Crown image Columbia Law School

SEC Chair Talks Cryptocurrencies and Initial Coin Offerings

The world’s social media platforms and financial markets are abuzz about cryptocurrencies and “initial coin offerings” (ICOs).  There are tales of fortunes made and dreamed to be made.  We are hearing the familiar refrain, “this time is different.”

The cryptocurrency and ICO markets have grown rapidly.  These markets are local, national and international and include an ever-broadening range of products and participants.  They also present investors and other market participants with many questions, some new and some old (but in a new form), including, to list just a few:

  • Is the product legal?  Is it subject to regulation,

Read more

Davis Polk Discusses Solicitor General’s Change of Heart on SEC Judges

On November 29, 2017, the Solicitor General filed a brief in the Supreme Court on behalf of the Securities and Exchange Commission (“SEC”) reversing the agency’s position and arguing that SEC administrative law judges (“ALJs”) have been unconstitutionally appointed to their posts. The Solicitor General’s brief was filed in response to Raymond Lucia’s petition for a writ of certiorari after the D.C. Circuit Court of Appeals rejected a challenge to the constitutionality of the appointment of SEC ALJs (detailed here). The Solicitor General also raised questions regarding the validity of statutory restrictions that protect SEC ALJs from removal. The … Read more

Latham & Watkins Discusses Supreme Court Hearing on State Jurisdiction Over Securities Claims

On November 28, 2017, the Supreme Court of the United States held oral argument in the highly anticipated case of Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, to decide whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA) divested state courts of subject matter jurisdiction in lawsuits solely alleging claims under the Securities Act of 1933 (the Securities Act). Because of the procedural roadblocks to challenging remand motions in federal court, the Supreme Court took review from an appeal from the California Supreme Court. Defendants/Petitioners argued that state courts did not have jurisdiction over “covered … Read more

Investor Choice in Global Markets for Securities

In a recent paper, we explore how globalization has affected the operation of securities markets and the challenges this poses for their regulation. The paper is part of the first phase of the New Special Study of the Securities Markets Project.

Securities markets have experienced unprecedented levels of cross-border activity over the past 30 years. Three secular trends have contributed to this phenomenon of globalization. First, liberalization: the removal of national foreign exchange controls and barriers to trade and investment. Second, the growth of collective investment, encouraged by favorable tax treatment of retirement saving. This has fostered a shift … Read more

Debevoise & Plimpton Discusses Developments in the Enforcement of Token Sales

Securities and Exchange Commission (“SEC”) Chairman Jay Clayton recently discussed the uncertainties surrounding token offerings and other forms of distributed ledger-based financing.[1] Mr. Clayton cautioned that the lack of information regarding online platforms that list and trade virtual coins or tokens may lead to price manipulation and other fraudulent trading practices on these platforms. The Chairman stated, “The [SEC] recently warned that instruments such as ‘tokens’ offered and sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.” The Chairman’s statements regarding token sales reiterate … Read more

Gibson Dunn Discusses CFTC and EC Plans to Harmonize Derivatives Regulation

This alert discusses the U.S. Commodity Futures Trading Commission’s (“CFTC”) and European Commission’s (“EC”, together with the CFTC, the “Commissions”) announcements on October 13, 2017 regarding the international harmonization on two key derivatives regulatory requirements.[1]  The Commissions first announced that they had separately adopted comparability and equivalence determinations related to their respective uncleared swap margin regulations (“Uncleared Margin Determinations”).[2]  The Commissions then announced that they had reached a common plan to recognize each other’s authorized derivatives trading venues as comparable and equivalent (“Common Plan on Trading Venues”).[3]Read more

How Missing SEC Filing Deadlines Affects a Company’s Stock Value

Investors, hedge funds, regulators, banks, and attorneys want to know: What really happens when a company misses a regulatory deadline? In a new paper, we offer theory and quantitative analysis of the consequences of missing U.S. Securities and Exchange Commission (SEC) regulatory deadlines for filing quarterly (Form 10-Q) and annual (Form 10-K) financial statements. Timely disclosure of financial statement information is a critical requirement for firms and well-functioning capital markets. Late filings delay disclosures that help investors make informed investment decisions and, as a result, increase information asymmetry and trading costs. Late filings may also trigger costly regulatory penalties and … Read more

Why Do Retail Investors Ignore Accounting Information?

Prior research finds that individual (retail) investors often fail to use accounting information when making stock trading decisions. Instead, many individuals underperform by trading on attention-grabbing technical trends such as high past stock returns.

A number of Securities and Exchange Commission (SEC) regulations are designed to help individual investors make better trading decisions by reducing their costs of using accounting information. For example, part of the SEC’s motivation for recent regulations on hyperlinking and XBRL was to aid individuals by reducing their costs of monitoring and accessing firms’ accounting reports. In a recent study, we investigate why many individual investors … Read more

King & Spalding Discusses the Fading of Home Field Advantage for SEC Litigators

As the season changes to fall, and baseball playoffs and football dominate sports headlines, the home field advantage has proven important once again. But in the regulatory litigation game, it appears that even a home field advantage cannot help the Securities and Exchange Commission consistently win its enforcement trials in administrative proceedings. The SEC clearly expected to do better when it announced it would be bringing more cases in its administrative forum as opposed to district court. But in the last 25 months, the SEC has lost a number of high-profile administrative cases, notwithstanding the fact that the SEC has … Read more

Does Insider Trading Law Change Behavior?

Despite the extensive scholarship on insider trading, relatively little attention has been directed to a basic but fundamental question:  Does insider trading law actually affect the amount of insider trading?  In a new article, available here, I seek to empirically evaluate that question by leveraging a change in insider trading law that occurred in 2014 when the Second Circuit issued its seminal decision in United States v. Newman, which substantially limited the scope of tippee liability.  The article provides strong empirical evidence that changes in insider trading law do affect the amount of insider trading, sometimes dramatically.

The … Read more

SEC Chair Clayton Talks SEC and Market Transparency

Thank you, Keith [Higgins], for that gracious introduction.[1] Let me return the sentiment. Keith – you are a member of an esteemed group of Division Directors, some of whom are here today, who have served the Commission and, most importantly, investors very well. The PLI 49th Annual Institute on Securities Regulation demonstrates the efforts by many to ensure that there is continuous education about the securities laws, as well as ongoing, candid dialogue about the state of our securities markets. I am honored to be here.

My remarks will focus on governance and transparency. These issues are, of

Read more

What Do Corporate Insiders Do with Newly Vested Equity?

In a new study, we examine restricted-stock vesting events, through which directors and high-level executives (“insiders”) receive stock but face fewer reporting requirements and selling restrictions than if the stock had been purchased on the open market. Using a detailed dataset that tracks restricted stock vesting schedules from Equilar, we find that insiders realize gains by retaining vested stock. A trading strategy that mimics insiders’ trading patterns by buying on the vesting date and selling on the subsequent open-market sales date yields positive abnormal returns.

The vast majority of previous insider-trading literature focuses on open-market transactions, but insiders acquire significantly … Read more

PwC Discusses SEC’s Increased Scrutiny of Robo-Advisers

Earlier this year, the Securities and Exchange Commission (SEC) issued guidance regarding “robo-advisers,” automated investment advice tools accessed via web-based or mobile platforms with minimal human interaction.1 The guidance is an important reminder to the industry that robo-advisers are subject to the same regulatory framework as traditional advisers and highlights several unique regulatory considerations stemming from their distinct business model. The SEC also, for the first time, included these considerations as a part of this year’s examination priorities.

The SEC’s sharpened focus on robo-advisers is a response to their dramatic increase in use over the past several years, largely … Read more

Admissions and Accountability in Civil Enforcement

Whether and when targets of civil enforcement admit wrongdoing has been in and out of the public spotlight since the 2007-2008 financial crisis, when the issue seemed tied up in frustrations that suspected wrongdoers—especially banks and corporations—were getting off too lightly.  And the Securities and Exchange Commission has been at the heart of the debate.  Its policy of allowing targets to settle without admitting they did anything wrong prompted judicial rebukes, a public debate, and ultimately an announced policy change in 2013.  Admissions would be required when they furthered “public accountability” and “acceptance of responsibility.”  The decision to ask for … Read more

Wachtell Lipton Discusses SEC’s Guidance on Shareholder Proposals

The SEC Division of Corporate Finance recently provided useful guidance on excluding certain Rule 14a-8 shareholder proposals (Staff Legal Bulletin No. 14I).  While helpful, we hope the SEC will undertake a much-needed comprehensive review of Rule 14a-8, including its outdated eligibility requirements.

“Ordinary Business” and “Economic Relevance” Exclusions.  A shareholder proposal relating to a company’s ordinary business operations may generally be excluded from the company’s proxy statement unless significant policy issues transcending ordinary business are involved (Rule 14a-8(i)(7)).  Noting that this exclusion often involves difficult judgment calls (and without addressing the distinction between the SEC’s interpretive approach … Read more

How Do Small Issuers React to Innovation in Securities Offering Methods?

In 2015 the U.S. Securities and Exchange Commission adopted amendments that significantly expanded Regulation A, a previously little used provision that allows companies to conduct small public securities offerings without having to comply with all the requirements applicable to traditional registered public offerings (referred to as “Regulation A public offerings” below). The amendments implemented JOBS Act Title IV and included raising the annual offering limit from $5 million to $50 million as well as other changes. This regulatory shock had the potential to expand the financing options available to small growth companies. Previously, the main alternatives to a securities offering … Read more

SEC Enforcement Co-Chief Talks Cybersecurity and Retail Investor Protection

Good afternoon and thank you for inviting me to speak today. Before I begin, let me give the required disclaimer that the views I express here today are my own and do not necessarily represent the views of the Commission or its staff.[1]

With that, I am very happy to be here and to talk about some of what we are doing in the Enforcement Division. This has been a year of transition for us. In May, we welcomed Jay Clayton as our new Chairman. And, in June, Steve Peikin and I were named Co-Directors of the Enforcement Division.

Read more

Arnold & Porter Discusses SEC’s Pay Ratio Guidance

Item 402(u) of Regulation S-K was adopted in 2015 to implement the pay ratio disclosure provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and will require pay ratio disclosure with respect to the first fiscal year beginning on or after January 1, 2017 (i.e., such disclosure will be required during the 2018 proxy season)[1]. The required disclosures consist of the total compensation of the registrant’s principal executive officer, the median total compensation of the registrant’s employees other than its principal executive officer, and the ratio of the first of these amounts to the second.

One … Read more

The Promise and Perils of Crowdfunding

In the last few years, a source of financing for start-ups, known as crowdfunding, has become widely available. It involves raising capital from a large number of individuals, each of whom typically contributes a small sum. The internet has lowered the costs of crowdfunding by facilitating the dissemination of information about small projects, and its use has grown exponentially, with some $34 billion being raised worldwide through crowdfunding in 2015 alone.

While the availability of crowdfunding is clearly good news for entrepreneurs, its merits for those providing the funding are less certain. Because funders typically put only small sums into … Read more

SEC Commissioner Piwowar Speaks on Market Structure

These days you rarely hear the name Financial Industry Regulatory Authority (“FINRA”) in this town [Washington, D.C.] [1] without some mention of “FINRA 360,” the comprehensive self-evaluation initiated by FINRA President and CEO Robert Cook. From what I have seen and heard thus far, FINRA 360 is more than just a genius marketing strategy developed to kick off Robert’s tenure. Over the past several weeks, I have heard from a number of people that this review is generating constructive feedback and engagement from the industry in ways that will help FINRA chart a new path forward.

We at the Commission

Read more