On March 18, 2015, the Federal Trade Commission (FTC) ordered Par Petroleum Corporation to terminate its storage and throughput rights at a key gasoline terminal in Hawaii. This action will settle FTC charges seeking to prevent Par’s acquisition of Koko’oha Investments, Inc. Notably, the market structure created as a result of this remedy mirrors a market structure that was deemed anticompetitive in a 2005 FTC action. The two differing approaches to the same market highlight a key trend in the FTC’s merger enforcement: the focus on competitive effects of a transaction, as opposed to the resulting market structure.
The Market … Read more
By motivating lawyers to handle class actions, fee awards enable millions of people to obtain access to justice every year and strengthen the effect of regulatory laws. But the process by which judges decide how much to pay lawyers has long been a black box. Settlements go in one side; fee awards come out the other. Researchers have studied the inputs and the outputs, but not the process that connects the two. Consequently, it is difficult to know why judges award the amounts they do.
Our new study, to be published this fall in the Columbia Law Review, seeks … Read more
In a decision published on March 9, 2015, the Supreme Court ended the D.C. Circuit Court’s Paralyzed Veterans doctrine, which required administrative agencies to utilize the Administrative Procedure Act’s (APA) notice-and-comment process in order to substantially alter an interpretation. See Perez v. Mortgage Bankers Assoc., 575 U.S. ___, No. 13-1041, slip op. (March 9, 2015). According to the Court, this doctrine improperly imposed procedural requirements on agencies that are not required by the APA.
Pursuant to the APA, legislative rulemaking requires a period for notice and comment by industry stakeholders because, unlike interpretive rules, a legislative rule has … Read more
For those interested in the allegations against Navinder Singh Sarao and Nav Sarao Futures Limited PLC, which implicate them in extensive market manipulation and the “Flash Crash” of 2010, here are the complaints from the DOJ and CFTC as well as an ex parte order obtained by the CFTC against the defendants: United States of America v. Navinder Singh Sarao; CFTC v. Navinder Singh Sarao and NAV Sarao Futures Limited PLC; and Ex Parte Statutory Restraining Order, Navinder Singh Sarao and NAV Sarao Futures Limited PLC.… Read more
Financial panics are pernicious, but they can be countered with government guarantees of panic-prone debt. In the wake of the crisis, however, Congress has stripped regulators of this sort of guarantee power, motivated in large part by concerns that such powers could exacerbate moral hazard. In a new article, The Moral Hazard Paradox of Financial Safety Nets, I suggest that the moral hazard impact of guarantee authorities in the current system is ambiguous – indeed, it is plausible that guarantee authorities could reduce the (net) cost of moral hazard arising from expectations of government intervention. This supports the view … Read more
The Delaware Rapid Arbitration Act (DRAA)—which provides a streamlined arbitration process that will allow for prompt, cost-effective resolution of business disputes—was passed by the Delaware House of Representatives on March 19, 2015, and the Delaware Senate on March 31, 2015, and was signed by Governor Jack Markell on April 3, 2015. The DRAA will become effective on May 4, 2015, and will be codified as new Chapter 58 of Title 10 of the Delaware Code. As summarized in more detail below, the DRAA offers a real alternative to the litigation process, providing companies with the chance to engage in a … Read more
SEC Proposes Rule Extending FINRA Membership Requirement to Currently Exempted Proprietary Trading Firms
On March 25, 2015, the U.S. Securities and Exchange Commission (SEC) voted unanimously to issue a proposed rule amendment that would significantly narrow the existing exemption that permits many proprietary-trading broker-dealers to operate without being a member of the Financial Industry Regulatory Authority (FINRA).
Section 15(b)(8) of the Securities Exchange Act of 1934 requires a registered broker-dealer to belong to a registered national securities association, i.e., FINRA, unless it is a member of a national securities exchange and trades securities only on that exchange. SEC Rule 15b9-1 … Read more
In 2010, the Securities and Exchange Commission (SEC) issued guidance that requires companies to tell shareholders how they may be harmed by proposed energy regulations, unless the company determines that the regulation will be unlikely to affect the company. Since then, shareholder groups, environmental organizations, and proxy advisory firms have complained that companies are ignoring or skirting this requirement. And this criticism has only grown louder as the Obama administration has adopted new greenhouse gas emission standards that apply to a wide range of old and new power plants, refineries, and factories.
But in another forum, companies have … Read more
A watershed moment is coming for shareholder activism and corporate governance generally, as the proxy contest brought by Trian Management Fund, seeking effectively to break up DuPont, enters its final stages (with the vote being less than a month away). Technically, the contest is to elect four Trian Fund nominees to the DuPont board, but, as a column in the New York Time’s Dealbook put it more bluntly, the real fight is over whether to break DuPont into three parts and “shut down DuPont’s central research labs.” Much about this contest is unusual: unlike other targets of activism, DuPont … Read more
On 18 February 2015, the European Commission published a green paper on building a Capital Markets Union, alongside two complementary consultation papers on a revised EU framework for securitisation and a review of the Prospectus Directive. The proposals are part of an initiative to develop a more integrated single market for raising capital across the EU. The proposals in the green paper are in outline form because the ideas for creating the Capital Markets Union remain at an early stage of development. However, with an action plan due to be published later in 2015, they provide insight into the early … Read more
On April 1st, President Obama issued an Executive Order authorizing sanctions against persons found to have engaged in or supported significant malicious cyber activities. Under the order, the Secretary of the Treasury is authorized to designate and impose sanctions on individuals and entities that are responsible for or complicit in certain cyber-related activities that pose a significant threat to the national security, foreign policy, economic health, or financial stability of the United States. The Executive Order focuses in particular on cyber activities that harm or compromise critical infrastructure, disrupt computers or computer networks, or misappropriate funds, information, or trade secrets. … Read more
Thank you, Hal [Scott], for that kind introduction. I apologize for not being able to address you in person. Back in 2013, I opened a speech to the American Academy in Berlin with a bit of German. While I managed not to call myself a jelly donut, my German was nonetheless so bad that I have been banned from entering the country to speak in a public forum.
I applaud Professor Scott and the Harvard Law School for sponsoring this important and timely symposium. After the financial crisis, regulators around the world rushed to take action — any action, … Read more
Our study examines whether gender disparity exists disproportionately along the conservative and liberal geographical division. We investigate whether female board representation depends on the location of company headquarters in “red” states (which tend to vote for Republican candidates) or in “blue” states (which tend to vote for Democratic candidates). The investigation focuses on director composition between 2002 and 2012, based on board of director data for the S&P 1500 companies. We delineate red or blue companies based on how their home state voted in the past four presidential elections between 2000 and 2012, which coincides with our sample period, or … Read more
Good morning. Thank you for that kind introduction. It is my honor to deliver the opening remarks for today’s North American Securities Administrators Association (“NASAA”) and Securities and Exchange Commission (“SEC”) 19(d) Conference. For those who are keeping count, this is my seventh year as the SEC’s liaison to NASAA. It has been a privilege to serve you in this role, which I have done since my early days as a Commissioner. Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views … Read more
On April 1, 2015, the US Securities and Exchange Commission filed its first whistleblower protection case involving confidentiality obligations imposed on employees. The SEC charged Houston-based technology and engineering firm KBR Inc. with violating Rule 21F-17, which prohibits all persons, including companies, from taking any action to impede an individual from communicating with the SEC staff about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. In a press release, the SEC Enforcement staff warned, as they have numerous times in the past, that they will vigorously enforce this provision.
What KBR Allegedly … Read more
The last twenty-five years have brought about widespread changes in the organizational forms through which individuals organize economic activity. Once momentum built, the creation of hybrid entities such as limited liability partnerships, limited liability companies and even limited liability limited partnerships seemed inevitable, as did the surrendering of flow-through taxation to all of them by the U.S. Treasury. However, how these strange mash-ups of management power, limited liability, and fiduciary duty would operate was left to work itself out over time. The limited liability partnership in particular has evolved with very little judicial or legislative scrutiny as LLPs are usually … Read more
In Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014), known as Halliburton II, the U.S. Supreme Court held that defendants may defeat the fraud-on-the-market presumption of reliance at the class-certification stage with evidence that the misrepresentation did not in fact affect the stock price. Securities litigants typically use event study methodology to detect and measure price impacts. Halliburton II will increase the ever-present role of event study methodology in securities litigation. Our new paper, Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias, explores the reliability of event studies in … Read more
Questions of corporate governance and responsibility have been heightened by a number of corporate scandals and other events leading up to the financial crisis of 2008. In the meantime, philosophers and lawyers have been questioning the very meaning of corporate agency and responsibility, while progress by economists in the theory of the firm is widely perceived to have slowed. The aim of the first WINIR Symposium “The nature and governance of the corporation”, which will be hosted in Lugano at Università della Svizzera italiana (USI, Lugano) from 22th to 24th April 2015, is to contribute to our understanding of the … Read more
Earlier this week, the SEC filed an administrative action against Lynn Tilton and her Patriarch Partners funds. See In re Lynn Tilton et al. CNBC has reported that the SEC is “accusing Patriarch of hiding the poor performance of loans underlying three collateralized loan obligations, adding that it was able to collect almost $200 million in fees by failing to properly value the assets in the funds through the methodology described to investors.” Today, Ms. Tilton fired back with a complaint drafted by Skadden and filed in the S.D.N.Y., claiming that the use of ALJs is unconstitutional. See Lynn … Read more
Two recent developments could have significant consequences for the exchange-traded fund (ETF) industry and the regulatory landscape for such products. The first development is a proposed rule change to create “generic listing standards” for actively managed ETFs. The second is the Securities and Exchange Commission’s (SEC’s) approval, accompanied by a dissenting opinion, of listing standards for a new type of “paired class” exchange-traded product (ETP). In addition, Commissioner Michael Piwowar’s recent comments that concerns about leveraged ETFs and volatility are overblown may be a signal that the SEC’s stance on such products could be softening. In this post, we discuss … Read more
A recent Ninth Circuit Court of Appeals opinion charts potential new pathways for claims for damages resulting from portfolio losses by mutual fund shareholders against both a fund’s trustees and its investment adviser. However, much of the sweeping language and analysis in the court’s opinion is not merely novel but is inconsistent with established principles of investment company governance and litigation, which could limit the precedential impact of the opinion.
The case, Northstar Financial Advisors Inc. v. Schwab Investments et al., No. 11-17187 (9th Cir. Mar. 9, 2015), involved a mutual fund’s alleged failure to comply with its fundamental … Read more
There is a buzz in the air concerning bankruptcy examiners. Recently in such cases as ResCap, Dynegy and Tribune, and perhaps now in Caesars, examiners have played a decisive role in resolving major chapter 11 cases that turned on disputed litigation claims and avoiding power rights. Numerous commentators, and now the ABI Chapter 11 Study Commission, have called for their expanded use.
“Litigate or settle” is the dispute resolution choice generally available in American courts, including bankruptcy courts. But there is another way: An inquisitorial model of justice in which an active and informed neutral investigates the … Read more