November 14, 2007
The Debut of Rule 2290
I have an article in this week's issue of The Deal on FINRA's new Rule 2290 entitled The Debut of Rule 2290. The Rule promulgates new disclosure and procedural requirements with respect to fairness opinions for member organizations. For those who want some flavor, I conclude:
In a hearing before the Delaware Chancery Court shortly after SEC approval of Rule 2290, Marc Wolinsky, a partner at Wachtell, Lipton, Rosen & Katz referred to fairness opinions as: “the Lucy sitting in the box: ‘Fairness Opinions, 5 cents.’” Rule 2290 is unlikely to change the poor reputation fairness opinions currently have on Wall Street. Ultimately, FINRA and the SEC would have done better to address the real problems with fairness opinions, such as their subjectivity and the failure of the investment banks to use best practices in their preparation, rather than piling on more and largely meaningless procedural strictures.
Alternatively, the best solution would be for the Delaware courts to do what, in their hearts, they know is right and overturn the effective requirement for an acquiree fairness opinion promulgated in 1985 in the Smith v. Van Gorkom case: The case fondly referred to by industry as the “Investment Banker’s Full Employment Act of 1985”. This would permit the participants in change of control transactions to assess for themselves the value and worth of a fairness opinion and economically spur investment banks themselves to remedy the current situation. An incentive which today is sorely lacking.
You can check out my full critique of the Rule in this week's issue of The Deal or on their website at The Deal.com.
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