Long-Run Short Selling

On December 3, 2019, Japan’s Government Pension Fund (GPIF) announced that it would suspend share lending to short sellers.  This is the latest development in a growing global regulatory skepticism of shorting, with Reuters recently reporting that short selling bans are under consideration in South Korea, Germany, France, Italy, and Turkey.  Prominent short activists have characterized these regulatory efforts as a “war on truth,” calling themselves modern-day Davids fighting corporate Goliaths, powerful companies who commandeer protectionist instincts to shield local industry from legitimate criticism.

To be sure, a large academic literature has found that short selling improves price Read more

Gibson Dunn Discusses EU and U.S. Expectations for Internal Compliance Programs

The European Union has become more active in addressing EU common foreign and security policy (“CFSP”) objectives with the help of what it calls “restrictive measures,” i.e., EU Financial and Economic sanctions. As indicated in our recent client alert, The EU Introduces a New Sanctions Framework in Response to Cyber-Attack Threats and even more recent by introducing a framework for EU Financial Sanctions against Turkey,[1] it has also specifically started to unilaterally implement sanctions addressing EU security concerns, including issues beyond traditional areas addressed by sanctions such as “traditional” sanctions imposed due to terrorism and international relations-based … Read more

Reaching for Yield and the Diabolic Loop in a Monetary Union

One of the repercussions of the housing market collapse in the U.S. in 2007 was global anxiety about excess leverage, debt repayment, and overall credit conditions. Risk-pricing levels increased abruptly for highly indebted countries, making new borrowing to refinance debt increasingly difficult. Next year marks a decade since the eruption of the Eurozone sovereign debt crisis, when Greece, Italy, Ireland, Portugal, and Spain, known as the GIIPS countries, experienced an unprecedented rise in their borrowing rates.

For example, Greece and Ireland in 2010 ran an unprecedented peace-time deficit, reaching 15.8 percent and 32 percent of GDP, respectively. The Irish government … Read more

Restructuring Argentina’s Sovereign Debt: Navigating the Legal Labyrinth

For almost two years, Argentina has been facing a severe economic recession and has not had the ability to access international capital markets. This has been due to several factors, including a general capital flight from emerging markets following the U.S. Federal Reserve’s interest rate hikes throughout 2018, and the country’s persistent fiscal deficits and macroeconomic imbalances. The crisis moreover comes at a time when the risk of a global economic slowdown has sharply increased.

All of this has left Argentina vulnerable to a sovereign debt crisis. The president elect, Alberto Fernandez, has stated that once he takes office … Read more

Davis Polk Discusses Strengthening UK Merger Control

The UK operates a voluntary merger control regime[1].  In addition, the European Commission (EC) operates a ‘one-stop shop’ jurisdiction to review the largest and most complex cases on behalf of all EU Member States, including the UK.  The combination of a voluntary UK regime and EC jurisdiction over major deals has resulted in the UK’s antitrust authority – the Competition and Markets Authority (CMA) – historically having a lower profile than many other major G20 enforcement authorities.

With Brexit now looming, however, the CMA is seeking to raise its global profile and to articulate … Read more

Wachtell Lipton Discusses Shareholder Activism in France as Model for U.S.

In response to the sharp increase in campaigns by activist hedge funds in France and Europe generally, a French commission has conducted an extensive investigation and issued a carefully researched, reasonable and balanced report recommending regulatory and procedural changes to rebalance the relationship between companies and activists.  The key recommendations are:

  1. “[S]tronger transparency measures applicable to investors taking public positions, directly or indirectly, aimed at influencing an issuer’s strategy, financial position or governance.  An activist taking a public position should disclose, inter alia, the number of shares and voting rights and the type of securities held in the issuer,

Read more

“Centros” and Defensive Regulatory Competition in the European Union

Centros, a landmark 1999 decision by the European Court of Justice (now Court of Justice of the European Union or CJEU), has profoundly transformed European company law. Previously, many EU member states used the “real seat theory” to hinder regulatory arbitrage. Under this theory, a company had to incorporate pursuant to the procedures of the jurisdiction where its administrative center was located. For example, for a firm with its headquarters in Germany to acquire full legal status in the eyes of German courts, it had to be formed under German law. The theory was not aimed at protecting … Read more

Welcome to Vilnius: Regulatory Competition in the EU Market for E-Money

If you google “Lithuania e-money,” the auto-fill function will suggest that you search for ”Lithuania e-money license.” If you accept the tip, the first result will be Ecovis, which describes itself as “the most experienced finance institution and FinTech licensing advisor” for Lithuanian licenses. The second Google result is SB-SB Legal Services, which has a more global reach and boasts of being “capable of proposing a wide choice of countries suitable for the registration of payment systems. We offer electronic money licenses in European countries, including Lithuania, Malta, Czech Republic, Cyprus, Estonia, Bulgaria, Switzerland, Great Britain and Gibraltar,” in addition … Read more

Cleary Gottlieb Discusses EU’s New Whistleblower Protections

A lively debate has been sparked both among the public and scholars about the protection of informants, promp­ted in part by the whistleblowers who uncovered the scandals that recently attracted so much interest in the media, including Cambridge Analytica, the Panama Papers or LuxLeaks.  One topic under dis­cussion is the extent to which whistleblowers should enjoy “the legal regime’s blessing” and be protected against sanctions, inter alia, under labor or criminal law, in view of the tension between private interests in the protection of internal matters and the public interest in uncovering legal vio­lations and internal irregularities.

Under … Read more

Discontinuation of LIBOR

Global financial markets are preparing for the phasing out of the London interbank offered rate, or LIBOR, with the loan, derivatives, securities, and bond markets most affected.  As of mid-2018, about $400 trillion worth of financial contracts referenced LIBOR in one of the major currencies.[1] Supervisory pressure on the financial sector to reduce LIBOR inventories suggests that firms must embrace Risk Free Rates (RFRs) across LIBOR portfolios. The transition presents a multitude of challenges.

Why Use Benchmarks?

Financial market participants rely on benchmarks primarily to reduce asymmetric information about  the value of the traded financial instrument underlying the benchmark … Read more

Do Self-Reporting Schemes Deter Corporate Crime?

Many law enforcement agencies reduce punishments for corporations that report their own offenses. My research shows that these self-reporting schemes may help deter crime within a certain range of leniency. But the level of leniency has a U-shaped relationship with the level of deterrence: As the severity of punishment decreases, the probability that a crime will occur first decreases and then increases.

Direct and Indirect Punishments of Executives

The United States, the United Kingdom and other countries have strengthened corporate self-reporting programs to help them detect non-antitrust offenses such as securities fraud and foreign bribery as well as antitrust violations. … Read more

Cleary Gottlieb Discusses the UK Competition Law Implications of a No-Deal Brexit

A no-deal Brexit would have significant and immediate effects on UK competition law enforcement:

  • Parallel investigation of mergers, cartels, and dominance cases by the UK Competition and Markets Authority (“CMA”) and European Commission (“EC”);
  • Possible delay to transactions notified to the EC but not cleared by Brexit day;
  • A significant increase in the CMA’s caseload, stretching its resources;
  • New challenges for claimants bringing EU follow-on damages cases in the UK courts.

If the UK leaves the EU on 31 October 2019 without a withdrawal agreement, it will affect how UK and EU competition law applies to businesses with UK activities.… Read more

All Hale the UK Supreme Court: How Its Groundbreaking Ruling Affects Brexit

In an extraordinary judgment delivered by Lady Hale, 11 justices of the Supreme Court of the United Kingdom ruled unanimously on September 24 that the suspension – or “prorogation” – of Parliament last month was “unlawful, null and of no effect” [1]. The decision prompts at least two important questions: Does it show the politicization of the UK Supreme Court, and does it mark a turning point in Brexit?

A Brief History. The UK Supreme Court is a relatively new creation, established in 2009 to replace the judicial function of the House of Lords as the nation’s highest appellate court. … Read more

Corporate Purpose and the Dangers of Government-Mandated CSR

The debate about the purpose of corporations seems to have heated up after Larry Fink’s annual letter to the CEOs of companies in which BlackRock invests and again after the statement from the Business Roundtable. Both Fink’s letter and the Business Roundtable statement referred to global problems and how companies should embrace a greater responsibility to address them. The statement by the Business Roundtable has been perceived variously as a major shift in corporate law or as a PR exercise to prevent government regulation.

Irrespective of its motivations, while an acknowledgement that a consideration of stakeholder interests is useful, an … Read more

Cleary Gottlieb Discusses U.S. CLOUD Act’s Possible Impact on EU Data Protection

Responding to a request by the European Parliament’s Committee on Civil Liberties, Justice and Home Affairs (LIBE), the EU’s data protection supervisory bodies released an initial joint opinion on the impact of the U.S. Clarifying Lawful Overseas Use of Data Act (“CLOUD Act”) on the EU data protection framework.  The preliminary assessment by the European Data Protection Supervisor (“EDPS”) and European Data Protection Board (“EDPB”) leaves service providers facing a familiar dilemma.

Although the CLOUD Act now makes clear that U.S. disclosure orders have an extraterritorial reach, the EDPS and EDPB see very limited options for service providers to comply … Read more

Paul Weiss Discusses D.C. Circuit Decision Ordering Chinese Banks to Produce Documents

On July 30, 2019, the U.S. Court of Appeals for the District of Columbia affirmed civil contempt orders by the D.C. District Court against three Chinese banks for their failure to produce documents in response to U.S. government subpoenas relating to an investigation of North Korea’s financing of its nuclear weapons program. The 44-page opinion by D.C. Circuit Judges David S. Tatel, Patricia A. Millett and Cornelia T.L. Pillard, written for the court by Judge Tatel, was released publicly on August 6, 2019 with redactions of information that remains under seal.[1]

The Court of Appeals concluded that there was … Read more

Davis Polk Discusses UK Serious Fraud Office’s New Cooperation Guidance

On August 6, the United Kingdom’s Serious Fraud Office (“SFO”) published new guidance on the steps companies should take in order to receive cooperation credit in the SFO’s charging decisions.  The document, titled “Corporate Co-operation Guidance” (the “SFO Guidance”),[1] outlines similar steps to those set forth in the United States Department of Justice’s Corporate Enforcement Policy (“CEP”), indicating that SFO Director Lisa Osofsky, formerly of the FBI, is ushering in familiar U.S.-based standards in her new role leading the SFO.

Despite many similarities, the SFO Guidance differs from the CEP in a few significant respects.  The most noteworthy of … Read more

Cadwalader Discusses CFIUS and Foreign Investor Deals

The national security implications of corporate deals involving foreign investors continues to be a headline-grabbing topic. Last summer, President Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which expanded the types of transactions subject to national security review by the Committee on Foreign Investment in the United States (“CFIUS”). As we approach the first anniversary of FIRRMA, it has – unsurprisingly – made it more critical than ever to identify and address whether a cross-border deal involving non-U.S. parties is subject to CFIUS review and approval, and if so, to … Read more

Gibson Dunn Discusses UK Enforcer’s Fifth Deferred Prosecution Agreement

On July 4, 2019 the UK Serious Fraud Office (“SFO”) secured approval for its fifth Deferred Prosecution Agreement (“DPA”) before the Crown Court sitting at Southwark. The DPA is with Serco Geografix Limited (“SGL”), a security company that contracts with the UK Ministry of Justice (“MOJ”) to electronically monitor suspects and offenders. The DPA relates to three charges of fraud and two of false accounting. The facts of the case are summarised by the SFO in its official press release, which is accompanied by a copy of the judgment of the … Read more

The Long-Term Effects of Shareholder Activism

Shareholder activism is growing in popularity across the world and appears to deliver mostly benign results for firms and stockholders. However, testing the effects of activism is problematic.  For at least 30 years, researchers have recognized the difficulty of causal inference when examining ownership and performance.  Perhaps activists systematically target firms that are poised to improve anyway or select liquid stocks to cheaply acquire blocks.  Despite a body of empirical evidence on the positive effects of activism, critics continue to warn of dangers: Activists hunt in highly-motivated and well-resourced wolf packs that exploit regulatory loopholes; they focus on short-term financial … Read more