O’Melveny explains SEC Seeking Comment on Revisions to Audit Committee Disclosures

On July 1, 2015, the Securities and Exchange Commission issued a concept release seeking public comment on possible revisions to audit committee disclosure requirements, focused primarily on audit committee oversight of independent auditors. The concept release is available here. Comments are due no later than September 8, 2015.

At the July 1 open meeting, SEC Chair Mary Jo White noted that “effective audit committee oversight is essential to investor protection and the functioning of our capital markets.” The concept release follows this statement and requests public comment on four primary topics: (i) audit committee oversight of independent auditors, (ii) … Read more

Daniel Kinderman

The Politics of Corporate Transparency and the Struggles over the Non-Financial Reporting Directive 2014/95/EU

Crises can generate pressure for change – and there are crises aplenty in contemporary governance and corporate accountability. After decades of neoliberal orthodoxy, the US sub-prime crisis, the European banking crises and corporate malfeasance[1] have shaken the ideologies of shareholder value and efficient self-regulating markets and increased support for the re-regulation of markets. Markets require information to discipline firms, and the lack of information on companies’ social and environmental impacts has prevented market mechanisms from pushing against the externalization of costs after impacts created by the externalization became a concern to society.[2]

In response, the EU has passed … Read more


Do Women Stay Out of Trouble? Evidence from Corporate Litigation

An estimate by John B. Henry in the Metropolitan Corporate Counsel (February 2008, p. 28) suggests that the annual direct litigation cost of Fortune 500 companies was a whopping $210 billion in 2006, i.e., about one-third of their after-tax profits that year. Apart from direct litigation cost, lawsuits also hurt firms’ reputations. Not surprisingly, companies lose significant market values upon the filing of lawsuits against them. Given the substantial impact of litigation, it is surprising that little research has been done to identify the determinants of various types of lawsuits against firms. Our paper aims to fill this gap by … Read more

Cahill explains D.C. Circuit: Section 4E of the Exchange Act Does Not Bar SEC From Commencing Action More Than 180 Days After Issuance of Wells Notification

On July 10, 2015, the United States Court of Appeals for the District of Columbia Circuit held that the 180-day requirement set forth in Section 4E of the Securities Exchange Act of 1934 for the Securities and Exchange Commission (“SEC” or the “Commission”) to file an enforcement action after the issuance of a Wells notification is not jurisdictional.[1]

1. Factual and Procedural Background

In 2003, Ernest V. Montford, Sr., founder of institutional investment advisor, Montford and Company, Inc. (“Montford Associates” and collectively, “Petitioners”), began recommending that his clients invest with investment manager Stanley Kowalewski. When Kowalewski started his own investment … Read more

Asaf Eckstein

Should Agents Operating in the U.S. Financial Markets Have “Skin in the Game”?

The Literature on agency theory is largely focused on relationships in which one party (the principal) engages another party (the agent) to perform some service on the principal’s behalf, the performance of which involves delegating some decision making authority to the agent. This literature explains that when the principal and the agent do not share the same interests, a conflict may arise; an “agency problem.”[1] Generally speaking, two main governance devices have been suggested to help align the interests of principals and agents in order to eliminate conflicts of interest and thereby enhance the welfare of principals. The first … Read more


Are Exchange Trading Rules Effective for Mitigating Insider Trading Activities?

Are securities law and their enforcement effective at mitigating market manipulation activities, especially insider trading activities? The study ‘Exchange Trading Rules, Surveillance and Suspected Insider Trading’, forthcoming in the Journal of Corporate Finance, tries to answer this question with unique international data and a natural experiment. For the first time, we examine the exchange trading rules that govern market conduct and relate these rules to insider trading. We use exchange trading rule changes in Europe as a natural experiment to ascertain the impact of trading rules on suspected insider trading. Further, we make use of unique surveillance data in … Read more

PwC discusses Resolution: Single point of entry strategy ascends

The release last week of public summaries of the resolution plans submitted by the 12 largest financial institutions operating in the US reveal more insight into the institutions’ resolution strategies than ever before, including the strategy for each of their most important subsidiaries (“material entities”).

The considerable additional detail of the 2015 releases displays the structural differences between these institutions – especially between the eight domestic banks and the four foreign banking organizations (“FBOs”). In particular, there is a notable shift toward a Title I single point of entry (“SPOE”) strategy among domestic institutions:1

  • Six of the eight domestic

Read more

Holland & Hart discuss Newman Cert., A Potential Tipping Point For Insider Trading Liability

In recent years, the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have zealously pursued potential insider trading. After a long string of high-profile successes, the government faces significant roadblocks created last year by the Second Circuit in its momentous U.S. v. Newman decision. On July 30, 2015, the Solicitor General petitioned the U.S. Supreme Court to overturn Newman. If the Supreme Court grants cert., the resulting decision likely will mark a critical development in insider trading law. These evolutions affect entities, which must craft and implement insider trading policies, and individual market participants alike.

Insider Read more

David Zaring

Law and Custom as Constraints on the FOMC

The Federal Open Market Committee, which controls the supply of money in the United States, may be the country’s most important agency. The chair of the committee is often dubbed the second most powerful person in Washington, only deferring to the President himself. Financial scholars and analysts obsess over the institution, leading to a rich tradition of FOMC Kremlinology, veneration, and second-guessing in business schools and economics departments.

But legal scholars have been less entranced by the committee, put off, perhaps, by the fact that the institution has never been checked by the courts or the Administrative Procedure Act. As … Read more

WilmerHale discusses A Bold New Regulatory Landscape for Research: SEC Approves FINRA Rules Addressing Conflicts of Interest for Equity and Debt Research

More than ten years after the Global Research Settlement and the adoption of NASD Rule 2711, the Securities and Exchange Commission (SEC or Commission) has approved new FINRA rules addressing conflicts of interest for both equity and debt research analysts and research reports.[1] The new rules, FINRA Rules 2241 and 2242 (collectively, the Research Rules or Rules), will require FINRA member firms to establish certain policies and procedures related to equity (Rule 2241) and debt (Rule 2242) research reports and research analysts.[2] The Research Rules are the product of a lengthy and dynamic rulemaking process, which began in … Read more

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Pierre Schammo

A New Capital Markets Union for the EU

A few months ago, the European Commission (the ‘Commission’) officially launched a major new EU policy initiative. It proposed to establish an EU-wide Capital Markets Union (CMU). The CMU is a flagship initiative of the Commission. It has ambitious objectives. The project is about completing a single EU capital market, but it is also about reducing Europe’s reliance on bank finance. The project aims to help the real economy – especially SMEs – to gain access to capital and help investors to gain access to a wider range of investment opportunities. These objectives reflect the Commission’s attempt to foster jobs, … Read more

Brian Cheffins

Corporate Governance Since the Managerial Capitalism Era

The term “corporate governance”, while now ubiquitous, was largely unknown in the U.S. until the 1970s and the rest of world until the 1990s. There has been little research done on why corporate governance rose to prominence when it did. Conceivably the lack of analysis could be because nothing more was going on than the adoption of a handy catch phrase encompassing already familiar topics and themes. In fact, the new terminology was accompanied by a reconfiguration of governance arrangements in U.S. public companies. These important changes coincided with and were related to the demise of a “managerial capitalism” … Read more

Orrick discusses SEC’s Guidance Supporting its Position that Internal Whistleblowers are Protected Under Dodd-Frank

On August 4, 2015 the Securities and Exchange Commission issued interpretive guidance elaborating its view that the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply equally to tipsters who claim retaliation after reporting internally, as well as those who are retaliated against after reporting information to the SEC. The guidance reflects that there is a split among federal courts over whether Dodd-Frank’s whistleblower retaliation provisions apply to internal as well as external reporting, and recognizes that the only circuit court to decide the issue to date, the Fifth Circuit, has taken a contrary position to … Read more

David M. Uhlmann

Reconsidering Corporate Criminal Prosecution

For more than a decade, the Justice Department morphed its approach to corporate crime, eschewing criminal prosecutions in favor of deferred prosecution and non-prosecution agreements that allowed large corporations to avoid the ignominy of criminal convictions. The trend began during the Bush administration and became so dominant during the Obama administration that the Criminal Division of the Justice Department entered deferred prosecution and non-prosecution agreements in more than two-thirds of the corporate cases it resolved.

There seemingly were no crimes that did not qualify for corporate absolution. The Justice Department entered a non-prosecution agreement in the Upper Big Branch mine … Read more

Romano & Sanga

The Private Ordering Solution to Multiforum Shareholder Litigation

Multiforum shareholder litigation has increased sharply in recent years. In our working paper, The Private Ordering Solution to Multiforum Shareholder Litigation, we empirically analyze what has quickly proven to be the most popular and robust response to this trend: exclusive forum provisions in corporate charters and bylaws. These provisions require that corporate law-related suits be filed in a single forum, usually a court in the corporation’s statutory domicile. We identify 746 U.S. public corporations that have adopted the provision (as of August 2014); the bulk of these (93 percent) are incorporated in Delaware. Using hand-collected data on these firms, … Read more

Chapman and Cutler discusses The Importance of Implementing an Effective Stakeholder Engagement Strategy

Companies today face increasing pressure from stakeholder groups to become more transparent and involved in addressing various economic, environmental, governance and social issues. Due to the changing corporate environment, not only are companies expected to maximize long-term shareholder value and ensure high standards for employees, suppliers and the communities in which they operate, but they are also expected to be responsive to other stakeholder concerns, sometimes even those unrelated to their business. Moreover, today’s increasingly interconnected society has provided those groups with the ability to more easily collaborate and to monitor, scrutinize and publicize corporate actions. As a result, it … Read more

Sergio Gilotta

The Regulation of Outsider Trading in the EU and US

In a recent paper, I compare the legal treatment of outsider trading under US and EU law. Outsider trading can be defined as the sale or purchase of listed securities on the basis of material nonpublic information by individuals who do not qualify as insiders. There is substantial (and so far largely unnoticed) divergence between EU and the US in this area of securities regulation.

In both systems outsider trading, like more ordinary insider trading, is subject to severe restrictions. In the US, however, the trading prohibition has a limited scope. It applies selectively, only if certain conditions are … Read more

Latham & Watkins discusses SEC Announcement of Compliance Date for Pay-to-Play Rule

Despite the July 31, 2015 compliance date, the SEC will not enforce the third-party solicitation ban until corresponding FINRA/MSRB Rules take effect.

On June 25, 2015, the Securities and Exchange Commission (SEC) announced a compliance date of July 31, 2015 for the provision of its Pay-to-Play Rule under the Investment Advisers Act of 1940 that requires third-party solicitors be subject to a similar pay-to-play regime.1 Some had thought that the SEC would require compliance with the third-party solicitation ban2 as early as April 1, 2015.3 While the SEC has now established the compliance date at the end … Read more

Jennifer Taub

Is Hobby Lobby a Tool for Limiting Corporate Constitutional Rights?

Critics lament that with Burwell v. Hobby Lobby Stores, Inc., the Supreme Court further expanded corporate personhood powers. My forthcoming article offers an alternative reading. It suggests that Hobby Lobby might actually provide a tool for limiting previously recognized corporate constitutional rights. To those who oppose the decision, this assertion might seem unduly optimistic. After all, the Court did determine that three family-owned business corporations were “persons” with sincere religious beliefs entitled to use the Religious Freedom Restoration Act (“RFRA”) to deprive employees of federally mandated healthcare insurance coverage. Given that the Court determined that certain “closely held” business corporations … Read more

Sullivan & Cromwell discusses Bank Capital Plans and Stress Tests

On July 17, the Board of Governors of the Federal Reserve System (the “FRB”) released a notice of proposed rulemaking (the “NPR” and the rules set forth therein, the “Proposed Rule”) that would modify certain aspects of the FRB’s capital plan rule (the “Capital Plan Rule”)[1] and Dodd-Frank Act stress test rules (the “DFAST Stress Test Rules”)[2] applicable to large bank holding companies (“BHCs”)[3] and certain banking organizations with total consolidated assets of more than $10 billion. The NPR would also affect elements of the … Read more