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SEC Chair White Warns on Fee Shifting Bylaws

By | March 19, 2015

In remarks at a conference attended by M&A professionals, SEC Chair White gave her views on fee shifting bylaws.  Currently the SEC staff is focused on making sure the disclosures in company filings about its fee shifting provision — and the implications of such provisions — are clear. If a company chooses to adopt a fee-shifting provision, it should clearly communicate to shareholders the specific features of the provisions and its effect on shareholders’ ability to bring a claim. Shareholders should be fully informed of a company’s efforts to affect their ability to seek redress so that the issue can be considered in voting and investment decisions.

But Chair White noted the day may come when the SEC changes its disclosure only focus.  Chair White is concerned about any provision in the bylaws of a company that could inappropriately stifle shareholders’ ability to seek redress under the federal securities laws. If the Commission comes to believe that these provisions improperly hinder shareholders’ exercise of their rights, it may need to weigh in more directly in this discussion, as it did with indemnification under the Securities Act.

As far as indemnification under the Securities Act goes, the SEC takes the position that corporate indemnification of directors for violation of federal securities laws is against public policy and unenforceable, and it requires disclosure about this position in registration statements filed under the Securities Act of 1933.  Also, Commission settlement orders have included bars against seeking indemnification.

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