S&C Critical Insights

DOJ Updates Corporate Compliance Guidance

In this episode of S&C’s Critical Insights podcast series, Alex Willscher, Deputy Managing Partner of S&C’s Criminal Defense and Investigations Group, and Aisling O’Shea, co-head of the Firm’s FCPA and Anti-Corruption Group, discuss recent changes to the U.S. Department of Justice Criminal Division’s guidance on its evaluation of corporate compliance programs. Alex and Aisling identify key changes from the DOJ’s guidance this past April, unpack what the DOJ may be attempting to achieve with these changes, and explore considerations for corporate legal, compliance and other professionals in light of these updates.

A Discussion of Recent Federal Arbitration Act Decisions

In this episode of S&C’s Critical Insights, Annie Ostrager and Diane McGimsey, Co-Heads of S&C’s Labor & Employment Group, discuss two recent decisions from the U.S. Court of Appeals for the Second and Ninth Circuits involving preemption and Section 1 of the Federal Arbitration Act. They analyze how those courts interpreted two recent U.S. Supreme Court decisions addressing the FAA’s scope in the employment context: Viking River Cruises v. Moriana and Southwest Airlines v. Saxon.

In Bissonnette v. LePage Bakeries Park St., the plaintiffs, who delivered baked goods to stores and restaurants, claimed they were transportation workers, which would exempt them from Section 1 of the FAA. The Second Circuit held that because the plaintiffs charged for the baked goods, the transportation was incidental and the plaintiffs were in the baked goods industry and therefore not excluded from the FAA. After the Supreme Court issued its Saxon ruling a month later, the Second Circuit panel reconsidered Bissonnette, but adhered to its original ruling, which affirmed the district court order compelling arbitration.

In Chamber of Commerce v. Bonta, a divided Ninth Circuit panel examined a California law, A.B. 51, that broadly prohibits employers from requiring mandatory arbitration agreements. Reversing a district court, the majority held that the A.B. 51’s restrictions are valid but could not be enforced if an unlawful agreement was entered into.

After the Supreme Court issued its ruling in Viking River Cruises, the Ninth Circuit panel reheard the case and came to the opposite conclusion, upholding the district court’s injunction against A.B. 51.

Annie and Diane said that in light of the Chamber of Commerce ruling, they expect California employers who had temporarily gotten rid of their arbitration agreements to be revising those policies. The Saxon and Bissonnette decisions left things less clear, but clients may wish to reexamine arbitration agreements to ensure employees’ work is characterized properly.

A Discussion of Recent Internal Revenue Service Guidance

In this episode of S&C’s Critical Insights, Isaac Wheeler and Davis Wang, Co-Heads of S&C’s Tax Group, discuss the IRS’s year-end guidance in areas including the scope of the stock buyback tax and the Foreign Investment in Real Property Tax Act (FIRPTA). 

Isaac and Davis start off by discussing Internal Revenue Code Section 4501, commonly referred to as the one percent buyback tax, which is intended to encourage corporations to reinvest excess cash in their operations rather than buy back stock.  The IRS clarified that some transactions will not be considered buybacks, such as corporate liquidations for many SPACs, while redemptions of preferred stock do appear to be subject to the tax.

On FIRPTA, they discussed guidance to determine in if an entity qualifies for an exemption from U.S. real property holding company status, including whether the IRS will look through partnerships and certain corporations.

ESG Considerations for Financial Institutions

In this episode of S&C’s Critical Insights, Michelle Chen, a partner in S&C’s Financial Services Group, and June Hu, an associate in the Firm’s General Practice Group, discuss key ESG considerations for U.S. financial institutions in 2023.

Michelle and June recap recent ESG-related legal and regulatory developments in the banking, asset management and insurance sectors. The OCC, FDIC and the Federal Reserve proposed principles for climate-related financial risk management for large financial institutions, and the federal banking regulators plan to work together to issue consistent interagency guidance. State-level regulators, including the New York Department of Financial Services, are beginning to propose climate-related guidance which is intended to align with the work of federal and international banking regulators.

A key development in 2022 was the SEC’s proposal of climate disclosure rules. Michelle and June discuss the impact that the proposed rules may have on financial institutions, as well as the impact of overlapping ESG-related requirements from lawmakers abroad, including in the United Kingdom and the European Union.

Michelle and June also examine other ESG challenges that financial institutions may face, including “anti-ESG” scrutiny around climate targets and memberships in net-zero alliances, increased regulatory enforcement and litigation risk related to ESG and the potential impact of the Supreme Court’s decision last year in West Virginia v. EPA on U.S. federal agencies’ ability to regulate ESG activities.

Update on Recent Whistleblower Enforcement in the U.S.

In this episode of S&C’s Critical Insights, Annie Ostrager, a Co-Head of S&C’s Labor & Employment Group, and Kamil Shields, a member of the Firm’s Criminal Defense & Investigations Group, provide an update on recent developments in whistleblower enforcement in the United States under the False Claims Act (“FCA”).

Annie and Kamil discuss recent Department of Justice enforcement activity involving whistleblowers under the FCA’s qui tam provision, which permits private citizens with knowledge of fraud to sue on behalf of the government. In particular, several of the matters involved the healthcare industry, underscoring that this an active area for qui tam litigation and enforcement actions.

In addition, Annie and Kamil discuss several qui tam cases currently pending before the U.S. Supreme Court. One of those cases, United States, ex rel. Jesse Polansky v. Executive Health Resources, Inc., addresses the issue of whether the government has the authority to dismiss a FCA suit after declining to proceed with the action. The Supreme Court will also hear argument on two consolidated cases from the Seventh Circuit regarding the applicable standard for scienter under the FCA.  The Supreme Court’s decisions in these cases will be of critical importance for FCA whistleblowers and entities contracting with the government more broadly.

Recent Developments in Private Securities Litigation

In this episode of S&C’s Critical Insights, Steve Peikin, who leads S&C’s Securities & Commodities Investigations Practice, and Jeff Scott and Julia Malkina, co-leads of the Firm’s Securities Litigation Practice, review recent private securities litigation trends.

Steve, Jeff and Julia discuss numerical trends in private securities litigation. Although such litigation has slowed overall, certain types of lawsuits, including those with ESG and SPAC-related claims, have increased. The episode also explores recent court rulings from the Second Circuit, the Ninth Circuit and the California Court of Appeal with significant implications for securities litigation, as well as noteworthy developments in cryptocurrency-related filings.

For an in-depth discussion of these topics, read S&C’s Securities Enforcement and Litigation Update.

Review of 2022 U.S. Shareholder Activism and a Look Ahead

In this episode of S&C’s Critical Insights, Melissa Sawyer, Lauren Boehmke and Susan Lindsay analyze trends and developments in shareholder activism and activist settlement agreements over the past year. They also highlight a few factors that are likely to shape activism throughout 2023.

 

Among the topics discussed, the group examined the record-breaking activist campaign activity in the first quarter of 2022, which persisted despite the continued market volatility and macroeconomic uncertainty that dampened activity levels in 2020 and 2021. Additionally, they explored how the nature of campaigns shifted in 2022, with a greater focus on corporate strategies and operations and a reduced focus on capital allocation and M&A.

 

Companies have shown greater resistance to activist demands, they noted, by adopting shareholder rights plans and settling with activists more slowly. This led to decreased success in activists obtaining board seats compared to recent years.

 

They explained that shareholder activism activity in 2023 is expected to be impacted by a variety of factors, including new and proposed policies for institutional investors, new universal proxy rules, the DOJ’s enhanced scrutiny of interlocking directorates under Section 8 of the Clayton Act, upcoming implementation of the Inflation Reduction Act and the potential adoption of the SEC’s proposed rules on share buybacks and amendments to Schedule 13D.

For more information about this topic, read S&C’s review of 2022 U.S. Shareholder Activism and Activist Settlement Agreements.

Recent Developments in SEC Enforcement

In this episode of S&C’s Critical Insights, Steve Peikin, who leads S&C’s Securities & Commodities Investigations Practice, and Jeff Scott and Julia Malkina, co-leads of the Firm’s Securities Litigation Practice, discuss the priorities of the Securities and Exchange Commission’s Enforcement Division and enforcement trends.

 

Steve, Jeff and Julia discuss the SEC’s enforcement and regulatory activity relating to ESG disclosures, digital assets and SPACs. They also highlight the SEC’s focus on insider trading, market manipulation and recordkeeping. The episode concludes with a review of court challenges to the SEC’s enforcement powers.

 

For an in-depth discussion of these topics, read S&C’s Securities Enforcement and Litigation Update.

2022 Headwinds in M&A and Outlook for 2023

In this episode of S&C’s Critical Insights, Senior M&A Partner Frank Aquila and Global Head of M&A Melissa Sawyer discuss major takeaways from M&A in 2022 and potential developments for 2023.

 

Following a record-setting year in 2021, a numbers of factors at the beginning of 2022, including soaring inflation, rising interest rates and geopolitical events, such as Russia’s invasion of Ukraine and the deterioration of U.S.-China relations, led to some of the slowest quarters in M&A globally since the onset of the pandemic.

 

The regulatory landscape for mergers has also shifted, both in the United States and globally, with the Federal Trade Commission and U.S. Department of Justice under the Biden administration taking a more aggressive approach to antitrust enforcement, especially in the labor, agriculture, healthcare and tech sectors. Despite the agencies’ willingness to bring enforcement actions and litigation against proposed mergers, judges have frequently relied upon existing precedent to rule in favor of merging companies.

 

De-SPAC transactions have seen increased focus as well, both from regulators and litigants, resulting in the demise of SPACs throughout last year, which is expected to continue into 2023 and beyond.

 

Despite a general slowdown, several factors may lead to an uptick in activity in the first quarter of 2023, such as the strength of the U.S. dollar, a continued push for M&A activity by activists in the United States and abroad, the death of potential antitrust bills in Congress and the shift to more realistic projections from potential target companies, which make it more likely for buyers to make attractive offers.

U.S. Tax Outlook Post-Midterms

In this episode of S&C’s Critical Insights, Tax Group co-heads Isaac Wheeler and Davis Wang welcome the Firm’s Government Affairs Specialist, Tom Mullins, to discuss anticipated developments in U.S. tax policy following the midterm elections.

 

With Democrats and Republicans narrowly controlling the Senate and House, respectively, it is unlikely that the United States will see significant standalone tax policy passed in the next two years. However, progress is possible on a few fronts, including the Extenders Bill, which would extend expiring deadlines for a range of tax legislation, and the Secure 2.0 Act, which will give part-time workers better access to retirement benefits and increase the age when required minimum distributions must start. Some tax legislation could also become law by being included in a must-pass bill, such as the National Defense Authorization Act.

 

Most likely, changes to tax policy will occur at the Treasury- or IRS-level rather than through Congressional action, although political dynamics and other factors could slow policymaking in those arenas as well.

 

They also discuss how the new balance of power in Congress could make it more difficult for the United States to align with global tax initiatives, such as the Organisation for Economic Co-operation and Development’s Pillar II proposals for a global minimum corporate tax.