In November 2013, the Division of Investment Management of the Securities and Exchange Commission (the “SEC”) issued an IM Guidance Update regarding the status of certain investors in private funds (including hedge funds and private equity funds) as “qualified clients” as defined in Rule 205-3 under the Investment Advisers Act of 1940 (the “Advisers Act”).
Dodd-Frank’s Aftermath: Moody’s Lowers Credit Ratings
According to Moody’s, Dodd-Frank is the main culprit for its recent downgrade of four major United States banks’ credit ratings. On November 14, the credit rating agency released a report announcing that it lowered the credit ratings of Morgan Stanley, Goldman Sachs, JPMorgan, and Bank of New York Mellon by one notch. To explain, the agency pointed to the new framework implemented by the FDIC under Title II of the Dodd-Frank Act, which “reduce[s] the likelihood and predictability of systemic support” in the event of a bank holding company’s insolvency by shifting costs from the public sector to the private sector, increasing the risk of default.
A Compilation of Enforcement and Non-Enforcement Actions
SEC Focused on Compliance Programs
The Securities and Exchange Commission (SEC) continues to be very focused on compliance programs, and is bringing more enforcement actions to drive home the importance of maintaining a good compliance program. This means the relationship between a board of directors and the fund’s chief compliance officer is of utmost importance.
U.S. Treasury May Exit GM, Realize $10 Billion Loss By Year-End
On Thursday, November 21, the U.S. Department of the Treasury (“Treasury”) announced its third major sale of General Motors (“GM”) common stock since the 2009 bailout, this time unloading 70.2 million shares. The sale, part of Treasury’s pre-defined written trading plan, further reduced Treasury’s GM holdings to 31.1 million shares, or approximately 2.2 percent of GM’s outstanding shares.
Investigation Into Libor Scandal Heats Up In UK, US
The Libor scandal continues unfolding as British prosecutors have identified twenty-two individuals as potential co-conspirators in an investigation of suspected London Interbank Offered Rate (“Libor”) manipulation. Libor, the estimated average interest rate charged by London banks for inter-bank borrowing, is linked to over $300 trillion in loans, financial products and contracts.
The individuals, who were also named in criminal charges brought earlier this year against former Citigroup trader Tom A.W. Hayes and two former brokers at RP Martin Holdings, were notified of the investigation in mid-October. Some of the individuals identified could face additional criminal charges in the United States.
FDCPA & More: CFPB Considers “Modern” Methods of Consumer Communications
On November 12, 2013, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) published an advance notice of proposed rulemaking (“ANPR”) in the Federal Register seeking information from the public about the operations, disclosures and practices used by debt collectors as well as creditors selling and collecting on their own consumer debts. The ANPR follows the CFPB’s July 2013 issuance of two guidance bulletins (“July 2013 Bulletins”) that address debt collection practices. The CFPB continues to explore ways to uniformly apply federal debt collection requirements to both creditors and debt holders—which are generally exempted from the requirements of the Fair Debt Collection Practices Act (“FDCPA”) when collecting on their own debts—and third- party debt collectors.
SEC Proposes Rules for Crowdfunding Intermediaries
As described in our Client Newsflash entitled “SEC Proposes Crowdfunding Rules under JOBS Act,” the Securities and Exchange Commission (“SEC”) recently proposed rules under the JOBS Act (the “Proposed SEC Rules”) that would permit certain private issuers to raise investment capital through “crowdfunding”—a process of enabling a large number of investors to each make relatively small investments in an issuer via the Internet.
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Antitrust Lessons Drawn from the Challenges Contacts of the AMR/US Air Merger
Introduction
The proposed merger of the bankrupt AMR Corporation (parent company of American Airlines – hereinafter American) with US Airways Group, Inc. (parent company of US Airways – hereinafter US Airways) to create the new American Airlines was announced in February 2013. Despite the European Commission’s (EC) August 5 clearance of the merger with minimal commitments, the Antitrust Division of the U.S. Department of Justice (DOJ), joined by seven states and the District of Columbia, brought suit to permanently enjoin the merger on August 13. United States v. US Airways Group, Inc., 1:13-cv-01236 (D.D.C. Filed Aug. 13, 2013). The content of the DOJ’s complaint (Complaint) demonstrate the DOJ’s modus operandi for litigating a merger.
Senate Struggles to Craft Legislation on Fannie Mae and Freddie Mac
The Obama Administration has expressed support for a bipartisan bill to wind down government-controlled mortgage companies, Fannie Mae and Freddie Mac. The proposed bill will eliminate or greatly reduce the size of these companies while retaining the federal government’s role in backing mortgage lending. However, lawmakers seem unlikely to produce a bill by the end of the year as planned.
Summary of Selected Issues of the SEC Municipal Advisor Rule that Affect Broker-Dealers Intending to be Underwriters
Dodd Frank Act Definition of “Municipal Advisor”
A “municipal advisor” is a person (including a firm or an associated person) (but not including a municipal entity or an employee of a municipal entity) who (1) provides “advice” to “municipal entities” or “obligated persons” on the “issuance of municipal securities” or “municipal financial products,” or (2) undertakes a “solicitation of a municipal entity.”