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Debunking Fintech Inside and Outside the Blockchain

The hype over technology-enabled disintermediation of financial services, commonly known as fintech, seems at a peak. Though fintech firms promise to increase competition in the financial industry, it is unclear how much the various forms of fintech, including those working on the blockchain, will disrupt the current competitive environment.

In our paper, we review the market failures justifying financial intermediation. We find that fintech has the potential to improve the efficiency of financial intermediation in, for instance, the area of payments and financial advice. However, the current hype may be exaggerated and partly misleading. We contend that trust, a … Read more

Is Stakeholder Value an Excuse for Underperfoming Managers?

In August 2019, the Business Roundtable released a statement redefining the purpose of a corporation to maximize value “for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.” The statement was signed by 181 CEOs, including Jamie Dimon, chairman and CEO of JPMorgan Chase and chairman of the Business Roundtable, and came after several years of political pressure on behalf of stakeholder objectives, including by U.S. Senator Elizabeth Warren. In 2018, Warren introduced the Accountable Capitalism Act, which would require that directors of large corporations consider the interests of all stakeholders and that at least 40 percent … Read more

Financial Regulators Offer Update on Audit Quality in Emerging Markets

Over the past several years, the exposure of U.S. investors and our capital markets to companies with significant operations in emerging markets, including China, has increased.[1] This increased exposure carries with it a number of significant risks and challenges, many of which we described in our statement of December 7, 2018[2] and our more recent joint statement along with other SEC staff, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited, on April 21, 2020.[3]

Among other relevant issues related to emerging market investments, we noted that the Public Company Accounting

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Crypto-Enforcement Around the World

The market for cryptoassets is burgeoning, as distributed ledger technology transforms capital and financial markets.  With the extraordinary growth in the crypto-markets comes the need for regulation to promote efficiency, capital formation, and innovation while protecting investors. With the need for regulation comes enforcement.

In a new article, Crypto-Enforcement Around the World, we elaborate on these issues and report on the results of an international enforcement survey conducted by our Blockchain and Fintech Research Program. Our analysis also builds on the results of the research by one of the co-authors, Prof. Guseva, in her article, The SEC, Cryptoassets, and Read more

Cleary Gottlieb Discusses UK Supreme Court Decision on Law Governing Arbitration Agreement

In an important decision for arbitration users, the U.K. Supreme Court has clarified how English law will determine the governing law of an arbitration agreement which provides for an English seat in the absence of an express choice of law.  In its 9 October 2020 decision in Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] UKSC 38, the Supreme Court reaches the same outcome as the Court of Appeal, while employing slightly different reasoning.

The Enka case arises from a typical trap for the unwary. When drafting arbitration agreements, practitioners are well advised to provide … Read more

Enforcement Against the Biggest Banks

My article, Enforcement Against the Biggest Banks, takes a census of the hundreds of enforcement actions by American regulators against the world’s largest banks between the passage of Dodd-Frank in July 2010 and December 31, 2016, near the end of the Obama administration.  The effort allows us to characterize the nature of contemporary American bank enforcement.

Enforcement against big banks can be “cumulative” – increasingly, multiple agencies penalize banks for the same misconduct. One regulator might view the misconduct as, say, a violation of public disclosure duties, but another regulator might see it as a problem with the safety … Read more

Latham & Watkins Discusses Department of Labor Rule on ESG Investing

On October 30, 2020, the US Department of Labor (DOL) published Financial Factors in Selecting Plan Investments (the Rule) and a related Fact Sheet, a codification of the spirit, if not the exact words, of a controversial proposal issued by the DOL in June 2020 (the Proposal). The Rule adopts amendments to certain provisions of the “investment duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and requires fiduciaries of pension plans (and other benefit plans covered by ERISA) to choose investments “based solely on pecuniary factors” relevant to a particular … Read more

Mandatory Corporate Social Responsibility Legislation Around the World

Corporate social responsibility (CSR) is typically assumed to be a voluntary rather than mandatory initiative. Yet, over the past few decades, a growing number of countries have adopted laws that explicitly require corporations to undertake CSR.

To date, most scholarly and policy attention has focused on laws that require companies to disclose extensive information about their social and environmental plans, actions, or performance.  In recent years, though, a growing number of countries have gone beyond disclosure to require CSR due diligence, corporate philanthropy, certain governance structures, and making CSR a duty under corporate law.

Mandatory CSR Due Diligence

CSR is … Read more

Chairman Clayton Speaks on Putting Principles into Practice: the SEC from 2017-2020

It is wonderful to be back with the Economic Club of New York.  You are a sophisticated, experienced, outcome-oriented, tough and fair audience, interested in economic and wage growth and improving our society more generally.  Just the way it should be.

As John [Williams] noted, today’s program proceeds in two parts, (1) remarks from me on our regulatory activities over the past three-plus years (time flies) and—at the end of that part—a discussion of some of the areas that I believe need continued attention and (2) a Q&A session with market and policy experts Harold Ford, Barbara Novick, Gary Cohn

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Fintech and International Financial Regulation

In the weeks leading up to Ant Financial’s ill-fated IPO, Jack Ma criticized the system of international banking regulation in remarks at the Bund Summit in Shanghai. The Alibaba co-founder contended that the current framework was a poor match for countries like China that needed to innovate in the creation and delivery of financial services. Describing today’s regulatory system as designed for the “elderly” economies that have long relied on a traditional and compliance-heavy system of banking, Ma explained that emerging or “youth” nations depended on their ability to foster innovation in ways that were less constrained by capital-intensive rulemaking.… Read more

Cleary Gottlieb Discusses Case on Collective Action Clauses in Sovereign Debt Restructuring

On July 31, 2020, Judge Caproni in the Southern District of New York denied an emergency motion filed by certain bondholders for a temporary restraining order that would have halted efforts by the Republic of Ecuador (“Ecuador”) to restructure $17.4 billion of its sovereign debt based on allegations of securities fraud arising from statements made by Ecuador in its restructuring-related press releases.  The Court upheld Ecuador’s use of the collective action clauses (“CACs”) in its indentures as the primary tool to accomplish the proposed restructuring.

In addition to its effects on Ecuador, which is restructuring its debt amidst a severe … Read more

Initial Public Offerings Chinese Style

The forced postponement of Ant Group’s initial public offering (IPO), the largest ever, by the Chinese government is the latest example of the heavy-handed regulatory approach that has made it extremely costly for companies to go public in China. The high opportunity cost of going public on the Shenzhen or Shanghai stock exchanges, where the initial return from the offer price to the first unconstrained market price has averaged 170 percent during 1992-2018, has encouraged many Chinese companies to go public in Hong Kong, the U.S., or elsewhere. The high initial returns have resulted in massive oversubscriptions of almost all … Read more

Jones Day Discusses International Data Flows After Schrems II

On July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU–U.S. Privacy Shield with immediate effect in Case C-311/18 Data Protection Commissioner v Facebook Ireland Limited and Maximillian Schrems (called “Schrems II,” see our previous Commentary on this case). The court upheld the EU Standard Contractual Clauses (“SCCs”) for the transfer of personal data to processors outside the European Union/European Economic Area (“EU/EEA”) under certain conditions, underscoring the need for companies to conduct an assessment of whether “supplementary measures” needed to be adopted to provide for an essentially equivalent level of data protection.… Read more

Corporations, Directors’ Duties, and the Public/Private Divide

Business history and theory reflect a tension between public and private conceptions of the corporation. This tension and conceptual ambiguity lay close to the surface of The Modern Corporation and Private Property, in which Berle and Means portrayed the modern public corporation as straddling the public/private divide. It is also embodied in the famous Berle-Dodd debate, which provides the basis for contemporary clashes between “different visions of corporatism,” such as the conflict between shareholder primacy and stakeholder-centered versions of the corporation.

In my recent paper, “Corporations, Directors’ Duties and the Public/Private Divide,” I examine a number of … Read more

Goodwin Procter Discusses Shareholder Suits to Increase Board Diversity

A lot of attention has been paid to board diversity – or lack thereof – in recent months. California enacted AB-979, which expanded upon California’s earlier gender diversity law and requires boards to make strides in other types of diversity, including racial and ethnic minorities. The law requires every public company with securities listed on a major U.S. stock exchange and that has its principal executive office in California, as listed on its form 10-K annual report, to have at least one director from an underrepresented community on its board by the end of the 2021 calendar year and upwards … Read more

The European Commission Considers “Short-Termism” (and “What Do You Mean by That?”)

The European Commission retained Ernst & Young (“EY”) to undertake a detailed study of “short-termism” and, implicitly, to report whether it was a major roadblock to more sustainable corporate governance. Their study was then presented at a three day international conference at Oxford on November 11-13. Professor Mark Roe of Harvard Law School and I were asked to make presentations. Professor Roe’s statement ran last week on this blog, here, and a summary of my statement appears below.

In a nutshell, the EY “Study on directors’ duties and sustainable corporate governance” for the European Commission describes a … Read more

Latham & Watkins Discusses IBOR Fallbacks Protocol and Supplement from ISDA

On October 23, 2020, the International Swaps and Derivatives Association, Inc. (ISDA) published its IBOR Fallbacks Protocol (Protocol) and Supplement to the 2006 ISDA Definitions (Supplement) in anticipation of the expected discontinuation of the London Interbank Offered Rate (LIBOR) at the end of 2021. ISDA has also published a related set of Frequently Asked Questions, as well as a User Guide to IBOR Fallbacks and RFRs, to assist market participants in navigating the Protocol and the Supplement.

ISDA collaborated with the Financial Stability Board’s Official Sector Steering Group to devise more robust fallbacks for LIBOR and other key … Read more

How Corporate Social Responsibility Affects Product Market Perception and Firm Value

The prominence of corporate social responsibility (CSR) has been growing in recent years, but the empirical relationship between CSR and firm value is still inconclusive. Though many studies show a positive impact of CSR on firm value, others provide evidence to the contrary. This relationship may be unclear because of the lack of understanding about the mechanisms through which CSR may affect firm value. In a new paper, we investigate whether CSR affects firm value by improving perceived product quality (brand value) and differentiating among products. More specifically, we investigate whether CSR activities, especially those visible to customers such as … Read more

Kirkland & Ellis Discusses New EU Foreign Direct Investment Regulations

The European Union has recently taken a significant step in regulating foreign direct investment (“FDI”). As of October 11, 2020 a new EU regulation related to inbound foreign investment (the “FDI Regulation[1]”) became binding on all 27 Member States.[2] The new FDI Regulation does not create a stand-alone mechanism to vet foreign investment akin to the Committee on Foreign Investment in the United States (“CFIUS”) or national security review systems established by individual Member States. Rather, the new EU FDI regime establishes minimum standards for Member States’ review systems, creates an information sharing channel between the EU … Read more

Bank Lending During the Pandemic

Since the beginning of 2020, COVID-19 has prompted a surge in economic uncertainty, causing interruptions in business supply chains and revenues that now threaten the survival of companies. Companies struggling to meet their fixed expenses and existing obligations respond by increasing the demand for loans, but banks are inclined to reduce the supply. In our new paper “Bank Lending during the COVID-19 Pandemic,” we examine how the COVID-19 crisis affects the pricing and structure of large corporate loans in the global syndicated loan market.

Overall we consider more than 4,000 loans granted from 77 banks to 820 firms in 28 … Read more

Debevoise & Plimpton Discusses State Marijuana Initiatives and Financial Institutions

With ballots still being counted in many races, and threats of litigation in others, the 2020 election season may not be fully complete. Voters in red states and blue states displayed unity on few issues, but among these cannabis ranks high: New Jersey, Arizona, Montana and South Dakota voted to legalize recreational cannabis, and Mississippi and South Dakota voted to legalize use of medical marijuana. Oregon also became the first state to decriminalize small amounts of cocaine, heroin, methamphetamine and other drugs.1

These state-level actions will pose additional compliance challenges for financial institutions that already struggle with the conflict posed … Read more

Presidential Pendulums in Finance

While much attention has been paid to President Trump’s deregulatory efforts and intentions, presidential involvement in the work of the administrative agencies is not new.  Past presidents including Ronald Reagan, Bill Clinton, and Barack Obama have acted up to – and at – the limits of presidential power in efforts to ratchet-up, or ratchet-down, regulation.[1]

My recently published article, Presidential Pendulums in Finance, examines the past decade of presidential involvement in financial regulation in particular.  As the paper explains, presidential involvement in financial regulation over the past 10 years stands to quicken the rate at which regulatory cycles … Read more

The Push Towards Corporate Guidelines

In recent years, there has been a debate in the corporate world about the capabilities and incentives of institutional investors to invest in corporate stewardship – defined as monitoring, voting, and engagement – of their portfolio companies. The main focus has been on mutual funds, which hold most of the assets of institutional investors.

According to conventional wisdom, which finds support in theoretical and empirical studies, institutional investors are not active stewards for four reasons. First, managers of mutual funds have poor incentives to invest in active stewardship because of their compensation structure – a tiny fixed percentage of assets … Read more

Gibson Dunn Discusses the EU Sustainable Finance Framework for Private Fund Managers

The European Commission’s Sustainable Finance Action Plan[1] (the “Action Plan”) proposed a package of measures including, amongst other initiatives, a regulation imposing sustainability-related disclosures on financial market participants (“SFDR[2]) and a regulation to establish an EU-wide common language (or taxonomy) to identify the extent to which economic activities can be considered sustainable (the “Taxonomy Regulation[3]). This briefing note provides an overview of the Taxonomy Regulation and the SFDR and discusses their impact on private fund managers, including non-EU managers who market their funds into the EU and/or the United … Read more

A Critique of the Sustainable Corporate Governance Report from the European Commission

In July 2020, the European Commission published the “Study on directors’ duties and sustainable corporate governance” by EY. The report purports to find evidence of debilitating short-termism in EU corporate governance and recommends many changes to support sustainable corporate governance. In a recent paper, we point out deep flaws in the report’s evidence and analysis.

Here’s a brief summary of those flaws. First, the report defines the corporate governance problem as pernicious short-termism that damages the environment, the climate, and stakeholders. But the report mistakenly conflates time-horizon problems with externalities and distributional concerns. Cures for one are not … Read more

Skadden Discusses the Social Factors in ESG

Investors have historically overlooked social factors amid a focus on the environmental and governance counterparts as they assess the merit of an investment. This may have been due in part to the difficulty in quantifying social concerns as drivers of shareholder return as well as a lack of available data. However, recent trends demonstrate that the “S” in environmental, social and governance factors (ESG) is now an equally important consideration for companies and their shareholders.

In this article, we look at ESG matters in the employment context. An increased focus on social factors — such as diversity, working conditions and … Read more

Racial Diversity, Gender Equality, and Corporate Governance: An Update

Corporate governing boards have a substantial homework assignment given multiple important developments affecting board composition and oversight of workforce culture. These developments encompass new surveys from prominent governance and consulting sources, notable litigation trends, and a new state law.  Collectively, they represent an accelerated focus by third parties on how directors are selected and employees are retained.

Governance Trends

A significant new report from The Conference Board highlights important governance trends relating to board composition and diversity, the profile and skills of directors, and policies on their election, removal, and retirement.  The report is based upon a close review of … Read more

Columbia Law School Presents New Podcast Series, Beyond “Unprecedented”

Columbia Law School has launched a six-episode podcast series called Beyond “Unprecedented”: The Post-Pandemic Economy, hosted by Eric Talley, the Isidor and Seville Sulzbacher Professor of Law. In each episode, he and other experts at the law school explore the challenges facing small businesses, essential workers, corporate boards, and financial institutions in the aftermath of the Covid-19 pandemic. Talley and his guests also discuss the solutions that they believe are necessary to get beyond these “unprecedented” times.

The first five episodes are:

Essential—and Broke (wealth and income inequality), with Katharina Pistor, Edwin B. Parker Professor of Comparative Law, … Read more

Central Bank Digital Currencies and Law

In a new paper, I examine the legal issues surrounding a “retail” central bank digital currency (“CBDC”), one that is used by consumers on a day-to-day basis as an alternative to cash. Most discussions about CBDC focus on its purported benefits and initial design. Little is written about how existing laws and regulations will extend to CBDCs or what new regulations will have to be implemented. My paper engages in that analysis.

The analysis assumes that future retail CBDCs will be account-based, meaning the currency will be represented by book entries in accounts that are held and managed by banks. … Read more

Skadden Discusses Shareholder Derivative Suits Around COVID-19, Racial Equality

As the last few years have shown, shareholder derivative litigation — claims brought by a shareholder purportedly on behalf of a company against its board of directors or senior management for alleged breaches of fiduciary duty — is often brought following the public disclosure of a negative event (so-called “event-driven litigation”). When multiple companies reported the departure of executives in the wake of #MeToo allegations, their boards faced shareholder derivative suits related to the adequacy of the company’s sexual harassment policies or board-level monitoring. Often, litigation also follows when companies disclose data breaches, with claims that the boards of those … Read more

Beyond “Going Dark:” The SEC’s 13F Proposal and Hedge Fund Activism

This past summer, the Securities and Exchange Commission (SEC) proposed eliminating quarterly disclosures for 90 percent of institutional investment managers by raising the reporting threshold under Section 13F of the Exchange Act from $100 million to $3.5 billion.  The proposal generated widespread opposition.  One key criticism — advanced on this blog, in various media outlets, and by many of those who submitted comments to the agency — was that the agency’s proposal would bolster hedge fund activism by allowing many activists to “go dark,” build up positions in companies in secret, and then “ambush” unsuspecting managers.

Although … Read more

Cleary Gottlieb Discusses ESG Regulatory Developments

The last few years have seen a marked worldwide expansion in “ESG”-labelled investment products, bringing sustainable finance into the spotlight as a clear financial industry megatrend.  By 2018, investment in sustainable assets in five of the world’s major markets (Europe, the United States, Japan, Canada and Australia-New Zealand) stood at $30.7 trillion, a 34% increase over the previous two years,[1] and it was estimated that over 80% of institutional investors had an ESG component as part of their investment strategies.[2]

And the trend is only accelerating: capital flows into funds incorporating sustainability and ESG-driven strategies hit an all-time … Read more

Why the Law on Resolving Disputed Presidential Elections Is So Uncertain

As I’ve Zoom-traveled the country speaking about legal issues involving the election, I have found myself, as well as audiences, bewildered and frustrated by one underlying question: Why is there so much legal uncertainty about so many critical questions concerning the rules for resolving a disputed presidential election?

If ever a need existed for clear legal rules established in advance, before we know whose ox will be (Al) Gored, that situation is it.

Let me provide just one critical example. The Constitution does not create rules or an institutional structure for resolving a modern, disputed presidential election. It provides … Read more

SEC Chair Speaks on Simplifying Exempt Offering Framework

Today [November 2] we consider a recommendation from the Division of Corporation Finance that would harmonize, simplify and improve various structural and procedural aspects of our exempt offering framework under the Securities Act of 1933.  The recommended amendments reflect a comprehensive, retrospective review of a framework that has, over time, unfortunately become difficult to navigate, for both investors and businesses, particularly smaller and medium-sized businesses.  Some have referred to it as a “patchwork” – I will explain this in a bit more detail later.  Today’s amendments would rationalize that framework, increase efficiency and facilitate capital formation, while preserving or enhancing

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Toward Racial Equality: The Most Important Things the Business Community Can Do

[The following remarks, delivered on October 29, 2020, opened the first session of the three-part Conference on Racial Equality in Corporate Governance co-sponsored by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.]

I am honored to kick off this important series of discussions about what corporate governance and corporate America can do to reduce racial inequality and, more specifically, to help black people finally achieve equality after 400 years of systemic racism.

My only regret about this series is that it did not happen long ago.  For most of the period since 1980, … Read more

Skadden Discusses Sustainability-Linked Loans and COVID-19

Pre-COVID-19, pressure from investors, stakeholders and regulators helped jump-start green financing. The onset of the pandemic brought a temporary chilling effect to the global economy, but because sustainability-linked loans (SLLs) were developed to fill a critical gap in financial markets, they are likely here to stay and to continue growing in popularity, even as COVID-19 remains a public health crisis. Quarterly reports and trends — determined by analyzing Bloomberg Terminal data from 2018 through the second quarter of 2020 — indicate a long-term appetite for SLLs, with investors, stakeholders and regulators demanding sustainability now more than ever. Indeed, in evaluating … Read more

Gender Gap at the Top: New Evidence on Policy Effectiveness

The persistent gender gap in corporate leadership has led several European countries to institute board-related policies such as gender quotas, starting with Norway in 2003. Recently, California became the first U.S. state to follow suit, with many more considering similar regulatory measures. Despite this, the World Economic Forum estimates that the gender gap in wages and leadership would not be bridged in the next two centuries at its current pace. It is hard to overstate the need to understand what company-level factors affect the gender pay gap. Moreover, given the public interest in reducing the gender imbalances at all levels, … Read more

Columbia’s Millstein Center Presents Global Investor-Director Survey on Climate Risk Management

Changes in the global climate are having profound impacts on business operations, governance, and organizational management around the world. Boards of directors are searching for ways to account for these changes as they help guide their organizations, and investors are increasingly concerned about how these changes might impact their portfolios. According to some, climate change is “on the top of investors’ 2020 sustainability agendas for engaging with boards of the companies they invest in.”[1] A key component of this competency, likely to be a significant question of corporate governance in the coming years, is climate risk management. Companies, investors, … Read more

To Mask Or Not To Mask? It’s Not a Constitutional Question

In 1979, police in Pensacola, Florida, arrested Ku Klux Klan member B.W. Robinson for covering his face at a rally. He pleaded no contest so he could appeal his conviction to the Florida Supreme Court. Once there, Robinson challenged the constitutionality of Florida’s anti-mask statute. He insisted it deprived him of due process and infringed upon his First Amendment rights. The Florida Supreme Court reversed Robinson’s conviction, ruling that the law was constitutionally overbroad because it was “susceptible of application to entirely innocent activities.”[1]

Wait a second. Are we saying that not too long ago, an ultra-conservative Floridian took … Read more

SEC Chair Clayton Speaks on Regulations for Funds’ Use of Derivatives

Today [October 28], we are considering a new rule to provide an updated and comprehensive regulatory framework for the use of derivatives by registered investment funds, including mutual funds and exchange traded funds (ETFs). I have spoken before on the importance of modernization—ensuring that the implementation of our time-tested, long term investor-oriented regulatory structure keeps pace with today’s marketplace—to the Commission’s mission and our markets more generally.[1]  I have no doubt that this commitment to modernization, which flows through the 4,500-strong SEC staff, greatly enhanced our ability and the ability of market participants more generally to both absorb and

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SEC Officials Issue Joint Statement on Complex Financial Products and Retail Investors

Retail investors have a wide array of investment options available to them, including an increasing number and type of investment products that are more complex than conventional stock and bond investments.[1] These complex products may be exchange-traded or sold directly to investors. Among these products are “leveraged/inverse” products, which seek to provide leveraged or inverse exposure to an underlying index by a specified multiple (e.g., 2x), generally on a daily basis, as well as products that provide investment exposure to less conventional assets, including commodity prices.  We believe that these leveraged/inverse products and other complex products may

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Racial Diversity and Corporate Governance: Assessing California’s New Board Diversity Mandate

Corporate governance is historically perceived as a specialized, idiosyncratic and somewhat arcane field. But increasingly, it has come to serve as a lightning rod for broader public debates. Perhaps no moment underscores this trend more sharply than the 2020 calendar year: Not only did the world face twin crises of unprecedented global pandemic and an invigorated public debate about racial equity and inclusion, but those events accelerated nothing short of a seismic shift in how we think about corporate governance.

And no one does seismic shifts like California: In September of this year, Gov. Gavin Newsom signed into Read more

SEC Chairman Clayton Addresses Regulation Best Interest and Form CRS

Good afternoon and welcome to the SEC’s Staff Roundtable on Regulation Best Interest and Form CRS.[1] We hope that this event provides useful information to broker-dealers and investment advisers in complying with these key regulatory enhancements. Staff from the Commission’s Division of Trading and Markets, Division of Investment Management and Office of Compliance Inspections and Examinations, together with staff from FINRA, will present some insights and feedback as we approach the four-month anniversary of the June 30 Reg BI and Form CRS compliance date.

The Commission adopted Regulation Best Interest, or Reg BI, and Form CRS to enhance significantly

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The Role of Institutional Investor Regulation in Restoring a Fair, Sustainable Economy

In a new essay, available here, I discuss the essential but insufficient role of regulation to promote more effective stewardship by institutional investors. My essay offers a frame for specific policy recommendations that align the responsibilities of institutional investors with the best interests of their human investors in sustainable wealth creation, environmental responsibility, the respectful treatment of stakeholders, and, in particular, the fair pay and treatment of workers. In doing so, the essay: 1) explains how the corporate governance system we now have is fundamentally different from the system we had when the regulatory structures governing institutional investors were … Read more

Paul Weiss Discusses Initiatives to Unify ESG Reporting

ESG reporting is now recognized as a significant agenda item in the ESG space. The plethora of different reporting standards has caused concern and confusion, as those responsible for providing disclosure, as well as the intended beneficiaries of the disclosure, seek to navigate the evolving disclosure landscape. Building upon our recent client alert that provided an overview of ESG disclosure frameworks and standards, available here, we report on two recent initiatives to unify some of the competing standards:

  • In September, five leading standard setters for ESG reporting, including the Global Reporting Initiative (“GRI”), the Climate Disclosure Standards Board (“CDSB”),

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Why Corporate Purpose Will Always Matter

Business persons and lawyers have long debated whether a business corporation does or should have a purpose other than advancing shareholder interests.  In a democratic, pluralist society, the issue of corporate purpose remains important and will not (and should not) go away.  However adamantly divergent descriptive and prescriptive positions are held, it is healthy that, periodically at least, the debate is revisited and disagreements aired.  Neither corporate law nor business practice demands an unequivocal or uniform resolution.  Different businesses will continue to answer the corporate purpose question differently.


Early American business corporations were expected to advance a public-serving purpose.  … Read more

Fenwick & West Discusses Mitigating Class Action Litigation Risk for SPAC Transactions

Special purpose acquisition companies (SPACs) are increasingly being used as an alternate vehicle to traditional initial public offerings. Companies that go public through a traditional IPO process are often subject to shareholder securities class actions. Inevitably, securities class actions will be filed against companies that become publicly traded and file public reports with the U.S. Securities and Exchange Commission as a result of a merger with a SPAC.

One often-referenced advantage of the SPAC process as compared to a traditional IPO is the ability to directly communicate financial projections to the market. Such projections may become a greater area of … Read more

The Deterrent Effect of Whistleblowing on Insider Trading

One of the many significant reforms enacted in The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 was the creation of a whistleblower bounty program within the SEC. The program increased monetary rewards for whistleblowing and provided protections from retaliation with the goal of encouraging more whistleblowers to report their information to the SEC. While there is a growing literature investigating the effects of many facets of Dodd-Frank, an unanswered question is whether the whistleblower program affected illegal insider trading – an activity that is traditionally hard for the SEC to detect and prosecute. In my recent paper, … Read more

Morrison & Foerster Discusses the Private Side of Going Private Transactions

In this article, we follow up on our overview of going private transactions (available here) by focusing on an important but often overlooked workstream in these deals. Companies are frequently privatized by a group of significant shareholders, outside investors and sometimes members of senior management, and in these “club” or “consortium” deals, the buyer group members must negotiate their rights in the privatized target company against the backdrop of the complicated take-private process. Below, we address key considerations for these negotiations, including the interplay of this process with the going private process and documentation.

A Private Company Investment

Members … Read more

Banking Bailout Law

Bank bailouts during periodic financial crises aim to stop financial panic and restore the stability of the financial system. Even if they are undesirable, future bank bailouts are unavoidable due to political and political economy reasons, whether or not they are regulated or economically efficient. In a new book, I build on existing literature to examine the different bank bailout and resolution techniques and tools through carefully selected case studies from the U.S., the E.U., the U.K., Spain, and Hungary. The pros and cons of the different legal and regulatory options are identified in order to reconstruct a regulatory framework … Read more

Davis Polk Discusses SEC Rebuke Over Stock Buybacks Under 10b5-1 Plan

On October 15, the SEC announced a settlement stemming from a company’s series of stock buybacks undertaken pursuant to a Rule 10b5-1 plan. Although the SEC concluded that the company initiated the 10b5-1 plan at a time when it possessed material nonpublic information (MNPI), the SEC did not charge the company or its executives with fraud or insider trading. Instead, the SEC zeroed in on the company’s accounting controls, and found them inadequate to ensure compliance with the board of directors’ stock buyback authorization, which required the company to execute buybacks in accordance with its insider-trading policy.

The novel theory … Read more

How Shareholders View CEO Pensions and Deferred Compensation

Defined-benefit pension plans and deferred compensation are often sizable and important components of CEO pay packages.  In recent years, though, they have prompted controversy among investors, policymakers, and academics. On the one hand, CEO pension and deferred compensation are unsecured and typically underfunded obligations, and, like debt (they are often known as  inside debt) exposing managers to the same default risks and insolvency treatment as outside do debtholders, and can help strengthen the alignment of executive and debtholder incentives. Consistent with this view, prior studies find that firms that pay CEOs a higher level of debt-like compensation incur lower … Read more

Preparing for the Transition from LIBOR to SOFR: The ARRC Recommendations

The London Interbank Offered Rate (LIBOR) has been the standard floating rate benchmark for debt instruments of all kinds around the world for decades. It is calculated every banking day by polling major banks on their estimated borrowing costs for various currencies and tenors. If your business carries debt, the interest rate on that debt is likely to be linked to LIBOR.  A few years ago, after it came to light that certain banks were effectively manipulating LIBOR, it was announced that LIBOR will cease to be quoted as of the end of 2021.

While the official end of LIBOR … Read more

How SEC Enforcement Affects Insider Leakage

In 2012, Mary L. Schapiro, the chairwoman of the Securities and Exchange Commission,  argued that market participants had “short memories” and that the SEC as a result had to take regular enforcement actions “so that people don’t forget that they have [regulatory] obligations and that somebody is watching and […] willing to hold them accountable.”

Schapiro’s claim has intuitive appeal: If the capital markets regulator does not enforce its rules with some regularity, potential wrongdoers may interpret the resulting inactivity as a reduced risk of apprehension and commit more wrongdoing. In our recently published paper “Short Memories? The Impact of … Read more

Latham & Watkins Discusses SEC Proposal of Safe Harbor Framework for Unregistered Finders

On October 7, 2020, the US Securities and Exchange Commission (SEC) issued a Notice of Proposed Exemptive Order Granting Conditional Exemption from the Broker Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934 for Certain Activities of Finders (the Proposal). The Proposal was issued in response to a recommendation by the SEC’s Division of Trading and Markets. It aims to establish, for the first time, a framework for permissible non-registered finder activity, which until this point has been addressed by a “patchwork of staff guidance and no-action letters.”[1] If adopted, the Proposal would establish a non-exclusive … Read more

Has the Stock Market Become Less Representative of the Economy?

In the summer of 2020, with the U.S. economy bearing the impact of the COVID-19 pandemic, the unemployment rate was as high as it had been any time since 1948, and the NASDAQ and the S&P 500 indices reached their highest values ever. This dramatic difference in trajectories between unemployment and the stock market raises the questions of how much the stock market reflects the health of the American economy and whether in recent years it does so less than it used to. In a new paper, we explore these issues for the period 1950-2019 for a subset of our … Read more

Kirkland & Ellis Discusses Shareholder Activism Trends in Real Estate Investment Trusts After COVID-19

Even before the emergence of the COVID-19 pandemic, shareholder activism had become a mainstay of public company life in the real estate investment trust world. But in the wake of the pandemic, which upended business as usual in a number of Real Estate Investment Trust (REIT) sectors, we expect shareholder activism to accelerate as the dust settles.

Below are some key trends that we believe will begin to play out as hesitation gives way to opportunism. Companies should thoughtfully assess how they intend to navigate the coming resurgence.

Demonstrating Real Estate Bona Fides

In light of recent market dislocation, the … Read more

Closing the “RegLag” Between Prospective Regulated Activity and Regulation

There is often a significant delay between the start of an activity that ends up being regulated and the moment a regulatory response is announced or adopted. This regulatory lag (RegLag) enables individuals, firms, and regulators to engage in undesirable activities while the process of regulation moves slowly along. But reducing RegLag, especially in connection with the financial industry – an issue on which we focus – is challenging.

World-wide, regulators are for various reasons hamstrung in defining “wrongs” and identifying activities that should be regulated.  Similarly, regulator reaction is also impeded by issues such as confusion about the optimal … Read more

Gibson Dunn Offers 2020 Mid-Year Activism Update

This Client Alert provides an update on shareholder activism activity involving NYSE- and Nasdaq-listed companies with equity market capitalizations in excess of $1 billion and below $100 billion (as of the close of trading on June 30, 2020) during the first half of 2020. As the markets weathered the dislocation caused by the novel coronavirus (COVID-19) pandemic, shareholder activist activity decreased dramatically. Relative to the first half of 2019, the number of public activist actions declined from 51 to 28, the number of activist investors taking actions declined from 33 to 10 and the number of companies targeted by such … Read more

Gibson Dunn Discusses Stock-for-Stock Mergers During the Coronavirus Crisis

The widespread economic uncertainty caused by COVID-19 poses distinct challenges for buyers and sellers seeking to identify M&A opportunities, as companies evaluate the impact of the pandemic on their businesses to date, and seek to predict its future impact. Continued volatility in the financial markets and the lack of visibility into how the pandemic will affect the global economy in the near or longer term, as well as the pace and scope of economic recovery, introduce elements of conjecture into the valuation process. Securing financing for a transaction is also likely to be difficult, as traditional credit providers may be … Read more

Short Sellers and Plaintiffs’ Firms: A Symbiotic Ecosystem

On October 8, 2020, in In re BofI Securities Litigation, the United States Court of Appeals for the Ninth Circuit reversed the district court’s finding that the plaintiffs had not adequately alleged loss causation when claiming that BofI Holding portrayed its banking company as a safer investment than it actually was.[1]  These claims originated in two places: a whistleblower lawsuit and blog posts published by a pseudonymous short seller.  The court reversed the district court on the first, holding that a whistleblower lawsuit could serve as a corrective disclosure even though it merely alleged that fraud had occurred.

More … Read more

Arnold & Porter Discusses Waste and Abuse of Covid-19 Relief Funds

For the last several months, Arnold & Porter has been tracking the Department of Justice’s announcements of fraud cases involving the alleged misappropriation of funds provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). So far, DOJ has launched more than 50 such criminal prosecutions for fraudulently seeking or obtaining Paycheck Protection Program (PPP) loans and other funds that Congress appropriated to help Americans cope with the pandemic and related economic challenges. Arnold & Porter’s fraud tracker collects these cases in one place and enables users to see how and where DOJ has been pursuing CARES … Read more