BANKRUPTCY
RESTRUCTURING SOVEREIGN DEBT UNDER LOCAL LAW: ARE RETROFIT COLLECTIVE ACTION CLAUSES EXPROPRIATORY?
Melissa A. Boudreau
The European sovereign debt crisis has generated a number of controversial restructuring proposals that would have seemed appropriate only for emerging markets just a few years ago, but now are among the few options available to sustain the Eurozone. The leading proposal involves legislation that would mandate collective action clauses in untendered bonds governed under local law. This Note evaluates whether enacting this legislation and utilizing it in a debt restructuring would engender successful investor claims of invalid expropriation against the sovereign in American courts, and concludes that a successful claim of invalid expropriation is unlikely.
SECURITIES & FINANCIAL REGULATION • BUSINESS & CORPORATIONS
CAPTURING TIME IN FINANCIAL STATEMENTS
George M. Williams Jr.
The Dodd-Frank Wall Street Reform and Consumer Protection Act[1] applies a number of heightened standards to bank holding companies with consolidated assets of $50 billion or more and to nonbank financial companies that have been subjected to supervision by the Board of Governors because of their systemic importance. Among these standards are new liquidity and capital requirements (the “Liquidity Standard”)[2] and a new requirement (the “Resolution Plan Requirement”) to prepare and maintain a resolution plan that articulates how the relevant company could best be dismembered if it represented a threat to the financial stability of the United States.[3] One of the, perhaps unintended, effects of these new standards may be to provide an additional reason for rethinking the form and purpose of financial statements prepared by financial institutions.
MERGERS & ACQUISITIONS • SECURITIES & FINANCIAL REGULATION
COMMENTS ON SEASONING OF REVERSE MERGER COMPANIES BEFORE UPLISTING TO NATIONAL SECURITIES EXCHANGES
David N. Feldman
Blockbuster Entertainment, Occidental Petroleum, Turner Broadcasting, Tandy Corp. (Radio Shack), Texas Instruments, Jamba Juice, and Berkshire Hathaway are just a few well-known companies that went public through a “reverse merger.” To the uninitiated, a reverse merger is a deceptively simple concept. Instead of pursuing a traditional initial public offering (IPO) utilizing an investment bank as an underwriter, a company arranges for its stock to be publicly traded following a merger or similar transaction with a publicly held “shell” company. The public shell has no other business but to look for a private company to merge with. Upon completion of the merger, the private company instantly becomes public. The shareholders of the private company typically take over the majority of the stock of the former shell, enabling them to still operate the business of the formerly private company.
POLITICS & ECONOMICS
ECONOMIC CRISES AND EMERGENCY POWERS IN EUROPE
Ragnhildur Helgadóttir
This article discusses the state reactions to financial crises from the point of view of domestic constitutional law and the main international obligations of European countries. State reactions in such circumstances have been very different, and so have the legal questions they raise. This article will describe the legal framework that applies to state action in such circumstances. Part 3 will briefly describe how Iceland reacted to its crisis in October 2008 and how courts and international organizations have dealt with its reactions.
CORPORATE LAW & GOVERNANCE
WHAT IS THE PRACTICAL IMPORTANCE OF DEFAULT RULES UNDER DELAWARE LLC AND LP LAW?
Mohsen Manesh
Despite much academic debate, it is now well settled that in Delaware at least, corporate law differs from unincorporated alternative entity law in one fundamental respect. Under Delaware corporate law, fiduciary duties are mandatory. These duties, owed by the managers of a corporation to the shareholders of the firm, in general cannot be waived or modified by contract. Under Delaware law governing limited liability companies (LLCs) and limited partnerships (LPs), however, fiduciary duties are merely default duties. Although managers of these alternative entity firms owe fiduciary duties, these duties may be modified or even wholly eliminated by the terms of the alternative entity governing agreement.
ENVIRONMENTAL, SOCIAL, & GOVERNANCE • SECURITIES & FINANCIAL REGULATION
CONFLICT MINERALS AND SEC DISCLOSURE REGULATION
Celia R. Taylor
Mention the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”), and most people think of legislation aimed at “fundamental reform of the financial system” focused on regulation of Wall Street practices and complex financial products. But tucked within the voluminous text of the Act (which consists of 2,300 pages and stipulates the passage of 387 rules by 20 different agencies) is a provision having nothing to do with these issues or anything remotely related to them. Instead the “conflict minerals” provision of the Act requires companies that are subject to the reporting requirement of the federal securities laws to disclose whether they manufacture products using so-called “conflict minerals” sourced from the Democratic Republic of Congo (“DRC”) or contiguous countries.
SECURITIES & FINANCIAL REGULATION
PROPOSED SEC RULES COULD LIMIT CARRIED INTEREST AND INCENTIVE COMPENSATION PAID BY PRIVATE EQUITY FIRMS
Elizabeth Pagel Serebransky, Michael P. Harrell, Jonathan F. Lewis and Charity Brunson Wyatt
On April 14, 2011, the Securities and Exchange Commission (“SEC”) and several other federal agencies jointly published proposed rules aimed at governing incentive compensation practices at a broad range of banks and other financial institutions, including private equity firms. The proposed rules were intended in part to address situations where employees at financial firms were perceived to have exposed their institutions to long-term risks in exchange for near-term fees to the institutions (and large near-term bonuses to the employees), leading to excessive risk taking and even, possibly, the risk of adverse impacts on the financial system should those institutions find themselves in material distress.
CORPORATE LAW & GOVERNANCE • SECURITIES & FINANCIAL REGULATION
DODD-FRANK, COMPENSATION RATIOS, AND THE EXPANDING ROLE OF SHAREHOLDERS IN THE GOVERNANCE PROCESS
J. Robert Brown, Jr.
Congress, in adopting the Dodd-Frank Act, sought to correct some of the abuses believed to have contributed to the financial crisis of 2008-2009. Executive compensation was one of them. Formulas used to determine compensation were thought to promote a short-term perspective that encouraged excessive risk taking. As a result, financial regulators were given the authority to review compensation practices for risk. Likewise, the Act sought to strengthen the integrity of the compensation approval process and to increase clawbacks of performance-based compensation following certain restatements.
SECURITIES & FINANCIAL REGULATION
DODD-FRANK AND THE FUTURE OF FINANCIAL REGULATION
Edward F. Greene
Dodd-Frank represents the most sweeping changes to the financial regulatory environment in the United States since the Great Depression. While its enactment was important, the Act is seriously flawed. It does not deal with regulatory fragmentation, sidesteps international coordination, and is overly optimistic in dealing with too-big-to-fail. Going first doesn’t mean you get it right.
SECURITIES & FINANCIAL REGULATION
THE CRYSTALLIZATION OF HEDGE-FUND REGULATION
Jeff Schwartz
Eleven months after Dodd-Frank was signed into law, the SEC issued final rules pertaining to Title IV of the Act, which calls for the registration of advisers to hedge funds and similar private investment vehicles. This brief essay looks at the legislation and the rulemaking that followed from a procedural perspective. Namely, I focus on how much discretion Congress delegated to the SEC in shaping the final rules and the SEC’s use of that discretion. I find that the legislation granted a great deal of rulemaking authority to the SEC—authority that extended to the central elements of the regulatory scheme—and that the Commission used this power to extend federal oversight to a wide swath of the private-fund marketplace.
SECURITIES & FINANCIAL REGULATION
A CONSULTANT’S VIEW OF DODD-FRANK
David Mader
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is ambitious and complex legislation designed to significantly transform the way the financial system operates. Yet in a year’s time, the rule-making and regulatory process has not yet delivered the kind of detail or clarity anyone expected. A big reason: The sheer scale of the law—more than 2,300 pages, requiring more than 290 new regulations and 13 new agencies.
SECURITIES & FINANCIAL REGULATION
THE SEC’S NEW DODD-FRANK ADVISERS ACT RULEMAKING: AN ANALYSIS OF THE SEC’S IMPLEMENTATION OF TITLE IV OF THE DODD-FRANK ACT
Kenneth W. Muller, Jay G. Baris, and Seth Chertok
The Investment Advisers Act of 1940, as amended (the “Advisers Act”) requires “investment advisers” within the meaning of the Advisers Act with assets under management (“AUM”) in excess of the new statutory floor to register with the Securities and Exchange Commission (“Commission” or “SEC”), unless they qualify for an exemption from registration. Among other things, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) repealed Section 203(b)(3) of the Advisers Act, the “private adviser” exemption, which many investment advisers relied upon. Section 203(b)(3) exempted from registration certain investment advisers having fewer than 15 clients in any 12-month period if they met certain conditions. In applying the numerical limit in the old Section 203(b)(3), which the Dodd-Frank Act repealed, the SEC generally permitted investment advisers to count as a single “client” any fund they advise, but the SEC did not require such funds to count the individual investors as separate clients. Accordingly, private fund managers had been able to rely upon the private advisers exemption in Section 203(b)(3) and advise a substantial number of separate funds (not more than 14 in any 12-month period) without becoming subject to SEC registration.
SECURITIES & FINANCIAL REGULATION
DODD-FRANK AT ONE YEAR: GROWING PAINS
J.C. Boggs, Melissa Foxman, and Kathleen Nahill
Addressing a joint session of Congress for the first time in February 2009, President Obama asked Congress to “put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse.” Nine months later, on November 3rd, then-Financial Services Committee Chairman Barney Frank (D-MA) introduced the Financial Stability Improvement Act. The bill grew exponentially throughout the month of November, and by the time H.R. 4173 came before the full House of Representatives on December 10th, Rep. Frank’s 380-page bill had expanded to 1,279 pages. When the final conference bill was signed into law on July 21, 2010, not only was it the most significant regulatory overhaul since the New Deal, but at almost 2,400 pages, it was more than twice the length of the three previous regulatory bills – the Securities Act of 1933, the Securities Exchange Act of 1934 and Sarbanes-Oxley – combined.
CONSUMER PROTECTION
REGULATING PAYDAY LOANS: WHY THIS SHOULD MAKE THE CFPB’S SHORT LIST
Nathalie Martin
In response to the nation’s biggest financial challenge since the depression, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), which in turn created the Consumer Financial Protection Bureau (the “CFPB”). The mission of the CFPB is to ensure that “markets for consumer financial products and services are fair, transparent, and competitive.” The Act prohibits unfair, deceptive, and abusive acts, and charges the CFPB with creating rules and enforcement actions against all covered persons that engage in an “unfair, deceptive, and abusive act or practice.” The Act also requires that the CFPB regulate consumer disclosures and test consumers to see how those disclosures are working.
SECURITIES & FINANCIAL REGULATION
THE SEC’S WHISTLEBLOWER PROGRAM: WHAT THE SEC HAS LEARNED FROM THE FALSE CLAIMS ACT ABOUT AVOIDING WHISTLEBLOWER ABUSES
Douglas W. Baruch and Nancy N. Barr
The Dodd-Frank Wall Street Reform and Consumer Protection Act’s (“Dodd-Frank Act”) sweeping overhaul of the financial system now requires the SEC to pay substantial monetary awards to whistleblowers who disclose wrongdoing by publicly traded companies, financial services institutions, and other covered entities, and it prohibits employers from retaliating against SEC whistleblowers. On May 25, 2011, the SEC adopted final rules implementing these new mandates. Although the rules become effective 60 days after publication in the Federal Register, they apply retroactively to tips provided on or after July 21, 2010, Dodd-Frank’s enactment date. The SEC’s new whistleblower program borrows heavily from the whistleblower provisions of the civil False Claims Act (“FCA”), albeit with important distinctions that reflect an attempt by the SEC to distance itself from some of the problems plaguing FCA enforcement.
CONSUMER PROTECTION
DEBIT INTERCHANGE REGULATION: ANOTHER BATTLE OR THE END OF THE WAR?
Stacie E. McGinn and Mark Chorazak
As one governor of the Board of Governors of the Federal Reserve System (the “Board” or “Federal Reserve”) recently observed, “the financial crisis spawned or strengthened many reform agendas—among them consumer protection, securities and commodities market regulation, and traditional bank regulation.” The crisis also created opportunities unrelated to these reform agendas. At least one group—merchants—realized a legislative goal that had been unimaginable a year earlier: giving the Federal Reserve the authority to set debit interchange rates.
SECURITIES & FINANCIAL REGULATION
STRAIGHT TALK FROM A PRACTITIONER: NOTES FROM UNDER THE WALL
Steven Lofchie and Theresa Perkins
As a financial regulatory lawyer, I am accustomed to being cautious in my pronouncements. Equivocal and timid. When clients ask me for hard advice, rather than answer them, I often just rub my hands together like Uriah Heep and mumble, “that is a very good question.” If you search me on the Internet, you will see that my writing resulted in one commenter describing me as “the world’s most boring man.”
SECURITIES & FINANCIAL REGULATION
DODD-FRANK ACT HAS ITS FIRST BIRTHDAY, BUT DERIVATIVES END USERS HAVE LITTLE CAUSE TO CELEBRATE
Michael Sackheim and Elizabeth M. Schubert
A year has passed since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Title VII of the Dodd-Frank Act, entitled the Wall Street Transparency and Accountability Act of 2010 (“Title VII”) created a new transparent exchange-type trading marketplace for over-the-counter swaps subject to regulation by the Commodity Futures Trading Commission (“CFTC”) and security-based swaps subject to regulation by the Securities and Exchange Commission (“SEC”) (collectively, “OTC derivatives” or “swaps”). This article will discuss the significant impact Title VII has, and will continue to have, on the end user, or “buy” side, of the derivatives markets.