Law Firm Memo Survey: Q3 2015

October 22, 2015

ScaleA periodic series surveying law firm memoranda to identify trends in corporate, securities, and other areas of transactional law. In preparing this survey, our Experts On-Call reviewed 225 memos from 21 large firms. The results, below, are grouped broadly by practice area and listed in order of frequency of coverage.


CEO Pay Ratio Disclosure

17 memoranda

On August 5th, the SEC amended Regulation S-K to implement section 953(b) of the Dodd-Frank Act. New S-K Item 402(u) requires issuers to disclose the median annual income of all employees, the total compensation of the issuer’s CEO, and the ratio of the two figures.1 A Shearman & Sterling memo observed that, “the final rule in the SEC’s view, fulfills Congress’s apparent goal of providing shareholders with additional data points … when exercising their say on pay voting rights.”2 But Latham & Watkins noted that the SEC “voted along party lines” and “[o]bservers widely expect that these rules may be challenged in lawsuits and that Congress may amend the statute before the new rules become effective.”3

  1. Pay Ratio Disclosure, 80 FR 50104 (Aug. 18. 2015)
  2. The SEC’s Final Pay Ratio Rules: What You Need to Know, Shearman & Sterling LLP (Aug. 10, 2015)
  3. SEC Adopts Pay Ratio Disclosure Rules, Latham & Watkins LLP (Aug. 12, 2015)


FinCEN AML Rules for Investment Advisers

11 memoranda

On August 25th, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), proposed expanding the Bank Secrecy Act’s definition of “financial institution” to include SEC-registered investment advisers.1 The proposed change would require investment advisers to adopt and maintain anti-money laundering programs and report suspicious financial transactions. Weil Gotshal reported that the proposal “reflects FinCEN’s belief that … investment advisers may be used by money launderers or terrorist financiers to seek access to the U.S. financial system.”2 Ropes & Gray proclaimed the proposal “not unexpected” as it has been “in process” since 2008.3

  1. FinCEN Proposes AML Regulations for Investment Advisers, FinCEN News Release (Aug. 25, 2015)
  2. FinCEN Proposes AML Regulations for Registered Investment Advisers, Weil, Gotshal & Manges LLP (Sep. 8, 2015)
  3. FinCEN Rule Proposes AML Regulations for Registered Investment Adviser, Ropes & Gray LLP (Aug. 27, 2015)


Compensation Clawback

10 memoranda

On July 1st, the SEC proposed Rule 10D-1 implementing the Dodd-Frank Act’s so-called executive compensation “clawback” provision. The proposed rule would direct stock exchanges to establish a rule requiring listed companies to “develop and enforce” policies to recover incentive-based compensation awarded based on erroneous financials.1 A Jones Day memo called the proposal “convoluted” and predicted a “contentious” comment period.2 Skadden Arps thought it “unlikely” that the “long-awaited” proposal would be finalized before the end of 2016.3

  1. Listing Standards for Recovery of Erroneously Awarded Compensation, 80 FR 41144 (Jul. 14, 2015)
  2. SEC Proposes Dodd-Frank Clawback Rules, Jones Day (Jul. 2015)
  3. SEC Proposes Long-Awaited Mandatory Compensation Clawback Rules, Skadden, Arps, Slate, Meagher & Flom LLP (Jul. 2, 2015)



Whistleblower Anti-Retaliation Under Dodd-Frank

14 Memoranda

The Dodd-Frank Act, as Davis Polk reminded us, “bestows a private right of action”1 on whistleblowers facing retaliation from their employers.  Unfortunately, the statute contains more than one definition of “whistleblower” and it is not clear to whom the right attaches. Are whistleblowers who report wrongdoing to their employer protected, or only those who notify the SEC? In rule 21F-2(b) the SEC declared Dodd-Frank’s anti-retaliation provisions apply to all whistleblowers, but in 2013 the Fifth Circuit disagreed. On September 10, the Second Circuit sided with the SEC finding Dodd-Frank “sufficiently ambiguous”2 that the court should, as Sullivan & Cromwell put it, “defer to the SEC’s interpretation of the statute” and extend the whistleblower anti-retaliation provisions of Dodd-Frank to “individuals who complain to their employers internally.” S&C pointed out that the Second Circuit’s decision will “make a dead letter” of Sarbanes-Oxley’s whistleblower protections, because Dodd-Frank’s anti-retaliation rules are “significantly more generous.”3

  1. Second Circuit Holds That Whistleblowers Who Report Alleged Wrongdoing Internally Are Entitled to Dodd-Frank’s Anti-Retaliation Protections, Davis Polk & Wardwell LLP (Sep. 15, 2015)
  2. Berman v. Neo@Ogilvy LLC, 2015 WL 5254916 (2nd Cir. Sep. 10, 2015)
  3. Dodd-Frank Whistleblower Provision: Second Circuit Disagrees with Fifth Circuit, Dodd-Frank Retaliation Claims, Sullivan & Cromwell LLP (Sep. 11, 2015)


The Yates Memo

12 memoranda

On September 9, in what DLA Piper called the “first major policy pronouncement”1 from the office of Attorney General Loretta Lynch, the DOJ issued a memo, written by Deputy AG Sally Quillian Yates, emphasizing the DOJ’s intention to prosecute individuals involved in corporate misconduct.2 Davis Polk observed that a focus on individual prosecution is “not new,” but the Yates Memo raises the bar for corporations seeking sentence-mitigating “cooperation credit.” Disclosure of information about “individuals involved in or responsible for … wrongdoing is now a threshold requirement to receiving any cooperation credit.”3 Morrison & Foerster suggested this approach “may actually be a disincentive” causing “some companies … to forego … cooperation.”4 And, Sullivan & Cromwell warned that “companies need to be cognizant that specifically attributing ‘responsibility’ or even ‘involvement’ to individuals … may be seen as an acknowledgement that these individuals (and thus the company) are liable for that conduct.”5

  1. DOJ Seeks to Revamp and Re-Energize its Prosecution of Individuals: Key Takeaways, DLA Piper LLP (Sep. 10, 2015)
  2. Individual Accountability for Corporate Wrongdoing, DOJ Memo (Sep. 10, 2015)
  3. The Department of Justice Codifies Focus on Individuals in Corporate Cases, Davis Polk & Wardwell LLP (Sep. 11, 2015)
  4. Three Key Takeaways from DOJ’s New Yates Memo on Individual Accountability for Corporate Wrongdoing, Morrison & Foerster LLP (Sep. 12, 2015)
  5. New Justice Department Guidance on Individual Accountability, Sullivan & Cromwell LLP (Sep. 14, 2015)


SEC Forum Selection

9 memoranda

The scope and power of the SEC’s administrative proceeding process has expanded over the course of the last few decades. As a result, the Division of Enforcement has gained significant discretion to choose where to bring enforcement actions – and it has evinced an intention to favor administrative proceedings over court actions, due, as Cahill Gordon pointed out, “at least in part, to the reported advantage the SEC enjoys before its own administrative law judges.”1 But recently, several respondents in SEC actions have brought suit in federal court seeking to enjoin SEC administrative proceedings against them as unconstitutional. A few of these challenges have succeeded, a few have failed, and all have been appealed to the circuit court level. The 7th Circuit has ruled2 but appeals are pending in the 2nd and 11th Circuits, and “it is quite possible,” Cahill Gordon added, “this battle may end being decided by the Supreme Court.”

  1. Recent Cases Consider Challenges to the Constitutionality of SEC’s Administrative Law Judges, Cahill Gordon & Reindel LLP (Jul. 7, 2015)
  2. Seventh Circuit Rejects Court Challenge to Pending SEC Administrative Enforcement Proceeding, Proskauer Rose LLP (Aug. 25, 2015)