Merger activity seems to rise in step with the market. Academic papers suggest this may be due to bidders exploiting overvalued shares, a pro-cyclicality of merger economies of scale or available capital for deals, or simply the behavioral pressures of a “me too” mindset among CEOs. But this positive association is not altogether intuitive, as practitioners and academics alike ask “why do we not see merger waves during bear markets in which acquirers are bargain-hunting for undervalued firms.”
In our working paper “Merger Activity, Stock Prices, and Measuring Gains from M&A” we offer a fresh take on the positive … 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
A new type of warfare is upon us. In this new mode of war, finance is the most powerful weapon, bullets are not fired, financial institutions are the targets, and almost everyone is at risk. Instead of smart bombs, improvised explosives, and unmanned drones –– economic sanctions, financial restrictions, and cyber programs are the weapons of choice. This is the new reality of modern financial warfare.
The armaments of modern financial warfare are as vast, diverse, and important as the myriad of ways to raise and move money. Broadly, the financial weapons of war can be divided into analog weapons … Read more
In the wake of its release on May 17, 2016 of updated Compliance and Disclosure Interpretations (“CDIs”) relating to the disclosure of non-GAAP financial measures, the SEC’s Division of Corporation Finance has indicated in no uncertain terms that now is the time for companies to review their non-GAAP measures and make any revisions called for by the new guidance.
With the new and revised CDIs, the SEC has delivered the latest in a series of increasingly strong warnings – previously made in remarks by the SEC Chair and senior Staff accountants – about the perceived misuse of non-GAAP measures. Commenting … 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
Reinsurance can be understood as simply insurer’s insurance. Under an insurance contract, a policyholder is protected from loss by transferring risk to an insurer; analogously, under a reinsurance contract, an insurer (the cedent or ceding company) is protected from exposure by transferring risk to a reinsurer. Insurers have an increasing demand for more financial capacity when underwriting catastrophic risks. The Cologne Reinsurance Company was the first professional reinsurance company, founded in 1842 following a catastrophic fire in Hamburg the same year. For over a century, reinsurance has been the preferred vehicle to shed primary insurers’ catastrophe risk exposure. For example, … Read more
On June 16, 2016, the US Securities and Exchange Commission (“SEC”) issued a proposed rule (available here), which, if adopted, would result in a revamp of its disclosure requirements for mining company issuers. The proposed rule is intended to harmonize the SEC’s mining property disclosure requirements with current industry and global regulatory practices and standards. The SEC is seeking comments on all aspects of the proposal. Initial comments are due 60 days after the proposed rule is published in the Federal Register.
The key changes proposed for mining companies are:
- requiring the disclosure of mineral resources (currently prohibited under
… Read more
Attackers last February reportedly stole $81 million from the Bangladesh Central Bank by obtaining and exploiting the bank’s credentials for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. The attack – one of the biggest bank robberies in history – exploited weaknesses in cyber, fraud, and possibly insider threat controls, illustrating the need for banks to combine financial crime risk areas that were previously either siloed, or at best tenuously connected.
Specifically, the attackers exploited cyber weaknesses by designing custom malware tailored to bypass controls and network logging systems used by the Bangladesh Central Bank. The attackers also … Read more
A recent enforcement action reflects the CFTC’s expanded jurisdiction and provides further clarity on what constitutes “actual delivery” in cryptocurrency trading.
On June 2, 2016, the US Commodity Futures Trading Commission (CFTC) issued an order (the Bitfinex Order) filing, and simultaneously settling, charges against Hong Kong-based BFXNA, Inc., d/b/a Bitfinex (Bitfinex), in connection with Bitfinex’s operation of an online cryptocurrency trading platform (the Platform). Specifically, the Bitfinex Order finds that Bitfinex facilitated the execution of illegal, off-exchange commodity transactions in violation of the Commodity Exchange Act (the CEA) by (i) permitting retail and non-retail users to engage in financed … Read more
Much has been written and spoken in the immediate aftermath of the UK’s EU referendum about what the UK must do to leave the EU. We look at the key questions in this area, such as whether the UK has yet decided to withdraw, what it must do to withdraw, whether it can change its mind, and the position of Scotland.
What is the mechanism for leaving the EU?
The mechanism for the UK’s leaving the EU is set out in article 50 of the Treaty on European Union (see Box 1, overleaf). For withdrawal, article 50 requires:
… 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
The UK voters’ decision to exit the EU came as a surprise to many observers, as well as the markets, with the “Leave” campaign even hinting at defeat as the polls closed. The Wall Street echo chamber view that it would make no sense in the end for the UK to leave was just that. The vote has unleashed political, economic, and financial uncertainty that will play out over the months ahead with attendant risk premia rising for affected currencies, equity and fixed income markets, sectors, and individual firms. Market values for banks, insurance companies, and asset managers dropped Friday … Read more
Entrepreneurship—a process of organizing, managing, and assuming the risks of a business or enterprise—has long been viewed as important for sustained economic activity. But the state of the economy, especially booms and downturns referred to business cycles, can itself affect entrepreneurship. A better understanding of the nexus between the two can, therefore, help improve public policy towards entrepreneurship and generate benefits for society.
A key challenge for the analysis is that entrepreneurship cannot be easily captured by a single measure. One could, for example, use business ownership as a measure but it does not distinguish between growth-oriented highly innovative activity … Read more
Months after the end of World War II, a 28-year old Brooklyn lawyer recently discharged as an Army officer took a job with a fledgling New Deal alphabet-soup agency, the Securities and Exchange Commission. The SEC then operated from its wartime quarters at the Philadelphia Athletic Club, and it had adopted its core antifraud rule, Rule 10b-5, only four years earlier.
The lawyer, Irving Meyer Pollack, went on to become more than an SEC legend. Indeed, he became one of the most – perhaps the most – distinguished enforcement lawyer in the SEC’s now 82-year history. As briefly outlined below, … Read more
It’s been almost seven years since the Delaware chancery court issued its initial opinion in the Trados litigation and instigated a flood of law firm memos, law review articles, and changes to the way deals get done in Silicon Valley. The dust still hasn’t settled.
By way of review, Trados involved claims against the board of a startup company that was sold in a merger transaction. Plaintiffs, who held common stock of the company, alleged that board members affiliated with the company’s VC investors were conflicted in approving the transaction. The VC investors held preferred stock that provided for a … Read more
Corporate expatriations – transactions that lead a U.S. company to become the subsidiary of a foreign parent – present two problems for the U.S. Internal Revenue Service (I.R.S.). First, they give expatriated companies the opportunity to use tax minimization strategies to avoid taxes; second, they erode the U.S. corporate tax base. Though both actions are driven by idiosyncrasies in U.S. tax treatment of foreign income, they spring from different motivations, and lead to different kinds of harm. Tax minimization involves exploiting differences in national tax laws to shield income from arguably legitimate U.S. tax obligations, while tax base erosion involves … 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
Moody’s, S&P and Fitch represent an oligopoly in the credit rating business, accounting for 94 percent of the global market (Candelon et al., 2014) and for about 96.5 percent of all the outstanding ratings in U.S. The three agencies are key players in financial markets as they assess the credit worthiness of almost any debt issuer including governments, firms, municipalities and financial institutions. Moody’s, S&P and Fitch heavily affect corporate financing through ratings assigned to corporate debt. The economic literature has shown that bond ratings are strongly correlated with private bond yields (Hand et al., 1992; Hite and Warga, … Read more
On May 6, 2016, in Singh v. Attenborough, No. 645, the Delaware Supreme Court strengthened the defenses available to directors by clarifying a roadmap for effectively dismissing post-closing claims for breach of fiduciary duty. A fully informed, uncoerced vote of the majority of disinterested stockholders, and a well-run sale process with any deficiencies either avoided or disclosed in advance of the stockholder approval are key to invoking director-favorable protections against post-closing liability for breach of fiduciary duty in merger transactions.
The Supreme Court issued the Order upon reviewing Chancery Court’s dismissal of stockholder-plaintiffs’ claims for breach of fiduciary duty … Read more