Packin & Edwards (2)

Should Corporate Whistleblowers Go to Arbitration?

Following the 2008 financial crisis, more and more countries have begun to embrace whistleblower protections as a tool to change corporate cultures.  Such provisions may give whistleblowers the protections they need to raise their voices, and draw attention to undesired and sometimes even illegal activities, in situations when they would otherwise remain silent.  After all, many people will hesitate to point out questionable conduct if they know they might face retaliation.

In the United States, Congress authorized the SEC to go further than other whistleblower provisions by authorizing a bounty program—allowing the SEC to reward whistleblowers for particularly valuable tips. … Read more

Vince Buccola, headshot

Federalism and Federal Corporate Rights

Controversy surrounding the role of corporations in public life has not abated in the six years since the Justices decided, in Citizens United v. FEC,[1] that corporations have political-speech rights secured by the First Amendment. If anything, the Court’s judgment in Burwell v. Hobby Lobby, Inc.,[2] although far less significant in practical terms, magnified discontent in some quarters. Doomed calls for constitutional amendment are still a frequent refrain. At least one presidential candidate has reportedly proposed a litmus test to Supreme Court nominations based on a commitment to overturning Citizens United.[3] And so on. … Read more

Cleary Gottlieb discusses CFPB Rulemaking on Arbitration Agreements in Financial Products and Services Contracts

On May 5, 2016, the Consumer Financial Protection Bureau (“CFPB”) proposed a rule that would  govern two aspects of consumer finance dispute resolution.  First, the new regulations would prohibit providers of certain consumer financial products and services from including in their contracts arbitration clauses that prohibit class action lawsuits.  Second, covered providers involved in an arbitration pursuant to a pre-dispute arbitration agreement would be required to submit specified arbitral records to the CFPB.  If the proposed rule becomes final, it will significantly impact the current industry practice of including arbitration clauses with class action waivers in these types of contracts, … Read more

Gogineni and Puthenpurackal

The Impact of Go-Shop Provisions in Merger Agreements

Target firms typically employ either an auction or a negotiation method during merger negotiations. In auction deals, the pre-public takeover process involves contacting several potential bidders, signing confidentiality/standstill agreements and accepting private bids. In negotiation deals however, the target engages with only one bidder in the pre-public takeover process. Using either selling method, the target board negotiates with the bidder(s) and if an acceptable price is obtained from a bidder, a definitive merger agreement is signed and a public announcement is made. Typically, after the public announcement of a merger agreement, target boards do not actively solicit new bids although … Read more

Covenant Violations, Collateral and Access to Funding: Private Firms and Public Firms

Covenants are an important feature of loan contracts that enable ongoing monitoring of borrowers by banks and flexible renegotiation of contract terms in the face of changing external and borrower conditions.  A large body of empirical research has examined the consequences of loan covenant violations for public firms.  However, little is known about how banks react to covenant violations by private companies, despite the large share of these firms in the economy. Any reduction in access to loans is likely to have a more direct impact on investment and employment for private firms since they are primarily reliant on banks … Read more

Daniel Sang

Salman v. United States and Insider Tipping: What Could be Decided?

In Salman v. United States,[1] the Supreme Court will revisit Dirks v. SEC[2] and likely resolve the uncertainty as to personal benefit and insider gifts of confidential information that followed the Second Circuit’s decision in United States v. Newman.[3]  The case involves a young investment banker’s gifts of information about unannounced client transactions to his brother, who, in turn, shared the tips with their relative by marriage, the defendant Bassam Salman.

Salman will also be the first time that the Court decides the liability of a downstream insider trading tippee.  A decision will therefore likely … Read more

Davis Polk discusses Appellate Reversal of $1.3 Billion Penalty Against Countrywide, Based on Appellate Finding of Lack of Intent

On May 23, 2016, the United States Court of Appeals for the Second Circuit reversed a $1.3 billion civil penalty imposed against Countrywide Home Loans, Inc., Bank of America, N.A., and related defendants (collectively, “Countrywide”) under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).[1]  Although the decision rebuffed the government’s case against Countrywide, it did not address the government’s novel interpretation that FIRREA permits civil penalties against financial institutions whose criminal conduct is “self-affecting.”  FIRREA permits civil penalties against a defendant if it commits certain unlawful acts “affecting a federally insured financial institution.”[2]  Over a … Read more

Brandon Garret

Bad Hustle

“And we played the Hustle music.  There were, you know, printed materials passed out,” with dance steps so “ideally we could all perform the Hustle in precision,” recalled the former Countrywide first vice president. “There was a lot of excitement.  There was a lot of fanfare. It was fun.”  He was describing events in the summer of 2007, when Countrywide decide to speed up its process for approving loans, using a program called the “High Speed Swim Lane,” or “HSSL” (or “Hustle”).  The music stopped after the global financial crisis.  Bank of America bought out the failing Countrywide Financial.  In … Read more

Proskauer explains Supreme Court’s Clarification of Jurisdiction Under Securities Exchange Act

The U.S. Supreme Court ruled on May 16, 2016 that the provision of the Securities Exchange Act of 1934 granting federal district courts exclusive jurisdiction over suits brought to enforce the Exchange Act is subject to the same jurisdictional test established by the general federal-question jurisdictional statute. The Court held in Merrill Lynch v. Manning that, under both statutes, the question is whether the case “arises under a federal law.” The Court thus rejected the defendants’ effort to remove a case from state court by asserting a broader theory of federal jurisdiction under the Exchange Act.

Factual Background

The ManningRead more

Cleary Gottlieb explains SEC’s New Guidance on Non-GAAP Financial Measures

On May 17, 2016, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) released new and updated Compliance and Disclosure Interpretations (“C&DIs”) on the use of non-GAAP financial measures (“NGFMs”).  The release of the C&DIs follows a series of recent speeches by SEC Chair Mary Jo White, Chief Accountant James Schnurr and other staff that expressed concerns over prevalent and liberal use of NGFMs.  The C&DIs signal a tightening of the SEC’s policy toward NGFMs and renewed SEC focus on their use.

One new C&DI deserves special attention.

Among the new and updated C&DIs, Question 100.04 … Read more

Long Live the Editor

After the July 4th weekend, Reynolds Holding will be taking over as the fourth editor-at-large of the CLS Blue Sky Blog.  It has been a remarkable year and a half, and I am confident our Blog will continue to grow in the coming years.  I am grateful to the faculty committee (Professors Jack Coffee, Ed Greene, Robert Jackson and Kate Judge), the student editors (Jennifer Barrows, AJ Farkas and John Knight) as well as Columbia Law School for providing opportunity and support.  I intend to continue writing as time allows and invite you to visit my webpage.  I believe … Read more

Cicero & Mi

Do Executives Behave Better When Dishonesty is More Salient?

In recent decades, it seems the only reason one flavor of corporate or financial misbehavior falls out of the public discourse is because a newer one has taken its place. Following the widespread corporate frauds of the 1990s, the unscrupulous acts of bankers that contributed to the financial crisis, and the Ponzi scheme orchestrated by Bernie Madoff, to name a few, the thoughtful observer must be left anticipating the next scandalous headline. Given the steady flow of reprehensible actions by business professionals, a considerable amount of attention has been focused on understanding, and perhaps mitigating, egregious behaviors in the business … Read more

Eitan Goldman and Wenyu Wang

Weak Governance by Informed Large Shareholders

Concerns about the governance of public corporations have taken center stage in recent years. Part of the debate on how to improve corporate governance has focused on policies that will give large shareholders (typically institutional investors) greater influence over corporate decisions. Indeed some theoretical and empirical papers support the governance role of large shareholders.

The underlying view is that large shareholders have both the ability and incentive to maximize the value of all shareholders. Large shareholders may improve governance either through active monitoring or through passive selling and both activities are expected to improve governance.

In this paper, we propose … Read more

PwC discusses Protecting Elderly Customers: CFPB and FINRA Step In

The Consumer Financial Protection Bureau (CFPB) released recommendations in March for how banks and credit unions can better protect elderly customers from financial exploitation. The CFPB issued its recommendations as the elderly population continues to rapidly grow, positioning banks and credit unions for a significant increase in elder financial exploitation (EFE) attacks.[1]

Other regulatory bodies have taken notice of this growing threat as well and are putting forth regulations and guidance of their own. For example, the Financial Industry Regulatory Authority (FINRA) last year proposed a regulation requiring broker-dealers to take action in response to suspected EFE.

EFE is … Read more

Nejat and Taylan

SEC Needs to Rewrite its 10b5-1 Safe Harbor Rules

While it is illegal for insiders to trade on material, non-public information, the SEC has created a safe harbor Rule 10b5-1 since October 2000, by allowing insiders to set up trading plans in advance of actual trading.[1]  Since these planned trades are set up in advance of subsequent trading, they allow insiders to buy and sell shares despite possessing material non-public information at the time of the trade, and consequently, they can serve as an affirmative defense in case of litigation.   However, these plans are not foolproof.  There is growing suspicion among both finance and legal experts that significant … Read more

Gibson Dunn discusses PCAOB Issuance of Another Proposal to Change Audit Report

The Public Company Accounting Oversight Board (“PCAOB”) recently re-proposed an audit standard to amend the form and content requirements for the independent auditor’s report on financial statements.[1]  The new proposal retains the pass/fail model present in the existing audit report but also requires the auditor to include new disclosures in the audit report about “critical audit matters” that are identified during the course of the audit.  The re-proposal also requires new disclosures about the length of the auditor’s tenure and the applicable auditor independence requirements.

The re-proposal is the latest chapter in a standard-setting project that dates back to … Read more

Twenty Most Cited Corporate Law & Securities Regulation Faculty in the United States, 2010-2014 (inclusive)

Rank Name School Citations Age in 2016
1 John Coffee, Jr. Columbia University 1470 72
2 Lucian Bebchuk Harvard University 1130 61
3 Stephen Bainbridge University of California, Los Angeles 1010 58
4 Reinier Kraakman Harvard University   820 67
5 Stephen Choi New York University   780 50
6 Donald Langevoort Georgetown University   770 65
7 Ronald Gilson Columbia University   760 70
8 Lynn Stout Cornell University   750 59
9 Roberta Romano Yale University   730 64
10 Henry Hansmann Yale University   720 71
11 Bernard Black Northwestern University   630 63
12 James Cox Duke University   620 73
13 Mark Roe Harvard

Read more

John Coffee, Headshot

Volkswagen and the Culture of Silence

Since the Volkswagen story first broke in September 2015, most observers have just scratched their heads and muttered to themselves in amazement: “What were they thinking?  How could you place ‘defeat devices’ in 11 million cars worldwide and expect that you were going to escape detection for long?”  There is, however, an answer to this question—one that says much about what is wrong with current priorities and practices for the enforcement of white collar crime.  This column begins with an assessment of the Volkswagen case and then turns to an analysis of white collar crime strategies.  Finally, it proposes remedies … Read more

A Pernicious Mass. Appeals Court Ruling: Redline Copy of Proposed Bylaw Changes Per Se Renders Misleading Proxy Challenge A Nullity

In Rule v. Massachusetts Mutual Life Insurance Company,[1] our client challenged MassMutual’s 2014 Proxy Statement seeking to change its company bylaws.   The Proxy told the over 1 million policyholder-owners that the proposed bylaw changes were consistent with the company’s current practices, would bring the bylaws in alignment with widely held corporate governance best practices, and would enable management to better serve the policyholders.  However, the bylaw changes were a radical departure from its current bylaws and were the antithesis of best practices (as discussed below).  Nonetheless, a Massachusetts Appeals Court sustained dismissal of the proxy challenge on grounds … Read more