Tag: disclosure

California’s Public Disclosure of Private Fund Investments

top secret

One of the challenges with having a government pension plan investor is the potential disclosure obligations under the states’ sunshine laws. A similar problem exists with Securities and Exchange Commission. The SEC is subject to the Freedom of Information Act and exam information is potentially subject to some level of disclosure.

But the state level equivalents of FOIA are worded a bit differently. You also have the situation where the state’s pension fund is an investor. So the performance of an investment is somewhat relevant to the public, since public tax dollars are at work.

A recent ruling came out of California. That case involves the efforts by a news publication to obtain individual private fund information for investments made by the Regents of the University of California. Reuters made the request under the California Public Records Act, Gov. Code, § 6250 et seq. The Regents refused to provide the information. Reuters sued.

The Superior Court ruled in favor of Reuters and found that the Regents were required to use “objectively reasonable efforts” to obtain individual fund information for the Regents’ current investments even though the Regents had not prepared, owned, used, or retained this fund information.

The First District Court of Appeal reversed in Regents of the University of California v Superior Court, (Cal. App. 1st Dist. Dec. 19, 2013).  The Court held that

unless a writing is related “to the conduct of the public’s business” and is “prepared, owned, used, or retained by” a public entity, it is not a public record under the Public Records Act, and its disclosure would not be governed by the Act.

Clearly, the private fund information is related to the public’s business because tax dollars are being invested.

The decision made in Coalition of University Employees v. The Regents of the University of California (Super. Ct. Alameda County, 2003, No. RG03-089302) (the CUE Case) made it clear that private fund reporting on investments by the Regents is subject to California’s Public Records Act. That case involved a request for the internal rate of return for 94 separate private fund investments.

As a result, some of the fund managers stopped reporting to the Regents.

Subsequently, the Public Records Act was amended and California Government Code Section 6254.26 carves out specific pieces of information about private funds. Although the fund documents, meeting materials and financial statements are not part of the public record, fund return information is still within the bounds of disclosure.

Some of the Regents’ fund managers provided minimal information because they did not want it disclosed to the public. In the discussion, the Court makes it clear that it is not ruling on whether it is proper for private fund managers to withhold the information or whether the Regents should continue to do business with private fund managers who withhold information because of the sunshine law.

References:

Corporate Governance of Public Web Sites

Jane K. Storero and Yelena Barychev of The Legal Intelligencer and Law.com authored an article that the system of reviewing and monitoring information posted on a company Web site should be part of the disclosure controls included in the enterprise-wide risk management system established by the company: Corporate Governance of Public Web Sites.

This article describes methods of effectively complying with the SEC guidance related to company websites: Commission Guidance on the Use of Company Websites (Release 34-58288, August 7, 2008).

That release gave some guidance as to whether a company’s website is a means of public dissemination of information under Regulation FD.

It also addresses how the anti-fraud provisions of the federal securities laws can be applied to a statements made on the internet.  One issue is whether historical information is considered “republished” each time the material is accessed on the company’s website. If they are considered republished, then the company would have a duty to update the materials.

As a general matter, we believe that the fact that investors can access previously posted materials or statements on a company’s web site does not in itself mean that such previously posted materials or statements have been reissued or republished for purposes of the antifraud provisions of the federal securities laws, that the company has made a new statement, or that the company has created a duty to update the materials or statements.

The release also notes that hyperlinks to third party information could be implicated as part of the anti-fraud provisions. The key is the context of the hyperlink. If explicit approval or endorsement is plainly evident, then the hyperlink to a third party statement can be found to be a implicit approval of the statement in the hyperlinked web page.

The release also endorses the use of blogs:

We acknowledge the utility these interactive web site features afford companies and shareholders alike, and want to promote their growth as important means for companies to maintain a dialogue with their various constituencies. As we noted in the Shareholder Forum Release, companies may find these forums “of use in better gauging shareholder interest with respect to a variety of topics,” and the forums “could be used to provide a means for management to communicate with shareholders by posting press releases, notifying shareholders of record dates, and expressing the views of the company’s management and board of directors.”

Statements made on a blog or forum will not be treated any differently than any other statements made by the company for purposes of anti-fraud provisions.