All federally registered PACs and Super PACs are required to file a year-end report of receipts and expenditures no later than Sunday, January 31, 2016. The period covered by the reports is January 1 through December 31, 2015.

Under the FEC’s mandatory electronic filing rules, any committee that receives contributions or makes expenditures in excess of $50,000 in a calendar year, or expects to do so, must submit all campaign finance reports electronically. Committees that do not meet the $50,000 threshold are permitted to file paper reports but the FEC strongly recommends the voluntary use of the electronic filing system. Once a committee begins to file reports electronically, on a voluntary basis, it must continue to do so for the remainder of the calendar year unless the FEC determines that extraordinary and unforeseeable circumstances make electronic filing impractical.

Reports filed electronically must be received and validated by the FEC by 11:59 PM Eastern Time on the filing deadline. Paper filers must ensure that the FEC receives their report by the close of business on the date of the filing deadline. The filing deadline is not extended because the due date falls on a weekend. Additional information about federal filing requirements can be found at: http://www.fec.gov/info/filing.shtml.

All Minnesota political committees, political funds, independent expenditure committees and independent expenditure funds are required to file a year-end report of receipts and expenditures no later than Monday, February 1, 2016.

State reports must be filed electronically. The Board will consider exceptions to the electronic filing requirements if you can show that your committee or fund has a good reason for not filing electronically. If granted, a waiver of the electronic filing requirements is valid for two (2) years.   A committee or fund that fails to file the annual report by the due date is subject to a late filing fee of $25 per day, not to exceed $1,000. Additional information about state reporting requirements can be found at: http://www.cfboard.state.mn.us/index.html.

In accordance with the Minnesota Campaign Finance and Public Disclosure Act, each lobbyist who registers with the Minnesota Campaign Finance and Public Disclosure Board must periodically disclose the total amount of money spent on lobbying activities in a semi-annual Lobbyist Disbursement Report.  The report covering disbursements from June 1 – December 31, 2015 is due Friday, January 15, 2016.

At the time of registration, each lobbyist designates whether he or she is a “self-reporting lobbyist,” an “authorizing lobbyist” or a “reporting lobbyist.”  A self-reporting lobbyist reports his or her own expenditures to the Board.  A lobbyist that reports distributions for another lobbyist on behalf of the same client is referred to as a reporting lobbyist.  A lobbyist who allows someone to report expenditures on his or her behalf is an authorizing lobbyist.  In addition, Minnesota Rules require all lobbyist principals to appoint one lobbyist as a “designated lobbyist” who is responsible for reporting the disbursements of the entity.  Lobbyists must retain records related to lobbyist expenses for a period of four (4) years.

All self-reporting, reporting and designated lobbyists must file a Lobbyist Disbursement Report no later than January 15, 2016. The report must disclose the following information for expenditures between June 1 and December 31, 2015:

• Total lobbying disbursements (not including lobbyist compensation);
• Gifts to public officials; and
• Other sources of funds used for lobbying purposes.

In general, an expense is a lobbying disbursement if it is incurred (1) to communicate with officials for the purpose of influencing official action; (2) to urge others to communicate with officials for the purpose of influencing official action; or (3) for any activity that directly supports either of these types of communication.  Lobbyist disbursements do not include lobbyist compensation.  Lobbyist compensation is reported by the principal on the principal report that is filed in March.  If an actual cost of a lobbying activity is not available, the lobbyist must use a reasonable approximation of the cost.

Designated lobbyists must also provide a current list of officers and directors for the associations that the lobbyist represents.  A report must be filed even if no disbursements were made during the reporting period.

The report may be filed with the Board by facsimile at (651) 539-1196 or (800) 357-4114 or by e-mail to [email protected]. Alternatively, the report may be filed electronically at http://www.cfboard.state.mn.us/lobby/report.htm.  To access the electronic filing system, each lobbyist will need a user name and password that is provided by the Board.   All reports are available for viewing by the public.

A lobbyist who fails to file a required report by the due date is subject to a late filing fee of $25 per day, not to exceed $1,000.  Because January 18 is a holiday, late filing fees will be imposed beginning on Tuesday, January 19.

Should you have any questions regarding the filing of this report, or any other campaign finance or lobbying issues, please contact our Political Law team.

Fulfilling a promise made more than three and a half years ago, on Friday the SEC approved final rules for Regulation Crowdfunding (“Reg CF”), the last remaining component of the JOBS Act of 2012. Reg CF aims to create a nationwide infrastructure for “retail crowdfunding,” primarily benefiting:

• emerging companies and entrepreneurs seeking to raise small amounts of capital from a wide array of investors,
• accredited and non-accredited investors seeking to fund early stage and growth stage companies, and
• funding portal operators seeking to connect the issuers and investors over the internet.

Reg CF is expected to go into effect in 2016. The SEC has published a Fact Sheet detailing highlights of the recommended final rules, which can be found here.

Additionally, on Friday the SEC also proposed rules to modernize intrastate securities offerings, such as Minnesota’s MNvest system, crowdfunding legislation drafted by Winthrop & Weinstine attorneys Ryan Schildkraut and Zachary Robins and signed into law in the state of Minnesota during the 2015 legislative session. Proposed changes to Securities Act Rule 147 and Rule 504 of Regulation D would eliminate cumbersome advertising constraints and increase the amount of securities that may be sold. The SEC’s Fact Sheet on the proposed amendments can be found here. The SEC is seeking public comments to the proposed changes over the next 60 days, and will then determine whether to adopt the proposed rules.

If you intend to utilize crowdfunding for your business, either under the SEC rules or under MNvest, it is wise to begin planning now, to take advantage of opportunities as soon as the rules are enacted.

We will continue to monitor developments to crowdfunding rules; for more information on the proposed changes and how they may affect your business, please feel free to contact us.

The European Court of Justice (the “ECJ”) ruled that national regulators in the EU can override the 15-year-old pact between the U.S. and EU known as the “Safe Harbor.” The Safe Harbor allowed companies based in the U.S. to move personal data on Europeans to U.S.-based computer servers without violating the EU’s privacy laws.

The ECJ’s ruling does not order an end to the data transfers, but holds that national regulators have the right to investigate them and suspend them if they do not provide adequate protection for the personal data. European data protection regulators can now pursue companies for violations.

In anticipation of the ECJ’s decision, the European Union Commission had been working on a Safe Harbor framework to replace the framework that has been struck down by the ECJ. However, it is uncertain when or if this replacement framework will be finalized.

Companies that are relying on the U.S.-EU Safe Harbor Framework to comply with the EU Data Privacy Laws need to consider implementing a new strategy. One possibility is to adopt Model Contract Clauses, which can be set up with the EU. However, Model Contract Clauses are based on the Safe Harbor principles and can be subject to a legal challenge. The other possibility is to adopt Binding Corporate Rules. Binding Corporate Rules (BCRs) are designed to allow companies to transfer personal data from the European Economic Area (EEA) outside of the EEA in compliance with the 8th data protection principle and Article 25 of Directive 95/46/EC. BCRs are legally sound, but are more complex to establish.

All Federal PACs are required to submit a campaign finance report to the Federal Election Commission (FEC) on or before Friday, July 31, 2015. Unless the PAC has elected a monthly filing schedule, the semi-annual report must reflect all receipts and disbursements between January 1, 2015 and June 30, 2015. Under the FEC’s mandatory electronic filing rules, any committee that receives contributions or makes expenditures in excess of $50,000 in a calendar year, or expects to do so, must submit all campaign finance reports electronically. Committees that do not meet the $50,000 threshold are permitted to file paper reports but the FEC strongly recommends the voluntary use of the electronic filing system. Once a committee begins to file reports electronically, on a voluntary basis, it must continue to do so for the remainder of the calendar year unless the FEC determines that extraordinary and unforeseeable circumstances make electronic filing impractical.

Electronic filers have until 11:59 PM Eastern Time on July 31, 2015, to file the July semi-annual report. Paper filers must ensure that the FEC receives their report by the close of business on the date of the filing deadline.

To file the Federal PAC Report online, filers may use the FECFile software, available for download here. Forms and information for paper filers may be accessed here.

If you have questions, please feel free to contact any of the attorneys on our Political Law team.

As the internet continues to expand, there are new opportunities to use recently approved new domain name extensions similar to .COM, .EDU, .ORG, and .NET. One of these domain names of particular interest to financial institutions is the .BANK domain name.

All state, regional and provincial banks, savings associations, and national banks qualify to register the .BANK domain name with an approved domain name registrar. These institutions can only purchase domains with the .BANK extension that correspond to its own name or trademarks. Domain names can be purchased even if the institution does not have a federal trademark registration as long as it can show use and ownership of the trademark.

The .BANK domain names become generally available on a first-come, first-serve basis to all qualified banks at 8 PM EDT/7 PM CDT on June 23, 2015 with an approved registrar. If your bank owns a federal trademark registration, they may be able to file an earlier request for the .BANK domain name for their trademark between now and June 17, 2015.

To ensure that only legitimate members of the banking community are able to register a .BANK domain name and to provide a higher level of security to consumers, a strict verification process and security check is required. Part of the mandatory verification process includes email authentication and enhanced encryption. In addition, .BANK domain names must be hosted on .BANK name servers to ensure compliance. Re-verification is required every two years in order to retain the .BANK domain name. You may wish to discuss this process with your IT professional to ensure compliance and readiness when the .BANK domain names become available.

If you have questions, please feel free to contact the attorneys in our Banking or Trademark practice groups.

In accordance with the Minnesota Campaign Finance and Public Disclosure Act, all lobbyist principals must file an Annual Report with the Minnesota Campaign Finance and Public Disclosure Board (“Board”) on or before March 16, 2015. A lobbyist principal is any individual or group that either hires a lobbyist or spends $50,000 or more in any calendar year to influence governmental action in the State of Minnesota.

The lobbyist principal report must disclose the total amount of money spent by the principal on lobbying efforts in Minnesota from January 1 through December 31, 2014. To calculate the amount to be disclosed, the lobbyist principal must consider the following expenses:

1. All payments to lobbyists;
2. All spending for advertising, mailing, research, analysis, compilation and dissemination of information, and public relations campaigns related to legislative action, administrative action or the official action of any metropolitan governmental unit; and
3. All salaries and administrative expenses attributable to lobbying activities.

On the report, the total amount that the principal spent must be divided into the following two categories:

1. The total amount related to lobbying the Minnesota Public Utilities Commission on cases of rate setting, power plant and power line siting, and granting of certificates of need including application preparation and support activities; and
2. The total amount spent on all other lobbying activities.

The total amount spent on lobbying may be rounded to the nearest $20,000. According to the Lobbyist Handbook that is published by the Board, an organization that spends $3,000 on lobbying may round this number to $0. Similarly, if the principal’s total lobbying expenditures total $36,000, the organization may report the total as $40,000. Rounding, however, is not required and the Board will accept principal reports that include the actual amount spent on lobbying without rounding.

The Annual Report of Principal Lobbyist may be filed with the Board by electronic mail to [email protected] or by facsimile to (651) 539-1196 or (800) 357-4114. Reports may also be filed electronically at www.cfboard.state.mn.us/lobby/reportPrin.htm. A username and password to use the online reporting system is sent to each lobbyist principal in February of each year. If you have misplaced your username or password, you may obtain a new one from Board staff by calling (651) 539-1187. All reports are available for viewing by the public.

If you have questions, please feel free to contact any of the attorneys on our Political Law team.

Stay tuned to our blog, Inside the Minnesota Capitol, for updates on Minnesota politics,

regulatory agencies and state government news.

In a recent decision, a U.S. Court of Appeals held that the filing of a UCC-3 termination statement in a relatively simple payoff transaction between General Motors and a lender was still considered “authorized,” despite the lender’s argument that it had not intended to terminate its security interest. The error took the lender from a secured creditor on a $1.5 billion deal and turned it into an unsecured creditor in the General Motors bankruptcy case. This case serves as a harsh reminder of the importance of carefully reviewing all filings, no matter how routine.

Background 
In 2001, General Motors entered into a lease-financing transaction to obtain $300 million from a syndicate of lenders, led by a primary lender. To secure the lease, the primary lender filed UCC-1 financing statements relating to 12 pieces of real estate, naming itself as the secured party. Five years later, General Motors obtained an unrelated term loan for $1.5 billion from a different syndicate of lenders that also included the same primary lender. To secure the term loan, the primary lender filed another UCC-1 financing statement.

In 2008, General Motors decided to repay the lease. General Motors’ counsel prepared the documents to terminate the security interests associated with the lease. To prepare the documents, General Motors’ counsel performed a UCC search, which revealed three financing statements: two for the lease to be paid off, and one for the term loan, which was not being paid off. Unaware that one of the financing statements applied to the term loan and not the lease – a fact that is not apparent on the face of the financing statement – General Motors’ counsel prepared three UCC-3 termination statements to terminate all three financing statements. The lender and its counsel reviewed and approved the UCC-3 termination statements, and they were filed when the lease was paid off. The error went unnoticed by all parties until one year later, when General Motors filed bankruptcy.

General Motors’ Bankruptcy
General Motors’ committee of unsecured creditors sought a determination that the lender had lost its security interest because of the UCC-3 termination statement relating to the term loan. The lender argued that it was still secured because it had not intended to release the security interests related to the term loan, and it therefore had not “authorized” General Motors’ counsel to file the UCC-3 termination statement. The U.S. Court of Appeals for the Second Circuit did not agree. Although the Court recognized that “unauthorized” terminations are not effective, it concluded that the lender had “authorized” the filing of a UCC-3 termination statement, relying in part on the Delaware Supreme Court’s opinion that subjective intent is not a factor in determining whether a secured party has “authorized” a filing. As a result, the lender’s security interest was terminated and the lender is now an unsecured creditor on the $1.5 billion term loan.

Lessons for Lenders
Before filing or authorizing the filing of a UCC-3 termination statement or preparing a payoff letter, it is important to carefully review the entire lending relationship to ensure that the payoff letter and termination statements accurately reflect the parties’ intent.

On July 9, 2014, in Citizens State Bank Norwood Young America v. Gordon Brown, et al., the Minnesota Supreme Court held that Minnesota’s Uniform Fraudulent Transfer Act (“MUFTA”) may be applied to transfers of assets made as a result of an uncontested divorce. Creditors should be vigilant in monitoring debtors who initiate divorces and transfer valuable assets to non-debtor spouses, as the divorce may be an attempt to fraudulently transfer assets.

Background
In Citizens State Bank Norwood Young America v. Gordon Brown, et al., Mr. Brown guaranteed loans from the bank to two of his companies. The companies defaulted, and Mr. Brown failed to make good on his guarantees. The bank obtained a judgment against the companies and Mr. Brown in June 2010. In October 2010, Mr. Brown divorced his wife of 23 years. In connection with the divorce, Mr. Brown and his wife entered into a consensual marital termination agreement, providing that Mr. Brown would keep certain assets that were mostly exempt from the claims of creditors, while Mrs. Brown would keep assets of significant value that were generally not exempt from the claims of creditors. In addition, the couple continued to live together after the divorce was final. The bank commenced a fraudulent transfer suit against Mrs. Brown, seeking to avoid the transfer and attach the transferred assets to satisfy the bank’s judgment against Mr. Brown.

The Court’s Ruling
Mr. and Mrs. Brown unsuccessfully argued that their marital termination agreement was immune from attack under MUFTA because the agreement was approved as “fair and reasonable” by a state court judge in the couple’s divorce proceeding. While the Supreme Court did not rule on the question of whether a property settlement in a contested divorce proceeding could be subject to attack under MUFTA, it did hold that, in an uncontested divorce, property settlements are subject to attack and agreed that the property settlement between the Browns was made with the intent to hinder, delay and defraud creditors.

Conclusion
After Brown, it is clear that creditors can attack property settlements in uncontested divorce proceedings if the settlement appears to be designed to avoid creditors.

Additional Information
If you have questions, contact one of Winthrop & Weinstine’s attorneys practicing in the areas of Creditors’ Remedies and Bankruptcy Law, Commercial Lending, or Community Banking.

With the rash of significant data security incidents that occurred in 2013 and have continued to this day, it is increasingly important for companies to have an updated cybersecurity preparedness plan. The World Economic Forum ranked cyber-attacks as one of the top five most likely risks companies face in 2014.

In reaction to the heightened risks and recent incidents, regulatory agencies have increased scrutiny in relation to cybersecurity. Congress and state legislatures are looking into new cybersecurity legislation; the Securities and Exchange Commission is targeting companies that rely on boilerplate disclosure language and do not disclose enough detail about cybersecurity risks or attacks; and state attorneys general are inquiring into companies’ employee training practices with respect to data collection and data security practices. In addition, The National Association of Corporate Directors and other highly reputed organizations are advising companies that verifying their cybersecurity should be a top priority.  More and more companies are realizing the necessity of enacting procedures and protocols to protect against cybersecurity threats; as reported by The Wall Street Journal,* the issue has moved from the IT department to the boardroom.

With our global economy, it is important for companies to be in compliance with all international data privacy and security laws, not just those in the United States. More and more countries are adopting these laws; one anticipated law is the European Union (EU) General Data Protection Regulation (GDPR), which will replace the EU Data Protection Directive currently governing the collection and transmission of personal information involving EU citizens. The EU GDPR is expected take effect in 2017, and in its current form, includes a heavy fine for noncompliance equal to 5% of global turnover (sales) or €100,000,000.

Though the National Institute of Standards and Technology (NIST) framework, issued on February 12, 2014, provides a structure that organizations can use to create cybersecurity programs, simply following the framework will not insulate a company from liability for a cybersecurity incident.

To minimize the potential liability that results from a cybersecurity incident, it is recommended that the company have a compliance program in place. The compliance program consists of three to four elements:

• Designing the governance structure. This includes defining the actions involved in collecting and securing consumer data, who will have power over the collection and security processes, and how the company will verify performance.
• Appointing a Data Protection Officer (DPO) (for public authorities and companies with a certain amount of customer data held). Under the current version of the EU GDPR, this mandatory position reports directly to the board of directors, and is responsible for ensuring compliance within organizations. (This requirement is being debated, and may be removed from the final EU GDPR).
• Drafting. Companies must draft policies and procedures concerning the company’s specific data collection and security processes and controls.
• Training. Companies need to implement a program to train their employees on how to prevent data security incidents from occurring.

It is of critical importance that companies review and confirm compliance of their policies, procedures, and controls, as liability from potential attacks increases.

*Yadron, Danny. “Corporate Boards Race to Shore Up Cybersecurity.”  The Wall Street Journal. 29 June 2014. (subscription required)