State-sponsored cyber hostilities on corporations are not a new occurrence. Recent examples include the August 2014 suspected Russian hack of JP Morgan Chase and the continuous cyber activities against corporate targets conducted by Unit 61398 of the Chinese People’s Liberation Army. However, North Korea’s actions against Sony are considered by many a “game changer” and a significant escalation of the cyber hostilities targeting corporations. Rather than hacking Sony to steal corporate secrets or disrupt their business activity, the North Koreans attempted to devastate the company and chill its activities for a perceived nationalist slight. This targeting … Read more
Crises can generate pressure for change – and there are crises aplenty in contemporary governance and corporate accountability. After decades of neoliberal orthodoxy, the US sub-prime crisis, the European banking crises and corporate malfeasance have shaken the ideologies of shareholder value and efficient self-regulating markets and increased support for the re-regulation of markets. Markets require information to discipline firms, and the lack of information on companies’ social and environmental impacts has prevented market mechanisms from pushing against the externalization of costs after impacts created by the externalization became a concern to society.
In response, the EU has passed … 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
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
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
In a recent paper, I compare the legal treatment of outsider trading under US and EU law. Outsider trading can be defined as the sale or purchase of listed securities on the basis of material nonpublic information by individuals who do not qualify as insiders. There is substantial (and so far largely unnoticed) divergence between EU and the US in this area of securities regulation.
In both systems outsider trading, like more ordinary insider trading, is subject to severe restrictions. In the US, however, the trading prohibition has a limited scope. It applies selectively, only if certain conditions are … Read more
To the friends of the CLS Blue Sky Blog: The ABA journal is conducting a poll to identify the top 100 legal blogs. We would be honored by your nomination. In addition to reprinting commentary from practitioners and regulators on legal developments in corporate law, securities and other financial regulation, antitrust, restructuring and kindred topics, we feature explanations of recent scholarship in these fields and debates on policy issues. We select our content to provide readers with a rich and broad view, and do not shy away from technical topics. I believe there are few if any other forums serving … Read more
Sovereign debt markets have been on a rough ride recently. On the heels of Argentina’s 2014 default, a turbulent debt situation in Greece has threatened the integrity of the Eurozone. An ongoing debt crisis in Ukraine has stoked economic anxiety and raised geopolitical blood pressures. Meanwhile, Puerto Rico’s debt crisis poses unique challenges as a quasi-sovereign territory without access to bankruptcy.
These episodes highlight the broad and far-reaching effects of sovereign debt on the global financial system. While sovereignty limits the enforceability of their debt contracts, sovereigns lack a formal bankruptcy system. Nor is there a global sovereign debt regulator. … Read more
The fourth and latest iteration of the EU’s anti-money laundering directive (AMLD IV) was published on June 5th, after clearing its last legislative stop at the European Parliament. The new directive brings the EU’s anti-money laundering laws more in line with the US’s, which is welcome news for financial institutions that are operating in both jurisdictions. However, in a few areas, the directive establishes requirements that go beyond US regulations and common market practices, and could be costly to implement.
Recent enforcement actions against financial institutions highlight the importance of compliance with anti-money laundering (AML) and terrorism financing … Read more
The Iran sanctions landscape is poised to change in early 2016, but US persons and US companies will see far fewer opportunities than their European counterparts
On July 14, 2015, the P5+1 countries (the United States, United Kingdom, France, Russia, China and Germany) and Iran reached a historic nuclear non-proliferation agreement called the Joint Comprehensive Plan of Action (the Agreement). In line with the framework announced in April 2015 (as discussed in our previous client alert dated April 27, 2015), the Agreement provides for the termination of most European Union (EU) and UN sanctions and significantly more modest … Read more
If there is one simple lesson from the crisis that we all can embrace, it is that no financial institution in America should be so big or complex that its failure would put the financial system at risk.1 Congress wrote that simple lesson into law as a core principle of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
Consequently, a fundamental change in our framework of regulation as a result of the crisis is to impose tougher rules on banking organizations that are so big or complex that their risk taking and distress could … Read more
This column will focus on two new and unrelated developments linked only by the fact that they both emanate from California: (1) the Ninth Circuit has handed down a significant decision on insider trading—United States v. Salman—that disagrees (at least marginally) with the Second Circuit’s important (but controversial) decision in United States v. Newman; and (2) the SEC’s Regional Office in California has issued Wells Notices to attorneys, taking the position that an attorney representing clients in immigration matters may be acting as a broker under the federal securities laws. The upshot is to place the … Read more
Since AIG’s bailout in September 2008, the role of large, complex insurance firms in the global financial system has received much attention. Concern about the global operations, interconnectedness, and non-traditional activities of these large firms prompted the Financial Stability Board to formally designate 9 life and full insurance firms in six countries as Global-Systemically Important Insurers (G-SII) in July 2013. In the US, where insurance industry assets equal roughly half the size of total assets held by all financial institutions covered by the Federal Deposit Insurance Corporation, the Financial Stability Oversight Council has confirmed the designation of AIG, MetLife and … Read more
In response to perceived corporate governance shortcomings in major U.S. corporations, the U.S. Department of Justice, starting in 2002, substantially increased the execution of non- and deferred prosecution agreements (N/DPAs). High profile N/DPAs and plea agreements executed in 2012 and 2014 suggest that the DOJ – not judges or the legislature – through its targeting of certain industries, is effectuating large-scale corporate governance changes. The companies subject to NDPAs are among the largest domestically and worldwide, including Johnson & Johnson, KPMG, HSBC, JPMorgan Chase, Deutsche Bank, ABN Amro Bank, Barclays Bank, Credit Suisse, Fannie Mae, Freddie Mac, General Reinsurance, … Read more
Emerging markets are increasingly important destinations for international capital flows. Yet these markets pose important risks for investors, in addition to the business risks present in every market. For example, in some countries, many public firms are part of family business groups, raising the risk of self-dealing by the controllers. Thus, firm-level corporate governance can be an important factor in investors’ decisions on which countries and firms to invest in, and how much to pay for shares. Yet, despite the important role of corporate governance in affecting firm value, little is known about what aspects of governance are valued by … Read more
In recent years, corporate bond markets have become an increasingly important source of corporate finance, especially for non-financial companies. Given this worldwide trend, it is crucial for policy makers, regulators and market participants to have access to a comprehensive overview of corporate bond market developments and the structural issues accompanying these trends. In the recent OECD working paper entitled “Corporate Bonds, Bondholders and Corporate Governance”, we aim to serve this need by analysing more than 100,000 corporate bonds issued between 2000 and 2013 by companies from 108 different countries.
As depicted in Figure 1, the annual amount of … Read more
A recent news story gives us a sobering anecdote about the Greek crisis: a merchant who must conduct all his business in cash because he can neither receive credit card payments nor pay vendors with electronic transfers. This means that the Greek banking system is failing to provide a payment system, a core function. At first blush, this looks like another piece of the same crisis story we’ve heard for some time. But it is important to distinguish the banking system and its woes from the refusal of the “Troika” to extend a bailout program for the Greek government over … Read more
On June 3, 2015, the US Department of the Treasury (Treasury) and the Internal Revenue Service (the IRS) issued final regulations (the 2015 Final Regulations) under Section 7874, 1 relating to corporate inversions or expatriations. The 2015 Final Regulations largely follow temporary regulations issued on June 12, 2012 (the 2012 Temporary Regulations), which introduced a rigorous, bright-line test (discussed below) that a foreign group must satisfy in order to be treated as having “substantial business activities” in a single foreign country and thereby avoid the US anti-inversion rules. The 2015 Final Regulations will continue to make it difficult for most … Read more
In 1999 Kotsovolos, the leading Electronics Supplier in Greece, reported in its initial public offering prospectus an earnings forecast that missed its actual earnings, as announced by its first annual report, by 234%. This inaccuracy is attributed to the mandatory disclosure requirement imposed by the Hellenic Capital Market Commission, which obligated every firm going through an IPO to predict its next year’s earnings regardless of its ability to do so. Ultimately, repeated failures to achieve accurate earnings forecasts led to a lifting of the obligation to forecast earnings. Our new paper, Voluntary vs Mandatory Management Earnings Forecasts in IPOs, … Read more