Recap: Is Venture Finance in China Possible?

By Nahal Bahri, JD Candidate 2015 | Posted on

On October 2, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on venture finance in China by Arman Zand, Senior Vice President of SPD Silicon Valley Bank in Shanghai, China. Zand, a Haas MBA (class of ‘09), spent the last four years in Shanghai establishing Silicon Valley Bank’s (SVB) joint venture with Shanghai Pudong Development Bank (SPD).  Unlike other banks, SVB is a financial institution designed to serve entrepreneurial and early stage tech companies.

In his presentation titled “Is Venture Finance in China Possible? The View from Silicon Valley,” Zand spoke about recent developments in China’s economy, some challenges he faced in developing China’s first venture capital bank and lessons he learned along the way.

Before delving into the main issues with developing a venture capital bank in Shanghai, Zand gave a brief explanation of recent developments in China’s economy.  He explained that China’s economic development is rapidly moving forward with the hopes of transitioning from a labor economy to an innovation economy that embraces SMEs, or small and medium-sized enterprises.

Subsequently, Zand explained some of the challenges he faced while in China, including working with Chinese banks that are primarily mortgage lenders.  The majority of all bank loans in China require real assets to serve as collateral; however, entrepreneurial companies only have IP collateral: trademarks, patents, software code and the like.  The lack of real estate makes venture finance “extremely challenging.”

Nevertheless, a recent development in which Shanghai announced a new free trade zone (FTZ) could create a superior environment for venture finance. (more…)

The Government Shut Down, The Revival of High Frequency Trading, And What The SEC Is Doing To Keep Up

By Roxana Guidero, J.D. Candidate 2016 | Posted on

The government shut down continues while the American public anxiously awaits a resolution.  Unless Congress raises the debt ceiling by October 17, the U.S. government will default on its debt.  For the securities markets, this means market chaos, which provides a feeding ground for high frequency traders.

High frequency trading (HFT) uses complex computer algorithms to analyze multiple markets and trade high volumes of stocks, moving in and out of trades in fractions of a second.  For high frequency traders, fortune favors the speedy.  Computers generate returns in a manner that human beings simply cannot, leaving ordinary investors aghast.  The question remains, does high frequency trading help or hurt our markets?  On one side of the debate, proponents of this practice argue that HFT provides liquidity in the market.  On the other side, critics blame HFT for market disruption and see the sophisticated technology as providing an unfair advantage to traders.

The Securities and Exchange Commission has been fighting to keep up with the technological advancements on Wall Street and research just how much of an advantage traders acquire through the use of such technology.  The SEC is planning to release a public website containing data-driven analysis of trading patterns, increasing accessibility to the obscure patterns of high frequency trading. The data collected will also aid the SEC in closing the technological gap between this regulatory agency and high frequency traders.  Although the SEC continues to weigh the actions it should take, if any, against high frequency traders, it is not as quick to blame HFT for market crashes as some of its critics are.  SEC Chairman, Mary Jo White, in a speech on October 2nd, noted that although there is an increased risk of technology failure as trading systems become faster and more complex, high frequency traders are not to blame for the market problems of the last few years.

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Week in Review: Government Shuts Down, Twitter Ramps Up

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Twitter, Inc. publicly filed its IPO documents on Thursday, revealing the microblogging company’s financials for the first time.  Analysts expect the seven-year-old site to be valued in the $10- to $15-billion range, although it is still unprofitable.  Rapid growth has been outmatched (for now) by accelerated expenses:  in the first half of this year, revenue doubled to $254 million but net loss increased by 40% to $69 million.  Twitter, which has chosen the ticker symbol TWTR, is still behind the pace set by Facebook.  By comparison, Facebook’s IPO sales pitch showcased a $1 billion annual profit in 2011 and 845 million active users (Twitter has 215 million).  Twitter’s co-founder and former CEO Evan Williams will expect the largest payout once the liquidity event is completed; he owns 12 percent of the company.  Co-founder Jack Dorsey owns 4.9 percent.

The federal government is paralyzed as lawmakers have failed to agree on the nation’s budgetary priorities.  Divided government in hyper-partisan Washington, D.C., has proven to be a recipe for stalemate.  While most of the coverage has focused on House Republicans’ objection to funding the Affordable Care Act, the debate will likely be viewed as a much broader battle on federal spending.  Two storms will soon converge—the current battle over a Continuing Resolution (essentially legislative authorization to write certain checks from the U.S. Treasury) and the imminent necessity to raise the federal government’s $16.7 trillion debt ceiling (to further add to the nation’s debt).  Treasury Secretary Jack Lew has estimated that the U.S. government will need to raise the ceiling before October 17th, less than two weeks away.  For lawmakers, resolving the current shutdown by passing a “clean CR” will solve little unless the deal also addresses the debt ceiling—thus, the conversation for congressional leaders of both parties appears to have shifted to a grand bargain or large-scale budget deal.  For now, Wall Street has remained mostly apathetic, but prolonged brinksmanship is likely to change the market’s attitude in a hurry.

Recap: “Change in Financial Services Regulation? You Can Bank on it!”

By Alex Petersen, J.D. Candidate 2016 | Posted on

On September 25, the Berkeley Center for Law, Business, and the Economy (BCLBE) and Berkeley Business Law Journal (BBLJ) co-sponsored the talk: “Change in Financial Services Regulation? You Can Bank on it!” Featuring two prominent legal practitioners with a combined 70 years in the field, the discussion revealed the challenges and rewards of navigating the complex world of financial regulation. Sara Kelsey and Karol Sparks gave valuable advice and told their life stories.

Sara Kelsey described her unorthodox and impressive journey through the fast-evolving world of financial regulation. Dubbed the “Forrest Gump” of the banking bar, she evolved from a teargas-dodging Berkeley undergraduate into the General Counsel of the Federal Deposit Insurance Corporation (FDIC). Kelsey’s accomplishments illustrate the power of her motto: “always read the statute with fresh eyes – don’t listen to anyone else.”

Kelsey boldly advocated for the approval of one of the largest mergers in history while at Skadden Arps in the 1990’s, forming Citigroup from Travelers Group and Citicorp.  While nearly everyone thought the merger was illegal and insane, Kelsey’s precise understanding of the Glass-Steagall Act and the Bank Holding Company Act gave her confidence that Citigroup would have a 2-5 year window for divestment of its prohibitive assets. In addition, the national political environment suggested imminent legislation that would cause major regulatory change. The gamble paid off in 1999 with the passage of the Gramm-Leach-Bliley Act, removing barriers between banking, securities, and insurance companies.

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Banking Law Seminar: Dodd-Frank and the Golden Age of Lawyers and Consultants

By Richard Andrews, J.D./M.B.A. Candidate 2015 | Posted on

On September 23, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a lunchtime talk on banking law given by Wells Fargo & Company’s Chief Regulatory Counsel, John D. Wright. Wright’s talk was part of Banking Law Fundamentals, BCLBE’s comprehensive, 2-1/2 day introduction to banking law for attorneys, consultants, regulators, and bank professionals, hosted at UC Berkeley’s International House from September 23-25.

Wright presented an overview of post-Dodd Frank financial institutions’ “new normal,” characterized by a “highly operationalized, risk-averse, bureaucratized culture.” According to Wright, “the golden age for lawyers and consultants has finally dawned.”

Wright, who has worked with financial institutions for 25 years, described the major events that led to the current state of affairs. As an associate practicing securities and banking law at Brobeck, Phleger & Harrison in San Francisco, he often analyzed Wells Fargo’s commercial loan files. At that time, law firms were the primary directors of banks’ legal work.

Wright joined Crocker Bank in early 1980, at the beginning of the next 20 years’ deregulatory winds, which culminated in the Gramm-Leach-Bliley Act of 1999. The resulting consolidation among financial institutions greatly expanded the role of banking lawyers and sparked the growth of large in-house legal departments.

Turn of the millennium events such as “Y2K” and 9/11 further expanded the banking lawyer’s role into operations risk management. With this expansion came the breakdown of the former rigid separation between banks’ lawyers, compliance officers, and risk managers. Wright described the role of the chief regulatory counsel today as heavily focused on enterprise risk management, and consequently, as similar to a consultant’s role. At the same time, law firms representing financial institutions have moved away from strategic advice-giving, and toward the more specialized areas of litigation, regulatory enforcement, and transactional work.

By far the most significant recent change has been the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. (more…)

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

By Willi Künzli, LL.M. Candidate 2014 | Posted on

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.

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Week in Review: JPMorgan Returns to the Hot Seat

By Christopher Hammond, J.D. Candidate 2015 | Posted on

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

By Taylor Arabian, J.D. Candidate 2016 | Posted on

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.

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Further Details on Planned Blackberry Sale

By Anna Maria Galinska, LL.M. Candidate 2014 | Posted on

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?

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BlackBerry Enters Into Agreement with Consortium led by Fairfax Financial

By Andrew B. Talai, J.D. Candidate 2014 | Posted on

[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.

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