Tag: Jurisdiction


SEC Proposal on Resource Extraction Payments

Nicolas Grabar and Sandra L. Flow are partners in the New York office of Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum. The complete publication, including footnotes and Annex, is available here.

On December 11, 2015, the Securities and Exchange Commission (the “Commission”) issued a proposed rule (the “Proposed Rule”) on disclosure of resource extraction payments, more than two years after a federal court vacated a prior version of the rule. The Proposed Rule is similar in many ways to the Commission’s original rule, adopted in August 2012 (the “2012 Rule”)—in large part because the Commission is implementing a detailed congressional directive contained in Section 1504 of the 2010 Dodd-Frank Act. However, in addition to addressing the deficiencies the court found in the original rulemaking, the Commission has made other notable changes to reflect global developments in transparency for resource extraction payments, particularly in the European Union and Canada.

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2015 Securities Law Developments

Jason M. Halper is a partner in the Securities Litigation & Regulatory Enforcement Practice Group at Orrick, Herrington & Sutcliffe LLP. This post is based on an Orrick publication by Mr. Halper, Paul F. RuganiKatherine L. Maco, Katie Lieberg Stowe, and Suzette Pringle.

On balance, the securities litigation landscape in 2015 offered a glass half-full/glass half-empty perspective for issuers and their officers, directors and advisors. Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015), the major securities law decision of the 2015 Supreme Court term, afforded defendants relatively greater protection from liability based on public statements of opinion, as long as those opinions are honestly held and have a reasonable factual basis. The SEC suffered several notable setbacks, with some federal courts striking as unconstitutional the highly debated conflict minerals rule and the SEC’s method of appointing administrative law judges. The Second Circuit significantly restricted federal prosecutors’ ability to pursue downstream recipients of non-public information, resulting in a spate of overturned convictions and withdrawn guilty pleas. And although decisions from lower courts within the Second Circuit dismissing derivative lawsuits will be subject to less deferential review, both the Second Circuit and the Delaware Supreme Court reaffirmed that decisions of independent and disinterested boards to reject stockholder demands are entitled to business judgment rule protection, thereby precluding minority shareholder second guessing in private lawsuits. Yet the results were not uniformly favorable to the defense. The SEC took an expansive view of Dodd-Frank’s whistleblower anti-retaliation provision, formalizing its view that such protections apply to whistleblowers who allege retaliation for reporting internally (as opposed to reporting to the SEC). The Second Circuit endorsed the SEC’s view shortly thereafter. And, the early returns from last year’s second Supreme Court decision in Halliburton suggest that rebutting the Basic presumption of reliance through price impact evidence will be a lofty hurdle for defendants at the class certification stage. Below is a roundup of key securities law developments in 2015 and trends for 2016.

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Regulatory Competition in Global Financial Markets

Wolf-Georg Ringe is Professor of International Commercial Law at Copenhagen Business School and at the University of Oxford. This post is based on an article authored by Professor Ringe.

The decades-long discussion on the merits of regulatory competition appears in a new light on the global financial market. There are a number of strategies that market participants use to avoid the reach of regulation, in particular by virtue of shifting trading abroad or else relocating activities or operations of financial institutions to other jurisdictions. Where this happens, such arbitrage can trigger regulatory competition between jurisdictions that may respond to the relocation of financial services (or threats to relocate) by moderating regulatory standards. Both arbitrage and regulatory competition are a reality in today’s global financial market, and the financial sector is different from their traditional fields of application: the ease of arbitrage, the fragility of banking and the risks involved are exceptional. Most importantly, regulatory arbitrage does not or only rarely occurs by actually relocating the financial institution itself abroad: rather, banking groups tend to shift trading to foreign affiliates.

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Enforcement Discretion at the SEC

David Zaring is an Associate Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania. This post is based on an article authored by Professor Zaring.

The Dodd Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all.

The SEC has vigorously—and, my article argues, correctly—defended its power to choose where it sues. Agencies have always enjoyed unfettered discretion to choose their enforcement targets and their policy making fora. Formal adjudication under the Administrative Procedure Act (APA), which is the process SEC ALJs offer, has been with us for decades, and has never before been thought to be unconstitutional in any way. It violates no rights, nor offends the separation of powers; if anything scholars have bemoaned the fact that it offers inefficiently large amounts of process to defendants, administered by insulated civil servants who in no way threaten the president’s control over the executive branch. Nonetheless, because defendants, advised by high profile lawyers, have raised appointments clause, due process, equal protection, and right to a jury trial claims against the agency, the article reviews the reasons why these claims will fail, and discusses the timing issues that have led the two appellate courts to address the claims to dismiss them as prematurely brought.

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SEC Proposed Amendments to Rules for Administrative Proceedings

Barry R. Goldsmith is a partner at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Mr. Goldsmith, Joel CohenMarc J. Fagel, Monica K. Loseman, and Mark Schonfeld.

On September 24, 2015, the Securities and Exchange Commission announced it had voted to propose amendments to rules governing its administrative proceedings. SEC Chair Mary Jo White noted that the “proposed amendments seek to modernize our rules of practice for administrative proceedings, including provisions for additional time and prescribed discovery for the parties.” [1] These proposals follow the SEC’s June 2014 announcement that it intended to bring more cases through administrative proceedings rather than in federal court [2] and the release of the Division of Enforcement’s May 2015 guidance entitled “Approach to Forum Selection in Contested Actions,” explaining how the SEC chooses between administrative proceedings and federal court to litigate its claims. [3]
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The New European Model Company Act

Marco Ventoruzzo is a comparative business law scholar with a joint appointment with the Pennsylvania State University, Dickinson School of Law and Bocconi University.

On September 10 and 11, 2015, at the annual conference of the European Company and Financial Law Review at WU University in Vienna, the “European Model Company Act” (“EMCA”) made its debut to an audience of corporate law professors, practitioners and judges, introduced to society by its drafters (your correspondent must disclose that, while not involved in the drafting of the EMCA, he is one of the editors of the journal co-organizing the event, and was one of the discussants of the document).

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Regulatory Approvals for Bank M&A

Edward D. Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy and Richard K. Kim.

The Federal Reserve’s approval last week of M&T’s pending acquisition of Hudson City has prompted a great deal of speculation as to the current state of the regulatory approval process for bank mergers and acquisitions. Announced over three years ago, on August 27, 2012, the M&T/Hudson City transaction has taken longer to receive Federal Reserve approval than any other bank merger. Many in the industry have interpreted the delay in receiving approval for the merger as representing a policy change by the Federal Reserve. As discussed below, we view the transaction as largely an idiosyncratic event that is a result as much of timing as any policy shifts by the Federal Reserve. With this approval, taken together with the others that the Federal Reserve has issued over the past several months, there is now more clarity and certainty to the regulatory approval process for bank M&A. With the exception of the largest systemically important banks, there is no regulatory policy impeding bank mergers.

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England and Germany Limit Bank Resolution Obligations

Solomon J. Noh and Fredric Sosnick are partners in the Financial Restructuring & Insolvency Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication.

In two recent decisions, European national courts have taken a narrow view of their obligations under the Bank Recovery and Resolution Directive (BRRD)—the new European framework for dealing with distressed banks. The message from both the English and the German courts was that resolution authorities must adhere strictly to the terms of the BRRD; otherwise, measures that they take in relation to distressed banks may not be given effect in other Member States.

Goldman Sachs International v Novo Banco SA

In August 2014, the Bank of Portugal announced the resolution of Banco Espírito Santo (BES), what at the time was Portugal’s second largest bank. That announcement followed the July disclosure of massive losses at BES, which compounded a picture of serious irregularities within the bank that had been developing for several months. As part of the resolution, BES’s healthy assets and most of its liabilities were transferred to a new bridge bank, Novo Banco (the so-called “good bank”), which received €4.9 billion of rescue funds—while troubled assets and “Excluded Liabilities,” categories specifically identified in the BRRD, remained at BES (the “bad bank”). Amongst those liabilities initially deemed to have transferred to Novo Banco in August was a USD $835 million loan made to BES via a Goldman Sachs-formed vehicle, Oak Finance.

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Federal Court Injunction Against SEC Prosecution

John J. Falvey, Jr. and Daniel J. Tyukody are partners in the Securities Litigation & White Collar Defense Group at Goodwin Procter LLP. This post is based on a Goodwin Procter Financial Services Alert.

A federal judge in Manhattan recently granted a preliminary injunction against the Securities and Exchange Commission in the latest of a series of rulings raising issues with the SEC’s use of in-house proceedings before its administrative law judges (“ALJs”) rather than proceed with its charges in federal court. The SEC has prevailed more frequently in its administrative proceedings than it has in federal court, where defendants have more robust procedural rights. This ruling by a judge in the Southern District of New York indicates the federal courts’ ongoing concerns with the SEC’s increased preference for administrative proceedings before its own ALJs. But the SEC has the ability to correct the constitutional flaw that the court found to exist with its appointments of ALJs, suggesting that this and similar rulings will likely only raise a short-term disruption of the SEC’s use of its in-house courts.

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Court Strikes NYC’s “Responsible Banking Act”

Robert J. Giuffra, Jr. is a partner in the Litigation Group at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication by Mr. Giuffra, H. Rodgin Cohen, Matthew A. Schwartz, and Marc Trevino.

On August 7, 2015, in a 71-page opinion, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York struck down New York City Local Law 38 of 2012, entitled the “Responsible Banking Act” (“RBA”), as preempted by federal and state banking law. The RBA—enacted by the City Council on June 28, 2012, over Mayor Bloomberg’s veto—established an eight-member Community Investment Advisory Board (“CIAB”), charged with collecting data at the census-tract level from the 21 banks eligible to receive some of the City’s $150 billion in annual deposits. This data, which went beyond data required by federal and state banking regulators and would be disclosed publicly, covered a variety of categories ranging from the maintenance of foreclosed properties, to investment in affordable housing, to product and service offerings. Based on the data collected and feedback from public hearings, the CIAB was to develop “benchmarks and best practices” against which the deposit banks were to be evaluated, including against each other, in a publicly filed annual report. The report was to identify deposit banks that refused to provide the requested data. Finally, the RBA provided that the City’s Banking Commission—responsible for designating eligible deposit banks—“may” consider the CIAB’s annual report in making its designation decisions.

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