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Written by Jonathan J. Russo and Meredith Ervine

At first glance, Southern Peru Copper Corporation (Southern Peru) and its special committee (Committee) appeared to do what they were supposed to do when considering a controlling stockholder transaction—form a special committee of disinterested, sophisticated directors, engage separate, independent financial and legal advisors, request a fairness opinion and obtain super-majority stockholder approval. So why did the Chancellor of the Delaware Court of Chancery (Court) hold that the transaction was unfair and award $1.3 billion in damages—one of the largest derivative monetary awards in the Court’s history? This Advisory discusses In re Southern Peru Copper Corporation Shareholder Derivative Litigation and suggests specific practices that a special committee should consider when evaluating a controlling stockholder transaction.

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Pillsbury named “best” law firm at HFM Week’s U.S. Hedge Fund Services Awards

New York—Premier hedge fund publication HFM Week honored Pillsbury with its “Best Onshore Law Firm – Client Service” award, at the magazine’s annual U.S. Hedge Fund Services Awards ceremony in New York. This marks the third consecutive year Pillsbury has both received the HFM Week client service recognition and been a “shortlist” finalist in multiple award categories. Established to recognize impressive revenue growth, innovation and customer satisfaction among funds and service professionals, the awards are determined by a panel of independent judges, comprised of industry experts. Jay B. Gould, leader of Pillsbury’s Investment Funds & Investment Management practice team, accepted the award on behalf of Pillsbury.

Pillsbury’s press release is available here.

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Written by Michael Ouimette

On October 11, 2011, the Federal Financial Regulators published for public comment a jointly proposed regulation implementing the so-called “Volcker Rule” requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Volcker Rule generally contains two prohibitions, both of which are subject to certain exemptions. First, it generally prohibits insured depository institutions, bank holding companies, and their subsidiaries or affiliates (“Banking Entities”) from engaging in short-term proprietary trading of any security, derivative, and certain other financial instruments for their own accounts. Second, it generally prohibits Banking Entities from owning, sponsoring, or having certain relationships with, a hedge fund or private equity fund.

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LexisNexis Corporate & Securities Law Center Staff
lexisnexis.com 

Each year, LexisNexis honors a select group of blogs that set the online standard for a given industry. This year, we will once again seek your input in choosing the Top Blogs to our Corporate and Securities Law Community….

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A MANAGERS-ONLY EVENT

RSVP NOW ! 

Thursday, October 27, 2011
3:30 – 4:00pm Registration
4:00 – 5:30pm Presentation
5:30 – 6:30pm Reception

Pillsbury’s San Francisco office
50 Fremont Street
San Francisco, CA 94105

How can hedge fund managers that seek more efficient methods for raising capital avail themselves of the public markets?

Now, many private fund managers are finding that a registered fund product can address the needs of certain investors, and with turnkey solutions available, the complexity that has traditionally been associated with registered funds may no longer be a deterrent.

Please join the California Hedge Fund Association, Pillsbury, and JD Clark & Company for a panel discussion on solutions for registered funds. All the questions you have regarding how to organize and operate a registered fund will be addressed at this Managers-Only Event, including:

  • What is the process for registering an alternative investment product?
  • What are the tax, regulatory and operational issues for a registered fund?
  • Interval funds, closed-end funds and open-end funds—why choose one over the other?
  • Who are the investors I will reach with a registered fund?
  • Can I run both hedge funds and registered funds at the same time?
  • How do I minimize regulatory scrutiny and outsource the back office?

SPEAKERS

Tony Fischer, UMB Fund Services
Paul Kangail, Ernst & Young
Vic Fontana, Registered Fund Solutions
Rachel Minard, Minard Capital
Jay Gould, Pillsbury Winthrop Shaw Pittman LLP

 

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Written by Jay B. Gould and Michael Wu

On October 9, 2011 Governor Brown signed into law Senate Bill 398 which is intended to clarify the current law regarding placement agents and lobbyist requirements.

In 2009, AB 1584 was enacted.  AB 1584 imposed disclosure requirements for investment placement agents associated with public pension funds in California.  It required public employee pension funds to adopt a disclosure policy requiring the disclosure of fees paid to investment placement agents and contributions and gifts made by placement agents to board and staff members.

In 2010, AB 1743 was passed.  That bill subjected investment managers and placement agents to lobbyist registration.  It also defined “placement agents” and revised the definition of “lobbyist” to include a placement agent.  A placement agent includes employees of an external manager unless the employee spends more than 1/3 of his time managing assets for the external manager.  AB 1743 also exempts from lobbyist registration requirements those advisers and broker-dealers who are registered with the SEC, obtained the business through competitive bidding process, and agreed to the California fiduciary standard imposed on public employee pension fund trustees.

The newly enacted and immediately effective SB 398 changes the current law to this extent:

1.  It revises the definition of “external manager” to mean a person or an investment vehicle managing a portfolio of securities or other assets, or a person managing an investment fund offering an ownership interest in the investment fund to a board or an investment vehicle.

2.  It revises the definition of “placement agent” to include an investment fund managed by an external manager offering investment management services of the external manager and an ownership interest in an investment fund managed by the external manager.

3.  It defines “investment fund” and includes private equity fund, public equity fund, venture capital fund, hedge fund, fixed income fund, real estate fund, infrastructure fund, or similar pooled investment entity.  It excludes an investment company that is registered with the SEC pursuant to the Investment Company Act of 1940 and that makes a public offering of its securities.

4.  It defines “investment vehicle” to mean a “corporation, partnership, limited partnership, limited liability company, association, or other entity, either domestic or foreign, managed by an external manager in which a board is the majority investor and that is organized in order to invest with, or retain the investment management services of, other external managers.”

5.  The exemptions from lobbyist registration for managers of local retirement system funds are extended to include the three exemptions similarly available to managers of state retirement system funds.

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Written by Michael Wu

On September 29, 2011, the SEC’s examination staff issued a Risk Alert warning of significant concerns regarding trading through sub-accounts, and offered suggestions to help securities industry firms address these risks.  In the alert, the staff identified certain risks associated with the master/sub-account trading model such as: i) money laundering, ii) insider trading, iii) market manipulation, iv) account intrusions, v) information security, vi) unregistered broker-dealer activity, and (vii) excessive leverage.  The alert is the first in a continuing series of Risk Alerts that the staff expects to issue.

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Written by Michael Wu

The SEC is recommending filing fees related to the new report filing on Form ADV for exempt reporting advisers and Form PF filing for private fund advisers.  The filing fee for exempt reporting advisers is expected to be $150 for each initial and annual report on Form ADV.  The filing fee for private fund advisers’ Form PF filing is expected to be $150 for each quarterly and annual filing.  Both Form ADV report and Form PF filings will be submitted through FINRA’s Investment Adviser Registration Depository system (IARD).

A full text of the SEC notice is available here.

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Written by Michael Wu

Market regulators in France, Italy, Spain and Belgium, in coordination with the European Securities and Markets Authority (ESMA), have decided to extend their current short selling ban that was enacted on August 11, 2011.  A summary of the action taken by each regulator is summarized below.

France.  The Autorité Des Marchés Financiers (“AMF”) extended the ban until November 11, but will determine whether to lift the ban by the end of September.  The AMF press release can be found here.

Italy.  The Commissione Nazionale per le Società e la Borsa (“Consob”) extended the ban until September 30.  The Consob press release can be found here.

Spain.  The Comisión Nacional del Mercado de Valores (“CNMV”) also extended the ban until September 30.  The CNMV press release can be found here.

Belgium.  The Financial Services and Markets Authority (FSMA) is continuing its indefinite ban on short selling.

In addition, Greece’s Hellenic Capital Market Commission (“HCMC”) will reassess before the end of September its current short selling ban that is in effect until October 7.  The HCMC press release can be found here.

Other European countries have not implemented a short selling ban.

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Written by Michael Wu

Foreign Account Tax Compliance Act (FATCA), comprising of sections 1471 through 1474 of the Internal Revenue Code, was enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.  FATCA imposes information reporting requirements on foreign financial institutions (FFIs) and withholding, documentation, and reporting requirements with respect to certain payments made to certain foreign entities.  IRS Notice 2010-60 was released on August 29, 2010 to provide preliminary guidance regarding the implementation of FATCA.  IRS Notice 2011-34 was released on April 8, 2011 which modified and supplemented Notice 2010-60.  On July 14, 2011, the IRS released IRS Notice 2011-53 (the “Notice”).  This Notice provides and describes the timeline for FFIs and U.S. withholding agents to implement the various FATCA requirements.

Phased Implementation

The IRS anticipates issuing proposed regulations incorporating guidance provided in all three notices by December 31, 2011 and final regulations along with final form of FFI Agreement and reporting forms in the summer of 2012.

In summary, the phased implementation of FATCA is as follows:

January 1, 2013:  IRS will begin accepting FFI Applications no later than this date.

June 30, 2013:  FFIs must register with the IRS and enter into FFI Agreement by this date to avoid the 30% withholding tax.

  • By entering into FFI Agreements by June 30, 2013, withholding agents are given sufficient time to refrain from withholding on those participating FFIs by January 1, 2014.
  • The effective date of FFI Agreements entered into on or before June 30, 2013 will be July 1, 2013.
  • The effective date of FFI Agreements entered into after June 30, 2013 will be the date the FFIs entered into such agreements.
  • FFIs who enter into FFI Agreements after June 30, 2013 but before January 1, 2014 will be considered FFIs for 2014 but might not be identified as FFIs in time to prevent withholding beginning January 1, 2014.

January 1, 2014:  IRS begins 30% withholding tax on certain payments by non-participating FFIs and account holders who are unwilling to provide the required information.

January 1, 2015:  Withholding on all withholdable payments will be fully phased in.

Due Diligence

Due diligence procedures are required in order for FFIs to identify U.S. accounts.  These procedures were prescribed in the prior IRS notices and will be finalized in forthcoming regulations.  The Notice provides phased implementation of these due diligence procedures.  A participating FFI with pre-existing private banking accounts with a balance or value equal to or greater than $500,000 on the FFI Agreement’s effective date has one year from its FFI Agreement’s effective date to complete its due diligence procedures.  Those with pre-existing private banking accounts with a balance or value of less than $500,000 must have completed their due diligence procedures by December 31, 2014 or within one year following their FFI Agreements’ effective date.  For all other pre-existing accounts, a participating FFI has two years from its FFI Agreement’s effective date to complete due diligence procedures.

Reporting

FATCA requires a participating FFI to annually report to the IRS certain information regarding its U.S. accounts.  An account for which a participating FFI has received a Form W-9 from the account holder (or if the account is held by a U.S. owned foreign entity, from the substantial owner of such entity) by June 30, 2014, must report the account to the IRS as a U.S. account by September 30, 2014.  By this first reporting deadline, a participating FFI needs to report only: i) the name, address and TIN of the U.S. account holder, ii) the account balance as of December 31, 2013, or if the account was closed after the effective date of the FFI’s FFI Agreement, the account balance immediately before such account closure, and iii) the account number.

Additional information will be required in subsequent reporting years.

Withholding

The Notice provides delayed implementation of the 30% withholding requirement.  For withholdable payments made on or after January 1, 2014, withholding agents will be obligated to withhold the 30% tax only on U.S. source FDAP payments.  (FDAP means fixed, determinable, annual or periodical income or payments and includes interest and dividends.)  For payments made on or after January 1, 2015, withholding agents will be obligated to withhold the 30% tax on all withholdable payments, including gross proceeds.

The Notice also provides that a participating FFI is not obligated to withhold with respect to passthru payments made before January 1, 2015.  (A passthru payment is a withholdable payment or other payment to the extent attributable to a withholdable payment.)  FATCA requires a participating FFI to withhold the 30% tax on passthru payments made to a recalcitrant account holder or non-participating FFI.