Financial Law Blog

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Tag: Securities Exchange Act

RBC settles SEC enforcement action for false and misleading statements in fairness presentation

The SEC last week settled enforcement action against RBC for false and misleading statements in a fairness presentation regarding the sale of a public company.

RBC was the sell-side financial adviser to a listed company in connection with its sale to Warburg Pincus. RBC’s fairness presentation to the company’s Board incorrectly described company EBITDA figures as analyst “consensus projections.” This lowered the company’s valuation, because in fact analysts would have at least added back $6.3 million of one-time expenses. In related shareholder litigation, the Court of Chancery found that “RBC knew that the Board was uninformed … but failed to disclose the relevant information to further its own opportunity to close a deal, get paid its contingent fee, and receive additional and far greater fees for buy-side financing work.” As the court observed, “On Saturday morning, the ‘consensus’ precedent transaction range was $13.31 to $19.15. On Saturday afternoon, it was $8.19 to $16.71, entirely below the deal price.” The final offer made by Warburg Pincus was $17.25.

RBC’s figures were subsequently used in the company’s proxy statement. Consequently, RBC was found to have caused the company’s violation of Exchange Act rule 14a-9, the general antifraud rule for proxies.

SEC brings enforcement action for whistleblower award waivers in employee agreements

The SEC this week settled an enforcement action for whistleblower award waivers in employee agreements.

Health Net Inc employee agreements waived the employees’ rights to any whistleblower award to which they may be entitled under the Exchange Act. The SEC found that by including such provisions the firm “directly targeted the SEC’s whistleblower program by removing the critically important financial incentives that are intended to encourage persons to communicate directly with the Commission staff about possible securities law violations.” In so doing, the firm violated Exchange Act Rule 21F-17, which prohibits impeding communication with the SEC about possible securities law violations.

This enforcement action follows last week’s enforcement action for confidentiality provisions without a whistleblower carveout in employee agreements. It is at least the fourth action this year against listed companies for impeding potential whistleblowers through provisions in employee agreements.

SEC brings enforcement action for confidentiality provision without a whistleblower carveout in employment agreements

The Securities and Exchange Commission last week settled an enforcement action against a firm for including in its employee agreements a confidentiality provisions that would impede potential whistleblowers. The firm, BlueLinx Holdings Inc, is a listed company subject to the Exchange Act.

The firm’s agreements with employees contained a number of confidentiality provisions, including one that forbade employees from voluntarily sharing company information. What the provisions did not contain was a carve out “permitting an employee to provide information voluntarily to the Commission or other regulatory or law enforcement agencies.” The SEC found that by including such provisions in agreements with employees, the firm “raised impediments to participation by its employees in the SEC’s whistleblower program.” In so doing, the firm violated Exchange Act Rule 21F-17, which prohibits impeding communication with the SEC about possible securities law violations.

This is at least the third action this year by the SEC against firms for using provisions in employment agreements that impede employees from voluntarily providing information to the SEC’s whistleblower program. SEC staff had also been warning firms over the past few years that the SEC is actively looking for such provisions in employment agreements. Since there is no allegation in these cases that a particular whistleblower was impeded, it is fair to assume that the SEC will not wait for a whistleblower to come along before it brings such a case against any other firm with these provisions in its employment agreements.

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