Corporate and Financial Weekly Digest - May 13, 2011

Edited by Robert L. Kohl and David A. Pentlow SEC/CORPORATE

SEC Chairman Shapiro Remarks on Capital-Raising Reform

In testimony before the U.S. House of Representatives Committee on Oversight and Government Reform on May 10, Securities and Exchange Commission Chairman Mary Shapiro stated that she had instructed the staff of the SEC to "take a fresh look" at rules relating to public and private offerings of securities in light of advances in technology, accelerated communications and changes in the operations of the financial markets, with a view to encouraging capital formation. No timetable was provided. Specific areas of focus outlined by Chairman Shapiro include:

the restrictions on communications in initial public offerings; whether the ban on general solicitation or advertising for private placements should be revised; the number of shareholders that trigger public reporting, including questions surrounding the use of special purpose vehicles that hold securities of a private company for groups of investors; and regulatory questions posed by new capital-raising strategies. The SEC has for some time been considering modifying the general solicitation or advertising ban in connection with private placements and had, in 2007, proposed lessening of that prohibition for "large accredited investors." While the SEC has not adopted such a rule, many commentators noted that the general solicitation or advertising ban, in light of current communication technologies, has become anachronistic. Further, the recent Facebook private placement has raised questions concerning both the number of investors triggering public reporting requirements (currently 500) and whether, as is currently the case, only shares "held of record" count for such purposes.

Read more.

BROKER DEALER

FINRA Delays Implementation Date of Expansion of OATS to All NMS Stocks

The Financial Industry Regulatory Authority has delayed the implementation of the new Order Audit Trail System (OATS) recording and reporting requirements for national market system (NMS) stocks to October 3. FINRA was originally slated to begin phasing in the expansion on July 11. According to the Securities and Exchange Commission, FINRA is delaying the implementation date in an effort to give its members sufficient time to make necessary changes to their systems to enable them to comply with the expanded OATS recording and reporting requirements.

Click here to read Securities and Exchange Commission Release No. 34-64369.

Click here for information on previous guidance from FINRA regarding the expansion of OATS to all NMS stocks, as reported in the January 14 edition of Corporate and Financial Weekly Digest.

PRIVATE INVESTMENT FUNDS

Please see "Form SLT Revised and First Form SLT Filing Date Delayed" in Investment Companies and Investment Advisers below.

CFTC

Mark Wetjen Nominated to CFTC

On May 11, the White House announced that Mark Wetjen has been nominated to be Commissioner of the Commodity Futures Trading Commission. Mr. Wetjen is currently Counsel and Senior Policy Advisor to Nevada Senator and Senate Majority Leader Harry Reid.

The press release announcing Mr. Wetjen's nomination is available here.

INVESTMENT COMPANIES AND INVESTMENT ADVISERS

SEC Proposes Adjustments to Advisers Act "Qualified Client" Standard

The Securities and Exchange Commission has proposed amendments to Rule 205-3 under the Investment Advisers Act of 1940, as amended (the Advisers Act), to revise the definition of "qualified client." Under Rule 205-3, accounts of qualified clients are exempted from the Advisers Act's general prohibition against SEC-registered investment advisers charging performance-based fees to their advisory clients. Currently, a qualified client generally includes any client that has either (1) $750,000 or more under management with the investment adviser or (2) a net worth of at least $1.5 million.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is required to adjust the dollar amount tests set forth in certain of its rules, including the qualified client definition, for inflation. Under the SEC's proposal, the qualified client definition would be revised to increase the "assets under management" threshold described above from $750,000 to $1 million and the "net worth" threshold from $1.5 million to $2 million. In addition, the revised definition would exclude the value of a natural person's primary residence (and associated secured indebtedness) for purposes of the net worth threshold. The SEC proposal would require the SEC to make similar inflation...