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Consumer Casualties?

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Amy J. Schmitz
On July 21, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which among other things calls for creation of the Consumer Financial Protection Bureau (CFPB) to serve as a centralized agency charged with protecting consumers from lending abuses and improper practices. The question is when and whether this agency will come to fruition—or suffer as a casualty of political warfare.

This CFPB has instigated a firestorm among liberals and conservatives. Liberals raise the CFPB as an engine for consumer protection from rampant lender abuses and “big bad banks.” Conservatives denounce the Bureau as expensive regulatory fluff in a “leftist” campaign to take over private business.

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Questioning the 500 Equity Holders Trigger

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William K. Sjostrom, Jr.
An obscure provision of the Securities Exchange Act of 1934 (Exchange Act) has received unprecedented attention in recent months because of the prominent role it appears to be playing in Facebook’s decision on going public. Specifically, Exchange Act Section 12(g)(1) requires any company with “total assets exceeding [$10,000,000] and a class of equity security . . . held of record by five hundred or more . . . persons” to register such security under the Exchange Act. The measurement date for these thresholds is the last day of a company’s fiscal year. It then has 120 days from that date to register. Today, the practical effect of this rule is to force certain types of firms into the public markets earlier than is desirable. A shift from a shareholder-based trigger to one based on trading volume would preserve the Rule’s underlying policy concerns while mitigating this unintended effect.

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Corporate Reorganization as Corporate Reinvention: Borders and Blockbuster in Chapter 11

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Ruth Sarah Lee

At its heart, Chapter 11 is supposed to be about giving struggling businesses a new beginning, predicated on the idea that “a failing business can be reshaped into a successful operation . . . a predictable creation from a people whose majority religion embraces the idea of life from death and whose central myth is the pioneer making a fresh start on the boundless prairie.” However, major Chapter 11 cases filed in the past few months, and the subsequent discussions they provoked, raise a new question to peruse: how new should the new beginning be—how fresh the fresh start? When a corporation vows to change its business model in order to pay back its debts and become more successful, how much is it supposed to change? Can it morph into a completely different corporation after it emerges? Corporations like Borders Group, Inc. (“Borders”) or Blockbuster Inc. (“Blockbuster”) might be making Chapter 11 the fashionable, new way to metamorphose.

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Injury or Deterrence: The End of Class-Action Litigation and Its Benefit to Consumers

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Jason Sherman

On November 8, The Wall Street Journal asked, “Is D-Day Approaching For Class-Actions Lawsuits?” The next day, the Supreme Court heard oral arguments for AT&T Mobility v. Concepcion. The lower courts held AT&T Mobility’s (“ATTM”) adhesion contract’s arbitration clause unconscionable because it prevented class actions through either litigation or arbitration. However, the Federal Arbitration Act, as argued by ATTM, may preempt the finding by the lower courts, ultimately allowing corporations to use “no class action” clauses to shield themselves from class action litigation or arbitration. The media has mostly predicted that the case will be resolved in favor of ATTM, and as Professor Brian Fitzpatrick said, “it could end class-action litigation in American as we know it.” Many believe this lack of access to class action will “have harmful public policy consequences” that “would cut off the only meaningful method to redress widespread discrimination, fraud, or other violations of the law.”

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A Brief History of Hedge Fund Adviser Registration and Its Consequences for Private Equity and Venture Capital Advisers

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William K. Sjostrom, Jr.

Historically, hedge fund advisers have not had to register under the Investment Advisers Act of 1940 (the Advisers Act) because of the private adviser exemption. This exemption applied to an investment adviser who (1) had fewer than fifteen clients during the previous twelve months, (2) did not publicly hold itself out as an investment adviser, and (3) did not advise registered investment companies. Even though a hedge fund routinely has fifteen or more investors, hedge fund advisers were able to meet the fewer than fifteen client requirement because they only had to count as clients the funds they advised (which they were careful to keep at fourteen or fewer) and not individual investors in the funds.

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Understanding the Commercial Real Estate Debt Crisis

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Tanya D. Marsh

The popular, if simplistic, understanding of the most recent economic crisis is that it was triggered by the bursting of an unprecedented residential real estate bubble. In this narrative, the bubble was caused by interrelated factors—the irrational beliefs of homeowners that property values would continue to rise and the aggressive lending practices, which focused on maximizing the size and volume of loan originations at the expense of prudent underwriting. Although we see signs of a slow recovery, the bubble’s collapse continues to have a destabilizing effect on every corner of our economy and society, from financial institutions struggling with “toxic assets” on their balance sheets, to community disruption caused by residential foreclosures.

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