Thank you for the opportunity to speak to you today, it is great to be back in New York. The Citizens Budget Commission has played an important role over the years as a forum to discuss issues of interest to New Yorkers that are often also of national and even global importance. Given New York’s preeminence as a center of global finance, I thought it would be appropriate to discuss just such a topic, which is how the Federal Reserve oversees the largest financial institutions, many of which are headquartered or have a major presence here, and how that oversight … Read more
Managers are concerned about how their current performance would influence their current employer’s and the labor market’s assessment of their ability. An unfavorable assessment of their ability can have significant adverse effects, including termination and poor job prospects thereafter. Thus, career concerns are likely to motivate managers to work hard and generate good performance. We further argue that career concerns may also motivate CEOs to withhold bad corporate news and gamble that subsequent corporate events will turn in their favor, enabling them to bury the bad news. To test our prediction, we consider two situations when CEOs’ career concerns are … Read more
If a party obtains information about a public firm before its initial public offering (IPO), and the party themselves is not an insider of the firm, should they be allowed to profit from the information after the IPO? We investigate this question in our research paper, “Outside Insiders: Do Limited Partners Obtain Valuable Information about Stocks Backed by their Venture Capital Funds?” As the title implies, we find that this situation can occur when the IPO is backed by a Venture Capitalist (VC).
Venture Capital backed IPOs account for more than half of all IPOs. In the years … Read more
Many public companies continue to consider their options in responding to proxy access shareholder proposals following the Division of Corporate Finance’s unusual announcement that it will not opine on “the application of Rule 14a-8(i)(9) during the current proxy season.” But over the last few days, several companies have made notable decisions. Whole Foods Market, Inc., which had led the charge earlier this proxy season by obtaining no-action relief from the Securities and Exchange Commission (“SEC”) on the ground that it was planning to submit a conflicting management proposal to shareholders, announced on February 13 that it has decided to … Read more
On February 9, 2015, the U.S. Securities and Exchange Commission (SEC) issued a proposed rule related to the disclosure of hedging policies applicable to board members, officers, and other employees. The proposed rule would implement one of the remaining requirements adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
The proposed rule would amend Item 407 of Regulation S-K to require companies to disclose whether they permit directors, officers, and other employees to hedge the company’s securities, including any equity securities of the company’s parent, subsidiaries, or any subsidiary of any parent of … Read more
The SEC staff issued a no-action letter recently that will allow some companies to refinance their debt using tender and exchange offers shorter than the 20 business days required in the tender offer rules. The letter extends to high yield debt tender offers and to exchange offers pre‑existing guidance that allowed shorter tender offers for investment grade debt. The letter also imposes a number of new limitations on and requirements for shorter tender offers.
The no‑action letter—Abbreviated Tender or Exchange Offers for Non‑Convertible Debt Securities, January 23, 2015—supersedes prior no‑action letters for tender offers launched after its date.… Read more
Recent Delaware decisions have reinforced the expansive power and authority of a board to adopt and enforce corporate bylaws. Advance notice bylaws have become commonplace; exclusive forum bylaws are becoming more prevalent; and adoption of fee shifting bylaws generally awaits action by the Delaware legislature, which is expected in the upcoming 2015 session.
Exclusive Forum Bylaws
An exclusive forum bylaw typically requires that intra-corporate litigation (such as stockholder suits) be brought only in the courts of a specified state (generally where the corporation is incorporated, and sometimes where it is headquartered). The purpose is to increase the predictability and efficiency … Read more
Earlier this month, federal district Judge Richard J. Leon rejected outright a deferred prosecution agreement with a company, “looking at the DPA in its totality,” and noting that not only were “no individuals . . . being prosecuted for their conduct at issue here” but also “a number of the employees who were directly involved in the transactions are being allowed to remain with the company.” No federal judge has done such a thing before. But Judge Leon’s ruling may only be the beginning, if the practice of charging companies and not individuals continues without real reforms.
A corporate criminal … Read more
In December 2013, the SEC at the direction of Congress under the JOBS Act dutifully provided an initial SEC staff report addressing securities disclosure requirements for public companies to question whether the SEC’s detailed disclosure mandates for public company disclosure might be improved or simplified for the benefit of investors. In late 2014, the SEC’s Division of Corporate Finance sought lawyerly input, and heading into 2015, the SEC is methodically continuing this project, seeking comments and reviewing their own rules internally. Before plodding towards even more disclosure minutia read only by lawyers, we might question, is any of this carefully … Read more
Today we feature three posts on the theme of Fannie Mae and Freddie Mac. The first two posts — from David Min and Brad Miller, respectively — question assumptions about the proper role of government and markets in home mortgage securitization markets, arguing for restraint in privatization. The third post, from Mark A. Calabria, looks to the conservatorships of Fannie Mae and Freddie Mac to draw lessons as to whether tools for resolution introduced by the Dodd-Frank Act are likely to be used in the event a major financial institution suffers distress. All of these posts are based … Read more
In Marblegate Asset Management v. Education Management Corp. (S.D.N.Y. 2014), the Southern District of New York found that a proposed out-of-court debt restructuring to the detriment of non-consenting creditors likely violated provisions of the Trust Indenture Act of 1939 (TIA), a Depression-era federal statute intended to protect rights to payment under a TIA-qualified indenture, which is a feature of any U.S. public offering of debt securities. Unlike earlier TIA cases, a critical element of the proposed restructuring here was explicitly permitted by the governing indenture, and no consent was required under the indenture. Nonetheless, the Court read the TIA … Read more
Recently, the United States Court of Appeals for the Second Circuit in Stratte-McClure v. Morgan Stanley, No. 13-0627-CV, 2015 WL 136312 (2d Cir. Jan. 12, 2015) affirmed dismissal of a securities fraud class action lawsuit. The Court also ruled, as a matter of first impression in the Second Circuit, that “a failure to make a required disclosure under Item 303 of Regulation S-K … in a 10-Q filing is an omission that can serve as the basis for a Section 10(b) securities fraud claim, if the omission satisfies the materiality requirements outlined in Basic v. Levinson, 485 U.S. … Read more
In recent years, top executives taking a $1 base salary (or less) has become a high-profile phenomenon across many types of organizations. The Chief Executive Officers (CEOs) of some of the most recognizable corporations, both successful and distressed, have had a $1 salary (e.g., Google, AIG and General Motors). Regulators consider the practice important, as members of the Senate Banking Committee pressed the CEOs of the three U.S. automakers to accept a $1 salary during their bailout hearings (Wall Street Journal 2008). The precedent was set in 1978 by Lee Iacocca, the former Chairman and CEO of Chrysler, who … Read more
A triad of recent decisions out of the Delaware Court of Chancery highlight the urgent need for legislative reform in Delaware to ameliorate the risk that appraisal arbitrage – now a multibillion dollar industry – poses to transactional vitality and shareholder value.
In two recent cases, In re Appraisal of Ancestry.com, Inc. (Ancestry I) and Merion Capital LP vs. BMC Software , Vice Chancellor Glasscock followed the literal interpretation of the Delaware appraisal statute adopted in 2007 by Chancellor Chandler in In re Appraisal of Transkaryotic Therapies, Inc. Before Transkaryotic, it was generally understood that … Read more
In two recent rulings, the New York Supreme Court rejected settlements arising from lawsuits in which plaintiff stockholders challenged the defendant public companies’ merger-related disclosures. The court in each case found that proposed supplemental disclosures that defendants would provide were immaterial as a matter of law and therefore the court declined to approve the settlements of the stockholders’ claims. The rulings provide helpful guidance on materiality in the context of merger disclosures and continue the trend of greater judicial scrutiny of so-called “merger tax” settlements. In light of that increased scrutiny, stockholder plaintiffs may choose to bring fewer … Read more
Acquisition financing activity was robust in 2014, as the credit markets accommodated increased demand from rising M&A activity. At over $749 billion, global 2014 M&A loan issuance was up approximately 40 percent year over year, the highest total since before the Great Recession. While the aggregate figures suggest a borrower-friendly market, the actual picture is more nuanced. Investment grade acquirors benefited from a consistently strong financing environment throughout 2014 and finished the year with a flourish (including a $36 billion commitment backing Actavis’ acquisition of Allergan), while leveraged acquirors encountered more volatility, as lenders responded quickly to regulatory changes and … Read more
Stockholders’ ability to sue to protect their interests plays a critical role in corporate governance. As described by the Delaware Court of Chancery: “Due to rational passivity, ‘it is likely that in a public corporation there will be less shareholder monitoring expenditures than would be optimum from the point of the shareholders as a collectivity.’ Incentivized by contingent fees, specialized law firms representing stockholder plaintiffs can ‘pursue monitoring activities that are wealth increasing for the collectivity (the corporation or the body of its shareholders).’ ‘In so doing, corporations are safeguarded from fiduciary breaches and shareholders thereby benefit.’ Understood from … Read more
Yesterday and today, we are running a number of posts related to the recent United States v. Newman decision in which the Second Circuit overturned the convictions for insider trading and conspiracy to commit insider trading of Todd Newman and Anthony Chiasson. Messrs. Newman and Chiasson were hedge fund portfolio managers at Diamondback Capital Management, LLC and Level Global Investors, L.P., respectively. The government alleged that a cohort of analysts at various hedge funds and investment firms obtained material, nonpublic information from employees of Dell and NVIDIA—two publicly traded technology companies—shared it amongst each other, and subsequently passed it on … Read more
In its recent decision in United States v. Newman, the United States Court of Appeals for the Second Circuit provided important guidance on the scope of insider trading liability. The case concerned the liability of two hedge fund managers, Anthony Chiasson and Todd Newman, who were alleged to be members of a group of financial analysts who shared information about various publicly-traded companies. Chiasson and Newman were so-called “remote tippees” in that they were each multiple levels removed from the sources of the information – insiders at Dell and Nvidia. Neither defendant was alleged to have had direct … Read more
The recent reversal of convictions of hedge fund managers Todd Newman and Anthony Chiasson highlights the weakness of using a common law approach when interpreting Rule 10b-5 to reach remote tippees accused of insider trading. The decision reinforces the need for a statutory approach to bar insider trading. A statutory approach is not a novel idea. Most jurisdictions around the world, including the UK and the other member states of the EU, have made insider trading a statutory offense that captures a wider range of conduct than does the US regime in its reliance upon Rule 10b-5. However, the introduction … Read more