Investment

Valeant Pharmaceuticals Shares Drop Following Subpoena by U.S. Officials

By Myriam Denis, J.D. Candidate 2016 | Posted on

On October 14, 2015, prosecutors from the U.S. Attorney’s Offices for the District of Massachusetts and the Southern District of New York subpoenaed Valeant Pharmaceuticals for details on its patient assistance programs, drug pricing, and distribution practices.

Valeant shares fell following this announcement, closing down 4.7 percent at $168.87. The shares stumbled further by 1.2 percent a week later after the company said that it formed a committee to review allegations against the company.

The company is under attack for sharply raising the prices of its drugs, a practice illegal in most developed countries but legal in the U.S. The company defended its practice by mentioning that it hired a consultant to review this aspect of the business. The consultant found “considerable room to increase the price of both drugs.”

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Volkswagen to Recall 8.5 Million EU Vehicles

By Whitney Florian, J.D. Candidate 2017 | Posted on

On October 15, Volkswagen announced plans to recall 8.5 million diesel vehicles in Europe, after Germany’s Federal Motor Transportation Authority (KBA) ordered a compulsory recall of 2.4 million vehicles in Germany earlier that day. Volkswagen’s decision to adopt a broad interpretation of the KBA order reflects the company’s challenging task to remedy the 11 million vehicles worldwide that contain illegal defeat device software, which temporarily lowers vehicle emissions for testing purposes. The KBA has demanded that Volkswagen remove the software in these diesel engines and ensure that the vehicles meet emissions standards.

A recall of 11 million vehicles by a single automaker would be among the largest in history. Volkswagen has indicated that the completion of the repairs may extend into 2017, and the cost of the repairs may exceed 6.5 billion euros. While software must be replaced in the 1.2- and 2-liter engines, the 1.6-liter models require additional expensive hardware to meet emissions standards. Furthermore, some analysts estimate that lawsuits and regulatory fines, in addition to repairs, may cost Volkswagen up to 35 billion euros. After the recall announcement, Volkswagen shares were down 3.2 percent; the company has lost over a quarter of its stock market value since Volkswagen revealed the emissions deception on September 18.

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A Pact between Lyft and Didi Kuadi against Uber

By Aditya Parolia, LLM Candidate 2016 | Posted on

Lyft, a San Francisco-based cab-hailing service, and its Chinese counterpart, Didi Kuaidi, have announced a partnership that will allow both companies to operate in each other’s countries. Starting early next year, Didi Kuaidi will allow American users to find rides in China using the Lyft app. Likewise, Chinese users entering the US will be able to find rides using the Didi Kuaidi app. The partnership will also allow the ride-hailing passengers to pay for the rides in their native currencies. From a business strategy perspective, the partnership is an alliance against a common competitor, Uber.

To date, Uber has raised over $5 billion in venture capital, and it is valued at more than $50 billion. Over the last five years, Uber has expanded its presence in 300 cities across 60 countries. In the U.S., Uber and Lyft have been fiercely competing for capital, at times forcing investors to choose sides. Lyft continues to lag behind Uber significantly in many areas. However, Didi Kuaidi’s and Carl Icahn’s recent investments in Lyft have helped raise the company’s profile in domestic as well as the international markets.

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Administrative Judge Raises S.E.C’s Burden to Convict Insider Trader

By Matt Kempf, J.D. Candidate 2017 | Posted on

In a pivotal 1983 ruling, the Supreme Court held that to find a breach of duty to stockholders resulting in “insider trading,” a party must prove that a personal gain, either material or immaterial, resulted from confidential information provided by a trading relative or “friend.” The Court, however, left ambiguous the term, “friend” for over three decades, causing much confusion.  Did the Court intend to mean a close friend? A friend with whom you occasionally converse? A Facebook friend?

Recently, Judge Patil provided some context, although controversial, to this central term in a S.E.C. administrative decision, by dismissing insider trading charges against Joseph Ruggieri, a former securities trader at Wells Fargo. At issue in the case was the question of how close a non-familial relationship must be to qualify as “meaningfully close.” Ruggieri mentored Gregory Bolan, a Wells Fargo analyst, and allegedly profited approximately $117,000 from tips received from Bolan. In order to have succeeded, the Department of Justice needed to prove that benefits Bolan received from the mentorship and feedback was substantial enough to qualify their relationship as meaningfully close. The Department of Justice argued that mere friendship was enough to establish the benefit. In his decision, however, judge Patil disagreed, holding that the benefit received by the mentorship was insufficient.

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SABMiller Rejects $104 Billion Takeover Bid From Rival Anheuser-Busch

By Molly Pon J.D. Candidate 2017 | Posted on

After rejecting two private proposals, SABMiller snubbed Anheuser Busch InBev’s first publicized bid of $104 billion on Wednesday. SABMiller, the world’s No.2 brewer, cited AB’s substantial undervaluation of the company as their continued reason for rejection. SABMiller’s board of directors, excluding directors nominated by its largest shareholder, Altria Group, dismissed the price as too low.

However, Altria, maker of Marlboro cigarettes, owns more than 25% of the brewer and has urged the board to engage in talks with AB. The tobacco giant has said that it would accept a deal at or above AB’s proposed price of £42.15 ($64.2) a share. This offer would net SABMiller a 44% premium over their closing price the day media began to speculate about a potential takeover. The Santo Domingo family, which owns around 15% of the giant brewer through BevCo Limited, stuck with the board in rejecting the first public price.

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New Bitcoin Exchange Approved in New York

By Xiaolin Ma, LL.M. Candidate 2016 | Posted on

Bitcoin, the peer-to-peer payment system first published in 2009, has opened a monetary Pandora’s Box since day one. The system was created by an unknown individual or group with the name Satoshi Nakamoto. With no central authority, the system enables decentralized, irreversible and non-freezable money transfer with a completely digital currency. Such innovation gradually attracted enormous attention and the Bitcoin prices have been volatile, with a notable increase in 2013 and a subsequent downtrend in 2014.

People who are not familiar with Bitcoin may wonder how the system is connected with the existing currency system. Online Bitcoin exchanges are the marketplace for both individuals and institutional investors to buy or sell bitcoins using multiple currencies, and vice versa. Mt. Gox used to be the largest bitcoin exchange in the world before its dramatic bankruptcy in March 2014, with $460 million stolen by hackers and another $27.4 million missing from its bank accounts. There are a variety of exchanges available on the market nowadays, including but not limited to: ItBit, Coinsetter, Coinbase, Bitstamp, BTC-e and Cryptsy.

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SEC Cracks Down on Hidden Mutual Fund Fees

By Sean Pinckney, J.D. Candidate 2018 | Posted on

In what could be the tip of a legal iceberg, the Securities Exchange Commission (“SEC”) filed proceedings on September 21st against First Eagle Investment Management, a $100 billion asset manager. The SEC alleged that First Eagle illicitly charged its investors nearly $25 million more in marketing fees beyond the limits allowed by the firm’s 12b-1 plan. The action against First Eagle is the first case of its kind arising under the SEC’s “Distribution-in-Guise Initiative,” an investigation into whether mutual fund managers are improperly disguising certain expenses as those that should be borne by investors and not the funds themselves. First Eagle reached a settlement with the SEC for over $40 million without admitting or denying the findings and will be returning the unlawfully charged fees to affected investors.

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Unicorn Valuations and the Silicon Valley

By Alan Parker, LL.M Candidate 2016 | Posted on

Unicorn valuations and the problems related thereto are in the spotlight in Silicon Valley. Basically, this term is used when referring to invested start-up companies with a pre-money valuation (i.e., before a venture capital investment) equal to or greater than one billion dollars. This is in a context where, by nature, it is extremely hard to accurately determine the value of a start-up, as most of them do not have any operational background.

When a venture capital investor agrees to invest and acquire shares in a start-up with such a hefty valuation, it will most likely ask for several contractual guarantees aiming to ensure a minimum return on its investment, and that’s when problems may arise between investors and the founding shareholders.

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4chan Sold: Can Web Forums Be Profitable?

By Joyce Li, J.D. Candidate 2018 | Posted on

Last week, Christopher Poole, founder of the anonymous image-based web forum 4chan, sold the site to Hiroyuki Nishimura, founder of earlier anonymous forum 2channel. Neither Poole nor Nishimura commented on the terms of the acquisition, but the sale comes at a time of growing venture capital investment in traffic heavy websites such as 4chan and Reddit.

4chan holds only a fraction of Reddit’s nearly five million daily page views, however it is not yet clear whether either site can utilize its traffic to produce scalable ad revenue. The growth of sites such as Reddit is attributable in large part to the freedom they afford their users, but the selfsame hands-off policies that have fueled their popularity are often in direct conflict with monetization strategies.

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Court Looks to Obscure Law: Trust Indenture Act of 1939

By Erika K. Solanki, J.D. Candidate 2017 | Posted on

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.

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