A recent study involving thousands of public companies in 91 countries found a positive correlation between profitability and the number of females in senior management positions (including top executives and boards of directors). Despite this correlation, the study found that, as of 2014 approximately one-third of companies worldwide have no women in senior management; 60 percent have no female board members; 50 percent have no female top executives; and only 5 percent have a female CEO.
Thinking About Gender Quotas in the Boardroom
Monsanto and SEC Reach Settlement over Inaccurate Financial Disclosures
On February 9, 2016, the Monsanto Company (NYSE: MON), a multinational agricultural chemical manufacturer based in St. Louis, Missouri, and the Securities and Exchange Commission (SEC) announced their agreement to settle charges that Monsanto’s public disclosures in fiscal years 2009, 2010, and 2011 had materially misstated the firm’s financial results. The provisions of the settlement require Monsanto to pay the SEC an $80 million fine and retain independent compliance monitors.
Reinforcements Arrive for Whistleblowers in Financial Services
Whistleblowing is the ultimate form of burning your bridges. So it comes as no surprise that while whistleblowers are lauded for their courage and willingness to call out their companies for material financial wrongdoing, the celebration pales in comparison to the common risks they face from their current and future employers. Whistleblowers are often mishandled, ignored, and their allegations lead to job terminations and being blacklisted from other prospective companies in the industry. In response, a new group seeks to change this recurring story.
SEC as Investigator, Prosecutor and Judge: Defendant’s Right to Jury Trial
The New York Times recently ran an article criticizing SEC’s filing of securities cases before its own judges—administrative law judges employed by the SEC. Last year, the Wall Street Journal weighed in against SEC being prosecutor and judge in its own cause. On a practical level, the criticism is that SEC is filing more cases before its judges to side step federal courts where it does not have a successful record of winning. On a doctrinal level, the SEC’s new policy is decried for being constitutionally suspect, being allegedly against the tenets of due process, equal protection and a right to jury trial.
The clamor against SEC’s new policy comes in the wake of numerous lawsuits pending before federal courts challenging the constitutional validity of adjudication by SEC judges. The criticisms seem to carry water in the light of the fact that SEC rarely loses before its judges. However, the arguments against adjudication by SEC judges have not withstood doctrinal scrutiny. It behooves us to ask: does the SEC have the power to file cases before its judges?
S.E.C. Adopts JOBS Act Title III to Allow Equity Crowdfunding
As of October 30, the S.E.C. has adopted new crowdfunding rules that will allow small investors to purchase equity shares in startup companies. Under Title III of President Obama’s JOBS Act (Jump-Start Our Business Start-Ups), the revisions seek to improve upon an earlier draft that was widely rejected for requiring unworkable compliance costs and procedures.
The new Title III rules cap companies at $1M per year, and limit individual investor contributions based on annual income and net worth. Those with an annual income or net worth of less than $100K are restricted to investing between 5% of such or $2K, while those with greater than $100K, are limited to investing 10% of such. Each company is also required to disclose financial statements that must be independently audited, unless they are seeking less than $500K or are equity crowdfunding for the first time. Further, each funding portal must register with the S.E.C. and be subject to regulation.
Administrative Judge Raises S.E.C’s Burden to Convict Insider Trader
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.
SEC Cracks Down on Hidden Mutual Fund Fees
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.
Four Accused of Insider Trading in Silicon Valley Settle Case
The Securities and Exchange Commission has accused Christian B. Keller, an in-house financial specialist, and three others of running of an insider-trading scheme that turned out nearly $750,000 in illegal profits.
UBS Dark Pool Leads to $14.5 Million in Settlement Paid to SEC
Dark pools are private exchanges or forums for trading securities that primarily facilitate large block trades by institutional investors. Dark pools offer the efficiency (in the form of liquidity) of trading on a public exchange, but allow the transactions to remain secret—neither the price nor the identity of the firm is disclosed—until the trade is filled. The lack of transparency in dark pool trades allows large trades to be made by institutional investors without influencing the market and adversely affecting the price. Private banks and brokerages generally operate dark pools, which are subject to more relaxed public disclosure requirements than public exchanges. But that is not to say that dark pools are not subject to federal securities laws, as evidenced by the SEC investigation of and charges brought against Swiss banking-giant UBS.
Recap: A Conversation with Sean McKessy, Chief of the SEC Whistleblower Office
On November 5, 2014, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Sean McKessy, Chief of the SEC’s Office of the Whistleblower, to Boalt Hall for a talk on the whistleblower program and its three main aspects: confidentiality, anti-retaliation protection and payouts.