One of the most far-reaching legacies of twentieth century law is the establishment of comprehensive public regulation as the norm for governance of vast swaths of commerce. The reality of persistent and rapid technological change is, however, proving fatal for this paradigm in the field of payment systems.
Non-cash payment systems in the United States have been dominated by public-law regulatory schemes for well over a century, ranging from the 1896 Uniform Negotiable Instruments Law to the payment articles in today’s Uniform Commercial Code. The law of checks—long the dominant form of non-cash payments—was comprehensively codified in the UCC. By … Read more
The pending mergers of Johnson Controls, Inc. with Tyco International plc and Pfizer Inc. with Allergan plc means the value of inversions in the pipeline ($185B) has nearly reached the total value of all inversions completed between January 1, 2010 and September 24, 2014 ($197B) – the day the Internal Revenue Service (IRS) released its first passel of rules aimed at curbing inversions (Rules Regarding Inversions and Related Transactions, Notice 2014-52, 2014-42 I.R.B. 712 (2014), Anti-Inversion Rules, AIR1). Our fortuitously timed survey comparing inversion activity before and after AIR1 found that while IRS rules appear to have inspired … Read more
In order to ensure that victims of business-related human rights and gross environmental abuses in countries that host transnational business (host countries) are able to have the ability to seek and obtaining a remedy for their harm, courts should ignore the separate legal personality of parent corporations operating in countries with weak or corrupt judicial systems where the victims cannot otherwise obtain a remedy against the subsidiary, allowing corporate parents to be held liable for such harm. In such situations, the corporate parents are the entities that can best, and normatively should, remedy the victims’ harm, even if they do … Read more
On January 4, 2016, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) deviated from SDNY precedent and held that, despite the absence of clear Congressional intent, the avoidance powers provided for under Section 548 of the Bankruptcy Code can be applied extraterritorially. As a result, a fraudulent transfer of property of a debtor’s estate that occurs outside of the United States can be recovered under Section 550 of the Bankruptcy Code. This ruling creates a split among courts within the Southern District of New York regarding the reach of avoidance powers when it … Read more
Are gender-balanced boards more active than non-gender balanced boards? I address this question in “Gender and Board Activeness: The Role of a Critical Mass”, forthcoming in the Journal of Financial and Quantitative Analysis. Using detailed minutes of board meetings that I coded and then analyzed in an econometric model, I find that gender-balanced boards (defined as boards that include at least three directors of each gender in attendance) are approximately twice as active compared to non-gender-balanced boards.
I first hypothesize that once a certain threshold of gender balance is crossed it increases the productivity of a board. … Read more
In October 2015, the Court of Justice of the European Union (“CJEU”) held that transfers of personal data from Europe to the United States made under the so-called US Safe Harbor scheme were invalid as those transfers did not ensure an adequate level of protection under European data protection law.
In the aftermath of that decision, the Article 29 Working Party, the organisation that represents the data protection authorities of the European Union, set 31 January 2016 as the deadline by which the representatives of the European Union and the United States had to find solutions to address the significant … Read more
European Economic Area (EEA) financial institutions are now subject to a new set of regulatory requirements designed to avoid taxpayers bailing out banks in the event of another banking crisis — a central component of which is that EU member state bank regulators have been provided with broad new “bail-in” powers to write down (including to zero), convert to equity or otherwise modify unsecured liabilities of failing financial institutions.
These new rules require an “EEA financial institution” (defined below) to include a “contractual recognition of bail-in clause” in almost every document to which it is a party that is governed … Read more
On January 14th, the Basel Committee on Banking Supervision (BCBS) published its revised capital requirements for market risk. The final standard, also known as the Fundamental Review of the Trading Book (FRTB), is intended to harmonize the treatment of market risk across national jurisdictions and will generally result in higher global capital requirements. BCBS estimates a median capital increase of 22% and a weighted-average capital increase of 40%. However, we believe this impact can be somewhat mitigated by portfolio re-optimization.
- Standardized approaches continue to gain regulatory favor. The final framework allows banks to calculate their capital requirements using
… Read more
When it comes to corporate litigation, is more necessarily better? The legal system has developed a broad array of litigation options to address corporate wrongdoing. Under state law, shareholders can file a derivative suit or class action alleging that directors and officers breached their fiduciary duty. Under federal law, shareholders can file a securities class actions alleging that the directors and officers misled the market. These private lawsuits are often filed alongside government enforcement actions brought by the Securities & Exchange Commission, the Department of Justice, or state regulators.
In our article, Piling On: An Empirical Study of Parallel Derivative … Read more
A January 2016 study, Short-Term Investors, Long-Term Investments, and Firm Value, by Martijn Cremers, Ankur Pareek and Zacharias Sautner, provides substantial “empirical” evidence for the fact that, in the current corporate governance environment, short-term investors possess the undue ability to pressure companies into maximizing near-term gains at the expense of long-term growth.
The study finds that after short‐term investors become shareholders of companies, those companies tend to decrease spending on R&D, and tend to experience temporarily increased earnings and stock prices. The results further indicate that when the short-term investors leave, these trends are all reversed, “so that … Read more
On May 18, 2012 Facebook (FB) held its initial public offering (IPO) on NASDAQ, raising over $16 billion making it one of the largest IPOs in history. To the surprise of many investors, there was almost no underpricing, as the stock closed the first day of trading almost flat from its offer price. The IPO was described as not only disappointing but also detrimental to the broader market in the financial press. The “failed” FB IPO was blamed for causing everything from mutual funds’ declines in assets under management to significant increases in IPO underpricing, to subsequent canceled IPOs. We … Read more
In order to investigate what (and how much) is being reported in annual proxy statements about executive pay packages and how incentive pay is designed, Arthur J. Gallagher & Co.’s Human Resources & Compensation Consulting Practice (formerly James F. Reda & Associates a Division of Gallagher Benefit Services, Inc.), has conducted a study of the 2015 annual proxy statement disclosures for 200 of the top U.S. companies (based on revenue and market capitalization). This is the seventh consecutive year we have conducted this in-depth analysis for the top-200 public companies.
It has been almost five years since the Dodd-Frank Wall … Read more
During most of Steve Job’s tenure as CEO of Apple Inc. the company did not have any long-term debt obligations. Apple started an aggressive buyback program only after Tim Cook took over, at the same time that it added debt to its capital structure. Coincidentally, San Francisco, where Steve Jobs was born, experienced more disaster-related fatalities during Jobs’ formative years than Tim Cook’s birthplace of Mobile, Alabama. Could this anecdote be indicative of a deeper pattern, where personal experience of traumatic events shapes how a person views financial risk-taking?
A manager’s ability to assess and cope with risk has pervasive … Read more
On January 22, 2016, Chancellor Andre Bouchard of the Delaware Court of Chancery issued an important decision in In re Trulia, Inc. Stockholder Litigation—likely hammering the final nail in the coffin of “disclosure-only” settlements with broad releases of liability in M&A stockholder lawsuits in the Court of Chancery. There could, however, be an increase in “mootness fee” applications resulting from stockholder lawsuits that are voluntarily dismissed following any supplemental disclosures defendants may voluntarily provide. Stockholder plaintiffs (and their lawyers) may use this vehicle to continue filing lawsuits challenging M&A transactions, albeit not in the same volume that has been … Read more
Mutual funds are becoming more like hedge funds as a matter of investment strategy while hedge funds are becoming more like mutual funds as a matter of the regulatory framework. The growth of the private fund industry and the proliferation of retail alternative funds in combination with the fundamental regulatory reform of the private fund industry through the Dodd-Frank Act and the JOBS Act make the convergence of mutual and private funds possible. Such convergence has large implications for the evolution of the private fund industry and the growth of the retail alternative fund market.
For most of their history, … Read more
The year 2015 marked the fifth anniversary of passage of the Dodd-Frank Act and, for many private fund managers, the third anniversary of SEC registration under the Investment Advisers Act. The past year also saw a number of notable SEC regulatory trends and developments affecting private fund managers. Here are the highlights.
Undisclosed Conflicts of Interest
Throughout 2015, the SEC focused on undisclosed conflicts of interest, noting that it would make finding such conflicts an examination priority and that it would follow through with enforcement actions when it found such conflicts. In particular, the SEC keyed in on the following … Read more
In September 2007, Northern Rock, a British bank, sought and received liquidity support from the Bank of England because of financial difficulties resulting from the global financial crisis. As a result of mounting political pressure that Northern Rock was exploiting taxpayers’ money to pay its shareholders, the bank decided to scrap a £59m interim dividend payout, which had been announced before the beginning of the crisis (Financial Times, 2007).
Recent academic literature (Acharya et al., 2011; Onali, 2014) shows that banks in financial distress pay dividends to exploit government support, and this results in a transfer of bank default risk … Read more
On January 21, 2016, the Federal Trade Commission (FTC) announced the latest annual revision to the size thresholds governing premerger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, Section 7A of the Clayton Act, 15 U.S.C. § 18a (the “HSR Act”). The HSR Act requires parties to transactions meeting certain size and other tests to file premerger notification forms with both the FTC and the Department of Justice Antitrust Division and observe a mandatory waiting period prior to closing. The new thresholds will apply to transactions consummated on or after the effective date, which is 30 … Read more
Once again, NML v. Argentina is in the spotlight. Sovereign debt’s “trial of the century” has been the focal point of intense academic and policy debates, prompted a Supreme Court decision, and even triggered a contested default by Argentina in 2014. But the spotlight now points in a different direction. With a newly elected government, Argentina’s decade-long standoff with holdout creditors is set for negotiations—and potentially—a final settlement. In our article, we analyze key economic and legal factors underlying the NML litigation, with a particular emphasis on issues relevant to a potential settlement.
Argentina’s Holdout Litigation
Argentina’s … Read more
In a recent decision relating to the sale of a portfolio company by one private equity firm to another—Prairie Capital v. Double E (Nov. 24, 2015)—the court provided important guidance with respect to a buyer’s ability to make post-closing fraud claims against a portfolio company’s executives and its private equity fund sellers.
Significance of the decision
- Reminder that representations and warranties in the sale agreement affect not only indemnity claims but fraud claims. The decision serves as a reminder that, in a sale agreement that includes a typical non-reliance provision (i.e., a statement that the buyer has not relied
… Read more