On April 6, 2016, the United States Justice Department announced the filing of an antitrust suit in the U.S. District Court for the District of Delaware to block the proposed merger between Halliburton and Baker Hughes—citing its potential to “eliminate vital competition, skew energy markets and harm American consumers.” Originally brokered in 2014, the $35 billion deal would bring together the second and third largest oil field service firms in the world. Attorney General Loretta Lynch has voiced concerns that this merger of two of the top three firms would serve to create “non-competitive duopolies” in twenty-three separate markets throughout the United States.
Halliburton-Baker Hughes Merger Hits Antitrust Roadblock
The White Collar Defense Dilemma: To Testify or Not?
The question of whether or not a defendant should take the stand remains a rightfully contested issue for legal professionals in the practice of white collar criminal defense. With no clear empirical evidence to suggest an advantage from this nuanced decision, lawyers are racked with the quandary of predicting how their client(s) would handle the high stakes of cross examination and direct jury exposure in legal matters that turn mostly on a defendant’s perceived credibility and motives at the time of the alleged crime.
Back in late October, a federal court in the Southern District of New York heard oral testimony from Anthony Allen, former head of global liquidity and finance at Rabobank and lead defendant in the first US criminal trial of traders involved in the London interbank offered rate (Libor) interest rate scandal. The prosecution questioned Allen regarding a number of communications made between him and traders in the bank. In one instance, Allen had responded in a message to a trader, “No worries mate, glad to help.” Allen contended that the response was simply a dismissal to the trader that he was not going to comply with the request, which Allen testified as “not right.”
Tough Law for Investment Banks in Delaware Courts
Investment banks are having a rough time litigating in Delaware Courts, and the horizon does not look any clearer. As the presence of investment banks in major merger deals in US becomes almost mandatory, it is easy to observe an ever-growing number of disputes related to alleged conflicts of interests between the investment banks and the multiple parties involved in such transactions. These disputes are mostly resolved in Delaware courts, which are the main venues for merger disputes, as most of the publicly-traded companies are incorporated in such state.
One of the latest lawsuits discussing this kind of conflict of interests is In Re Zale Corporation Stockholders Litigation. As explained in this comprehensive article published by Prof. Steven Solomon, in this case Merrill Lynch (“ML”) was retained by the Board of Directors of Zale Corporation (“Zale”) to advise it on the latter’s buyout by Signet Jewelers Limited (“Signet”) in a $1.4 billion transaction. However, before being retained by Zale, ML pitched to advise Signet on the very same deal, and the former only disclosed that it had previously pitched Signet after the closing of the transaction. Zale accepted a price per share of $21.00, which represented a 41% premium, exactly within the price range suggested by ML’s pitch to Signet.
Securing the Cloud: Microsoft’s Battle with the Department of Justice
Reliance on cloud storage has become an integral, and often overlooked, aspect of the daily activities of individuals and businesses throughout the world. Information stored in the “cloud” such as emails, photos, contact lists, and documents are actually stored in data centers located in many different countries. The information stored by a user is located in the data center closest to the location in which the individual or business registered their account. The purpose of these worldwide datacenters is to improve the efficiency and security of obtaining, accessing, and distributing such information. For example, Microsoft stores European users’ cloud data in its Irish data center.
An ongoing battle between Microsoft and the Department of Justice has raised many concerns among a number of tech companies that reap significant revenue from cloud computing throughout the global community. Microsoft is in the midst of an appeal from a New York Magistrate decision, adopted in full by the District Court, to uphold a warrant, compelling Microsoft to seize the emails, photos, and contacts of account data stored in Ireland and turn them over to the DoJ for a criminal investigation. On appeal to the Second Circuit, the government argues that it has the right to demand the information stored abroad by any US corporation regardless of jurisdictional issues, conflicts of laws problems, and international treaties to the contrary.
CFPB Seeks to Restrict Arbitration Clauses in Consumer Finance Agreements
Last week the Consumer Financial Protection Bureau (CFPB) announced proposals for new regulation on consumer financial markets, most notably a restriction on arbitration clauses and class action limitations in consumer contracts for financial products and services such as checking and debit accounts, credit cards, and private student loans. The proposals arise from the findings of a study mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010. Title X of the act formed the CFPB and set the ball in motion for the agency’s investigation into the use and effects of arbitration clauses in the sphere of consumer financial contracts.
The study included analysis of six product markets, 850 consumer financial agreements, a national survey of over 1,000 credit card holders, filings in small claims court and disputes reported between 2010 and 2012 to the American Arbitration Association (AAA), the largest provider of alternative dispute resolution services in the United States. The study showed that most major providers of financial services include pre-dispute arbitration clauses in their contracts with consumers. Within those contracts, the CFPB found that nearly all of the clauses studied also contained a provision that prohibited parties from participating in class action arbitrations or lawsuits. These clauses allow companies that provide financial services to bar consumers from sharing the financial and administrative burden of legal action. By placing such a cumbersome responsibility on individual consumers, these companies can effectively reduce the likelihood that any legal action will be taken against them at all.
Uber Plans to Appeal Driver Class Certification
The U.S District Court for the Northern District of California set up a high-stakes legal battle for Uber that might erode the unicorn’s $50 billion valuation.
In his September 1decision, Judge Edward M. Chen granted class-action status to a lawsuit brought by two Uber drivers seeking reclassification as employees to obtain reimbursement for expenses and tips. He ordered that the suit applies to all drivers in California who didn’t waive their right to the class action.
Despite the fact that Judge Chen had previously approved the arbitration clause stated in Uber’s drivers contracts in O’Connor v. Uber Technologies, Inc., he recently denied Uber’s motion to compel arbitration finding the arbitration clauses entered into with Uber drivers to be unenforceable.
Ex-Morgan Stanley Adviser Pleads Guilty in Connection with Data Breach
A former financial advisor for Morgan Stanley, Galen Marsh, pleaded guilty last week to one count of unauthorized computer access in connection with one of the largest data breaches of a private wealth management company.
Between 2011 and 2014, Marsh uploaded sensitive financial information—including names, addresses, bank account numbers, and investment information—of over 350,000 Morgan Stanley clients to his private computer.
In late 2014, data from 900 Morgan Stanley clients appeared online at Pastebin.com, an open file sharing website known for leaking confidential information, including the hacking of Sony Pictures. The breached data did not include “critical” information such as social security numbers or account passwords, but cyber security expert Darren Hayes of Pace University told the Wall Street Journal that it could provide an “important first step” for identity thieves to create duplicate identities. According to Morgan Stanley, there have been no reports of financial loss from the breach.
An Important First Step: The DOJ’s New Response to White-Collar Crime
Last week, the Justice Department announced new policies for prosecuting corporate employees. This was in response to criticism the DOJ received for failing to indict enough bankers in the wake of the recent financial crisis. Indicting these individuals can be very difficult and many of the challenges facing prosecutors still remain despite the new policies outlined. “White-collar cases are hard to prove, because they’re very complex and if you don’t have direct evidence of fraud, there’s room for arguments on both sides,” said David O’Neill, former acting head of the criminal division of the Justice Department in Washington.
The financial system is also growing increasingly more complex and global, which adds further strain on the DOJ—an organization with the majority of its limited resources allocated for fighting terrorism instead of white collar crime.
Court Looks to Obscure Law: Trust Indenture Act of 1939
When some bondholders purchased debt in casinos operated by Caesars Entertainment, they felt comfort in the guarantees of the parent company that it would stand behind the debt payments, even if something were to go awry. When Caesars found itself in financial distress, the company abruptly eliminated its guarantees, leaving bondholders to turn to an obscure Depression-era law: the Trust Indenture Act of 1939 (The Act). The Act was originally devised to protect bondholders from abusive tactics, such as back-room deals that stripped bondholders of their rights.
Inside the Courts: An Update From Skadden Securities Litigators
This quarter’s issue of Inside the Courts, Skadden’s securities litigation newsletter, includes summaries and associated court opinions of selected cases principally decided between late January and early May 2014. The cases address developing state and federal court trends in bylaws, class certification, fiduciary duties, insider trading, interpreting the U.S. Supreme Court’s Janus decision, PSLRA matters and applications of the securities laws to domestic and foreign corporations.
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