United States: Corporate And Financial Weekly Digest - May 24, 2013

Last Updated: May 29 2013

Edited by Robert Weiss and Gregory Xethalis


SEC Division of Corporation Finance Issues 13 New and Revised C&DIs

On May 16, the Securities and Exchange Commission's Division of Corporation Finance issued 13 new and revised Compliance and Disclosure Interpretations (C&DIs) on a range of topics under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act), and the related rules, forms and disclosure provisions thereunder. The new and revised C&DIs included the following interpretive guidance:

C&DI 129.03 states that, if an affiliate of a company transfers, by bona fide gift, company stock acquired in the open market (i.e., the securities are not "restricted securities" in the affiliate's hands) to a donee in a non-public transaction, the donee need not comply with any Rule 144 holding period requirement under the Securities Act for subsequent sales (notwithstanding the fact that the securities are "restricted securities" in the hands of the donee immediately following such gift) and may resell such securities pursuant to Rule 144 subject only to Rule 144's current public information requirement.

C&DI 133.07 clarifies that an affiliate's sales of securities back to the issuer in a non-public transaction (i.e., a transaction that is exempt from registration under Section 4 of the Securities Act) may be excluded when calculating the amount of securities that may be sold by the affiliate under Rule 144 under the Securities Act.

C&DI 210.03 states that an automatic shelf registration statement on Form S-3 (available for "well known seasoned issuers") that registers the offer and sale of a specified number of securities of a specified class of securities may be post-effectively amended to add more securities of the same class already registered.

C&DI 228.04 clarifies that, while a registrant may omit "the identities of selling security holders and amounts of securities to be registered on their behalf" from the prospectus included in a non-automatic shelf registration statement until after effectiveness of the registration statement, the prospectus must disclose the aggregate number of shares being registered for resale before effectiveness.

C&DI 256.22 clarifies that, when an acquiror seeks consent from the target's stockholders with respect to a business combination involving the issuance of securities in reliance on Rule 505 or 506 of Regulation D under the Securities Act, and the target's stockholders include non-accredited investors, financial statements and other information required under Securities Act Rule 502(b)(2) must be provided to the target's non-accredited investor stockholders a "reasonable amount of time" prior to obtaining any written consents from them. This interpretation is based on the Staff's view that the delivery of the written consent in such context constitutes the "sale" for purposes of Rules 505 and 506 under the Securities Act.

C&DI 532.01 clarifies the Staff's position that, where a pledgor who is an affiliate of an issuer defaults on a loan that is secured by a bona fide pledge of the issuer's stock acquired by the affiliate in the open market, the pledgee may resell such securities under Rule 144 under the Securities Act without regard to any holding period requirement under the Securities Act, provided that the pledgee is not an affiliate of the issuer and that Rule 144's current public information requirement is satisfied.

C&DI 116.24 clarifies the Staff's position that, when calculating whether the size of an offering consisting of common stock and warrants sought to be registered on Form S-3 under General Instruction I.B.6 (limited primary offerings by certain registrants) exceeds the one-third cap in General Instruction I.B.6(a), the registrant must comply with Instruction 2 thereto (which provides a formula for calculating the aggregate market value of securities sold during any period of twelve calendar months) in calculating the market value of the warrants, even when the warrants are not exercisable for common stock within twelve months.

C&DI 125.12 states that, if a registrant "meets the requirements for use of Form S-3," it may incorporate by reference into a Form S-4 (typically used for business combination transactions) risk factor disclosure included in the registrant's most recent Form 10-K. Offering-specific risks, however, are required to be disclosed in the Form S-4 itself.

C&DI 119.03 clarifies how to disclose in an issuer's summary compensation table, pursuant to Item 402 of Regulation S-K, non-cash compensation granted to a named executive officer in lieu of salary or bonus that the named executive officer has elected to forego, based on the value of the stock, equity-based or other form of non-cash compensation as compared to the amount of salary or bonus foregone at the election of the named executive officer.

C&DI 118.09 clarifies that Instruction 5 to Item 402(b) of Regulation S-K, which provides that "[d]isclosure of target levels that are non-GAAP financial measures will not be subject to Regulation G and Item 10(e) of Regulation S-K," is also applicable to disclosure regarding the issuer's actual results with respect to the non-GAAP measure that is used as a target, so long as such disclosure is made in the context of a discussion about the target levels and disclosure as to how the applicable target level is calculated from the registrant's audited financial statements is provided.

C&DI 134.04 clarifies how wide the range of estimated offering prices may be for purposes of disclosure in a preliminary prospectus for an initial public offering of securities (other than debt securities). For initial public offerings, a price range in excess of $2 will not be considered bona fide, if the offering price is less than or equal to $10 per share, and (ii) a price range in excess of 20% of the high end of the range will not be considered bona fide, if the offering price exceeds $10 per share. If an auction clearing price will be used as the primary factor in establishing the final offering price, (i) a price range in excess of $4 will not be considered bona fide for offerings up to $20 per share, and (ii) a price range in excess of 20% of the high end of the range will not be considered bona fide for offerings over $20 per share.

C&DI 146.17

clarifies that the interactive data filing requirements apply to registration statements of reporting issuers that omit pricing information from a registration statement in reliance on Securities Act Rule 430A, notwithstanding the provisions of Item 601(b)(101)(i) of Regulation S-K, which provide that an interactive data file is "required for a registration statement under the Securities Act only if the registration statement contains a price or price range."

C&DI 146.17 explains that, in general, "disclosure that satisfies the requirements in Item 501(b)(3) of Regulation S-K to state the "offering price" will be considered a "price or price range" for purposes of the interactive data rules." Accordingly, registration statements for shelf offerings, at-the-market offerings, exchange offers and secondary offerings must comply with the interactive data filing requirement even though they generally do not include a specific offering price at the time of effectiveness, unless the financial statements are incorporated by reference into the registration statement.

C&DI 110.01 provides that, for purposes of Item 2.06 (Material Impairments) of Form 8-K, if the impairment conclusion coincides with (but is not necessarily made "in connection with") the preparation, review or audit of financial statements required to be included in the next periodic report due to be filed under the Exchange Act and the other conditions of the Instruction to Item 2.06 are satisfied, a filing would not be required under Item 2.06.


CFTC Issues Final Trade Execution Rules

On May 16, the Commodity Futures Trading Commission approved a new regulatory framework applicable to swap execution facilities (SEFs). The regulatory framework governs the registration and operation of SEFs, and is largely based on the Core Principles and other requirements contained in Section 5h of the Commodity Exchange Act (CEA). At its May 16 meeting, the CFTC also adopted final rules relating to minimum block sizes for certain swaps and the process by which designated contract markets (DCMs) and SEFs may make a swap "available to trade."

The CFTC's final rules applicable to SEFs make clear that any person operating a trading system in which multiple market participants have the ability to trade swaps by accepting bids and offers made by multiple participants (a "multiple-to-multiple" system) must register as a SEF. On the other hand, a person offering a trading system in which only one market participant has the ability to trade with other market participants (a "one-to-many" system) is not required to register as a SEF.

A SEF must, at a minimum, offer market participants an "order book," which is defined as (i) an electronic trading facility, (ii) a trading facility or (iii) a trading system in which all market participants have the ability to enter orders, observe or receive orders and transact on such orders. For swaps subject to the trade execution requirement in Section 2(h)(8) of the CEA (i.e., swaps that are subject to mandatory clearing which have been made "available to trade" on a SEF or a DCM), a SEF additionally may allow its participants to execute trades in such swaps as block trades or through requests for quotes (RFQs). In contrast, swaps that are not subject to the Section 2(h)(8) trade execution requirement may be executed on a SEF by any means of interstate commerce.

The CFTC has established a temporary registration process that is designed to allow an applicant to operate a SEF while the CFTC's determination on the applicant's application for full registration is pending. The temporary registration process is available to applicants who file a complete application within the 60 days following publication of the final rules in the Federal Register, but is effective only after notice from the CFTC granting temporary registration. Temporary registration is not required for exempt commercial markets, electronic boards of trade and other facilities that have operated in reliance on CFTC no-action relief, provided that they submit a complete application by the compliance date for the final rules (120 days after publication of the final rules in the Federal Register).

The adopting release relating to the Core Principles and other requirements for SEFs is available here.

The CFTC also adopted final rules establishing minimum block sizes for swaps. Swap transactions that fall into one of the five following asset classes are subject to minimum block size standards set by the CFTC: (i) interest rate; (ii) credit; (iii) equity; (iv) foreign exchange and (v) other commodity. The appropriate block sizes will be established by the CFTC in accordance with a two-phase approach based on asset class. Minimum block sizes in interest rate and credit swaps will be determined using a 50% notional amount calculation in the first phase and a 67% notional amount calculation in the second phase, with the notional amount in each case representing a trimmed average of publicly reportable transactions over the preceding three years. Block trades in foreign exchange swaps that are economically related to a futures contract will initially have minimum thresholds based upon the block sizes set by the relevant DCMs, with a 67% notional amount calculation for most foreign exchange swaps in the second phase. The principles that apply to foreign exchange swaps will generally also apply to other commodity swaps. Equity swaps will not qualify as block trades, regardless of size.

The adopting release relating to minimum block sizes is available here.

Lastly, the CFTC issued final rules that prescribe the process by which DCMs and SEFs make a swap available to trade. CEA Section 2(h)(8) requires all swaps subject to mandatory clearing under CEA Section 2(h)(7) to be traded on a DCM or SEF, unless no DCM or SEF has made such swap available to trade. If a swap subject to mandatory clearing is listed on a DCM or SEF, the DCM or SEF may submit an available-to-trade determination to the CFTC pursuant to either the CFTC Regulation 40.5 rule approval process or CFTC Regulation 40.6 certification process. The determination must consider one or more of the following factors: (i) whether there are ready and willing buyers and sellers; (ii) the frequency or size of transactions; (iii) the trading volume; (iv) the number and types of market participants; (v) the bid/ask spread; and (vi) the usual number of resting firm or indicative bids and offers. The CFTC noted that it is not necessary for a SEF or DCM to consider more than one factor in making an available to trade determination, and that satisfying any one of the factors set forth above would sufficiently indicate that a swap is available to trade.

The adopting release relating to the trade execution requirement is available here.

CFTC Issues Interpretive Guidance on Disruptive Trade Practices

The Commodity Futures Trading Commission has issued interpretive guidance and a policy statement (interpretive statement) with respect to Section 4c(a)(5) of the Commodity Exchange Act (CEA), which prohibits certain disruptive trading practices. Specifically, Section 4c(a)(5) prohibits any person from engaging in any trading, practice or conduct on or subject to the rules of a registered entity that: (i) violates bids or offers; (ii) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (iii) is in the nature of "spoofing," i.e., bidding or offering with the intent to cancel the bid or offer before execution.

The interpretive statement will become effective upon publication in the Federal Register.

Click here for the interpretive statement.


New York District Court Dismisses Complaint Alleging Foreign Antitrust Activity

The US District Court for the Southern District of New York recently held that alleged anticompetitive conduct by Chinese technology manufacturers taking place entirely within China did not create sufficient direct effects on US commerce in order for a federal court to exercise jurisdiction under the US antitrust laws.

Plaintiff, a Chinese manufacturer of Universal Serial Bus (USB) connectors, sued rival Chinese USB manufacturers under the Sherman Act. Plaintiff alleged that Defendants (i) made misrepresentations to a USB standards board; (ii) wrongfully refused to agree to licensing terms with Plaintiff; and (iii) brought patent infringement claims against Plaintiff in bad faith. Plaintiff further alleged that Defendants had engaged in this conduct in order to force Plaintiff out of business, so that Defendants could monopolize the USB market.

These monopolization efforts would allegedly reduce competition and result in increased prices for products that used USB connectors and were sold in the United States. Under this theory, Plaintiff sued Defendants under US antitrust laws that forbid monopolization efforts affecting US commerce.

The District Court held that it lacked subject matter jurisdiction because the Sherman Act, as amended by the Foreign Trade Antitrust Improvements Act of 1982, prohibits attempted monopolization efforts taking place in foreign jurisdictions only where the foreign activity has a "direct, substantial, and reasonably foreseeable effect" on US commerce.

The Court found that Plaintiff's USB connectors, as components of more complex technological products, would have to go through several manufacturing steps before they reached American markets. Accordingly, the Court held that Defendants' alleged conduct, even if it would reduce the competition to create USB connectors in China, did not have the required direct effect on US commerce to create a violation of US antitrust laws.

Lotes Co, Ltd. V. Hon Hai Precision Industry Co, Ltd., et. al, No. 12 Civ. 7465(SAS), 2013 WL 2099227 (S.D.N.Y. May 14, 2013

Massachusetts District Court Affirms Scienter Requirement of False Statement Crime

The District Court for the District of Massachusetts recently held that in order to obtain a conviction for making a false statement to a government agent, the government must prove that the defendant knew, or reasonably should have known, that he was speaking to a government agent when he made the allegedly false statement.

Defendant, who was accused of securities fraud in connection with insider trading, received a phone call "out of the blue" at his workplace from SEC attorneys. The SEC attorneys, during an unrecorded phone call, asked Defendant a series of questions about potential insider trading. Based on that call, Defendant was charged with making a false statement to federal officials pursuant to 18 U.S.C. § 1001.

During his trial, Defendant testified that he was unsure of the identity of the callers, and, partly because of this, dodged their questions and sometimes responded untruthfully. Following his conviction, Defendant moved to vacate on the ground that the jury should have received an instruction that the government must prove that the defendant knew or reasonably should have known that he was speaking to a government agent when he made the allegedly false statement.

The District Court granted Defendant's motion to vacate and found that the government must prove that the defendant knew he or she was speaking with a federal official at the time of the false statement. The Court observed that "[t]he implications of the government's arguments here chill the blood."

United States v. Bindette, No. 10-cr-30036-MAP,(N.D. Tex. March 5, 2013)


Amendment of Public Company ESOPs may be Required

Many public companies allow their employees to invest a portion of their retirement plan balances in company stock. By making a company stock fund an available investment in a 401(k) plan, employees may share the potential gains otherwise reserved for stockholders. If the stock fund is structured to meet the legal requirements of an employee stock ownership plan (ESOP), the company can get an extra benefit - dividends paid on public company shares held by an ESOP can be deducted by the company.

ESOPs are subject to various compliance requirements that do not apply to other types of retirement plans. One such requirement is that a participant's ESOP account must be subject to diversification (i.e., the participant must be given the opportunity to cash-in his or her shares and invest in something other than company stock). Prior to 2007, diversification was only required on a portion of a participant's ESOP account, and then only after the participant satisfied certain age and service requirements. However, beginning in 2007, for public company ESOPs that held employee contributions or were part of a larger 401(k) plan (often called a KSOP), diversification from company stock was required to be available much sooner. Since 2007, diversification from those ESOPs must be permitted immediately for employee contributions, while diversification of company contributions must be available once the employee has accrued at least three years of service.

In April 2013, the IRS issued Notice 2013-17 (Notice), which makes clear that retaining the pre-2007 diversification provisions in an ESOP subject to the new diversification requirements can cause a violation of applicable rules and may result in disqualification of the ESOP. To avoid negative consequences, public company ESOPs that are subject to the new diversification requirements should be reviewed and, if necessary, amended to remove the pre-2007 diversification provisions and the related distribution provisions. According to the Notice, such an amendment may need to be completed prior to December 31, 2013 (although a later date may be permissible in certain circumstances).

The Notice can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.