Tag: Investor protection


A Conversation with SEC Chair Mary Jo White

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent interview at the Keynote Session of the 43rd Annual Securities Regulation Institute, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

SEC Chair Mary Jo White participated in a Q&A session with Steven Bochner, Chair of the Securities Regulation Institute. The Q&A was part of Northwestern University School of Law’s 43rd Annual Securities Regulation Institute. The event was held in San Diego, California. This transcript was edited for clarity.

Steven Bochner: It is my great honor to introduce the Alan Levenson keynote speaker and I’m going to read her resume, even though I know most of it by heart, because it’s a long, impressive resume and we’re honored to have you here, Chair White.

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Crowdfunding and the Digital Shareholder

Andrew A. Schwartz is an Associate Professor at University of Colorado Law School. This post is based on Professor Schwartz’s recent article published in The Minnesota Law Review, available here.

After several years of delay, Internet-based securities crowdfunding is finally poised to go live this year thanks to the SEC’s recent issuance of Regulation Crowdfunding. Through crowdfunding, people of modest means will for the first time be legally authorized to make investments that are currently offered exclusively to “accredited” (wealthy) investors. This democratization of entrepreneurial finance sounds great in theory, but will it work in practice? Will non-accredited investors really buy unregistered securities in speculative startups, over the Internet, with only the barest form of disclosure? The conventional wisdom among most legal scholars is, basically, no. In their view, securities crowdfunding is doomed to failure for myriad reasons, including fraud, [1] costs, [2] dilution, [3] adverse selection, [4] opportunism, [5] and more. [6]

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White Collar and Regulatory Enforcement: What to Expect In 2016

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum.

One way in which we expect the white-collar/regulatory enforcement regime in 2016 to continue last year’s pattern is that the government’s appetite for extracting enormous fines and penalties from settling companies will likely continue unabated. However, as we discuss below, the manner in which well-advised companies facing criminal or serious regulatory investigations will seek to mitigate such fines and sanctions will likely change in some important respects in 2016. The reason for this expected change is that U.S. Deputy Attorney General Sally Yates announced late in 2015 that DOJ was formalizing a requirement that, in order to get “any” cooperation credit, companies must come forward with all available evidence identifying individuals responsible for the underlying misconduct subject to investigation.

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Corporate Control and Idiosyncratic Vision

Zohar Goshen is the Alfred W. Bressler Professor of Law, Columbia Law School and Professor of Law at Ono Academic College. Assaf Hamdani is the Wachtell, Lipton, Rosen & Katz Professor of Corporate Law, Hebrew University of Jerusalem. This post is based on an article authored by Professor Goshen and Professor Hamdani.

Prominent technology firms such as Google, Facebook, LinkedIn, Groupon, Yelp, and Alibaba have gone public with the controversial dual-class structure to allow their controlling shareholders to preserve their indefinite, uncontestable control over the corporation. Similarly, in the concentrated ownership structure, a person or entity—the controlling shareholder—holds an effective majority of the firm’s voting and equity rights to preserve control. Indeed, most public corporations around the world have controlling shareholders, and concentrated ownership has a significant presence in the United States as well. Unlike diversified minority shareholders, a controlling shareholder bears the extra costs of being largely undiversified and illiquid. Why, then, does she insist on holding a control block?

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Calculating SEC Civil Money Penalties

Jonathan N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

In addition to going to court to seek sanctions, the Securities and Exchange Commission may impose civil money penalties in its own administrative proceedings on any person who violates or causes a violation of the securities laws. [1] Unlike district courts, administrative law judges do not have authority to base penalties on respondents’ pecuniary gains resulting from violations. [2] Instead, under the various penalty statutes, maximum penalties in administrative proceedings are based on “each act or omission” violating or causing a violation of the securities laws. Currently, the maximum penalties for each act or omission violating the securities laws are:
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Proposed Rule on Registered Funds’ Use of Derivatives

David C. Sullivan is partner in the Investment Management practice at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Mr. Sullivan, Tim Diggins, George Raine and Sarah Clinton.

On December 11, 2015, the SEC issued its long-anticipated release (the “Release”) proposing Rule 18f-4 (“the “Proposed Rule”) under the 1940 Act regarding the use of derivatives and certain related instruments by registered investment companies (collectively, “funds”). The stated objective of the Release is to “address the investor protection purposes and concerns underlying section 18 [of the 1940 Act] and to provide an updated and more comprehensive approach to the regulation of funds’ use of derivatives” in light of the increased participation by funds in today’s large and complex derivatives markets.

We provide an executive summary of the Proposed Rule and other aspects of the Release below and, in the Appendix of the complete publication, we discuss the Proposed Rule in more detail.

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Private Equity Portfolio Company Fees

Ludovic Phalippou is an Associate Professor of Finance at Saïd Business School, University of Oxford. This post is based on an article authored by Professor Phalippou; Christian Rauch, Barclays Career Development Fellow in Entrepreneurial Finance at Saïd Business School, University of Oxford; and Marc Umber, Assistant Professor of Corporate Finance at Frankfurt School of Finance & Management.

When private equity firms sponsor a takeover, they may charge fees to the target company while some of the firm’s partners sit on the company’s board of directors. In the wake of the global financial crisis, such potential for conflicts of interest became a public policy focus. On July 21st 2015, thirteen state and city treasurers wrote to the SEC to ask for private equity firms to reveal all of the fees that they charge investors. The SEC announced on October 7th 2015, that it “will continue taking action against advisers that do not adequately disclose their fees and expenses” following a settlement by Blackstone for $39 million over accelerated monitoring fees.

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United States v. Litvak: Materiality of Pricing Misstatements

This post is based on a Sullivan & Cromwell LLP publication by Adam S. ParisSteven R. PeikinMichael H. Steinberg and Alexander B. Gura. Mr. Paris and Mr. Steinberg are partners in the Litigation Group; Mr. Peikin is partner in the Criminal Defense and Investigations Group; and Mr. Gura is a firm associate.

On December 8, 2015, the Second Circuit issued its decision in United States v. Litvak, which reversed the defendant’s conviction and remanded the case for a new trial. Notwithstanding the reversal, the Court reaffirmed the “longstanding principle” that Section 10(b) of the Securities Exchange Act of 1934 is to be construed “flexibly,” and held that misstatements that might otherwise be considered “seller’s talk,” when viewed through the lens of the federal securities laws, may be material and can result in criminal liability.

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SEC Enforcement Actions Against Broker-Dealers

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg. The complete publication, including footnotes, is available here.

In its 2015 Financial Report, the SEC repeated its view that one of the two principal purposes of the Securities Act of 1933 and the Securities Exchange Act of 1934 is to ensure that “people who sell and trade securities—brokers, dealers and exchanges—must treat investors fairly and honestly, putting investors’ interests first.” Broker-dealers have been and remain a critical focus of the Commission’s enforcement program. In the first 11 months of 2015, the SEC brought enforcement actions against broker-dealers in approximately two dozen distinct areas, with sanctions ranging from less than $100,000 to nearly $180 million.

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Looking Back at the SEC’s Transformation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I started my tenure as an SEC Commissioner in the late summer of 2008, only a few weeks before the collapse of Lehman Brothers and the financial turmoil that followed, and only a few months before one of the largest financial frauds in U.S. history—the Bernard Madoff Ponzi scheme—was exposed. Beyond their obviously substantial impact on the capital markets and the greater economy, these historical events demonstrated that the Commission needed to change and adapt if it was to continue to be an effective regulator. Indeed, in late 2008 and in 2009, the continuing existence of the Commission was a matter of serious speculation. Thus, whether by coincidence or circumstance—some would say a fate of timing—it is not surprising that my tenure has corresponded with one of the most transformational periods in the SEC’s august history.

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