Legal

SEC Forgoes Rule Making and Addresses Research Analyst Reforms under JOBS Act in FAQ

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While much of the emerging growth capital market was fixated over the past two weeks on the Securities and Exchange Commission’s vague proposals lifting the ban on public solicitation for investments in private placements, the agency issued a FAQ outlining its stance on the JOBS Act’s repeal of restrictions on sell-side research analysts’ participation in investment banking activities. While similarly paradigm-shifting in its impact on capital raising, the release of the interpretative document has received little attention outside of securities law circles. The SEC’s Division of Trading and Markets issued the FAQ in late August as an alternative to new rulemaking vis-à-vis the JOBS Act, which explicitly forbids preventing analysts from participating in capital raising meetings with investors and company management teams.  That had been the case since the Global Analyst Research Settlement agreement on sell-side research activities was adopted in 2003. The post-JOBS Act interpretation of permitted analyst conduct construes the Act’s provisions “narrowly” according to Sidley Austin’s Jim Brigagliano, a former deputy director at the SEC, in a client briefing published in late August. Brigagliano wrote that the SEC interprets the JOBS Act changes to provide that:

Investment banking personnel may play a role in arranging analyst communications with investors.

Legal

Fairfax Financial Shorting Case Tossed

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A long-running short selling suit came to an end when a judge dismissed Fairfax Financial’s (FRFHF) action against parties the insurer claimed had spread rumors about the company in an effort to profit from short selling Fairfax stock. Insurance holding company Fairfax’s shares exhibited huge numbers of fails-to-deliver for several years, leading to speculation about how such large short positions could remain open beyond the limits imposed by regulators. A New Jersey Supreme Court judge dismissed the case with respect to Morgan Keegan & Co. and Exis Capital Management on Sept. 12.

Legal

SEC Suspends Shell Accountant Hatfield

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Scott Hatfield and his S. W. Hatfield CPA firm (SWH) practiced without a license for almost a year and a half, according to a Securities and Exchange Commission cease-and-desist proceeding. Hatfield let his registration with the Public Company Accounting Oversight Board (PCAOB) lapse from January 2010 into May 2011, during which time he oversaw filings for a number of PIPE issuers, reverse merger companies and shells. “During this period,” the SEC maintains, Hatfield “issued 38 audit reports that 21 issuers included in periodic reports and registration statements filed with the Commission.”

While the commission did not suggest that there were improprieties in the numbers Hatfield signed off on, the news comes as a costly embarrassment to the issuers. Operating as a reporting company is expensive, and errors and other problems in financial filings are to be avoided at all costs. “Scott Hatfield and SWH billed issuers $199,722 in connection with audits conducted or completed while SWH’s license was expired,” commission documents say.

Legal

China Hydroelectric Sues Dissidents in Value Fracas

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An ongoing dispute between China Hydroelectric Corp. (CHC) and a group of its investors escalated recently when the company sued an “insurgent” investor group. While the conflict developed in a public venue through a series of trenchant regulatory filings, the company’s suit accuses investors including  NewQuest Capital and subsidiary CPI of “acting in secret” to take over China Hydroelectric. The suit was filed Sept. 10 in Manhattan’s U.S. District Court.