CFTC Asked to Extend Cross-Border Exemption

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

Several trade groups, including the Futures Industry Association (FIA), have asked the Commodity Futures Trading Commission (CFTC) for a six month extension of an Exemptive Order from the Dodd-Frank cross-border derivatives rules.  The request points out three benefits of a possible extension.

First, the extension would give swap market participants more time to consider the SEC’s “recent proposals relating to its regulation of cross-border security-based swap activities.”  Second, “failing to extend the Exemptive Order in the absence of final cross-border guidance could increase uncertainty for international market participants.”  Third, an earlier expiration of the Exemptive Order “could jeopardize the productive and cooperative efforts underway towards meeting G20 commitments on an international basis.”  (more…)

Self-Regulatory Organization Rule Changes Part 2

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

This week, four proposed rule changes became effective for self-regulatory organizations. The Miami International Securities Exchange LLC (MIAX) filed two of the adopted rule changes: 1) permitting the listing of additional strikes until the closing of trading on the second business day prior to expiration in unusual market conditions; and 2) expanding the number of expirations available under the Short Term Option Series Program.  The NASDAQ OMX PHLX LLC (Phlx) filed the other two adopted rule changes: 1) adopting a strategy fee cap applicable to jelly rolls; and 2) amending the Permit Fee and certain Options Trading Floor Fees, including a technical amendment to the Pricing Schedule.

The third rule change adopts a strategy fee cap applicable to jelly rolls, which are “transactions created by entering into two separate positions simultaneously.”*  The two positions are buying a put and selling a call that have the same price and expiration, and selling a put and buying a call with the same price but a different expiration.  (more…)

Delaware Court Applies Business Judgment Rule to Going-Private Merger with Controlling Stockholder

By Davis Polk & Wardwell LLP | Posted on

[Editor’s Note: The following post is authored by Davis Polk & Wardwell LLP]

In a recent, landmark Delaware decision in In re MFW Shareholders Litigation, C.A. No. 6566-CS (Del. Ch. May 29, 2013), Chancellor Leo E. Strine, Jr. answered a frequently debated (but unresolved) question of whether a going-private merger with a controlling stockholder could be structured to invoke the business judgment rule, and not the entire fairness standard of review. Resolving this issue of first impression, the Court held that the business judgment rule will apply “when a controlling stockholder merger has, from the time of the controller’s first overture, been subject to (i) negotiation and approval by a special committee of independent directors fully empowered to say no, and (ii) approval by an uncoerced, fully informed vote of a majority of the minority investors.” (more…)

Online Currency Exchange Accused of Laundering $6 Billion

By James Kollar | Posted on

Saying it was the world’s largest international money laundering prosecution in history, federal authorities announced charges against the operators of Liberty Reserve, an online currency exchange that prosecutors say enabled more than a million people worldwide to launder about $6 billion.

The investigation of the Costa Rican based company involved law enforcement officials from 17 countries, highlighting the complexity and globalization of illicit financing systems that have gone digital. With Liberty Reserve, any user could open an online account from anywhere in the world, without providing identification, and then trade virtual currency anonymously through an easily accessible online banking infrastructure.

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Self-Regulatory Organization Rule Changes Part 1

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

This week, four proposed rule changes became effective for self-regulatory organizations.  The Miami International Securities Exchange LLC (MIAX) filed two of the adopted rule changes: 1) permitting the listing of additional strikes until the closing of trading on the second business day prior to expiration in unusual market conditions; and 2) expanding the number of expirations available under the Short Term Option Series Program.  The NASDAQ OMX PHLX LLC (Phlx) filed the other two adopted rule changes: 1) adopting a strategy fee cap applicable to jelly rolls; and 2) amending the Permit Fee and certain Options Trading Floor Fees, including a technical amendment to the Pricing Schedule. (more…)

SEC Charges Former Goldman Sachs Banker in Pay-to-Play Case

By James Kollar | Posted on

Last year the SEC charged Goldman Sachs & Co. and Neil Morrison, one of its former investment bankers, with “pay-to-play” violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.

Pay-to-play schemes involve campaign contributions or other payments made in an attempt to influence the awarding of lucrative public contracts for securities underwriting business.

While Goldman Sachs had already agreed to settle its charges last year, only recently did Morrison agree to a settlement. Without admitting or denying wrongdoing, Morrison agreed to pay $100,000 and receive a ban from the securities industry for five years.

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Weekly News Update: SEC Enforces FCPA and Regulates Shell Companies

By James Kollar | Posted on

Recently, the Securities and Exchange Commission charged France-based oil and gas company Total S.A. with violating the Foreign Corrupt Practices Act (FCPA) by paying $60 million in bribes to an Iranian government official. The official then exercised his influence to help the company obtain valuable contracts to develop significant oil and gas fields in Iran. The SEC alleges that the company profited more than $150 million through the bribery scheme. Total S.A. attempted to cover their illegal payments by entering into phony consulting agreements with the intermediaries of the Iranian official and concealing the bribes in its records as legitimate business expenses relating to these consulting agreements. Total S.A., whose securities are publicly traded on the New York Stock Exchange, agreed to pay more than $398 million to settle the SEC’s charges and a parallel criminal matter from the U.S. Department of Justice. The SEC’s order requires the oil company to pay $153 million in illegal profits and retain an independent consultant to review and report the company’s compliance with the FCPA. In the parallel criminal proceedings, Total S.A. agreed to pay a $245.2 million penalty as part of a deferred prosecution agreement.

The Securities and Exchange Commission has halted trading in the securities of 61 empty shell companies in the second-largest trading suspension in history. The suspension is part of the SEC’s ongoing “Operation Shell Expel” crackdown against the manipulation of microcap shell companies that the agency sees as ripe for fraud as the companies lay dormant in the over-the-counter market. The SEC is looking to thwart so-called pump and dump schemes which are among the most common types of fraud involving empty shell companies. By suspending the trading in these companies it obligates them to provide updated financial information to prove they are still operational, essentially rendering them useless to scam artists. This latest round of suspensions follows one under the same operation last year, in which 379 companies were suspended by the SEC before they could be manipulated for fraudulent activity to harm investors.

Sallie Mae to Split into Two Companies

By Luke Burton, J.D. Candidate 2015 | Posted on

Sallie Mae recently announced that it will split into two companies: one to handle the servicing of federal student loans and the other to handle the origination of private student loans. Each company will be publicly traded and the split is expected to be complete within 12 months.

Currently, the company that will service federal student loans will control the majority of Sallie Mae’s pre-split assets. However, Sallie Mae’s split sends strong signals that the lending giant is most interested in the future market for private student loans. (more…)

The Role of Managers in Corporate Tax Avoidance

By Sarah G. Nowland, J.D. Candidate 2014 | Posted on

A recent article by Dan Amiram, Andrew M. Bauer, and Mary Margaret Frank examines the issue of corporate tax avoidance as a product of incentives.  The authors suggest that “corporate tax avoidance by managers is driven by the alignment of their interest with shareholders.”*  The tax role of the manager is made clear by studying the “effects of corporate tax avoidance on shareholders’ after-tax cash flows” in both classical tax systems and imputation tax systems.  The authors conclude that there is higher corporate tax avoidance in classical tax systems if managerial and shareholder interests are closely aligned. (more…)