geczy-jeffers-musto-tucker

Institutional Investors’ Appetite for Alternatives

The emergence of alternative business entities[1] like benefit corporations, which facilitate pursuit of profit and purpose in the same endeavor, challenges the strict dichotomy between for-profit and non-profit corporations. Most alternative entities, including well-known brands like Warby Parker and Etsy—both certified B corps—have been privately-owned and thus untested in financial markets,[2] until now. Last month, the online consortium of unique and hand-made goods known as Etsy, made headlines announcing its SEC filing initiating an IPO to raise up to $300 million.

If Etsy retains its B corp certification or elects to reincorporate as a Delaware benefit Read more

Sullivan & Cromwell discusses CFPB Consideration of Rules to Restrict Certain Short-Term Lending

On March 26, 2015, the Consumer Financial Protection Bureau (the “CFPB” or the “Bureau”) announced that it will be considering rules imposing significant structural limitations and other requirements on payday and similar loans: (1) short-term (45 days or less) loans to consumers; and (2) longer-term (more than 45 days) high-interest rate personal loans (more than 36% measured by an “all in” annual percentage rate (APR) that is more inclusive than the Truth in Lending Act APR) where a lender has the right to collect from the customer’s paycheck or bank account, or where a non-purchase money loan is secured by … Read more

baker-perino-silver

Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions

By motivating lawyers to handle class actions, fee awards enable millions of people to obtain access to justice every year and strengthen the effect of regulatory laws. But the process by which judges decide how much to pay lawyers has long been a black box. Settlements go in one side; fee awards come out the other. Researchers have studied the inputs and the outputs, but not the process that connects the two. Consequently, it is difficult to know why judges award the amounts they do.

Our new study, to be published this fall in the Columbia Law Review, seeks … Read more

Morrison & Foerster discusses Supreme Court Decision Allowing Agencies to Reinterpret the Law at Their Discretion

In a decision published on March 9, 2015, the Supreme Court ended the D.C. Circuit Court’s Paralyzed Veterans doctrine, which required administrative agencies to utilize the Administrative Procedure Act’s (APA) notice-and-comment process in order to substantially alter an interpretation. See Perez v. Mortgage Bankers Assoc., 575 U.S. ___, No. 13-1041, slip op. (March 9, 2015). According to the Court, this doctrine improperly imposed procedural requirements on agencies that are not required by the APA.

Pursuant to the APA, legislative rulemaking requires a period for notice and comment by industry stakeholders because, unlike interpretive rules, a legislative rule has … Read more

More on Navinder Singh Sarao, the Alleged Market Manipulator with Responsibility for the Flash Crash

For those interested in the allegations against Navinder Singh Sarao and Nav Sarao Futures Limited PLC, which implicate them in extensive market manipulation and the “Flash Crash” of 2010, here are the complaints from the DOJ and CFTC as well as an ex parte order obtained by the CFTC against the defendants: United States of America v. Navinder Singh Sarao; CFTC v. Navinder Singh Sarao and NAV Sarao Futures Limited PLC; and Ex Parte Statutory Restraining Order, Navinder Singh Sarao and NAV Sarao Futures Limited PLC.… Read more

John Crawford

The Moral Hazard Paradox of Financial Safety Nets

Financial panics are pernicious, but they can be countered with government guarantees of panic-prone debt. In the wake of the crisis, however, Congress has stripped regulators of this sort of guarantee power, motivated in large part by concerns that such powers could exacerbate moral hazard. In a new article, The Moral Hazard Paradox of Financial Safety Nets, I suggest that the moral hazard impact of guarantee authorities in the current system is ambiguous – indeed, it is plausible that guarantee authorities could reduce the (net) cost of moral hazard arising from expectations of government intervention. This supports the view … Read more

Wilson Sonsini discusses Newly Enacted Delaware Rapid Arbitration Act

The Delaware Rapid Arbitration Act (DRAA)—which provides a streamlined arbitration process that will allow for prompt, cost-effective resolution of business disputes—was passed by the Delaware House of Representatives on March 19, 2015, and the Delaware Senate on March 31, 2015, and was signed by Governor Jack Markell on April 3, 2015. The DRAA will become effective on May 4, 2015, and will be codified as new Chapter 58 of Title 10 of the Delaware Code. As summarized in more detail below, the DRAA offers a real alternative to the litigation process, providing companies with the chance to engage in a … Read more

Foley & Lardner discusses Important Regulatory Developments for Proprietary Trading Firms and Broker-Dealers Using Algorithmic Trading Strategies

SEC Proposes Rule Extending FINRA Membership Requirement to Currently Exempted Proprietary Trading Firms

On March 25, 2015, the U.S. Securities and Exchange Commission (SEC) voted unanimously to issue a proposed rule amendment that would significantly narrow the existing exemption that permits many proprietary-trading broker-dealers to operate without being a member of the Financial Industry Regulatory Authority (FINRA).

Section 15(b)(8) of the Securities Exchange Act of 1934 requires a registered broker-dealer to belong to a registered national securities association, i.e., FINRA, unless it is a member of a national securities exchange and trades securities only on that exchange. SEC Rule 15b9-1 … Read more

James Coleman (2)

Two Audiences, Two Stories: Comparing What Companies Tell Regulators With What They Tell Investors

In 2010, the Securities and Exchange Commission (SEC) issued guidance that requires companies to tell shareholders how they may be harmed by proposed energy regulations, unless the company determines that the regulation will be unlikely to affect the company.[1] Since then, shareholder groups, environmental organizations, and proxy advisory firms have complained that companies are ignoring or skirting this requirement.[2] And this criticism has only grown louder as the Obama administration has adopted new greenhouse gas emission standards that apply to a wide range of old and new power plants, refineries, and factories.

But in another forum, companies have … Read more

John Coffee, Headshot

The DuPont Proxy Battle: New Myths, Old Realities—and Even Newer Data About Hedge Fund Activism

A watershed moment is coming for shareholder activism and corporate governance generally, as the proxy contest brought by Trian Management Fund, seeking effectively to break up DuPont, enters its final stages (with the vote being less than a month away). Technically, the contest is to elect four Trian Fund nominees to the DuPont board, but, as a column in the New York Time’s Dealbook put it more bluntly, the real fight is over whether to break DuPont into three parts and “shut down DuPont’s central research labs.”[1] Much about this contest is unusual: unlike other targets of activism, DuPont … Read more

Shearman & Sterling discusses Capital Markets Unions: the EU’s Next Focus for Reforms

On 18 February 2015, the European Commission published a green paper on building a Capital Markets Union, alongside two complementary consultation papers on a revised EU framework for securitisation and a review of the Prospectus Directive. The proposals are part of an initiative to develop a more integrated single market for raising capital across the EU. The proposals in the green paper are in outline form because the ideas for creating the Capital Markets Union remain at an early stage of development. However, with an action plan due to be published later in 2015, they provide insight into the early … Read more

Sullivan & Cromwell discusses President Obama’s Executive Order Authorizing Sanctions for Malicious Cyber Activities

On April 1st, President Obama issued an Executive Order authorizing sanctions against persons found to have engaged in or supported significant malicious cyber activities. Under the order, the Secretary of the Treasury is authorized to designate and impose sanctions on individuals and entities that are responsible for or complicit in certain cyber-related activities that pose a significant threat to the national security, foreign policy, economic health, or financial stability of the United States. The Executive Order focuses in particular on cyber activities that harm or compromise critical infrastructure, disrupt computers or computer networks, or misappropriate funds, information, or trade secrets. … Read more

dan_gallagher

Commissioner Gallagher’s Remarks on Building the Financial System of the 21st Century: An Agenda for Europe and the United States

Thank you, Hal [Scott], for that kind introduction. I apologize for not being able to address you in person. Back in 2013, I opened a speech to the American Academy in Berlin with a bit of German.[1] While I managed not to call myself a jelly donut, my German was nonetheless so bad that I have been banned from entering the country to speak in a public forum.

I applaud Professor Scott and the Harvard Law School for sponsoring this important and timely symposium. After the financial crisis, regulators around the world rushed to take action — any action, … Read more

Morgan Lewis discusses SEC Consideration of Active ETF Listing Standards, Approval of Paired Class ETP

Two recent developments could have significant consequences for the exchange-traded fund (ETF) industry and the regulatory landscape for such products. The first development is a proposed rule change to create “generic listing standards” for actively managed ETFs. The second is the Securities and Exchange Commission’s (SEC’s) approval, accompanied by a dissenting opinion, of listing standards for a new type of “paired class” exchange-traded product (ETP). In addition, Commissioner Michael Piwowar’s recent comments that concerns about leveraged ETFs and volatility are overblown may be a signal that the SEC’s stance on such products could be softening. In this post, we discuss … Read more

ying-kang-zhu

Red vs. Blue: Does Female Board Membership Depend on Whether the Company is Located in Conservative or Liberal States?

Our study examines whether gender disparity exists disproportionately along the conservative and liberal geographical division. We investigate whether female board representation depends on the location of company headquarters in “red” states (which tend to vote for Republican candidates) or in “blue” states (which tend to vote for Democratic candidates). The investigation focuses on director composition between 2002 and 2012, based on board of director data for the S&P 1500 companies. We delineate red or blue companies based on how their home state voted in the past four presidential elections between 2000 and 2012, which coincides with our sample period, or … Read more

Latham & Watkins explains how SEC Sent Message Via Enforcement Action: Don’t Stifle Employee Whistleblowing

On April 1, 2015, the US Securities and Exchange Commission filed its first whistleblower protection case involving confidentiality obligations imposed on employees.[1] The SEC charged Houston-based technology and engineering firm KBR Inc. with violating Rule 21F-17, which prohibits all persons, including companies, from taking any action to impede an individual from communicating with the SEC staff about a possible securities law violation, including by enforcing, or threatening to enforce, a confidentiality agreement. In a press release, the SEC Enforcement staff warned, as they have numerous times in the past, that they will vigorously enforce this provision.

What KBR Allegedly Read more

Christine Hurt

The Limited Liability Partnership in Bankruptcy

The last twenty-five years have brought about widespread changes in the organizational forms through which individuals organize economic activity. Once momentum built, the creation of hybrid entities such as limited liability partnerships, limited liability companies and even limited liability limited partnerships seemed inevitable, as did the surrendering of flow-through taxation to all of them by the U.S. Treasury. However, how these strange mash-ups of management power, limited liability, and fiduciary duty would operate was left to work itself out over time. The limited liability partnership in particular has evolved with very little judicial or legislative scrutiny as LLPs are usually … Read more

WINIR Conference on the Nature and Governance of the Corporation

Questions of corporate governance and responsibility have been heightened by a number of corporate scandals and other events leading up to the financial crisis of 2008. In the meantime, philosophers and lawyers have been questioning the very meaning of corporate agency and responsibility, while progress by economists in the theory of the firm is widely perceived to have slowed. The aim of the first WINIR Symposium “The nature and governance of the corporation”, which will be hosted in Lugano at Università della Svizzera italiana (USI, Lugano) from 22th to 24th April 2015, is to contribute to our understanding of the … Read more

Hockett, Omarova

Toward “Deep” Financial Reform: The U.S. as a Developmental Finance State

Following a familiar historical pattern, policy responses to the latest global financial crisis and subsequent economic and political dysfunction can be divided into three sequenced but overlapping phases. The first phase was a period of “wartime”-style emergency measures hastily fashioned by legislators and regulators working to place a floor beneath sinking markets and stave off further collapse. Next came a protracted, although never quite settled, debate over what actually had happened in 2008 and how best to prevent a recurrence. This second phase saw the enactment of Dodd-Frank and adoption of Basel III, two of the most significant finance-regulatory reform … Read more

GMiller

The Role of Risk Management in European Banking Integration

Europe is now engaged in an experiment unprecedented in world history: can independent nations – even if linked by significant legal, economic, and social ties – merge their financial systems into a true banking union?  Policymakers are working diligently to achieve that goal. Spurred by the financial turmoil of 2007-2009 and its aftermath, Europe has created a network of powerful regulatory institutions including the Single Supervisory Mechanism, the European Systemic Risk Board, the European Banking Authority, the Single Resolution Mechanism, and the European Stability Mechanism.  Acting individually and in concert, these bodies are working to enhance the integration of financial … Read more