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Securities Regulation

The Protection of Investors and the Compensation for their Losses: Australia

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Investor protection has been an ideal in corporate and securities law ever since the early 20th century, when Berle and Means famously highlighted shareholder vulnerability in modern public corporations. In more recent times, investor protection has been treated as a litmus test for the quality of a jurisdiction’s corporate governance and as having a direct link to capital market structure.

Our recent working paper examines the adequacy of Australian law in protecting public company investors in a particular situation – namely, when they rely to their detriment on inadequate, false, or misleading information released by the company. As our … Read more

Transparency and the (E)valuation of Asset-Backed Securities

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In 2011, the commission appointed by Congress to investigate the causes of the financial crisis concluded that “a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis” (The Financial Crisis Inquiry Report, 2011, p. xix).  In particular, the opacity of asset-backed securities (ABS) greatly inhibited the ability of investors and regulators to fully understand the risks held by institutions that owned these products.  As part of the post-financial crisis effort to reform the securitization process, the Dodd-Frank Act directed the SEC to “require issuers of asset-backed securities, … Read more

SEC Chair Clayton Talks Small Business Capital Formation

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Every year the SEC staff does a tremendous job identifying topics, selecting speakers and coordinating the behind the scenes work necessary to organize this all-day event focused on small business capital formation.[1]  Thank you Bill, Jennifer [Zepralka] and the staff in the Division of Corporation Finance and the Office of Minority and Women Inclusion for coordinating this year’s forum. This year I also want to extend a special thank you to our co-hosts—Dean Makhija [Muh-kee-sha] and the rest of the staff at The Ohio State University Fisher College of Business—for opening your doors to us. It is nice to

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Common Ownership: The Investor Protection Challenge of the 21st Century

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Thank you so much, Scott [Hemphill], for that incredibly kind introduction.* It’s a real honor to be here with you—and to be invited to testify before the Federal Trade Commission (FTC). I share your commitment to making sure our markets are competitive and fair for all Americans. And I’m delighted that the FTC has convened this important conversation about the increasingly concentrated ownership profiles of America’s public companies.

I should begin, of course, with the standard disclaimer: the views I express here are my own and do not reflect the views of the Securities and Exchange Commission, my … Read more

New York Attorney General Overreaches in Climate-Change Complaint Against Exxon

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The New York Attorney General (“NYAG”) recently filed a complaint against ExxonMobil alleging that the company violated the Martin Act, New York State’s securities law, by making material misstatements concerning how it was accounting for the possibility of increasingly stringent climate-change regulations in the future.[1]  Exxon publicly projected costs arising from the regulation of carbon emissions that, for OECD countries, would reach $60 per ton of CO2  by 2030 and $80 per ton by 2040, with similar regulations in non-OECD countries also starting to impose costs by 2030.  The complaint alleges that in making many of its investment … Read more

SEC Chair Talks Rulemaking Over the Past Year and the Road Ahead

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For many, December is a time to reflect on the past year and to look forward to what the New Year may bring. I believe organizations also should mark milestones, take stock of what has been done and what needs to be done, and adjust course accordingly.[1]

My colleagues at the Commission and I go through this exercise relatively frequently, including to fulfill statutory reporting requirements—yes, like the public companies we regulate, we too have disclosure obligations. It makes me happy, and it is important, that we strive to approach our reporting with the same care and candor we

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How the Regulation of Initial Coin Offerings Shifted from Inactivity to Full Enforcement

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In recent years, Initial Coin Offerings (ICOs) have emerged as a disruptive tool in entrepreneurial finance. ICOs involve the sale of a stake in a project with the aim of raising funds at an early stage of development. Although ICOs share some similarities with both IPOs and crowdfunding campaigns, they also differ, and in the last few months ICOs have significantly evolved in an effort to improve. Interactive Initial Coin Offerings (IICOs), Initial Supply Auction, the Simple Agreement for Tokens (SAFT), airdrops (free of charge distribution of tokens), Security Token Offerings (STOs), and the “reversible ICO” (RICO) are all examples … Read more

Debevoise Discusses SEC’s Record Year for Whistleblowers

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On November 15, 2018, the U.S. Securities and Exchange Commission’s (the “SEC” or the “Commission”) Office of the Whistleblower (the “OWB”) provided its annual report to Congress describing the status of the whistleblower program and touting a “record-breaking year” for the program.[1] The Report highlights that the OWB received more than 5,200 whistleblower tips last year, a 20 percent increase over last year, and awarded more than $168 million to 13 individuals, which was more than the OWB had awarded in all its prior years combined.[2] Aside from the record numbers of rewards and tips, in the past … Read more

Dissecting the Conundrum of Investing in Hedge Funds Despite High Fees and Mediocre Returns

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October 2018 ended with the hedge fund industry suffering its worst monthly decline since September 2011, according to the HFRI Fund Weighted Composite Index. Some commentators are predicting that 2018 will end with the hedge fund industry experiencing its worst annual performance since the failure of Lehman in 2008. This news comes on the heels of a disastrous decade for hedge fund performance. In the years following the financial crisis of 2007-2009, the S&P 500 consistently outperformed the hedge fund industry. Even Warren Buffet famously predicted that a basket of hedge funds would underperform the S&P 500 over a 10-year … Read more

Skadden Discusses CFTC Division of Enforcement’s First Annual Report

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On November 14, 2018, the Commodity Futures Trading Commission (CFTC) Division of Enforcement released an annual report, apparently the first of its kind.1 In a speech given at New York University School of Law, James M. McDonald, director of the Divi­sion of Enforcement, remarked that the report confirms that the past fiscal year has been “among the most vigorous in the history of the CFTC.”2 Highlighting key points from the report, McDonald expanded on CFTC Chairman J. Christopher Giancarlo’s October 2, 2018, speech on the CFTC’s recent enforcement record. 3

McDonald stated that the CFTC’s enforcement program over … Read more

What Justice Kavanaugh’s “Lorenzo” Dissent Means for the Future of Chevron Deference

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On June 18, 2018, the Supreme Court granted cert in Lorenzo v. Securities and Exchange Commission (Lorenzo), a case that presents significant questions about the federal securities laws. Lorenzo also comes with a twist: The underlying D.C. Circuit decision on appeal features an extensive dissent by then-Judge Brett Kavanaugh, the newest Supreme Court justice. As a result, when the Supreme Court issues its decision on Lorenzo in the Spring of 2019, it is likely that he will be recused while the other eight justices sit in review of their new colleague.

In our forthcoming article, “Justice Kavanaugh, Lorenzo v. … Read more

SEC Divisions Set Forth Views on Issuing and Trading Digital Asset Securities

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In recent years, we have seen significant advances in technologies – including blockchain and other distributed ledger technologies – that impact our securities markets. This statement[1] highlights several recent Commission enforcement actions involving the intersection of long-standing applications of our federal securities laws and new technologies.

The Commission’s Divisions of Corporation Finance, Investment Management, and Trading and Markets (the “Divisions”) encourage technological innovations that benefit investors and our capital markets, and we have been consulting with market participants regarding issues presented by new technologies.[2]  We wish to emphasize, however, that market participants must still adhere to our well-established … Read more

Dual Class Stock: The Shades of Sunset

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The most important issue in corporate governance today is dual class capitalization, and the most important recent development is the petition submitted on October 24, 2018 by the Council of Institutional Investors (“CII”) to both the New York Stock Exchange and Nasdaq, asking them to place a “sunset” on differentials in voting rights. Under the CII’s proposal, both exchanges would agree not to list an initial public offering (“IPO”) that had dual classes of stock with different voting rights, unless the disparity in per share voting power ended no later than seven years after the IPO. The CII sees this … Read more

SEC Chair Clayton Offers Remarks at Proxy Roundtable

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My fellow Commissioners and I have agreed to keep our remarks brief so we can move forward promptly with this important program. I am going to highlight four items.

First, thank you to Bill, Michele Anderson and staff from the Divisions of Corporation Finance and Investment Management. You are doing what we should do – getting important issues in our markets on the table in a transparent and fair manner.[1] I also want to thank the panelists who graciously have given up time out of their busy schedules to be here today.

Second, please remember that our capital market

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SEC Commissioner Roisman Offers Remarks at Proxy Roundtable

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Good morning and thank you to the Divisions of Corporation Finance and Investment Management for organizing this roundtable. I hope that everyone here will take this opportunity to engage in a thoughtful, meaningful discussion on the proxy process. If the process were perfect, we would not be here today. The topics on the agenda have the tendency to get emotional. Trust me, we know where most, if not all, of you stand on the issues. You have a platform today and I hope you use it to provide us with specific examples, data, and facts rather than generalities or anecdotes. … Read more

SEC Commissioner Stein’s Opening Remarks at Proxy Process Roundtable

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Good morning. Welcome to the SEC staff’s roundtable on proxy process. I would like to start by thanking Chairman Clayton for asking the staff to host a roundtable on this very important topic. I would also like to thank Michele Anderson, Julie Davis, and the entire SEC team who worked so hard to bring this roundtable to fruition.[1] Indeed, it has been eight years since the Commission sought comment on the proxy system.[2]

As we all know, the Commission’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.[3] Central to this

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Short and Distort

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Anonymous political speech has a celebrated history (Publius, 1787) and has long enjoyed strong protections under the U.S. Constitution.[1] But there is a dark side to pseudonymity: Fictitious identities can wreak havoc in financial markets. A large literature in economics examines why markets are vulnerable to rumors and information-based manipulation (Benabou & Laroque, 1992; Van Bommel, 2003; Vila, 1989). In a review of this body of work, Putnins (2012) emphasizes the importance of reputation: “if market participants are able to deduce that false information originated from a manipulator, the manipulator will quickly be discredited and the manipulation strategy will … Read more

Simpson Thacher Discusses SEC Clarifications of Shareholder Proposal Issues

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On October 23, 2018, the Division of Corporation Finance of the Securities and Exchange Commission (the SEC) issued new Staff Legal Bulletin 14J[1], following up on previous bulletins clarifying issues arising under Exchange Act Rule 14a-8. The new bulletin addresses the Division’s views on:

  • Board of directors analyses provided in no-action requests that seek to rely on the “economic relevance” exception or the “ordinary business” exception as a basis to exclude shareholder proposals from a company’s proxy materials;
  • the scope and application of micromanagement as a basis to exclude a proposal under the “ordinary business” exception; and
  • the

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Blue Sky Banter Podcast: John Coffee on the State of Insider Trading Law

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Professor John C. Coffee, Jr. of Columbia Law School speaks with John Metaxas (Columbia Law ’84) about insider trading law and his role on a new task force created to develop proposals for reform in this area. The task force will be chaired by Preet Bharara (Columbia Law ’93), the former U.S. attorney for the Southern District of New York. Coffee explains that the time is ripe for the panel, given uncertainty surrounding the largely court-created rules on insider trading and the need for clearer guidance from Congress or the Securities and Exchange Commission. The panel’s members will include academics, … Read more

Debevoise & Plimpton on the SEC Enforcement Division’s 2018 Annual Report

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On November 2, 2018, the U.S. Securities and Exchange Commission’s (“SEC” or “Commission”) Division of Enforcement released its 2018 Annual Report (“Report”) which presents and assesses the Division’s accomplishments during the 2018 Fiscal Year (“FY”).[1] The statistics, as well as narrative discussion in the Report, reveal an active Division focused on pursuing cases impacting retail investors, such as investment adviser fraud, as well as actions directed at the impact of emerging technological changes on the securities market, such as cryptocurrencies and cybersecurity.   While the penalty and disgorgement numbers were similar to last year, this was primarily because of the … Read more