After two years of operations, the SEC’s whistleblower program announced its first multimillion dollar award – a record $14 million payment to an anonymous tipster. The award is the largest of three announced since the program’s inception and emphatically signals the SEC’s continuing emphasis on its whistleblower program. Since whistleblower activity is likely to increase, public companies should take steps to leverage the incentives provided in the Dodd-Frank Act and implement procedures that encourage internal reporting. By designing a system of internal controls and processes to handle internal complaints, companies can quickly discover and halt ongoing violations, avoid external reporting … Read more
Commissioner Kara M. Stein gave the following statement on September 18, 2013 at an SEC open meeting in Washington D.C. The new municipal advisor registration rules are available here.
Municipalities are the lifeblood of many communities. They provide the roads, schools, sewers, firefighters, police officers, and countless other services for millions of Americans. When these critical government structures crumble under financial duress, so does the wellbeing of the communities they serve. In most cases, the finances of these communities are overseen by dedicated public servants. But these public servants are most often not familiar with the financial wizardry of … Read more
The SEC has proposed rules to implement the “CEO pay ratio” disclosure requirements under Section 953(b) of the Dodd-Frank Act.
The proposed rules would require many SEC reporting companies to publicly disclose the following information:
- the median annual total compensation of all employees of the company (excluding the CEO);
- the annual total compensation of the CEO; and
- the ratio of the median annual total compensation of all employees (excluding the CEO) to the annual total compensation of the CEO.
In an effort to address the concerns raised by comments received in advance of the proposed rules over significant compliance costs … Read more
On August 28, 2013, the federal agencies (the “Applicable Regulators”) responsible for implementing regulations under Dodd-Frank re-proposed rules for risk retention requirements in ABS transactions, including CLO transactions. The re-proposal comes more than two years after the original proposed rules, which contained only one reference to CLOs and CLO managers. The re-proposal, however, contains significant provisions regarding CLOs that could fundamentally alter the shape of the CLO market.
Public comments on the re-proposal are due October 30, 2013.
Absent a change by the Applicable Regulators, the risk retention requirements with respect to CLOs will become effective two years … Read more
The “London Whale” is far from the financial crime of the century, but it may well be the financial blunder of the decade. Crimes and blunders are, of course, different, but the slow and inconsistent response by JPMorgan Chase & Co. to its discovery that traders in its London office were hiding their losses has placed the behavior of several JPMorgan officers on the ambiguous seam between a negligent blunder and more culpable fraud.
This frames an obvious question: Does the U.S. Securities and Exchange Commission’s settlement with JPMorgan deal adequately with this misbehavior? After ignoring Lehman Brothers and other … Read more
The following post comes to us from Brent J. Horton, assistant professor at Fordham University Gabelli School of Business.
In my recent Article, Toward a More Perfect Substitute: How Pressure on the Issuers of Private-Label Mortgage-Backed Securities Can Improve the Accuracy of Ratings, which is scheduled to be published in Volume 93 of the Boston University Law Review this winter, I propose a burden shifting procedure that will force issuers of private-label MBS to take ownership of the ratings incorporated into their registration statement (e.g., Aaa, Baa3)—specifically, the accuracy of those ratings. The issuers will … Read more
Federal Reserve Issues Interim Final Rules Addressing Application of New Basel III-Based Capital Framework for Purposes of the 2013-2014 Capital Plan and Stress Test Cycle
The Federal Reserve recently issued two interim final rules that clarify how covered companies must incorporate the new U.S. Basel III-based final capital rules (the “Basel III Capital Rules”) into their capital plan submissions and Dodd-Frank Act stress tests for the upcoming 2013-2014 cycle.
To address and clarify the potential issues created by the interaction of the overlap of the nine-quarter planning horizon of the Federal Reserve’s current version of the capital plan
The following comes to us from Arthur E. Wilmarth, Jr., Professor of Law at GW Law and Executive Director of the Law School’s Center for Law, Economics and Finance. This is a synopsis of his article Turning a Blind Eye: Why Washington Keeps Giving In to Wall Street (81 University of Cincinnati Law Review 1283-1446, 2013).
As the Dodd–Frank Act approached its third anniversary in mid-2013, federal regulators failed to meet statutory deadlines for more than 60% of the required implementing rules. The financial industry has undermined Dodd–Frank by lobbying regulators to delay or weaken rules, by suing to overturn … Read more
The following comes to us from Yesha Yadav, Assistant Professor of Law at Vanderbilt Law School:
Scholars have long lamented that the growth of modern finance has given way to a decline in corporate governance. According to current theory, the expansive use of credit derivatives has made these lenders uninterested, even reckless, when it comes to exercising creditor discipline. Credit derivatives, such as credit default swaps (CDS), allow lenders to trade away the credit risk of the loans they extend. Without economic skin-in-the-game, lenders are left with little motivation to invest in ensuring that debtors remain creditworthy. Indeed, their interests … Read more
The following comes to us from Mark J. Roe, the David Berg Professor of Law at Harvard Law School:
Regulatory reaction to the 2008-2009 financial crisis focused on complex financial instruments that deepened the crisis. A consensus emerged that these risky financial instruments should move through safe, strong clearinghouses, which would be bulwarks against systemic risk, and that the destructive impact of the failures during the crisis of AIG, Lehman Brothers, and the Reserve Primary Fund could have been softened or eliminated were strong clearinghouses in place. A clearinghouse is an entity that takes over the trades that parties make, … Read more
Is the SEC capable of blushing? Increasingly, there are occasions in which the Securities and Exchange Commission takes positions so inconsistent with the protection of investors and its own history and so deferential to the industry that one has to ask: What were they thinking? How can a federal agency be that tone deaf? This column will, first, examine the SEC’s new policy toward when “bad actors” can use the vastly expanded Rule 506 and, second, focus on how these rules will likely be gamed.
The Securities and Exchange Commission today voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.
The new rule, required under the Dodd-Frank Act, would not prescribe a specific methodology for companies to use in calculating a “pay ratio.” Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way … Read more
Active Shareholders are the New Normal, Placing a Premium on Management Preparedness, Board Awareness and Ongoing Shareholder Engagement for Public Companies
The results of the 2013 proxy season and other recent corporate governance developments have demonstrated that boards and management teams should thoughtfully assess their approach to dealing with hedge funds and other “long” investors that are considered “activist.” Responding effectively to these activist shareholders in today’s environment requires more continuous engagement with shareholders, a recognition of the broad support given to many activist campaigns by traditional investors and advance preparation.
The universe of “activist” shareholders has expanded and
The following comes to us from Public Affairs at Columbia Law School:
John C. Coffee Jr., the Adolf A. Berle Professor of Law at Columbia Law School, has been asked by Vuk Jeremić, president of the 67th Session of the United Nations General Assembly, to serve on a panel on the role of credit rating agencies in the global economy.
The Sept. 10 high-level debate will provide an opportunity for experts from government, international NGOs, and business to discuss the challenges associated with the current methods of credit rating agencies. Coffee, a leading expert on securities law and … Read more
The following is a joint press release from six federal agencies on the revised credit risk retention rule, available here.
Six federal agencies on Wednesday issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
This proposal is being issued jointly by the Board of Governors of the Federal Reserve System, the Department of Housing and Urban Development, the Federal Deposit … Read more
On July 10, 2013, the Securities and Exchange Commission took action on three proposals relating to private offerings:
- Adopted final amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to eliminate the prohibition on general solicitation in offerings conducted under those rules, as mandated by Section 201(a) of the JOBS Act.
- Adopted final amendments to Rule 506 to disqualify certain felons and other “bad actors” from participating in offerings under the Rule, as mandated by Section 926 of the Dodd-Frank Act.
- Proposed additional amendments to Regulation D, Form D and Rule 156 under the Securities
Effective July 16, 2013, the Federal Reserve Banks’ Operating Circular No. 10 (“OC-10”) has been amended to include a new appendix entitledProhibition Against Federal Assistance to Any Swaps Entity (“Appendix 6”). Appendix 6 is intended to ensure that the Federal Reserve Banks comply with the requirements of Section 716 of the Dodd-Frank Act (“Swaps Pushout Rule”) when making discount window advances under OC-10. OC-10 sets forth the terms and conditions under which an entity may obtain advances from, incur obligations to, or pledge collateral to a Federal Reserve Bank.
The Swaps Pushout Rule … Read more
On July 12, 2013, the CFTC adopted long-anticipated final cross-border guidance (the “Final Guidance”) that provides guidelines for the application of the CFTC’s swap regulatory regime to cross-border swap activities. At the same time, the CFTC adopted a phase-in compliance schedule (the “Exemptive Order”) that extends, with material changes, the cross-border exemptive order issued by the CFTC in January 2013 (the “January Order”).
The Final Guidance and the Exemptive Order address several important topics, including:
- the final definition of U.S. person for purposes of the CFTC’s swap regulatory regime;
- guidance on which swaps a non-U.S. person must include in, and
The CLS Blue Sky Blog presents the third installment of our series, “The Marketplace of Ideas.” Earlier installments are available here and here. The intent is to present different perspectives on the same subject by two or more authors.
Today, the subject is how the SEC should respond to Dodd Frank’s invitation to rethink the disclosure of beneficial ownership under Section 13(d). We have asked a number of experts for their views.
Our first release, Proposals to “Reform” the Section 13D Rules: Getting it Precisely Backwards, comes to us from Professors Ronald J. Gilson of Columbia and Stanford … Read more
The current proposals to accelerate the timing of beneficial ownership disclosure under Section 13(d) of the 1934 Securities Exchange Act and to broaden the definition of beneficial ownership to include derivative positions that provide economic exposure to stock price movement but not a right to vote or acquire stock, gets the problem precisely backwards. The mismatch of problem and solution is apparent when we focus on two dates: 1968, when the Williams Act adding Section 13 was adopted, and 2010, when Section 766 of the Dodd-Frank legislation gave the SEC the authority, but not the obligation, to consider whether derivative … Read more