In this edition of our Privacy & Cybersecurity Update, we analyze several significant developments occurring in July 2014, including a recent address by U.S. Treasury Secretary Jack Lew calling for tougher congressional action and greater private sector transparency regarding cybersecurity, the enactment of new U.S. laws requiring certain defense and intelligence contractors to report data breaches, and clarification from the FTC on verifiable parental consent methods for website operators and mobile app developers.
Privacy & Cybersecurity Update – July 2014
Court Further Defines Limitations of Applying Revlon Duties in Stock-for-Stock Mergers
This article discusses the recent New York decision in Badowski v. Corrao that further defined the limitations of applying Revlonduties in stock-for-stock mergers.
Update: Sprint and T-Mobile Call It Quits
After months of merger talks and a $32 billion deal rumored to be announced late this summer, Sprint has officially disclosed that it is no longer pursuing a purchase of T-Mobile. Now that a merger is off the table, T-Mobile’s CEO, John Legere, has swung a few punches at its rival. In a recent tweet, Legere wrote: “Join T-Mobile now and jump off the Sprint bus before it crashes.” According to The New York Times, “the tweets reflect not only the reignited competition between the country’s third- and fourth-biggest wireless service providers, but also a peculiar reversal of fortune for each company.” T-Mobile’s new pricing plans have attracted customers, while Sprint—a company that has historically been bigger than T-Mobile—has steadily lost customers.
Banco Espírito Santo Bailout
After financial turmoil, the Portuguese bank, Banco Espírito Santo (“BES”), will be shut down and bailed out by a plan approved by the European Commission. Part of the bank will remain and continue to operate as Novo Banco; this bank will include healthy assets and senior debts. The troubled portion of BES will continue to house “shareholders and subordinated debtors who will be written down against the bad assets formed mainly of exposure to the rest of the Espírito Santo and to the bank’s Angolan unit.”
Argentina’s Debt Crisis
Last week, Argentina defaulted on its debt for the third time in three decades, setting the country up for a debate on how to move forward. This default is Argentina’s second default in 13 years, and its spiral is causing concern not only in Latin America, but also in the U.S. and Europe. The Argentine stock market has taken a slight hit, which may have global repercussions.
FDIC Issues Guidance on Requests by Banks That Are S-Corporations for Dividend Exceptions to Capital Conservation Buffer
The FDIC issued guidance (the “Guidance”; FIL-40-2014) to banks and savings associations that have elected S-corporation tax treatment (collectively, “S-corporation Banks” and each an “S-corporation Bank”) concerning the factors that the FDIC will consider when it receives a request from an S-corporation Bank to pay dividends to its shareholders “to cover taxes on their pass-through share of the [S-corporation Bank’s] earnings, where these dividends would otherwise not be permitted under the capital conservation buffer contained in the new Basel III capital rules.” The capital conservation buffer, when it takes effect, will limit the amount of dividends a bank can pay when its capital ratios fall below the threshold levels of the buffer. The capital conservation buffer will be phased-in over the years 2016 through 2018 and will become fully effective in 2019. There are currently approximately 2,000 U.S. community banks, which are structured for tax purposes as Subchapter S corporations.
More Problems for Credit Suisse
Credit Suisse just confirmed that it is facing regulatory inquiries over its dark pools (private stock trading platforms). Credit Suisse is one of the largest dark pool operators, joined by Barclays and UBS. Credit Suisse has now joined more than 30 defendants in lawsuits over high-frequency trading currently pending in the U.S. District Court for the Southern District of New York. UBS and Deutsche Bank are also facing inquiries from regulators, including the Securities and Exchange Commission (“SEC”) and Eric T. Schneiderman, the New York Attorney General. Credit Suisse has not commented on which regulators are investigating the Zurich-based bank.
DC Circuit Determines That CFIUS Violated Ralls Corporation’s Right to Due Process
On July 15, 2014, the United States Court of Appeals for the District of Columbia determined that the Committee on Foreign Investment in the United States (CFIUS) violated Ralls Corporation’s right to due process under the Fifth Amendment. Significantly, the court held that the CFIUS process was deficient under the Fifth Amendment, and that Ralls was entitled to access unclassified evidence relied on by the president and the opportunity to rebut that evidence. If sustained, this decision may have significant implications for the CFIUS process. The case should be closely monitored by companies involved in or considering transactions within the committee’s jurisdiction, and counsel representing those companies.
SEC Adopts Money Market Fund Reform Rules
The Securities and Exchange Commission announced recently that they have adopted amendments to the rules that govern money market mutual funds. These amendments are intended to make structural and operational reforms to address the risk of investor runs in money market funds, while preserving the benefits of the funds.
The SEC is looking to prevent another disaster similar to the 2008 financial meltdown, where there was an investor exodus out of money-market mutual funds.
Exclusive Forum Provisions
A recent spike in the use of exclusive forum provisions in M&A deals has made the task of evaluating whether such a provision could be beneficial a vital step on any dealmaker’s checklist.
The recent surge in the use of provisions can be attributed to its general enforcement under judicial review, whether in Delaware or other jurisdictions.