Recent Issue Headlines
Vol. 1, No. 10 (May 6, 2008) Print This Issue
Australian Court Holds that Lender to Broker-Dealer, not the Broker-Dealer’s Client, Owns Securities Transferred by the Client to the Broker-Dealer Under a Securities Loan Agreement, and Pledged by the Broker-Dealer to the Lender
- Australian court holds that under a securities lending agreement based on form developed by the International Securities Lending Association, title to securities and cash exchanged in a securities “loan” is transferred.
- Accordingly, a broker-dealer who received shares under such a securities lending agreement acquired title to the shares, and became entitled to pledge the shares to its lenders; lenders, in turn, had right to foreclose on shares.
- Emphasizes the importance to hedge funds of fully understanding their complex legal and collateral relationships with prime brokers.
- At Future of Financial Regulation Conference on May 1 in New York, leading industry participants discussed status of hedge fund regulation.
- One of key take-aways is that investors are less concerned with whether or not a hedge fund adviser is registered, and more concerned with a firm's "tone at the top" and its compliance with best industry practices (for example, the practices embodied in the recent PWG private sector committee reports).
New York Court Allows Suit to Progress Against Hedge Fund Manager for Allegedly Terminating its Contract in Bad Faith to Avoid Paying Finder’s Fees
- Hedge fund manager entered into a finder’s agreement that provided for payment to the finder of a finder’s fee and, for larger investments, a “structuring payment,” so long as the investor invested within a year of the finder’s last contacts with the investor.
- A Norwegian bank made a substantial investment in an Ellington fund more than a year after the finder’s last contact with the bank, and the court held that the finder was not entitled to its fee, but might (pending more fact finding) be entitled to its structuring payment.
Second Circuit Holds that Directors by Deputization are Covered by Exemption to Liability for Short-Swing Profits
- Second Circuit held that “directors by deputization” - that is, shareholders who exercise the power to appoint directors to an issuer’s board of directors - are exempted under Rule 16b-3(d) from the general rule of strict liability of insiders for short swing profits under Exchange Act Section 16(b).
- Court deferred to SEC’s policy rationale for including directors by deputization in the scope of the rule. That is, court agreed with SEC that transactions between issuers and directors by deputization do not pose the danger of abuse of informational asymmetries that Section 16(b) was enacted to address, and thus the SEC appropriately exempted such transactions from liability under Section 16(b).