It is well known that Chair White and her staff have stressed that their immediate focus is on completing the mandatory rulemaking under the Dodd-Frank and JOBS Acts, but in a sign of possible things to come after that task, Chair White spoke to the National Association of Corporate Directors (NACD) about the risk of information overload in the disclosure companies provide to investors.
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Due in large part to the $9.2 billion it set aside to cover mounting legal expenses, JPMorgan Chase, the nation’s largest bank, suffered its first quarterly loss under CEO Jamie Dimon. JPMorgan reported a loss of $380 million, or 17 cents per share for the third quarter, compared with a profit of $5.71 billion, or $1.40 per share just a year earlier. This cast a somber tone for the unusually humble Dimon, stating that the loss was “very painful for me personally.”
On October 9th, President Obama nominated Janet L. Yellen to be the chairwoman of the Federal Reserve and his independent co-steward of the economy. In his nomination, Obama described her as one of the nation’s foremost economists and policy makers.
SAC Capital Advisors has been under intense pressure from government regulators—and it appears that its chief, Stephen A. Cohen, may be ready to make a deal. Amongst the biggest provisions under negotiation on insider trading charges, as reported this week by the New York Times, is a requirement that SAC may be required to exit the investment advisor business entirely. While Cohen could still manage his personal fortune, he would not be allowed to invest with others’ money; this represents a major strategy shift for the once-famed hedge fund. What’s more, the deal will likely require SAC to admit to criminal misconduct and the parties have “agreed in principle” (according to the Huffington Post) to record-setting penalties and restitution upwards of $1 billion. The plea agreement is no yet a done-deal and either party may yet balk at the proposal, but it will represent a significant victory for the government if its goes through.
Google is on the rise once again. The dominant search-engine company’s stock traded above $1,000 per share this morning for the first time, up more than 13%. Google exceeded analysts’ expectations, reporting a 23% rise in Internet-related revenue last quarter as the company’s focus on mobile-based content and advertising proved successful. The shift towards smartphones, iPads, and tablets has pushed down cost-per-click ad revenue, but growth Google’s traffic and ad volume has ‘outpaced’ this trend according to a Reuters interview.
[Editor’s Note: The following piece is authored by Benjamin S. Kaminetzky of Davis Polk & Wardwell LLP.]
Through various affiliated entities, large financial institutions may have multiple touch points to a company client or multiple roles in a complex financial transaction. For example, one affiliate could have an equity interest in a company, another affiliate could have a lending relationship with the company and yet a third affiliate could provide financial advisory services to the same company. Such scenarios pose a risk that the lending entity will be deemed an ‘‘insider’’ of the company under the Bankruptcy Code (the ‘‘Code’’) or similar state law. Insider status may in turn have significant ramifications on any potential recovery from the target company in bankruptcy, putting financial institutions at significantly greater risk of having long- completed transactions reversed and funds clawed back and/or having their claims in bankruptcy sent to the back of the line.
Financial institutions therefore scored a significant victory on April 9, 2013, when Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed Capmark Financial Group Inc.’s (‘‘Capmark’’) insider preference action against four lender affiliates of The Goldman Sachs Group, Inc. (‘‘Goldman Sachs’’), which arose out of Capmark’s 2009 bankruptcy. Davis Polk represented the Goldman Sachs lender affiliates. The court held that mere participation by corporate sister subsidiaries in lending and equity relationships with the debtor is insufficient with- out more to make the lending subsidiary an insider of the debtor, even if a sister subsidiary has a director on the debtor’s board. In doing so, the court reaffirmed that corporate veils separating a lender from an affiliated entity that may be an insider of the debtor will not lightly be disregarded, and that participation in an arm’s-length transaction as an ordinary commercial lender will not give rise to insider status. As a result, the Capmark decision should pose a substantial obstacle to claims alleging that a lender is an ‘‘insider’’ by virtue of affiliated entities’ contacts with a debtor, at least in the absence of evidence that the lender used the affiliates’ contacts to influence the debtor’s decisions.
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Maurer v. Maurer, 2013 NCBC 44, is a continuation of several Business Court opinions (2005 NCBC 1, 2005 NCBC 4, and 2006 NCBC 1), which involves extensive litigation between Jill L. Maurer (“Ms. Maurer”) and SlickEdit Inc., a software corporation owned by her and her husband, Joseph Clark Maurer (“Mr. Maurer”). In Maurer v. Maurer, a North Carolina superior court found that there is no special fiduciary duty in favor of one fifty percent owner against a fellow fifty percent owner who has effective control.
The allegations arose after the conversion of SlickEdit Inc., into a Subchapter “S” corporation in May 2008. Ms. Maurer and Mr. Maurer, former spouses, each held fifty percent of issued and outstanding shares in the corporation. Ms. Maurer brought individual claim action for breach of fiduciary duties against Mr. Maurer, the sole director, Chief Executive Officer, President and Corporate Secretary of SlickEdit Inc. She alleged that Mr. Maurer abused his control by operating and implementing an overall system designed to exclude her from any knowledge of or participation in corporate affairs despite her equal ownership in the corporation. The Amended Complaint included, inter alia, allegations that Ms. Maurer was precluded from voting in a fair election of directorsand that she had been denied access to details of SlickEdit’s plans, operations, and financials and other corporate books and records.
In an “unprecedented” case, the issue before the court was whether it could extend the line of appellate cases to impose a fiduciary duty in favor of one fifty percent owner against the other fifty percent owner who had effective control.
Last Tuesday, October 8, 2016, England enacted the second phase of its Help to Buy plan, which encourages low-deposit borrowing for purchases of newly built and already existing homes. The first phase of the plan was enacted this April, and the plan is set to run for the next three years.
Under the first phase, the government will provide a 20% equity loan toward the purchase of a new home priced at £600,000 or less when the purchaser deposits 5% of the purchase price up front. These loans are interest free for the first five years, accrue at an interest rate of 1.75% for the sixth year, and accrue at a floating rate of 1% plus the Retail Price Index inflation rate for every subsequent year.
Under the second phase, registered lenders, who have paid the necessary fees to the government, may offer a mortgage covering up to 95% of the purchase price of a new or existing home valued at £600,000. The purchaser, however, is required to deposit 5% of the value up front. In return, lenders will receive a seven-year guarantee from the government covering 15% of the loan value.
The four participating lenders have already revealed their rates, but some lenders have been more reluctant to join the program. RBS and NatWest are offering a two-year, no fee fixed-rate mortgage (FRM) starting at 4.99% for those depositing 5% of the home value. Halifax is offering a starting rate of 5.19% with a £995 fee. While somewhat competitive for the low-deposit market, these rates are not competitive with higher-deposit rates.
On October 2, 2013, the Federal Bureau of Investigation arrested Ross William Ulbricht, a.k.a. “Dread Pirate Roberts,” in connection with operating Silk Road, an online drug marketplace, and executing a murder-for-hire of a site user. FBI officials shut down the Silk Road website hours after Ulbricht’s arrest and seized approximately $3.6 million in Bitcoin, making it the second largest Bitcoin seizure in history. The criminal complaint against Ulbricht filed by prosecutors in the Southern District of New York charged Ulbricht on three counts: narcotics trafficking, computer hacking, and money laundering.
Described as an “Amazon.com of illegal drugs” and an “eBay for drugs,” Silk Road provided an online forum for trading everything from Fentanyl lollipops to ecstasy to heroin. Silk Road was launched in February 2011 and made public by Gawker and other news outlets a few months later. New York Senator Chuck Schumer called on the DEA and Department of Justice to dismantle the website, describing it as “a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen.” So, why did it take so long to take down Silk Road?
Law enforcement has struggled to bring down secretive online bazaars like Silk Road, even as sites continue their illegal operations because of the openness of the Internet in a relatively unregulated sphere. In the present matter, Silk Road benefited from two major innovations. First, Silk Road, like many other online black markets, was launched on the so-called “secret internet” or “Deep Web” by utilizing the Tor Network. Second, it protected anonymity further by adopting Bitcoin, a cryptographic currency that operates in a peer-to-peer electronic cash system, as its only form of acceptable currency.
Edward J. McAniff, one of the nation’s leading banking lawyers, shared his insights on navigating the banking regulatory landscape in a series of lectures at the Banking Law Fundamentals (BLF) seminar hosted by Berkeley Center for Law, Business and the Economy from September 25-27.
The lectures stemmed from a common notion that it is impossible to anticipate and recognize what consequences regulatory changes will have on the banking industry without looking through the prism of our past. Throughout the seminar McAniff convincingly and eloquently demonstrated that the only framework capable of explaining this complex and fascinating body of law is one that is built upon awareness of how the U.S. banking regulation came to be in its present confused state. The structure of regulation is then best understood as a reflection of the interplay between the nature of banking activities, themes underlying the American culture, and historical developments.
At the outset McAniff acknowledged that the astonishing complexity of rules governing banks, comprising the most intensive and extensive body of U.S. regulation, is in part due to the critical role that banks play in operating the economy. “Banks are central to the economy – they provide liquidity, transfer wealth immediately, act as intermediaries, the Fed uses them to distribute the national debt… Clearly there is no way to run a modern economy without a banking system.” However, while the significance of banks can justify the need for regulation of on their activities, themes prevalent in American history explain its illogical, internally inconsistent, fragmentized, and reactionary structure.
On September 6 of this year, U.S. District Judge Denise Cote, from the Southern District of New York, enjoined Apple after having issued a judgment against Apple over antitrust practices in e-book pricing. Accompanying this judgment, Cote issued an injunction restricting Apple’s interactions with publishers for the next five years and ordered the appointment of special compliance auditors to ensure that Apple complies with the order of the injunction.
The State of the Empire: Amazon’s Monopoly
Up until the launch of Apple’s iPad and iBookstore, Amazon had dominated the e-book retail market, having sold nearly 90% of all e-books. Amazon launched its first e-reader, the Kindle, in 2007, which gained widespread acceptance. Amazon quickly became the market leader in the sale of e-books and e-readers.
Amazon maintained its leadership by adopting a “$9.99 or lower” retail price, making it difficult for competition within the e-book industry. At the time, Amazon had a wholesale pricing model with publishers referred to as the “Big Six” (Hachette Book Group, Inc., HarperCollins Publishers LLC, Holtzbrinck Publishers LLC, Penguin Group (USA), Inc., Simon & Schuster, Inc. and Random House, Inc.).
Amazon’s wholesale pricing model made it difficult for competition by allowing Amazon to purchase e-books from publishers at the wholesale price and then sell the e-books at a price of its choosing. This model allowed Amazon to sell New Releases and New York Times Bestsellers at a “$9.99 or lower” retail price, which often matched or was below the wholesale price. Amazon took the loss and kept its e-book retail prices at “$9.99 or lower.”
