The good news, however, is that there is a way for directors to get involved in the regulatory examination process that can have a meaningful positive impact. Discussed below is our top recommendation for directors to be involved in the examination process. We believe early, proactive involvement can positively impact the outcome of a regulatory examination and also enhance the board’s understanding of regulatory criticism.

While most directors’ first contact with examiners is at the examiners’ exit meeting with the board, we suggest director involvement earlier in the examination process. There should be one or more outside directors present at the examiners’ preliminary exit meeting with management. During this meeting, the examiners will present their preliminary findings from the examination. In addition to highlighting the engagement and availability of the bank’s directors, attending this meeting allows the directors to understand the key issues in the examination. By hearing the examiners deliver their findings first hand, the directors will have a better sense of the seriousness of the issues being identified. Finally, directors will be able to ask questions of the examiners that might not be easily asked by members of management; e.g., asking for an interpretation of a regulation.

By attending this preliminary exit meeting, directors are also able to ensure that the bank’s board has a timely understanding of the issues presented by the examiners. Members of the bank’s executive management team have a natural tendency to relay examination criticisms to the board through their own point of view. Management may fear adverse action by the board as a result of regulatory criticisms or may feel so strongly about their point of view that they tend to “water down” the comments of the examiners. By having outside directors attend the meeting, those directors can deliver an independent report of the regulatory criticisms to the board.

In addition, by identifying key regulatory issues, and particularly disagreements, bank directors have the greatest likelihood for influencing the examination process. It is at this time, after preliminary findings are made but before a final examination report is delivered to the bank, that a bank and its directors should present additional information and viewpoints that might alter the findings in the final examination report. We have found that examiners are willing to review additional information at this juncture and, where appropriate, the examiners will alter their conclusions in response to such information. Ideally, such information is presented prior to the examiners’ exit meeting with the full board. Our experience tells us that this approach is much more effective and timely than a formal appeal of final examination findings.

By inserting themselves into the regulatory examination process, we believe directors can have a positive influence on the regulatory examination process. While we would not recommend having the full board involved in functions that are typically left to management, having an independent point of view involved early in the examination process can be very helpful. Not only can directors display their involvement in the oversight of the bank’s operations, they can also help with strategy for dealing with regulatory issues at a time when conclusions have not yet been formed. Finally, directors can better understand regulatory feedback and can track management’s progress toward addressing regulatory concerns.

This article  was originally published on BankDirector.com. 

We have summarized below some highlights of what was added to the guidance by the FDIC, and also provide a redline showing the changes from the FDIC’s prior guidance, released in 2008.  Of particular interest to many of our clients, the FDIC notes that some payment processors may target smaller community banks, based on a belief that they may be more willing to engage in higher-risk transactions in exchange for increased fee income and may lack the infrastructure to properly manage or control a third-party payment processor relationship.

Highlights of some additions to the guidance include the following (not an exhaustive list):

• Financial institutions should ensure their contractual relationships with payment processors provide them with access to necessary information in a timely manner. Agreements should also protect financial institutions by providing for immediate account closure, contract termination, or similar action, and establish adequate reserve requirements to cover anticipated chargebacks.
• Financial institutions should adequately oversee all transactions and activities that they process and appropriately manage and mitigate operational risks, BSA compliance, fraud risks, and consumer protection risks, among others.  Financial institutions cannot rely solely on  due diligence performed by the payment processor.
• Financial institutions that fail to adequately manage relationships may be viewed as facilitating the payment processor’s or merchant’s fraudulent or unlawful activity, and thus may be liable for such acts or practices. (Italicized portion is new.)
• Financial institutions should take reasonable steps to ensure they understand the type and level of complaints related to transactions that they process. Consumer complaints may be sent to the financial institution, as well as to the payment processor, the merchant, consumer advocacy groups, online complaint websites, or posted on blogs.
• Financial institutions should determine if there are any external investigations of or legal actions against a processor or its owners and operators, during initial and ongoing due diligence.
• Policies and procedures should outline the financial institution’s thresholds for unauthorized returns, the possible actions that can be taken against payment processors that exceed these standards, and methods for periodically reporting such activities to the financial institution’s board and senior management.
• Financial institutions should be aware of nested processing relationships, and obtain data on the nested processor and its merchant clients. Risk is significantly elevated with such relationships because nested processor and aggregator relationships may be extremely difficult to monitor and control.
• The more a financial institution relies on a processor for due diligence and monitoring of merchants without direct financial institution involvement and verification, the more important it is to have an independent review to ensure that the processor’s controls are sufficient and that contractual agreements between the financial institution and processor are honored.
• Board-approved policies and programs should assess the financial institution’s risk tolerance for payment processing activity, verify the legitimacy of the payment processor’s business operations, determine the character of the payment processor’s ownership, and ensure ongoing monitoring of payment processor relationships for suspicious activity, among other things. (Italicized portion is new.)
• Adequate routines and controls include sufficient staffing with the appropriate background and experience for managing third party payment processing relationships of the size and scope present at the institution, as well as strong oversight and monitoring by the board and senior management.

The complaint names five (5) former officers of the bank all of whom served on the bank’s Executive Loan Committee.  It essentially alleges that the defendants allowed the bank to make what it characterizes as “imprudent” real estate loans, especially loans for the construction and development of residences.  The complaint alleges that the bank’s real estate lending policies were not safe and sound banking practices, that the bank disregarded its own credit policies and approved loans to non-credit worthy borrowers.  It also alleges that the bank’s management continued to invest in risky commercial real estate lending even after the marker had begun to decline.

The complaint focuses on twelve (12) specific loans, and alleges claims against each of the defendants for negligence and breach of fiduciary duty.  The loans were made between December 2005 and June 2008, and FDIC contends they caused the bank losses in excess of $42 million.

As noted, this complaint was filed very near the expiration of the three (3) year period from the date of the bank’s failure within which the FDIC is authorized to bring claims.  As the number of bank failures dramatically escalated in 2009, and that three (3) year period is drawing nigh with respect to a number of other bank failures, we can expect to see more lawsuits filed against officers and/or directors of failed banks over the course of 2012 and beyond.

On January 24, 2012, the Federal Trade Commission announced its annual revision of the interlocking directorates thresholds under Section 8 of the Clayton Act.  The new thresholds were effective January 27, 2012.   The purpose of Section 8 of the Clayton Act is to prevent a “person” from serving as an officer or director of corporations that compete with one another in the marketplace, unless that competition is very limited.   For more information on the new thresholds, please click here for the January 27, 2012 Alert published by the Antitrust and Competition Client Service Group.

Premerger Notification Thresholds Increased

Effective February 27, 2012, the jurisdictional thresholds for the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, will be increased.  Pursuant to statutory amendments made in 2000, the thresholds are annually adjusted based on changes in gross national product.  One key effect of this year’s indexing is that transactions will only be reported if the Size of Transaction exceeds $68.2 million, an increase over last year’s $66 million threshold.  To read more about the 2012 thresholds, please click here for the Alert published by the Antitrust and Competition Client Service Group on January 27, 2012.

SEC Changes Settlement Policy for Enforcement Actions With Parallel Criminal Proceedings

The SEC announced in January a significant change in its settlement policy for civil enforcement actions in which the defendant is also subject to parallel criminal proceedings.  Under the SEC’s new policy, any defendant who has admitted to or been found guilty of criminal conduct cannot settle parallel SEC charges without also admitting the SEC’s allegations.  For more information on the new policy, please click here to read the Alert published by the White Collar Defense & Investigations and Securities Litigation & Enforcement Client Service Groups on January 13, 2012.

NAD Reviews Use of Facebook’s “Like” Feature in Promotions

In 2010, Facebook offered its users the ability to click a button indicating that they “like” a company or a product.  Once clicked, the “liked” product appears on a user’s Facebook Wall and the user’s screen name or icon could also appear on the company’s Facebook page along with other users who liked the product.   Companies quickly realized the benefit of being “liked,” and encouraged consumers to “like” their products by making incentives available only to those who liked the product.  This practice is often referred to as a “like-gated” promotion.  The use of these promotions has raised consumer protection questions, and the National Advertising Division of the Council for Better Business Bureaus (“NAD”) has recently issued its first decision involving a like-gated promotion.  To learn more about the decision and allegations considered, please click here to read the Bulletin published by the Internet & New Media Group on January 3, 2012.  

FTC Guidance on How to Incentivize Bloggers

One of the advantages of the new media is that it permits others to help advertise a retailer’s products.  The Federal Trade Commission (FTC) takes the position that if a company provides bloggers with a gift, that fact must be disclosed by the blogger to consumers.   The FTC has now provided some guidance on how companies can comply with this obligation.  According to a letter released by the FTC in connection with an investigation, Hyundai’s advertising agency provided bloggers with gift certificates as an incentive to talk about Hyundai’s forthcoming Super Bowl ad.  Although some bloggers disclosed they had received free gift certificates, others did not.  To read more about the FTC’s decision in this matter and how to avoid liability when incentivizing bloggers, please click here to read the January 10, 2010 Bulletin published by the Internet & New Media group.

IRS Announces New Off-Shore Voluntary Disclosure Program Without a Deadline

On January 9, 2012, the IRS announced a third voluntary disclosure program designed to bring offshore money back into the U.S. tax system and to help people with undisclosed income from hidden offshore accounts become current with their taxes.  Unlike the 2009 and 2011 programs, this program will be open for an indefinite period of time.  To learn more, please click here for the Tax Advice and Controversy Client Service Group’s January 2012 Bulletin.

SEC Advisory Committee Recommends Relaxing Restrictions on Solicitation and Advertising in Private Offerings

On January 6, 2012, the Advisory Committee on Small and Emerging Companies established by the Securities and Exchange Commission (SEC) recommended that the SEC take immediate action to permit general solicitation and general advertising in private offerings of securities under Rule 506 of Regulation D where securities are sold only to accredited investors.  For more information on the recommendation and its implications, please click here to read the January 6, 2012 Alert published by the Corporate Finance and Securities Client Service Group.

Third Circuit Issues Opinion in New Jersey Abandoned Property Litigation

The Third Circuit has issued a long-awaited decision in the New Jersey Abandoned Property litigation, NJ Retail Merchants Association v. Andrew Sidamon-Eristoff.  The court affirmed the District Court’s decision in this important escheat case with broad implications for members of the prepaid industry.  As background, in 2010 New Jersey passed an abandoned property law that, if upheld, would have been devastating for gift card and prepaid card issuers doing business in New Jersey.  To learn more about the NJ abandoned property law and the decision in this case, please click here to read the Alert published by the Financial Institutions Client Service Group on January 27, 2012.

‘Tis the Season for Reporting and Commenting

The first quarter of 2012 brings several reporting deadlines required by the Directorate of Defense Trade Controls (DDTC), Bureau of Industry and Security (BIS) and Office of Antiboycott Compliance (OAC).  To learn more about some of the reporting requirements coming up in the first quarter of 2012, please click here to read the International Regulatory Bulletin No. 492 published January 10, 2012.

The New U.S. Sanctions Against Iran

The new economic sanctions legislation signed by the President on December 31st is part of a 565 page defense authorization bill.  In signing the legislation, the President issued a statement saying that the legislation’s Iranian sanctions provisions ”would interfere with my constitutional authority to conduct foreign relations by directing the Executive [Branch] to take certain positions in negotiations or discussions with foreign governments” and “that should any application of these provisions conflict with my constitutional authorities, I will treat the provisions as non-binding.”    To learn more about the main provisions of the legislation, please click here to read a January 10, 2012 Memorandum published by the International Trade group.

 Investors Beware:  Dividends from Proceeds of Bribes at Risk

In a civil recovery proceeding under the UK’s Proceeds of Crime Act, a London court has approved an order agreed by Mabey Engineering (Holdings) Ltd with the Serious Fraud Office to repay dividends derived from contracts won by its subsidiary through unlawful conduct.  Please click here to read more in the International Regulatory Bulletin No. 493 published January 13, 2012. 

BACKGROUND

In 2010 New Jersey passed a new abandoned property law that, if upheld, would have been devastating for gift card and prepaid card issuers doing business in New Jersey.

• First, the new law shortened the dormancy period for prepaid cards and gift cards from being not even subject to escheat, to requiring escheat after 2 years of inactivity (a shorter period than other states, and far shorter than the required 5 years validity under the CARD Act).
• Second, the new law also required prepaid card issuers to retroactively escheat all funds from inactive prepaid cards sold in the last 5 years.
• Third, the new law required sellers of prepaid cards (both open and closed loop cards) to collect the name and address of the purchaser, or at the very least, the purchaser’s zip code. Later this requirement was modified so that only collection of the purchaser’s zip code was “mandatory.”
• Fourth, if the purchasers name and address (or zip code) was not known or collected, the purchaser’s address would be deemed to be the address of the store where the card was purchased.

NOTE – The reason New Jersey wants sellers to collect purchasers’ name and address, or otherwise wants to “deem” the purchasers’ address to be in New Jersey, is because under the uniform abandoned property laws, unused funds from gift cards and other prepaid cards would be paid to the state of the last known address of the purchaser. But if the last known address of the purchaser is not known (which is the case for virtually ALL gift cards), then the unused funds are paid to the state where the card issuer is domiciled. New Jersey’s new law, deeming purchasers’ addresses to be in NJ, or otherwise requiring collection of zip code data from purchasers, was intended to make sure that more of the unused funds escheat to NJ rather than to other states where the card issuers are domiciled. Since many prepaid card issuers are domiciled in states that don’t require escheat, the imposition of NJ’s new law as initially passed, with retroactivity, could have had serious consequences for many prepaid card programs.

BOTTOM LINE

The Third Circuit’s Opinion represents both good news and bad news for the gift card and prepaid card industry. See details below.

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 NJ Abandoned Property Litigation – Detailed Analysis

 A. Two-year dormancy period – bad news 

• The 2-year dormancy period requiring escheat after 2 years of inactivity was upheld. The court held that the shorter period was not expressly preempted by the CARD Act and has a rational purpose of protecting consumer property.
• Allowing card issuers not to honor gift cards, after they have been escheated to the state in 2 years, is also not impliedly preempted by the requirement in the CARD Act that all gift cards remain valid at least 5 years. The law does not thwart Congress’ intentions because consumer funds will be protected well beyond the 5 years in the CARD Act, in perpetuity. This supposedly is good for consumers. The Court stated that the fact that a consumer might have to go to the state of NJ to get his or her gift card funds back after 2 years doesn’t make it less beneficial for consumers.

B. Retroactive application with respect to cards sold/distributed in the past – good news (mostly) 

• The retroactive application of the abandoned property law against prepaid cards usable for goods/services that have already been sold violates the Constitution’s Contracts Clause and cannot be enforced.
• A contract exists between cards issuers and the card purchasers, and card issuers have a right to earn a profit and get the benefit of their bargain.
• Previous law did not require escheat and to retroactively apply it would impair existing contracts with card purchaser.
• BUT this favorable decision on retroactivity only applies with respect to cards usable solely for goods/services.
  
• No arguments were raised to show that a contract exists between the cash- accessible card issuers and purchasers and thus the Contract Clause arguments regarding cash-accessible prepaid cards were “waived.”
• Moreover, the Court suggests that the decision on retroactivity might have been different if the NJ law had taken only a percentage (such as 60%) of the funds and allowed the card issuers to earn some profit from the gift cards.
• Because the Court affirmed the preliminary injunction based on the Contracts Clause, the Court declined to address the other arguments raised, such as the Takings Clause and Derivative Rights Rule.

C. The Place of Purchase Presumption (or “third priority rule”) – good news 

• New Jersey’s attempt to require escheat of unused prepaid card funds to the Place of Purchase if the Cardholder’s address is not known, and if the issuers’ state of domicile does not escheat the property, was held to be unenforceable.
• The Place of Purchase Presumption was preempted by Federal common law – because the presumption departs from the two priority rules set forth by the US Supreme Court.
• Even if the issuer gets a “windfall” because the issuer’s domicile does not require escheat – that does not merit departing from the settled priority rules set forth in Texas v. New Jersey.
• A state should be able to choose whether or not to escheat; otherwise it violates principles of state sovereignty.

NOTE  –This is one of the most valuable and important rulings by the Court. Roughly 30 states have passed what is known as the “third priority rule,” a rule which, like New Jersey’s, would purport to require unused funds to be escheated to the state where the purchase was made or the transaction occurred, if the purchasers’ name/address is not known, and if the card issuer is domiciled in a state that doesn’t require escheat. The validity of the “third priority rule” has been debated for years, but this is the first time it has been litigated in this context. This decision is welcome news to any gift card or prepaid card issuer that has established a special purpose gift card entity in a state with favorable gift card laws. It means it is less likely now that New Jersey and other states will succeed in asserting their “third priority rule” with respect to unused gift card funds.

D. The Data Collection (Name, Address and/or Zip Code) requirements – bad news. 

• The Court upheld the NJ law’s requirement that name, address or zip code be collected from purchasers, finding that the data collection requirements further a legitimate state goal of wanting to reunite purchasers with their property.
• The Court noted that the fact that the purchaser of a gift card may not be the end user/recipient is not relevant. Collecting the last known address of the purchaser has been authorized by Texas v. New Jersey and other similar cases.
• The section of the NJ law that requires data collection can be separated from the unenforceable portions of the law and can still be enforced.
• The data collection requirements are not preempted by Federal common law and there are rational legitimate reasons for doing so – including determining which state has the right to escheat the property under the first priority rule (that is, based on which state the purchaser resides in).

NOTE – The concern about this part of the decision isn’t just that it’s burdensome or invasive of privacy to collect such data. The concern is that once NJ requires collection of name, address, or zip code, and such address is in NJ, then NJ has a “first priority claim” that takes precedence over the second priority claim of the card issuer’s domicile. So for gift card or prepaid card issuers that have established special purpose gift card entities in a state with favorable escheat laws, that gift card entity will not protect you from a NJ claim. Unless this portion of the ruling is changed, it appears you’ll have to escheat to New Jersey but ONLY for cards purchased in New Jersey. The bigger concern is what happens if other states follow suit.

CONCLUSION

We understand that the New Jersey Treasury has indicated they do not intend to enforce immediately the data collection obligations, but will be issuing new guidance in the future.

Of course it is possible that either the state or the plaintiffs will attempt further legal proceedings, either by petitioning for a rehearing, or by petitioning for certiorari to have the matter appealed to the US Supreme Court. Whether the parties will pursue this case further is currently unknown. In the meantime, gift card issuers and sellers may wish to consider how to implement the collection and retention of purchaser’s name, address and /or zip code for gift card sales in New Jersey.

A copy of the opinion may be found here.

A pdf copy of this Client Alert may be found here.

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Should you have questions, feel free to contact:

 Judith Rinearson
(212) 541-1135
judith.rinearson@bryancave.com

Margo Hirsch Strahlberg
(312) 602-5094
mhstrahlberg@bryancave.com

]]> http://bankbryancave.com/2012/02/third-circuit-issues-opinion-in-new-jersey-abandoned-property-litigation/feed/ 0 http://bankbryancave.com/2012/02/third-circuit-issues-opinion-in-new-jersey-abandoned-property-litigation/ http://feedproxy.google.com/~r/bankbryancave/~3/lNJkDleRD14/ http://bankbryancave.com/2012/02/self-exam-improve-the-health-of-the-bank-and-its-standing-with-regulators/#comments Fri, 03 Feb 2012 04:02:18 +0000 Jonathan Hightower http://bankbryancave.com/?p=8161 Doctors recommend various self exams to catch disease early, so it can be treated before it’s too late. As it turns out, a self examination can be good for the health of a bank as well. My colleagues and I recommend that our banking clients and friends undertake a regular self examination in order to identify potential internal and external challenges that the bank may face. As discussed more thoroughly below, these self examinations can also be very helpful when the bank’s doctor (your friendly regulator) comes in for a check-up.

Enlist internal audit

To initiate the self examination, the audit committee of the bank’s board of directors should charge management with preparing a report that outlines the current and projected status of the bank’s key areas of risk. Ideally, the bank’s internal audit function will take the lead in performing the examination and preparing the related report. In order to maximize the value of this report, the audit committee should direct management to deliver the report at least 60 days prior to the bank’s next scheduled regulatory exam. The self examination report, in its most basic form, should cover the areas that are the focus of the bank’s regulators: CAMELS (capital, asset quality, management, earnings, liquidity and sensitivity to market risk). The report should also address any key areas of risk identified by the directors.

Analyze your market

In addition to analyzing the typical CAMELS components and other areas of risk, a very important part of the self examination process is a market study. The report should present facts, trends and projections related to the market area in order to define the opportunities and challenges being faced by the bank’s customers. While many bank directors have a good feel for market trends, we have found that this data, when presented with specific facts and trends, can inform the board’s discussions of a variety of topics a great deal. It can also provide the bank with support for dealing with its examiners, who conduct their own market analysis prior to each examination.

Evaluate the bank

In the report, management should report on the current status of the various risk areas (for example, capital levels and levels of problem assets), comparisons to peers and steps being taken to improve the current status. While it may be difficult for the officers of the bank to evaluate the bank’s management in the way that the bank’s examiners would, the management portion of the report should address the organizational chart of the bank to ensure that appropriate resources are allocated to each of the bank’s functions. After reviewing the draft report, the audit committee can evaluate the need for further analysis before presenting the final report to the full board. This report should give the audit committee, and eventually the full board, good perspective on the condition of the bank and the need for corrective actions.

Use self exam in multiple ways

The final self examination report should be clearly organized and comprehensive, though concise. The report can be used to color a variety of discussions that the board may have in the normal course of overseeing the bank’s operations. It can serve as the basis for strategic planning discussions in analyzing the opportunities in the bank’s market and the adequacy of the bank’s earnings. It can also be a guide to more basic discussions, such as the pricing of deposits, based on the information related to the bank’s liquidity and opportunities for loan growth. Essentially, the report provides a comprehensive guide to the current and projected health of the bank that the bank’s directors can use for a quick point of reference in making their decisions.

Prepare a presentation for regulators

In addition to business planning purposes, the self examination can be a key tool in preparing for a regulatory examination. Using the results of the self examination, management should prepare a presentation for the examiners that highlights the bank’s key metrics, areas of progress and actions taken to address areas of concern. The market analysis portion of the self examination can be a key component of this presentation. While the bank’s examiners should be generally familiar with the bank’s market, they will not have the specific and direct perspective that the self examination report can provide. Using this market data, the bank can provide factual, documented support for its projections and for any actions it is taking. This presentation should be conveyed to the bank’s examiners at the initial meeting related to the exam, at which a representative of the board should be present. By alerting the bank’s examiners to the focus of the board on the bank’s condition and the steps being taken to improve the bank’s condition, the bank increases the likelihood that the examiners will conclude that the board is performing its duties and that the bank’s internal controls are adequate.

The self examination report can be a very useful tool for bank directors. At its best, it will provide a roadmap for making key strategic decisions. In its most basic form, it documents the board’s focus on oversight of the bank. While producing such a report will use management resources, much of the analysis that should be included in the report can be extracted from management’s ongoing reports to the board. Producing and discussing the self examination report is a healthy exercise, and the bank’s examiners will agree.

This article was first published on BankDirector.com.

This is the second in a series of articles on best practices for bank boards.  (Part 1 can be found here.) During the past several decades, my partners and I have worked with hundreds of bank boards, for institutions ranging in size from under $100 million in assets to well over $10 billion in assets.  Regardless of the size of the entity, we have noticed a number of common characteristics and practices of the most effective boards of directors.  This series of articles describes ten of those best practices.  In the first article in the series, I focused on two fundamental best practices—selecting good board members and adopting a meaningful agenda for the board meetings.  In this article I will discuss three additional best practices—providing the board with meaningful information, encouraging board member participation and making the committees work.

The rest of the story is that the smaller CPP participants have been much slower to repay CPP obligations, and the SBLF was a major boost for those institutions.  In all, 137 institutions exited TARP by refinancing their outstanding CPP investment using SBLF funds.  Through December 31, 2011, 279 banks in all had exited the CPP program either by fully repaying CPP or by virtue of Treasury’s having sold the institution’s stock.  So roughly half of all exits from the CPP – the first investments under which took place in 2008 – occurred during the three months of SBLF infusion in 2011.  In contrast, by the middle of 2009, ten of the largest CPP participants had already repaid $68 billion worth of Treasury investment.

The average SBLF participant exiting the CPP program used $16 million in SBLF funds to refinance CPP obligations.  Compare that to the median CPP investment among the 707 recipients under that program – $10.3 million - and you can see how the SBLF closed out very little of Treasury’s overall CPP investment but was the single most successful community bank TARP exit strategy to date.

Meanwhile, Treasury continues to make its case that the SBLF has also increased small business lending among participants – $3.5 billion (September 30, 2011) over a $35.9 billion baseline (the average for the four quarters ending June 30, 2010) – or about $10 million per bank.  The average SBLF recipient (332 recipients in all) received $12 million.

Broker-Dealers who face inspections from regulators should take heed of recent guidance provided by the two principal securities regulatory agencies.  The regulators are the Financial Industry Regulatory Authority (“FINRA”) and the SEC’s Office of Compliance Inspections and Examinations.  Their jointly issued “National Examination Risk Alert” offers guidance on policies and procedures that broker-dealers should consider for branch office inspection programs.  To learn more, please click here to read the Alert published by the White Collar Defense & Investigations and Securities Litigation & Enforcement Client Service Groups on December 13, 2011.

State Taxation of Former Residents’ Retirement Income

Recently, the New York State Department of Taxation and Finance issued an Advisory Opinion regarding whether New York State may impose income tax on distributions from a nonqualified deferred compensation plan made to a former resident.  The opinion, consistent with federal law, concluded that New York State may not impose tax on these retirement payments.  To read more about the Advisory Opinion, please click here for the Alert published by the Employee Benefits and Executive Compensation Client Service Group on December 28, 2011.

Reminder Regarding Information Reporting For Corporate Actions That Affect Stock Basis

Issuers of securities who undertook an “organizational action” in 2011 that affected the basis of such securities are required to file an information return reporting such action.  The Information Return for actions taken in 2011 was due to be filed January 17, 2012 for actions taken in 2011.  For more information on timing of returns for actions in 2012 and subsequent years, please click here to read the Tax Advice and Controversy Client Service Group Bulletin published December 30, 2011. 

Recent Internal IRS Guidance Regarding Economic Substance Doctrine

In July 2011, the Large Business and International Division of the IRS issued an internal directive setting forth the process examiners should follow when determining whether to apply the economic substance doctrine to challenge a transaction.  To learn more about the process to be followed and insight into when the doctrine, as codified, may be applicable, please click here to read the Bulletin published by the Tax Advice and Controversy Practice Group in December 2011.

Expanded US Tax Reporting and Anti-Abuse Provisions designed to Discourage U.S. Persons from Hiding Income and Assets in Foreign Countries

The Foreign Account Tax Compliance Act enacted in 2010 as part of the Hiring Incentives to Restore Employment Act added Section 6038D to the Internal Revenue Code which requires any U.S. individual taxpayer holding interest in “specified foreign financial assets” that exceed in the aggregate a certain value threshold to attach newly issued IRS Form 8938 to the Taxpayer’s annual income tax return.  To read more, please click here for the Bulletin published by the Tax Advice and Controversy Client Service Group in December 2011.

 On December 19, 2011 the Treasury issued temporary regulations and the related Form 8938 and instructions in final.  To learn more about the temporary regulations and related Form, please click here for the Bulletin published by the Private Client Group in December 2011.

Sunshine Law Proposed Regulations Published; Reporting Requirements Delayed

On December 19, 2011, the Centers for Medicare and Medicaid (“CMS”) published proposed rules for implementation of the federal payment sunshine law, which was included within the federal health care reform law passed in March 2010.  To learn more about the obligations imposed under the law for manufacturers of drugs, medical devices, biologicals and medical supplies who make payments to physicians or teaching hospitals, please click here for the Alert published by the Life Sciences and Health Care Client Service Group on December 19, 2011.

Significant Changes To California Employment Law Effective January 1, 2012

Effective January 1, 2012, California employers will be required to comply with the California Wage Theft Prevention Act of 2011, which includes significant new burdens on employers to provide written notice of various types of information to employees at the time of hire.  To read more about the mandated information, please click here for the Alert published by the Labor and Employment Client Service Group on December 22, 2011.

Combination of Holme Roberts & Owen LLP into Bryan Cave LLP Bolsters Bryan Cave’s Sports, Sponsorship and Event Venue Group

To read about how the combination of Holme Roberts & Owen into Bryan Cave bolsters the firm’s Sports, Sponsorship and Event Venue Group, please click here to read the Alert published by that client service group on December 7, 2011. 

The Joy of College Sports

To read the article titled The Joy of College Sports — Why the NCAA’s Efforts to Preserve Amateurism are Both Lawful and in the Best Interest of College Athletics by Philip D. Bartz and Nicholas S. Sloey, published December 13, 2011, please click here.

New EU Sanctions Against Iran and Syria

On December 1, 2011, the European Council approved additional economic sanctions against Iran and Syria.  To learn more about the new sanctions, please click here to read the Memorandum published by the International Trade Group on December 5, 2011.

Be Careful What you Wish For:  DDTC Issues Proposed Brokering Revisions

Since Part 129 of the International Traffic in Arms Regulations (ITAR) was adopted, it has caused much confusion in the industry regarding who was a “broker,” if “brokering activities” (subject to U.S. jurisdiction) were occurring, and, if so, what requirements needed to be satisfied.  To read more, please click here to read the International Regulatory Bulletin No. 491 published by the International Trade Group on December 27, 2011.

Next Steps in Export Control Reform:  State and Commerce Departments Issue Proposed Rules Related to Jurisdiction of Ground Vehicles, Aircraft and Gas Turbine Engines

On November 7, 2011 and December 6, 2011, the Department of State, Directorate of Defense Trade Controls (DDTC) issued proposed rules to amend the International Traffic in Arms Regulations.  To learn more about the proposed rules, please click here to read the International Regulatory Bulletin No. 489 published by the International Trade Group on December 8, 2011.

Pilot VAT Reform Program Announced for Shanghai

In October 2011, the Chinese State Council announced that it would launch a pilot value-added tax reform program effective January 1, 2012.  To learn more about the industries to which the program will initially apply and the policy documents signaling the official transformation from a Business Tax to a value-added tax (“VAT”), please click here to read the International Regulatory Bulletin No. 490 published by the International Trade Group on December 9, 2011.

The presentation includes an overview of the results of the 2012 Bryan Cave Survey of investment bankers and bank consultants to assist in providing strategic advice to clients.  A sampling of results include:

• “In my opinion, the calendar just needs to turn another 3 to 6 more months and more signs of credit stabilization just need to naturally occur. We think folks will be pleasantly surprised to see the natural “mating process” happen on its own in 2012. [This will] start really slow but moderately gain momentum as 2013 unfolds, and by 2014 it will be a great deal different.” – Chris Marinac, FIG Partners
• “Failed bank opportunities need to disappear (still two more years of this in the Southeast); more healthy buyers need to appear; private equity will become much more involved; buyers prices need to improve; Banks with TARP will likely have to sell as capital markets will not open up in time.” – Bill Wagner, Raymond James
• “Dominate its ‘micro’ market as it relates to deposits and their lending competency and try to achieve critical mass (~$750m).” – Jeff Brand, KBW
• “Sometimes the blocking and tackling basics are a competitive advantage – provide the services desired on par with the big banks with care and concern.” – Phil Moore, Porter Keadle Moore

A copy of their PowerPoint presentation is now available online.