The Securities and Exchange Commission (SEC or Commission) brought over 400 enforcement actions in the first half of fiscal year (FY) 2016, and is on pace to surpass its record of 807 enforcement actions in a single fiscal year, set in FY 2015.
The SEC brought the vast majority of these enforcement actions as administrative proceedings (APs). On May 16, 2016, the NYU Pollack Center for Law & Business (NYU) and Cornerstone Research (Cornerstone) issued a report (Cornerstone Report) that found that in the first half of FY 2016, the SEC brought 88% of actions … Read more
Should governments be relying on corporate and securities law to promote humanitarian goals? This is the question that naturally arises when viewing the SEC’s Conflict Minerals Payment Rule, which requires corporations to disclose their conflict mineral usage as a means of curtailing the violence in the Congo. Yet the US is not alone in its reliance on disclosure mechanisms in corporate or securities laws to promote non-economic goals. The Danish government uses disclosure to promote gender parity on boards of directors; France relies on it to curb greenhouse gas emissions, and India uses it as a method for curtailing energy … Read more
On July 13, the Securities and Exchange Commission issued a proposal aimed at eliminating or updating duplicative, overlapping and obsolete disclosure requirements. The proposal is welcome, but largely technical in nature and generally focused on duplicative requirements. As a result, if adopted, it will likely have only a small impact on the total amount of information companies are required to disclose. Needed reforms that would eliminate truly obsolete disclosure requirements will likely wait for the outcome of action on the SEC’s pending Regulation S-K concept release (our client memorandum and summary are available here and here).
The proposal is … Read more
Merger activity seems to rise in step with the market. Academic papers suggest this may be due to bidders exploiting overvalued shares, a pro-cyclicality of merger economies of scale or available capital for deals, or simply the behavioral pressures of a “me too” mindset among CEOs. But this positive association is not altogether intuitive, as practitioners and academics alike ask “why do we not see merger waves during bear markets in which acquirers are bargain-hunting for undervalued firms.”
In our working paper “Merger Activity, Stock Prices, and Measuring Gains from M&A” we offer a fresh take on the positive … Read more
The Securities and Exchange Commission (SEC) is now accepting Form C filings from private companies seeking to sell securities through registered crowdfunding portals. We have been following the nascent crowdfunding space closely and will continue to monitor the adoption of crowdfunding as a new method of financing private companies.
In this alert, we will analyze offerings conducted through crowdfunding portals, offer tips for those thinking of entering the space and provide a summary of the SEC’s final rules and forms for equity crowdfunding (“Regulation Crowdfunding”).
Analysis of the First 50 Offerings
In general. As of June 30, 2016, 50 companies … Read more
A new type of warfare is upon us. In this new mode of war, finance is the most powerful weapon, bullets are not fired, financial institutions are the targets, and almost everyone is at risk. Instead of smart bombs, improvised explosives, and unmanned drones –– economic sanctions, financial restrictions, and cyber programs are the weapons of choice. This is the new reality of modern financial warfare.
The armaments of modern financial warfare are as vast, diverse, and important as the myriad of ways to raise and move money. Broadly, the financial weapons of war can be divided into analog weapons … Read more
In the wake of its release on May 17, 2016 of updated Compliance and Disclosure Interpretations (“CDIs”) relating to the disclosure of non-GAAP financial measures, the SEC’s Division of Corporation Finance has indicated in no uncertain terms that now is the time for companies to review their non-GAAP measures and make any revisions called for by the new guidance.
With the new and revised CDIs, the SEC has delivered the latest in a series of increasingly strong warnings – previously made in remarks by the SEC Chair and senior Staff accountants – about the perceived misuse of non-GAAP measures. Commenting … Read more
As we have previously observed, private fund advisers face a difficult challenge when SEC guidance (in the form of a speech or a public enforcement order) indicates that certain long-standing practices may be contrary to the securities laws. What does an adviser do when its past practices appear, in hindsight, to have fallen short?
While there are a number of potential “fixes”, including rebating fees, amending the fund documents, amending the Form ADV, and changing prospective practices, doing nothing is a particularly bad strategy. These situations are potential whistleblower events, even if the adviser is not yet aware of any … Read more
On July 13, 2016, the Securities and Exchange Commission (“SEC”) adopted important amendments updating its rules of practice governing its administrative proceedings. These changes concern, among other things, the timing of hearings in administrative proceedings, depositions, summary disposition, the contents of an answer, admissibility of evidence and expert disclosures and the procedure for appeals. The amendments are intended to update the rules and introduce additional flexibility into administrative proceedings, while continuing to provide for the timely and efficient resolution of the proceedings. The amendments will become effective sixty days after publication in the Federal Register and will apply … Read more
On June 16, 2016, the US Securities and Exchange Commission (“SEC”) issued a proposed rule (available here), which, if adopted, would result in a revamp of its disclosure requirements for mining company issuers. The proposed rule is intended to harmonize the SEC’s mining property disclosure requirements with current industry and global regulatory practices and standards. The SEC is seeking comments on all aspects of the proposal. Initial comments are due 60 days after the proposed rule is published in the Federal Register.
The key changes proposed for mining companies are:
- requiring the disclosure of mineral resources (currently prohibited under
… Read more
The Securities and Exchange Commission proposed Regulation Fair Disclosure (Reg FD) on December 20, 1999. The motivation behind the proposal was concern that an informational advantage provided by selective disclosures to certain market participants was resulting in a loss of confidence in the integrity of capital markets. Thus, the SEC’s stated intention with Reg FD was to “level the playing field” for all market participants.
The proposal was met with a strong reaction by market participants, with over 6,000 comment letters issued in response, and the reaction was mixed. On the one hand, individual investors generally supported the proposal, expressing … Read more
Attackers last February reportedly stole $81 million from the Bangladesh Central Bank by obtaining and exploiting the bank’s credentials for the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. The attack – one of the biggest bank robberies in history – exploited weaknesses in cyber, fraud, and possibly insider threat controls, illustrating the need for banks to combine financial crime risk areas that were previously either siloed, or at best tenuously connected.
Specifically, the attackers exploited cyber weaknesses by designing custom malware tailored to bypass controls and network logging systems used by the Bangladesh Central Bank. The attackers also … Read more
Despite substantial judicial and public scrutiny, non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”) have retained their prominence as vehicles to resolve complicated corporate investigations, particularly for companies operating in regulatory environments. In the first half of this year, NPAs and DPAs remain in common use. We do not expect this trend to change. Thanks in part to a D.C. Circuit opinion affirming the critical independence and discretion that the U.S. Department of Justice (“DOJ”) has in crafting the terms of DPAs, we expect use of such agreements to remain widespread. Finally, tacitly acknowledging the utility of the U.S. DPA/NPA … Read more
A recent enforcement action reflects the CFTC’s expanded jurisdiction and provides further clarity on what constitutes “actual delivery” in cryptocurrency trading.
On June 2, 2016, the US Commodity Futures Trading Commission (CFTC) issued an order (the Bitfinex Order) filing, and simultaneously settling, charges against Hong Kong-based BFXNA, Inc., d/b/a Bitfinex (Bitfinex), in connection with Bitfinex’s operation of an online cryptocurrency trading platform (the Platform). Specifically, the Bitfinex Order finds that Bitfinex facilitated the execution of illegal, off-exchange commodity transactions in violation of the Commodity Exchange Act (the CEA) by (i) permitting retail and non-retail users to engage in financed … Read more
The Brent and WTI prices of crude oil fell by 60% between June 2014 and January 2015, marking one of the fastest and largest declines in oil history. Several potential factors (related to oil supply and demand) which could have influenced this oil price decline were discussed in an extensive World Bank policy research note by Baffes, Kose, Ohnsorge, and Stocker (2015). However, Tokic (2015) and a Bank of International Settlements report (Domanski, Kearns, Lombardi, and Shin, 2015) showed that production and consumption alone are not sufficient for a fully satisfactory explanation of the collapse in oil prices. Particularly, Domanski, … Read more
The UK voters’ decision to exit the EU came as a surprise to many observers, as well as the markets, with the “Leave” campaign even hinting at defeat as the polls closed. The Wall Street echo chamber view that it would make no sense in the end for the UK to leave was just that. The vote has unleashed political, economic, and financial uncertainty that will play out over the months ahead with attendant risk premia rising for affected currencies, equity and fixed income markets, sectors, and individual firms. Market values for banks, insurance companies, and asset managers dropped Friday … Read more
Entrepreneurship—a process of organizing, managing, and assuming the risks of a business or enterprise—has long been viewed as important for sustained economic activity. But the state of the economy, especially booms and downturns referred to business cycles, can itself affect entrepreneurship. A better understanding of the nexus between the two can, therefore, help improve public policy towards entrepreneurship and generate benefits for society.
A key challenge for the analysis is that entrepreneurship cannot be easily captured by a single measure. One could, for example, use business ownership as a measure but it does not distinguish between growth-oriented highly innovative activity … Read more
Months after the end of World War II, a 28-year old Brooklyn lawyer recently discharged as an Army officer took a job with a fledgling New Deal alphabet-soup agency, the Securities and Exchange Commission. The SEC then operated from its wartime quarters at the Philadelphia Athletic Club, and it had adopted its core antifraud rule, Rule 10b-5, only four years earlier.
The lawyer, Irving Meyer Pollack, went on to become more than an SEC legend. Indeed, he became one of the most – perhaps the most – distinguished enforcement lawyer in the SEC’s now 82-year history. As briefly outlined below, … Read more
It’s been almost seven years since the Delaware chancery court issued its initial opinion in the Trados litigation and instigated a flood of law firm memos, law review articles, and changes to the way deals get done in Silicon Valley. The dust still hasn’t settled.
By way of review, Trados involved claims against the board of a startup company that was sold in a merger transaction. Plaintiffs, who held common stock of the company, alleged that board members affiliated with the company’s VC investors were conflicted in approving the transaction. The VC investors held preferred stock that provided for a … Read more