An estimate by John B. Henry in the Metropolitan Corporate Counsel (February 2008, p. 28) suggests that the annual direct litigation cost of Fortune 500 companies was a whopping $210 billion in 2006, i.e., about one-third of their after-tax profits that year. Apart from direct litigation cost, lawsuits also hurt firms’ reputations. Not surprisingly, companies lose significant market values upon the filing of lawsuits against them. Given the substantial impact of litigation, it is surprising that little research has been done to identify the determinants of various types of lawsuits against firms. Our paper aims to fill this gap by … Read more
The Literature on agency theory is largely focused on relationships in which one party (the principal) engages another party (the agent) to perform some service on the principal’s behalf, the performance of which involves delegating some decision making authority to the agent. This literature explains that when the principal and the agent do not share the same interests, a conflict may arise; an “agency problem.” Generally speaking, two main governance devices have been suggested to help align the interests of principals and agents in order to eliminate conflicts of interest and thereby enhance the welfare of principals. The first … Read more
Are securities law and their enforcement effective at mitigating market manipulation activities, especially insider trading activities? The study ‘Exchange Trading Rules, Surveillance and Suspected Insider Trading’, forthcoming in the Journal of Corporate Finance, tries to answer this question with unique international data and a natural experiment. For the first time, we examine the exchange trading rules that govern market conduct and relate these rules to insider trading. We use exchange trading rule changes in Europe as a natural experiment to ascertain the impact of trading rules on suspected insider trading. Further, we make use of unique surveillance data in … Read more
The release last week of public summaries of the resolution plans submitted by the 12 largest financial institutions operating in the US reveal more insight into the institutions’ resolution strategies than ever before, including the strategy for each of their most important subsidiaries (“material entities”).
The considerable additional detail of the 2015 releases displays the structural differences between these institutions – especially between the eight domestic banks and the four foreign banking organizations (“FBOs”). In particular, there is a notable shift toward a Title I single point of entry (“SPOE”) strategy among domestic institutions:1
- Six of the eight domestic
Federal retirement policy has long been premised on the view that many of us, if left to our own devices, will save too little for retirement. A growing literature in behavioral economics has shown that seemingly small nudges in employer retirement plan design, like automatically enrolling workers into contributing to the plan, can have large effects on behavior. Many have seized on these findings to advocate that employers design the “choice architecture” of their 401(k) plans in order to improve their workers’ choices.
Indeed, this approach is widely heralded as the most successful application of behavioral economics to public policy … Read more
On June 23, 2015, the District Court (the “Court”) for the Southern District of New York (the “SDNY”) held that an out-of-court restructuring that involved the elimination of a parent guarantee and a significant asset transfer was impermissible under Section 316(b) of the Trust Indenture Act of 1939, as amended (“TIA”). The Court held that the elimination of the guarantee and asset transfer impaired the nonconsenting noteholders’ right to receive payment, which was protected by the TIA. This decision, Marblegate Asset Management et al. v. Education Management Corp. et al., No. 14 Civ. … Read more
The “car-sharing” services Uber and Lyft continue to generate no end of controversy. A recent strike by French taxi drivers protesting Uber turned violent at times, and French authorities subsequently arrested two of Uber’s local executives for continuing to operate its low-cost UberPop service despite a national ban. Uber and Lyft have for the most part been able to strike deals with regulators to continue operating in the U.S., but both companies now face potential jury trials over whether their drivers are employees or independent contractors under California law, and the California Labor Commissioner has held that at least … Read more
The Federal Open Market Committee, which controls the supply of money in the United States, may be the country’s most important agency. The chair of the committee is often dubbed the second most powerful person in Washington, only deferring to the President himself. Financial scholars and analysts obsess over the institution, leading to a rich tradition of FOMC Kremlinology, veneration, and second-guessing in business schools and economics departments.
But legal scholars have been less entranced by the committee, put off, perhaps, by the fact that the institution has never been checked by the courts or the Administrative Procedure Act. As … Read more
More than ten years after the Global Research Settlement and the adoption of NASD Rule 2711, the Securities and Exchange Commission (SEC or Commission) has approved new FINRA rules addressing conflicts of interest for both equity and debt research analysts and research reports. The new rules, FINRA Rules 2241 and 2242 (collectively, the Research Rules or Rules), will require FINRA member firms to establish certain policies and procedures related to equity (Rule 2241) and debt (Rule 2242) research reports and research analysts. The Research Rules are the product of a lengthy and dynamic rulemaking process, which began in … Read more
A few months ago, the European Commission (the ‘Commission’) officially launched a major new EU policy initiative. It proposed to establish an EU-wide Capital Markets Union (CMU). The CMU is a flagship initiative of the Commission. It has ambitious objectives. The project is about completing a single EU capital market, but it is also about reducing Europe’s reliance on bank finance. The project aims to help the real economy – especially SMEs – to gain access to capital and help investors to gain access to a wider range of investment opportunities. These objectives reflect the Commission’s attempt to foster jobs, … Read more
The term “corporate governance”, while now ubiquitous, was largely unknown in the U.S. until the 1970s and the rest of world until the 1990s. There has been little research done on why corporate governance rose to prominence when it did. Conceivably the lack of analysis could be because nothing more was going on than the adoption of a handy catch phrase encompassing already familiar topics and themes. In fact, the new terminology was accompanied by a reconfiguration of governance arrangements in U.S. public companies. These important changes coincided with and were related to the demise of a “managerial capitalism” … Read more
On August 4, 2015 the Securities and Exchange Commission issued interpretive guidance elaborating its view that the anti-retaliation provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act apply equally to tipsters who claim retaliation after reporting internally, as well as those who are retaliated against after reporting information to the SEC. The guidance reflects that there is a split among federal courts over whether Dodd-Frank’s whistleblower retaliation provisions apply to internal as well as external reporting, and recognizes that the only circuit court to decide the issue to date, the Fifth Circuit, has taken a contrary position to … Read more
For more than a decade, the Justice Department morphed its approach to corporate crime, eschewing criminal prosecutions in favor of deferred prosecution and non-prosecution agreements that allowed large corporations to avoid the ignominy of criminal convictions. The trend began during the Bush administration and became so dominant during the Obama administration that the Criminal Division of the Justice Department entered deferred prosecution and non-prosecution agreements in more than two-thirds of the corporate cases it resolved.
There seemingly were no crimes that did not qualify for corporate absolution. The Justice Department entered a non-prosecution agreement in the Upper Big Branch mine … Read more
Be Careful to Adhere to Best Practices When Approving Advisory Agreements
The Securities and Exchange Commission instituted and settled an administrative proceeding against an investment adviser, its principal, and three independent directors of a registered investment company for process failures in connection with the directors’ evaluation of fund advisory contracts. Release No. IC-31678 (June 17, 2015). The proceeding was brought under Section 15(c) of the Investment Company Act of 1940, which requires fund advisory contracts to be approved by the independent directors.
Key Takeaway. The enforcement action signals that the SEC will take it seriously when fund advisers and … Read more
On August 5, 2015, the SEC voted, 3-2, to adopt final rules to implement the pay ratio disclosure provision of Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Consistent with their positions on the proposed rules, SEC Chair Mary Jo White and Commissioners Luis Aguilar and Kara Stein voted to adopt the rules and Commissioners Daniel Gallagher and Michael Piwowar dissented, making this Commissioner Gallagher’s 16th dissent (which Gallagher indicated is a Commission record).
With over 4000 citations in the Westlaw JLR database (most referencing his antitrust scholarship), Hovenkamp is one of the most cited legal scholars. His citations reflect an enormous body of work including the 21-volume Antitrust Law: An Analysis of Antitrust Principles and Their Application (“Treatise”) upon which we primarily focus. Hovenkamp’s scholarship has shaped both academic and judicial discourse. Justice Breyer once remarked that litigants “would prefer to have two paragraphs of [the Areeda–Hovenkamp] treatise on their side than three Courts of Appeals or four Supreme Court Justices.”
During the 1970s, antitrust began its revolution to a more … Read more
FinTech businesses focused on payments systems and foreign exchange have witnessed an explosion of demand in recent years. As these payment systems services continue to gain mainstream acceptance, financial regulators in the US are increasingly interested in monitoring and, as appropriate, prescribing policies or regulations concerning them, slowly casting a prudential regulatory framework over the FinTech payments systems industry. The policy and regulatory landscape in this area is undergoing fundamental change.
Regulation of the US payment system is highly fragmented and often ad hoc. In the foreign exchange sector, for instance, the appropriate regulator and the nature of the … Read more
Multiforum shareholder litigation has increased sharply in recent years. In our working paper, The Private Ordering Solution to Multiforum Shareholder Litigation, we empirically analyze what has quickly proven to be the most popular and robust response to this trend: exclusive forum provisions in corporate charters and bylaws. These provisions require that corporate law-related suits be filed in a single forum, usually a court in the corporation’s statutory domicile. We identify 746 U.S. public corporations that have adopted the provision (as of August 2014); the bulk of these (93 percent) are incorporated in Delaware. Using hand-collected data on these firms, … Read more
On June 30, the Federal Trade Commission (FTC) issued its first guidance document as part of its Start with Security initiative. The initiative, announced by FTC Consumer Protection Director Jessica Rich in March, will initially focus on encouraging small and medium-sized businesses to embrace security-by-design principles. The initiative will include a series of FTC-hosted meetings across the country as part of the FTC’s education and outreach program. The first seminar, which will discuss guidelines for data security, will be held on September 9, 2015 at the University of California Hastings College of Law in San Francisco.
In the new … Read more
At its core, the Volcker Rule is designed to prevent excessive risk-taking by banks, which was seen by the U.S. Congress and financial regulators as a contributor to the 2008 financial crisis. With its focus on the stability of the U.S. financial system, the Volcker Rule is meant to have only a limited reach to activities of foreign banks outside the United States. Although the scope of banks and bank affiliates subject to the Volcker Rule is very broad, the statutory language of the Volcker Rule exempts from the proprietary trading prohibition foreign bank trading activity that occurs solely outside … Read more