Monthly Archives: March 2016

Single-Counterparty Credit Limits Rule

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer.

On March 4th, the Federal Reserve Board (FRB) reproposed its single-counterparty credit limits (SCCL) rule. The reproposal comes several years after two earlier versions (in 2011 and 2012), [1] and almost two years after the related large exposures framework issued by the Basel Committee on Banking Supervision (BCBS). [2] It is intended to reduce systemic risk by limiting a large banking organization’s credit exposure to any single counterparty as a percentage of the bank’s capital. The reproposal would apply to large banking organizations with over $50 billion in total consolidated assets, including US bank holding companies (BHCs), intermediate holding companies (IHCs), and foreign banking organizations’ (FBOs) combined US operations. [3]

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2015 Review of BSA/AML and Sanctions Developments

This post is based on the Executive Summary of a Sullivan & Cromwell LLP publication authored by Elizabeth T. Davy, Jared M. Fishman, Eric J. Kadel Jr., and Jennifer L. Sutton. The complete publication, including footnotes, is available here.

This post highlights what we believe to be the most significant developments and trends during 2015 for financial institutions with respect to U.S. Bank Secrecy Act/anti-money-laundering (“BSA/AML”) and U.S. sanctions programs, including sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). In 2015, the overarching trend continued to be an intense focus on BSA/AML and sanctions compliance by multiple government agencies, combined with increasing regulatory expectations and significant enforcement actions and penalties, and an increased focus on individuals. Government agencies continued to emphasize money-laundering and terrorist-financing risks, threats and vulnerabilities seen in prior years, as well as the emergence of certain new threats associated with advances in technology. We do not see these trends abating in the near term.

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Proposed Revisions to 13(d) Beneficial Ownership Reporting Rules

Theodore N. Mirvis is a partner in the Litigation Department at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton publication by Mr. Mirvis, Adam O. Emmerich, David A. KatzSabastian V. Niles, and Jenna E. Levine. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

Legislation introduced yesterday [March 17, 2016] in Congress calls for substantial steps to be taken towards increasing transparency and fairness in the public equity markets. If adopted, the Brokaw Act would direct the Securities and Exchange Commission to amend the Section 13(d) reporting rules. The proposed amendments would include shortening the filing window applicable to the acquisition of a 5% stake in an equity security from ten days to two business days and requiring the public reporting of significant “short” positions. The legislation would also broaden the scope of the rules by recognizing that possession of a pecuniary interest in a security constitutes beneficial ownership, and by specifically targeting the covert collusion of activist “wolf packs.”

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Omnicare: Liability Standards for Statements of Opinion

Brad S. Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum by Mr. Karp, Charles E. DavidowDaniel J. KramerAudra J. SolowayRichard A. Rosen, and Andrew J. Ehrlich.

On March 4, 2016, in Tongue v. Sanofi, [1] the Second Circuit interpreted and applied for the first time the Supreme Court’s decision in Omnicare Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, [2] which addressed the circumstances under which issuers can be liable for statements of opinion or projections. The Second Circuit acknowledged that the Omnicare ruling has altered the law in the Circuit, as set forth in Fait v. Regions Financial Corp., [3] which allowed for liability only if the opinion was both (1) objectively false and (2) the speaker did not believe the statement at the time it was made. The Second Circuit observed that, under Omnicare, a plaintiff can alternatively allege that an opinion statement is false by pleading that the speaker omitted information that would render the opinion misleading to a reasonable investor.

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Weekly Roundup: March 11-March 17


More from:

This roundup contains a collection of the posts published on the Forum during the week of March 11, 2016 to March 17, 2016.

Antitrust Enforcement of Small Acquisitions











Individuals in the Cross Hairs? What This Means for Directors

David Woodcock is a partner at Jones Day. This post is based on a Jones Day publication by Mr. Woodcock and John T. Sullivan. The complete publication, including footnotes, is available here.

Following the 2008 financial crisis, government regulators and prosecutors have been under tremendous public pressure to prosecute individuals. Senior government officials have responded by speaking forcefully about their desires to sue or prosecute more individuals. What does the government’s heated rhetoric and renewed focus on individual liability mean for corporate directors? As the chairman of the Securities and Exchange Commission (“SEC”) recently noted, “[s]ervice as a director is not for the faint of heart….”But the good news is that directors who perform their role with even a modicum of reasonableness are highly unlikely to be held personally liable in carrying out their responsibilities. Of course, most directors aspire to more than staying out of trouble. As a former SEC chairman put it: “It is not an adequate ethical standard to aspire to get through the day without being indicted.”

This post will discuss the landscape of director liability in the SEC context and provide some suggestions that may help directors minimize the risks of regulatory scrutiny.

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Business Groups in Canada: Their Rise and Fall, and Rise and Fall Again

Randall Morck is Professor of Finance at the University of Alberta. This post is based on an article authored by Professor Morck and Gloria Tian, Assistant Professor of Finance at the University of Lethbridge.

Outside the United States, seemingly independent listed firms can be controlled as a unit via pyramiding. Chart 1 illustrates: An apex firm, often a family firm, holds enough equity in each subsidiary to control its shareholder meeting, letting public shareholders own the rest (its public float). Because public shareholders rarely vote, the Canada Business Corporations Act infers control from 20% stakes, but recognizes de facto control from smaller stakes. Subsidiaries repeat this, as do their subsidiaries, their subsidiaries’ subsidiaries, and so on ad valorem. A large Canadian pyramid contained over 500 listed and unlisted firms in 16 tiers of subsidiaries at its peak around 1990.

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Board Leadership Structure: Impact on CEO Pay

Carol Bowie is Head of Americas Research at Institutional Shareholder Services (ISS). This post is based on a recent publication authored by ISS U.S. Research analysts Steve Silberglied and Zachary Friesner. The complete publication is available here. Related research from the Program on Corporate Governance includes the book Pay without Performance: The Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried.

Do more titles equal higher pay? It is well-documented that U.S. CEOs’ compensation, when compared to that of the average worker, has ballooned in recent decades. Past studies of the drivers of CEO pay at public companies have largely focused on firm size, number of employees, revenues, and TSR (total shareholder return) among other factors. A recent analysis examines whether and, if so, how board structure may impact CEO compensation. Specifically, the analysis tests whether a combined CEO/chairman role correlates to higher pay, and if a particular board leadership structure has a statistically significant relationship with CEO compensation. The analysis focuses on S&P 500 companies whose board structure remained relatively constant over a recent three-year period, to provide a consistent view of the trends.

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What’s Behind the All-Time High in M&A?

Emily Liner is a Policy Advisor at Third Way. This post is based on a Third Way publication. The complete publication, including footnotes, is available here.

Headlines over the past year have been filled with news of mega-mergers. Big companies across numerous sectors and continents have been joining forces at record rates. Last year’s $5 trillion worth of deals worldwide was more than a one-third increase over 2014 and set a new high. Why the surge in M&A, and what does it mean for the broader economy?

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Succeeding in the New Paradigm for Corporate Governance

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 a Wachtell Lipton memorandum by Mr. Lipton, Sabastian V. Niles, and Sara J. Lewis. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), and The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here). Critiques of the Bebchuk-Brav-Jiang study by Wachtell Lipton, and responses to these critiques by the authors, are available on the Forum here.

Recognizing that the incentive for long-term investment is broken, leading institutional investors are developing a new paradigm for corporate governance that prioritizes sustainable value over short-termism, integrates long-term corporate strategy with substantive corporate governance and requires transparency as to director involvement. We believe that the new paradigm can reduce or even eliminate the outsourcing of corporate governance and portfolio oversight to ISS and activist hedge funds.

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