Law Firm Memo Survey: Q3 2016

December 2, 2016

ScaleOur Law Firm Memo Survey examines law firm memoranda to identify trends in business law. To prepare the survey, our Experts On-Call reviewed 87 memos from 22 large law firms.

Click here subscribe to the survey’s mailing list

In the third quarter of 2016, SEC rulemaking reclaimed its position as the most popular topic in our survey, but the unprecedented uncertainties created by Brexit continued to inspire speculation, prognostication, and handwringing.

SEC Regulatory Action

68 memoranda

SEC rulemaking generated many memos in the last quarter, but changes to rules promulgated under the Investment Advisers Act attracted the most law firm comment.


11 memoranda

In August 2016, the SEC adopted (1) a year-old proposal (2) to amend Form ADV. Shearman & Sterling observed that the final rule’s “primary goal” was to raise “disclosure of key aspects” of advisers’ separately managed accounts businesses “up to a level comparable with private fund data (3)”. Shearman & Sterling added that the “most controversial” aspects of the proposed rule were “largely preserved” in the final rule, but with  “attempts … to soften the requirements at the edges”.

Fried Frank noted that the final rule also incorporated the “concept of umbrella registration into Form ADV,” thereby “essentially codifying (4)” an existing no-action letter process (5).

  1. Form ADV and Investment Advisers Act Rules, 81 FR 60418 (Sep 1, 2016)
  2. Amendments to Form ADV and Investment Advisers Act Rules, 80 FR 33718-01 (Jun 12, 2015)
  3. Shearman & Sterling LLP, SEC Adopts New Disclosure and Recordkeeping Requirements for Investment Advisers, Sep 6, 2016
  4. Fried, Frank, Harris, Shriver & Jacobson LLP, SEC Adopts Amendments to Form ADV and Recordkeeping Rules, Aug 31, 2016
  5. Am Bar Ass’n, SEC No – Action Letter, 2012 WL 160552 (Jan 18, 2012)



9 memoranda

In June 2016, the SEC proposed a new Investment Advisers Act rule that would require investment advisers to have a “Business Continuity and Transition Plan (1)”. Gibson Dunn described the proposal as part of “a regulatory trend that focuses on operational risk … as a potential source of systemic risk (2)”. Ropes & Gray observed that the proposed rule is the “fourth of five elements of the SEC’s regulatory agenda to address systemic risks posed by asset managers”. Ropes & Gray also noted that the proposal is “an anti-fraud provision” and will, therefore, “apply to all advisers … regardless of … size (3)”.

  1. Adviser Business Continuity and Transition Plans, 81 FR 43530-02 (Jul 5, 2016)
  2. Gibson Dunn & Crutcher LLP, SEC Proposes New Rule Requiring Registered Investment Advisers to Adopt Written Business Continuity and Transition Plans, Jul 6, 2016
  3. Ropes & Gray LLP, SEC Proposes Rule Requiring Investment Advisers to Adopt Business Continuity and Transition Plans, Jul 6, 2016



53 Memoranda

Six months (and one US presidential election) have passed since UK voters opted to exit the EU, but we still don’t know when or how Brexit will happen. The legal community has survived this tense period by exploring the legal questions presented from every imaginable angle. Davis Polk even institutionalized its Brexit coverage with a biweekly memo series titled “Lex et Brexit (1)”. (Brexit has also caused an uptick in the use of Latin, perhaps because the EU was once the heart of the Roman Empire?)

  1. Davis Polk & Wardwell LLP, Lex et Brexit


4 memoranda

At the top of the surveyed firms’ Q3 Brexit agenda was the interaction of Brexit and the EU’s April 5th General Data Protection Regulation (1). WilmerHale observed that, “many [UK] companies that were preparing to comply with GDPR are now wondering what they should do”. Vividly illustrating that “[u]ntil Brexit takes place, there will be a period during which its precise form and implications … are not clear (2),” WilmerHale noted this Brexit “gap” was “developing as a hot topic”.

  1. Commission Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and the free movement of such data, Apr 5, 2016
  2. Wilmer Cutler Pickering Hale and Dorr LLP, Brexit and Data Protection: The Impact on GDPR Compliance, Sep 29, 2016


4 memoranda

The impact of Brexit on the UK financial services industry also received significant attention in Q3. Skadden Arps reminded us that the “U.K. is home to a wide array of asset managers, bankers, insurers, investment exchanges and clearinghouses (1),” with Brexit, as DLA Piper noted, creating a “considerable amount of uncertainty” for this industry (2). As Skadden Arps observed, this uncertainty may lead some UK-headquartered investment groups to relocate “certain parts of their businesses outside the U.K.”.

  1. Skadden, Arps, Slate, Meagher & Flom LLP, Continental Drift? Brexit’s Potential Impact on International Investment Managers, Aug 1, 2016
  2. DLA Piper LLP, Brexit: How will it impact asset and fund managers? Jul 20, 2016

Court Decisions

52 memoranda

Recent decisions on corporate and securities matters generated dozens of memos in Q3 2016, but there was scant unanimity on which decisions were most significant. The Ninth Circuit’s ruling in Jensen v. SEC (1), discussed in four memos, received the most attention. The Jensen court held that the SEC may bring an action under Rule 13a-14 (2) against, as Sullivan & Cromwell put it, “a Chief Executive Officer and Chief Financial Officer who provide a false certification … not merely against those who fail to make any certification at all (3)”. Additionally, the Jensen decision produced what Proskauer Rose called “the first appellate ruling on whether SOX § 304 disgorgement (4) can apply to a CEO or CFO who did not personally engage in any misconduct (5)”.

  1. SEC v Jensen, 835 F3d 1100 (9th Cir 2016)
  2. Rule 13a-14, 17 CFR § 240.13a-14 (2016)
  3. Sullivan & Cromwell LLP, The U.S. Court of Appeals for the Ninth Circuit Interprets Rule 13a-14 of the Securities Exchange Act and Section 304 of the Sarbanes Oxley Act, Sep 8, 2016
  4. Sarbanes Oxley Act § 304, 15 USCA § 7243 (2016)
  5. Proskauer Rose LLP, Ninth Circuit Holds That SOX Disgorgement of Incentive Compensation Does Not Depend on Executives’ Own Misconduct, Aug. 31, 2016

IRS Rev Proc On Exempt Spinoffs

25 memoranda

In 2013, the IRS announced (1) it would no longer issue private rulings on tax-free spinoffs under IRC § 355 (2). On August 26, the agency changed tack, expressing, in Revenue Procedure 2016-45 (3), a willingness, as Sidley Austin put it, to “provide private letter rulings … pertaining to the … requirements … for a spinoff to be tax-free (4)”. Wilson Sonsini observed that the Revenue Procedure is “generally consistent with the ruling policies … believed to have been triggered in part by the proposed (but since abandoned) spin-off by Yahoo! Inc. of its stake in Alibaba Group Holding Ltd (5)”.

  1. Rev Proc 2013-3, 2013-1 IRB 113
  2. IRC § 355, 26 USCA § 355 (2016)
  3. Rev Proc 2016-45, 2016-37 IRB 344
  4. Sidley Austin LLP, IRS Changes Its No-Ruling Policy on Tax-Free Spinoffs, Aug 26, 2016
  5. Wilson Sonsini Goodrich & Rosati, IRS Proposes Tax-Free Spin-Off Regulations Interpreting the “Device” and “Active Business” Tests and Addresses Recapitalizations into Control, Jul 20, 2016

NY Dept of Fin Svcs Rulemaking

15 memoranda

During Q3 2016, rulemaking by the New York State Department of Financial Services attracted the attention of the surveyed firms, and while several regulatory actions were deemed noteworthy, the most attention was paid to a rule proposal (1) described by Cleary Gottlieb as the “first comprehensive state regulatory proposal to address cybersecurity (2)”. Sullivan & Cromwell explained that the proposed rule would require “banks … and other financial services institutions regulated by the DFS to establish … a cybersecurity program” and also “implement … a written cybersecurity policy (3)”. Cleary Gottlieb added that the proposed rules contain “some new and notable reporting requirements but are otherwise duplicative of certain federal requirements”.

  1. Cybersecurity Requirements For Financial Services Companies, NY St Reg DFS-39-16-00008-P (Sep 28, 2016)
  2. Cleary Gottlieb Steen & Hamilton LLP, New York Proposes First-of-its-Kind Cybersecurity Regulation, Sep 20, 2016
  3. Sullivan & Cromwell LLP, New York Department of Financial Services Issues Proposed Cybersecurity Regulations, Sep 19, 2016

Nasdaq “Golden Leash” Disclosure Rule

7 memoranda

On July 1, the SEC approved (1) Nasdaq Rule 5250(b)(3) providing for disclosure by Nasdaq-listed companies of director “golden leash” arrangements. Morrison & Foerster explained that such arrangements arise “when a party other than the issuer … compensates a person in connection with that person’s candidacy for director or service as director (2)”. Paul Weiss noted that the rule addresses “concerns that undisclosed compensation agreements could raise conflicts of interest among directors (3)”. Gibson Dunn added, “we anticipate that third-party compensation will continue to be a focal point for both NASDAQ and New York Stock Exchange companies (4)”.

  1. Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director’s Members or Nominees, 81 FR 44400-01 (Jul 7, 2016)
  2. Morrison & Foerster LLP, SEC Approves Nasdaq Rule Requiring Public Disclosure of Payments to Directors by Third Parties, Jul 26, 2016
  3. Paul, Weiss, Rifkind, Wharton & Garrison LLP, SEC Approves Requirement to Disclose Third-Party Director Compensation for Nasdaq Companies, Jul 13, 2016
  4. Gibson, Dunn & Crutcher LLP, Final NASDAQ Rule on Disclosure of Third-Party Compensation for Directors and Nominees, Aug 4, 2016

SEC Whistleblower Enforcement Actions

6 memoranda

During the month of August 2016, the SEC brought enforcement actions against two issuers (1) for using severance agreements that, in the words of Sidley Austin, “required departing employees to waive their ability to obtain monetary awards (2)” under the SEC’s whistleblower bounty program. Cahill Gordon observed that the SEC “found that both companies had violated Rule 21F-17 (3) through the use of severance agreements that, inter alia, impeded former employees’ ability to communicate with the SEC (4)”. Wilson Sonsini added that the actions “make clear that the SEC is aggressively pursuing” issuers who use separation agreements that “arguably discourage whistleblowers (5)”. Sidley Austin cautioned that “the mere existence” of such “improperly restrictive language can lead to a rule 21F-17 violation”.

  1. In the Matter of Bluelinx Holdings Inc., Respondent, Release No 78528 (Aug 10, 2016); In the Matter of Health Net, Inc, Respondent, Release No 78590 (Aug 16, 2016)
  2. Sidley Austin LLP, SEC Brings Enforcement Actions Against Companies With Employee Agreements That Impede Whistleblowing, Aug. 26, 2016
  3. Rule 21F-17, 17 CFR § 240.21F-17 (2016)
  4. Cahill Gordon & Reindel LLP, SEC Settles Enforcement Cases with Two Companies for Whistleblower Violations, Aug 26, 2016
  5. Wilson Sonsini Goodrich & Rosati, Companies Should Review Employee Agreements and Policies Following SEC’s Aggressive Stance on Impediments to Whistleblowing, Sep 12, 2016