Foley Hoag LLP

SUMMARY

Excerpt:

Q: Has the current economic crisis altered the regulatory environment? If so, how?

A: The current economic crisis has altered the regulatory environment in two important and related respects.

First, the law has changed. Congress enacted the Emergency Economic Stabilization Act of 2008 (“EESA”), which requires all federal financial regulatory agencies to cooperate with the Federal Bureau of Investigation (“FBI”) and all “other law enforcement agencies,” including state regulatory agencies, that are “investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.” As a practical matter, this requires financial regulatory agencies, such as the Securities and Exchange Commission (“SEC”) and Financial Industry Regulatory Authority (“FINRA,” formerly the NYSE), to provide support to the FBI’s and state law enforcement’s criminal investigations of financial fraud. As a result of this broad mandate, more criminal investigations concerning the current economic crisis should be expected. The EESA also creates new civil liabilities (e.g., for misrepresenting or falsely advertising the insured status of bank deposits) and new disclosure obligations (e.g., for those financial institutions participating in the Troubled Asset Relief Program (“TARP”)).

Second, the climate has also changed. The public desire to assign blame for the financial crisis and the attendant political pressure to prosecute entities or individuals who may be responsible will likely lead to more vigorous enforcement of familiar criminal laws and financial regulations, such as prohibitions on securities fraud and insider trading as well as wire, mail, bank and bankruptcy fraud. In addition, pending investigations may lead to high-profile prosecutions that press novel theories under more general laws, such as New York’s Martin Act. For example, New York Attorney General Andrew Cuomo is currently investigating executive compensation and corporate spending at major financial institutions that have received federal bailout funds, and he has threatened to “seek appropriate sanctions and remedies” against any company that “wastes” taxpayer funds—for example, by deeming employee bonuses to be fraudulent conveyances in violation of New York law. Massachusetts Secretary of State William Galvin has already charged investment banks with violating state securities laws by defrauding investors who purchased collateralized debt obligations and auction rate securities.

Other questions include: 

• Which government agencies are investigating activities relevant to the current economic crisis? And who is under investigation?
• What types of activities will investigators be looking at? Can you give some examples?
• What steps should we take if our company receives the proverbial “knock on the door”?
• Our best client/joint venture partner is under investigation. What steps should our company take?

SUMMARY

We know that the recent financial crisis and related economic downturn unfortunately are causing many employers to consider ways to reduce operational expenses, including through workforce restructuring and layoffs. We offer a few preliminary considerations: any such reduction-in-force (RIF) must be carefully planned and executed both to minimize exposure to liability under various employment laws and to mitigate negative effects on employee morale and operations. The following are some issues for employers to consider as they grapple with whether and how to implement a layoff.

Questions Include:

• Is a Layoff Necessary?
• Voluntary or Involuntary Program?
• Develop Uniform Selection Criteria
• Conduct a Layoff Analysis
• Is Advance Notice Required
• Severance and ERISA
• Asking for a Release
• Don't Forget Immigration Implications
• Don't Lose Sight of Termination Basics

SUMMARY

Excerpt:

Q: Has the situation on Wall Street made the current climate untenable for companies seeking funding?

A: No. While the threshold may be higher and funding sources more difficult to identify, they are still available. It depends on the company, its industry, its business model, its overall health and its operations. Creative companies will look for ways to raise capital in unconventional ways, or to make existing resources stretch longer than originally planned. But it is definitely an investor friendly environment, in which the lenders and venture capitalists who have money to put to work can be more selective and more demanding about the prices and other terms they can extract from issuers.

Other questions include:

• What are the industries likely to maintain their health and the activity during this time? Where do you see deals happening?
• What about debt financing? I heard that debt markets were completely closed.
• How is the crisis affecting due diligence? What should I expect to encounter?
• Where do IP assets fit into today’s dealmaking climate?
• I read that M&A is very slow. Is that true?

SUMMARY

On Wednesday, October 22, 2008, the Federal Trade Commission issued an Enforcement Policy Statement that it will delay some elements of enforcement of recent “Red Flags” regulations until May 1, 2009, instead of the original November 1, 2008 date.

SUMMARY

Chapter 151B, the Massachusetts anti-discrimination statute, does not apply to small employers, meaning those with fewer than six employees. However, last Friday, the Massachusetts Supreme Judicial Court (“SJC”) held that an employee may nonetheless sue a small employer for discrimination under the Massachusetts Equal Rights Act. The decision has potential ramifications for all employers -- large or small -- because it suggests that a plaintiff has a claim for discrimination under the Massachusetts Equal Rights Act whenever Chapter 151B does not apply, such as discrimination claims brought by non-employees.

SUMMARY

Included in this Issue:

• A Market Perspective
  
• Selected New England "Series A" Round Transactions
  Commentary from Bruce Kinn
  
• Terms of Selected New England Series A Rounds 2008
  Commentary from Mark Haddad
  
• The Activity Level Summary: New England Series A and First Round Transactions by Industry
  
• Size of New England 2008 Year to Date Series A and First Round Transactions by Industry
  Commentary from Paul Sweeney

SUMMARY

Last year, in the wake of the TJ Maxx data security breach, Massachusetts enacted a data security law intended to protect residents from identity theft. The law provides that businesses must provide prompt notice of security breaches relating to personal information. “Personal information” means a person’s name together with either his or her Social Security Number, driver’s license number, state identification number, financial account number, credit card number or debit card number. Because all employers hold their employees’ Social Security numbers, the law applies to all employers in Massachusetts, not just those businesses that collect customer information, such as retailers. 

SUMMARY

In light of the turmoil currently affecting the world securities markets, on Thursday, October 16, 2008, NASDAQ announced that it has temporarily suspended enforcement of its rules requiring listed companies to maintain a minimum bid price of $1.00 and a specified minimum market value of publicly held shares. The suspension applies to shares of common stock, as well as other securities, including preferred stock, American Depository Receipts and limited partnership interests... (continues)

SUMMARY

On October 15, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) adopted an interim temporary final rule (.pdf) (the “Interim Rule” or “Rule 10a-3T) requiring institutional investment managers (those required to file Form 13F) to report information concerning daily short sales of securities. The previous emergency order regarding the filing requirements was due to terminate on October 17, 2008. The Interim Rule will take effect beginning October 18, 2008 and extend until August 1, 2009 unless it is terminated or extended... (continues)

SUMMARY

As soon as January 1, 2009, new construction or gut renovation of a healthcare facility in Massachusetts may need to meet green building standards.

On September 24, 2008, the Massachusetts Department of Public Health ("DPH") approved new guidelines (the "Guidelines") that incorporate the Leadership in Energy and Environmental Design-Health Care ("LEED-HC") and Green Guide for Health Care ("GGHC") green building standards into the Determination of Need ("DoN") process. The Guidelines will apply to all DoN applications filed on or after January 1, 2009 (for hospitals and clinics) or July 1, 2009 (for nursing homes). [continues...]

SUMMARY

Borrowers Need to Monitor Whether to Elect Prime Rate rather than LIBOR under Credit Facilities

U.S. Companies that borrow under bank credit facilities that provide for the borrower to elect payment of interest at either a LIBOR-based rate (sometimes called a "Eurodollar" loan) or a Prime Rate-based rate (sometimes called a "Base Rate" loan) need to be aware of a significant development resulting from the recent turmoil in the world’s credit markets...

SUMMARY

On October 7, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) released a statement regarding the expiration of the emergency order (the “Order”) prohibiting persons from short selling in the securities of financial companies.

On Friday, October 3, 2008, the President signed the Emergency Economic Stabilization Act of 2008 (the “Legislation”), aimed at stemming the credit crisis. When the Order was extended, the SEC stated that the Order would expire on the third business day after enactment of the Legislation. Accordingly, the Order will expire at 11:59 p.m. ET on Wednesday, October 8, 2008.

SUMMARY

As a result of the $700 billion bailout bill passed by Congress and signed into law on October 3, 2008, US fund managers will no longer be able to defer income from offshore funds.

The bill includes a new section of the Internal Revenue Code (Section 457A) that disallows deferrals of compensation from offshore entities that are not subject to either US income tax or "comprehensive" foreign income tax, which includes most offshore funds.

Income earned for years beginning January 1, 2009 and later cannot be deferred.

Any deferrals currently in place for amounts earned (or to be earned) prior to January 1, 2009, may remain deferred, but only until 2017.  Any deferral elections currently in place that provide for payment later than December 31, 2017  (or, for fiscal year entities, the end of the last taxable year beginning before 2018) must be amended to provide for earlier payment; guidance is expected shortly as to the deadline for making such changes.

SUMMARY

Foley Hoag LLP’s interdisciplinary team counsels and protects the interests of its clients facing new realities, challenges and risks framed by today’s tumultuous economic and market conditions. By maintaining an active and engaged dialogue with our clients during this period of economic distress, our lawyers are better able to adapt to the changing legal needs of clients affected in the short term. More importantly, our immersion in their businesses and industries enables our lawyers to provide sound, strategic counsel to protect our clients’ interests in the longer term. The Economic Crisis Team delivers forward-thinking advice, focusing on long-standing core, integrated strengths of the firm.

Topics include:

• Financial investigations, enforcement proceedings and litigation
• Federal and state securities regulation
• Deal-making, corporate finance and investment restructuring
• Bankruptcy, corporate reorganization and financial disputes

SUMMARY

1. Prohibition on Short Selling in Financial Companies

On October 1, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) extended the emergency order (the “Order”) prohibiting short selling in the securities of financial companies. The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

The Order will be extended beyond its currently scheduled expiration to allow time for completion of work on the anticipated passage of the Economic Stabilization Act of 2008 (the “Legislation”). The Order will now expire at 11:59 p.m. ET on the third business day after enactment of the Legislation, but in any case no later than 11:59 p.m. ET on Oct. 17, 2008.

2. Requirement of Institutional Investment Managers to Report New Short Sales

On October 1, 2008, the SEC also extended the emergency order (the “Second Order”) requiring institutional investment managers (those required to file a Form 13F) to report information concerning daily short sales of securities. The Second Order was also issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

The Second Order will also be extended to 11:59 p.m. ET on Oct. 17, 2008, but the Commission intends that the reporting requirement will continue in effect beyond that date without interruption in the form of an interim final rule. The Commission will seek comments on all aspects of the anticipated rulemaking. The SEC has also now indicated that disclosure of short positions reported under the Second Order will be made only to the SEC. This is a modification of the Second Order and will avoid public disclosure. It is unclear whether public disclosure will be required under any final rule.

SUMMARY

Yesterday, in Broadcom Corp. v. Qualcomm Inc. (Nos. 2008-1199, -1271, -1272), the Federal Circuit held that an accused infringer’s failure to obtain an opinion of counsel may be considered as evidence to support a determination that it actively induced infringement by a third party. Specifically, the Court ruled that the presence or absence of an opinion is relevant to whether an accused infringer “‘knew or should have known’ that its actions would cause another to directly infringe.”

SUMMARY

As a follow up to our Foley Adviser on September 19, 2008, we have prepared answers to the following frequently asked questions regarding the Securities and Exchange Commission’s (“SEC” or the “Commission”) emergency order (the “Order”) requiring institutional investment managers to report information concerning daily short sales of securities.

Questions Include:

• What is Form SH?
• Who must file?
• When is the filing required?
• How is the filing made?
• How soon will Form SH information be publicly available?
• What transactions are reportable?
• Are small short sales reportable?
• What must be disclosed on Form SH?
• What about pre-existing short positions?
• What if I increase a pre-existing short position?

SUMMARY

This guide is intended to provide foreign business people with an introduction to the basic kinds of laws and regulations that affect the conduct of business in the United States. The level of detail is varied, reflecting the nature of the legal areas discussed. For example, environmental law and taxation are subjects of detailed and technical regulation, while labor relations are governed as much by custom and practice as by direct regulation. The discussion under each heading is intended to provide only general guidance and is not an exhaustive description of all provisions of federal, state and local law with which a non-U.S. business operating in the U.S. might be required to comply.

SUMMARY

Section 409A is an extremely broad law that covers many arrangements not generally considered deferred compensation, such as stock options, bonus plans, and severance and change in control agreements. In general, 409A governs any arrangement where an employee or consultant has a vested right to compensation in one year that will be paid in a later year, unless the arrangement fits into one of the exemptions to 409A. Arrangements subject to 409A must comply with strict rules as to the time and form of payment, and it is very difficult to make changes to an arrangement once it is in place. Any deferred compensation arrangement that does not comply with 409A will subject the employee or consultant to income tax liability at the time that the right to payment vests (even if there is no right to receive payment at that time), together with a 20% penalty tax on the deferred amount. (continues)

SUMMARY

SEC Issues Emergency Order to Prohibit Short Selling of Financial Stocks to Protect Investors and Markets

On September 19, 2008, the Securities and Exchange Commission (“SEC” or the “Commission”) issued an emergency order (the “Order”) to prohibit short selling in the securities of 799 financial companies (the “Securities”), which are identified in Exhibit A. The Order was issued pursuant to the Commission’s authority under Section 12(k)(2) of the Securities Exchange Act of 1934.

Under the Order, all persons are prohibited from short selling the Securities except for registered market makers, block positioners, or other market makers obligated to quote in the over-the-counter market. The Order will be immediately effective and will terminate at 11:59 p.m. ET on October 2, 2008. The SEC may extend the Order beyond 10 business days if the SEC determines that the continuation of the Order is necessary in the public interest and for the protection of investors, but not for more than 30 calendar days in total duration. (continues...)