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
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  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
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
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
On September 8, the Federal Reserve, OCC and FDIC issued the long-expected report to Congress and the FSOC, as required under section 620 of the Dodd-Frank Act, regarding activities and investments of banks and their nonbank affiliates, which were defined collectively in the report as “banking entities” (the “620 Report”). In addition to a comprehensive review and discussion of currently-permissible activities and investments of banking entities, that 107-page document includes a discussion by each agency of associated risks, applicable risk mitigation activities and legal limitations, and specific recommendations. Below are our initial takeaways from the 620 Report. We will circulate … Read more
The practice of allowing shareholders to cast non-binding say-on-pay votes has spread quickly and broadly throughout the world. It seemed that investors would finally get the opportunity to express their dissatisfaction with outrageous or ill-conceived compensation packages.
The practice was, at first, voluntary, with companies having the option of submitting their compensation policies to a vote. As the number of volunteers remained small, though, investors submitted proposals for requiring companies to carry out the non-binding votes.
In some jurisdictions like the United States, non-binding say-on-pay votes were made mandatory. In Canada, say-on-pay votes are not required, but 80 percent of … Read more
In their recent article, Jeff Schwartz and Alexandra Nelson critique the Securities and Exchange Commission’s cost-benefit analysis accompanying the Conflict Minerals Rule. This rule requires public companies using conflict minerals in their production to annually disclose whether the minerals come from certain war-torn areas such as the Democratic Republic of Congo. Schwartz and Nelson contend that the SEC’s estimate of $3-4 billion in compliance costs was grossly overstated due to numerous flaws. They point to early evidence estimating actual compliance costs at $710 million to support their criticism. The article also chastises the SEC for failing to quantify expected … Read more
Financial reform has driven many changes in American governance, but the most dramatic one may prove to be the government’s cautious, but wide-ranging, embrace of a revised global regime to regulate international finance. That reform has moved the equilibrium of the separation of powers in foreign affairs towards Congress and uses the informal way that financial regulatory standards spread across the globe to do the work that customary international law used to do.
Both of these developments derive from the way that international financial cooperation has evolved. The agencies charged with implementing Dodd-Frank have embraced “soft law” in their international … Read more
The 2010 Dodd-Frank Act provided shareholders of U.S. public corporations the right to vote on chief executive officers’ compensation, at least every three years. The so–called say on pay vote is advisory but was designed to curb overly generous executive pay packages.
Since 2011, the financial press, consultants and academic scholars have considered how shareholders make use of this right. According to the latest results of Semler Brossy, 93 percent of the Russell 3000 companies received say on pay support of more than 70% in 2016, and the failure rate dropped to 1.7 percent, the lowest level since … Read more
On July 28, 2016, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued its outline of proposals under consideration for the regulation of debt collection. This 117-page release, entitled “Small Business Review Panel for Debt Collector and Debt Buyer Rulemaking: Outline of Proposals Under Consideration and Alternatives Considered” (“Outline”), was announced in connection with the CFPB’s field hearing on debt collection in Sacramento, California (“Field Hearing”). The Outline is in preparation for the convening of a Small Business Regulatory Enforcement Fairness Act Panel (“SBREFA Panel”), a process mandated by the Dodd-Frank Act for CFPB rules anticipated to have a significant … Read more
On July 28, in conjunction with a field hearing on debt collection, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) released an outline of proposals under consideration to regulate the debt collection industry (the “Outline”). Released as part of the required consultation with a cross section of small entities likely to be affected by the regulation pursuant to the Small Business Regulatory Enforcement Fairness Act (the “SBREFA”), the Outline contains broad proposals to cover the debt collection activities of third-party collection agencies, debt buyers, collection law firms and loan servicers. The CFPB has indicated that it will convene … Read more
After every crisis, academics, policymakers and other observers reflect on what went wrong and what could have been done differently. This in turn leads to some reforms to laws and regulations. In the wake of widespread, multi-country corporate governance failures in the 1990s and 2000s (Enron, Tyco and Xerox in the U.S., for example, Maxwell, BCCI and Polly Peck in the UK, Parmalat in Italy and Ahold in the Netherlands), the call was for company law reforms and better corporate governance practices. The recent global financial crisis has led to many new regulations, and the revamping of existing ones, covering … Read more
“Culture, more than rule books, determines how an organization behaves.” – Warren Buffet
In recent years, there have been ongoing occurrences of serious professional misbehavior, ethical lapses and compliance failures at financial institutions. It was the crisis that exposed systematic mentality errors in finance.
The hope was that post-crisis regulatory reforms would tackle the typical mindset of short-term oriented self-enrichment in finance, considered as one of the origins of the financial crisis. Now, almost ten years after the crash in 2007, the lack of fundamental change raises the question whether there is an endemic issue within the financial … Read more
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
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
On July 13, 2016, the Securities and Exchange Commission (“SEC”) adopted important amendments updating its rules of practice governing its administrative proceedings. 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. 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
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
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
In my article The Arbitration Bootstrap, 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
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