Morrison & Foerster discusses Final Interpretation Regarding Forward Contracts with Embedded Volumetric Optionality Issued by CFTC and SEC

On May 12, 2015, the Commodity Futures Trading Commission (“CFTC”) and Securities and Exchange Commission (“SEC”) jointly issued the CFTC’s final interpretation clarifying its interpretation concerning forward contracts with embedded volumetric optionality (“Final Interpretation”). The Final Interpretation appears to signal that, going forward, the CFTC will take a more relaxed view of which transactions constitute “forward contracts” that are not subject to regulation as swaps. This view should be helpful to many commercial parties entering into contracts that provide for volumetric optionality, which means the right to receive or deliver a commodity in an amount that is more or less … Read more


The Recommendations of Activist Hedge Funds

A major criticism of activist hedge funds, and one that allegedly supports the argument that they suffer from short-termism, is that their recommendations almost always focus on disinvestment. For example, they will typically recommend raising the dividend, cutting costs, spinning off divisions or subsidiaries or preparing the company for sale.[1] Since we should expect activist hedge funds to be indifferent to the types of recommendations they make as long as they believe the recommendations will result in the highest possible stock price, then why do these recommendations seem to be so heavily biased in the direction of disinvestment?

One … Read more

PwC discusses Asset Managers: The SEC’s road ahead

The debate over asset managers’ potential systemic risk has been ongoing for some years, with little agreement between the industry, US regulators, and global standard setting bodies. US regulators themselves have been divided – the SEC has in particular been skeptical that asset managers or individual funds can be the source of systemic risk of a magnitude akin to that posed by large banks.

Nevertheless, consensus is finally forming on the need to address specific risks of the industry. With the designation of asset managers as systemically important financial institutions (“nonbank SIFIs”) by the Financial Stability Oversight Council (“FSOC”) now … Read more


The Impact of Governance Mandates on the Evolution of Firm Value and Governance Culture

Our manuscript titled “The impact of governance mandates on the evolution of firm value and governance culture” contributes to the growing literature that uses quasi-exogenous shocks to equilibrium governance practices to examine important firm outcomes. We specifically examine whether and how changes to the NYSE and NASDAQ corporate governance listing standards that were motivated by provisions of the Sarbanes-Oxley legislation relate to two important firm outcomes. One outcome is long-term firm value and the other is our new notion of a firm’s “governance culture” measured using the firm’s non-mandated governance practices. This new notion of a governance culture … Read more

Morrison Foerster discusses Top Ten International Anti-Corruption Developments for May 2015

In order to provide an overview for busy in-house counsel and compliance professionals, we summarize below some of the most important international anti-corruption developments in the past month with links to primary resources. This month some major anti-corruption cases, both Foreign Corrupt Practices Act (FCPA) and nonFCPA related, have dominated the headlines and are reflected in our coverage. In addition, a number of government officials on both sides of the Atlantic have been on the speaking circuit, and we have captured some of the highlights from their speeches. Here is our May 2015 Top Ten list:

  1. FIFA Officials and Sports

Read more

WilmerHale discusses how FINRA Allows Use of Related Performance Information in Communications Regarding Mutual Funds with Financial Intermediaries and Other Institutional Investors

On May 12, 2015, the staff of the Financial Industry Regulatory Authority (FINRA staff) issued an interpretive letter to Hartford Funds Distributors, LLC (Hartford Funds) that conditionally allows distributors of mutual funds to include certain types of related performance information in communications with institutional investors, including registered broker-dealers and investment advisers.1 In other words, mutual fund distributors for the first time may include related performance information in sales literature when selling or recommending mutual fund shares to institutional investors and communicating with financial intermediaries.

FINRA Rule 2210 generally governs communications with the public. Paragraph (d) of the rule includes … Read more

Wachtell Lipton provides a Corporate Governance Update: Dealing with Director Compensation

Due to a recent Delaware Chancery Court ruling,[1] the topic of director compensation currently is facing an uncharacteristic turn in the spotlight. Though it receives relatively little attention compared to its higher-profile cousin—executive compensation— director compensation can be a difficult issue for boards if not handled thoughtfully. Determining the appropriate form and amount of compensation for non-employee directors is no simple task, and board decisions in this area are subject to careful scrutiny by shareholders and courts.

The core principle of good governance in director compensation remains unchanged: Corporate directors should be paid fair and reasonable compensation, in a mix

Read more

Barbara J. Fick

Corporate Social Responsibility, Free Trade and the Trans-Pacific Partnership

The adoption of Codes of Conduct (CoC) by Multinational Corporations (MNC) as a mechanism for ensuring respect for worker rights by both the MNC itself as well as the contractors within its supply chain is a relatively recent phenomenon. The first labor CoCs appeared in the 1990s as a response to consumer outrage over worker conditions in textile factories operated by MNCs and their contractors that were akin to indentured servitude, as well as the use of child labor. Experience with such codes over the past twenty years indicates serious shortcomings in their ability to effectively protect workers from abusive … Read more

Morgan Lewis discusses Why Companies Need Not Expend Exorbitant Fees to Get Full Cooperation Credit from DOJ

During an FCPA panel event, the Chief of the US Department of Justice’s Fraud Section advised companies to conduct “targeted” FCPA investigations, dismissing the suggestion that companies must spend hundreds of millions of dollars to receive full cooperation credit, and previewed a new transparency initiative.

On May 14, a panel titled “Foreign Corrupt Practices Act: Recent Trends in Enforcement and Compliance” featured panelists Chief of the US Department of Justice’s (DOJ’s) Fraud Section Andrew Weissmann; Revlon’s Executive Vice President, General Counsel, and Chief Compliance Officer Mitra Hormozi; and Morgan Lewis partner Martha Stolley and was moderated by Morgan Lewis partner … Read more

Wilson Sonsini discusses Delaware Supreme Court Clarifying Application of Exculpatory Charter Provisions to Motions to Dismiss Independent Directors

On May 14, 2015, the Delaware Supreme Court issued its decision in In re Cornerstone Therapeutics Inc., S’holder Litig., clarifying that damages claims against independent directors can be dismissed where: (1) an applicable exculpatory charter provision exists; and (2) a plaintiff fails to plead a non-exculpated claim against them, regardless of the applicable standard of review. That is, independent directors will not automatically be required to remain defendants in a litigation simply because, for example, the challenged transaction was with a controlling stockholder. Rather, plaintiffs must state facts sufficient to support an inference of disloyalty against independent directors themselves.… Read more

Craig Eastland

Survey of Fee-Shifting Bylaws Suggests DGCL Amendments Won’t End Debate

On November 3, 2014, the board of directors of Cogent Communications Holdings, Inc., a publicly traded internet-service provider incorporated in Delaware, amended Cogent’s bylaws to include two new provisions. One was a forum-selection provision designating Delaware as the exclusive forum for derivative actions and other claims involving internal corporate matters. The other was a so-called “fee-shifting” bylaw requiring any stockholder who asserts “any claim … against the Corporation and/or any director, officer, [or] employee” and does not obtain a judgment on the merits that “substantially achieves… the full remedy sought” to reimburse any costs the corporation incurred defending the suit … Read more

Shearman & Sterling discusses Extraterritoriality: SEC Proposes Cross-Border Security-Based Swap Rules Regarding US-Based Activity

On April 29, 2015, the Securities and Exchange Commission (“SEC”) proposed rules that would apply certain aspects of its security-based swap regulations (when they become effective) to transactions involving non-US parties that are arranged or executed using US personnel or agents.


The proposed rules weigh in on a controversial issue concerning the scope of US regulation—the extent to which US rules apply to transactions that would otherwise be outside of US jurisdiction, but which are effected using US personnel. The SEC’s proposal follows in the wake of, and is similar in certain respects to, an advisory published by the … Read more

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A Different Take on the AIG Case: The Dangers of Invoking 19th Century Principles to solve 21st Century Problems

Bagehot, as in Walter Bagehot, was mentioned no less than seven times in the decision splitting the baby in the AIG trial.[1]   A nineteenth century British commentator, Bagehot was among the first to recognize that too little liquidity could wreak havoc on a financial system. [2]  In a series of admonitions, known today as Bagehot’s dictum, he admonished central banks to lend freely to any solvent institution with good collateral, but at a penalty rate to minimize the attendant moral hazard.[3] In invoking Bagehot, Judge Wheeler was in good company.   Ben Bernanke and other leading policymakers regularly invoked … Read more

Gibson Dunn discusses MPM Silicones, LLC – The Dawn of a New Golden Age for Debtors?

On May 4, 2015, the District Court for the Southern District of New York affirmed Bankruptcy Judge Robert D. Drain’s ruling confirming the chapter 11 plan of MPM Silicones, LLC. The holdings of the District Court and the Bankruptcy Court are likely to have wide ranging ramifications, because they decrease the bargaining position of secured creditors in plan negotiations, while increasing the rights of debtors and junior creditors in contentious chapter 11 cases.

I. Background 

On August 26, 2014, Judge Drain ruled on several plan confirmation issues, including, most notably, that the debtors, Momentive Performance Materials, a manufacturer of silicone … Read more

Zonis Parsont

The U.S. Menu of Early-Stage Capital-Raising Options: Lessons for the European Commission

The European Commission, in its green paper dated February 18, 2015, announced the “need to build a true single market for capital – a Capital Markets Union for all 28 Member States.”[1] One of the goals of the Capital Markets Union is to unlock more investment for small and medium sized enterprises (“SMEs”). SMEs are Europe’s equivalent to startups and small businesses in the United States. At present, small businesses in Europe receive five times less funding from the capital markets than their American counterparts.[2] So, the European Commission is looking for feedback from those who work in … Read more

Morrison & Foerster discusses CFTC Proposed Relief from Trade Option Reporting and Recordkeeping Requirements for Commercial End Users

On April 30, 2015, the Commodity Futures Trading Commission (“CFTC”) approved for publication in the Federal Register proposed amendments to the trade option exemption (the “Proposal”) that would reduce reporting and recordkeeping requirements for trade option counterparties that are not swap dealers or major swap participants (“Non-SD/MSPs”). Notably, the Proposal would eliminate the annual Form TO filing requirement for Non-SD/MSPs in connection with their trade options, while requiring them to notify the CFTC’s Division of Market Oversight (“DMO”) if their trade options have, or are expected to have, an aggregate notional value in excess of $1 billion in any calendar … Read more


The Implications for Shareholder Voting when an Activist Hedge Fund Interacts with an Independent Board

In a recent post, Some Lessons from DuPont-Trian, Martin Lipton identified shareholder voting in a proxy contest as a problem with hedge fund activism. According to Mr. Lipton, “ISS and major institutional investors will be responsive to and support well-presented attacks on business strategy and operations by activist hedge funds on generally well managed major corporations, even those with an outstanding CEO and board of directors.”[1] My interpretation of this statement is that voting for a slate of hedge fund nominees that goes against the recommendations of a well functioning board of directors (Board) is the wrong vote … Read more

Wachtell Lipton explains IRS Elimination of Partnership Structures Intended to Avoid Corporate Tax on Dispositions of Appreciated Assets

[On June 11th], the Internal Revenue Service promulgated regulations eliminating a structure that used a partnership to avoid corporate level tax on the disposition by a corporation of an appreciated asset, the so-called “May Company” structure. The structure had been targeted by regulations that were proposed in 1992, but its status had been uncertain in light of subsequent legislative developments and the IRS’s failure to finalize the 1992 proposed regulations. The new regulations, issued in temporary form, address transactions in which a corporation contributes an appreciated asset to a partnership, and the partnership acquires stock in the corporate partner. Economically, … Read more

John Coffee, Headshot

The AIG Case: Moral Hazard on Steroids!

The AIG decision (actually, Starr International Co. v. The United States[1]) has shocked many but for the wrong reason. Some commentators have focused on the ingratitude of Maurice Greenberg, AIG’s former CEO and the “architect” of its international insurance business. In their view, he should have been thankful for the $85 billion loan extended by the Federal Reserve Board (which still left AIG’s shareholders holding 20% of their stock). Ultimately, AIG’s shareholders did much better than their Lehman counterparts (who received nothing), but these issues of comparative fairness and Greenberg’s alleged chutzpah go mainly to the cosmetics and … Read more

Eric S. Klinger-Wilensky and Nathan P. Emeritz

Using Financial Advisor Engagement Letters to Vet Potential Conflicts of Interest

Financial advisors often are selected by a board of directors (or committee thereof) to advise on a strategic review process because of their role as brokers in the market and their ability to generate transactional activity.  Of course, that role and ability is dependent upon relationships with potential counterparties to a transaction.  Because financial advisors are hired in part to exploit their relationships with potential counterparties, inevitably conflicts of interest will arise.  Delaware law clearly permits directors to make a decision that the benefits of engaging a particular financial advisor (including, in many cases, that financial advisor’s contacts in the … Read more

Lawrence Cunningham

Buffett’s and Berkshire’s Anti-Bureaucracy

Legions of people have learned valuable lessons from Warren Buffett about investing; his $375 billion Berkshire Hathaway last month celebrated its 50th anniversary under his leadership. But Buffett’s and Berkshire’s lessons about corporate administration have been ignored, although they are more socially and economically significant. For fifty years, while other American companies evolved into bureaucracies, Berkshire maintained a distinctive anti-bureaucratic culture, despite now employing 350,000 people across sixty different subsidiaries.

As explored in my book, Berkshire beyond Buffett: The Enduring Value of Values (Columbia University Press 2014), Berkshire’s practices are based on old-fashioned values such as self-reliance, autonomy and … Read more

Sullivan & Cromwell discusses Delaware Legislation Saying No to “Loser-Pays” Fee-Shifting Bylaws But Yes to Forum-Selection Bylaws for Stock Corporations

On May 12 and June 11, 2015, the Delaware Senate and House of Representatives, respectively, passed a bill (the “Bill”)[1] that would amend Title 8 of the Delaware General Corporation Law (“DGCL”) to prohibit Delaware stock corporations from including in their charters or bylaws so-called “loser-pays” fee-shifting provisions in connection with “internal corporate claims” brought by stockholders. Following the Delaware Supreme Court’s May 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund, in which the Court held that “fee-shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable,”[2] it was unclear to some practitioners … Read more

Simpson Thacher discusses SEC Awarding Maximum Allowable Whistleblower Payment In Its First Case Involving Alleged Retaliation Against A Whistleblower

On April 28, 2015, the Securities and Exchange Commission (“SEC”) announced that it awarded the maximum allowable award to a whistleblower under the Dodd-Frank whistleblower program in its first case involving alleged retaliation by an employer against an employee who reported suspected misconduct to the SEC.[1] This award of 30 percent of the amount collected by the SEC in In the Matter of Paradigm Capital Management, Inc. and Candace King Weir equaled a payment of more than $600,000 to the employee who, according to the SEC, provided “key original information that led to the successful SEC enforcement action.”

In … Read more

Sullivan & Cromwell discusses SEC Guidance on Approach to Forum Selection in Contested Actions

The SEC’s Division of Enforcement has issued guidelines explaining the factors it will consider in determining whether to bring enforcement actions as administrative or judicial proceedings. The SEC recently has been criticized for its increased use of administrative proceedings to resolve novel applications of the securities laws. In the newly issued guidance, the Division identified a non-exhaustive list of four factors that the Division may consider in determining the proper forum for an enforcement action, but the Division also made clear that the circumstances of each particular case will ultimately govern where the case is brought. The Division reiterated its … Read more

Andrew Schwartz

Young Hearts Be Free Tonight: The Promise of Teenage Crowdfunding

Entrepreneurship is widely viewed as socially beneficial because it lifts employment and grows the economy, among other reasons. Teenage entrepreneurship—that is, where teenagers organize and manage startup companies of their own—can be particularly valuable because teenagers have a special knack for creating revolutionary, new types of businesses. Consider that Bill Gates founded Microsoft, and Mark Zuckerberg founded Facebook, both as teenagers.

This phenomenon of the teenage entrepreneur originated in the 1970s. Prior to that time, the so-called “infancy” doctrine of contract law prevented anyone under the age of twenty-one from starting a business. But then came Vietnam, which changed everything. … Read more

1. Margaret Ryznar

Catching Insider Trading

Despite losing several high-profile cases, the U.S. Securities and Exchange commission (SEC) has committed itself to prosecuting insider trading, outlawed by a patchwork of rule-making and court decisions. In recent years, the SEC has filed record-numbers of insider trading actions, totaling hundreds of cases.[1] To increase the success of these prosecutions, much attention has focused on shoring up the legal framework on insider trading, described by many as ambiguous. However, attention should also be paid to how to catch insider trading based on an empirical analysis of insider trading.

This is the subject of our new article, which provides … Read more

Gibson Dunn discusses Delaware Court of Chancery Decision Rejecting Continuous Insolvency Requirement for Creditor Derivative Claims

On May 4, 2015, Vice Chancellor Travis Laster of the Delaware Court of Chancery issued an opinion providing a thoughtful analysis of when the creditors of an insolvent corporation have the right to bring derivative claims, such as those alleging breach of director fiduciary duties. In Quadrant Structured Products Co., Ltd. v. Vertin,[1] the Court examined a question of first impression under Delaware law: whether that law imposes a continuous insolvency requirement for creditors to maintain standing to bring derivative claims against a corporation. The Court began its analysis with a discussion of the nature of a creditor’s … Read more