Nokia’s Misleading Information about CEO Compensation Means Windfall for Elop

One of the biggest recent deals in the mobile phone market reveals a curious case of misleading information about Nokia’s former Chief Executive Officer, Stephen Elop, and Microsoft’s “acquisition” of its possible future CEO.

Nokia’s Chairman Risto Siilasmaa announced that Mr. Elop’s service contract with Nokia had “essentially the same” bonus structure as the one of its previous CEO. However, the Finnish Newspaper “Helsingin Sanomat” searched SEC filings and uncovered evidence that fundamental changes to the referred service contract were implemented in 2010.

As a result, Mr. Siilasmaa was later forced to correct the previous information and announced that Mr. Elop’s contract also contained an immediate share price performance bonus, which would be paid in case of a “change of control” situation.

The chain of events that would trigger Mr. Elop’s payout seemed unlikely to happen at the time of the change in his contract. Microsoft’s €5.44billion purchase of Nokia mobile phone business changed this scenario. The deal triggered the “change of control situation” in Mr. Elop’s contract, entitling him to a payout of approximately US$25million.


Week in Review: JPMorgan Returns to the Hot Seat

Once again, JPMorgan found itself discussing yet another settlement and facing bad publicity linked to excessive risk-taking.  Last week, news broke that the bank had agreed to a $920 million settlement in the “London Whale” derivatives trading case; plus, the Consumer Financial Protection Bureau ordered JPMorgan to refund over $300 million to customers based on alleged wrongdoing in its credit card and debt collection procedures. 

Another settlement deal surfaced this week—and its numbers are much larger.  The U.S. Department of Justice is seeking $11 billion (with a ‘B’) in compensation for JPMorgan’s actions leading up to the Financial Crisis, including selling mortgage backed securities the bank knew were essentially worthless.  According to the Washington Post, it would be “the biggest settlement a single company has ever undertaken.”  On Thursday, the bank’s visible CEO Jamie Diamond flew to Washington, D.C., to meet with Attorney General Eric Holder for nearly an hour.  Instead of lobbying for looser restrictions on Wall Street, Diamond was seeking an end to federal and state probes (which still represent a large liability to the bank) and, perhaps more importantly, attempting to avoid criminal charges.

All of the rhetoric and press releases notwithstanding, the Administration’s handling of numerous JPMorgan investigations has been properly criticized for missing an opportunity to charge top Executives.  The S.E.C., D.O.J., and other regulators have thus far failed to press criminal charges, even when financial disclosures have misrepresented the bank’s business or mortgage-backed products.  To be sure, the government has charged front-line traders in the London Whale case, but those tasked with overseeing the bank’s actions have escaped indictment—perhaps for the very reason that Mr. Diamond is willing to personally negotiate with the nation’s top law enforcement official on their behalf. 

While the financial penalties being discussed are stiff, they represent only a small fraction of the damage done to the global economy, JPMorgan shareholders, and (ultimately) dinner tables across the country.  Columbia Law School professor John C. Coffee Jr. provided some insight to the back-and-forth.  He told the Post:  “If I was in [Holder’s] position, I would be concerned about my legacy. . . .  There’s been a lot of criticism of officials in Justice being much too soft, timid.”

In Keeping Secret, Twitter Plans To Go Public

The world’s third-busiest social media website appears ready to follow in the footsteps of Facebook and LinkedIn, having recently announced its intent to file for an initial public offering.

Twitter made the announcement last week via one of its trademark “tweets,” revealing only that it had filed “confidential[ly]” with the Securities and Exchange Commission. As a company earning less than $1 billion in annual revenues, Twitter qualifies under a 2012 JOBS Act provision whereby “emerging growth companies” are allowed to make their filings in secrecy.

A confidential filing will provide some benefits to the company: in addition to being able to keep its early discussions with regulators behind closed doors, Twitter can also elect to release only two years of financial statements rather than the standard three, and the company does not have to disclose all of the executive compensation details usually required of other companies. The company will still be expected to release necessary financials three weeks before it begins its investor road show.


Further Details on Planned Blackberry Sale

When BlackBerry announced on Friday that it had nearly $1 billion in unsold phones and was about to cut a third of its workforce, the market’s reaction was immediate – the Wall Street Journal reports that the company’s stock price dropped below $9. The news was followed by BlackBerry’s announcement, released on Monday, that the company has signed a letter of intent with a consortium led by Fairfax Financial (BlackBerry’s largest shareholder with a 10% stake), under which Fairfax has offered to acquire the company and take it private subject to certain conditions, including due diligence.

What does this move mean for the former phone giant?


BlackBerry Enters Into Agreement with Consortium led by Fairfax Financial

[Editor’s Note:  This piece is authored by DavisPolk.]

Davis Polk is advising J.P. Morgan, as financial adviser to BlackBerry Limited, in connection with its agreement with Fairfax Financial Holdings Limited which contemplates a consortium led by Fairfax acquiring all of Blackberry in a transaction that would value Blackberry at $4.7 billion. Fairfax currently owns approximately 10% of BlackBerry’s common shares. The transaction, which is subject to conditions, permits Blackberry to undertake a go-shop process to determine if there are alternatives superior to the transaction with Fairfax.

Founded in 1984 and based in Waterloo, Ontario, BlackBerry is a telecommunication and wireless equipment company and developer of the BlackBerry brand of smartphones and tablets. Fairfax Financial Holdings, headquartered in Toronto, Canada, is a financial services holding company engaged in property and casualty insurance and reinsurance and investment management.


Stocks Hit Record High As Fed Keeps Bond Buying At $85B A Month

The Federal Reserve announced on Wednesday that it would continue its current quantitative easing policies indefinitely, despite the unanimity on Wall Street that a scale-back was imminent. This announcement sent the Dow and S&P 500 to record highs.

According to Bernanke, with the federal funds rate remaining in the 0 – 0.25% range and unable to decrease any further, the central bank’s measures to stimulate the economy have been focused on complementary methods of “asset purchases and forward guidance about short-term interest rates.” For example, in September 2012, the Federal Open Market Committee (FOMC) initiated a stimulus plan to purchase $40 billion per month in agency mortgage-backed securities in addition to the $45 billion per month in longer-term securities that it was already acquiring as part of its Maturity Extension Program (MEP). In December 2012, the Fed announced that it would maintain its $85 billion per month asset purchase program, even after the MEP had ended, by continuing to purchase $45 billion per month in longer-term Treasuries.

However, in June 2013, the Federal Reserve suggested that it would begin a modest reduction in the pace of its purchases by as early as September 2013, and possibly end the program around mid-year 2014. This caused some turmoil on Wall Street over the summer, as the markets tried to adjust to the idea of a departure from the asset purchase program, and consequently lead to a decrease in stock prices and an increase in interest rates.


BerkeleyLaw Lecture Series: The Economic Value of a Law Degree

Is it even worth it to go to law school?  The thought came before law school, and it wriggles into those moments when all that work and stress and money pile up.  It could come any time:  at 4 AM when you are trying to finish that last chapter; out for drinks with friends in the workforce who blithely pay for happy hour drinks without wincing at thoughts of crushing student loans; or when you discover that you didn’t get your first pick for a ‘big law’ summer associate position.  Myths and misconceptions have swirled amongst the legal community and the general public, as law professors, students, and others question the value of a law degree, leading in part to plummeting application numbers for law schools around the country.

On Thursday, September 12, 2013, Berkeley Law hosted Seton Hall University business law Professor Michael Simkovic in the first event in a lunchtime series sponsored by the Berkeley Center for Law, Business and the Economy and the Berkeley Business Law Journal.  Mr. Simkovic was previously an attorney at Davis Polk & Wardwell in New York concentrating in bankruptcy litigation as well as a strategy consultant at McKinsey & Company, where he specialized in legal, regulatory and business issues affecting financial services companies.  Professor Simkovic persuasively presents a different (and thankfully more positive) outlook for those considering whether to pursue a law degree. 

At the outset, Professor Simkovic tackled empirical claims that law school offers a poor return on investment.  He pointed out serious flaws in data sets being presented by those who claim that investing in a law degree is a low-value investment proposition.  For example, earnings in early years are not necessarily strong predictors of subsequent earnings because law degree holders—as opposed to those holding a bachelor’s degree—see steep growth in salary over a short period of time during their first few years of work.  It is also important not to conflate the recent dip in the general market with a dip solely in law.  In other words, while things may look worse in the legal market than they did ten years ago, it is important contextualize with broader market conditions.


Appellate Court Holds PE Fund Potentially Liable for Bankrupt Portfolio Company’s Pension Obligations

[Editor’s Note:  This piece is authored by Kirkland & Ellis LLP.]

A corporation that owns 80 percent (or in some cases 50 percent) or more of a bankrupt subsidiary is liable for 100 percent of the subsidiary’s unpaid pension obligations under the Employee Retirement Income Security Act (ERISA) regardless of the activities of the parent corporation. However, a PE fund formed as a partnership or LLC (rather than as a corporation) is liable under this ERISA controlled-group-liability doctrine for a bankrupt portfolio company’s pension obligations only if the PE fund is engaged in a “trade or business.”

In July 2013, a federal appellate court (reversing a 2012 district court pro-PE fund decision) concluded that a PE fund (formed as a partnership or LLC) is engaged in a trade or business and hence would be liable for its bankrupt portfolio company’s unpaid pension obligations if it owned the requisite percentage of its stock…

Because this is the first federal court of appeals to weigh in on this complex trade-or-business issue, there is considerable uncertainty whether a PE fund will ultimately be viewed as engaged in a trade or business for ERISA liability purposes and hence liable for an 80 percent(or in some cases 50 percent) or greater bankrupt portfolio company’s pension obligations.  Because the ERISA provisions that could make a PE fund and its 80 percent (or in some cases 50 percent) or greater portfolio companies liable for the pension obligations of an 80 percent (or in some cases 50 percent) owned bankrupt portfolio company are exceedingly complex, each PE fund investment (and each restructuring of such an investment) should be reviewed with care

For the complete Newsletter, click here.

Court of Appeals for the Third Circuit Extends New Source Review “Past Violation” Rulings

[Editor’s Note:  The following post is authored by Arnold & Porter LLP.]

On August 21, the U.S. Court of Appeals for the Third Circuit in the Homer City case joined and extended the consensus holdings of three other U.S. courts of appeals in rulings that failure to obtain a Prevention of Significant Deterioration (PSD) permit is a one-time and past rather than a continuing violation under Clean Air Act regulations.  This decision has important implications for companies facing PSD enforcement cases brought by U.S. EPA, states or environmental groups pursuing citizen suits.  This decision bolsters the consensus that the 5-year statute of limitations may apply to bar civil penalties for older alleged violations.  The decision also breaks new ground by finding that current owners are not liable for past violations occurring on the watch of former owners, and those former owners are also not liable for injunctive relief.  The court also suggested that civil penalties even for more recent violations not barred by the statute of limitations could be very low, accruing only for the number of days during which the company began or possibly undertook the construction in question.  Finally, the court joined other courts in holding that claims that the company violated Title V permitting regulations by omitting PSD requirements, which claims may not be raised in an enforcement case.  The growing consensus also makes the Supreme Court unlikely to grant a request for review.

To read the entire Client Alert, click here.

START-UP NY: A Less Taxing Proposal

In an attempt to foster entrepreneurialism and job creation, New York State has passed a tax incentive program called START-UP NY.  The program alleviates tax liability for start-up companies that move to or start in one of the specified tax-free communities within the State.  There are, however, limitations on the companies that qualify for participation.  Among these limitations, restaurants, retail businesses and certain professional organizations are completely excluded from the program, and any business that can participate must not compete with a local business located outside the tax-free community. Nevertheless, the companies that are able to qualify are eligible for substantial benefits.

The program alleviates all tax liability for the participating company for a ten-year period, including corporate/business taxes, sales taxes and property taxes.  Furthermore, employees of the qualifying company will not pay income taxes during the first five years and will only have to pay taxes on income over $200,000 for individuals, over $250,000 for a head of household and over $300,000 for taxpayers filing a joint return during the second five year period.  In light of the potential for misconduct, participating companies will be subjected to significant oversight.