Yearly Archives: 2012

SEC “Obey-the-Law” Injunctions Held Invalid

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, July 23, 2012
, , , , ,
More from: ,

The following post comes to us from Jonathan R. Tuttle, partner in the litigation department at Debevoise & Plimpton LLP, and is based on a Debevoise & Plimpton memorandum by Mr. Tuttle, Paul R. Berger, Andrew J. Ceresney, Colby A. Smith, Mary Jo White, Bruce E. Yannett, and Ada Fernandez Johnson.

The Eleventh Circuit Court of Appeals dealt a blow to the Securities and Exchange Commission (“SEC”) and its long-standing practice of seeking broad federal court injunction orders directing defendants to refrain from any future violations of securities laws, often referred to as “obey-the-law” injunctions. In SEC v. Goble, No. 11-12059, 2012 WL 1918819 (11th Cir. May 29, 2012), the Eleventh Circuit vacated the “obey-the-law” injunctions entered against defendant Richard Goble, the founder of North American Clearing, Inc. (“North American”), because the injunctions did not satisfy Federal Rule of Civil Procedure 65(d)(1), which requires that injunctions describe, “in reasonable detail. . . the act or acts [sought to be] restrained or required.” Although the decision appears to widen an existing gap between the Eleventh and Second Circuits on the propriety of “obey-the-law” injunctions in SEC settlements, the full impact of the Goble decision remains unclear. The Eleventh Circuit’s strongly worded opinion and careful analysis could prompt other courts to question the benefit and efficacy of the SEC’s frequent practice of seeking such broad “obey-the-law” injunctions.

READ MORE »

An Experiment on Mutual Fund Fees in Retirement Investing

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, July 23, 2012
, , , ,
More from: ,

The following post comes to us from Jill E. Fisch, Professor of Law at the University of Pennsylvania Law School, and Tess Wilkinson-Ryan of the University of Pennsylvania Law School.

In our paper, An Experiment on Mutual Fund Fees in Retirement Investing, we report the results of a new experiment studying the impact of mutual fund fees on consumer investment decisions. The importance of fees to overall investor returns, especially in the context of long-term investing like retirement accounts, is frequently overlooked. Morningstar’s Director of Mutual Fund Research recently observed, “If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision.” But there is evidence that many investors are paying high fees. One study estimates that in 2007 alone, retail investors paid $206 million more in S&P index fund expenses than they would have paid had all investments been in the lowest-fee funds.

Why are investors willing to pay high fees? Are existing fee levels the result of robust market competition or do market failures or investor biases limit market discipline? In his recent Jones v. Harris opinion, Judge Easterbrook took the efficient market position, concluding that market forces will lead investors to reject funds that charge excessive fees in favor of more fairly-priced alternatives. Under this view, investors will only pay higher fees when those fees are justified. Judge Posner countered, in dissent, with an empirical question: do high fees really affect investor behavior? A growing collection of evidence suggests that Judge Posner’s skepticism is well-founded; in the market for mutual funds, uninformed investors do not appear able or willing to distinguish between cheap and expensive funds.

READ MORE »

The Volcker Rule’s Impact on Foreign Banking Organizations

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, July 22, 2012
, , , ,
More from: ,

The following post comes to us from Dwight C. Smith, partner focusing on bank regulatory matters at Morrison & Foerster LLP, and is based on a Morrison & Foerster memorandum.

The Volcker Rule, as embodied in the Dodd-Frank Act and reflected in proposed regulations, generally prohibits “banking entities” from engaging in proprietary trading and from investing in or sponsoring private equity and hedge funds. [1] These “banking entities” include foreign banks that maintain branches or agencies in the U.S. or that own U.S. banks or commercial lending companies in the United States. These banks, as well as their parent holding companies, are referred to in U.S. regulations as “foreign banking organizations,” or “FBOs,” and we will use this term throughout this paper. [2] This bulletin evaluates how Volcker, as construed by proposed regulations, impacts the proprietary trading and investment fund-related activities of FBOs outside the United States.

Generally, the Dodd-Frank Act exempts proprietary trading by FBOs that is conducted solely outside the United States, and, provided that no ownership interest in a fund is offered or sold in the United States, investment fund-related activities by FBOs conducted solely outside the United States. The exemptions are available under the Dodd-Frank Act for FBOs (or their affiliates) not controlled by U.S.-based banking entities as long as the activities in question are conducted consistent with the exemption accorded FBOs for activities conducted outside the United States pursuant to Sections 4(c)(9 ) or 4(c)(13) of the Bank Holding Company Act. Accordingly, the exemptions are not available for activities conducted by the U.S. branches or agencies of FBOs, or by U.S. banks or U.S. commercial lending companies owned by FBOs.

READ MORE »

2012 Proxy Season Review: Overall Trends in Shareholder Proposals

Posted by James Morphy, Sullivan & Cromwell LLP, on
Saturday, July 21, 2012
, , , , ,
More from: ,

James Morphy is a partner at Sullivan & Cromwell LLP specializing in mergers & acquisitions and corporate governance. This post is an abridged version of a Sullivan & Cromwell publication, titled 2012 Proxy Season Review, available in full here.

The 2012 proxy season saw a continued high rate of governance-related shareholder proposals at large U.S. public companies, including proposals on separation of the roles of the CEO and chair, the right to call special meetings, action by written consent, declassified boards and majority voting. As in prior years, these governance-related proposals received high levels of support, and were the category of proposal that had the best chance of receiving shareholder approval. Proposals on social issues (particularly those related to political contributions and lobbying costs) and compensation-related issues (including equity retention policies) also remained common but, as in the past, these proposals rarely received a majority vote, generally had lower levels of support than governance-related proposals, and served primarily as a vehicle for shareholder activists to express their views.

READ MORE »

Task Force on Commercial Litigation in the 21st Century

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on
Friday, July 20, 2012

More from: , ,

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on the executive summary of a report issued by the Chief Judge’s Task Force on Commercial Litigation in the 21st Century, which was co-chaired by Mr. Lipton and Former Chief Judge of New York Judith Kaye. The full report is available here.

As the Commercial Division of the New York Supreme Court approaches its twentieth anniversary in a significantly changed world, the Chief Judge constituted this Task Force to ensure that the New York Judiciary helps our State retain its role as the preeminent financial and commercial center of the world. The rule of law and the quality of the courts that apply and enforce it are key elements in keeping us competitive in today’s global economy.

In 1995, New York blazed a judicial trail when it launched the first commercial court of its kind in the country. But since that time, the number and complexity of cases in the Commercial Division have grown dramatically. Today, the judges of the Commercial Division adjudicate thousands of cases and motions that include some of the most important, complex commercial disputes being litigated anywhere. This is especially true in the wake of the financial crisis. Commercial Division judges regularly decide cutting-edge legal issues and oversee massive discovery involving multiple parties, dozens of depositions and millions of documents. Additionally, a host of other states have followed New York’s lead, creating new commercial courts to attract both business disputes and businesses to their jurisdictions. In 2010, even Delaware, whose Chancery Court remains a leader in the world of corporate law, created in its Superior Court a new Complex Commercial Litigation Division.

READ MORE »

FSB Reports Regulatory Reform Is Advancing, But Slowly

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, July 20, 2012
, , , , , ,
More from: , , ,

The following post comes to us from Heath Tarbert, partner and head of the Financial Regulatory Reform Working Group at Weil, Gotshal & Manges LLP, and is based on a Weil alert by Mr. Tarbert, Sylvia Mayer, and Scott Bowling.

On June 19, 2012, the Financial Stability Board (FSB) issued a progress report to the G20 Leaders on the steps FSB member nations have taken to implement financial reforms designed to improve the stability of the global financial system. The FSB reviewed, among other things, its members’ Basel implementation, adoption of resolution-planning regimes, oversight of the so-called “shadow banking system,” reform of the OTC derivatives market, and the effectiveness of the FSB itself. The FSB concluded that its member nations have made significant progress in implementing globally agreed financial reforms, but large strides are still necessary – particularly regarding recovery and resolution planning – to protect the global economy against future financial crises.

What is the FSB?

The FSB is an informal body of financial regulatory authorities from the G20 nations and the former members of the Financial Stability Forum. It was established in 2009 – in the wake of the 2008 financial crisis – with the intent of improving global financial stability by coordinating the way in which the world’s major economies implement their own financial reforms. At present, the FSB is not an independent legal entity but acts under the auspices of the Bank for International Settlements (BIS), an international organization that assists central banks in promoting financial stability and serves as an international central bank itself. The FSB has no enforcement authority; it derives its legitimacy from the cooperative participation of its member nations. As described below, however, the FSB’s institutional power may be growing: the G20 Leaders recently granted the FSB authority to organize itself as an independent legal entity.

READ MORE »

The Pension System and the Rise of Shareholder Primacy

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Friday, July 20, 2012
, , ,
More from:

The following post comes to us from Martin Gelter, Associate Professor of Law at Fordham University.

In the paper, The Pension System and the Rise of Shareholder Primacy, which was recently made publicly available on SSRN, I explore the influence of the pension system on corporate governance, particularly shareholder primacy and the relationship between corporations and their employees. Today it is widely accepted among business managers, scholars of corporate law and financial economists that the objective of corporate law and corporate governance should be to promote shareholders wealth (as opposed to a wider community of interests, including employees, creditors, suppliers, customers and local communities). Shareholder capitalism is, however, a relatively recent development. Large, publicly-traded corporations in the middle of the 20th century were characterized by managerial capitalism: managers had taken over the role of entrepreneurs within the firm, and compared to their predecessors they were hardly accountable to owners. Economists sometimes saw this as an advance over previous periods characterized by dominant founders, given that the system seemed more rational and stable. Around 1980, managerial capitalism began to give way to investor capitalism. Hostile takeovers, and later equity-based executive compensation, began to emerge as the new forces creating incentives for managers to focus on share value.

READ MORE »

Online Shareholder Participation in Annual Meetings

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, July 19, 2012
, , , ,
More from: ,

The following post comes to us from Janice Hester Amey, corporate governance portfolio manager at the California State Teachers’ Retirement System, and Elizabeth Danese Mozley, vice president at Broadridge Financial Solutions. The post is based on a report, available in full here, which was issued by the Best Practices Working Group for Online Shareholder Participation in Annual Meetings.

Introduction

It is a generally accepted cornerstone of sound corporate governance that shareholder participation is a key component of a successful annual meeting of shareholders. State laws require companies to hold annual meetings of their shareholders to elect directors and act upon other matters properly brought before the meeting. From a governance perspective, the annual meeting often serves as an opportunity for management to update shareholders on company developments, for shareholders to ask questions of management and directors, to consider shareholder proposals and to review the company’s performance.

In recent years, there has been ongoing dialogue regarding best practices, or safeguards, to ensure that annual meetings are accessible, transparent, efficient and meet the corporate governance needs of shareholders, boards and management.

To that end, a group of interested constituencies, comprised of retail and institutional investors, public company representatives, as well as proxy and legal service providers, has been discussing best practices and safeguards for annual shareholder meetings, online shareholder participation in annual shareholder meetings and rules of engagement for such meetings.

READ MORE »

SEC Approves FINRA Private Placement Rule

Posted by Bradley K. Sabel, Shearman & Sterling LLP, on
Thursday, July 19, 2012
, , ,
More from: , , , ,

Bradley Sabel is partner and co-head of Financial Institutions Advisory & Financial Regulatory practice group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Russell Sacks, Charles Gittleman, and Michael Blankenship.

On June 7, 2012, the US Securities and Exchange Commission (“SEC”) approved FINRA Rule 5123 governing regulation of broker-dealer participation in private placements of securities. The new rule will require member firms to file certain disclosure documents and material amendments to previous disclosure documents with the Financial Industry Regulatory Authority, Inc. (“FINRA”).

Introduction

On June 7, 2012, the SEC approved FINRA’s proposed Rule 5123 (the “Rule”), which, as adopted, significantly expands the scope of FINRA’s regulation over broker-dealer participation in private placements. [1] Among other things, unless exempt, Rule 5123 imposes a notice filing requirement on member firms participating in a private placement—with FINRA no later than 15 days after the date of first sale. The Rule’s various exemptions effectively limit its applicability to non-institutional private placements. [2]

It should be noted that FINRA has withdrawn an earlier proposal that would have required specific disclosure to each investor to whom the security is sold; that disclosure would have required (a) a description of the anticipated use of offering proceeds, (b) the amount and type of offering expenses, and (c) the amount and type of compensation provided or to be provided to sponsors, finders, consultants, and members and their associated persons in connection with the offering. As a result, the Rule as adopted requires only the filing with FINRA of the disclosure documents described below.

READ MORE »

CFTC’s Expanded Jurisdiction Over Swaps May Capture Certain REITs

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Thursday, July 19, 2012
, , ,
More from: , , , ,

The following post comes to us from David J. Goldschmidt, partner in the corporate finance department at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a Skadden memorandum by Mr. Goldschmidt, Michael K. Hoffman, Maureen A. Donley, and Daniel S. Konar II; the full memo, including footnotes, is available here.

As a result of the pending expansion of the jurisdiction of the Commodity Futures Trading Commission (CFTC) to include most swaps, some publicly traded real estate investment trusts (REITs) may soon be considered “commodity pools” whose directors or trustees would be subject to CFTC regulation as commodity pool operators (CPOs) and whose investment managers could be subject to CFTC regulation as commodity trading advisors (CTAs).

How Can a REIT Be Subject to CFTC Regulation?

In July 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) amended the Commodity Exchange Act (CEA) to add swaps to the CFTC’s jurisdiction under a broad statutory definition, which includes many of the products REITs use to hedge their interest rate risks. To give effect to this expanded jurisdiction, Congress enacted an expanded version of the CFTC’s long-standing definition of “commodity pool” so that a commodity pool will include “any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests, including any … swap.” Congress also amended the existing definitions of CPO and CTA to include references to swaps. When considered in conjunction with prior CFTC staff positions, these new definitions of commodity pool, CPO and CTA may well capture many publicly traded mortgage REITs, as well as their operators and investment managers, even if they use only a single swap.

READ MORE »

Page 29 of 63
1 … 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 … 63