The Risk of Information Overload

Commissioner Paredes gave the following remarks at the SEC Speaks in 2013 in Washington D.C. on February 22, 2013.  The views expressed are his own and do not necessarily reflect those of the Securities and Exchange Commission or his fellow Commissioners.

Disclosure is the cornerstone of the federal securities laws. For nearly 80 years, the SEC’s signature mandate has been to use disclosure to promote transparency. In his March 29, 1933, message to Congress, President Roosevelt said about the mandatory disclosure regime that would come to characterize federal securities regulation:

Of course, the Federal Government cannot and should not take … Read more

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Editor's Tweet: SEC Commissioner Troy Paredes discusses better the need for better disclosure and the risk of information overload.

Mutual Fund Sales Notice Fees: Are a Handful of States Unconstitutionally Exacting $200 Million Each Year?

My recent article, Mutual Fund Sales Notice Fees: Are a Handful of States Unconstitutionally Exacting $200 Million Each Year? appearing in the current issue of the Hastings Constitutional Law Quarterly, examines the constitutional validity of the notice filing fees paid by mutual funds to six “Premium Fee States,” – Texas, Washington, Minnesota, Wisconsin, Nebraska and West Virginia.  While these six states account for only 15% of the U.S. population, each year, these six states are paid approximately 50%, or approximately $200 million, of the total notice filing fees paid by mutual funds to all states.

As background, the article describes … Read more

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Editor's Tweet: Dechert's David M. Geffen discusses his recent article on the constitutionality of mutual fund sales notice fees.

Shareholders Need Robust Disclosure to Exercise Their Voting Rights as Investors and Owners

In the next few months, thousands of public companies will hold their annual shareholder meetings. I would like to take this opportunity to emphasize the importance of robust proxy disclosure to shareholders and to highlight areas in which the disclosure can be substantially improved. I share the desire expressed by many investors for additional information that would enhance their ability to make informed voting and investment decisions.1

The annual meeting is an opportunity for shareholders, who are the true owners of public companies, to exercise the right to vote, in person or by proxy,2 for the election of … Read more

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Editor's Tweet: SEC Commissioner Aguilar discusses why shareholders need robust disclosure to exercise their voting rights

Regulatory Competition and Anticorruption Law

My paper, Regulatory Competition and Anticorruption Law, which was recently published in the Virginia Journal of International Law, responds to arguments that the recent increase in European enforcement of anti-bribery laws has created a risk of overenforcement. Critics of the current international regime, including the U.S. Chamber of Commerce and several academics, have argued that cracking down on bribery of government officials by rich-world firms will leave the field open to multinationals whose home countries do not care about corruption (China and India typically are mentioned). These critics would have the United States relax its international bribery rules by … Read more

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Editor's Tweet: Professor Paul Stephan of UVA law discusses international bribery rules and the dynamics of regulatory competition.

Facebook IPO derivative ruling: a cure for multiforum madness?

Every company considering an IPO owes a hearty thanks to U.S. District Judge Robert Sweet of Manhattan for his decision Wednesday to dismiss four shareholder derivative suits against Facebook board members. Sweet’s painstaking 70-page opinion includes holdings that are great for Facebook’s defense of a parallel securities class action over its disclosures to IPO investors, but the judge also reached precedent-setting conclusions on standing and ripeness that will help other derivative defendants ward off IPO-based claims in state court. Facebook’s lead lawyers, Andrew Clubok of Kirkland & Ellis and Richard Bernstein of Willkie Farr & Gallagher, certainly deserve credit … Read more

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Editor's Tweet: Alison Frankel discusses the SDNY's Feb. 13th opinion regarding Facebook's IPO.

Wachtell Lipton Discusses Rulemaking Petition for Modernization of Section 13 Beneficial Ownership Reporting Rules

NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals and the National Investor Relations Institute have jointly filed a rulemaking petition with the SEC, seeking prompt updating to the reporting rules under Section 13(f) of the Securities Exchange Act of 1934, as well as supporting a more comprehensive study of the beneficial ownership reporting rules under Section 13. The petitioners urge the SEC to shorten the reporting deadline under Rule 13f-1 from 45 days to two business days after the relevant calendar quarter, and also suggests amending Section 13(f) itself to provide for reporting on at least a monthly, … Read more

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Editor's Tweet: Wachtell Discusses a Rulemaking Petition Calling for Modernization of Section 13 Beneficial Ownership Reporting Rules

The ICE Acquisition of NYSE Is a Failure for Europe

In 2011, the Deutsche Boerse Group launched an offer on the New York Stock Exchange. Everybody expected that the U.S. authorities would object to this foreign acquisition of the most iconic Stock Exchange in the United States, and arguably in the world. Not only did it not happen, but very quickly the U.S. Department of Justice, quite naturally, concluded that there was no antitrust issue. Incidentally, NASDAQ made a desperate attempt to purchase the NYSE for $11.8 billion and the merger of the two largest cash equity exchanges of the United States was stiffly rejected by the U.S. authorities. Even … Read more

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Editor's Tweet: Georges Ugeux, CEO of Galileo Global Advisors, opines on the ICE acquisition of NYSE

The United States Supreme Court Will Review the Scope of Federal Preclusion of State Securities Claims

On January 18, 2013, the United States Supreme Court granted certiorari to resolve a circuit split concerning the extent to which the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) preempts state law claims that indirectly arise out of securities claims. The case could have important implications for investor suits against hedge funds and other investment funds that are not themselves covered by SLUSA, but that are set up for the purpose of investing in equities, options, and other covered securities.1

The Supreme Court granted review in three consolidated cases that arose from the $7 billion dollar Ponzi scheme … Read more

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Editor's Tweet: Dechert's Engel, Steiner, and Wald discuss the Supreme Court's grant of cert regarding SLUSA preemption of state law securities claims.

Gone With the Wind: Small IPOs, the JOBS Act, and Reality

A dramatic reversal occurred in the capital markets, beginning around 2000, and its causes and implications appear to have been widely misunderstood. From 1980 to 2000, an average of 310 operating companies did initial public offerings (IPOs) each year, but from 2001 to 2011, this number fell by over two-thirds to only 99 operating companies per year.This decline cannot be explained by macro-economic conditions as Gross Domestic Product more than doubled over this period.

Moreover, this decline has been even more precipitous in the case of smaller IPOs (hereinafter defined to mean IPOs of companies with pre-issuance annual … Read more

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Editor's Tweet: Professor Coffee discusses small IPOs, the JOBS Act, and reality. He suggests some alternative explanations for the decline of the IPO.

The Proper Role of the Federal Government in Corporate Governance

Commissioner Daniel M. Gallagher delivered the below remarks before the Corporate Directors Forum at the University of San Diego, San Diego, California, on January 29, 2013:

Thank you Anne [Sheehan] for your very kind introduction.  I am honored to be here today.  Conferences like this are critically important, and all too rare, opportunities for directors, executives, shareholders, and regulators to interact.

Before I go any further, I need to provide the standard disclaimer that my remarks today are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners.

Today I would like to talk … Read more

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Editor's Tweet: SEC Commissioner Daniel M. Gallagher discusses the proper role of the federal government in corporate governance

The Case for Transparency in Corporate Political Spending

A committee of law professors that I co-chair with Lucian Bebchuk has petitioned the SEC  to develop rules requiring public companies to disclose the use of shareholder money on politics. The petition has received unprecedented support, including comments from more than 300,000 individuals, institutional investors, and members of the U.S. Senate and House of Representatives. The SEC’s Division of Corporation Finance recently confirmed that the SEC is actively considering the petition, and the SEC’s entry in the Administration’s Unified Regulatory Agenda indicates that the SEC plans to propose rules by April.

In response, opponents of such rules are … Read more

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Editor's Tweet: Professor Robert Jackson of Columbia Law School responds to recent opposition to disclosure of corporate spending on politics

Congressional Use of the Federal Securities Laws To Achieve Social and/or Foreign Policy Goals: Trend or Aberration?

Many domestic and foreign companies that file periodic reports with the US Securities and Exchange Commission (“SEC” or “Commission”) are now coming to grips with three novel and highly prescriptive disclosure requirements dictated by Congress. What distinguishes these new requirements from most, if not all, existing securities disclosure standards is their unique focus on achieving humanitarian and/or foreign policy objectives that are largely unrelated to the central purposes of the federal securities laws – the protection of investors and the facilitation of efficient capital formation and secondary market trading through full and fair disclosure. Two “miscellaneous” provisions of the Dodd-Frank … Read more

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Editor's Tweet: Cathy Dixon of Weil Gotshal discusses the new social benefit disclosure requirements: conflict minerals, resource extraction, Iran

“Fine Distinctions” in the Contemporary Law of Insider Trading

William Cary’s opinion for the SEC in In re Cady, Roberts & Co. built the foundation on which the modern law of insider trading rests.  Today, we have a stable framework of three distinct legal theories—the classical theory, the misappropriation theory, and Rule 14e-3—each of which is well understood as to its basic elements. Most insider trading cases handed down in any given year say nothing particularly new about the state of the law, but rather simply apply familiar principles to sometimes challenging facts. But every so often we do discover something new about the core conception(s) of insider trading. … Read more

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Editor's Tweet: Professor Donald Langevoort of Georgetown Law has posted his new paper on Insider Trading. It includes a discussion of SEC v. Obus.

Memories of Bill Cary

More than 30 years have passed since I completed the interviews for the first edition of The Transformation of Wall Street.

My interview with Bill Cary on October 28th and 29th, 1980 was particularly memorable.  I met with Bill in Columbia Presbyterian Hospital where he was being treated.

Bill had already written a memoir of his years as Chair of the Commission, Politics and the Regulatory Agencies.   Bill met with me to be helpful to my effort to draft a comprehensive history of the SEC.

Only at the end of the interview did I appreciate … Read more

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Editor's Tweet: Famed securities law expert and historian Joel Seligman recounts his memories of SEC Chairman William L. Cary and his impact on the SEC

Should the SEC hire bounty-hunters?

The majority of pundits and market observers have only tuned into the effectiveness of the SEC as financial market regulator since 2008, when the financial system nearly collapsed. So far, criticism has been relatively shallow. But when one of the most influential securities attorneys in America, Columbia University’s John Coffee, weighs in on the effectiveness of the SEC’s enforcement actions, we should all take note. Coffee’s SEC biography gives some background on his preeminence:

According to a recent survey of law review citations, Professor Coffee is the most cited law professor in law reviews in the combined corporate, commercial, and … Read more

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Editor's Tweet: Is Professor John Coffee suggesting bounty-hunters to improve SEC enforcement? Cate Long of Reuters comments on the ongoing debate.

The SEC at a Crossroads: Can Things Be Turned Around?

Over the past fifteen years, the SEC’s reputation has been routinely sullied – in the press, by the Courts and certainly in the halls of Congress. Although the mud slung at the SEC has intensified since the 2008 financial crisis and revelations of the Bernie Madoff Ponzi scheme, the Commission’s problems began well before then.  Particularly, the Enron and World.com scandals forced editors to move journalists into the financial realm where bashing the SEC became good copy. More and more, the SEC has been losing major decisions in the Courts.  Professor John Coffee of Columbia Law School recently indicated that … Read more

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Editor's Tweet: Broc Romanek, editor of TheCorporateCounsel.net, opines on whether the SEC can turns things around.

Social Media: What Boards Need to Know

Increasing amounts of communications by and relating to companies are taking place through social media. Broadly defined, social media refers to forms of electronic communication through which users share information, ideas and other content (using text, audio, video and images). This includes not only platforms such as Facebook, Twitter and LinkedIn, but also various blogs, discussion forums and company websites.  As with any form of communication, social media presents both strategic opportunities and risks for companies. Social media also poses special challenges due to:

  • The speed with which social media can disseminate a message.
  • The tendency for social media to

Read more

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Editor's Tweet: Holly J. Gregory of Weil, Gotshal & Manges opines on what boards need to know about social media.

SEC Enforcement: Rhetoric and Reality

On January 14, Robert S. Khuzami and George S. Canellos published their response in the National Law Journal to my earlier column, “SEC Enforcement:  What Has Gone Wrong?”  Their column—“Unfair Claims, Untenable Solution”(available here)—minces no words, but in my judgment continues to miss the forest for the trees.  In responding, I want to emphasize that I am criticizing policies, not individuals.  I have no doubt that both men are able lawyers who have worked hard to improve the SEC’s performance.

In their response, Khuzami and Canellos focus primarily on whether the median value of SEC settlements has … Read more

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Editor's Tweet: Professor John Coffee responds to a critique by SEC Enforcement Director Robert Khuzami and Deputy Director George Canellos

NY pension fund’s bold tactic to force campaign spending disclosure

Since 2010, when the U.S. Supreme Court unleashed corporate political spending in Citizens United v. Federal Election Commission, shareholder advocates have been warning of the dire consequences of secret campaign contributions and demanding that corporations reveal their political spending. The Coalition for Accountability in Political Spending, among other groups, called upon the Securities and Exchange Commission to mandate the disclosure of corporate campaign spending, but the SEC has so far sidestepped the issue. Activists working with groups such as the Center for Political Accountability have used the threat (and occasionally the fact) of proxy votes on disclosure to pressure … Read more

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Editor's Tweet: Will a new suit in Delaware force Qualcomm to disclose its political spending? Alison Frankel of Reuters opines.

Reputation is crucial for bank investors

The humbling of two global banks in recent weeks has been greeted very differently on opposite sides of the Atlantic. Still, from the perspective of either side, large fines for interest rate rigging by Swiss bank UBS, and money-laundering by HSBC, point to the same conclusion: from now on, banks must protect their reputations as their most valuable asset.

On the US side, there has been considerable grumbling about the “lenient” treatment meted out to HSBC and UBS. Associations with Mexican drug cartels and Iranian militants or documented solicitation of price fixing usually attract the attention of federal prosecutors. Yet, … Read more

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Editor's Tweet: Professor John Coffee of Columbia Law School opines on the importance of reputation for bank investors