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Shareholder Proposals & Staff Legal Bulletin No. 14H (CF): The Empirical Evidence (Part 3)

We are discussing the staff guidance issued in Staff Legal Bulletin No. 14H (CF) on shareholder proposals. Specifically, the Bulletin provided guidance on subsections (i)(7) (ordinary business) and (i)(9) (directly conflicts). 

As a result of the staff's decision not to issue no action letters under subsection (i)(9) during the prior proxy season, companies were unable to obtain the exclusion of a shareholder access proposal by submitting an alternative on the same subject.  For the most part, therefore, companies included the shareholder proposal in the proxy materials and did not provide an alternative.  In seven cases, however, shareholders confronted proposals submitted by both shareholders and management.

The seven cases provided a petrie dish of sorts to test an interpretive approach taken under subsection (i)(9). In allowing the exclusion of proposals, the staff often relied on representations that the failure to do so could result in alternative and conflicting decisions that would potentially result in inconsistent and ambiguous results. Indeed, the no action letter issued in Whole Foods relied in part on this approach.  See Whole Foods, Dec. 1, 2014 ("You indicate that the proposal and the proposal sponsored by Whole Foods Market directly conflict. You also indicate that inclusion of both proposals would present alternative and conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results.").  

So what happened in the seven cases?  In three cases, the shareholder proposal received majority support (AES Corp., CloudPeak Energy & Visteon Corp).  In those three cases, the shareholder proposal received support of between 66% and 76% of the shares voted.  The percentage received by management? 36.17%, 25.92%, and 21.15%, respectively.  

In three cases, the management propopsal received majority support:  Exelon:  52.58%; Expeditors: 70.32%; SBA: 51.65%.  In one case (Chipotle), the sharehodler proposal received 49.86% while the management proposal received 34.71%.   For additional statistics, go here.  

Thus, in no case were both adopted.  Moreover, the percentage separating the two proposals was generally significant.  In only one case were the two totals relatively close (SBA Communications, where management's proposal received 51.65% and the shareholder proposal received 46.28%).  

In short, the results were neither ambiguous nor inconclusive.  In the once case where the final tallies were close, the evidence suggested a shareholder base very divided on the issue.  The information may not provide an easy path for management but its hard to call the results inconsistent and ambiguous.  The data, therefore, suggested that the exclusion of alternative (as opposed to conflicting) proposals could not be justified as a benefit to shareholders.      


Shareholder Proposals & Staff Legal Bulletin No. 14H (CF): The Catalyst (Part 2) 

We are discussing the staff guidance issued in Staff Legal Bulletin No. 14H (CF) on shareholder proposals. Specifically, the Bulletin provided guidance on subsections (i)(7) (ordinary business) and (i)(9) (directly conflicts).  

The guidance arose as a result of an unusual set of circumstances during the previous proxy season.

During the proxy season, a shareholder submitted a proposal to Whole Foods asking the company to amend the corporate documents to provide shareholders with a right of access.  The proposal, which was precatory in nature, called for the company to provide the right of access to shareholders owning, individually or collectively, 3% of the voting shares for at least three years. 

The company proposed an alternative, seeking to provide access rights to any shareholder holding 9% of the outstanding voting shares for at least 5 years.  Moreover, when the draft of the bylaw was actually included in the proxy statement, it required the qualifying shareholder to include a representation "with respect to maintaining qualifying ownership of the Required Shares for at least one year following the annual meeting."  

The staff issued a no action letter allowing Whole Foods to exclude a shareholder proposal under subsection (i)(9) of Rule 14a-8.  As the staff reasoned:

  • You represent that matters to be voted on at the upcoming stockholders' meeting include a proposal sponsored by Whole Foods Market to amend Whole Foods Market's bylaws to allow any shareholder owning 9% or more of Whole Foods Market's common stock for five years to nominate candidates for election to the board and require Whole Foods Market to list such nominees with the board's nominees in Whole Foods Market's proxy statement. You indicate that the proposal and the proposal sponsored by Whole Foods Market directly conflict. You also indicate that inclusion of both proposals would present alternative and conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results. Accordingly, we will not recommend enforcement action to the Commission if Whole Foods Market omits the proposal from its proxy materials in reliance on rule 14a-8(i)(9).

Thus, the staff relied on the possibility of a direct conflict and the possibility of "inconsistent and ambiguous" results as a basis for exclusion.   The letter, therefore, established a precedent for other companies to submit managerial alternatives with harsh terms as a means of obtaining exclusion of a more moderate shareholder proposal. 

Indeed, prior to the Whole Foods no action letter, a number of companies had already sought exclusion of the access proposal on similar grounds.  See Letter from Michael Garland, Assistant Comptroller, City of New York, Office of the Comptroller, July 17, 2015 ("Following Whole Foods, twenty-five additional companies (seventeen of which were responding to NYC Systems-sponsored proposals) quickly submitted requests for no-action relief under the Rule. Each request unequivocally represented that at its upcoming annual meeting, the company would be submitting for shareowner approval its own resolution to provide for proxy access."). 

Following issuance of the no action letter, the shareholder sought reconsideration by the staff and an appeal to the full Commission.  The shareholder argued that subsection (i)(9) did not apply to precatory proposals since, as advisory statements, they could not directly conflict with a management alternative.  

Relying on past staff positions, the shareholder also argued that (i)(9) did not allow for the exclusion of management proposals submitted “in response to” a shareholder proposal.  In a follow up letter, the shareholder noted that  the company had not denied “that the mandatory bylaw proposed by Whole Foods was adopted ‘in response to’ the precatory proposal submitted in this case. As a result, this is a stand-alone basis for the inapplicability of subsection (i)(9).” 

The staff granted reconsideration and withdrew the original no action letter.  In addition, the staff also withdrew a previously issued no action letter that allowed for the exclusion of a shareholder proposal under (i)(9) that addressed special meetings.  The Chair of the SEC “directed the staff to review the rule and report to the Commission on its review.”  The review required consideration of the “proper scope and application of the rule. 

As a result, the staff opted to issue no letters under subsection (i)(9) during that proxy season.  As the staff noted:  “In light of Chair White's direction to the staff to review Rule 14a-8(i)(9) and report to the Commission on its review, the Division of Corporation Finance will express no views on the application of Rule 14a-8(i)(9) during the current proxy season.”). Moreover, in one case, the staff withdrew a letter previously issued under the subsection. See BorgWarner Inc. (Feb. 6, 2015).

During the review period, the staff sought and received a number of comments. Moreover, the shareholders were, in some cases, allowed to vote for proposals on the same subject matter submitted by both shareholders and management, essentially putting in place a market test over the degree of confusion incurred by shareholders when confronted with this type of choice. 


Shareholder Proposals & Staff Legal Bulletin No. 14H (CF): Overview (Part 1)

The staff just issued the long awaited guidance on subsection (i)(9) of Rule 14a-8, just in time for the upcoming proxy season.

The guidance is a thoughtful attempt to return subsection (i)(9) to its original roots.  The analysis under (i)(9) will now focus entirely on whether proposals are direct conflict.  A direct conflict exists "if a reasonable shareholder could not logically vote in favor of both proposals, i.e., a vote for one proposal is tantamount to a vote against the other proposal."  The guidance for the most part ensures that the subsection will be used to exclude conflicting rather than alternative proposals. 

The guidance makes clear, therefore, that reasonable variations in proposals will not be sufficient to create a conflict.  Thus, for example, special meeting proposals that differ on the percentage of voting shares needed to call a meeting will not be deemed to be in a conflict, effectively overturning a long line of no action letters that had taken the opposite position.  In addition, the guidance makes clear that the subsection cannot be used to exclude a shareholder access proposal because of modest differences in share ownership, holding periods and number of directors subject to nomination. 

The guidance went beyond the concerns over subsection (i)(9).  The guidance effectively overturned the holding of the majority opinion in Trinity v. Wal-Mart.  In applying the public policy exception to the ordinary business exclusion, the Third Circuit majority had required that the subject matter of the proposal "transcend" the company's ordinary business.  The staff concluded that the test "differ[ed] from the Commission’s statements on the ordinary business exclusion and Division practice" and that it would not be applied in the no action process.

Over the next several posts, we will discuss the guidance in more detail.  In addition, we will include some observations concerning matters not addressed in the guidance. To the extent there are lacunae in the analysis, answers will likely emerge during the proxy season as companies use the no action letter process to test the boundaries of the guidance.  


KB Partners I, LP v. Pain Therapeutics, Inc.: A Short Lesson on Disclosing Material Developments to Shareholders

In KB Partners I, LP v. Pain Therapeutics, Inc., 2015 BL 193453 (W.D. Tex. June 16, 2015), the United States District Court for the Western District of Texas denied a motion for summary judgment filed by Pain Therapeutics Inc. (“PTI”) and three of PTI’s executives, Remi Barbier, Nadav Friedman, and Peter Roddy (collectively “Defendants”) in a class action for securities fraud brought by KB Partners I, LP (“Plaintiff”), an investment firm that purchased PTI securities.  

According to the allegations in the complaint, PTI is a biopharmaceutical company in the business of developing pharmaceutical products for commercial sale. After the FDA rejected PTI’s “leading candidate for FDA approval”, REMOXY, for a second time, Plaintiff brought a class action for securities fraud under Section 10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 (17 CFR 240.10b-5). Plaintiff claimed Defendants concealed information from the public regarding REMOXY’s FDA approval, which resulted in PTI’s shares trading at an artificially high price.

Following a motion to dismiss filed by Defendants, Plaintiff filed an amended complaint. The court granted Defendants’ motion to dismiss the amended complaint on September 26, 2012. The court then allowed Plaintiff to file a third and final complaint but informed Plaintiff that “if a third motion to dismiss was granted, this case would be dismissed with prejudice.” The Plaintiff did so on October 15, 2012 and that motion is the subject of this decision.

In the final amended complaint, Plaintiff alleged Defendants led the public to believe problems with REMOXY were fixed while Defendant reapplied for FDA approval, when Defendants knew the developer, King Pharmaceuticals, failed to resolve problems with REMOXY’s stability data—the same problem that precluded FDA approval of the first REMOXY New Drug Application (“NDA”). The complaint further alleged that, despite knowing the second NDA would be rejected by the FDA, PTI rewarded Remi Barbier, Nadav Friedman, and Peter Roddy with handsome compensation.

To prevail on a securities fraud claim grounded in Section 10(b) and Rule 10b-5 violations, a party must show: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” The Defendants’ filed a motion for summary judgment on the elements of material misrepresentation, scienter, and loss causation. A claim will be dismissed on summary judgment if “there is no genuine dispute as to any material fact.” There is a genuine dispute of a material fact if the evidence shows “that a reasonable jury could return a verdict in favor of the nonmoving party.”

First, the court held the Plaintiff raised a genuine issue as to whether statements made by the Defendants were materially misleading. The court referenced the fact that the Defendants allegedly knew as early as March 2010 that the new dissolution methodology developed by King Pharmaceuticals had similar stability issues as the methodology used in the first NDA. Nonetheless, “[d]espite this knowledge, Defendants failed to communicate details regarding the stability testing problems to the public.” As a result, a reasonable juror could conclude that PTI statements “kept investors ignorant of material risks associated with purchasing PTI stock,” because PTI provided inaccurate information on the stability problems that REMOXY was experiencing.

The court also held the Plaintiff raised a triable issue as to scienter. Plaintiff produced enough evidence to show there was regular communication between PTI and King Pharmaceuticals. The court found this, and other evidence, sufficient to establish a question as to whether Defendants were aware of the ongoing stability issues experienced by REMOXY at the time of the alleged misstatements and omissions.

Finally, the court held the Plaintiff raised a genuine issue of fact as to loss causation. The court accepted testimony in the form of an expert report assessing the cause-and-effect relationship between public disclosures regarding REMOXY and the price of PTI stock over a one-year period. The expert focused on the ten days in which PTI’s stock price experienced the largest changes, upward or downward. The analysis showed a causal relationship between the news disclosed by PTI on three specific days (May 3, June 24, and June 27, 2011) and the drastic changes in stock price following each disclosure. Ultimately, the court found the “FDA’s rejection of REMOXY . . . may have revealed previously concealed information - the ongoing stability problems with REMOXY - to the market.” Accordingly, the court denied Defendants’ motion to dismiss.

The primary materials for this post can be found at the DU Corporate Governance website.


Harman International Industries Securities Litigation Moves Forward: Statements Not “Puffery” and Not Entitled to Safe Harbor Protection 

In In re Harman Int’l Indus. Sec. Litig., No. 14-7017, 2015 BL 199009 (D.C. Cir. June 23, 2015), the United States Court of Appeals for the District of Columbia reversed and remanded the dismissal of Arkansas Public Employees' Retirement System’s ("Plaintiff") complaint alleging Harman International Industries, Inc. (“Harman”) violated Section 10(b) of the Securities Exchange Act of 1934 (the “Act”), Rule 10b-5 thereunder, and Section 20(a) of the Act. The court held the complaint stated a plausible claim of securities fraud with respect to three alleged statements and, thus, survived Harman’s motion to dismiss. 

According to the allegations in the complaint, Harman manufactured high-quality audio equipment. Following an announcement of its potential acquisition, the company’s stock price rose markedly. Upon abandonment of acquisition plans, however, share price fell by more than 24%, and fell further in early 2008 when Harman projected lower earnings per share due in part to a major change in its personal navigational device (“PND”) business. 

Plaintiff filed suit alleging Harman and three of officers made materially false and misleading statements and failed to disclose material adverse facts regarding Harman’s financial condition in annual reports and during conference calls. The complaint asserted that the company characterized PND sales as strong despite having missed sales targets and having made sales at substantial discounts due to obsolescence. The United States District Court for the District of Columbia granted Harman’s motion to dismiss for failure to state a claim, holding two of the statements fell within the statutory safe harbor for forward-looking statements and treating the third statement as “puffery” and, thus, not actionable.

To prove securities fraud, a plaintiff must show the following: (1) a material misrepresentation or omission in connection with the sale or purchase of a security; (2) scienter; (3) reliance; (4) economic loss; and (5) loss causation. To qualify for the safe harbor, meaningful statements of caution must accompany forward-looking statements. These statements of caution must identify factors that may materially affect outcomes represented in the forward-looking statements and must include information that is specific to the company’s status at a specific time. 

The DC Circuit held that two of the allegedly false forecasts were not entitled to safe-harbor protection because they were not accompanied by meaningful cautionary statements. Specifically, the court found Harman’s use of boilerplate phrases, such as, “[t]his is a forward-looking statement” and “not guarantees of future performance” inadequate, because they were not tailored to the specific circumstances. Moreover, because shareholders alleged that Harman and the officers knew the company’s PND inventory was obsolete and did not disclose that the obsolescence “had already materialized,” the statements did not qualify for safe harbor protection.   

Next, the court held the reference to “very strong” sales was not puffery, finding that a statement cannot be puffery if a reasonable investor might understand the statement as an account of historical fact rather than pure corporate optimism. The court noted statements constituting puffery employed general terms of optimism so unconnected to anything capable of measurement that a reasonable person would not consider such terms important to an investment decision. The court held that because the statement related to a specific product and time period, it might be understood as a statement regarding Harman’s recent financial performance and, thus, did not constitute puffery.

Accordingly, the court reversed the dismissal of the complaint for failure to state a claim and remanded the case for further proceedings.

Primary materials for this case may be found on the DU Corporate Governance website.


SEC v. Zada: Affirming District Court’s Decision Granting Summary Judgment

In SEC v. Zada, 787 F.3d 375 (6th Cir. 2015), the United States Court of Appeals for the Sixth Circuit affirmed the decision by the United States District Court for the Eastern District of Michigan granting summary judgment in favor of the Securities and Exchange Commission (“SEC”) against Joseph Zada (“Zada”) for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.

According to the “undisputed evidence,” Zada represented himself as an “extremely wealthy man,” throwing lavish parties and “traveled with bodyguards.”  Zada would meet with potential investors and inform them of his connections with Saudi Arabia, telling investors he could use the funds to make large purchases of oil that would be stored on offshore tankers and be sold when oil prices rose. Investors were given promissory notes.  Zada ultimately raised almost $60 million from investors in Michigan and Florida.   

As the court noted:  

  • Little of what Zada told the investors was true. Zada's connections with Saudi royalty existed only in his imagination. On one occasion Zada invited investors to a party, where he paid actors to pose as a Saudi prince and princess. And Zada never bought any oil; instead, he used the investors' money to pay his personal expenses, which were substantial. For example, Zada spent over $4 million of investors' money to pay his personal credit-card bills. When Zada paid investors anything, he used money raised from other victims.


The SEC filed a civil enforcement action in the United States District Court for the Eastern District of Michigan, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. Specifically, the SEC alleged Zada violated the anti-fraud provisions of the Securities Acts and failed to register securities. Zada asserted his Fifth Amendment right prompting the SEC to move for summary judgment, which the district court granted.

On Appeal, Zada argued: the investments he sold were not securities; he did not lie to every investor as to show securities fraud; and that the civil penalty would improperly punish him for invoking his Fifth Amendment privilege.

The court first addressed whether the notes were securities. To rebut the presumption that particular notes are securities, the defendant must demonstrate the notes bear a familial resemblance to other instruments that are not securities. The court uses four Reves factors to determine familial resemblance: (1) the motivation prompting the transaction; (2) the plan of distribution; (3) the reasonable expectations of the investing public; and (4) whether a “risk reducing factor” makes application of the Securities Acts unnecessary.

The court’s analysis focused primarily on the first factor—whether the victims’ purpose was investment or commercial-consumer. The court determined the investors had investment purposes since they expected a return on their funds. Therefore, the first factor favored the SEC. The court also found Zada sold the notes to a wide range of unsophisticated people and for investment purposes, favoring the SEC on the second and third factors. There was also no evidence of a risk-reducing factor favoring the SEC on the last factor as well. The court therefore concluded Zada had failed to rebut the presumption the notes were securities.

Next, the court addressed the securities fraud claim. A securities fraud claim requires proof that a defendant knowingly or recklessly made material misrepresentations or omissions in connection with the offer, sale, or purchase of securities. The Commission, according to Zada, had failed to show that he had made misrepresentation to all of the investors.  The court noted the SEC was only required to prove Zada made misrepresentations in furtherance of his plan and because the SEC established the elements as to every victim individually, it was not required to present testimony from every victim.  

Finally, Zada’s asserted that the imposition of a penalty of $56 million in part for the “lack of acceptance of responsibility” essentially amounted to punishment for the invocation of his Fifth Amendment against self incrimination.  The court noted that “the argument has some force.”  As the court noted:  “His decision not to testify, viewed realistically, reflects not a denial of responsibility, but a desire to preserve his options in a criminal case that had not yet even begun.”  Nonetheless, given other factors and the record as a whole, the court found the reference “harmless.”  

Accordingly, the court affirmed the district court decision granting the motion for summary judgment.

The primary materials for this post can be found on the DU Corporate Governance Website.



In re GM Co. Derivative Litigation: Shareholder Derivative Litigation Dismissed

In In re GM Co. Derivative Litig., C.A. No. 9672-VCG, 2015 BL 206881 (Del. Ch. June 26, 2015), the Delaware Chancery Court held the shareholders of General Motors Company (“GM”)(collectively, “Plaintiffs”) did not sufficiently plead GM’s Board of Directors (collectively, “Defendants”) breached its duty of loyalty to shareholders by acting in bad faith. Thus, the court granted Defendants’ motion to dismiss Plaintiffs’ derivative suit under Rule 23.1.

In February 2014, GM issued mass amounts of recalls over several months due to ignition switch malfunctions in automobiles. The defect caused many serious injuries and resulted in several deaths. As a result, GM lost approximately $1.5 billion against earnings through the first and second quarters of 2014, set up the Ignition Compensation Fund, and agreed to pay a civil penalty of $35 million. Based on these losses, Plaintiffs filed a derivate suit alleging the Defendants breached its duty of loyalty by failing to oversee GM’s operations. Plaintiffs challenged both the specific actions of the Defendants and the Defendants’ inaction by failure to oversee.

 Plaintiffs “must plead with particularity, the facts that raise a reasonable doubt that (1) the directors are disinterested and independent or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.” Shareholders in this case made “no attempt” to challenge the independence of the board. As a result, they asserted that the decision was not a product of a valid exercise of business judgment. Moreover, because GM had a waiver of liability provision, shareholders had to allege that the actions of the board were in bad faith.

Plaintiffs challenged the risk management system. Defendants’ allegedly transferred risk management from former CRO to the then General Auditor and from the Finance and Risk Committee to the Audit Committee. As the court described: 

  • The court characterized Plaintiffs’ claim that a transfer of duties was improper as allegations that were “merely conclusory.” Plaintiffs failed to sufficiently allege the directors had actual or constructive knowledge that their risk management system was inadequate. While acknowledging the transfer might, in hindsight, not have been a good decision, the court concluded that the allegations did not demonstrate bad faith. 

Second, Plaintiffs sought to show bad faith by alleging that Defendants “utterly failed to implement a reporting system, which would have apprised them specifically of serious injuries and deaths resulting from safety defects” and consciously failed to monitor existing systems. Under Caremark, director liability for inaction arises where “(a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations.”

The court concluded Plaintiffs did not sufficiently plead facts demonstrating the directors were liable for inaction. Specifically, the court found Plaintiffs did not plead with particularity that Defendants failed to implement any reporting system because Plaintiffs’ complaint conceded that GM did have a system for reporting risk. The court also found Plaintiffs failed to plead with particularity, the “existence of ‘red flags’ that the Board consciously ignored” or on any other basis, “knowledge that GM’s existing systems were inadequate. 

Accordingly, the court granted Defendants’ Motion to Dismiss for failure to comply with Rule 23.1. 

The primary materials for this case may be found on the DU Corporate Governance website.


Zhang-Kirkpatrick v. Layer Saver LLC: Promissory note held not to be a security

In Zhang-Kirkpatrick v. Layer Saver LLC, 2015 BL 85374 (N.D. Ill. Mar. 26, 2015), the United States District Court for the Northern District of Illinois held the promissory note documenting the parties’ agreement did not fall within the definition of a “security” under the federal securities law. Thus, the court granted defendants’, Layer Saver LLC, Kiolbasa, Pierson, and Seldon Fox (collectively, “Defendants”), motion for summary judgment on Plaintiff, Zhang-Kirkpatrick’s claim for securities fraud. 

According to the allegations in the case, Plaintff, Zhang-Kirkpatrick invested $150,000 in Layer Saver LLC (“Layer”). The investment arose from a series of meetings between Zhang-Kirkpatrick and Defendants, in which Pierson conveyed to Zhang-Kirkpatrick that Layer was a potential investment opportunity. Defendants told Zhang-Kirkpatrick the loan amount would be $150,000 with an interest rate of 15% a year and assured her Layer would be able to repay the loan. The parties agreed upon a promissory note with a July 2012 maturity date and secured with Kiolbasa’s intellectual property. Layer paid the accrued interest from January 2012 to April 2012, but failed to make any further payments. As a result, Zhang-Kirkpatrick brought suit claiming among other counts, securities fraud.

Defendants moved for summary judgment arguing the promissory note was not a “security.” A note is presumed to be a security. The presumption may be rebutted by showing that “a note bears a close resemblance to one of the enumerated categories of instrument” not considered to be securities. Defendants argued the promissory note fell into one of the enumerated categories, namely the note was a short-term note secured by a lien on a small business or some of its assets.

In determining whether the promissory note was a security, the court relied on the Supreme Court’s four-factor test in Reves v. Ernst & Young, created to assist in discerning between notes issued in an investment context and notes issued in commercial or consumer context. In order to determine if the note bore a close resemblance to one of the enumerated Ernst categories, the court assessed four factors: (1) the motivations that would prompt a reasonable buyer and seller to enter into the transaction; (2) plan of distribution of the instrument; (3) reasonable expectations of the investing public; and (4) whether the existence of an alternative regulatory scheme significantly reduces risk of the instrument.

In considering the first factor, the court disregarded the Plaintiff’s motivation (“looking to make a profit”) and focused on Defendants’ motivations to “correct for its cash-flow difficulties,” concluding that motivation “less sensibly describes a ‘security.’” 

Second, the court considered the plan of distribution of the instrument and whether there was common trading for speculation or investment. The court concluded this factor weighed in favor of Defendants because the transaction appeared to be “between two parties engaging in a short-term commercial financing agreement.” The court concluded the third factor and concluded, because there was no investing public involved in the transaction.

Finally, the court considered whether protection provided by federal securities laws was Zhang-Kirkpatrick’s only source of protection. The court concluded Zhang-Kirkpatrick had a remedy outside of federal securities laws. In sum, because the factors weighed in favor of Defendants, the court held the promissory note was not a security. 

Accordingly, the court granted Defendants’ motion for summary judgment with respect to the securities fraud count. 

The primary materials for this case may be found on the DU Corporate Governance website.


On it Goes: SEC Petitions for Rehearing En Banc in the Conflict Minerals Saga

On October 2, 2015, the SEC filed a petition for rehearing en banc of the August 18, 2015 panel opinion of the US Court of Appeals for the District of Columbia Circuit in National Association of Manufacturers v. U.S. Securities and Exchange Commission.  (discussed here and here).  In that opinion, the Court reaffirmed its April 14, 2014 ruling that the conflict minerals rule violates the First Amendment in its requirement that companies disclose that their products have "not been found to be 'DRC conflict free'."

The SEC petition seeks rehearing only as to the First Amendment portion of the earlier opinion—not surprising since the rest of that opinion favored the SEC.  The agency argues that en banc review is appropriate because the August 2015 opinion conflicts with earlier precedent regarding compelled corporate speech.  In particular the SEC argues that 

  • En banc review is warranted because the opinion conflicts with this Court’s en banc decision in American Meat Institute v. U.S. Department of Agriculture, 760 F.3d 18 (D.C. Cir. 2014) (“AMI”), as well as Supreme Court precedent, and it addresses issues of exceptional importance.
  • In AMI, the Court applied the less stringent First Amendment standard described in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), to uphold a requirement for companies to disclose “country-of-origin information about meat products.” Yet, despite the fact that it is “hard to see what is altogether different about another species of ‘geographical origin’ law requiring identification of products whose minerals come from the DRC, the panel majority refused to apply Zauderer in this case.
  • En banc review is also warranted because the majority’s holding that Zauderer applies only to compelled disclosures in advertisements and product labels addresses a question of exceptional importance. As Judge Srinivasan stated in his dissent, this “newly minted constriction of Zauderer . . . contradicts that decision’s core rationale.” No other court has limited Zauderer in this manner, and at least one other court of appeals has applied Zauderer to compelled disclosures outside of the advertising or labeling context. See United States v. Wenger, 427 F.3d 840 (10th Cir. 2005). Moreover, this holding could have far-reaching implications for governmental disclosure requirements, including those in the securities laws. 

It is certainly true that the August opinion has wide-reaching implications—in fact I have wondered why it received relatively little attention when first issued.  The conflict minerals rule implications are significant in and of themselves but the potential impact on a disclosure regulation regime is enormous.  An en banc decision clarifying the reach of Zauderer is of critical importance.


Director Independence and Reversing Beam v. Stewart (Part 4)

The court in Sanchez reversed because of the failure of the Chancery Court to consider allegations about the lack of director independence collectively rather than in isolation.  See Delaware County Employees v. Sanchez, CA 1932 (Del.  Sept. 24, 2015). 

The opinion took an opportunity to chastize plaintiffs for including alleged facts in the brief that were not in the complaint.   

  • In their briefs and oral argument, the plaintiffs cite to additional facts, such as an article indicating that Chairman Sanchez and Jackson have been best friends since fourth grade, and quoting Jackson stating that he has followed Sanchez‟s lead since then.  See Opening Br. at 9 n.4.  We cite this not because we rely upon it, as we do not.  Rather, we note that the proper way for the plaintiffs to have used these materials is by seeking to amend their complaint.  It is not fair to the defendants, to the Court of Chancery, or to this Court, nor is it proper under the rules of either court, for the plaintiffs to put facts outside the complaint before us.  

The Court suggested that the behavior was sufficiently grievous as to potentially warrant dismissal with prejudice.

  • Perhaps as important for stockholder plaintiffs themselves, this approach hazards dismissal with prejudice on the basis of a record the plaintiffs had the fair chance to shape and that omitted facts they could have, but failed to, plead.

One has to wonder whether, had the company sought to rely on facts outside the complaint, the court would have responded with a similar admonition. After all, defendants have occasionally done exactly that and, while the courts have often declined to consider these allegations, they have done so without criticism. See In re GM Shareholder Litigation, 897 A.2d 162 (Del. 2006) (rejecting the argument by plaintiffs that the trial court improperly relied on "matters [submitted by defendants" outside of the Complaint"); see also Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003) (VC Strine) ("I am obliged to turn down the defendants' invitation to use these allegations as a factor in my analysis of their motion to dismiss.").  

There have been occasions in the past where Delaware courts appeared to apply different levels of criticism depending upon whether the action was by shareholders or by managers.  Thus, pleadings submitted by shareholders but not managers were labeled as "prolix."  Presumably both management and shareholders have the capacity to engage in behavior that "hazards dismissal" and presumably future opinions will include reminders for both groups of this risk.           


Director Independence and Reversing Beam v. Stewart (Part 3)

The court in Sanchez reversed because of the failure of the Chancery Court to consider allegations about the lack of director independence collectively rather than in isolation.  See Delaware County Employees v. Sanchez, CA 1932 (Del.  Sept. 24, 2015). 

As part of the allegations that the director at issue was not independent, the plaintiffs focused on the ability of the chair of the board to negatively effect the director's income stream.  ("The plaintiffs also pled that '[i]f Jackson . . . were to act against the interests of Sanchez Jr., he faces the threat of termination at IBC, the loss of promotion opportunities, and the loss or decrease of his salary – his very livelihood – because of Sanchez Jr.'s position on IBC‟s board and significant influence through his substantial equity stake.').

The Chair, however, was only one of nine directors at IBC.  He therefore lacked the unilateral authority to fire the director or reduce his compensation.  Nonetheless, the Court found that the allegations were sufficient to raise a reasonable doubt about independence. As the Court reasoned:  

  • A lack of independence does not turn on whether the interested party can directly fire a director from his day job.  It turns on, at the pleading stage, whether the plaintiffs have pled facts from which the director’s ability to act impartially on a matter important to the interested party can be doubted because that director may feel either subject to the interested party's dominion or beholden to that interested party.   

Thus, the Court did not rely on a formal lack of authority but instead looked to the practical realities arising out of the allegations.  

This reasoning could come up in other areas.  For example, a director receiving substantial compensation for serving on the board may feel beholden to a CEO who also serves as the chair of the board and has a history of encouraging the board to not renominate particular directors.  The CEO would not have the legal authority to prevent the renomination but nonetheless could be seen to exercise "dominion" over the director.  


Director Independence and Reversing Beam v. Stewart (Part 2)

The court in Sanchez reversed because of the failure of the Chancery Court to consider allegations about the lack of director independence collectively rather than in isolation.  See Delaware County Employees v. Sanchez, CA 1932 (Del.  Sept. 24, 2015). In doing so, however, the Court examined the allegations that the director at issue was not independent because of a longstanding personal relationship with the chair of the board.  

The Court had to deal with the analysis in Beam v. Stewart.  In that case, the plaintiff had provided some information from public sources suggesting a personal relationship between a director and Martha Stewart.  The Court was dismissive of the allegations, essentially characterizing them as matters of “structural bias.” 

In Sanchez, the Court described the allegations in Beam as “thin.”     

  • Here, the plaintiffs did not plead the kind of thin social-circle friendship, for want of a better way to put it, which was at issue in Beam.  In that case, we held that allegations that directors “moved in the same social circles, attended the same weddings, developed business relationships before joining the board, and described each other as friends,‟ . . . are insufficient, without more, to rebut the presumption of independence.”    

Of course, in Beam, there was also “a Fortune magazine article focusing on the close personal relationships” among the directors, so the allegations were not entirely about weddings or social circles.  

What made the allegations in Sanchez not thin?  Duration, apparently.   

  • When, as here, a plaintiff has pled that a director has been close friends with an interested party for a half century, the plaintiff has pled facts quite different from those at issue in Beam.  Close friendships of that duration are likely considered precious by many people, and are rare.  People drift apart for many reasons, and when a close relationship endures for that long, a pleading stage inference arises that it is important to the parties.  

In other words, the same kind of factors at issue in Beam might be enough if taking place over a long enough time period.  The analysis adopted by the Court in Sanchez is useful because it creates a relatively objective factor for asserting a disqualifying friendship.  But in truth, the length of the friendship is relevant because it suggests something about the nature of the current relationship.  Thus, the focus should be on the current relationship and allegations that success a closeness should be sufficient to get past reasonable doubt at the pleading stage, even without allegations of a five decade duration.  


Director Independence and Reversing Beam v. Stewart (Part 1)

The Delaware courts are management friendly. Shareholders rarely win.  So when they do, even in circumstances that seem obvious, it is a newsworthy event.  With that intro in mind, we turn to Delaware County Employees v. Sanchez, CA 1932 (Del.  Sept. 24, 2015).  In that case, the court reviewed whether shareholders had alleged facts that created a reasonable doubt as to the director's lack of independence.

Plaintiffs alleged in the complaint that the chairman and director had a close friendship and outside business ties. The complaint alleged a close friendship "for more than five decades." The business ties resulted in allegations that the director's "personal wealth is largely attributable to business interests over which Chairman Sanchez has substantial influence."  The Chancery Court concluded that the allegations were insufficient to show reasonable doubt about the independence of the directors.

The Supreme Court, however, reversed.  Foremost, the Court concluded that the lower court erred by considering the facts separately rather than collectively.  Id.  ("The reason for that is that the Court of Chancery‟s analysis seemed to consider the facts the plaintiffs pled about Jackson‟s personal friendship with Sanchez and the facts they pled regarding his business relationships as entirely separate issues.").  The Court concluded that independence had to be determined "in full context".  As the court reasoned:

  • But in that determination, it is important that the trial court consider all the particularized facts pled by the plaintiffs about the relationships between the director and the interested party in their totality and not in isolation from each other, and draw all reasonable inferences from the totality of those facts in favor of the plaintiffs.  In this case, the plaintiffs pled not only that the director had a close friendship of over half a century with the interested party, but that consistent with that deep friendship, the director‟s primary employment (and that of his brother) was as an executive of a company over which the interested party had substantial influence.  These, and other facts of a similar nature, when taken together, support an inference that the director could not act independently of the interested party. 

The silo nature of independence analysis has been a longstanding characteristic of the Delaware courts. They typically examine each factor individually rather than collectively.  This is particularly true in considering whether payments from the corporation are material.  Take In re Disney, 731 A.2d 342.  Directors were alleged to have received a variety of benefits.  The court examined each one individually, not collectively.  

The court did not consider the fees.  With respect to the legal fees, "Plaintiffs have not indicated that Mitchell, as “special counsel” (and not “partner”) shared in the legal fees paid to his firm." 

Take Mitchell.  In addition to directors fees, he was alleged to have been special counsel at a firm that earned $122,764 for services in 1996.  The plaintiffs also asserted that "Disney paid Mitchell $50,000 for performing these services." 

The court court considered each source of income individually.  Directors fees were not discussed. With respect to the consulting fees, "Plaintiffs have not alleged that the $50,000 in consulting fees was even material to Mitchell".  With respect to the legal fees, "Plaintiffs have not indicated that Mitchell, as “special counsel” (and not “partner”) shared in the legal fees." 

 In other words, the amounts were considered in isolation.  The court never, for example, added the consulting fees to the directors fees to determine if the amount, in the aggregate, was material. After Sanchez, however, it looks as if courts must examine these factors collectively, something that may require that they do the math and add up the amounts when considering materiality.   


Trinity v. Wal-Mart: Banning Shareholders from the Sugar Debate

Trinity v. Wal-Mart is a very poorly reasoned decision.  The court conceded that the shareholder proposal at issue involved matters of important public policy.  Nonetheless, in a made-up test, the court concluded that public policy only trumped the "ordinary business" exclusion of it "transcended" the business of the corporation.

The court gave as an example of its reasoning, the following:  

  • To illustrate the distinction, a proposal that asks a supermarket chain to evaluate its sale of sugary sodas because of the effect on childhood obesity should be excludable because, although the proposal raises a significant social policy issue, the request is too entwined with the fundamentals of the daily activities of a supermarket running its business: deciding which food products will occupy its shelves. 

Coincidentally, the NYT last sunday had an article on this very topic.  See The Decline of Big Soda.  The issue has been much discussed, with consumer behavior changing significantly.  As the article noted: 

  • The drop in soda consumption represents the single largest change in the American diet in the last decade and is responsible for a substantial reduction in the number of daily calories consumed by the average American child. From 2004 to 2012, children consumed 79 fewer sugar-sweetened beverage calories a day, according to a large government survey, representing a 4 percent cut in calories over all. As total calorie intake has declined, obesity rates among school-age children appear to have leveled off.

The issue, therefore, has clear social importance. The majority opinion in Trinity reflects a judicial predilection against the use of the rule to debate matters of public policy that are implicated by the business activities of a public company. To those judges, shareholders ought to have no say in the debate over sugary drinks and obesity. The decision contradicts both the longstanding use of Rule 14a-8 and the growing desire of shareholders to provide advice to companies on matters of important public policy.        


The SEC and Shifting Away from Stats

Professor Urska Velikonja at Emory has written an article that unpacks the enforcement statistics ("stats") annually issued by the Securities and Exchange Commission.  The paper is here.  

That a federal agency would have an incentive to develop a counting system that maximizes numbers is no surprise and I am guessing it is common.  In truth, stats (and their constant increase) have little value except to reduce the inevitable criticism from SEC critics that would occur if the stats dropped.   

Irrespective of how they are counted, the broader issue is whether the SEC should rely on stats as heavily as a measure of success.  In truth, an effective approach to enforcement should involve a certain amount of investigation designed to “look around the corner” and find fraud or misbehavior before it becomes public.  You want to find the Madoff’s before they are on the front page of the Wall Street Journal.  This approach would, by definition, result in investigations that ended without cases being filed.  Under the current system, they would not produce any stats. 

The SEC is presumably heading in this direction.  Nonetheless, the agency is still under pressure to maintain stats.  Hopefully the article will not just encourage a conversation on the best method of calculation but will also encourage a conversation on the need to reduce reliance on this metric as a measure of success.


Oversight of the Regulatory Function at the NYSE (Part 4)  

The debate notwithstanding, the staff, by delegated authority, approved the NYSE proposals without significant change.  See Exchange Act Release No. 75991 (Sept. 28, 2015).  

The concerns with the structure?  Dismissed.  The reason?  The approach was consistent with other exchanges.  As the staff wrote: 

  • As a preliminary matter, the Commission notes that several concerns raised by the commenter relate to the fact that the Exchange is part of a holding company structure. In that regard, the commenter suggests that the replacement of NYSE Regulation with the ROC would not provide sufficient insulation of the Exchange's regulatory functions from the commercial interests of the holding company. The Commission notes that, although the Exchange may be part of a holding company structure, the Exchange is obligated to satisfy its self-regulatory obligations under the Act and rules and regulations thereunder. The Commission believes that the regulatory structure proposed by the Exchange is consistent with the Act and the rules and regulations thereunder, and is substantially similar to regulatory structures that were approved by the Commission for other exchanges.  

With respect to the lack of authority by the ROC over the regulatory mission of the exchange, the staff did not address the issue in any detail but simply concluded that the NYSE approach was adequate. 

  • The commenter expresses the view that the ROC would not have sufficient substantive authority over the Exchange's regulatory program. In response, the Exchange states that the ROC was modeled on the NASDAQ ROC and has the same powers, including the power to review the regulatory budget and inquire about available regulatory resources. The Commission believes that the Exchange's proposal to establish a ROC, as an independent committee of the Exchange to oversee the adequacy and effectiveness of the Exchange's regulatory operations, should help the Exchange to fulfill its statutory obligation to comply, and to enforce compliance by its members and persons associated with its members, with the Act, the rules and regulations thereunder, and the rules of the Exchange. In addition, the Commission believes that the composition of the ROC, which would consist of at least three members of the Board that satisfy the Company Director Independence Policy, should help ensure the independence of the regulatory function of the ROC. 

The influence of the holding company with respect to the regulatory mission was more or less ignored.  The fact that the structure could have been modestly changed to significantly reduce this potential influence (by for example requiring that a majority of the directors of the ROC not also be directors of the holding company) was ignored.

There is a great ongoing debate about whether exchanges should retain their SRO status.  SIFMA, for example, has criticized the regulatory differences between SROs and ATSs.  Certainly as a matter of optics and likely as a matter of substance, the new structure adopted by the NYSE makes it harder to argue that the regulatory function is anything more than another functional aspect of its business.  The changes add to the weight of those arguing that the NYSE and the other exchanges, as for profit companies, should no longer has any regulatory responsibility.  

For my first letter critiquing the NYSE proposal, go  here.  


Oversight of the Regulatory Function at the NYSE (Part 3) 

The proposal submitted by the NYSE provided that the board would no longer rely on NYSE Regulation to perform oversight of the regulatory functions of the Exchange.  Instead, the functions would be overseen by a a regulatory oversight committee (ROC) created by the board of the exchange.  Pursuant to delegated authority, the staff approved the revisions

The proposal contemplated that the regulatory function would be overseen by a committee of the board conisting entirely of independent directors (albeit directors who could all serve on the board of the holding company).  Thus, the structure promised some separation between the ROC and the entire board.  Only the actual authority of the ROC, as stated in the proposed language, included no substantive authority except for the power to set goals.  As the proposed amendment provided:  

  • The ROC shall oversee the Company’s regulatory and self-regulatory organization responsibilities and evaluate the adequacy and effectiveness of the Company’s regulatory and self-regulatory organization responsibilities; assess the Company’s regulatory performance; and advise and make recommendations to the Board or other committees of the Board about the Company’s regulatory compliance, effectiveness and plans.  

Thus, the ROC had the authority to oversee, evaulate, assess, advise, and make recommendations. None of this, however provides that the ROC actually has final authority to act.  Instead, final actions are presumably left with the Board of the Exchange, the same Board that could be dominated by directors of the holding company.  

The proposed language to the Operating Agreement also provided that the ROC shall: 

  • (A) review the regulatory budget of the Company and specifically inquire into the adequacy of resources available in the budget for regulatory activities; (B) meet regularly with the Chief Regulatory Officer in executive session; (C) in consultation with the Chief Executive Officer of the Company, establish the goals, assess the performance, and recommend the compensation of the Chief Regulatory Officer; and (D) keep the Board informed with respect to the foregoing.  

Thus the power of the ROC over the budget was to review and inquire but not make final decisions.  The power with respect to the compensation of the Chief Regulatory Officer was to recommend, but only in consultation with the CEO of the Exchange.  

The ROC does, apparently, have the authority to hire and fire the CRO but this was not set out in the proposal. According to the Letter from the NYSE: 

  • Moreover, given that the CRO reports to the ROC, the ROC clearly has the power to retain or dismiss the CRO, only it must do so in consultation with the Exchange’s Chief Executive Officer as part of the process of establishing the goals, assessing the performance, and recommending the CRO’s compensation.  

Thus, even if the ROC consisted of independent directors who were also not directors of the holding company, the final decisions for many functions such as the regulatory budget or the CEO's compensation would be made by the full Board (which could have a supermajority of directors from the holding company) or the CEO (which could have been appointed by a board consiting of a supermajority of directors from the holding company).  

So how did the staff react to the proposal?  That will be in the next post.

The exchange of letters discussing this proposal, including the letter from the NYSE, can be found here.



Oversight of the Regulatory Function at the NYSE (Part 2)

The proposal submitted by the NYSE provided that the board would no longer rely on NYSE Regulation to perform oversight of the regulatory functions of the Exchange.  Instead, the functions would be overseen by a a regulatory oversight committee (ROC) created by the board of the exchange.  

As proposed, the structure would permit significant potential influence from the holding company.  

First, the ROC is to be appointed by the Board of the Exchange.  There is nothing in the Operating Agreement of the Exchange that prevents the board from being under the control of directors from the holding company. The board of the Exchange must have a majority of independent directors and at least 20% of the directors must be non-affiliated directors (directors who are not members of the board of the holding company).  The operating agreement is here.  Thus, 80% of the board can consist of directors from the holding company.  

Moreover, because the board of the Exchange is only required to have a majority of independent directors, the board can include directors from the holding company who do not meet the independence standards of the Exchange.  

In addition, the ROC itself must consist only of independent directors but nothing in the proposal prevents those directors from also being directors of the holding company, so long as they are independent.  

Thus, under the NYSE proposal, the regulatory function would be under the oversight of a committee appointed by a board that could include a supermajority of directors from the holding company, including at least some directors from the holding company who do not meet the independence standards of the Exchange. The Board would have the authority to designate directors annually and to remove directors at any time "for cause." Finally, the ROC itself could consist of independent directors entirely from the holding company.  

These issues are discussed in an exchange of letters with the NYSE.  The letters are here


Oversight of the Regulatory Function at the NYSE (Part 1)

When the NYSE went public in 2006, a spirited debate arose over whether a for profit company could adequately insulate its regulatory function from the for profit motives of the holding company. 

In seeking to insulate the regulatory function, the NYSE formed NYSE Regulation, a non-profit with a board consisting entirely of independent directors (save only the CEO).  The bylaws provided that NYSE Regulation could not have a majority of directors from the holding company.  In addition, NYSE Regulation had its own compensation and nominating committee, both of which could not have a majority of directors from the holding company.  The Exchange, pursuant to a delegation agreement, assigned regulatory functions to NYSE Regulation (although legal responsibility remained with the Exchange).

Thus, the structure created a number of safeguards designed to separate the regulatory and business functions of the exchange. 

In June 2015, the Exchange proposed to end the structural separation of the regulatory and business function and replace it with a functional separation.  The proposal is here.  

Under the proposal, regulatory authority of the Exchange would no longer be delegated to NYSE Regulation. Instead, the proposal called for the creation of a regulatory oversight committee (ROC) of the board of the exchange and a chief regulatory officer (CRO).  The proposal, however, allowed for greater potential influence from the directors of the for profit holding company than the NYSE Regulation structure.  Moreover, the express language creating the ROC provided the committee with little substantive authority over the regulatory mission of the Exchange.  Despite these concerns, the staff approved the proposal without significant change.  The adopting release is here.  We will discuss these issues in the next few posts.

These issues are discussed in an exchange of letters with the NYSE.  The letters are here.  


Voting Records of SEC Commissioners

The divided nature of the Commission is not news.  At public meetings, more and more decisions are a 3-2 vote.  The public meetings involve only a small percentage for the decisions made by the Commission.  Divided votes at non-public meetings are generally not known. 

One exception concerns decisions resulting in a Commission order.  In those circumstances, the vote is noted by hand in an order maintained by the Commission.  To the extent commissioners dissented, that will be noted on the Order.  To obtain the information, however, it has, in the past, been necessary to examine the Order, something that can be obtained through a FOIA Request.  In other words, the information, unlike a division at a public meeting, was not easily available.

That is no longer the case.  The information can be obtained on line on a page maintained by the SEC that contains "Frequently Requested FOIA Documents."  The page includes a category titled "Final Commissioner Votes" from April 2006 through August 2015. The File includes votes in rules (final and proposed) and orders in administrative proceedings.  The notations note when a particular commissioner is "not participating."  Sometimes the notations state only "Dissapproved."  In those circumstances, the reasons for dissapproval are not apparent.  Commissioners may, however, issue dissents in other forums that disclose the reasons.  Those dissents are not in this file. 

In August 2015, for example, Commissioners Stein and Piwowar "Dissapproved" in In re Citigroup, Securities Act Release No. 9894 (admin proc Aug. 17, 2015) and In re Citigroup, Securities Act Release No. 9896 (admin proc Aug. 19, 2015). The latter is a "waiver release" under the advisers

In July, in connection with Exchange Act Release No. (July 1, 2015), the proposed "clawback rule", Commissioners Gallagher and Piwowar "Dissapproved."  Unlike the Orders, this information is already available in the record of the open meeting that addressed the proposal.  Moreover, the Commissioners both explained the basis for their dissents at he meeting.  (The dissent for Commissioner Gallagher is here and for Commissioner Piwowar here). 

In In re Dickson, Exchange Act Release No. 75418 (admin proc July 9, 2015), the notation in the file states
"Commissioner Gallagher Commissioner Piwowar dissented as to the Municipal Advisor and NRSRO Bars". The same notation appeared on the Order for In re Holdman, Exchange Act Release No. 75462 (admin proc July 15, 2015).  In In re Edwards, Exchange Act Release No. 75563 (admin proc July 30, 2015), Commissioner Piwowar "Disapproved." Interestingly, in this case, two commissioners were listed as "not participating" suggesting that th evote was 2-1. 

Over time, we may explore more of the voting records set out in these files.  Nonetheless, they provide an important source of information on the views of, and the divisions in, the Commission. 

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