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
Compliance is a growth field in both legal education and practice. Overall, whether compliance teaching is geared towards students or individuals within a company, greater care and nuance must be taken in undertaking compliance teaching and training to reflect the inter-disciplinary and proactive elements of the creation of robust and effective compliance programs. Increasingly, this means that lawyers and law professors need to incorporate insights from other disciplines in their teaching to use more case studies.
Compliance is a growing field of practice across multiple areas of law. Increasingly companies put compliance risk among the most important corporate governance issues … Read more
Six things every investor, start-up, financial institution and payment processor should know about the future regulation of Bitcoin and other cryptocurrency derivatives.
With the quickly developing market for cryptocurrency derivatives and seemingly inexhaustive possibilities of applications on the blockchain protocol, the U.S. Commodity Futures Trading Commission (CFTC) is keeping a watchful eye, though has not formally announced any policy or regulatory regime for cryptocurrency derivatives. This article considers the current U.S. derivatives regulatory regime of the CFTC and its applicability to Bitcoin, other cryptocurrencies, and the blockchain protocol. We also discuss practical considerations for those entering the market and what … Read more
Delaware dominates the incorporation market, with approximately 60% of publicly traded companies in the United States incorporated there, including 63% of the Fortune 500 companies. Over 90% of companies that incorporate outside of their principal state of operations make Delaware their state of incorporation. The unresolved question is why corporate lawyers and their clients are drawn to Delaware when most companies have little more than a P.O. Box based in the state.
In The Delaware Delusion, we set out to empirically assess whether there is an economic basis for Delaware’s appeal in the market for company incorporations. We set out … Read more
On July 25, 2015, Judge Barbara Lynn of the Northern District of Texas issued a formative opinion in the class actions securities arena. The case, The Erica P. John Fund, Inc., et al. v. Halliburton Co., et al., No. 3:02-CV-1152-M, is viewed as a bellwether among securities class actions due to its treatment of novel issues regarding, among other things, a defendant’s ability to disprove reliance—i.e., a causal link between alleged misrepresentations and an eventual drop in stock prices upon correction—for purposes of class certification.
Rather than requiring plaintiffs to prove reliance for each individual shareholder, securities class action … 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
On May 20, 2015, the Securities and Exchange Commission (“SEC”) proposed a set of rules, forms and amendments to that would expand and update certain reporting and disclosure obligations of registered investment companies and registered investment advisers. The proposed rules seek to improve the quality of information available to investors, to allow the SEC to more effectively collect and utilize the data provided, and further, to enhance the SEC’s ability to monitor risks in the asset management industry.
Proposed new rule 30e-3 under the Investment Company Act of 1940, as amended (“1940 Act”), would provide registered investment … Read more
The role of money and business interests in politics continues to stir controversy. As the nation begins another presidential cycle that is expected to break spending records, we will likely hear analysts argue that the Supreme Court’s decision five years ago in Citizens United v. FEC opened the floodgates by allowing unlimited independent political expenditures from corporate treasuries. A series of calls for reform has followed the decision, including the recent open letter published by former SEC officials asking the agency to require disclosure of corporate political spending. These important issues of our time are rooted in a much … Read more
On July 2, 2015, in Hill International, Inc. v. Opportunity Partners L.P., No. 305, 2015, the Delaware Supreme Court affirmed a Court of Chancery decision that Opportunity Partnership L.P. (the “Fund”), a stockholder in Hill International, Inc. (“Hill” or the “Company”), had complied with the Company’s advance notice bylaws and thus timely submitted two business proposals for consideration and two nominees for election at Hill’s 2015 Annual Meeting (the “Notice”). Accordingly, the Supreme Court held that it was proper to enjoin the Company from conducting any business at the Annual Meeting other than convening the Meeting for the sole … Read more
The House is continuing Congress’ piecemeal rollback of the Dodd-Frank Act, a theme Alexander Sand and I explore in our recent article, Cutting Back: Revisions to Dodd-Frank Derivatives Rules. Although the House has targeted a number of Dodd-Frank provisions for regulatory relief, today I will focus on clearing and margin. At present, these requirements are not harmonized in that market participants that are exempt from clearing may nevertheless be forced to post margin when trading with swap dealers and major swap participants (the two types of market intermediaries that are subject to margin requirements under Dodd-Frank). Imposition of … Read more
Can stock exchanges adapt to the challenges of today’s capital markets? As “self-regulatory organizations,” U.S. stock exchanges once enjoyed a nearly exclusive role in coordinating information and trading through interwoven regulatory, mutual, and commercial arrangements with public companies, brokers, and dealers. Competitive and regulatory challenges have gradually chipped away at the mystique of self-regulation. While listing in the United States largely remains a duopoly shared by the NYSE and Nasdaq, primary exchanges no longer account for a majority of trading volume in their listed securities. Moreover, even as they continue to play an essential role in setting market prices, their … Read more
In United States v. Newman, 773 F.3d 438 (2nd Cir. 2014), the Second Circuit overturned the insider trading convictions of two hedge fund managers who received material nonpublic information from public companies via an extended tipping chain. The Newman court was required to interpret the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1983), to answer the question: What must tippees know about the disclosure of non-public information by the tipping corporate insider in order to sustain a conviction?
Dirks, in an opinion written by Justice Lewis F. Powell, Jr., held that there was … Read more
On June 5, 2015, the Securities and Exchange Commission (“SEC”) entered into settled administrative cease-and-desist proceedings with Computer Sciences Corporation (“CSC”) and some of its former executives due to the company’s alleged manipulation of financial results and concealment of problems with the company’s largest contract. Among other things, CSC agreed to pay a $190 million penalty to settle the charges, and two of CSC’s former executives agreed to return a portion of their compensation to CSC pursuant to the clawback provision of the Sarbanes-Oxley Act of 2002. The SEC also charged former CSC finance executives for ignoring accounting standards … Read more
Our paper titled “The Power of Shareholder Votes: Evidence from Director Elections” aims to answer the question: Do shareholder votes matter in uncontested director elections? In principle, shareholders who own a firm should be free to pick the board members who represent them. However, in the U.S., for the most part, shareholder votes for director elections are non-binding, leading scholars to describe shareholder votes as “sham democracy”. Plenty of anecdotal evidence supports this view. For instance, in Cablevision Systems, shareholders repeatedly cast majority votes against re-electing three directors. The directors remained on the board.
Is the Cablevision election an isolated … 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
Both “deal” and “governance” counsel will enjoy sharing with corporate clients the highly practical guidance provided by Chief Justice Leo E. Strine, Jr. in a newly published article in The Business Lawyer. In his article, the Chief Justice identifies several actions lawyers can recommend to improve the process by which boards review merger/acquisition proposals. These include promoting more effective decision making, mitigating the potential for conflicts of interest and more accurately recording the exercise of board judgment – all for the purpose of reducing transaction exposure to future litigation challenge. More broadly, these recommendations serve to underscore the … Read more
A recent Delaware Chancery Court decision confirms that, as the court held three years ago in Seinfeld v. Slager, there is no shareholder ratification defense for self-awarded director compensation granted under a stockholder-approved option or bonus plan that lacks “sufficiently defined terms” or “some meaningful limit” on director discretion.
I. GENERAL STANDARD
Director decisions are generally afforded wide latitude under the business judgment rule. The protections of the business judgment rule, however, “can only be claimed by disinterested directors.” The “directors can neither appear on both sides of a transaction nor expect to derive any personal … 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
Some legal rights and obligations are so venerated and longstanding that they have become virtual absolutes—categorical imperatives that trump other less urgent considerations. But what happens when two such absolutes collide? This was a question that the US District Court of the Northern District of California had to wrestle with recently, in a case pitting directors’ fiduciary duties against their entrepreneurial rights to innovate.
The case concerned a medical device company’s complaint against its former director for breach of fiduciary duty. His offense? Secretly developing a new technology that competed with (and arguably improved upon) the corporation’s core product … Read more