To the friends of the CLS Blue Sky Blog: The ABA journal is conducting a poll to identify the top 100 legal blogs. We would be honored by your nomination. In addition to reprinting commentary from practitioners and regulators on legal developments in corporate law, securities and other financial regulation, antitrust, restructuring and kindred topics, we feature explanations of recent scholarship in these fields and debates on policy issues. We select our content to provide readers with a rich and broad view, and do not shy away from technical topics. I believe there are few if any other forums serving … Read more
Compliance is a growth field in both legal education and practice. Overall, whether compliance teaching is geared towards students or individuals within a company, greater care and nuance must be taken in undertaking compliance teaching and training to reflect the inter-disciplinary and proactive elements of the creation of robust and effective compliance programs. Increasingly, this means that lawyers and law professors need to incorporate insights from other disciplines in their teaching to use more case studies.
Compliance is a growing field of practice across multiple areas of law. Increasingly companies put compliance risk among the most important corporate governance issues … Read more
Six things every investor, start-up, financial institution and payment processor should know about the future regulation of Bitcoin and other cryptocurrency derivatives.
With the quickly developing market for cryptocurrency derivatives and seemingly inexhaustive possibilities of applications on the blockchain protocol, the U.S. Commodity Futures Trading Commission (CFTC) is keeping a watchful eye, though has not formally announced any policy or regulatory regime for cryptocurrency derivatives. This article considers the current U.S. derivatives regulatory regime of the CFTC and its applicability to Bitcoin, other cryptocurrencies, and the blockchain protocol. We also discuss practical considerations for those entering the market and what … Read more
Delaware dominates the incorporation market, with approximately 60% of publicly traded companies in the United States incorporated there, including 63% of the Fortune 500 companies. Over 90% of companies that incorporate outside of their principal state of operations make Delaware their state of incorporation. The unresolved question is why corporate lawyers and their clients are drawn to Delaware when most companies have little more than a P.O. Box based in the state.
In The Delaware Delusion, we set out to empirically assess whether there is an economic basis for Delaware’s appeal in the market for company incorporations. We set out … Read more
On July 25, 2015, Judge Barbara Lynn of the Northern District of Texas issued a formative opinion in the class actions securities arena. The case, The Erica P. John Fund, Inc., et al. v. Halliburton Co., et al., No. 3:02-CV-1152-M, is viewed as a bellwether among securities class actions due to its treatment of novel issues regarding, among other things, a defendant’s ability to disprove reliance—i.e., a causal link between alleged misrepresentations and an eventual drop in stock prices upon correction—for purposes of class certification.
Rather than requiring plaintiffs to prove reliance for each individual shareholder, securities class action … Read more
The Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), enacted in 2005, has been the subject of extensive commentary over the effects that the Act might have on the chapter 11 landscape and the debtor’s reorganization chances.
In my article, “Chapter 11 Duration, Preplanned Cases, and Refiling Rates: An Empirical Analysis in the Post-BAPCPA Era,” I use multivariate regression models to examine empirically and quantify, for the first time, BAPCPA’s effect on three distinct aspects of the chapter 11 process: (a) the duration of traditional chapter 11 cases; (b) the use of preplanned bankruptcies, that is, prepackaged … Read more
Sovereign debt markets have been on a rough ride recently. On the heels of Argentina’s 2014 default, a turbulent debt situation in Greece has threatened the integrity of the Eurozone. An ongoing debt crisis in Ukraine has stoked economic anxiety and raised geopolitical blood pressures. Meanwhile, Puerto Rico’s debt crisis poses unique challenges as a quasi-sovereign territory without access to bankruptcy.
These episodes highlight the broad and far-reaching effects of sovereign debt on the global financial system. While sovereignty limits the enforceability of their debt contracts, sovereigns lack a formal bankruptcy system. Nor is there a global sovereign debt regulator. … Read more
On May 20, 2015, the Securities and Exchange Commission (“SEC”) proposed a set of rules, forms and amendments to that would expand and update certain reporting and disclosure obligations of registered investment companies and registered investment advisers. The proposed rules seek to improve the quality of information available to investors, to allow the SEC to more effectively collect and utilize the data provided, and further, to enhance the SEC’s ability to monitor risks in the asset management industry.
Proposed new rule 30e-3 under the Investment Company Act of 1940, as amended (“1940 Act”), would provide registered investment … Read more
The role of money and business interests in politics continues to stir controversy. As the nation begins another presidential cycle that is expected to break spending records, we will likely hear analysts argue that the Supreme Court’s decision five years ago in Citizens United v. FEC opened the floodgates by allowing unlimited independent political expenditures from corporate treasuries. A series of calls for reform has followed the decision, including the recent open letter published by former SEC officials asking the agency to require disclosure of corporate political spending. These important issues of our time are rooted in a much … Read more
When a board of directors resolves to sell the corporation, it must structure the sale so as to obtain the highest price reasonably available. In the landmark case Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the Delaware Supreme Court held that when a sale of the corporation becomes inevitable, the “directors’ role change[s] from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders . . . .” Post-Revlon, auctions have become a pervasive feature of the modern takeover landscape. Indeed, a recent survey of four hundred large-scale takeovers with a … Read more
On July 2, 2015, in Hill International, Inc. v. Opportunity Partners L.P., No. 305, 2015, the Delaware Supreme Court affirmed a Court of Chancery decision that Opportunity Partnership L.P. (the “Fund”), a stockholder in Hill International, Inc. (“Hill” or the “Company”), had complied with the Company’s advance notice bylaws and thus timely submitted two business proposals for consideration and two nominees for election at Hill’s 2015 Annual Meeting (the “Notice”). Accordingly, the Supreme Court held that it was proper to enjoin the Company from conducting any business at the Annual Meeting other than convening the Meeting for the sole … Read more
The House is continuing Congress’ piecemeal rollback of the Dodd-Frank Act, a theme Alexander Sand and I explore in our recent article, Cutting Back: Revisions to Dodd-Frank Derivatives Rules. Although the House has targeted a number of Dodd-Frank provisions for regulatory relief, today I will focus on clearing and margin. At present, these requirements are not harmonized in that market participants that are exempt from clearing may nevertheless be forced to post margin when trading with swap dealers and major swap participants (the two types of market intermediaries that are subject to margin requirements under Dodd-Frank). Imposition of … Read more
On May 21, 2015, the United States Court of Appeals for the Third Circuit affirmed a decision of the United States Bankruptcy Court for the District of Delaware, which had approved the structured dismissal of the chapter 11 cases of Jevic Holding Corp., et al. The Court of Appeals first held that structured dismissals are not prohibited by the Bankruptcy Code, and then upheld the structured dismissal in the Jevic case, despite the fact that the settlement embodied in the structured dismissal order deviated from the Bankruptcy Code’s priority scheme.
Jevic Transportation, Inc. was acquired by a subsidiary of … Read more
The fourth and latest iteration of the EU’s anti-money laundering directive (AMLD IV) was published on June 5th, after clearing its last legislative stop at the European Parliament. The new directive brings the EU’s anti-money laundering laws more in line with the US’s, which is welcome news for financial institutions that are operating in both jurisdictions. However, in a few areas, the directive establishes requirements that go beyond US regulations and common market practices, and could be costly to implement.
Recent enforcement actions against financial institutions highlight the importance of compliance with anti-money laundering (AML) and terrorism financing … Read more
The Iran sanctions landscape is poised to change in early 2016, but US persons and US companies will see far fewer opportunities than their European counterparts
On July 14, 2015, the P5+1 countries (the United States, United Kingdom, France, Russia, China and Germany) and Iran reached a historic nuclear non-proliferation agreement called the Joint Comprehensive Plan of Action (the Agreement). In line with the framework announced in April 2015 (as discussed in our previous client alert dated April 27, 2015), the Agreement provides for the termination of most European Union (EU) and UN sanctions and significantly more modest … Read more
Can stock exchanges adapt to the challenges of today’s capital markets? As “self-regulatory organizations,” U.S. stock exchanges once enjoyed a nearly exclusive role in coordinating information and trading through interwoven regulatory, mutual, and commercial arrangements with public companies, brokers, and dealers. Competitive and regulatory challenges have gradually chipped away at the mystique of self-regulation. While listing in the United States largely remains a duopoly shared by the NYSE and Nasdaq, primary exchanges no longer account for a majority of trading volume in their listed securities. Moreover, even as they continue to play an essential role in setting market prices, their … Read more
In United States v. Newman, 773 F.3d 438 (2nd Cir. 2014), the Second Circuit overturned the insider trading convictions of two hedge fund managers who received material nonpublic information from public companies via an extended tipping chain. The Newman court was required to interpret the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1983), to answer the question: What must tippees know about the disclosure of non-public information by the tipping corporate insider in order to sustain a conviction?
Dirks, in an opinion written by Justice Lewis F. Powell, Jr., held that there was … Read more
On June 5, 2015, the Securities and Exchange Commission (“SEC”) entered into settled administrative cease-and-desist proceedings with Computer Sciences Corporation (“CSC”) and some of its former executives due to the company’s alleged manipulation of financial results and concealment of problems with the company’s largest contract. Among other things, CSC agreed to pay a $190 million penalty to settle the charges, and two of CSC’s former executives agreed to return a portion of their compensation to CSC pursuant to the clawback provision of the Sarbanes-Oxley Act of 2002. The SEC also charged former CSC finance executives for ignoring accounting standards … Read more
Our paper titled “The Power of Shareholder Votes: Evidence from Director Elections” aims to answer the question: Do shareholder votes matter in uncontested director elections? In principle, shareholders who own a firm should be free to pick the board members who represent them. However, in the U.S., for the most part, shareholder votes for director elections are non-binding, leading scholars to describe shareholder votes as “sham democracy”. Plenty of anecdotal evidence supports this view. For instance, in Cablevision Systems, shareholders repeatedly cast majority votes against re-electing three directors. The directors remained on the board.
Is the Cablevision election an isolated … Read more
Despite the recent drop in oil and natural gas prices, fossil fuels continue to flow out of U.S. wells at astounding rates. In just a few years, the United States has transitioned from a position of substantial dependence on foreign fuels to the status of a leading producer of both oil and gas. This is due largely to the combination of horizontal drilling and hydraulic fracturing deployed in shale formations around the United States. This rapid transition has greatly benefited parts of the country economically but also shows the perils of resource booms and the busts that follow. The current … Read more
On May 28, 2015, Chancellor Bouchard of the Delaware Court of Chancery issued an opinion clarifying and strengthening the rights of a former director and officer to receive mandatory advancement under a corporation’s charter. In Blankenship v. Alpha Appalachia Holdings, Inc., C.A. No. 10610-CB (Del. Ch. May 28, 2015), the Court held that, where a corporation has agreed to indemnify and advance defense costs to the fullest extent permitted by law, the corporation cannot later condition its advancement obligation on statements about an individual’s belief that he or she acted lawfully. Instead, the only condition for advancing defense costs … Read more
If there is one simple lesson from the crisis that we all can embrace, it is that no financial institution in America should be so big or complex that its failure would put the financial system at risk.1 Congress wrote that simple lesson into law as a core principle of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
Consequently, a fundamental change in our framework of regulation as a result of the crisis is to impose tougher rules on banking organizations that are so big or complex that their risk taking and distress could … Read more
This column will focus on two new and unrelated developments linked only by the fact that they both emanate from California: (1) the Ninth Circuit has handed down a significant decision on insider trading—United States v. Salman—that disagrees (at least marginally) with the Second Circuit’s important (but controversial) decision in United States v. Newman; and (2) the SEC’s Regional Office in California has issued Wells Notices to attorneys, taking the position that an attorney representing clients in immigration matters may be acting as a broker under the federal securities laws. The upshot is to place the … Read more
Since AIG’s bailout in September 2008, the role of large, complex insurance firms in the global financial system has received much attention. Concern about the global operations, interconnectedness, and non-traditional activities of these large firms prompted the Financial Stability Board to formally designate 9 life and full insurance firms in six countries as Global-Systemically Important Insurers (G-SII) in July 2013. In the US, where insurance industry assets equal roughly half the size of total assets held by all financial institutions covered by the Federal Deposit Insurance Corporation, the Financial Stability Oversight Council has confirmed the designation of AIG, MetLife and … Read more
If you think nothing is impossible, try slamming the revolving door of Washington. Despite widespread frustrations, it continues to shuffle employees between government and corporate jobs, and it’s not expected to stop spinning any time soon.
Many on the street eye senior-level government-to-corporate career transitions with suspicion. A prime example is the case of Darleen Druyun. Druyun, who oversaw the management of weapons acquisitions program for the U.S. Air Force, joined Boeing in 2003 as the Deputy General Manager for Missile Defense Systems. Subsequent disclosures revealed that she was negotiating the terms of her Boeing employment while she was handling … Read more
A recent Delaware Chancery Court decision confirms that, as the court held three years ago in Seinfeld v. Slager, there is no shareholder ratification defense for self-awarded director compensation granted under a stockholder-approved option or bonus plan that lacks “sufficiently defined terms” or “some meaningful limit” on director discretion.
I. GENERAL STANDARD
Director decisions are generally afforded wide latitude under the business judgment rule. The protections of the business judgment rule, however, “can only be claimed by disinterested directors.” The “directors can neither appear on both sides of a transaction nor expect to derive any personal … Read more
In response to perceived corporate governance shortcomings in major U.S. corporations, the U.S. Department of Justice, starting in 2002, substantially increased the execution of non- and deferred prosecution agreements (N/DPAs). High profile N/DPAs and plea agreements executed in 2012 and 2014 suggest that the DOJ – not judges or the legislature – through its targeting of certain industries, is effectuating large-scale corporate governance changes. The companies subject to NDPAs are among the largest domestically and worldwide, including Johnson & Johnson, KPMG, HSBC, JPMorgan Chase, Deutsche Bank, ABN Amro Bank, Barclays Bank, Credit Suisse, Fannie Mae, Freddie Mac, General Reinsurance, … Read more
Emerging markets are increasingly important destinations for international capital flows. Yet these markets pose important risks for investors, in addition to the business risks present in every market. For example, in some countries, many public firms are part of family business groups, raising the risk of self-dealing by the controllers. Thus, firm-level corporate governance can be an important factor in investors’ decisions on which countries and firms to invest in, and how much to pay for shares. Yet, despite the important role of corporate governance in affecting firm value, little is known about what aspects of governance are valued by … Read more
Some legal rights and obligations are so venerated and longstanding that they have become virtual absolutes—categorical imperatives that trump other less urgent considerations. But what happens when two such absolutes collide? This was a question that the US District Court of the Northern District of California had to wrestle with recently, in a case pitting directors’ fiduciary duties against their entrepreneurial rights to innovate.
The case concerned a medical device company’s complaint against its former director for breach of fiduciary duty. His offense? Secretly developing a new technology that competed with (and arguably improved upon) the corporation’s core product … Read more
In recent years, corporate bond markets have become an increasingly important source of corporate finance, especially for non-financial companies. Given this worldwide trend, it is crucial for policy makers, regulators and market participants to have access to a comprehensive overview of corporate bond market developments and the structural issues accompanying these trends. In the recent OECD working paper entitled “Corporate Bonds, Bondholders and Corporate Governance”, we aim to serve this need by analysing more than 100,000 corporate bonds issued between 2000 and 2013 by companies from 108 different countries.
As depicted in Figure 1, the annual amount of … Read more
A recent news story gives us a sobering anecdote about the Greek crisis: a merchant who must conduct all his business in cash because he can neither receive credit card payments nor pay vendors with electronic transfers. This means that the Greek banking system is failing to provide a payment system, a core function. At first blush, this looks like another piece of the same crisis story we’ve heard for some time. But it is important to distinguish the banking system and its woes from the refusal of the “Troika” to extend a bailout program for the Greek government over … Read more
There is broad agreement that predatory subprime lending – along with faulty securitization practices – were important causes of the recent financial crisis. Although the U.S. economy has improved significantly since 2008, it has not fully returned to normal, in part because the housing sector continues to lag. And while the foreclosure crisis been largely resolved in many states, other states – such as Florida, New Jersey and New York — continue to experience a high volume of foreclosures. The communities of color that were targeted for the worst subprime lending practices still experience their lingering effects. In addition, foreclosures … Read more
In 1999 Kotsovolos, the leading Electronics Supplier in Greece, reported in its initial public offering prospectus an earnings forecast that missed its actual earnings, as announced by its first annual report, by 234%. This inaccuracy is attributed to the mandatory disclosure requirement imposed by the Hellenic Capital Market Commission, which obligated every firm going through an IPO to predict its next year’s earnings regardless of its ability to do so. Ultimately, repeated failures to achieve accurate earnings forecasts led to a lifting of the obligation to forecast earnings. Our new paper, Voluntary vs Mandatory Management Earnings Forecasts in IPOs, … Read more
Since the passage of the Jumpstart Our Business Startups (JOBS) Act, and its endorsement of equity crowdfunding (ECF), capital markets observers have had another issue to debate. Investor protection advocates claim that investors in the capital markets will be hit with fraudsters trying to make a quick buck while would-be capital raisers seek an efficient way to access funds for their businesses.  The costs and benefits of ECF bear analysis.