Does High-Frequency Trading Increase Systemic Risk?

High-frequency quoting and trading (HFQ) has become a global phenomenon. It’s based on reducing the lag time – known as latency – between order submission and execution or cancellation so that order outcome is reported almost instantaneously. A number of market mishaps, though, have drawn HFQ to the attention of regulators.[1] Whether they have anything to worry about is a question we seek to answer in our recent paper, available here.

The  paper focuses on the introduction of the Arrowhead high-speed-trading platform by the Tokyo Stock Exchange (TSE) in January of 2010. The platform reduced latency from six … Read more

Paul Weiss discusses M&A at a Glance for September 2016

M&A activity in September 2016 rebounded across most metrics as compared to August 2016, both in the U.S. and globally. In the U.S., total deal volume increased by 18.9% to $129.08 billion and average deal value increased by 24.7% to $448.2 million, despite a 1.5% decrease in the total number of deals to 717. The global market also fared well, increasing by approximately 37.8% in total deal volume to $306.36 billion and approximately 50.6% in average deal value to $208.8 million, even though the total number of deals declined 7.1% to a 12-month low of 2,734, which equated to a … Read more


The Real Problem with Appraisal Arbitrage

In the controversial practice of appraisal arbitrage, activist investors buy shares of a corporation to be acquired by merger so as to assert appraisal rights challenging the merger price – which may already have been approved by the target’s stockholders. The practice is controversial because the appraisal remedy is widely seen as intended to protect existing stockholders who are forced to sell their shares in the merger and not to afford hedge funds a way to extract extra returns from the deal. But the puzzle is why appraisal arbitrage is profitable, since the remedy seeks to determine fair prices using … Read more

Paul Weiss discusses Applying the Business Judgment Rule to a Going-Private Transaction in Delaware

In In re Books-A-Million, Inc. Stockholders Litigation, the Delaware Court of Chancery dismissed the fiduciary duty claims of former minority stockholders following a going-private, squeeze-out merger because the transaction satisfied the framework to invoke business judgment review as approved by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp.

The plaintiffs brought fiduciary duty claims challenging the transaction pursuant to which the controlling stockholders of Books-A-Million, Inc. took the company private. The agreed price offered a premium to market, but was nevertheless lower than a competing offer from a third party to whom the controlling stockholders … Read more


The Legal Framework of Mobile Payments: Gaps, Ambiguities, and Overlap

In a September 22, 2016, post on this blog, available here, Professor Wulf Kaal asked in the title to his piece, “What Happens When Technology Is Faster Than the Law?”  He noted that while “innovation driven by science and technology is accelerating, …Federal and state agencies’ regulatory processes have slowed down.”

My report for The Pew Charitable Trusts asks that question in regard to mobile payments. The answer: When technological developments occur more quickly than changes in the law, the result is gaps, ambiguities, and overlap in laws related to mobile payments.

As the popularity of mobile payments grows, … Read more

PwC Discusses How Megadeals are Transforming the Entertainment, Media, and Communications Sector

Over the past five years the business models in the Entertainment, Media and Communications (EMC) sector have been upended, paving the way for new EMC players to enter the industry that were traditionally technology companies.

Not too long ago, the boundaries between content creation, content aggregation, and content distribution were clear in the EMC sector, with well-defined business models. But technology innovations, particularly the shift to digital, are rapidly and radically changing consumer behavior by allowing consumers to tap into content on demand.

Increasingly, consumers are cutting cords with traditional cable companies and paying for content directly from the packagers … Read more


Breaking Up (Banks) Is Hard to Do

The latest Wells Fargo bank scandal has rekindled debates about breaking up banks that are too big to fail, too big to manage or too big to comply.

Echoing the debate between Louis Brandeis and Teddy Roosevelt in the Progressive Era, politicians propose either to break up our huge banks — as Brandeis advocated — or to regulate them, which was Roosevelt’s position. Most Republican presidential primary candidates argued that, while the Dodd-Frank financial reform law overregulates small community banks, the law did not go far enough to eliminate the threat that the huge banks are too big to fail … Read more

Debevoise & Plimpton Discusses NY Guidance on Banks’ Incentive Pay

The New York State Department of Financial Services (the “Department”) issued a guidance memorandum on October 11[1] requiring regulated New York-chartered banking institutions to align their incentive compensation practices with the general principles laid out in the Interagency Guidance on Sound Incentive Compensation Policies issued in 2010 (the “2010 Interagency Guidance”).[2] Specifically, the Department’s guidance requires that incentive compensation arrangements, at a minimum, (1) appropriately balance risk and rewards, (2) be compatible with effective controls and risk management, and (3) be supported by effective corporate governance. The Department published this guidance on the heels of the record $100 … Read more


Time to Trash Discounted Cash Flow as a Valuation Tool

What is the value of an asset?  That is the ultimate financial question, the equivalent of Hamlet’s “To be or not to be.”  Of course, we all “know” the answer: the present value of its future cash flows.  Push an expert for clarification, and the response is, “take the future cash flows and discount them with the appropriate rate.”

Unfortunately, those answers rely on two ill-defined concepts (“future cash flows” and “appropriate rate”), a faulty analogy, and a repudiation of statistics.

History of a Curious Analogy

Joel Dean, an American economist who died in 1979 and made important contributions to … Read more

Paul Weiss Discusses New Signs of Vigorous FCPA Enforcement

As the end of their fiscal years approached on September 30, the Department of Justice and the Securities and Exchange Commission announced a number of resolutions, underscoring their pronouncements that “vigorous enforcement”[1] of violations of the Foreign Corrupt Practices Act remains a “high priority”[2] for both agencies.  These resolutions, which we summarize in this memorandum, provide more significant detail about the underlying FCPA violations than did previous resolutions, in keeping with the DOJ’s stated “effort to promote both transparency and accountability”[3] through their publication and the SEC’s desire to build a “robust disclosure regime.”[4]  Along similar … Read more


Are We Wasting Our Time Teaching Business Ethics?

The Great Recession of 2008 had a devastating effect on the world economy. Millions of jobs were lost, trillions in financial assets evaporated, and millions of people lost their homes. Great companies such as Lehman Brothers went bankrupt and many others needed to be bailed out by the government. One would think that an important lesson learned from the carnage is that greed is not good: Our firms need to be headed by trustworthy, upright leaders.

The reality is that the corporate world, led by greedy and self-absorbed CEOs, was heading down a treacherous path for more than 30 years. … Read more

PwC on Counterparty Credit Limits: Do You Know Where Your Exposures Are?

Over the summer, the Federal Reserve Board (Fed) concluded the comment period on its reproposed single counterparty credit limits (SCCL) rule issued in March 2016.[1] SCCL is intended to reduce systemic risk by limiting a banking organization’s credit exposure to any single unaffiliated counterparty as a percentage of the organization’s capital. The rulemaking applies to organizations with over $50 billion in total consolidated assets, including US bank holding companies (BHCs), intermediate holding companies (IHCs), and foreign banking organizations’ (FBOs)[2] US operations (collectively, “Covered Banks”).

The comments put forth by the industry mainly focus on the reproposed rule’s criteria … Read more


Shades of Gray in Board Independence

A well-functioning independent board of directors is a pillar of effective corporate governance.  However, establishing and maintaining a truly functioning board remains a challenge for many companies. In response to apparent breakdowns in corporate oversight, policymakers have taken steps to encourage strong and independent boards. Most notably, following a series of high-profile corporate scandals involving the likes of Enron and WorldCom, Congress passed the 2002 Sarbanes-Oxley Act (SOX).  SOX, coupled with the subsequent shift in the major stock exchanges’ listing requirements, put in place a number of initiatives to encourage the active monitoring of independent directors.

A large body of … Read more

Sullivan & Cromwell Discusses D.C. Circuit Ruling Invalidating CFPB Structure

On October 11, 2016, a panel of the U.S. Court of Appeals for the D.C. Circuit held that the Consumer Financial Protection Bureau (the “CFPB”) is “unconstitutionally structured” because its authority is vested in a single appointee who can be removed by the President only for cause.  To remedy this constitutional flaw, the Court severed the unconstitutional “for-cause” provision in the legislation (Dodd-Frank) that created the CFPB.  “As a result, the CFPB now will operate as an executive agency.  The President of the United States now has the power to supervise and direct the Director of the CFPB, and may … Read more


Predicting Recession: Could a Simple Method Deliver Superior Results?

Is there a simpler – and better – way to predict a recession? The answer is yes, and no, we are not astrologists – though one would not necessarily be wrong to use the position of stars and planets for this purpose. It’s just that we economists prefer economics, and we think you should, too, based on our findings in a recent study, “Predicting U.S. Business Cycle Turning Points Using Real-Time Diffusion Indexes Based on a Large Data Set,” available here. In fact, as we discuss below, using the diffusion indexes we developed in this study, along with some … Read more

Gibson Dunn discusses Shareholder Activism in Mideast and North Africa

Shareholder activism is common in Western financial markets, where it is used to try to create shareholder value. Numerous studies on activism have found mixed results: while some validate the value creation claim and find activism beneficial, others conclude activism creates little or even negative value.

So what is it, and why don’t we see it in the Middle East and North African, otherwise know as MENA? What is shareholder activism? Simply put, shareholder activism is when a minority shareholder, usually a hedge fund or private equity fund, believes it can unlock and increase value in its investments by influencing … Read more


SEC Settlements After Dodd-Frank

On September 23, U.S. District Judge William Pauley refused to approve a settlement between the CFTC and Deutsche Bank covering the bank’s failure to report swaps properly. Instead of rubber-stamping the settlement, the judge asked the parties for additional briefing. With that move, Judge Pauley followed in the footsteps of two of his colleagues in the Southern District of New York, judges Jed Rakoff and Victor Marrero, and several other district court judges around the country.

As I describe in more detail in an essay recently published in the Yale Law Journal Forum, “Securities Settlements in the Shadows,” and available … Read more

Debevoise & Plimpton Discusses Regulatory Developments in FinTech

In this update, we review a number of recent regulatory developments that may impact firms engaged in the industry of new and innovative financial technology (“FinTech”). First, we discuss the Federal Deposit Insurance Corporation’s (“FDIC”) new guidance on examining third-party lenders, including the risks and potential takeaways for parties to marketplace lending (“MPL”) arrangements. Second, we examine the Office of the Comptroller of the Currency’s (“OCC”) recent proposed rule outlining a receivership framework for non-FDIC insured national banks, focusing particular attention on the implications for FinTech firms. We conclude with takeaways for MPL and FinTech firms to consider as they … Read more


Challenging the Financial Intermediation Myth

Many contemporary discussions of finance or of subjects that implicate finance – for example, federal budgetary or finance-regulatory policy – seem to be systematically colored by a seldom-examined presumption. We call this presumption the “intermediated scarce private capital myth.”

Like many a myth, this one assumes or amounts to a picture. In the picture, financial institutions intermediate between private suppliers of scarce finance capital on the one hand, and various public and private end-users of this capital on the other. Unstated but always assumed in this picture is also a causal direction: the funds that intermediaries intermediate originate with the … Read more

Shearman & Sterling discusses Brexit: a Financial Free Zone Within the City

The UK Government recently indicated that it intends to negotiate a unique EU-UK relationship post-Brexit. It is hoped that the arrangements will be appropriate for the UK and London’s position as a leading international financial centre. A number of existing models have been discussed and will no doubt be analysed, with variations, by the Government. This client note sets out a framework for new opportunities which could be developed in the UK post-Brexit, by establishing a “financial free zone” in London. This would enable the UK to take a bifurcated approach to financial services post-Brexit. The UK as a whole … Read more


Share Profits to Harness the Wisdom of Crowds

Crowdfunding has emerged in recent years as an alternative financing channel in which entrepreneurs can directly solicit contributions from a large number of investors. In return for their contributions, investors receive non-pecuniary rewards, private benefits, or most recently, monetary payoffs. In the realm of rewards-based crowdfunding, it is reported that the funding portal Kickstarter has received more than $2.6 billion in pledges from 11.7 million backers and successfully funded 112,897 creative projects since its launch on April 28, 2009.[1] In May 2016, against the backdrop of Title III and Title IV of the Jumpstart Our Business Startups (JOBS) Act, … Read more


Regulatory Leveraging: Problem or Solution?

“Nice merger you’ve got here. It would be a shame if anything was to happen to it.”[1]

In antitrust and related areas of economic regulation, private leveraging is risky business.  Large firms that use substantial market power in one product to distort competition for a second product are attractive targets for claims of illegal tying or monopolization.

What if the actor leveraging its power is not a private company, but a government agency?  Leveraging enables a regulator to use its gatekeeping authority to secure concessions that it might not have been able to achieve otherwise.  Should we applaud or … Read more

SEC Announces Enforcement Results for 2016

The Securities and Exchange Commission announced on October 11 that, in fiscal year 2016, it filed 868 enforcement actions exposing financial reporting-related misconduct by companies and their executives and misconduct by registrants and gatekeepers, as the agency continued to enhance its use of data to detect illegal conduct and expedite investigations.

The new single year high for SEC enforcement actions for the fiscal year that ended September 30 included the most-ever cases involving investment advisers or investment companies (160) and the most-ever independent or standalone cases involving investment advisers or investment companies (98).  The agency also reached new highs for … Read more


After Salman, Whither Outsiders and Facebook Friends in Insider Trading?

Oral argument in the insider trading case, Salman v. United States, prompted dozens of questions related to the key issue before the U.S Supreme Court: whether an investment banker personally benefitted directly or indirectly when he disclosed to his brother confidential information about upcoming mergers and acquisitions involving Citigroup clients, knowing that his brother was using that information to trade securities. The brother also relayed the information to the petitioner, who was a close friend and later an in-law, and the two profited mightily by purchasing stock and options to buy stock in four acquisition targets on the basis of … Read more

Skadden Contrasts English And Delaware M&A Law

Skadden and Erskine Chambers recently hosted a series of comparative corporate law events in conjunction with the University of Pennsylvania Law School; Queen Mary University of London School of Law; New York University School of Law; Wachtell, Lipton Rosen & Katz; Slaughter and May; Morris, Nichols, Arsht & Tunnell; and Richards, Layton & Finger.

The mock trials held at Inner Temple, London, offered new insights into contrasting English and U.S. advocacy and judicial opinions on complex cross-border M&A issues. Arguments were made by Richards, Layton & Finger partner Greg Williams and Morris, Nichols partner Bill Lafferty for the Delaware mock … Read more

Samuel Buell Headshot

America’s Corporate Crime Dilemma

Corporate crime has never been a more pressing, vexing, and at times infuriating topic for Americans than at present.  The subject’s many difficulties both are fascinating and, at every turn, defy easy answer.  The ambition of my new book, Capital Offenses: Business Crime and Punishment in America’s Corporate Age (W.W. Norton & Co.), is to illustrate and explain, in plain language accessible to all readers, the dilemma of corporate crime—as a means to point Americans beyond criminal law and into a deeper examination of our relationship with the large modern corporation.

Consider the case of Candice Anderson of Van Zandt … Read more

Debevoise & Plimpton Discusses SEC Anti-Retaliation Enforcement

Last week, the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”) announced its second whistleblower retaliation case since the enactment of Dodd-Frank’s anti-retaliation provisions in 2011. The In the Matter of International Game Technology [1] case is also the first enforcement action to allege retaliation based on whistleblower activity that did not lead to a settlement of a substantive violation of the securities laws. The case is a stark reminder of the importance of implementing robust anti-retaliation policies that are consistently applied to alleged whistleblowers, even in those cases where the claims raised by the whistleblowers turn out … Read more


How to Limit Opacity and Conflicts of Interest in Retirement Plans

Designing sensible defined-contribution retirement-plan rules is a challenging task since most Americans do not have sufficient financial acumen and self-discipline to manage their own retirement portfolio.  In spite of the fact that retirement plans constitute the bulk of their savings, most American families struggle with the management of defined contribution (DC) plans. Consequently their savings are inadequate to meet their retirement needs.  According to a recent report, 56 percent of Americans have less than $10,000 in their retirement accounts.  One in three Americans reported that they had no retirement savings.[1] Clearly, the current DC plans for retirement savings are … Read more

Kirkland & Ellis Discusses Russia Sanctions Developments

The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has significantly expanded the number of entities and individuals subject to Russia sanctions and separately censured U.S. insurance and financial institution entities for failing to keep current with OFAC’s sanctions list to prevent transactions with sanctioned parties. Economic sanctions continue to evolve as political situations change in the comprehensively sanctioned jurisdictions of Cuba, Crimea, Iran, North Korea, Sudan and Syria, as well as in countries targeted by more limited but often more complicated sanctions such as those relating to Russia, Burma/Myanmar and many other countries. The recent actions by OFAC … Read more


Do Battleground States Get a Break from Regulators?

The question of whether government regulation is, on aggregate, helpful or harmful has been widely studied in economics.  However, an equally important question is whether or not regulation is selectively enforced, and this has received substantially less attention from academic researchers.  Because regulation can hurt voters as well as help them, the vigorous enforcement of government regulation can be costly to politicians and other government officials, including the regulators themselves.  Thus there are often a set of incentives that can result in politicians and other political actors being reluctant to enforce regulations among politically important constituents.

To examine whether or … Read more


Hedge Fund Activism, Poison Pills and the Jurisprudence of Threat

Hedge fund activism is to corporate law’s early 21st century what the hostile takeover was to its late 20th century.  Like the hostile takeover, activism threatens incumbent managers and disrupts their business plans by successfully appealing to the shareholders’ interest in immediate returns.  Like the hostile takeover, activism occupies center stage in corporate law policy discussions, posing a choice between short-term gain and long-term investment.  But there is a glaring point of distinction.  Unlike the hostile takeover, activism has precipitated no significant changes in corporate law.  Where the hostile takeover triggered structural changes in state corporate codes and the federal … Read more

Paul Weiss Discusses “Price Maintenance” Ruling in Securities Fraud Case

On September 27, 2016, in related appeals arising from a long-pending securities fraud class action against Vivendi, the Second Circuit ruled on several important issues, including the proof necessary to both sustain and defeat the fraud-on-the-market presumption of reliance.

Most significantly, in In re Vivendi, S.A. Securities Litigation, Nos. 15-180-cv(L), 15-208-cv(XAP) (2d Cir.), the Second Circuit rejected defendants’ per se challenge to the so-called “price maintenance” theory, which posits that confirmatory misstatements can fraudulently maintain an artificially high stock price by preventing the stock price from declining.  The Second Circuit held that misstatements that do not cause stock price … Read more

Supreme Court Hears Salman Insider Trading Case

The U.S. Supreme Court heard oral arguments today — transcript here —  in U.S. v. Salman, the first insider trading case to land before the justices in almost 20 years. The issue:  What counts as the “personal benefit” to the insider required under Dirks v. SEC for there to be illegal insider trading? Is it “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit said in U.S. v.  Newman in 2014? Or is the satisfaction of helping a close relative enough, as the Ninth Circuit … Read more


Too Big and Unable to Fail

Financial regulation after the Dodd-Frank Act was enacted in 2010 has produced a blizzard of acronyms, many of which revolve around the basic “too big to fail” problem.  OLA, OLF, SPOE, and TLAC are new regulatory tools that seek to build a regime for resolving failures of systemically important financial institutions.  “Resolution” is the financial industry’s favored term for what most people would simply call “bankruptcy” or, more politely, “restructuring.”

The explicit goal of this new “resolution” regime is to enable a large financial institution (or SIFI, to use another favored acronym) to go bankrupt without a government bailout.  Just … Read more

White & Case Discusses the Rise of Regtech

Regulatory compliance is time consuming and expensive for both financial institutions and regulators—and the complexity and cost is increasing. According to Federal Financial Analytics, a policy analysis firm, the six largest U.S. banks spent $70.2 billion on compliance in 2013, twice the $34.7 billion spent in 2007.

As we explain in our recent report “Regtech rising: Automating regulation for financial institutions,” regulatory technology—regtech—has emerged to address these and other challenges.

An outgrowth of fintech, regtech uses digital technologies—including big data analytics, cloud computing and machine learning—to facilitate regulatory compliance. Regtech applications automate risk management and compliance processes, enable … Read more

American College of Governance Counsel Picks New Fellows

The American College of Governance Counsel, an organization of leading corporate governance lawyers from the U.S, and Canada, has elected its Second Class of 20 Fellows and one Honorary Fellow.

“The election of this group of distinguished lawyers from private practice, as well as several prominent general counsel and respected academics, will enhance the ability of the College to pursue its mission of promoting a high level of professional standards among governance practitioners and a better understanding and broader adoption of best governance practices,” said John F. Olson, Chair of the College.

The election of the second group of Fellows … Read more


Bank Capital and Dividend Effects

As the financial system’s capital was being depleted in the 2007-2009 financial crisis, some banks curtailed their dividends but others, especially securities firms, continued to pay dividends well into the depth of the crisis. Indeed, some firms — including those that entered financial distress — actually increased their dividends during the crisis.

In our paper, available here, we provide a framework that can accommodate such divergence in the reactions of financial intermediaries in their capital decisions. Using this framework, we ask how divergent interests of the banks’ stakeholders are likely to play out during times of heightened financial distress.

Dividend … Read more

Gibson Dunn offers 2016 Mid-Year Transnational Litigation Update

Earlier this year, Gibson Dunn published the latest installment of its annual Transnational Litigation Update.  See 2015 Year-End Transnational Litigation Update (February 17, 2016, accessible here).  This Mid-Year Update expands on certain key issues addressed by the 2015 Update, including recent case law related to general jurisdiction, the application of United States statutes to extraterritorial conduct, and cross-border discovery.  This Update also details Chevron’s decisive victory in the U.S. Court of Appeals for the Second Circuit against the perpetrators of an extortionate scheme against the company involving a multibillion-dollar Ecuadorian judgment, a scheme the Wall Street Journal characterized as … Read more

Sullivan & Cromwell Discusses U.S. Tax Consequences of EU State Aid Recoupment

On September 15, the IRS and Treasury Department proposed, in Notice 2016-52 (the “Notice”), new rules that limit the ability of U.S. multinational groups to claim credits against U.S. taxes for significant foreign tax adjustments (i.e., adjustments of more than $10 million).  Foreign assessments within the scope of the Notice include (but are not limited to) those that may arise in connection with the state aid investigations that have been initiated by the European Commission over the last several years.

The Notice describes two categories of transactions that might otherwise allow a U.S. multinational to expedite … Read more


The Ethics of Representing Founders

Lawyers for startups typically serve as counsel to the new organization, with all of the complications that accompany representing an entity.  But consider those lawyers as they perform legal work for the enterprise before any organization exists.  Who are their clients?

Startup founders tend to be individuals.  Sometimes, the startup founders create an entity—an LLC, a subchapter S corporation, a subchapter C corporation, or some other structure—on their own, without seeing a lawyer.  In those instances, the eventual lawyer works with the “duly authorized representatives” of the established company, with the entity as the client.  But just as often, the … Read more

Cleary Gottlieb Discusses the High Bar to Post-Closing Damages in M&A Cases

As discussed in prior posts on the Cleary M&A and Corporate Governance Watch blog, recent applications of the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings, 125 A.3d 304 (Del. 2015) have emphasized the high bar for surviving a motion to dismiss in damages actions by stockholder plaintiffs after completion of a merger transaction, as “dismissal is typically the result” where informed, disinterested stockholder approval requires application of the business judgment rule to extinguish all claims except for waste. See Singh v. Attenborough, 137 A.3d 151, 152 (Del. 2016). Two recent Chancery Court decisions have … Read more

Andrew Ceresney

SEC Enforcement Chief Ceresney Discusses Focus on Auditors and Auditing

Good morning and thank you for that very kind introduction. It’s a pleasure to speak with you all today. Before I start, I must give our standard disclaimer that the views I express today are my own and do not necessarily reflect the views of the Commission or its staff.[1]

This morning, I want to discuss our enforcement work in the area of auditing, a topic that is sure to be of interest to all of you. There is no doubt that the work of auditors, who function as critical gatekeepers in the area of issuer reporting and disclosure, … Read more

Latham & Watkins Discusses Ruling that Bitcoins Are “Funds” Under Money Transmitting Laws

On September 19, 2016, U.S. District Judge Alison J. Nathan of the Southern District of New York denied defendant Anthony R. Murgio’s motion to dismiss charges brought against him for, among other things, operating a Bitcoin exchange in violation of federal and state money transmitting laws. The decision adds to a growing body of federal precedent upholding the application of money transmitting laws to Bitcoin exchange businesses.


The indictment against Murgio specifically alleges that the Bitcoin exchange he allegedly ran — — was an “unlicensed money transmitting business” in violation of 18 U.S.C. § 1960 (Section 1960). Section … Read more


Information Challenges and the Use of Earnouts in Mergers and Acquisitions

In mergers and acquisitions transactions with privately-held target companies, transacting parties will often agree to make payments to the target shareholders contingent upon some post-closing events.  One frequently used mechanism is an earnout.  With an earnout, the parties will agree upon post-closing performance targets, using measures such as earnings, net income, or gross revenue, and the additional amount of consideration that the target shareholders are entitled to receive will depend on whether such performance targets are met over the earnout period, which typically lasts from one to five years after closing.  For example, after paying $10 million at closing, an … Read more

Debevoise & Plimpton Discusses Disclosure of Government Investigations

Registrants, particularly those involved in highly regulated industries, frequently must determine whether and when a government investigation and related pending or threatened litigation must be disclosed in its periodic reports filed with the Securities and Exchange Commission (“SEC”).  On September 9, 2016, the SEC filed a complaint against a company and its general counsel that should serve as a reminder for any registrant subject to a government investigation to ensure that it has robust procedures in place to review disclosure requirements in connection with government investigations in light of the facts uncovered by any internal investigation and the course of … Read more

PwC Discusses New York’s Proposed Cybersecurity Rules

On September 13, 2016, the New York State Department of Financial Services (DFS) proposed a broad set of cybersecurity regulations for banks, insurers, and other financial institutions.[1] The proposal is largely consistent with existing guidance (e.g., under the NIST Cybersecurity Framework or the FFIEC[2] IT Handbook), but it goes further in some ways.

The proposed rule is the result of DFS’ focus on cybersecurity over the past several years, in which DFS conducted three industry surveys, held cybersecurity discussions with various financial institutions, and issued a letter to US regulators asking for feedback on potential cyber-specific requirements.[3]Read more


Do Bosses’ First Impressions Last? Evidence from Professional Baseball

As the saying goes, “You only get one chance to make a first impression.” The importance of making a good first impression with your employer is well established in conventional wisdom. But what about second and third impressions? In our recent paper, “Do first impressions last? The impact of initial assessments and subsequent performance on promotion decisions,” available here, we examine how readily employers revise their initial opinion about a worker’s quality and potential after observing actual on-the-job performance. We find that managers continue to make promotion decisions in part based on assessments that were made as … Read more

Wulf Kaal

What Happens When Technology Is Faster Than the Law?

Designing a regulatory framework that ensures the safety of users and the public while facilitating the commercial use and consumer enjoyment of disruptive innovation is a challenging undertaking. This is particularly true in contemporary settings, where innovation is quicker and the global dissemination of that technology is much faster. The so-called “pacing problem” between innovation and regulation suggests that innovation driven by science and technology is accelerating, yet, simultaneously, federal and state agencies’ regulatory processes have slowed down as I discuss here. Given the intensifying pacing problem between regulation and innovation, regulators often struggle to keep up. The last … Read more


General Counsel’s Growing Prominence May Prompt Privilege Problems

An emerging best practice of granting general counsel greater organizational prominence can create risks and benefits for corporate governance The general counsel’s ability to serve as a business partner of management helps establish the credibility essential to the successful performance of her roles as legal advisor and guardian of the corporation’s reputation. Yet this valuable business partnership can have the unintended consequence of weakening the attorney-client privilege that generally cloaks the general counsel’s advice to management.

The model of the organizationally prominent general counsel is rooted in the post-Sarbanes-Oxley era’s emphasis on corporate responsibility.  Important policy monographs from the American … Read more

Ropes & Gray discusses SEC Whistleblower Enforcement and Severance Agreements

On August 30, 2016, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) reaffirmed its commitment to its whistleblower program by issuing the second largest award in its five-year history. While admittedly less dramatic than this $22 million payment, however, the Commission’s recent enforcement activity is similarly compelling evidence of the value that the agency places on its whistleblower program.

Specifically, on August 10 and August 16, 2016, the Commission announced settlements with two companies based on language in employee severance agreements that discouraged employees from reporting possible securities law violations to the SEC, including by restricting the employees’ … Read more