December 7, 2009Client Alert

Securities Report - December 2009


An update on amendments to the Securities and Exchange Commission (“SEC”) rules governing electronic proxy delivery and voting.

Legal Compliance

  • Filing of Schedule 13D: Under a recently published Compliance and Disclosure Interpretation (“CDI”), the SEC has stated that Schedule 13D beneficial ownership reports must be filed within 10 days of the trade date of the securities transaction. Rule 13d-1(a) states that a Schedule 13D must be filed within 10 days after the acquisition of more than five percent of a class of equity securities registered under Section 12 of the Exchange Act. The SEC addressed a question about whether the Schedule 13D is due 10 days after the trade date or the settlement date of a securities transaction. The SEC responded that although ownership is transferred on the settlement date as a matter of contract law, the investor acquires “investment power over the securities” on the trade date, and so, for purposes of calculating the 10-day time period, the first calendar day after the trade date counts as day number one.

  • Lock-up Agreements: In another recently published CDI, the SEC stated that the execution of a lock-up agreement with a note holder before the filing of the registration statement by an issuer contemplating a registered debt exchange offer of may constitute a contract of sale under the Securities Act. If so, the offer and sale of the issuer's securities would be made to note holders who entered into such an agreement before the exchange offer is made to other note holders. Recognizing the legitimate business reasons for seeking lock-up agreements in this type of transaction, the SEC stated that it will not object to the registration of offers and sales when lock-up agreements have been signed in the following circumstances:

    • the lock-up agreements are signed only by accredited investors;

    • the persons signing the lock-up agreements collectively own less than 100 percent of the outstanding principal amount of the particular series of notes;

    • a tender offer will be made to all holders of the particular series of notes; and

    • all note holders eligible to participate in the exchange offer will receive the same amount and form of consideration.

Court Actions

  • 9th Circuit Rejects “Statistical Significance” Materiality Argument: A 9th Circuit panel rejected claims by the maker of Zicam Cold Remedy, an over-the-counter product, that the number of users who suffered from a loss of smell (anosmia) was statistically insignificant, and therefore immaterial for disclosure purposes as a matter of law. The appellate court stated that “in relying on the statistical significance standard to determine materiality, the district court made a decision that should have been left to the trier of fact.” The court could not determine as a matter of law whether the links between the harm to consumers and product use were statistically insignificant on the pleadings.


  • SEC Response to Climate Change Petition Suggests Possible New Mandatory Disclosure Requirements: A Ceres/Environmental Defense Fund study of 100 global companies in industries strongly linked to climate change issues (utilities, coal, oil, gas, transportation, and insurance industries) reported that 59 percent of such companies did not even touch upon greenhouse gas emissions or their position on climate change in their Q1 2008 SEC filings. A number of investors, state officials and non-profit organizations petitioned the SEC for interpretive guidance regarding current federal climate risk disclosure requirements. This petition, led by Ceres, requested that the SEC clarify the extent to which public companies are required to assess and disclose their financial risks due to climate change issues under existing law. Specifically, the Ceres petition asked the SEC to confirm that current law requires public companies to disclose physical risks due to climate change, financial risks due to compliance with foreseeable greenhouse gas regulation, and litigation risks relating to legal proceedings based on climate change related claims.

Although the SEC has not issued a formal response to Ceres, SEC Commissioner Elisse Walter stated in July 2009 that “it’s really time for [the SEC] to take another very serious look at the disclosure system in [the climate change] area.” Commissioner Walter’s comment has invited speculation that the SEC is either poised to propose specific disclosure requirements aimed at climate change related risks or, at minimum, intends to review and provide guidance as to the appropriate scope of climate change risk disclosure under the existing regulations.

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