Why Paying Bonuses During a Financial Crisis Might Strengthen the Economy

The following comes to us from Felix Zhiyu Feng, a PhD candidate from the department of economics at Duke University

The lucrative compensation of Wall Street bankers and executives has always been an issue of media interest and public concern. It is also at the center of studies on corporate governance, which tend to question its legitimacy, especially when firm performance is poor. When it was revealed that during the recent financial crises, despite huge profit losses, Wall Street bankers and executives still took away over a billion dollars of cash bonuses, not surprisingly there was immediate outrage from the … Read more

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WilmerHale discusses Risk Controls for Automated Trading Environments

Addressing the Need for Speed: CFTC Seeks Comment on Risk Controls for Automated Trading Environments

On September 12, 2013, the Commodity Futures Trading Commission (“CFTC” or “Commission”) published a Concept Release on Risk Controls and System Safeguards for Automated Trading Environments (“Concept Release” or “Release”).[1] In light of the fundamental shift from human-centered derivatives markets to highly automated and interconnected trading environments, and against the backdrop of several recent highly publicized market disruptions,[2] the Release seeks to catalogue and obtain comment on the efficacy of existing risk controls in US derivatives markets. It also seeks comment on a variety of

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The Erosion of Corporate Criminal Liability

Over the last two years, there has been significant media coverage of Securities and Exchange Commission settlements that contain no admissions of wrongdoing—sometimes referred to as “Neither Admit, Nor Deny” agreements—and the lack of criminal charges for the 2008 financial meltdown.  Both are troubling developments given the role that Wall Street played in bringing about the Great Recession.

But there has been far less scrutiny of a disturbing shift in corporate prosecution policy that began in the Bush administration and has accelerated during the Obama administration:  the increased use of deferred prosecution and non-prosecution agreements to address corporate wrongdoing.  Under … Read more

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Editor's Tweet: Michigan Law's David Uhlmann on The Erosion of Corporate Criminal Liability http://wp.me/p2Xx5U-1Av

Debevoise & Plimpton discusses SEC’s Guidance on Supervisory Liability for a Broker-Dealer’s Compliance and Legal Personnel

On September 30, the staff of the Securities and Exchange Commission’s (the “SEC”) Division of Trading and Markets addressed an issue of great interest to the compliance and legal community concerning the circumstances under which the compliance and legal staffs of broker-dealers may be viewed as “supervisors” and thus face liability under the securities laws for failing to supervise firm employees.[1] The guidance, which appears in the form of responses to frequently asked questions (the “FAQs”), seems to confirm the industry’s long-held view that supervisory liability does not attach unless a compliance or legal employee truly functions in a supervisory

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Editor's Tweet: Debevoise & Plimpton discusses SEC's Guidance on Supervisory Liability for a Broker-Dealer's Compliance and Legal Personnel

Bold and Unrelenting Enforcement from the SEC: A Six Month Review

Mary Jo White promised Congress she would pursue a “bold and unrelenting” enforcement program as Chairman of the Securities and Exchange Commission (“SEC”). In public remarks last week, White reiterated her desire for the Enforcement Division “to be everywhere” and to be “felt and feared” in areas beyond where its resources can reach. Now, six months into her tenure, it is time to take measure of what this new enforcement model may mean for public companies.

Seeking Admissions

Perhaps the best example of this more-is-better approach to enforcement is the move away from the Commission’s traditional “neither admit nor deny” … Read more

The Pension System and the Rise of Shareholder Primacy

In my article, The Pension System and the Rise of Shareholder Primacy, which has recently appeared in the Seton Hall Law Review, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholder wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, … Read more

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Editor's Tweet: Fordham Law's Martin Gelter on The Pension System and the Rise of Shareholder Primacy

Addressing Congress on the Need for Transparency in Corporate Political Spending

A committee of law professors that I co-chair with Lucian Bebchuk has petitioned the Securities and Exchange Commission  to develop rules requiring public companies to disclose the use of shareholder money on politics. The petition has drawn over 500,000 supportive comments, more than any rulemaking proposal in the SEC’s history, including support from institutional investors and Members of Congress  along with a sitting Commissioner. Although the SEC confirmed last year that it was considering the proposal and added disclosure of political spending to its regulatory agenda, the Commission has not yet announced whether it will require public companies to tell investors whether and how their money is being spent on politics.

This afternoon, I will join U.S. Senators Bob Menendez and Elizabeth Warren, along with John Coates of Harvard Law School, for a briefing on why the SEC should act immediately to develop rules requiring disclosure of corporate spending on politics. Today I will explain why the case for such rules is strong—and why the arguments that have apparently led the SEC to hesitate about making rules in this area provide no basis for continuing to allow public companies to spend shareholder money on politics in the dark. Read more

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Editor's Tweet: Columbia's Robert J. Jackson Jr. on Addressing Congress on the Need for Transparency in Corporate Political Spending

Mary Jo White Throws Down the Gauntlet: Vows to Wield the SEC’s Full Enforcement Arsenal Against Corporate and Individual Wrongdoers

The following comes to us from Michael Rivera, a partner at Venable LLP in Washington, D.C.

Securities and Exchange Commission Chair Mary Jo White warned that the SEC will pull no punches under the leadership of the former federal prosecutor. During a speech delivered to the Council of Institutional Investors last week in Chicago, Ms. White stated that the SEC would use its enforcement tools aggressively and creatively to ensure that its settlements “have teeth” and send a strong message of deterrence. Ms. White’s monumental achievements as a prosecutor warrant that market participants should pay close attention to her … Read more

SEC Issues Proposal on Crowdfunding

The following is the SEC’s press release and fact sheet, originally published here.  The proposed regulation is available here and the video of the SEC’s open meeting is available here.

The Securities and Exchange Commission today voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.

Crowdfunding describes an evolving method of raising capital that has been used outside of the securities arena to raise funds through the Internet for a variety of projects ranging from innovative product ideas to artistic endeavors like movies or music.  Title III of the … Read more

Haynes and Boone discusses SEC’s $14 Million Award to Whistleblower

After two years of operations, the SEC’s whistleblower program announced its first multimillion dollar award – a record $14 million payment to an anonymous tipster. The award is the largest of three announced since the program’s inception and emphatically signals the SEC’s continuing emphasis on its whistleblower program. Since whistleblower activity is likely to increase, public companies should take steps to leverage the incentives provided in the Dodd-Frank Act and implement procedures that encourage internal reporting. By designing a system of internal controls and processes to handle internal complaints, companies can quickly discover and halt ongoing violations, avoid external reporting … Read more

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Adoption of Rules Regarding Municipal Advisor Registration

Commissioner Kara M. Stein gave the following statement on September 18, 2013 at an SEC open meeting in Washington D.C.  The new municipal advisor registration rules are available here.

Municipalities are the lifeblood of many communities.  They provide the roads, schools, sewers, firefighters, police officers, and countless other services for millions of Americans.  When these critical government structures crumble under financial duress, so does the wellbeing of the communities they serve.  In most cases, the finances of these communities are overseen by dedicated public servants.  But these public servants are most often not familiar with the financial wizardry of … Read more

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Wachtell Lipton Discusses SEC Penalties: Getting Tougher, and Remembering Some History

In a recent speech, Andrew Ceresney, the co-director of the SEC’s Division of Enforcement, suggested that the monetary penalties imposed by the SEC should grow to reflect the size of the relevant companies and transactions.  According to press reports, he observed that “Ten years ago we would not have been speaking about $10 billion transactions or billions in income in a quarter and now we are. . . .  I sometimes worry that, given the profits of companies and banks, penalties cannot be at a level that would meaningfully impact their bottom line in a way that will deter misconduct.”… Read more

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Do Activist Investors Constrain Managerial Moral Hazard in Chapter 11?

Chapter 11 creates a system of collective corporate governance that allows stakeholders that are usually passive – such as shareholders or creditors like lenders and bondholders – to play a day-to-day role in overseeing management and monitoring the business.  In recent years, activist investors have begun using this system to improve their return on investment.  They buy the claims of distressed firms, hire lawyers and investment bankers and negotiate to restructure the firm’s business and capital structure.  In some cases, these negotiations conclude with an out-of-court solution, but many firms require a trip through bankruptcy court to solve their financial … Read more

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Ice Cube Bonds: Allocating the Price of Process in Chapter 11 Bankruptcy

Bankruptcy cases are as different as the types of businesses that fail, but all share an element of crisis.  The weeks and days that precede a bankruptcy filing are often chaotic.  The first days after filing may be even worse, regardless of the size of the case. Any potential rescuer, be it a lender, a supplier, or a buyer, has tremendous leverage.  The potential salvor has the power to, and often does, exact concessions in many forms: preferential treatment of prepetition debt, retroactive perfection of liens, onerous loan terms, control of the debtor after bankruptcy, or ownership of any upside … Read more

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Cadwalader discusses Risk Retention for Collateralized Loan Obligations (CLOs)

On August 28, 2013, the federal agencies (the “Applicable Regulators”) responsible for implementing regulations under Dodd-Frank re-proposed rules for risk retention requirements in ABS transactions, including CLO transactions. The re-proposal comes more than two years after the original proposed rules, which contained only one reference to CLOs and CLO managers. The re-proposal, however, contains significant provisions regarding CLOs that could fundamentally alter the shape of the CLO market.

Public comments on the re-proposal are due October 30, 2013.

Effective Date
Absent a change by the Applicable Regulators, the risk retention requirements with respect to CLOs will become effective two years … Read more

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In the Wake of the Whale, What’s Changed?

The “London Whale” is far from the financial crime of the century, but it may well be the financial blunder of the decade. Crimes and blunders are, of course, different, but the slow and inconsistent response by JPMorgan Chase & Co. to its discovery that traders in its London office were hiding their losses has placed the behavior of several JPMorgan officers on the ambiguous seam between a negligent blunder and more culpable fraud.

This frames an obvious question: Does the U.S. Securities and Exchange Commission’s settlement with JPMorgan deal adequately with this misbehavior? After ignoring Lehman Brothers and other … Read more

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How Pressure on the Issuers of Private-Label Mortgage-Backed Securities Can Improve the Accuracy of Credit Ratings

The following post comes to us from Brent J. Horton, assistant professor at Fordham University Gabelli School of Business.

In my recent Article, Toward a More Perfect Substitute: How Pressure on the Issuers of Private-Label Mortgage-Backed Securities Can Improve the Accuracy of Ratings,[1] which is scheduled to be published in Volume 93 of the Boston University Law Review this winter,[2] I propose a burden shifting procedure that will force issuers of private-label MBS to take ownership of the ratings incorporated into their registration statement (e.g., Aaa, Baa3)—specifically, the accuracy of those ratings. The issuers will … Read more

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Editor's Tweet: Fordham's Horton on How Pressure on the Issuers of Private-Label Mortgage-Backed Securities Can Improve the Accuracy of Ratings

The Government Shutdown Could Affect Your Transaction

The US antitrust authorities will cease certain of their operations during the pending government shutdown and your transaction may be affected.

The US antitrust agencies receive an average of 25 Hart-Scott-Rodino (HSR) filings per week. During the current government shutdown, the Federal Trade Commission (“FTC”) and Antitrust Division of the Department of Justice (“Antitrust Division”) have indicated they will continue to accept HSR filings, and the FTC’s Premerger Notification Office will be open but with a very limited staff. We see three consequences that transacting parties should take into consideration:

First, given the limited staff likely to be on hand … Read more

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Editor's Tweet: Clifford Chance's Tim Cornell on The Government Shutdown Could Affect Your Transaction

Is the STOCK (Stop Trading on Congressional Knowledge) Act Much Ado About Nothing?

The following comes to us from Jeanne L. Schroeder, a Professor of Law at The Benjamin N. Cardozo School of Law, Yeshiva University.  This is a synopsis of Taking STOCK: Insider and Outsider Trading by Congress, 5 WILLIAM & MARY BUSINESS LAW REVIEW (forthcoming 2014). An earlier version of this article is available here.

The “Stop Trading on Congressional Knowledge Act of 2012″ or “STOCK Act” (available here) supposedly repealed an exemption from the federal securities laws that made insider trading by members of Congress “totally legal”. As every securities lawyer knows, however, there never was such an … Read more

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Editor's Tweet: Cardozo's Jeanne Schroeder on whether the STOCK (Stop Trading on Congressional Knowledge) Act Much Ado About Nothing?

Facebook, the JOBS Act, and Abolishing IPOs

The following comes to us from Adam C. Pritchard, the Frances and George Skestos Professor of Law at the University of Michigan Law School.  

A two-tier market system would go a long way toward promoting capital formation and curtailing speculation.

Initial public offerings (IPOs)—the first sale of private firms’ stock to the public—are a bellwether of investor sentiment. Investors must be bullish if they are putting their money into untested start-ups. IPOs are frequently cited in the business press as a key barometer of the health of financial markets.

Politicians, too, see a steady flow of IPOs as an indicator … Read more

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