Monthly Archives: November 2014

Delaware Court Holds M&A Financial Advisor Liable For $76 Million

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, November 4, 2014
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The following post comes to us from Jason M. Halper, partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP, and is based on an Orrick publication authored by Mr. Halper, Peter J. Rooney, and Louisa S. Irving. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On October 10, 2014, the Delaware Court of Chancery issued a decision awarding nearly $76 million in damages against a seller’s financial advisor. In an earlier March 7, 2014 opinion in the case, In re Rural/Metro Corp. Stockholders Litigation, Vice Chancellor Laster found RBC Capital Markets, LLC liable for aiding and abetting the board’s breach of fiduciary duty in connection with Rural’s 2011 sale to private equity firm Warburg Pincus for $17.25 a share, a premium of 37% over the pre-announcement market price. The recent decision reinforces lessons from the March 7 decision and provides new guidance for directors and their advisors in M&A transactions and related litigation.

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Buybacks Around the World

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Tuesday, November 4, 2014
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The following post comes to us from Alberto Manconi of the Department of Finance at Tilburg University and Urs Peyer and Theo Vermaelen, both of the Finance Area at INSEAD.

Due to regulatory changes, share repurchases have become increasingly common around the world in the last 15 years. As such, in our paper, Buybacks Around the World, which was recently made publicly available on SSRN, we first examine whether the findings based on U.S. data hold up in an international setting, and whether examining non-U.S. data can change the way we think about buybacks. Second, we examine whether the original concerns about managers using buybacks to prop up the share price were somewhat warranted in countries outside the U.S.

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Nanotechnology and the S&P 500

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, November 3, 2014
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The following post comes to us from Heidi Welsh, Executive Director at the Sustainable Investments Institute (Si2), and is based on a Si2 report.

Corporations globally have been investing $9 billion annually in nanotechnology, yet less than one-tenth of S&P 500 companies report to shareholders and other stakeholders on their involvement in nanotechnology. Although it has the potential to revolutionize industries like healthcare, information technology and energy systems, nanotechnology’s promise is tethered to unique environmental, health and safety (EH&S) issues that are not yet fully understood. Investors eyeing rapid growth and minimal regulation are engaging companies in discussions about nano-related EHS risks and recently forced a vote on the first nano-related shareholder resolution.

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Justice Deferred is Justice Denied

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Monday, November 3, 2014
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The following post comes to us from Peter R. Reilly of Texas A&M School of Law.

According to the U.S. Department of Justice (“DOJ”), deferred prosecution agreements are said to occupy an “important middle ground” between declining to prosecute on the one hand, and trials or guilty pleas on the other. A top DOJ official has declared that, over the last decade, the agreements have become a “mainstay” of white collar criminal law enforcement; a prominent criminal law professor calls their increased use part of the “biggest change in corporate law enforcement policy in the last ten years.”

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Ten Key Points from the Final Risk Retention Rule

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Sunday, November 2, 2014
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The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Christopher Merchant, Frank Serravalli, and Daniel Sullivan.

This week six federal agencies (Fed, OCC, FDIC, SEC, FHFA, and HUD) finalized their joint asset-backed securities (ABS) risk retention rule. As expected, the final rule requires sponsors of ABS to retain an interest equal to at least 5% of the credit risk in a securitization vehicle.

1. A win for the mortgage industry: The final rule effectively broadens the original proposal’s exemption from risk retention requirements for Qualified Residential Mortgages (QRM) by tying the definition of QRM to the Consumer Finance Protection Bureau’s definition of Qualified Mortgage (QM). This alignment abandons the proposal’s most stringent requirements to obtain the QRM exemption, including that a residential mortgage have at least a 20% down payment. The final rule also provides an additional exemption for certain mortgages that would not meet the QRM standards, e.g., community-focused residential mortgages. The immediate impact of the rule on the industry is further muted, given the significant amount of mortgages issued by government sponsored entities (i.e., Fannie Mae, Freddie Mac, and Ginnie Mae) that are currently exempt from the rule’s requirements. It may however be too soon for the industry to celebrate, as the final rule states that the agencies will reassess the effectiveness of the QRM definition at reducing securitization risk at most four years from now, and every five years thereafter.

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CFTC Clarifies and Expands Relief Relating to Delegation of CPO Responsibilities

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on
Saturday, November 1, 2014
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The following post comes to us from Cary J. Meer, partner in the Investment Management practice group at K&L Gates LLP, and is based on a K&L Gates publication by Ms. Meer and Lawrence B. Patent.

On October 15, 2014, the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued CFTC No-Action Letter No. 14-126 (“Letter 14-126”), which sets forth a number of conditions with which commodity pool operators (“CPOs”) that delegate their CPO responsibilities (the “Delegating CPO”) to registered CPOs (the “Designated CPO”) must comply in order to take advantage of no-action relief from the requirement to register as a CPO. The CPO community has anxiously awaited this letter because it clarifies the activities in which a Delegating CPO may engage and still qualify for relief from the requirement to register as a CPO. Essentially, the Letter makes more liberal several of the conditions set forth in CFTC Letter No. 14-69 (May 12, 2014) (“Letter 14-69” and, together with Letter 14-126, the “Letters”), [1] with which many Delegating CPOs could not comply. In addition, Letter 14-126 makes the relief self-executing, i.e., no form requesting relief or even a notice need be filed.

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