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Facebook’s Libra Heightens Debate Over the Regulation of Cryptocurrencies

Cryptocurrencies like Ether, DAO, Bitcoin and Facebook’s Libra are electronically generated and stored currencies by which users can trade real or virtual objects with one another, bypassing traditional central clearinghouses. Given that these cryptocurrencies are starting to replace some national currencies and financial products, should they be regulated? And, if so, how? Some countries, such as China and Russia, prohibit Initial Coin Offerings (ICOs) altogether, while others strive to reach an understanding of the currencies in order to come up with coherent regulation. As for the U.S., in April 2019 the Securities and Exchange Commission (SEC) finally issued its framework … Read more

If Not the Index Funds, Then Who?

In recent years, large asset managers have reached incredible sizes, managing trillions of dollars of assets on behalf of tens of millions of clients. The largest three – BlackRock, Vanguard, and State Street – taken together (the “Big Three”), vote about 20 percent of shares in most large companies, with the majority of these shares held in passive index funds. This concentration of financial power has ignited debates over the role of large asset managers and the effects of index fund portfolios in corporate governance. The size and composition of the portfolios of the large asset managers have significant implications, … Read more

Davis Polk Discusses UK Serious Fraud Office’s New Cooperation Guidance

On August 6, the United Kingdom’s Serious Fraud Office (“SFO”) published new guidance on the steps companies should take in order to receive cooperation credit in the SFO’s charging decisions.  The document, titled “Corporate Co-operation Guidance” (the “SFO Guidance”),[1] outlines similar steps to those set forth in the United States Department of Justice’s Corporate Enforcement Policy (“CEP”), indicating that SFO Director Lisa Osofsky, formerly of the FBI, is ushering in familiar U.S.-based standards in her new role leading the SFO.

Despite many similarities, the SFO Guidance differs from the CEP in a few significant respects.  The most noteworthy of … Read more

Fintech and Banking

In a recent paper, I review the literature on fintech and its interaction with banking. Included in fintech are innovations in payment systems (including cryptocurrencies), credit markets (including peer-to-peer or “P2P” lending), and insurance, with blockchain-assisted smart contracts playing a role. My review paper defines fintech, examines the stylized facts, and then reviews the theoretical and empirical literature. The paper summarizes our knowledge on the main research  questions raised by the literature review and concludes with questions for future research.

Fintech is a hot topic, even though the interplay between information technology and financial services is not a new … Read more

Do Fiduciary Duties Matter?

Do fiduciary responsibilities have any effect on the behavior of firm insiders?  In a series of studies, I find empirical evidence that stronger fiduciary duties reduce managerial risk taking.  And that is not all.  The evidence indicates that stronger fiduciary duties are effective in curtailing managerial compensation.   However, heightened fiduciary duties lead to inferior returns for the firm’s investors, even after adjusting for the difference in risk taking.  The results suggest that stronger fiduciary duties can mitigate agency conflict, but at the cost of lower risk-adjusted performance.

I analyze fiduciary duties in a unique setting – the British mutual fund … Read more

Wachtell Lipton Puts a Spotlight on Boards

The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a major public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior.  So too, legislation like the Accountable Capitalism Act introduced by Senator Elizabeth Warren in 2018, and the position paper on the problems of shareholder capitalism and the merits of industrial policy by Senator Marco Rubio in 2019.

A very … Read more

The Readability of Company Responses to SEC Comment Letters

The Securities and Exchange Commission published its Plain English Handbook in 1998 with a goal of promoting “clearer and more informative disclosure documents” (SEC 1998).  Warren Buffet authored the preface, where he states, in part:

For more than forty years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said. If corporate lawyers and their clients follow the advice in this handbook, my life is going to become much easier. (SEC 1998).

Consistent with the SEC’s goal, a number … Read more

SEC Commissioner Peirce Addresses the American Chamber of Commerce in Japan

It is an honor to be with you today [August 7, 2019]. I have long wanted to visit Japan. Indeed, one of the options I explored following college was coming to Japan to teach English. Instead I ended up in Austria—not teaching English. My would-have-been students are certainly better off for it, but I am pleased to finally have the chance to be here in a learning, rather than teaching, capacity. Before I begin, I must give a standard disclaimer: the views I express today are my own views and not necessarily those of the United States Securities and Exchange

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Institutional Shareholders: Friends or Foes of Banks?

Following the financial crisis, regulators, academics, and practitioners investigated the factors that contributed to the systemic failure of the financial system. An important dimension of systemic risk that was identified is the correlated movements in market prices among banks during market downturns, known as “tail-risk” contagion. This increased tail-risk co-movement can make raising capital more difficult precisely when banks need capital the most, exacerbating systemic risk, increasing banks’ cost of capital, and contributing to a liquidity crunch.

While initial regulation called for higher capital adequacy requirements and periodic stress testing, more recent reforms have focused on the role of market … Read more

Is the Cost of Equity Greater than the Risk-Free Rate?

As a matter of abstract financial-economic theory, the cost of equity is straightforward. It is the minimum expected return investors require to hold the firm’s equity at the current price. Financial economists may disagree on the best way to estimate the cost of equity or the causal relationships that drive costs of equity, but it is safe to say that we know what we mean by the term when we use it. And, for nearly all equities, we almost always mean an expected return that exceeds the risk-free rate.

But what evidence do we have that the cost of equity … Read more

Cadwalader Discusses CFIUS and Foreign Investor Deals

The national security implications of corporate deals involving foreign investors continues to be a headline-grabbing topic. Last summer, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which expanded the types of transactions subject to national security review by the Committee on Foreign Investment in the United States (“CFIUS”). As we approach the first anniversary of FIRRMA, it has – unsurprisingly – made it more critical than ever to identify and address whether a cross-border deal involving non-U.S. parties is subject to CFIUS review and approval, and if so, to … Read more

Riding the Mania of Blockchain: Public Firms’ Speculative 8-K Disclosures

The price of Bitcoin, a cryptocurrency based on blockchain technology, increased dramatically from less than a penny when it was launched in 2009 to $900 in January 2017 and peaked at over $19,500 in December 2017. This rise coincided with a dramatic surge in public interest, debate, and prognostication about the cryptocurrency as well as its underlying blockchain technology. According to Google, “Bitcoin” was the second most searched news term in 2017, ranking just below “Hurricane Irma” and just above “Las Vegas Shooting.” Figure 1 shows that the number of Google searches on “bitcoin,” “blockchain,” and “cryptocurrency(ies)” closely mirrored Bitcoin … Read more

Finding Friends Is Hard: Long-Term Investors’ Relationship with Proxy Advisers, Activists, and Equity Funds

Institutional investors are howling for US public companies to focus more on the long-term.[1]  This is unsurprising. Long-term focused companies produce significantly better results over time, reporting far greater revenue growth with less volatility, far higher levels of economic profit, and greater total return to shareholders.[2] So if you are holding stock for a long time, a long-term focus for your portfolio companies is critical.

And as every new dollar flows from actively managed funds to passive strategies[3], reducing the ability of funds to trade nimbly in and out of stocks, long-term stewardship naturally emerges as … Read more

Analysts’ and Managers’ Use of Humor on Public Earnings Conference Calls

We investigate whether the use of humor during public earnings conference calls influences the content and outcomes of the calls. Earnings releases are key events for corporations and the investors and analysts who follow them. In conjunction with the earnings release, many companies also hold public earnings conference calls, which represent an important opportunity for senior management to discuss their company’s performance and for analysts to ask senior management about past performance and future prospects.

In this setting, we argue that analysts and managers use humor to influence the content and outcomes of the calls. For example, analysts could use … Read more

SEC Commissioner Discusses Cross-Border Cooperation in Digital-Asset Regulation

Thank you, Robby [Greene], for that kind intro. I am delighted to see that Robby, once my research assistant, has clearly gone on to bigger and better things. I also am delighted to be here in Singapore, by some accounts the global crypto-hub,[1] and appreciate the hospitality of the Singapore University of Social Sciences. I am particularly grateful for the opportunity to learn about the developments in crypto in Asia, which, as I do not need to tell this audience, is home to a very active part of the crypto community. Before I get too far along in my

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ICO vs. IPO: Empirical Findings, Information Asymmetry, and the Appropriate Regulatory Framework

Initial coin offerings (ICOs) are a new form of fundraising whereby blockchain-related ventures raise public capital in exchange for newly issued digital tokens. The issued tokens may represent a variety of rights, ranging from financial rights – such as dividend and voting rights – to consumptive rights, such as the right to access a service or a product that the issuer will provide. After the fundraising ends, the issued tokens are generally traded on the secondary market.

ICOs have quickly become popular. While the idea of an ICO debuted in 2013,[1] by 2017, over $10 billion had been raised … Read more

ISS Discusses Director Overboarding: Global Trends, Definitions, and Impact

In the 2019 proxy season, “overboarding” became a center-stage issue for many companies and investors. Several large asset managers, including Vanguard, BlackRock, and LGIM, enhanced their voting guidelines to apply stricter criteria, while some directors serving on multiple public company boards faced significant opposition to their elections. The idea that directors should not serve on too many boards has been a key consideration for investors for many years. The main concern for investors and companies focuses on the ability of directors to fulfill their responsibilities given the significant time commitment associated with each directorship; and as corporate governance and investment … Read more

The Potential Rewards for Blowing the Whistle on Wall Street Just Went Up

As an incentive to blow the whistle, the Securities and Exchange Commission awards tipsters who supply credible information resulting in successful enforcement actions up to 30 percent of monetary penalties paid by securities violators. The unique features of the program encourage tipsters from all walks of life and sectors to step forward. For example, the SEC paid $4.5 million to a former Brazilian orthopedic surgeon for blowing the whistle on a kickback scheme orchestrated by a global medical device manufacturing company. To date in 2019, the SEC has awarded nearly $60 million to five individuals.[1]

The size of a … Read more

SEC Chairman Clayton Speaks to Fixed-Income Committee

Thank you, Michael [Heaney]. Good morning everyone. Thank you all for being here. I want to extend a warm welcome to our newest Commissioner, Allison Lee — Welcome back to the Commission and to your first FIMSAC meeting. We have a full agenda today with four panels, including recommendations from the Corporate Bond Transparency Subcommittee and the Municipal Securities Transparency Subcommittee. We will also hear updates from the Technology and Electronic Trading Subcommittee and the ETFs and Bond Funds Subcommittee. I will endeavor to be efficient, as I know we are all eager to engage on these substantive matters.


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Toward a Mission Statement for Mutual Funds in Shareholder Litigation

Mutual funds own approximately 30 percent of the U.S. equity market, and the Big Three fund families – Blackrock, Vanguard, and State Street – are the largest blockholders in the vast majority of large, publicly traded companies.  This has made mutual funds a force to be reckoned with in American corporate governance.  Mutual funds tout their active engagement in corporate governance and claim to be “good at it.”  But are they?

Traditionally, there are three levers of power in corporate governance: voting, selling, and suing.  Selling is not an option for many mutual funds – especially index funds, ETFs, and … Read more

Blockchain Will Not Solve the Proxy Voting Problem

The U.S. proxy voting process is widely viewed as inefficient, opaque, and frequently inaccurate. The conventional wisdom is that voting inaccuracy has arisen largely as a result of decisions made in the 1960s to transition to a system of share immobilization[1] pursuant to which most shares are held in “street name”[2],[3] by securities intermediaries as a fungible mass of shares that is not directly traceable to any individual.[4] In particular, although the street name system facilitates securities trading, holding shares in fungible bulk makes it difficult, if not impossible, for street name investors to confirm … Read more

A Property Theory of Corporate Law

In a recent article, I develop a theory of the corporation as a legal entity based upon the foundation of property law, which I call a “property theory of corporate law.” This theory, unlike the contractarian perspective on the corporation, is capable of demarcating the distinctive features of corporate law from other contractual features.

In current legal scholarship, the dominant view of the corporation is contractarian, one that sees the corporation as a nexus of contracts among factors of production. This perspective views employees, creditors, equity investors, and even customers as the various actors who form a set of contracts … Read more

Davis Polk Discusses Financial Action Task Force’s Virtual-Asset Guidance

The Financial Action Task Force (FATF), the inter-governmental body that sets international standards for anti-money laundering (AML) and countering the financing of terrorism (CFT), released a highly anticipated interpretive note and guidance on June 21, 2019, “Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers” (the Guidance), clarifying the application of its 40 Recommendations to virtual assets (VAs) and virtual asset service providers (VASPs).  The Guidance, which builds on steps FATF has taken over several years toward setting international AML/CFT standards for the virtual currency … Read more

The Costs of Complying with SOX’s Internal-Controls Audit Requirement

Section 404(b) of the Sarbanes Oxley Act (SOX) requires auditors to test and report on the effectiveness of internal control over financial reporting (ICFR) for accelerated and large accelerated filers. Although Iliev (2010) documents substantial costs to initially comply with 404(b), proponents of Section 404(b) argued that compliance costs would decrease over time as companies shift from implementation to maintenance mode and improve efficiency related to ICFR oversight and testing. Likewise, auditor and client experience with the requirements of Section 404(b) may improve the effectiveness of ICFR audits and their ability to detect and remediate existing material weaknesses, thus increasing … Read more

SEC Chairman Clayton Speaks to Investor Advisory Committee

Thank you, Anne [Sheehan].  Good morning everyone, and I want to extend a special welcome to our new commissioner, Allison Lee.

I am interested in today’s discussion.  I understand the Committee first will be talking about the SEC approach to regulation in areas where competition may be limited.  Competition is important to the functioning of our capital markets and, over the years, some of the Commission’s most effective actions have fostered competition.

Personally, I often think of the work of the Commission under Chairman Levitt, where the elimination of opacity in our trading markets fostered competition which, in turn, brought

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Do Managers Bias Earnings Forecasts in Response to Current Earnings Surprises?

Each quarter, managers provide a summary of their firm’s accounting performance – a disclosure known as a quarterly earnings announcement. Earnings announcements attract significant attention from investors and media outlets because, if earnings are different than market expectations, stock price will change and financial analysts will revise their forecasts of future earnings. These effects are magnified if investors and analysts view the current earnings as persistent.  Managers are therefore justifiably concerned with the extent to which current earnings fall in line with market expectations, and the extent to which investors and analysts view any differences as being persistent.

To assist … Read more

Paul Weiss Offers M&A at a Glance for June 2019

M&A activity in the U.S. and globally in June was mixed. While the number of deals decreased by 23.7% in the U.S., to 655 deals, and by 13.2% globally, to 2,487 deals, the total value of deals[1] increased significantly, by 122.3% in the U.S., to $313.89 billion, and by 63.2% globally, to $478.29 billion. The average value of deals increased in the U.S. by 191.2%, to $479.22 million, and globally by 10.2%, to $192.32 million. Figure 1.

Strategic vs. Sponsor Activity

The levels of strategic versus financial buyer activity were also mixed. The number of strategic deals decreased … Read more

#MeToo and the Convergence of CSR and Profit Maximization

Companies are more concerned with the #MeToo movement than they used to be.  Why this is the case is obvious, but much about the topic is not clear. What does this concern lead companies to do? What should this concern lead them to do? This last question could be answerable by reference to fear of liability, fear of reputational loss, projections about the future as to both these areas, a desire to do the right thing or some combination thereof.

In a new article, I briefly describe the recent trajectory of #MeToo in the press and in the courts, noting … Read more

Gibson Dunn Offers 2019 Mid-Year Securities Enforcement Update

The first half of 2019 has seen a continuation of the Securities and Exchange Commission’s emphasis on protecting the interests of Main Street investors. Chairman Clayton reiterated these themes in his testimony in May before the Financial Services and General Government Subcommittee of the U.S. Senate Committee on Appropriations.[1] In addition to the no less than 43 references to Main Street investors, the Chairman’s testimony highlighted: (1) the Retail Strategy Task Force, formed in 2017, to use data-driven strategies to generate leads for investigation of industry practices that could harm retail investors, as well as (2) the mutual fund … Read more

Cahill Gordon Discusses Justice Department Credit for Antitrust Compliance Programs

In an effort to incentivize investment in robust antitrust compliance programs, the Antitrust Division of the U.S. Department of Justice (“DOJ”) announced on July 11, 2019 that companies may now receive credit at charging and sentencing for effective antitrust compliance programs – a change from DOJ’s former policy.[1] The DOJ has historically not rewarded existing antitrust compliance programs at the charging stage of a criminal investigation, instead giving immunity only to qualifying first reporters under its leniency program.[2]  While the DOJ plans to continue to limit the use of non-prosecution agreements to the first company to invoke leniency … Read more

The Impact of Socially Responsible Customers of Corporations

Corporations worldwide are increasingly integrating corporate social responsibility (CSR) into their operations and emphasizing ethical, safe, and sustainable business practices. Also, anecdotal evidence suggests that many of these corporations are concerned about not only their own CSR standards but also those of their suppliers. Some scholars argue that the increasing popularity of CSR comes in part, in response to the repeated failures of laws and regulations protecting stakeholders, prompting stakeholders to protect their own interests by pushing companies to engage in CSR. However, it is not clear whether corporate customers, among the most important stakeholders, are pushing suppliers to engage … Read more

SEC Chairman Clayton Kicks Off SEC Roundtable on Short-Termism

Bill [Hinman] thanks a lot. I’m going to highlight three items to try and kick us off here. First, a thank you to Bill, Coy, Shelley and the other staff from the Division of Corporation Finance for the work you did in hosting today’s roundtable and on a day to day basis. This event demonstrates the commitment of the Division to important issues that have a direct impact on our Main Street Investors and your commitment to fair and transparent markets.

I also want to thank our panelists. As I look across here if I was investing my money for

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Do Advisers Mitigate IPO Underpricing and Withdrawals in Europe?

Many issuers have doubts about the efficiency of the IPO market, despite post-2008 regulations designed to reduce conflicts of interests and the costs of going public.  As a result, fewer companies are choosing to be listed, and many of those that do go public hire independent advisers to gain peace of mind throughout the process[1].

In our new paper, we ask whether such advisers reduce IPO underpricing and whether issuing firms benefit from greater certainty of execution or lower total fees.  We concentrate our analysis on the three leading IPO advisers in Europe (Rothschild, Lazard and STJ Advisors), … Read more

Can Corporate Income Tax Cuts Stimulate Innovation?

There has been a growing debate among politicians and policy makers, both at the state and federal levels, about the impact of taxes on investment, growth, and firm value. The focus has been predominantly on corporate income tax cuts because, as the Congressional Budget Office (2017) reports, the U.S. has the highest top statutory corporate income tax rate among the G20 nations. Without a systematic examination, however, especially one that focuses on the long-term, it is difficult to evaluate the importance of corporate income taxes.

In our article forthcoming in the Journal of Financial and Quantitative Analysis, we contribute … Read more

The Supreme Court Misses an Opportunity in Securities Law Enforcement

In Lorenzo v. SEC, the U.S. Supreme Court continued the struggle to define the difference between primary liability and aiding and abetting liability in Rule 10b-5 and other securities fraud claims.  The difference matters because private plaintiffs do not have a claim against an aider and abettor.  After several decisions narrowing the category of primary liability, the Court tacked back toward the plaintiff’s side in Lorenzo, but the decision resolved little about the difference between primary and aiding-and-abetting liability and created new questions.

Lorenzo was the director of investment banking at a broker-dealer.  His boss prepared and approved a … Read more

Fragmented Securities Regulation: Neglected Insider Trading in Stand-Alone Banks

The financial regulatory structure in the U.S. is complex, consisting of multiple agencies with overlapping responsibilities. Regulators have raised concerns that regulatory fragmentation may undermine the stability and efficiency of the U.S. financial system (GAO 2016). In this paper, we suggest that fragmented securities regulation increases information asymmetries and the costs of searching filed documents and thus negatively affects capital markets. Specifically, we examine the consequences of separate disclosure systems due to regulatory fragmentation on stock price efficiency.

Publicly traded banks without a bank holding company (hereinafter stand-alone banks) in the U.S. are exempt from Securities and Exchange Commission (SEC) … Read more

ISS Offers Overview of Vote Requirements at U.S. Meetings

At the general meeting of Tesla Inc. on June 11, 2019, two management proposals seeking to introduce shareholder-friendly changes to the company’s governance structure failed to pass, despite both items receiving support by more than 99.5 percent of votes cast at the meeting. To get official shareholder approval, the proposals needed support by at least two-thirds of the company’s outstanding shares. However, only 52 percent of the company’s share capital was represented at the general meeting; based on turnout alone, there was no possible way for the proposal to pass.

As strange as the voting outcome at Tesla may seem, … Read more

Insider Trading As Fraud

U.S. Insider trading law is strange. Because Congress has never adopted a comprehensive statute on the subject, insider trading law is largely a species of federal common law. That’s not to say that the Supreme Court has nothing to go on — since 1980, it has developed its insider trading jurisprudence around Section 10(b) of the Securities Exchange Act of 1934 and the SEC’s Rule 10b-5. But in some ways, this fact makes things even stranger because Rule 10b-5 simply creates liability for securities fraud. And yet, what does insider trading have to do with fraud?

A lot, or so … Read more

SEC Staff Offers Views on the Transition from LIBOR

Division of Corporation Finance, Division of Investment Management, Division of Trading and Markets, and Office of the Chief Accountant[1]

LIBOR[2] is an indicative measure of the average interest rate at which major global banks could borrow from one another.  LIBOR is quoted in multiple currencies and multiple time frames using data reported by private-sector banks.[3]  LIBOR is used extensively in the U.S.[4] and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset-backed securities, consumer loans, and interest rate swaps and other

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SEC Proposes to Exempt More Firms from Required Attestation of Internal Controls

The Securities and Exchange Commission has proposed changes to its rules requiring companies to obtain attestation on their internal controls from an independent public accountant. The proposal rests on the idea that attestation’s costs often exceed its benefits. The SEC’s principal empirical support for that idea is a Journal of Finance article using data from 2004.[1] Since markets have changed since then, over 40 law and accounting professors have petitioned the SEC to replicate the Journal of Finance study using recent data before proceeding with the proposed changes.

*          *          *

The attestation requirement, known as Section 404(b), is … Read more

Sullivan & Cromwell Discusses Amendments to Volcker Rule Regulations

On July 9, 2019, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”), the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC” and collectively, the “Agencies”) released final rules adopting their previously proposed amendments to the regulations implementing Section 13 of the Bank Holding Company Act of 1956 (the “BHC Act”),[1] known as the “Volcker Rule.”

The amendments modify the implementing regulations in a manner consistent with Sections 203 and 204 of the … Read more

Political Connections and Insider Trading

The media, investors, and regulators often consider trading by corporate insiders to be a signal of firm value, given that insiders know their business better than do others. Although trading on material, non-public information can be illegal in the U.S., insiders may still attempt to profit from their informational advantage, as evidenced by dozens of insider trading enforcement actions each year.

Research also suggests that politically connected firms may avoid investigations by, or receive lower penalties from, regulatory agencies. And since insiders are the ones who decide to build political connections for the firms, they may do so to seek … Read more

SEC Chair Clayton Discusses Regulation Best Interest and Investment Advisers

As many of you know, in June, the Securities and Exchange Commission adopted a package of rules and interpretations that will enhance the quality and transparency of retail investors’ relationships with broker-dealers and investment advisers.[1] Importantly, they bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations. These actions do not attempt to favor one type of service or relationship. Rather, they are designed to increase investor protection while preserving access for Main Street investors—both in terms of choice and cost—to a variety of investment services and products.

Our rules and

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Libra: The Regulatory Challenges Facebook Ignored

The announcement on June 18 by Facebook of what it calls “a simple global currency and financial infrastructure that empowers billions of people” was sure to receive immediate attention. Facebook founder and CEO Mark Zuckerberg is now on a global “mission.”[1] However, the Libra White Paper is long on Libra’s technology and short on the regulatory challenges it faces around the world.

  • The diagnostic

The need for Libra is based on a diagnostic: People lack access to a global, open, instant, and low-cost way to move money. The project focuses on international payments.

Why is cross-border payment expensive? First, … Read more

Gibson Dunn Discusses UK Enforcer’s Fifth Deferred Prosecution Agreement

On July 4, 2019 the UK Serious Fraud Office (“SFO”) secured approval for its fifth Deferred Prosecution Agreement (“DPA”) before the Crown Court sitting at Southwark. The DPA is with Serco Geografix Limited (“SGL”), a security company that contracts with the UK Ministry of Justice (“MOJ”) to electronically monitor suspects and offenders. The DPA relates to three charges of fraud and two of false accounting. The facts of the case are summarised by the SFO in its official press release, which is accompanied by a copy of the judgment of the … Read more

Price Revelation from Insider Trading: Evidence from Hacked Earnings News

Cyber risk is a major concern to corporations and investors.  Recent academic studies point out that firms suffer large negative returns when they disclose that they have suffered a data breach (e.g., Akey, Lewellen and Liskovich (2018) and Kamiya et al (2019)) and that informed market participants are able to trade on this information before it becomes public (Mitts and Talley (2018)).  These studies and many articles in the popular press often consider these events to be idiosyncratic.   However, cyber risk can also contribute to aggregate information risk since the current financial system entrusts information to several centralized custodians that … Read more

SEC Statements on the Retirement of Delaware Chief Justice Leo Strine

Yesterday, Chief Justice Leo Strine announced his retirement after more than twenty years on the Delaware Court of Chancery and Supreme Court of Delaware, two of the most important courts for our markets and our investors.

Chief Justice Strine deserves our thanks for bringing his unparalleled combination of energy, intellect, experience, legal knowledge and pragmatism to the bench. His contributions have extended well beyond the courtroom and the Commission has benefited substantially from his willingness to engage with us on a range of topics important to our investors and our markets. Finally, and critical to the work of the SEC,

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How Are Bankers Paid?

Bank behavior and how it relates to bank fragility and systemic risk have been in the spotlight since the 2007-2009 financial crisis. Regulators claim that bankers’ compensation structures played a role in encouraging behavior which contributed to the financial crisis. Despite this, we know little about how finance industry executives are compensated. Executive compensation research typically does not distinguish finance industry executives from non-finance industry executives, and on many occasions it excludes executives in financial industries. Our new article, How Are Bankers Paid?, fills this void, studying how executive compensation in the finance industry differs from that of non-financial … Read more