Cleary Gottlieb Discusses Communication with Financial Analysts and Related Disclosure Issues

Securities analysts play a key role in securities markets, and publicly held companies as a matter of market practice regularly brief them to help them understand company results and business trends. There have been some unfortunate instances, however, in which analysts have received nonpublic information on which their clients have acted before the information was disclosed to the general public. In the wake of these cases, as well as Enron and the unanticipated and significant decline in the financial position of other public companies, the role of the securities analyst was scrutinized by Congress, the Securities and Exchange Commission (the … Read more

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Editor's Tweet: Cleary Gottlieb Discusses Communication with Financial Analysts and Related Disclosure Issues

Irredeemably Inefficient Acts: A Threat to Markets, Firms, and the Fisc

My forthcoming article, Irredeemably Inefficient Acts: A Threat to Markets, Firms, and the Fisc, identifies a category of acts that clearly and inevitably reduce social welfare.  These acts—which I call irredeemably inefficient—have not been expressly recognized in previous work.  Yet the distinction I draw reflects a fundamental feature of the U.S. antitrust law, justifies several recent Delaware Chancery Court decisions, and suggests substantial rethinking of some important aspects of securities and commodities regulation.

Irredeemably inefficient acts have remained outside of the standard theory of public enforcement of law.  That theory holds that inefficient conduct may be converted into … Read more

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Editor's Tweet: Professor Alex Raskolnikov of Columbia Law School discusses his new paper on Irredeemably Inefficient Acts.

Information Transmission between Financial Markets in Chicago and New York

High frequency trading has led to widespread eff orts to reduce information propagation delays between physically distant exchanges.  In my recent paper Information Transmission between Financial Markets in Chicago and New York, co-authored with Gregory Laughlin and Anthony Aguirre of UC Santa Cruz, we use relativistically correct millisecond-resolution tick data to document a 3-millisecond decrease in one-way communication time between the Chicago and New York areas that occurred from April 27th, 2010 to August 17th, 2012. We attribute the first segment of this decline to the introduction of a latency-optimized fi ber optic connection in late 2010. A second … Read more

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Editor's Tweet: Stanford Law's Joseph Grundfest discusses Information Transmission between Financial Markets in Chicago and New York

Applying Morrison v. National Australia Bank, the Supreme Court Rejects Extraterritorial Application of the Alien Tort Statute

Editors Note:  The author, a partner at Wachtell, Lipton, Rosen & Katz argued the Morrison case for the defendants in the Supreme Court.

Just as it extinguished class-action litigation tourism under the Securities Exchange Act three years ago in Morrison v. National Australia Bank, the U.S. Supreme Court, invoking Morrison, today abruptly ended the burgeoning use of the Alien Tort Statute to litigate extraterritorial torts.  Kiobel v. Royal Dutch Petroleum Co., No. 10-1491 (U.S. Apr. 17, 2013).

Enacted in 1789, the ATS provides that federal district courts have “jurisdiction of any civil action by an alien for … Read more

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Editor's Tweet: Wachtell's Conway discusses SUpreme Court's recent application of Morrison v. NAB to the Alien Tort Statute

An International Outlook for the SEC

Commissioner Walter delivered the below remarks on March 24, 2013 to the Australian Securities and Investments Commission Forum (via videoconference)

Good morning. Thank you, Greg [ASIC Chairman Greg Medcraft] for that kind introduction.

It is a real pleasure to be able to join you today — although I very much regret that I am not with you in person. I appreciate Greg’s graciousness in allowing me to present my remarks by video. The Australian Securities and Investments Commission and Greg himself have been wonderful partners in our many global ventures and that deepens my regret at not being in Australia … Read more

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Editor's Tweet: SEC Commissioner Elisse Walter describes an International Outlook for the SEC

Morrison and Foerster discusses Issues for Foreign Broker-Dealers under Rule 15a-6

Noting the increasingly global nature of financial markets, the U.S. Securities and Exchange Commission (“SEC”) adopted Rule 15a-6 nearly twenty four years ago to facilitate limited access by foreign broker-dealers to customers in the United States. During the years since the rule’s adoption, globalization of world financial markets has accelerated, but the SEC has only gradually relaxed the restrictions set forth in Rule 15a-6. The staff of the SEC’s Division of Trading and Markets (the “Staff”) continued this process of incremental change through a series of frequently asked questions (“FAQs”) issued on March 21, 2013.[1]


Under Section 15 … Read more

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Editor's Tweet: Morrison and Foerster discusses Issues for Foreign Broker-Dealers under Rule 15a-6

How VCs Induce Entrepreneurial Teams to Sell Startups

Venture capitalists (VCs) play a significant role in the financing of high-risk, technology-based business ventures. VC exits usually take one of three forms: an initial public offering (IPO) of a portfolio company’s shares, followed by the sale of the VC’s shares into the public market; a “trade sale” of the company to another firm; or dissolution and liquidation of the company.

Of these three types of exits, IPOs have received the most scrutiny. This attention is not surprising. IPO exits tend to involve the largest and most visible VC-backed firms. And, perhaps just as importantly, the IPO process triggers public-disclosure … Read more

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Editor's Tweet: Professor Jesse Fried of Harvard Law School discusses how VCs induce eintrepreneurial teams to sell startups

Conservatism and Innovation in Venture Capital Contracting

The imbalance in the supply and demand of venture capital of the past few years has led parties to look for new escape routes from the industry. There is the ‘survival of the fittest’ evidence that the number of active venture capital funds have significantly declined over the last five years. Other venture capital firms, hoping for a better future, are extending the duration of their funds. Only high quality funds seem to have a reasonable chance of receiving continuous funding for their activities. Under the circumstances, institutional investors are taking an active approach to the management of funds, evidenced … Read more

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Editor's Tweet: Joseph McCahery and Erik Vermeulen discuss conservatism and innovation in venture capital contracting

Wachtell Lipton Discusses SEC Release on the Use of Social Media under Regulation FD

Yesterday, the Securities and Exchange Commission (SEC) directly addressed the application of Regulation Fair Disclosure (Regulation FD) to corporate use of social media outlets such as Facebook and Twitter.  In a Report of Investigation—a format used by the SEC to issue general guidance based on a specific situation—the SEC expressly stated that Regulation FD applies to social media in the same manner as it does to company websites:  Any of these communication channels can serve as effective, legal means of broadly disseminating material information to investors, if access to them is unrestricted and if the company has provided advance notice … Read more

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Editor's Tweet: Wachtell Lipton Discusses SEC Release on the Use of Social Media under Regulation FD

Is Europe finally converging with the US on sanctions for insider trading and other market abuses?

Traditionally, the view of the US, whether in business or academia, has been that it was a place for weak private enforcement and stronger public enforcement. However, when compared with the level of public enforcement in the European Member States, even in the UK and in France, the US Securities and Exchange Commission has a stronger track record.

This picture is going to change dramatically, thanks to the proposed revisions in October 2011 of the European Union’s  2003 Market Abuse Directive (MAD), which deals with insider trading, market manipulation, and ad hoc disclosure.

The two proposals introduced were the Market … Read more

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Editor's Tweet: Professor Pierre-Henri Conac of the University of Luxembourg discusses the EU and US convergence on insider trading and market abuse

The Challenge of the Semi-Public Company

Something new and significant is taking shape. For a variety of reasons—the impact of the JOBS Act, the growing popularity of equity private placements, the appearance of new trading markets for venture capital and other non-reporting companies—a new tier of companies is growing rapidly that is composed of issuers that are not “reporting” companies, but that do have a significant number of shareholders. In terms of the size of their shareholder class, these companies overlap with public companies, but they trade in the dark—and actively. More importantly, as their number grows, it is predictable that existing and new trading venues will begin to compete to attract and capture the trading interest in these stocks. This column will call these firms “semi-public companies” to reflect their intermediate status, midway between truly private firms (such as early stage venture capital startups and family-held firms) and public companies. Read more

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Editor's Tweet: Professor John C. Coffee, Jr. of Columbia Law School discusses the Challenge of the Semi-Public Company.

New York Officials Urge SEC To Adopt Rules Requiring Public Companies to Disclose Political Spending

This week, New York State Comptroller Thomas P. DiNapoli and New York City Public Advocate Bill de Blasio urged the Securities and Exchange Commission to respond to a petition I co-authored with my colleagues John Coffee, Ronald Gilson and Jeffrey Gordon asking the Commission to develop rules requiring public companies to disclose whether and how they spend shareholders’ money on politics. The New York officials argue that, upon her confirmation as the new Chairman of the Commission, Mary Jo White should make our petition, and the need for transparency in political spending at public companies, a top priority.

In … Read more

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Editor's Tweet: Professor Robert Jackson. of Columbia Law School discusses New York's efforts to urge the SEC to act on political spending disclosure

Skadden Discusses Jumping the Gun: Social Media and IPO Communications Issues

Increasingly, companies are using social media, such as Facebook, Twitter, YouTube and other platforms, to engage with clients, customers, employees, shareholders and other key constituents. Promising a fast and low-cost means of disseminating information, social media also offers the potential for even broader distribution through third-party word-of-mouth advocacy. However, when a company plans an IPO in the United States, social media’s powerful benefits can pose significant risks.

To date, the SEC has not brought an action for violation of its IPO publicity restrictions involving social media; however, as corporate social media continues to proliferate, it is likely only a matter … Read more

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Editor's Tweet: Skadden discusses gun jumping issues relating to social media and IPO communications.

Do Broker-Dealers Have a Green Light to Force Investors to Waive Class Actions in Court?

Virtually all brokerage firms’ customer agreements require arbitration of disputes in the Financial Industry Regulatory Authority (FINRA) forum.  FINRA regulates the contents of these predispute arbitration agreements (PDAAs) and prohibits broker-dealers from requiring customers to give up the right to bring class actions in court.  A FINRA hearing officer, however, recently ruled that FINRA’s prohibition on class action waivers was unenforceable because it conflicted with the Federal Arbitration Act (FAA), as interpreted by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  Unless reversed on appeal, this ruling is a crippling blow to FINRA’s authority to adopt arbitration rules … Read more

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Editor's Tweet: Professors Barbara Black and Jill Gross discuss whether broker-dealers have a green light to force investors to waive class actions

Rakoff, Naftalis, and Brodsky Discuss the Gupta Insider Trading Case at Columbia Law School

On February 21, United States District Court Judge Jed S. Rakoff, federal prosecutor Reed Brodsky, and defense attorney Gary Naftalis, came together to discuss the Gupta insider trading case with Columbia Law School students in a seminar called Corporations in the Court:  An Insider Look at Major Corporate Cases, co-taught by Professor John C. Coffee, Jr. and Delaware Supreme Court Justice Jack B. Jacobs.

Judge Rakoff presided over the Gupta case in the United States District Court for the Southern District of New York, Mr. Brodsky prosecuted the case, and Mr. Naftalis defended the main protagonist, former Goldman Sachs director … Read more

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Editor's Tweet: Gupta Case: Rakoff, Naftalis, and Brodsky Discuss at Columbia Law School

Scienter Pleading and Rule 10b-5: Empirical Analysis and Behavioral Implications

Although the volume of private securities class action filings has dropped recently, these lawsuits remain both a significant worry for issuers, investment banks, auditing firms and other potential defendants, and an arguably useful supplement to governmental enforcement of securities antifraud laws.  Because we both teach a course in accounting ethics and accountants’ liability and have found ourselves at a loss to clearly explain to our students the law of scienter pleading in Rule 10b-5 cases against auditors, we undertook research that culminated in an article entitled Scienter Pleading and Rule 10b-5: Empirical Analysis and Behavioral Implications, just published in … Read more

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Editor's Tweet: Professors Robert Prentice and Dain Donelson of University of Texas at Austin law discuss scienter pleading and Rule 10b-5

Public Deals Become More Private

If nothing else, the JOBS Act has focused more attention on the “metaphysics” of securities offerings.  Even those who are not securities geeks might readily acknowledge that at some point in our recent past, there were some characteristics typically associated with “private placements” and private placements could be distinguished from public offerings.  Beginning in the mid-1990’s many of those distinctions became increasingly blurred as hybrid offering alternatives, like PIPE transactions, became more popular.  The objective of a PIPE transaction was to reduce the liquidity discount typically associated with restricted securities that had been offered in a private placement by enabling … Read more

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Editor's Tweet: Anna Pinedo of Morrison & Foerster discuss the phenomenon of public deals becoming more private.

Wachtell Discusses the Supreme Court’s Decision in Amgen

A divided Supreme Court ruled on February 27th that proof of materiality is not a prerequisite to certification of a Rule 10b-5 securities fraud class action. Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (Feb. 27, 2013).

The elements of a Rule 10b-5 claim include proof of a material misrepresentation or omission and reliance upon such misrepresentation or omission. Plaintiffs in securities fraud class actions typically seek to invoke the “fraud-on-the-market” presumption set out in Basic Inc. v. Levinson, 485 U.S. 224 (1988) to establish reliance. In Basic, a case in which only a … Read more

Should Angel-Backed Start-ups Reject Venture Capital?

My new Essay Should Angel-Backed Start-ups Reject Venture Capital? challenges the conventional wisdom that venture capital is a necessary – and even desirable – source of financing for all start-ups.  In particular, this Essay argues that some start-ups that attract angel investors should stop there, rejecting proffers of venture capital that may follow. The Essay challenges the notion that venture capital is a necessary condition for start-up success, and argues the counterintuitive proposition that venture capital may actually be harmful to entrepreneurs and angel investors in some situations.

At the outset, I observe that angels are now able to fund … Read more

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Editor's Tweet: Professor Darian Ibrahim of Wisconsin Law discusses whether angel-backed start-ups should reject venture capital.

Harnessing Tomorrow’s Technology for Today’s Investors and Markets

The following post is based on a speech Chairman Walter gave at the American University School of Law in Washington D.C. on February 19, 2013

Thank you Dean Grossman. And thank you to the Washington College of Law for hosting me here today.

As many of you are students, you already understand the importance of investing. You or your parents likely invested hard-earned dollars to pay for your tuition. At the SEC, our job is to see that when you begin investing on your own, that you have a fair chance of having something to show for it at the … Read more

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Editor's Tweet: SEC Chairman Elisse Walter discusses how the SEC is harnessing tomorrow's technology for today's investors and markets.