Regulating weather risk is an increasingly urgent social issue. There is little doubt that the frequency and magnitude of weather-related disasters are rising over time. Although the precise combination of causes may be debated—emissions of greenhouse gases? natural climatic cycles? increased concentration of populations in coastal areas? —the trend is undisputed. As the magnitude and frequency of weather patterns seem to pose a risk higher than ever, a large and growing fraction of humanity’s physical assets is located in harm’s way. Thus, the combination of severe natural forces and increased human exposure pose one of the major public policy challenges … Read more
By now, much of the dust has settled around the Supreme Court’s decision in Yates v. United States. Yates was the odd case of a commercial fisherman convicted of violating 18 U.S.C. § 1519, the “anti-shredding” provision of the Sarbanes-Oxley Act. A federal jury found that John Yates destroyed “tangible objects” as proscribed by the statute when he threw a crate of undersized fish off his boat and into the Gulf of Mexico after a fish and game officer instructed him to keep them on ice until the boat returned to port. Although the judge sentencing Yates commented … Read more
The U.S. Supreme Court ruled today that a statement of opinion in a registration statement cannot be actionable as a misstatement of fact under § 11 of the Securities Act of 1933 if the issuer actually believed the opinion expressed. However, the statement of opinion can be actionable on an omissions theory if the registration statement omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion and if those omitted facts conflict with what a reasonable investor would have expected from a contextual reading of the statement of opinion.
The Supreme Court’s decision in Omnicare, … Read more
On February 11, 2015, the Securities and Exchange Commission issued a final rule (the “Final Rule”) and proposed amendments (the “Proposed Rule”) on the reporting and public dissemination of security-based swap (“SBS”) information, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Notably, the SEC:
- delayed establishing a final compliance schedule for SBS reporting;
- left many details of SBS reporting, including many of the required data elements, the format of reports and the assignment of product identifiers for standardized SBS, to registered security-based swap data repositories (“SBSDRs”);
- created an interim phase for the reporting of SBS information,
With Chair Mary Jo White in her second year at the helm, the Securities and Exchange Commission showcased its efforts, improvements, and enforcement successes at this year’s SEC Speaks Conference. The Commission highlighted that it brought a record number of cases—755 enforcement actions—in fiscal year 2014, and obtained $4.1 billion in monetary relief. The Commission continues to emphasize its increased use of data analytics in both its regulatory efforts and enforcement investigations. As usual, the Commission, and the Division of Enforcement in particular, used the Conference to present their case that the SEC is firing on all cylinders.
Insider Trading … Read more
The Delaware Corporation Law Council—composed of members of the Delaware bar charged with proposing annual amendments to the Delaware General Corporation Law (DGCL)—has proposed several potentially significant amendments to the DGCL. Among other things, the amendments would seek to prohibit “fee-shifting” provisions in charters or bylaws. They would authorize forum selection provisions in charters and bylaws if such provisions allow claims to be brought in Delaware courts but prohibit them if they do not. The proposed amendments also would alter various aspects of the appraisal rights available to stockholders upon a merger. The proposed amendments still need to be … Read more
Courts and commenters regularly describe corporate charters and bylaws as “contracts” among shareholders. This necessarily raises the question whether the Federal Arbitration Act (FAA) – which requires that arbitration clauses in “contracts” be enforced according to their terms – applies to such documents in the same way it applies to ordinary contracts. In a series of decisions involving a single Maryland-based REIT, two courts separately held that corporate bylaws are akin to ordinary contracts and equally subject to FAA analysis. However, in my forthcoming article, Manufactured Consent: The Problem of Arbitration Clauses in Corporate Charters and Bylaws, … Read more
Since the Corporation Law Council of the Delaware State Bar Association announced earlier this month that it was recommending statutory amendments to prohibit “loser pays” fee shifting bylaws and charter provisions (and thus overrule the Delaware Supreme Court’s 2014 decision in ATP Tour v. Deutscher Tennis Bund), a predictable reaction has followed. Plaintiff’s attorneys and most academics applauded the decision, fearing that the alternative would be the death knell of private enforcement. In contrast, conservatives have attacked the proposed legislation, seeing it as the end of Delaware’s position as the champion of “enabling” corporate legislation and predicting that … Read more
On February 10, 2015, the Securities and Exchange Commission (“SEC”) filed settled administrative cease-and-desist proceedings against two former chief financial officers (“CFOs”) of Saba Software, Inc. for their failure to reimburse the company for the stock-sale profits and bonuses they received in the 12 months following the filing of periodic reports necessitating restatement, as required under Section 304(a) of the Sarbanes-Oxley Act. The two respondents consented to the entry of the cease-and-desist order without admitting or denying the findings therein.
The clawback action stems from the falsification of Saba’s time records over a period of more than four years, … Read more
The Council of the EU has reached political agreement on the EU Benchmark Regulation (the Regulation). The legislation will impose controls on a range of financial market activity that uses interest rate, currency, commodity and other indices to set prices and contract values. Although not yet finalised the new rules are expected to be published later this year and apply in 2016. The Regulation is expansive in scope, covering not only indices such as LIBOR and the DAX but also many other less obvious ‘benchmarks’. The new rules could lead to the transformation or even disappearance of some benchmarks, presenting … Read more
With less than six months to conform to the Volcker Rule’s proprietary trading restrictions, large banks are working quickly to build out their compliance programs. Last summer, they scrambled to build systems to report monthly seven metrics by September 2, 2014, as required by the rule. Now banks’ focus has moved to proving their trading desks’ exemptions from the proprietary trading restriction as part of their compliance programs that must be in place by July 21, 2015.
Among these exemptions, market making is becoming the most predominantly used. However, the desks taking this exemption (“market making desks”) face … Read more
Last year’s best-seller by Michael Lewis, Flash Boys, ignited a firestorm of debate on the subject of high-frequency trading, or HFT. Lewis’s central claim is that the stock markets are “rigged,” with HFT shops skimming sizable amounts off of trades by other, slower traders. The exchanges are allegedly in on the game, as they enable HFT through co-location, private data feeds, and the development of complex special order types, all in return for sizeable fees. Although SEC Chair Mary Jo White quickly rejected Lewis’s claim, public debate continued and a number of lawsuits were filed against the exchanges and … Read more
Delaware corporations and their advisers have been eagerly awaiting the response of the Delaware legislature to the recent surge in appraisal arbitrage and judicial pronouncements allowing this activity and suggesting that lawmakers should step in if they perceive a problem. It now appears based on a proposal released by the Delaware Corporation Law Council that the legislature may act as soon as this week. If the lawmakers follow the recommendations of the Council (which they usually do) the changes will likely disappoint Delaware corporations, make mergers and acquisitions in that important state more difficult, reduce deal flow, and lead to … Read more
“I am raising the question here and internally at the SEC as to whether investors need and are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in the reports they are required to prepare and file with us. […] In some cases, lengthy and complex disclosure may indeed be a direct result of the Commission’s rules.”
– SEC Chair Mary Jo White
Regulators have long voiced concerns over the effectiveness of overly complex and lengthy financial statements in communicating information to investors. Detailed and lengthy disclosures can increase information processing … Read more
Should you be able to take the risk of paying for a meal in an unregulated, non-traditional restaurant—billed as a “secret supper”—in a person’s home? Or should the government step in to regulate as it would any other dining establishment: inspect the kitchen, require a business license, control what food can be served and how it can be prepared, and ensure compliance with local zoning ordinances pertaining to home businesses and building codes addressing fire exits? I confront these issues in my forthcoming essay, Regulating the Underground: Secret Supper Clubs, Pop-Up Restaurants, and the Role of Law, which is … Read more
Thank you for the opportunity to speak to you today, it is great to be back in New York. The Citizens Budget Commission has played an important role over the years as a forum to discuss issues of interest to New Yorkers that are often also of national and even global importance. Given New York’s preeminence as a center of global finance, I thought it would be appropriate to discuss just such a topic, which is how the Federal Reserve oversees the largest financial institutions, many of which are headquartered or have a major presence here, and how that oversight … Read more
Managers are concerned about how their current performance would influence their current employer’s and the labor market’s assessment of their ability. An unfavorable assessment of their ability can have significant adverse effects, including termination and poor job prospects thereafter. Thus, career concerns are likely to motivate managers to work hard and generate good performance. We further argue that career concerns may also motivate CEOs to withhold bad corporate news and gamble that subsequent corporate events will turn in their favor, enabling them to bury the bad news. To test our prediction, we consider two situations when CEOs’ career concerns are … Read more
Discussions about regulating investment advice have largely focused on whether to harmonize the laws governing two categories of individuals within the securities world—registered investment advisers and stockbrokers. The discussion has overlooked insurance brokers who often times also provide investment advice. Our article broadens the focus by arguing that harmonizing the regulation of investment advice necessarily requires reforms reaching beyond securities regulation and into insurance regulation as well. We argue that consistent standards should govern the investment advice provided to retail investors. Given the current regulatory fragmentation, this may only be accomplished by adopting a federal Investment Advice Act.
Today’s fragmented … Read more
If a party obtains information about a public firm before its initial public offering (IPO), and the party themselves is not an insider of the firm, should they be allowed to profit from the information after the IPO? We investigate this question in our research paper, “Outside Insiders: Do Limited Partners Obtain Valuable Information about Stocks Backed by their Venture Capital Funds?” As the title implies, we find that this situation can occur when the IPO is backed by a Venture Capitalist (VC).
Venture Capital backed IPOs account for more than half of all IPOs. In the years … Read more
On February 9, 2015, the U.S. Securities and Exchange Commission (SEC) issued a proposed rule related to the disclosure of hedging policies applicable to board members, officers, and other employees. The proposed rule would implement one of the remaining requirements adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
The proposed rule would amend Item 407 of Regulation S-K to require companies to disclose whether they permit directors, officers, and other employees to hedge the company’s securities, including any equity securities of the company’s parent, subsidiaries, or any subsidiary of any parent of … Read more