Exchange Act §14(a)
The Exchange Act authorizes the SEC to promulgate rules to curb management abuses in the solicitation of proxies identified during congressional hearings leading up to the Exchange Act.
Rule 14a-3(a)
Any person (including management) who solicits proxies from public shareholders must file with the SEC and distribute to shareholders (whether record or beneficial owners) specified information in a stylized proxy statement.
Rule 14a-6
Definitive copies of proxy materials must be filed with the SEC when first mailed to shareholders. In addition, preliminary proxy materials must be submitted for SEC review at least 10 days before being sent to shareholders.
Liability for Proxy Fraud
Federal courts have laid out the elements of a federal proxy fraud case:
Misrepresentation or omission
There must be a misrepresentation or misleading omission of fact. Opinions are also actionable if they misstate the speaker's true beliefs and mislead about the subject matter of the statement.
Materiality
The misrepresentation or omission must be material.
Culpability
The Supreme Court has not addressed the question. Lower courts are split on whether the speaker must have known the misstatement was false or misleading. Some courts suggest negligent misstatements are actionable, others require a showing of scienter.
Reliance
Reliance is presumed, and actual reliance by shareholders need not be shown, if the allegedly false or misleading information was material.
Causal link to transaction
The proxy solicitation must be an essential link to the accomplishment of the transaction. There is no causal link if the vote of manority shareholders was unneeded to accomplish the challenged transaction.
The Exchange Act authorizes the SEC to promulgate rules to curb management abuses in the solicitation of proxies identified during congressional hearings leading up to the Exchange Act.
Rule 14a-3(a)
Any person (including management) who solicits proxies from public shareholders must file with the SEC and distribute to shareholders (whether record or beneficial owners) specified information in a stylized proxy statement.
Rule 14a-6
Definitive copies of proxy materials must be filed with the SEC when first mailed to shareholders. In addition, preliminary proxy materials must be submitted for SEC review at least 10 days before being sent to shareholders.
Liability for Proxy Fraud
Federal courts have laid out the elements of a federal proxy fraud case:
Misrepresentation or omission
There must be a misrepresentation or misleading omission of fact. Opinions are also actionable if they misstate the speaker's true beliefs and mislead about the subject matter of the statement.
Materiality
The misrepresentation or omission must be material.
Culpability
The Supreme Court has not addressed the question. Lower courts are split on whether the speaker must have known the misstatement was false or misleading. Some courts suggest negligent misstatements are actionable, others require a showing of scienter.
Reliance
Reliance is presumed, and actual reliance by shareholders need not be shown, if the allegedly false or misleading information was material.
Causal link to transaction
The proxy solicitation must be an essential link to the accomplishment of the transaction. There is no causal link if the vote of manority shareholders was unneeded to accomplish the challenged transaction.
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