Drinker Biddle analyzes the First 50 Crowdfunding Offerings

The Securities and Exchange Commission (SEC) is now accepting Form C filings from private companies seeking to sell securities through registered crowdfunding portals. We have been following the nascent crowdfunding space closely and will continue to monitor the adoption of crowdfunding as a new method of financing private companies.

In this alert, we will analyze offerings conducted through crowdfunding portals, offer tips for those thinking of entering the space and provide a summary of the SEC’s final rules and forms for equity crowdfunding (“Regulation Crowdfunding”).

Analysis of the First 50 Offerings

In general. As of June 30, 2016, 50 companies … Read more

Proskauer discusses Whistleblower Concerns for Private Fund Advisers

As we have previously observed, private fund advisers face a difficult challenge when SEC guidance (in the form of a speech or a public enforcement order) indicates that certain long-standing practices may be contrary to the securities laws.  What does an adviser do when its past practices appear, in hindsight, to have fallen short?

While there are a number of potential “fixes”, including rebating fees, amending the fund documents, amending the Form ADV, and changing prospective practices, doing nothing is a particularly bad strategy.  These situations are potential whistleblower events, even if the adviser is not yet aware of any … Read more

Cahill discusses SEC’s Amendments to Rules of Practice for Administrative Proceedings

On July 13, 2016, the Securities and Exchange Commission (“SEC”) adopted important amendments updating its rules of practice governing its administrative proceedings.[1]  These changes concern, among other things, the timing of hearings in administrative proceedings, depositions, summary disposition, the contents of an answer, admissibility of evidence and expert disclosures and the procedure for appeals.[2]  The amendments are intended to update the rules and introduce additional flexibility into administrative proceedings, while continuing to provide for the timely and efficient resolution of the proceedings.  The amendments will become effective sixty days after publication in the Federal Register and will apply … Read more

KSubramanianheadshot

Dodd-Frank Stress Tests Are Fine, but We Need a Cybersecurity Stress Test, Too

Last week, news emerged that China had hacked the FDIC on several occasions during the past few years.  This revelation renews concerns about the security of America’s financial institutions and comes on the heels of the third bank hacking through the Swift global payments network in the past year alone. What’s truly scary is that there may be further breaches of which we are simply unaware.

It’s possible to think of even more terrifying possibilities. What if hackers  infiltrated the information systems of the San Francisco Federal Reserve Bank or the Federal Reserve Board of Governors rather than those of … Read more

Dean_marriage

The Oil Price Crash in 2014/15: Was There a (Negative) Financial Bubble?

The Brent and WTI prices of crude oil fell by 60% between June 2014 and January 2015, marking one of the fastest and largest declines in oil history. Several potential factors (related to oil supply and demand) which could have influenced this oil price decline were discussed in an extensive World Bank policy research note by Baffes, Kose, Ohnsorge, and Stocker (2015). However, Tokic (2015) and a Bank of International Settlements report (Domanski, Kearns, Lombardi, and Shin, 2015) showed that production and consumption alone are not sufficient for a fully satisfactory explanation of the collapse in oil prices. Particularly, Domanski, … Read more

leslie

Arbitration Clauses as a Mechanism for Enforcing Unenforceable Contract Terms

In my article The Arbitration Bootstrap,[1] I explain how courts are misinterpreting the Federal Arbitration Act of 1925 (the FAA) in ways that allow firms to use arbitration clauses to render unenforceable contract terms enforceable. Arbitration clauses require consumers and employees to waive their rights to bring litigation in court.  Although arbitration is less protective of consumers and employees than litigation in public courts, arbitration clauses are unavoidable in many markets because firms impose contracts of adhesion that include mandatory arbitration clauses.

Arbitration bootstrapping describes situations where firms insert terms unrelated to arbitration into an arbitration clause because … Read more

Packin & Edwards (2)

Should Corporate Whistleblowers Go to Arbitration?

Following the 2008 financial crisis, more and more countries have begun to embrace whistleblower protections as a tool to change corporate cultures.  Such provisions may give whistleblowers the protections they need to raise their voices, and draw attention to undesired and sometimes even illegal activities, in situations when they would otherwise remain silent.  After all, many people will hesitate to point out questionable conduct if they know they might face retaliation.

In the United States, Congress authorized the SEC to go further than other whistleblower provisions by authorizing a bounty program—allowing the SEC to reward whistleblowers for particularly valuable tips. … Read more

Cleary Gottlieb discusses CFPB Rulemaking on Arbitration Agreements in Financial Products and Services Contracts

On May 5, 2016, the Consumer Financial Protection Bureau (“CFPB”) proposed a rule that would  govern two aspects of consumer finance dispute resolution.  First, the new regulations would prohibit providers of certain consumer financial products and services from including in their contracts arbitration clauses that prohibit class action lawsuits.  Second, covered providers involved in an arbitration pursuant to a pre-dispute arbitration agreement would be required to submit specified arbitral records to the CFPB.  If the proposed rule becomes final, it will significantly impact the current industry practice of including arbitration clauses with class action waivers in these types of contracts, … Read more

Davis Polk discusses Appellate Reversal of $1.3 Billion Penalty Against Countrywide, Based on Appellate Finding of Lack of Intent

On May 23, 2016, the United States Court of Appeals for the Second Circuit reversed a $1.3 billion civil penalty imposed against Countrywide Home Loans, Inc., Bank of America, N.A., and related defendants (collectively, “Countrywide”) under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).[1]  Although the decision rebuffed the government’s case against Countrywide, it did not address the government’s novel interpretation that FIRREA permits civil penalties against financial institutions whose criminal conduct is “self-affecting.”  FIRREA permits civil penalties against a defendant if it commits certain unlawful acts “affecting a federally insured financial institution.”[2]  Over a … Read more

Brandon Garret

Bad Hustle

“And we played the Hustle music.  There were, you know, printed materials passed out,” with dance steps so “ideally we could all perform the Hustle in precision,” recalled the former Countrywide first vice president. “There was a lot of excitement.  There was a lot of fanfare. It was fun.”  He was describing events in the summer of 2007, when Countrywide decide to speed up its process for approving loans, using a program called the “High Speed Swim Lane,” or “HSSL” (or “Hustle”).  The music stopped after the global financial crisis.  Bank of America bought out the failing Countrywide Financial.  In … Read more

PwC discusses Protecting Elderly Customers: CFPB and FINRA Step In

The Consumer Financial Protection Bureau (CFPB) released recommendations in March for how banks and credit unions can better protect elderly customers from financial exploitation. The CFPB issued its recommendations as the elderly population continues to rapidly grow, positioning banks and credit unions for a significant increase in elder financial exploitation (EFE) attacks.[1]

Other regulatory bodies have taken notice of this growing threat as well and are putting forth regulations and guidance of their own. For example, the Financial Industry Regulatory Authority (FINRA) last year proposed a regulation requiring broker-dealers to take action in response to suspected EFE.

EFE is … Read more

Gordon Ringe

How Europe Can Survive Without Introducing Sovereign Debt Limits

EU financial policymakers appear to be once more in a deadlock situation over proposals to limit the sovereign risk exposure of European banks. The strong exposure of some banks in the southern European periphery in their national sovereign’s debt was seen by many as one of the contributing factors to the ongoing sovereign debt crisis (Acharya et al. 2014, Beltratti & Stulz 2015; Brunnermeier et al. 2016). Powerful incentives have encouraged financial institutions to buy and hold government bonds in the past (Gros 2013). In fact, this was the intellectual background for the policy framework known as the Banking Union, … Read more

Twenty Most Cited Corporate Law & Securities Regulation Faculty in the United States, 2010-2014 (inclusive)

Rank Name School Citations Age in 2016
1 John Coffee, Jr. Columbia University 1470 72
2 Lucian Bebchuk Harvard University 1130 61
3 Stephen Bainbridge University of California, Los Angeles 1010 58
4 Reinier Kraakman Harvard University   820 67
5 Stephen Choi New York University   780 50
6 Donald Langevoort Georgetown University   770 65
7 Ronald Gilson Columbia University   760 70
8 Lynn Stout Cornell University   750 59
9 Roberta Romano Yale University   730 64
10 Henry Hansmann Yale University   720 71
11 Bernard Black Northwestern University   630 63
12 James Cox Duke University   620 73
13 Mark Roe Harvard

Read more

John Coffee, Headshot

Volkswagen and the Culture of Silence

Since the Volkswagen story first broke in September 2015, most observers have just scratched their heads and muttered to themselves in amazement: “What were they thinking?  How could you place ‘defeat devices’ in 11 million cars worldwide and expect that you were going to escape detection for long?”  There is, however, an answer to this question—one that says much about what is wrong with current priorities and practices for the enforcement of white collar crime.  This column begins with an assessment of the Volkswagen case and then turns to an analysis of white collar crime strategies.  Finally, it proposes remedies … Read more

Latham explains Proposed Rules on Dodd-Frank Incentive Compensation Requirements for Financial Institutions

On April 21, 2016, the National Credit Union Administration (the NCUA) issued a proposed rule regarding incentive-based compensation paid by certain financial institutions (the Proposed Rule) to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Section 956).1 Section 956 requires various Federal agencies to issue regulations that limit certain incentive compensation practices at financial institutions. The Office of the Comptroller of the Currency (the OCC), the Federal Deposit Insurance Corporation (the FDIC) and the Federal Housing Finance Agency (the FHFA) released their respective versions of the proposed rule on April 26, 2016, and the … Read more

PwC discusses Ten Key Points from the SEC’s Business Conduct Standards for Swap Entities

One down, three to go: SEC rulemaking is heating up.

Last month, the Securities and Exchange Commission (SEC) finalized business conduct standards for security-based swap dealers (SBSDs).[1] The completion of this rule by the SEC is significant because few security-based swap (SBS) rules have been finalized as compared to the numerous rules completed by the Commodity Futures Trading Commission (CFTC) that govern other types of swaps.[2] These business conduct standards represent the first of four rulemakings that must be finalized before SBSDs will have to register with the SEC.[3]

The SEC’s rule will impact how SBSDs communicate … Read more

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Putting the Fall of LendingClub in Perspective

On Monday, LendingClub Corp., a leader in the growing online lending space, announced the surprise resignation of its founder and CEO, Renaud Laplanche.  Laplanche resigned in response to a board investigation that revealed a number of internal control failures, including the sale of more than $20 million in loans that failed to conform to the requirements imposed by the acquiring investors and the doctoring of dates on loan applications to cover up noncompliance with respect to $3 million in loans sold.  These developments triggered a massive decline in LendingClub’s stock price, but also contribute to a growing cacophony of questions … Read more

Professor Kate Judge Honored for Leading Corporate and Securities Law Article

The work of Columbia Law School Professor Kate Judge appears in the list of twelve best corporate and securities law articles in 2015, based on a poll conducted by the Corporate Practice Commentator.  Teachers in corporate and securities law were asked to select the best corporate and securities articles from a list of articles published and indexed in legal journals during 2015.  More than 540 articles were on the list.  Professor Judge was selected for her article Intermediary Influence appearing in the University of Chicago Law Review.… Read more

PwC discusses Five Key Points from Basel’s Proposed Restrictions on Internal Models for Credit Risk

Last week, the Basel Committee on Banking Supervision (Basel) proposed floors and other constraints on the use of internal models for calculating credit risk capital. The proposal aims to reduce complexity and variation in the calculation of regulatory capital among banking institutions, thus improving comparability. To that end, the proposal generally discourages (and in some instances prohibits) the use of internal ratings-based (IRB) approaches in calculating risk weighted assets (RWA) related to credit risk. The proposal’s objective is consistent with Basel’s other recent issuances, i.e., the re-proposed standardized approach for credit risk (issued last December),1 revised final capital requirements … Read more

Choi & Pritchard

The SEC’s Shift to Administrative Proceedings: An Empirical Assessment

Congress expanded the SEC’s ability to pursue enforcement actions in administrative proceedings in the Dodd Frank Act, bringing the agency’s use of proceedings before its own administrative law judges (ALJs) into the spotlight. A number of respondents have challenged the constitutionality of these proceedings, relying principally on arguments arising out of the Appointments Clause of the Constitution. Those disputes are currently being played out both before the SEC and in the courts, but they are unlikely to be a long-term obstacle to the SEC’s use of administrative proceedings.

In our article, The SEC’s Shift to Administrative Proceedings: An Empirical AssessmentRead more