Almost everyone has an opinion about securities enforcement. Many are disappointed (and even angry) that “few high level executives” have been prosecuted (criminally or even civilly) in connection with the 2008 financial crisis. Deep in their bunker, the SEC still has some diehards who maintain that fraud has been fully prosecuted, but, even there, attitudes are changing. The shift is much clearer at the Department of Justice (“DOJ”), which has just settled with JPMorgan for $13 billion and may be in hot pursuit of still unnamed defendants. Even if the SEC is presenting itself as a more aggressive … Read more
The following is based on a memo from Davis Polk, published on October 7, 2013, which is available here. The original memo contains many useful tables and definitions which have been omitted from this post.
On September 18, 2013, the SEC adopted a final rule (the “Final Rule”) establishing a permanent registration scheme to replace the temporary registration scheme for municipal advisors that has been in effect since October 2010. As discussed in our memorandum dated October 2, 2013 titled “SEC Releases Final Municipal Advisor Registration Rules – Part I: Who is a Municipal Advisor?” (the “… Read more
On September 18, 2013, the Securities and Exchange Commission (“SEC”) adopted its final rule on the permanent registration of municipal advisors (the “Final Rule”). The Final Rule replaces the current temporary registration scheme for municipal advisors with a permanent registration scheme, and provides extensive guidance concerning when a person or firm is acting as a municipal advisor.
This memorandum comprises Part I of a two-part series of client memoranda on the Final Rule. This Part I focuses on the entities that are subject to regulation and registration as municipal advisors. Part II (the “Part II
Last week, the Delaware Court of Chancery ruled that an acquiring merger party obtains legal control of all of a target’s attorney-client communications, absent an express provision in a merger agreement to the contrary. Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, C.A. No. 7906-CS (Del. Ch. Nov. 15, 2013). In so ordering, the Delaware court declined to follow a decision of the New York Court of Appeals, Tekni-Plex, Inc. v. Meyner & Landis, 89 N.Y.2d 123 (1996), which held that a selling party retains control of those privileged pre-merger communications that … Read more
The following comes to us from the Honorable Judge Jed S. Rakoff, who sits in the U.S. District Court for the Southern District of New York. Judge Rakoff is also an adjunct professor at Columbia Law School and will be speaking on a panel today at Columbia on Securities Regulation and Enforcement (see here).
Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope.
Who was to blame? Was it simply … Read more
The following post is based on a memo originally published by Skadden, Arps, Slate, Meagher and Flom LLP & Affiliates on October 24, 2013.
The Federal Reserve Board (Board) today approved a proposed rule requiring larger U.S. banking organizations maintain liquid assets in an amount sufficient to meet the liquidity requirements determined under the rule, referred to as the liquidity coverage ratio (LCR).
The LCR rule sets forth requirements for calculating the expected amount of net cash outflow during the relevant test period, identifying the unencumbered high quality liquidity assets (HQLA) that would be held to meet the LCR and … Read more
The following comes to us from Felix Zhiyu Feng, a PhD candidate from the department of economics at Duke University
The lucrative compensation of Wall Street bankers and executives has always been an issue of media interest and public concern. It is also at the center of studies on corporate governance, which tend to question its legitimacy, especially when firm performance is poor. When it was revealed that during the recent financial crises, despite huge profit losses, Wall Street bankers and executives still took away over a billion dollars of cash bonuses, not surprisingly there was immediate outrage from the … Read more
The recent increase in the frequency and success with which “willful blindness” theories have been asserted in litigation may have long term implications for the corporate director’s liability profile.
Willful blindness is an aggressive liability theory that seeks to expand the definition of “knowledge” to include situations in which institutions or individuals “turn a blind eye” when there is a high probability that a particular, troubling, fact or circumstance exists. Assessing willful blindness involves a highly subjective analysis, and can be especially troublesome for defendants in cases where bad facts, and real harm, may be present. As such, it is … Read more
In my article, The Pension System and the Rise of Shareholder Primacy, which has recently appeared in the Seton Hall Law Review, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholder wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, … Read more
A committee of law professors that I co-chair with Lucian Bebchuk has petitioned the Securities and Exchange Commission to develop rules requiring public companies to disclose the use of shareholder money on politics. The petition has drawn over 500,000 supportive comments, more than any rulemaking proposal in the SEC’s history, including support from institutional investors and Members of Congress along with a sitting Commissioner. Although the SEC confirmed last year that it was considering the proposal and added disclosure of political spending to its regulatory agenda, the Commission has not yet announced whether it will require public companies to tell investors whether and how their money is being spent on politics.
This afternoon, I will join U.S. Senators Bob Menendez and Elizabeth Warren, along with John Coates of Harvard Law School, for a briefing on why the SEC should act immediately to develop rules requiring disclosure of corporate spending on politics. Today I will explain why the case for such rules is strong—and why the arguments that have apparently led the SEC to hesitate about making rules in this area provide no basis for continuing to allow public companies to spend shareholder money on politics in the dark. Read more
On August 28, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Federal Deposit Insurance Corporation (FDIC), the U.S. Securities and Exchange Commission (SEC), the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) (collectively, Agencies) released a revised proposed rule (Proposed Rule) to implement the risk retention requirement of Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Proposed Rule … Read more
Harvard Law School Professor Lucian Bebchuk believes that shareholders should be able to control the material decisions of the companies they invest in. Over the years, he has written numerous articles expressing this view, including a 2005 article urging that shareholders should have the power to initiate a shareholder referendum on material corporate business decisions. In addition to his writings and speeches, Prof. Bebchuk has established and directs the Shareholder Rights Project at Harvard Law School for the purpose of managing efforts to dismantle classified boards and do away with other charter or bylaw provisions that restrain or moderate shareholder … Read more
The Office of Financial Research (“OFR”), an office of the U.S. Department of the Treasury, recently issued a report that may provide a roadmap for future designations by the Financial Stability Oversight Council (“FSOC”) of asset management companies for supervision as systemically important financial institutions (”SIFIs”).1 The release, “Asset Management and Financial Stability” (“Report”), describes how in the view of the OFR the U.S. asset management industry may be vulnerable to financial shocks and may contribute to the amplification or transmission of such shocks, which, in turn, may pose threats to U.S. financial stability.
When the FSOC in … Read more
Commissioner Kara M. Stein gave the following statement on September 18, 2013 at an SEC open meeting in Washington D.C. The new municipal advisor registration rules are available here.
Municipalities are the lifeblood of many communities. They provide the roads, schools, sewers, firefighters, police officers, and countless other services for millions of Americans. When these critical government structures crumble under financial duress, so does the wellbeing of the communities they serve. In most cases, the finances of these communities are overseen by dedicated public servants. But these public servants are most often not familiar with the financial wizardry of … Read more
Chapter 11 creates a system of collective corporate governance that allows stakeholders that are usually passive – such as shareholders or creditors like lenders and bondholders – to play a day-to-day role in overseeing management and monitoring the business. In recent years, activist investors have begun using this system to improve their return on investment. They buy the claims of distressed firms, hire lawyers and investment bankers and negotiate to restructure the firm’s business and capital structure. In some cases, these negotiations conclude with an out-of-court solution, but many firms require a trip through bankruptcy court to solve their financial … Read more
Bankruptcy cases are as different as the types of businesses that fail, but all share an element of crisis. The weeks and days that precede a bankruptcy filing are often chaotic. The first days after filing may be even worse, regardless of the size of the case. Any potential rescuer, be it a lender, a supplier, or a buyer, has tremendous leverage. The potential salvor has the power to, and often does, exact concessions in many forms: preferential treatment of prepetition debt, retroactive perfection of liens, onerous loan terms, control of the debtor after bankruptcy, or ownership of any upside … Read more
The “London Whale” is far from the financial crime of the century, but it may well be the financial blunder of the decade. Crimes and blunders are, of course, different, but the slow and inconsistent response by JPMorgan Chase & Co. to its discovery that traders in its London office were hiding their losses has placed the behavior of several JPMorgan officers on the ambiguous seam between a negligent blunder and more culpable fraud.
This frames an obvious question: Does the U.S. Securities and Exchange Commission’s settlement with JPMorgan deal adequately with this misbehavior? After ignoring Lehman Brothers and other … Read more
The following post comes to us from Brent J. Horton, assistant professor at Fordham University Gabelli School of Business.
In my recent Article, Toward a More Perfect Substitute: How Pressure on the Issuers of Private-Label Mortgage-Backed Securities Can Improve the Accuracy of Ratings, which is scheduled to be published in Volume 93 of the Boston University Law Review this winter, I propose a burden shifting procedure that will force issuers of private-label MBS to take ownership of the ratings incorporated into their registration statement (e.g., Aaa, Baa3)—specifically, the accuracy of those ratings. The issuers will … Read more
Federal Reserve Issues Interim Final Rules Addressing Application of New Basel III-Based Capital Framework for Purposes of the 2013-2014 Capital Plan and Stress Test Cycle
The Federal Reserve recently issued two interim final rules that clarify how covered companies must incorporate the new U.S. Basel III-based final capital rules (the “Basel III Capital Rules”) into their capital plan submissions and Dodd-Frank Act stress tests for the upcoming 2013-2014 cycle.
To address and clarify the potential issues created by the interaction of the overlap of the nine-quarter planning horizon of the Federal Reserve’s current version of the capital plan
The US antitrust authorities will cease certain of their operations during the pending government shutdown and your transaction may be affected.
The US antitrust agencies receive an average of 25 Hart-Scott-Rodino (HSR) filings per week. During the current government shutdown, the Federal Trade Commission (“FTC”) and Antitrust Division of the Department of Justice (“Antitrust Division”) have indicated they will continue to accept HSR filings, and the FTC’s Premerger Notification Office will be open but with a very limited staff. We see three consequences that transacting parties should take into consideration:
First, given the limited staff likely to be on hand … Read more