SEC Releases Report on Regulation S-K’s Disclosure Requirements

On December 20, 2013, the Securities and Exchange Commission released a report, required by Section 108 of the JOBS Act, that reviews the disclosure requirements in Regulation S-K.   The report summarizes the Commission’s prior initiatives, reviews the current disclosure requirements, and identifies two possible approaches  (a comprehensive approach and a targeted approach) for further work to develop particular recommendations for a revised disclosure regime.  The staff recommends the comprehensive approach because it believes it would be able to achieve the dual goals of streamlining requirements for companies, including emerging growth companies, and focusing on useful and material information for investors.… Read more

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Morrison & Foerster discusses When Legal or Compliance Personnel May Be Subject to Failure to Supervise Liability Under the Securities Laws

The SEC has provided some much-needed clarity on the issue of when broker-dealer compliance or legal personnel may be considered to be supervisors. On September 30, 2013, the Division of Trading and Markets (the “Division”) issued a set of eight FAQs providing guidance relating to potential liability of Chief Compliance Officers, and other compliance and legal personnel at broker-dealers under Sections 15(b)(4) and 15(b)(6) of the Securities Exchange Act of 1934. Broker-dealers should carefully review these FAQs to understand when their compliance or legal personnel function as “supervisors,” and thereby become potentially subject to liability for failure to supervise. Even

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Shearman & Sterling discusses Basel III Framework: The Credit Valuation Adjustment (CVA) Charge for OTC Derivative Trades

The credit valuation adjustment charge in Basel III appears, at first glance, to be the preserve of quantitative analysts and the like. However, while complex, the CVA charge requires more widespread attention as it materially increases the required capital for OTC derivative trading activities and is driving significant change in that sector. The divergence between the US and EU approaches to the adoption of the CVA charge highlights how the Basel standards have been interpreted differently in this important area, creating uncertainty and opportunities for arbitrage. 

Two-thirds of counterparty credit losses in the financial crisis were suffered not as a

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SEC Issues Proposed Regulation A+

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 to propose rules intended to increase access to capital for smaller companies.

The SEC’s proposal would build upon Regulation A, which is an existing exemption from registration for small offerings of securities up to $5 million within a 12-month period.  The updated exemption would enable companies to offer and sell up to $50 million of securities within a 12-month period.

The … Read more

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Conflicts of Interest and Competition in the Proxy Advisory Industry

The following comes to us from Tao Li, Assistant Professor, Warwick Business School

Proxy advisors, private firms that help investors decide how to vote their shares, play an extremely powerful role in shaping corporate governance. As institutional investors vote billions of shares each year on thousands of ballot items, relying on research and recommendations from these advisors is an effective way to reduce costs and fulfill their fiduciary duty to vote in the best interests of clients. However, investors and policymakers are concerned about undesirable features of the industry, especially potential conflicts of interest. A 2007 U.S. Government Accountability Office … Read more

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Editor's Tweet: Prof. Tao Li on Conflicts of Interest and Competition in the Proxy Advisory Industry

Morrison Foerster’s Regulatory Reform Glossary

On Monday, December 16th, Morrison Foerster released what may be a first-of-its-kind regulatory reform glossary.  The glossary, which is not comprehensive,  is intended to serve as a helpful summary of neologisms and other acronyms (e.g., SIFI), nicknames (e.g., repo), and definitions (e.g., private funds), that have become frequently used in the industry.

The Regulatory Reform Glossary is available here.… Read more

Hedge Fund Advisers’ Systemic Risk Disclosures in Bankruptcy

Hedge funds’ distressed and default debt investments in the United States have increased dramatically in the last two decades (from around $70 billion in 1998 to around $867 billion in 2007) and hedge funds with strategies that focus on distressed investing continue to proliferate. The proliferation of distressed-focused hedge funds resulted in hedge funds’ market share of around one quarter of the total distressed-debt market and established the distressed-focused strategy as the fifth-largest hedge fund strategy.

The significant increase of hedge fund participation in the bankruptcy process, among other factors, resulted in an increased emphasis in the literature on the … Read more

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Editor's Tweet: Wulf Kaal on Hedge Fund Advisers’ Systemic Risk Disclosures in Bankruptcy

How Financial Institutions May Benefit from Changes to the Rule Against Perpetuities

In the late 1980s, large financial institutions successfully marketed a new exemption in the tax code authorizing the perpetual insulation of wealth from federal transfer taxes. Specifically, the 1986 tax code reforms included an exemption from the federal Generation Skipping Transfer Tax, 26 U.S.C. § 2631, that permitted wealth to be transferred, tax-free, to future generations of the donor without subjecting such transfers to the Gift Tax, Estate Tax, or the Generation Skipping Transfer Tax at each generation. In 2014, the exemption amount will be $5.34 million for each individual; the exemption amount is doubled for married couples.

While perpetual … Read more

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Editor's Tweet: Reid Weisbord of Rutgers Law on How Financial Institutions May Benefit from Changes to the Rule Against Perpetuities

Morrison & Foerster discusses CFTC Speculative Position Limits Proposal

On November 5, 2013, the Commodity Futures Trading Commission (“CFTC” or “Commission”) proposed new speculative position limits. The proposal (“New Proposal”) would establish spot-month and non-spot-month limits for 28 core physical commodity contracts and their “economically equivalent” futures, options, and swaps (collectively, “referenced contracts”). The CFTC had finalized position limits in a 2011 rulemaking (“2011 Rule”), but a federal court vacated the 2011 Rule. The New Proposal constitutes the Commission’s latest effort under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) to establish federal position limits for specified physical commodity contracts beyond those already in place for certain

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Federal Agencies Adopt the Long-Awaited Volcker Rule

The following is the SEC’s press release and fact sheet on the adoption of the Volcker Rule, originally available here.  The adopting release and text of the final rule is available here.  Public statements from each of the five SEC Commissioners, including two dissents, are available here.  

Five federal agencies on Tuesday issued final rules developed jointly to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker Rule”).

The final rules prohibit insured depository institutions and companies affiliated with insured depository institutions (“banking entities”) from engaging in short-term proprietary trading of … Read more

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Delaware Court Confirms High Bar To Escape Deal

The following post is based on a memo originally published by Cadwalader, Wickersham & Taft LLP on November 14, 2013 which can be found here.

Two recent Delaware Chancery Court opinions, issued on October 25 and November 9, 2013, illustrate the high bar that buyers and sellers must clear to escape an unfavorable deal or obtain a  court order requiring a deal to close.

Background

In June 2013, Apollo Tyres agreed to acquire Cooper Tire & Rubber Co. for $35 per share in a  $2.5 billion transaction. Within weeks, commentators have suggested, buyer’s remorse set in. In  July, Apollo’s … Read more

The Underappreciated Importance of Personal Jurisdiction in Delaware’s Success

In an article to be published this Spring in the DePaul Law Review, I argue that Delaware’s position as the center of corporate litigation has been rooted in two unique but unconstitutional approaches to personal jurisdiction over fiduciaries. Until Delaware addresses serious problems with its personal jurisdiction statute, its other attempts to retain caseflow will ultimately be ineffective.

It is no secret that the Court of Chancery judges are worried and angry. The lifeblood of that court, stockholder litigation, is migrating out of Delaware to other states. If Delaware continues to lose caseflow, it risks losing its dominance in corporate … Read more

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Faegre Baker Daniels Discusses Presentations in the Era of General Solicitation

The following post is based on a memo originally published by Faegre Baker Daniels LLP on November 15, 2013 which is available here.

In September 2013, the long anticipated final rules issued by the Securities and Exchange Commission (SEC) eliminating the prohibition against general solicitation and advertising went into effect. While this creates new financing opportunities for start-ups and emerging companies, potential issuers need to understand the rules governing this option, evaluate the pros and cons of general solicitation, and avoid general solicitation if an issuer decides to proceed under the traditional private placement rules.

While these new rules … Read more

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Independent Directors as a Handy Political Tool

Boards of public corporations have more independent directors than ever before. Sixty percent of boards of S&P 500 companies are not only majority independent, but have a single insider on the board: the CEO. While Jamie Dimon is still CEO as well as chair of J.P. Morgan’s board, despite attempts to unseat him, this is becoming increasingly rare. Over the last 15 years, the percentage of S&P 500 firms with separated positions has risen from 16% to 45%.

Director independence has been pushed by institutional investors, exchanges, and also government regulators. The push for independence has continued despite, at best, … Read more

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A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value

The following comes to us from Jillian Popadak, an applied economics doctoral student in the Business Economics and Public Policy Department at Wharton, University of Pennsylvania.

Corporate governance affects firm value, capital productivity and economic growth. Given its economic importance, there has been an ongoing, nationwide movement to strengthen corporate governance over the past two decades. Yet details about the transmission mechanisms from governance to economic outcomes are not fully understood.  In “A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value,”  I examine whether increased governance affects firm value via its impact on intangible assets, and … Read more

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Wachtell Lipton on ISS Addressing Dissident Director Compensation Bylaw

ISS Proxy Advisory Services recently recommended that shareholders of a small cap bank holding company, Provident Financial Holdings, Inc., withhold their votes from the three director candidates standing for reelection to the company’s staggered board (all of whom serve on its nominating and governance committee) because the board adopted a bylaw designed to discourage special dissident compensation schemes.  These special compensation arrangements featured prominently in a number of recent high profile proxy contests and have been roundly criticized by leading commentators.  Columbia Law Professor John C. Coffee, Jr. succinctly noted “third-party bonuses create the wrong incentives, fragment the board and … Read more

Commissioner Gallagher discusses Venture Exchanges

The following remarks were delivered by Commissioner Daniel M. Gallagher of the U.S. Securities and Exchange Commission at FIA Futures and Options Expo on November 6, 2013. 

Thank you Walt [Lukken] for your very kind introduction. I am delighted to be here today — it’s not every day that an SEC Commissioner gets to speak at a futures industry conference. If you didn’t know better, you’d think that the Dodd-Frank Act actually accomplished its goal of regulatory rationalization by merging the SEC and the CFTC into a single commission, regulating all aspects of the capital markets! As you know, however, … Read more

Embracing the S.E.C.’s New Executive Compensation Disclosure Rule

The S.E.C recently provoked a storm of controversy when it voted to amend the executive compensation reporting requirements for public companies under the Dodd Frank Act. Many commentators, corporate leaders, and law firms immediately attacked the proposed rules and have discussed the possibility of challenging any adopted rule in the courts. One firm has even characterized the coming litigation as “inevitable.”  But given the flexibility provided by these new rules and the political and legal climate of the day, it seems highly unlikely that any litigation could successfully eliminate these disclosure requirements altogether. Given that reality, corporations and … Read more

Debevoise & Plimpton discusses the Proposed Leverage Coverage Ratio (LCR) Rule

The following is based on a memo from Debevoise & Plimpton, published on November 1, 2013, which is available here.  The original memo contains a useful graphic representation of the LCR equation which has been omitted from this post.

On October 24, the Federal Reserve, followed on October 30 by the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Agencies”), released a proposed rule (the “Proposed Rule”) that would apply a Liquidity Coverage Ratio (the “LCR”) to certain

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SEC Enforcement: Talking the Talk, But Walking the Walk?

Almost everyone has an opinion about securities enforcement.  Many are disappointed (and even angry) that “few high level executives” have been prosecuted (criminally or even civilly) in connection with the 2008 financial crisis.[1]  Deep in their bunker, the SEC still has some diehards who maintain that fraud has been fully prosecuted, but, even there, attitudes are changing.  The shift is much clearer at the Department of Justice (“DOJ”), which has just settled with JPMorgan for $13 billion and may be in hot pursuit of still unnamed defendants.[2]  Even if the SEC is presenting itself as a more aggressive … Read more

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Editor's Tweet: John C. Coffee Jr. of Columbia Law School on SEC Enforcement: Talking the Talk, But Walking the Walk?