or neglect of nursing facility residents receiving emergency care has not been reported to law enforcement as required under the Elder Justice Act; and (ii) that the Centers for Medicare & Medicaid Services (“CMS”) lacked adequate procedures to ensure proper reporting.  The Early Alert, which includes a list of suggestions for immediate remedial action to be taken by CMS, highlights the increased scrutiny that nursing facilities will face for failing to comply with the Elder Justice Act’s reporting obl

In its latest effort to combat money laundering within the real estate sector, the Financial Crimes Enforcement Network (“FinCEN”) has issued a new Geographic Targeting Order (“GTO”) broadening its scrutiny of shell companies used to purchase luxury residential property in several key U.S. markets.

On Tuesday, August 22, 2017, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded an order by the Federal Energy Regulatory Commission authorizing the construction and operation of the Southeast Market Pipelines Project.

On August 22, 2017, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an Order Approving Stipulation and Consent Agreement with City Power Marketing, LLC (“City Power”) and its owner, K. Stephen Tsingas (“Tsingas”). This was the first order approving an enforcement settlement issued since the Commission re-established a quorum with the addition of Chairman Chatterjee and Commissioner Powelson.

On August 18, 2017, the Delaware Court of Chancery granted defendants’ motion to dismiss a class action brought by former minority stockholders of Martha Stewart Living Omnimedia, Inc. against Martha Stewart and Sequential Brands Group, Inc.

A bill of lading is an old form of legal document.  As merchants in the seventeenth and eighteenth centuries ceased accompanying their goods on ships and entrusted their proper delivery to the carrier, a need arose for a tangible and transferable document evidencing which party was entitled to receive the goods at their destination.

On Tuesday, August 15, 2017, the U.S. Court of Appeals for the District of Columbia Circuit rejected Sierra Club’s petition for review of a U.S. Department of Energy (“DOE”) order authorizing long-term exports of liquefied natural gas (“LNG”) to Non-Free Trade Agreement (“non-FTA”) nations from the Freeport LNG terminal.

Creating a potential new impediment for collaboration between UK and US investigators, the Court of Appeals for the Second Circuit in New York recently held that evidence derived from compelled testimony cannot be used in a criminal case in the United States, even if the testimony was lawfully obtained in the foreign jurisdiction.  In overturning the convictions of two former Rabobank traders charged with manipulation of the London Interbank Offered Rate, the Second Circuit in United States v. Allen adopted a broad view of the Fifth Amendment right against involuntary self-incrimination as it applies to statements made to foreign regulators and law enforcement.  The decision will make it more likely that compelled statements made to investigators in the UK and elsewhere will be inadmissible against criminal defendants in the US.

On 15 June 2017 the English Court of Appeal handed down a significant judgment in Dexia Crediop S.p.A. v Comune di Prato. The Court’s unanimous judgment confirmed that the nature of an agreement made pursuant to an ISDA Master Agreement will be sufficiently international in character to prevent the application of any mandatory rules of local law. The ISDA Master Agreement in question, contained an English law choice of law clause and a clause conferring jurisdiction on the English courts. The decision follows a series of challenges made by several European public authorities in the English courts, arguing that notwithstanding the choice of law adopted by parties to an ISDA Master Agreement, Article 3(3) of the Rome Convention permits the application of mandatory local rules. This decision builds on the Court of Appeal’s decision in Banco Santander Totta SA v Companhia Carris de Ferro de Lisboa SA leaving only limited scope for such choice of law challenges in the English courts.

On June 19, 2017, the Fund Finance Association hosted the inaugural Asia-Pacific Fund Finance Symposium at the Four Seasons Hotel in Hong Kong (the “Conference”).  Twenty different market participants sponsored the Conference and 247 people attended, including an impressive turn‑out from private equity fund sponsor personnel. 

The EU legislative institutions have now agreed compromise amendments to the proposed EU regulation intended to lay down common rules on securitisation and to create a European framework for “simple, transparent and standardised” (“STS”) securitisation. They have also agreed compromise amendments to the proposed regulation amending the Capital Requirements Regulation, which includes a new hierarchy of approaches for calculating exposures to securitisation transactions and provisions designed to result in the regulatory capital requirements for exposures to STS securitisations being lower than those for non-STS securitisations. This memorandum discusses the compromises reached on these EU regulations.

On June 22, 2017, the New York State Appellate Division, Third Department issued a decision in LeadingAge New York v. Shah on the validity of regulations promulgated by the Department of Health (“DOH”), pursuant to Executive Order 38 (“EO 38”), that limit executive compensation and administrative costs for certain State-funded providers.

Legislation passed by the U.S. House of Representatives threatens to shake up the Securities and Exchange Commission’s enforcement program in a historic manner.

On 8 May 2017 the High Court in London applied a strict approach to litigation privilege in the context of self-reporting investigations. It is the first case in which a court has considered whether litigation privilege is engaged in a criminal investigation involving the UK Serious Fraud Office (“SFO”). This decision is likely to have significant consequences on the conduct of corporate internal investigations in a civil and criminal context and on self-reporting in the criminal context, including cross-border investigations. This memo considers the current UK position on legal professional privilege, placing the recent decision of the High Court in the context of previous key decisions on privilege, Three Rivers (No. 5) and the RBS Rights Issue Litigation (“RBS”).

Last week’s massive ransomware attack should serve as a wake-up call that companies across all industries and regions must take the threat of global cyber attacks seriously.  Although investigators are still uncovering details, three key lessons have emerged for businesses seeking to protect themselves.

On 4 May 2017, the European Commission (the “Commission”) adopted a proposal for a Regulation amending Regulation (EU) No 648/2012 (“EMIR”) as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (the “Proposal”).

The most important Park doctrine case in over forty years may be heading to the Supreme Court – but not if the federal government has its way. The Responsible Corporate Officer doctrine (“RCO doctrine”), commonly referred to as the Park doctrine, permits the government to prosecute employees for corporate misconduct when they are in a “position of authority” and fail to prevent or correct a violation of the Food, Drug and Cosmetic Act (“FDCA”).

Two recent decisions from the Delaware Court of Chancery faithfully apply the Delaware Supreme Court’s holding in Corwin v. KKR Financial Holdings LLC.  No surprise there.  Corwin held that when “a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.”  That is so even if, pre-Corwin, an all-cash merger otherwise would have been subject to enhanced scrutiny under Revlon. 

On 5 April 2017, the UK Department for Business, Energy & Industrial Strategy (the “Department”) issued a call for evidence (the “proposal”) for a public register (the “foreign ownership register”) detailing the beneficial ownership of foreign companies or foreign entities that own or buy UK property, or that participate in certain UK central government procurement activities.[1] The proposal responds to recent pressure on the UK government to enhance the transparency of foreign property investment, and is the latest global effort to increase transparency and prevent legal entities being used to camouflage money laundering and other corrupt activities.

Potentially signaling the end of the short-lived stint by the Federal Communication Commission (“FCC”) to regulate consumer data privacy on the internet, the Trump Administration recently repealed Obama-era data privacy and security rules for broadband providers.  The action, passed by Congress and signed by President Trump pursuant to the Congressional Review Act, completely rescinds the rules that would have gone into effect later this year.  

As reported in our January 23, 2017 Clients & Friends Memorandum entitled “Status of the Affordable Care Act Repeal Efforts,” one of the first priorities of the Trump administration was the repeal of the Patient Protection and Affordable Care Act (“ACA”).  In our March 21, 2017 Clients & Friends Memorandum entitled “The American Health Care Act – A Side-by-Side Comparison to Existing Law,” we reported that the House Committees on Ways and Means and Energy and Commerce proposed the American Health Care Act (“AHCA”) to “repair and replace” the ACA pursuant to the budget-resolution process on March 6, 2017 and that the Budget Committee voted to approve the AHCA on March 16, 2017.  The AHCA was introduced and ordered reported by Committee on March 20, 2017.

As reported in our January 23, 2017 Clients & Friends Memorandum entitled “Status of the Affordable Care Act Repeal Efforts,” on January 12 and 13, 2017, the Republican-controlled Congress took the first step toward repealing certain provisions of the Patient Protection and Affordable Care Act (“ACA”) (Public Law 111-148) by adopting a fiscal budget resolution containing a “reconciliation directive” to House and Senate committees to prepare ACA repeal legislation by January 27, 2017.

Last year’s proposed comprehensive framework for cybersecurity rules for large financial institutions is suddenly facing an uncertain future.

The Trump administration promises to streamline the regulatory process, dismantle burdensome regulations, and promote domestic job growth.  On January 24, 2017, President Trump issued an executive order and four presidential memoranda seeking to advance these goals in the energy sector.

In the context of increasing cyber-attacks on major corporate organisations, small businesses and government, data protection and cybersecurity is a hot topic. Added to this, the GDPR—a strict new regulatory regime in Europe—will commence in May 2018 and has implications for both non-European and European-based organisations.

Even before President Trump’s nomination of Jay Clayton as the next Chairman of the Securities and Exchange Commission (“SEC” or “Commission”), signs have been appearing that changes are afoot within the Division of Enforcement (“Enforcement Division”). The power of Enforcement Division attorneys in the field to issue subpoenas and open new investigations was recently scaled back, and now will require personal sign-off by the Director of Enforcement in Washington, D.C.

Over the past few years, private equity funds and hedge funds have increasingly employed tactics traditionally employed by the other as part of their value maximization strategies.  Underscoring this convergence has been a willingness by private equity funds to incorporate a “toehold” accumulation strategy into their investment model.

The New York Department of Financial Services (“DFS”) recently released the much-anticipated final version of its “first-in-nation” cybersecurity rules that it first announced in the fall of last year.¹  The rules require a wide range of insurance, banking, and financial services companies to adopt robust cybersecurity programs to protect sensitive and confidential data from theft or harm by cybercriminals. 

New York is joining a small but growing list of states seeking to regulate the “bank-origination” method of online lending.

In recent weeks there has been significant debate among commentators about whether Europeans’ privacy is becoming less protected in the US and what that may mean for the privacy protection arrangements between the EU and the US.

On February 3, 2017, President Trump signed two executive actions intended to provide a framework for scaling back the Dodd-Frank Act (“Dodd-Frank Act”)  and rescinding or revising the Department of Labor’s “fiduciary rule.” 

As we have previously written, President Trump and the Republican-majority Congress have various levers to rapidly revise and reverse the previous administration’s policies, short of legislative change.  Such mechanisms include the Congressional Review Act  and various forms of executive action, including executive orders, discretionary agency directives and enforcement decisions.  These executive actions are likely the beginning of a series of changes intended to reduce the regulatory burden on U.S. financial markets.

This memorandum discusses the two executive actions and their significance within a broader agenda to reshape financial regulation.

On January 10, 2017, the National Institute of Standards and Technology (“NIST”) released a proposed update to its popular cybersecurity blueprint for organizations and businesses, known as the Framework for Improving Critical Infrastructure Cybersecurity (the “Framework”).  The updated Framework, titled “Draft Version 1.1,” includes, among other things, new provisions for assessing the cybersecurity risk posed by third-party vendors and the addition of a new section on measuring the cost effectiveness of cybersecurity programs.

The U.S. Court of Appeals for the Second Circuit issued its ruling in Marblegate Asset Management, LLC v. Education Management Corp. that provided much needed clarity to creditors and issuers involved in out-of-court restructurings affecting noteholders.  The issue for the court was whether Education Management Corp. violated the Trust Indenture Act (the “TIA”) when it implemented a restructuring that impaired the rights of one of its unsecured noteholders, Marblegate Asset Management, LLC.

The election of President Donald J. Trump, combined with Republican control of Congress, makes fundamental U.S. federal income tax reform more likely than at any time since the enactment of the Tax Reform Act of 1986.

On 17 January 2017, the UK Serious Fraud Office, the US Department of Justice, and the Brazilian Ministério Público Federal announced an $800 million global settlement with Rolls-Royce plc and Rolls-Royce Energy Systems Inc., resolving allegations of a long-running scheme to bribe foreign officials in South America, the Middle East, Eastern Europe and Asia in exchange for assistance in obtaining government contracts. In addition to the payment of disgorgements and fines – the largest ever imposed under the UK’s Bribery Act 2010 – Rolls-Royce has agreed to implement a number of compliance measures and reporting requirements pursuant to deferred prosecution agreements with UK, US, and Brazilian authorities. The joint settlement, which was spearheaded by the SFO, heralds a new era in global cooperation and coordination in the enforcement of bribery and corruption laws.

The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar jurisdictional thresholds in Section 7A of the Clayton Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”).  The revised thresholds will become effective 30 days after the date of their publication in the Federal Register.

On January 20, 2017, Donald J. Trump became the 45th President of the United States.  Consistent with his campaign promises to act swiftly to “repeal and replace” the Patient Protection and Affordable Care Act (“ACA”) (Public Law 111-148) and as telegraphed by Vice President Mike Pence earlier this month, his first act as President was to execute an Executive Order intended “to minimize the unwarranted economic and regulatory burdens of the [ACA], and . . . to afford the States more flexibility and control to create a more free and open healthcare market.”

In a case of “cyber meets securities fraud,” the United States Attorney’s Office for the Southern District of New York (“SDNY”) recently indicted three foreign nationals on charges of insider trading, wire fraud, and computer hacking for allegedly trading on information they stole from the computer networks of two major New York law firms. A parallel enforcement action brought by the Securities and Exchange Commission – its first time bringing civil charges based on the hacking of a law firm’s computer network – alleges insider trading and other violations of the Securities Exchange Act of 1934.

2016 was an active year in securities litigation.  In the first half of 2016 alone, plaintiffs filed 119 new federal class action securities cases.  It was also a busy year for SEC enforcement proceedings, with a record 868 cases filed, 548 of which were independent enforcement actions (as opposed to follow-up actions or cases based on delinquent regulatory filings).  This continued the trend of growth in SEC enforcement activity, as independent actions have increased by nearly 61% since 2013.

2016 saw many notable developments in corporate governance litigation and related regulatory developments.

The constitutionality of the SEC’s in-house administrative proceedings is in doubt following the 10th Circuit Court of Appeals’ ruling in Bandimere v. SEC.  In Bandimere, a three-judge panel held, by a 2-1 decision, that SEC administrative law judges (“ALJs”) are inferior officers under the Appointments Clause of the Constitution and that they must be appointed in accordance with that clause, rather than hired as employees.  The decision directly conflicts with the August 2016 holding of the Court of Appeals for the D.C. Circuit in Raymond J. Lucia Cos. v. SEC.  This circuit split sets the stage for a potential Supreme Court review of the SEC’s administrative proceedings.

The New York Department of Financial Services (“DFS”) recently issued a revised version of the cybersecurity rules that it first announced in the fall of last year.  The rules apply to a wide range of insurance, banking, and financial services companies under the DFS’s supervision and require them to adopt robust cybersecurity programs to protect sensitive and confidential data from theft by cybercriminals.

Much has happened since the election of Donald J. Trump as the 45th President of the United States and the return of both houses of Congress to Republican control.  The Trump transition team has repeatedly declared its intention to “dismantle” the Dodd-Frank Act (“Dodd-Frank” or “Act”), in the interim calling for an immediate moratorium on new rulemaking not required for emergencies to allow for a systematic review before further action is taken.

On December 16, 2016, the Delaware Court of Chancery issued a post-trial opinion in an appraisal proceeding arising from the acquisition of Lender Processing Services, Inc. (“LPS” or the “Company”) by Fidelity National Financial, Inc. (“Fidelity”).  In his opinion in Merion Capital LP et al. v. Lender Processing Services Inc., C.A. No. 9320-VCL (Del. Ch. Dec. 16, 2016), Vice Chancellor Laster held that the “fair value” of the Company’s stock at the effective time of the merger was the $37.14/share merger price.

The Supreme Court in Shaw v. United States recently held that the federal bank fraud statute does not require that defendants cause, or intend to cause, an actual financial loss to the financial institutions they seek to defraud. The Supreme Court’s decision helped resolve a longstanding dispute over whether the bank fraud statute requires that a defendant intend not only to trick a bank into giving money to the defendant, but also to cause the bank to suffer a financial loss. In addition – and perhaps inadvertently – the Supreme Court also confirmed the bank fraud statute’s place among the tools that federal law enforcement can use to tackle cybercrime.

The election of Donald J. Trump as the 45th President of the United States, along with Republican control of the majority of both the House of Representatives and the Senate, will likely result in significant changes in U.S. financial services, energy, and commodities laws and markets.

The European Parliament’s Committee on Economic and Monetary Affairs (“ECON”) has today agreed compromise amendments (the “Compromise Amendments”) to the proposed EU regulation intended to lay down common rules on securitisation and create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Regulation”).

Friends and relatives of corporate insiders who knowingly receive and trade on inside information now confront greater exposure for federal securities laws violations.  On December 6, 2016, the Supreme Court held in United States v. Salman that “tippees” who trade on material non-public information may be found criminally liable even when there is no evidence of a pecuniary or tangible benefit to the insider who tipped.

On November 28, 2016, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) (together, the “Agencies”) submitted comments on the Federal Energy Regulatory Commission’s (the “Commission” or “FERC”) September 22, 2016 Notice of Inquiry (“NOI”), which seeks public comment on possible changes to the Commission’s assessment of market power under sections 203 and 205 of the Federal Power Act (“FPA”).

In a settlement highlighting the need for public companies to implement – and adhere to – effective internal controls, United Airlines “United” recently paid a $2.4 million civil penalty to the Securities and Exchange Commission “SEC” for failing to follow its own compliance policies and procedures designed to prevent corrupt payments.

The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, will likely set in motion a major overhaul of the nation’s health care system.  As a candidate, President-elect Trump strongly echoed calls to “repeal and replace” the Patient Protection and Affordable Care Act (“ACA”) and also called for other reforms that would potentially affect Medicaid funding, pharmaceutical regulation, and the health insurance industry.

On December 2, the U.S. Internal Revenue Service issued Notice 2016-76, which phases in the application of withholding on dividend equivalent payments under section 871(m). Under the notice, withholding applies only to delta-one transactions in 2017, and applies to other U.S. equity transactions beginning after 2017.

The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, has raised the possibility that current Treasury regulations may be modified or nullified.

On November 28, 2016, Governor Cuomo signed into law Chapter 466 of the Laws of New York of 2016 (Assemb. Bill 10365B) (the “2016 Amendment”).  The 2016 Amendment is intended to “improve and make clarifying amendments to the Nonprofit Revitalization Act of 2013” (the “NPRA”) in order to “correct certain inconsistencies, and . . . make the statute operate more smoothly and efficiently,” most notably to the “related party” provisions and the prohibition in the NPRA against employees serving as the chair of the board of a corporation organized under the New York Not-for-Profit Corporation Law (“NPCL”).

After a conventional presidential campaign, determining the policy priorities and direction of the incoming administration with respect to the Justice Department’s white collar law enforcement responsibilities can be a relatively straightforward process.  Confident prediction this election year, however, is tempered by the lack of comprehensive Trump Administration policy releases addressing these issues. 

On November 17, 2016, the Office of Enforcement (“FERC Staff”) of the Federal Energy Regulatory Commission (the “Commission” or “FERC”) issued a White Paper on Anti-Market Manipulation Enforcement Efforts Ten Years After EPAct 2005 (“Manipulation White Paper”) to “provide insight” on its ten years of experience investigating potentially manipulative conduct under the Anti-Manipulation Rule.

On 23 November 2016, the European Central Bank (the “ECB”) launched a public consultation in relation to draft guidance for Eurozone banks intended to develop clear and consistent definitions, measures and monitoring with regard to leveraged transactions. The draft guidance sets out how the ECB expects banks to maintain the credit quality of their leveraged transactions and to monitor related risks to their balance sheets. The consultation period runs until 27 January 2017.

On November 17, 2016, the Federal Energy Regulatory Commission (the “Commission” or “FERC”) Office of Enforcement (“FERC Staff”) issued a White Paper on Effective Energy Trading Compliance Practices (“Compliance White Paper”) to provide jurisdictional companies with concrete examples of how to design, implement, and assess compliance practices that “may” prevent or detect market manipulation.  FERC Staff characterizes the Compliance White Paper as a supplement to the Commission’s five prior policy statements related to compliance. However, the Compliance White Paper contains a lengthy list of prescriptive measures that FERC Staff recommends that companies should consider when developing and enforcing an effective compliance program.  Many of the recommended measures make sense especially in light of recent enforcement actions, but others may be impractical or expensive to implement.

The election of Donald J. Trump as the 45th President of the United States, along with the Republican control of the majority of both the House of Representatives and the Senate, will likely result in significant changes in U.S. financial services, energy, and commodities laws and markets.  The most sweeping changes may require legislation and may generate controversy within Congress – in particular in the U.S. Senate.

Earlier this week, a federal court enjoined the federal Centers for Medicare and Medicaid Services from enforcing a rule, promulgated on September 28, 2016, which barred pre-dispute arbitration agreements between nursing facilities in the Medicare or Medicaid programs and their nursing home residents, commencing November 28, 2016.   

On November 4, 2016, the Commodity Futures Trading Commission (“CFTC” or the “Commission”) approved, by a 2 – 1 vote, a supplemental proposal (“Reg AT Supplemental Proposal”) that amends a 2015 proposed rule related to automated trading (“Proposed Reg AT”).  The Reg AT Supplemental Proposal includes a 60-day comment period that commences upon publication in the Federal Register.  Unless addressed in the Reg AT Supplemental Proposal, Proposed Reg AT remains the same.  Below is a summary of the key aspects of the Reg AT Supplemental Proposal based upon the discussion at the CFTC’s open meeting along with the fact sheet and Q&A document posted to the CFTC website.

On October 24, 2016 the New York Supreme Court, Kings County entered a decision allowing a former employee to proceed with a lawsuit against a not-for-profit, private college preparatory school and its headmaster alleging violations of the whistleblower provisions of the New York Not-for-Profit Corporation Law (“NPCL”).

In late September 2016, Andrew Ceresney, Director of Enforcement of the Securities and Exchange Commission (“SEC”), signaled the SEC’s renewed focus on the key role played by audit committee members and external auditors as the “gatekeepers” of the financial reporting process.  While stating that the SEC would not second-guess the good faith actions of auditors, he pledged that auditors and audit committee members who failed to reasonably carry out their responsibilities under applicable accounting standards would be held to task.  In addition, just days before Mr. Ceresney made these remarks, the SEC made good on this promise by bringing its first enforcement action for an audit failure against a Big Four firm in nearly seven years, and its first ever independence-related action against auditors for maintaining overly close relationships with their clients. At the same time that the SEC was preparing this case, the International Ethics Standards Board for A

Investors considering engaging with management should take note of a recent informal interpretation received from the FTC’s Premerger Notification Office (PNO) advising that certain seemingly “passive” behavior is inconsistent with the “investment-only” exemption freeing acquirers of voting securities from the reporting and notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act).

On October 20, 2016, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an advanced notice of proposed rulemaking (“ANOPR”) seeking comments on potential revisions to (1) the Commission’s policies for evaluating oil pipeline indexed rate changes; and (2) the reporting requirements for page 700 of FERC Form No. 6, Annual Report of Oil Pipeline Companies.

On October 13, 2016, Treasury and the IRS issued important new final and temporary regulations (the “Regulations”) under section 385 of the Internal Revenue Code addressing the treatment of intercompany debt for U.S. federal income tax (“U.S. tax”) purposes. The Regulations generally will apply to taxable years ending after January 18, 2017, while the documentation requirements described below will apply to debt instruments issued after December 31, 2017. The proposed version of the Regulations, issued in April 2016, attracted controversy due to its broad reach and strict requirements as well as arguments that the rules exceeded the authority granted to Treasury by Congress.

On October 13, 2016, Treasury and the IRS issued new final and temporary “anti-inversion” regulations under section 385 of the Internal Revenue Code that could treat certain purchasers of notes issued by securitizations as having exchanged their notes for stock in certain related domestic entities.

On October 11, 2016, the United States Court of Appeals for the D.C. Circuit issued its long-awaited opinion in PHH Corp. v. Consumer Financial Protection Bureau, in which the Court held that the structure of the Consumer Financial Protection Bureau (“CFPB”) was unconstitutional under the Separation of Powers doctrine because its single Director was not subject to the supervision and control of the Executive Branch. The Court’s remedy was to reinterpret the relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to recast the CFPB as an executive agency, providing the President the power to supervise, direct, and remove at will its Director. Despite finding that the structure under which CFPB had been operating since its creation in 2011 was unconstitutional, the Court explicitly declined to address – at least for now – the effect of its ruling on past CFPB rules and enf

Since the Second Circuit Court of Appeals’ December 2014 decision in United States v. Newman, the government’s ability to aggressively pursue insider trading cases involving tipping has been in doubt.  But, on October 5, the Supreme Court heard oral arguments in Salman v. United States, a case that should clarify the government’s burden in proving insider trading cases against tippers and tippees.

On September 28, 2016, the federal Centers for Medicare and Medicaid Services (“CMS”) issued its long-awaited final rule that, among other things, prohibits skilled nursing facilities (“SNFs”) and nursing facilities (“NFs”) participating in the Medicare or Medicaid programs from requiring pre-dispute binding arbitration in any new admission agreements executed on or after November 28, 2016.

On September 23, 2016, the Board of Governors of the Federal Reserve System (the “FRB”) issued a proposed regulation concerning the ability of a financial holding company (“FHC”) to engage in physical commodities activities (the “Commodities Proposal”).  The Commodities Proposal follows an advanced notice of proposed rulemaking issued by the FRB more than two years ago in early 2014.

New guidance from the Securities Exchange Commission requires issuers to take a fresh look at their 401(k) plans.  On September 22, 2016, the SEC’s Division of Corporation Finance released a Compliance and Disclosure Interpretation (“CDI”) addressing registration requirements for 401(k) plans that allow investments through a self-directed “brokerage window.”

On October 22, 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Department of Housing and Urban Development (the “Agencies”) released a joint final rule (the “Rule”) implementing the credit risk retention requirements of Section 15G of the Securities Exchange Act of 1934. The adopting release was published in the Federal Register on December 24, 2014 (the “Release”). References to sections of the Rule set forth below are to the version of the common rule published in the Federal Register (79 Fed. Reg. 77602 (December 24, 2014)).

Facing pressure from industry practitioners and in the wake of constitutional challenges in multiple jurisdictions, the Securities and Exchange Commission (“SEC”) recently amended its Rules of Practice that apply to proceedings before an administrative law judge (“ALJ”).

The Basel Committee on Banking Supervision (the “Basel Committee”) published an updated version of the “Basel III Document – Revisions to the securitisation framework” on 11 July 2016 (the “Amended Securitisation Framework”).  This now includes alternative regulatory capital treatment for securitisation transactions which meet the criteria for identifying simple, transparent and comparable securitisations.  In this Clients & Friends Memo we discuss the background to this document and consider the amendments which have been made and how they will affect securitisation transactions.

Choice real estate markets such as New York, Miami, Los Angeles, San Francisco, San Diego, and San Antonio may offer enticing amenities like buzzing nightlife or sunny beaches, but thanks to the Financial Crimes Enforcement Network (“FinCEN”), they now also come with an extra dose of law enforcement scrutiny.  On July 27, 2016, FinCEN expanded the locales in which Geographic Targeting Orders (“GTO”) will temporarily require U.S. title insurance companies to identify the natural persons (the “beneficial owners”) behind legal entities used to make “all cash” purchases of high-end residential real estate in those six metropolitan areas.

When President Obama signed into law the Cybersecurity Act of 2015, which was designed to facilitate information sharing on cybersecurity threats between the public and private sectors, proponents hailed it as “our best chance yet to help address this economic and national security priority in a meaningful way.”

On June 13, 2016, the U.S. Supreme Court again reversed a decision of the Federal Circuit—the Circuit specially designated to hear all patent appeals—this time, in articulating the test for determining whether to award enhanced damages for willful patent infringement in Halo Electronics, Inc. v. Pulse Electronics, Inc.

Proposed regulations issued on July 14, 2016 generally would prevent tax-free spinoffs involving companies with less than 5% active business assets and spinoffs where one company holds a substantial amount of nonbusiness assets and the other company does not. These rules generally would apply to transactions occurring on or after the publication date of final regulations, subject to generous transition rules.

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act (“DTSA”), marking one of largest changes to intellectual property law since the America Invents Act of 2011. This legislation will allow companies to more rigorously protect their trade secrets which are defined as any information that is not generally known to the public, whose holder has made reasonable efforts to maintain its secrecy, where an independent economic value is derived from that secrecy.

On June 29, 2016, the Federal Energy Regulatory Commission (the “Commission”) issued an interim final rule amending the civil monetary penalties within its jurisdiction to adjust for inflation.  FERC adjusted its penalties pursuant to its statutory obligation under the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the “ 2015 Adjustment Act”).  The Act requires each federal agency to adjust for inflation each civil monetary penalty within the agency’s jurisdiction by July 1, 2016 and to continue to update each penalty annually every January 15th.  The Commission explained that the interim final rule is not subject to notice and comment rulemaking because the adjustments are statutorily required and not subject to the agency’s discretion.

On Friday, July 1, 2016, a panel of the United States Court of Appeals for the District of Columbia Circuit reopened the issue of whether pipelines organized as partnerships can claim a tax allowance for ratemaking purposes in United Airlines Inc., et al. v. FERC, et al., No. 11-1479.

On July 1, the U.S. Internal Revenue Service issued Notice 2016-42, which proposes changes to the qualified intermediary (QI) agreement to address cascading U.S. withholding tax on dividends and “dividend equivalents” received and paid by qualified derivatives dealers (QDDs) with respect to U.S. equity securities.

On Friday, June 17, 2016, the Federal Energy Regulatory Commission issued an Order Assessing Civil Penalties against ETRACOM LLC and ETRACOM’s founding member and majority owner, Michael Rosenberg. The Commission held that the Respondents violated the Federal Power Act Anti-Manipulation Rule, specifically, that they engaged in a “cross-commodity” scheme in which they submitted virtual supply offers at the New Melones intertie at the border of the California Independent System Operator (“CAISO”) wholesale electric market with the intent to lower power prices artificially at New Melones in order to increase the value of ETRACOM’s Congestion Revenue Rights (“CRRs”) positions that settled based upon power prices at that location. Respondents offered two primary defenses to Staff’s allegations, each of which the Commission rejected: (1) that CAISO was not a well-functioning market and (2) that ETRACOM based its trading activity on market fundamentals.&am

On June 28, 2016, the U.S. Court of Appeals for the District of Columbia Circuit rejected two related challenges to the Federal Energy Regulatory Commission’s environmental review of the Sabine Pass LNG and Freeport LNG applications to site, construct, and operate liquefied natural gas (“LNG”) export facilities under Section 3 of the Natural Gas Act.

Citing the ongoing risk of terrorist and cyber-attacks, the 2008 financial crisis, and Hurricanes Katrina and Sandy, the SEC has issued proposed rules under the Investment Advisers Act of 1940 that would require investment advisers to establish business continuity and transition plans to be utilized in the event of a data loss, system failure, or other significant business disruption. The proposed rules for investment advisers, similar to business continuity plan rules already mandated by FINRA, the CFTC, and the NFA, would require that such plans be risk-based, documented in written policies and procedures, and reviewed at least annually. The proposed rules would also amend the existing books and records requirements to impose new recordkeeping obligations relating to business continuity and transition plans.  If approved, they would convert what is currently an industry best practice to a requirement for all SEC-registered investment advisers.

On June 22, 2016, the Office of Inspector General (“OIG”) issued two communications that underscore its continued focus on fraud in home health care, along with the role of physicians as “gate keepers” in authorizing Medicare-covered services and facilitating improper billing across the care spectrum. 

On Monday, June 27, 2016, the Supreme Court of the United States denied the petition for certiorari in Midland Funding LLC v. Madden, No. 15-610.  The Supreme Court’s denial leaves intact the unusual – and troubling – decision by the U.S. Court of Appeals for the Second Circuit, Midland Funding, LLC v. Madden.  In that case, the Second Circuit held that the application of state usury laws to nonbank assignees is not preempted by Section 85 of the National Bank Act (the “NBA”), but rather such assignees remain subject to state usury limits.  The Second Circuit’s decision suggests that a nonbank assignee of a bank-originated loan might not be able to collect the amount of interest contracted for by the originating national bank if the rate of interest exceeds the usury rate otherwise applicable to the assignee.

In its referendum held on 23 June 2016, the UK voted to leave the European Union (“Brexit”).  On the following day, David Cameron announced that he will resign as Prime Minister on the election of a new Conservative Party leader and that such leader should be elected prior to the Conservative Party annual conference which starts on 2 October 2016.  David Cameron said that he will leave it to his successor formally to notify the European Council of the UK’s intention to withdraw from the European Union.

On June 16, 2016, the Federal Energy Regulatory Commission issued an order implementing specified clarifications to existing Electric Quarterly Report (“EQR”) reporting requirements and the accompanying EQR Data Dictionary.  The Commission’s order revised or affirmed the following reporting requirements and data fields:  (1) Increment Name; (2) Commencement Date of Contract Terms; (3) Transmission-related data; (4) Time Zone field options; and (5) E-Tag ID-related data fields.  Notably, the Commission also announced that, going forward, it will post to its website such “minor or non-material” changes to EQR reporting requirements and the EQR Data Dictionary, in addition to notifying EQR users via e-mail.  It will no longer propose these types of changes in a Commission order or rulemaking and, as a result, will not provide an opportunity for comment.  It explained that this will enable the agency to make minor or non-material changes in a more time

On June 9, 2016, a divided New York Court of Appeals in a much-anticipated ruling held that the attorney-client privilege can only be maintained for communications involving third parties in situations where litigation is pending or reasonably anticipated.  The decision reversed an intermediate appeals court’s expansion of the privilege to situations where the parties shared a “common legal interest” short of pending or reasonably anticipated litigation.  

On 6 June 2016, Paul Tang MEP, the Rapporteur of the Committee on Economic and Monetary Affairs (“ECON”) of the European Parliament, published a “Draft Report”, consisting mainly of  draft amendments (the “Proposed Amendments”) to the EU's proposal for a regulation intended to lay down common rules on securitisation and create a European framework for “simple, transparent and standardised” (“STS”) securitisation (the “Regulation”).

The Consumer Financial Protection Bureau (“CFPB”) last week announced long-awaited proposed rules governing payday loans and other high-cost credit products, including that lenders must take steps to ensure prospective borrowers have the ability to repay them.

On 19 May 2016, the Committee on Economic and Monetary Affairs of the European Parliament (“ECON”) published a working document on the European Commission’s proposal for a regulation (the “Proposed Regulation”) intended to harmonise risk retention, transparency and due diligence requirements applying to securitisations and to create a legal framework to encourage “simple, transparent and standardised” securitisations (“STS securitisations”).

On May 19, 2016, the United States Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission (“SEC”) announced insider trading charges against Las Vegas sports bettor William (“Billy”) Walters and former Dean Foods chairman Thomas Davis for allegedly trading on nonpublic company information.  Tellingly, no charges were brought against professional golfer Phil Mickelson, who was named as a relief defendant and agreed to repay close to $1 million in trading profits made as part of the alleged scheme.

Last week, decisions by the United States Supreme Court and the Northern District of Georgia provided further guidance regarding the narrow path required for a class action plaintiff to successfully establish Article III standing in a data breach claim brought in federal court.

On May 10, 2016, the Treasury Department issued proposed regulations that, if approved, will require business entities formed in the United States that are owned by a single foreign person to obtain an employer identification number (“EIN”), maintain adequate records of certain transactions, and file information returns with the Internal Revenue Service (“IRS”).

On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued the final version of its long-awaited “Customer Due Diligence Rules” under the Bank Secrecy Act.  The final rules impose a new requirement on “covered financial institutions” – which include banks, broker-dealers, mutual funds, and futures commission merchants and introducing brokers in commodities – to identify the beneficial owners who own or control certain legal entity customers at the time a new account is opened.

On May 10, 2016, the Commodity Futures Trading Commission (“CFTC”) proposed an amendment (“Proposed Amendment”) to an order it issued on March 28, 2013 (“RTO-ISO Order”), exempting certain electric energy transactions from a number of provisions of the Commodity Exchange Act (“CEA”) and CFTC regulations other than the general anti-fraud and anti-manipulation provisions, and other scienter-based prohibitions.

On April 8, 2016, the IRS released private letter ruling 201615022 denying tax-exempt section 501(c)(3) status to a nonprofit accountable care organization (“ACO”) that did not participate in the Medicare Shared Savings Program (“MSSP”). This adverse determination raises questions about the ability of an ACO outside of the MSSP to qualify for tax-exempt status under section 501(c)(3).

On May 5, 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule to prohibit providers of certain consumer financial products and services from using arbitration clauses to block consumers from filing or participating in class action lawsuits. In addition, the proposed rule would impose a reporting obligation on providers of covered consumer financial products or services, requiring that certain materials filed in arbitration cases be submitted to the CFPB.

On April 13, 2016, the U.S. Securities and Exchange Commission issued a concept release on the business and financial disclosures required by Regulation S-K. The release is part of an ongoing comprehensive evaluation by the SEC of disclosure requirements in response to statutory mandates in the FAST Act and JOBS Act (more information on which can be found at the Disclosure Effectiveness Initiative). This review also includes the Report on Review of Disclosure Requirements in Regulation S-K and forthcoming reports on Regulation S-X.

Over recent years, the Federal government has trained its sights on potential billing abuses in the Medicare Part A program for Skilled Nursing Facilities (“SNFs”) in the provision of rehabilitation therapy services.  The U.S. Health and Human Services Office of the Inspector General (“OIG”) issued a report in September 2015, finding that the current methodology “creates a strong financial incentive for SNFs to bill for higher levels of therapy even when beneficiaries do not need such levels.”

The Corporation Law Section of the Delaware State Bar Association recently approved proposed legislation to amend the General Corporation Law of the State of Delaware (the “DGCL”).  Among the proposed changes are amendments that would mitigate some of the risks presented by stockholder appraisal actions by barring appraisal claims that do not meet certain minimum thresholds.  In addition, the proposed legislation would allow companies to limit the amount of statutory interest payable to stockholders who seek appraisal by making discretionary payments to such stockholders prior to the final value determination by a court.  If adopted by the Delaware General Assembly, these amendments would apply to merger agreements entered into on or after August 1, 2016.

On March 28, 2016, the U.S. District Court for the District of Massachusetts held that two private equity funds within Sun Capital were jointly and severally liable under the Employee Retirement Income Security Act of 1974, as amended (ERISA), for the $4.5 million multiemployer pension plan withdrawal liability of a portfolio company. This landmark decision appreciably changes the landscape for private equity investment in companies with pension plans or potential pension liabilities.

On April 4, 2016, Treasury released new rules making it more difficult for some U.S. companies to invert (“Serial Inversion Regulations”), Proposed Regulations limiting the effectiveness of “earnings stripping” techniques (“Earnings Stripping Regulations”), and Final and Temporary Treasury Regulations incorporating rules previously described in Notices 2014-52 and 2015-79. 

We are pleased to inform you of a very favorable recent caselaw development in the no-fault insurance area, in which our firm played a significant role.  Specifically, on March 24, 2016, in the case of Liberty Mutual Fire Insurance Company, et al. v. Shapson, et al., the United States District Court for the Eastern District of New York (Honorable Eric N. Vitaliano) rejected certain defendants’ attempt to stay or dismiss an insurer’s federal lawsuit seeking declaratory relief stemming from a major no-fault fraudulent scheme involving the fraudulent incorporation of providers, unlawful fee-splitting and other improper conduct.

A bill recently introduced in the New York State Assembly would impose additional tax on carried interest.  The taxation of carried interest has been widely discussed over the last decade, with a number of bills introduced (but not enacted) in Congress that generally would tax such carried interest at ordinary Federal income tax rates (rather than at lower capital gain rates).

The recent decision by the United States District Court for the Southern District of New York in Citibank, N.A. v. Norske Skogindustrier ASA  could be an important consideration for future drafting and interpretation of debt agreements.  While the Court’s decision is in the context of a preliminary injunction motion, the opinion provides useful guidance for parties potentially undertaking a refinancing exchange offer, and for parties who may seek to challenge such an exchange.  Given the increasing need for companies in distressed industries to exchange debt and extend maturities, parties facing a potential debt exchange should consider the Norske Skog court’s indenture analysis.

On March 11, 2016, Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware issued an opinion in the Energy Future Holdings bankruptcy that resolved an intercreditor dispute over $90 million in proceeds to be distributed under the plan of reorganization. The Court determined that distributions under a plan of reorganization and monthly adequate protection payments made pursuant to a cash collateral order were governed solely by the plan and order, and were not required to be distributed in accordance with a waterfall provision in an intercreditor agreement.

The Chancellor of the Exchequer delivered the UK Budget for 2016 on 16 March 2016.

In this Client and Friends Alert we have outlined the key tax measures that we expect to be of interest to Cadwalader’s clients and friends.

The Board of Governors of the Federal Reserve System ("FRB") has requested comments on reissued proposed rules that would establish a single-counterparty credit limits ("SCCL") for domestic and foreign bank holding companies with $50 billion or more in total consolidated assets. The proposed rules are intended to implement Section 165(e) of the Dodd-Frank Act, which requires the FRB to impose limits on the amount of credit exposure that such domestic or foreign bank holding companies can have to unaffiliated companies in order to reduce the number of risks that might arise from the companies' failure.

Comments on the proposed regulations must be submitted by June 3, 2016.

The Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 and the regulations promulgated thereunder (“HIPAA”) should be now well-known to health care providers and health plans.  Under HIPAA’s “Privacy Rule,” covered entities must take steps to “reasonably safeguard” protected health information (“PHI”) from any “intentional or unintentional use or disclosure that is in violation of the standards, implementation specifications or other requirements” of the Privacy Rule.

Mr Justice Robin Knowles CBE handed down his judgment on 29 January 2016 in GSO Credit – A Partners L.P. (and other GSO funds) v Barclays Bank PLC and HCC International Company PLC [2016] EWHC 146 (Comm) concerning the application of the Loan Market Association (“LMA”) Standard Terms and Conditions for Par and Distressed Trade Transactions (Bank Debt/Claims) dated 14 May 2012  (the “Terms and Conditions”) (as in effect on the Trade Dates of 10 and 11 June 2013).

The case provides the first judgment in the new Financial List that was established in October 2015 to facilitate the hearing of complex financial claims  by judges with relevant experience given the need for specialist expertise in the various litigations arising since the 2008 financial crisis.

he Patient Protection and Affordable Care Act (“PPACA”), signed into law on March 23, 2010, included a provision (the “Report and Refund Mandate”), broadly requiring health care providers, suppliers, Part D plans and managed care organizations that were overpaid by the Medicare or Medicaid program to report and return the overpayment within 60 days of the date when the overpayment was “identified.”

In times of financial turbulence, politicians, regulators and the media make the case for tighter controls of the markets.  However, with new regulatory powers coming in and the resulting extra layer of complexity that their application brings, investors have their reasons not to put their trust in regulators.  As seen with recent developments in Portugal and Italy, a number of competing motivations surround the rescue of financial institutions.  The old maxim – “Put your trust in God, but keep your powder dry” -  may be applied to describe investor sentiment in an environment where treating senior investors equitably has not been a priority for local regulators.

On February 5, 2016, the U.S. Department of Energy's Office of Fossil Energy ("DOE/FE") issued two orders to Bear Head LNG Corporation and Bear Head LNG (USA), LLC (together, "Bear Head LNG"), formally announcing DOE's comprehensive policy for considering applications involving liquefied natural gas ("LNG") exports from Eastern Canada to global markets.

On January 19, 2016, the United States Supreme Court granted certiorari in United States v. Salman, in which the Ninth Circuit Court of Appeals held that the government may prove a “personal benefit” to a tipper of inside information—a necessary element of an insider trading case involving tipping—by showing evidence that an insider made a “gift” of confidential information to a trading relative or friend.

The Federal Trade Commission (“FTC”) has announced its annual revisions to the dollar jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); the revised thresholds are expected to become effective in late February 2016, 30 days after the date of their publication in the Federal Register.  These changes increase the dollar thresholds necessary to trigger the HSR Act’s premerger notification reporting requirements.  The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.

A record-setting year for M&A deal activity, 2015 also yielded several important legal decisions and highlighted significant trends that are likely to influence M&A market participants in 2016 and beyond.

On January 13, 2016, the Financial Crimes Enforcement Network (“FinCEN”) announced that it had issued a Geographic Targeting Order (“GTO”) which will temporarily require certain title insurance companies to report the identity of natural persons who make “all-cash” purchases of high-value residential real estate through shell companies in New York County (Manhattan) and Miami-Dade County.

On 21 December 2015 the European Banking Authority (“EBA”) published its final guidelines on sound remuneration policies (the “Guidelines”), together with its opinion on proportionality (the “EBA Opinion”).

The Guidelines and EBA Opinion are likely to be of particular relevance to a number of smaller regulated investment firms, since the EBA’s intention is that they will no longer be able to disapply the so-called “bonus cap” on the basis of “proportionality”.

U.S. companies listed on the NASDAQ and NYSE, as well as certain listed companies in Canada and Europe, with annual shareholder meetings scheduled between March 1, 2016 and June 30, 2016 may now register through January 31, 2016 to receive an Issuer Data Report (IDR) from Glass Lewis. The IDR service has per country participation limits and is available to eligible companies on a first-come, first-served basis. The registration period for a country will end prior to January 31, 2016 if the participation limit for that country is reached.

On December 31, 2015, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued regulations implementing Executive Order 13694 of April 1, 2015, which authorized the imposition of economic sanctions on individuals and entities determined to be responsible for, complicit in, or benefitting from significant cyber attacks or cyber theft. 

In a December 21, 2015 transcript ruling, the Delaware Chancery Court invalidated the provisions of VAALCO Energy, Inc.’s charter and bylaws that allow for removal of directors only “for cause” even though VAALCO’s board is not classified.  Vice Chancellor Laster ruled that the charter and bylaw provisions conflicted with the plain reading of Section 141(k) of the Delaware General Corporation Law, which states that stockholders may remove directors from the board with or without cause except where the board is classified or directors are elected by cumulative voting.