On April 5, 2012, U.S. District Court Judge Rosemary Collyer approved the $25 billion settlement negotiated on February 9, 2012, between 49 states and the federal government and five banks – Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial. The deal, the largest multistate settlement since the Tobacco Settlement in 1998, settles federal and state claims against five of the largest banks in the United States for what has become known as “robo-signing”: signing foreclosure related documents outside of the presence of a notary public and without ensuring the documents were correct.
The Network Lecture Series: The Optimal Corporate Bailout – A Presentation by Professor Eric Talley
By Joseph Santiesteban, J.D. Candidate 2013, U.C. Berkeley School of Law, with contribution by Professor Eric Talley, Rosalinde and Arthur Gilbert Professor of Law; Director, the Berkeley Center for Law, Business, and the Economy
Introduction
In 2008-09, when the government spent $350 billion dollars bailing out corporations that it deemed systemically important, it confronted several issues. First, which companies should be bailed out? Second, what should the terms of the bailout be? And third, how should the program be funded. On March 20th at Berkeley Law’s weekly Law and Economics Workshop, Berkeley Law Professor Talley Eric Talley presented “A Model of Optimal Corporate Bailouts,” a paper he co-authored with UCLA Business School Professors Antonio Bernardo and Ivo Welch, which attempts to confront these issues with a theoretical model and compare their results to the Troubled Asset Relief Program (TARP).
To Stagger Or Not To Stagger: Harvard’s Shareholder Rights Clinic v. Wachtell Lipton
Recent days have seen a flurry of activity around a student clinical program at Harvard Law School: The Harvard Shareholder Rights Clinic (SRC). The clinic “provides advice and representation, on a pro bono basis, to public pension funds and charitable foundations seeking to improve corporate governance.” Harvard Professor Lucian Bebchuk is a corporate governance activist and the clinic’s faculty advisor. This academic year, the clinic has advised six public institutional investors, including Illinois State Board of Investment, the Los Angeles County Employees Retirement Association, the Massachusetts Pension Reserves Investment Management Board, the North Carolina State Treasurer, and the Ohio Public Employees Retirement System.
One of the clinic’s major projects has been eliminating the use of so-called “staggered boards.” Under a staggered board structure, board members are divided into classes and a different class is eligible for election each year. Thus, it takes at least two years to replace a majority of the board. Mr. Bebchuk argues that the use of staggered boards serves to unduly protect existing board members and diminishes shareholders’ voting power. Furthermore, other academics have found that companies that utilize staggered boards tend to be of lower value, make poorer choices in asset acquisition, and have compensation schemes that do not necessarily reflect board performance.
Second Circuit Set to Reign in Rakoff
On March 15, the Second Circuit stayed proceedings in the now notorious case of SEC v. Citigroup. The case hit headlines last November when District Court Judge Rakoff refused to accept a $280 million settlement agreement between the SEC and Citigroup. Judge Rakoff’s decision was outlined in great detail in a previous post on the Network.
By granting a stay in the proceedings, the Second Circuit is allowing the SEC and Citigroup to avoid having to proceed with the trial litigation while appealing Judge Rakoff’s decision. The appeal is scheduled to be heard in September, though the dicta in the March 15 decision appears to support the position that the Second Circuit is prepared to overturn Judge Rakoff’s decision.
Owning a Piece of Manchester United: The Tale of A Delayed IPO
Manchester United’s planned (but delayed) $1 billion initial public offering in Singapore will adopt a two-tier share structure, as the record 19-time English soccer champion seeks to cut debt that has fueled fan protest.
Benefit Corporations: A New Corporate Benefit to Society
California is joining a wave of states that have enacted legislation creating new corporate forms that allow for the creation of for-profit companies with a general or specific public benefit. During the 2011 legislative session, California enacted legislation allowing for the creation of a flexible purpose corporation and a benefit corporation. As of January 2012, companies can choose between two new corporate forms that provide directors with the flexibility to pursue social and environmental objectives, while profiting from the corporate decisions. The two new corporate forms differ in many ways despite both benefiting from a legal protection conferred by state statute to pursue social benefits. This article specifically looks at the advantages of a Benefit Corporation.
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Facebook IPO: An Investment In Facebook Is An Investment In Zuckerberg
For the all the hype about Facebook’s initial public offering (IPO), analysts are raising important questions that the social network will need to answer to court investors successfully.
On February 2, Facebook filed its Form S-1 with the Securities Exchange Commission (SEC) seeking to raise $5 billion from the sales of Class A common stock. Analysts quickly reported their expectations that the behemoth start-up could be valued somewhere between $75 and $100 billion and that it could likely raise up to $10 billion, setting it up to become one of the largest IPOs in American history.
The Second Circuit Casts Doubt on 5% Materiality Guideline
In Litwin v. Blackstone Group, L.P. (2011) the U.S. Court of Appeals for the Second Circuit concluded that the District Court erred in dismissing Plaintiffs’ complaint because Plaintiffs plausibly alleged that omitted or misstated trends from Defendants’ initial public offering registration statement and prospectus were material under Item 303(a)(3)(ii). In so holding, the Second Circuit stressed the importance of both a quantitative and qualitative analysis of materiality, stating that “[e]ven where a misstatement or omission may be quantitatively small compared to a registrant’s firm-wide financial results, its significance to a particularly important segment of a registrant’s business tends to show its materiality.” The decision casts doubt on the widely held belief amongst practitioners that a misstatement or omission that affects less than 5% of a firm’s assets is immaterial.
The case concerned the 2007 initial public offering of Defendant Blackstone Group, L.P., an alternative asset management and financial services company holding approximately $88.4 billion in assets in 2007. Plaintiff alleged misstatements and omissions with regard to its holdings in FGIC Corp., Freescale Semiconductor, Inc, and general residential real estate holdings.
ACTA Refracta: Future Uncertain for ‘Secretive’ IP Trade Agreement
The SOPA/PIPA uprising appears to have doomed those bills, but the United States Congress is not the only entity considering new restrictions on the web. Trade agreements are emerging as the new legal device for combatting unlicensed use of intellectual property online – avoiding the legislative process, and potentially impacting the openness of the Internet in ways that are inciting outrage in the online community. Two such agreements are positioned to have considerable effects on the global enforcement of intellectual property rights – the Anti-Counterfeiting Trade Agreement (ACTA) and the Trans-Pacific Partnership Agreement (TPP). This post looks at the first of these agreements, ACTA; check back shortly for our discussion of TPP.
Century Bonds- A Not-So-Rare Animal After All?
In August 2011, the University of Southern California joined Yale University and the Massachusetts Institute of Technology (‘MIT’) in selling $300 million of 100-year bonds, also known as ‘century bonds’. In October 2011, Ohio State University (‘Ohio State’), the most recent investment-grade borrower, issued $500 million of taxable AA-rated century bonds. These institutions of higher education are heating up the century bond market, once considered a rather rare bond.