On November 14^th, 2017, the Boalt Global Corporate Law Society welcomed Bruce Quan, former Associate Professor at Peking University Law School and former Vice Chair of the Public Policy Development Committee of the American Chamber of Commerce in Beijing (AmCham Beijing), for a discussion about his experience in transnational transactions, trends in foreign investment, and implications of President Xi Jinping’s One Road, One Belt initiative.

A graduate of UC Berkeley (’71) and Berkeley Law (’78), Mr. Quan started his career in China in the early 80’s helping foreign companies invest in China. After Chinese leader Deng Xiaoping declared, “To get rich is glorious,” during his famous Southern Tour advocating economic reform, Mr. Quan served as an external observer on the development of the rule of law system in support of those reforms.

When asked about the impact of the recent Communist Party Congress, Quan said that the collective leadership balance set up by Deng is no longer valid, because Xi is now the “sole power,” elevated to the same level as Mao Zedong, as he has unchallenged control over the military and a substantial part of the economy. Quan believes that Xi’s ultimate goal is to challenge the West’s dominance of the global economy. As part of these efforts, China set up its own infrastructure bank as an alternative to the World Bank and the IMF, develops its own homegrown industries, and seeks to limit the influence of foreign companies in China.

Quan characterized Xi’s One Belt initiative as a “mirror image” of the global financial organizations established by the U.S. and its allies after World War II. From China’s perspective, the One Belt is a response to perceived unfair treatment by the IMF and World Bank. Through this initiative, China has built ports around the world, a rail system stretching from East to West that mirrors the historical Silk Road, and provides economic aid to developing countries.

With regards to foreign companies doing business with China, Quan noted that only a handful of Chinese companies can compete world-wide, so China would like to “level the playing field.” As a result, there is not a strong focus on anti-trust, because China is focused on making their state-owned enterprises competitive globally. Furthermore, China is interested in business that will support national interests in the long-term, rather than sectors like entertainment, sports, and real estate, which is why they have tightened foreign investment policies in an effort to crack down on offshore acquisitions by companies like Wanda Group and Fosun International Ltd.

Quan’s advice for corporate lawyers interested in working in China? “It’s pretty darn frustrating. It’s not easy,” noting that one prerequisite for working in China today is fluency in Mandarin. For more information about a specific industry, Quan recommended consulting the AmCham China White Paper, which offers insight about what foreign companies feel are the current issues of doing business in China.

Recap Current Trends in Corporate and Cross-Border Transactions in and with China (PDF)

At an event in New Jersey on November 18, William C. Dudley, President of the Federal Reserve Bank of New York, held a policy roundtable to discuss local economic trends, current monetary policy and the health of the U.S. economy.

A PhD graduate of the University of California, Berkeley, Mr. Dudley was formerly the chief economist of Goldman Sachs for ten years before being appointed president of the Federal Reserve Bank and vice-chairman of the Federal Open Market Committee.

At the event, Dudley stated that the Federal Reserve was considering what it would mean to offer digital currencies at some point in the future, and “whether it may be necessary as an alternative to cash.”  He also claimed that investors should be cautious because the value of virtual currency was not legal tender and it could still be highly unstable.

On November 27, the night before CoinDesk’s crypto conference, Bitcoin hit the record of 10k.  The digital currency has been increasing in value throughout the year and has more than doubled in value since the beginning of October.  Additionally, the global crypto-currency market  rose above $300 billion for the first time on Sunday evening.

Nonetheless, Bitcoins rapid ascent has also raised concerns that the digital currency might reach “bubble territory” and collapse. As Dudley stated during the event, “In terms of Bitcoin, I would be pretty cautionary about it. I think it’s not a stable store of value and it doesn’t really have the characteristics that you’d like to have in a currency.”

Recently, at a separate forum, when asked if Bitcoin and other crypto-currencies were a tulip, Dudley quickly acknowledged that it was still uncertain and that “there was a possibility down the road that central banks could get more involved in offering digital currencies as a substitute for cash.”  Additionally, he said that the Federal Reserve Bank was considering whether digital currencies would be a more effective medium than cash.

Furthermore, Dudley said he wasn’t that concerned about high leverage in financial markets and asset bubbles because the new regulations adopted since the 2007-2009 crisis “meant that the U.S. financial system could bear that stress much, much better than before.”

Amid Bitcoin surge, Dudley says offering digital currency on Fed’s radar (PDF)

In recent years, big companies have been turning to a new place when filing for bankruptcy: Richmond, Virginia. The U.S Bankruptcy Court in Richmond has become a destination wedding spot for failed companies, as debt-ridden large out-of-town corporations plant their bankruptcies in this town, using the court and judges here known to handle complicated bankruptcy cases in a way that’s perceived by many as favorable to debtors.

One of these companies was the San Francisco-based, children’s clothing store chain, Gymboree, who filed for Chapter 11 in Richmond federal court with more than $1 billion in debt. Even though they were based in California, according to Virginia bankruptcy law since Gymboree controlled an LLC that was incorporated in Virginia, it was allowed to file in the commonwealth, benefiting from the loophole in bankruptcy law, which allows for companies to file for bankruptcy in any court district where they have an affiliate.

Likewise, Toys “R” Us also chose Richmond as the place to file for bankruptcy, as a consequence of the company’s recent troubles with heavy debt load that has weighed on the company for years, after the private equity firms Kohlberg Kravis Roberts and Bain Capital purchased the company in a leveraged buyout for about $6 billion in 2005. The famous toy store also faced hardships in competing against warehouse and online sellers, which resulted in the accumulation of a long-term debt totaling more than $5 billion.

But why are these well-known companies choosing Richmond for their bankruptcy filing? First, bankruptcy procedures tend to be extremely arduous and can drag on for years. The Richmond court offers a so-called “rocket docket” that moves cases along much quicker, as exemplified by the Gymboree bankruptcy, which was completed in less than four months. Second, the legal history in that court district contains precedents favorable to companies, such as facilitating the process for companies to walk away from union contracts.

Moreover, and perhaps one of the biggest appeals of Richmond to bankruptcy filing, is the stratospheric rates bankruptcy lawyers are able to charge there. In some cases, the attorneys were making 25 percent more than the highest average rate in 10 of the largest bankruptcies this year. Such was the case for Kirkland & Ellis, the firm that represented Toys “R” Us.

Last, but not less important, in the list of Richmond’s draws for bankruptcy filings, is the fact that the two Judges in that circuit are well known for their expertise in large corporate bankruptcies, and according to local bankruptcy lawyers, can handle cases expeditiously, which makes the strenuous process of bankruptcy slightly easier to execute.

Why Did Richmond, VA, Become a Dream Destination for Bankrupt Companies (PDF)

With Blockchain applications in the financial services industry on the rise, it’s no surprise that global insurance giants are taking notice. German insurer Allianz recently announced the development of a new prototype product incorporating Blockchain technology for their captive insurance business. Allianz’s captive insurance business collects premiums from each of Allianz’s operating companies and pays out international clients’ claims.

The adoption of Blockchain technology aims for a more streamlined process for international insurance transactions between insurers and clients. Blockchain technology also targets offering better data quality and communication compared to traditional transactional processes and user interfaces. Allianz explains that this prototype product differs from traditional insurance transactional processes because the prototype makes possible a distributed solution across multiple jurisdictions with a shorter cycle time, simpler process, minimized need for intermediaries, and greater transparency between the insurer and client. Their prototype–focused on two of their commercial products—professional indemnity and property policies, targets three moments in the captive insurance cycle: annual policy renewals, premium payments, and claim submissions and settlement.

This is not Allianz’s first bite of the Blockchain apple. In 2015, Allianz acquired Everledger, a Blockchain startup, and first started testing applications of Blockchain as part of their disruptive technology initiatives.

The incorporation of this technology into an international insurance operations program may elicit unique legal questions about not only international cash transfer but also what its impact may be in the U.S.’s highly-regulated insurance environment. Though Allianz’s venture indicates the potential for a significant improvement in efficiency of insurance transactions on an international scale, the lack of clarity around regulation of Blockchain-based transactions leaves its future in the American commercial and personal lines insurance industry uncertain. For a risk-adverse industry, the regulatory uncertainty and malleability of Blockchain technology may persuade insurers to proceed in adoption with caution.

On the other hand, it may just be the innovative product and platform that radically transforms the platforms on which insurance transactions rest, thereby significantly improving the customer experience, streamlining insurance transactions on multiple levels, and enabling productivity savings.

Allianz launches Blockchain prototype for captive insurance (PDF)

Initial coin offerings (ICOs) are a relatively new method of raising money by means of crowdfunding through the sale of cryptocurrencies. ICOs are highly unregulated and therefore, they are controversial in the financial world. Despite the warnings of regulators and the uncertainty of the rules concerning the fundraising method, this practice has taken off and is being widely used to raise money. Over $3 billion has been raised by startups through ICOs from investors.

Joseph Grundfest, a former commissioner at the Securities and Exchange Commission (SEC) in the 1980s and now a law and business professor at Stanford, stated that he had been asking SEC officials and staff to prohibit the primary distribution of coins as it violates all existing norms of federal securities regulation. “ICOs represent the most pervasive, open and notorious violation of federal securities laws since the Code of Hammurabi,” Grundfest said in an interview. “It’s more than the extent of the violation, it’s the almost comedic quality of the violation,” he added.

These ICOs are undertaken without the involvement of financial intermediaries such as institutional investors and financial regulators like the SEC. Due to this, the trading of these coins happens outside the traditional financial system. ICOs have recently been banned by regulators in China and South Korea due to the fact that they violate existing securities laws. Most of the startups that have raised money through such offerings have nothing to show for it. In fact, it is assumed that over 90% of these projects will fail. Yet, there is genuine interest in this business model and this way of raising money has attracted attention worldwide.

Jay Clayton, chairman of the SEC, has stated that the SEC is willing to scrutinize each ICO individually and determine which of the coin offerings are to be labeled as securities, which would require registration with the authorities. Further, he added that any ICO that violates federal securities laws would be met with strict punishment. “Where we see fraud, and where we see people engaging in offerings that are not registered, we are going to pursue them because these types of things have a destabilizing effect on the market,” Clayton explained in a meeting at the Federal Reserve Bank of New York.

Grundfest said that this a welcome step but it should not have taken so long to regulate these offerings and punish those that have acted in a fraudulent manner. The majority of the ICOs claim that they are not securities. However, the opinions on this issue are rather divided. Some companies effectively promise a return on investment and give voting rights to the coin holders. At the same time, most coins are bought in the hopes of financial gain. This has hindered the growth of this industry throughout the past few months. Whether or not the SEC will regulate ICOs and punish those who have indulged in fraudulent tactics remains to be seen.

A Former SEC Regulator’s Opinions on Initial Coin Offerings (PDF)

On November 18, a report surfaced that Qualcomm may soon gain antitrust clearance from the Japanese Fair Trade Commission on its bid for NXP. Originally announced in October 2016, Qualcomm’s $47 billion bid represented an all-cash deal that valued NXP shares at a 10% premium compared to the stock price on the day prior to the initial announcement. When completed, this merger is expected to be the largest semiconductor merger and is valued above the $37 billion Avago paid for Broadcom and the $32 billion Softbank paid for ARM. Executives from both Qualcomm and NXP showed great optimism in the deal being completed by 2017 and announced that integration efforts were already underway.

Acquiring NXP could be essential for Qualcomm’s long-term growth. Although Qualcomm is the world’s largest supplier of System-on-Chips (SOCs) for mobile devices and telecommunications equipment, its mobile chipsets are losing market share to rivals such as MediaTek and Huawei. This is occurring while its licensing business, which generates about one-third of its revenue, is under threat from regulators and others for high fees. A combined Qualcomm-NXP is expected to become the world’s third largest supplier of semiconductors, after Intel and Samsung, giving Qualcomm an opening into the automotive space, where NXP is the number one supplier.

However, challenges have arisen to delay the deal’s closing. Although approved by U.S. antitrust regulators in April, E.U. regulators continue to delay the deal. Qualcomm is expected to give concessions such as not including NXP’s standard essential patents and not taking legal action against third parties regarding near field communications (NFC), for which NXP was a co-founder. E.U. approval is expected after Japanese approval. In addition, hedge fund Elliot Management, which has a 6% stake in NXP, has stated that Qualcomm’s bid is undervaluing NXP, which is trading above the $110-per-share offer price. As of October 20, Qualcomm has only tendered 3.6% of shares where 80% is needed to close the deal.

Meanwhile, Broadcom made an unsolicited $103 billion offer for Qualcomm on November 6. Based on similar valuations, Broadcom’s offer undervalued Qualcomm and sources have noted that Broadcom may increase its offer for Qualcomm from $70 to $77 per share after rejection by Qualcomm’s board. Reports also note that Broadcom is expected to continue soliciting Qualcomm shareholders in a bid to stop Qualcomm’s acquisition of NXP, as Broadcom seeks to remain relevant by incorporating Qualcomm’s technologies in the cellular industry.

Qualcomm Comes Closer to Acquiring NXP  (PDF)

It began with Harvey Weinstein. The outpour of support for victims of Weinstein’s predation has encouraged a wave of women to open up about sexual misconduct that they have faced from a number of prominent men in our society. Longtime NBC anchor, Matt Lauer, is the most recent public figure to face allegations. Though, like most that have faced these recent allegations, Mr. Lauer was relieved of his current job, one pressing question still remains: will Mr. Lauer face legal repercussions for his actions?

Like so many questions that have to do with the law, the short answer is: it depends. For Mr. Lauer and most other prominent men that have been accused of sexual assault and other forms of sexual misconduct, the statute of limitations in the various states in which they have been accused is the most important determinant when considering the potential legal liability of these men.

In Mr. Lauer’s case, his alleged conduct occurred in the state of New York. In New York, an accuser has two to five years to allege criminal sexual assault cases, but there is no statute of limitations for rape allegations. In the civil context, accusers have up to seven years to bring a suit under New York’s Gender-Motivated Violence Act for a “crime of violence motivated by gender”. Further, claims against employers and co-workers for unwanted sexual advances and lewd remarks can be brought up to three years after the incident occurs.

Under Federal Law (Title 7 of the Civil Rights Act), accusers have only 300 days to bring claims of quid pro quo or creation of a hostile work environment. In this circumstance, however, accusers first take their claims to the U.S. Equal Employment Opportunity Commission (EEOC), which can bring a lawsuit against the employer but, importantly, not against individuals. Additionally, this route would preclude an accuser’s ability to bring a suit themselves.

To date, NBC has reportedly received at least three separate complaints regarding Mr. Lauer’s inappropriate sexual misconduct. The most recent publicized allegations involved conduct that occurred in 2014, which could potentially subject Mr. Lauer to criminal and civil charges under New York state law. An allegation detailing an incident that allegedly occurred in 2001 could only be brought against Mr. Lauer as a rape charge because the statute of limitations has been exhausted for all other avenues.

It is important to note that, thus far, the women that have accused Mr. Lauer have done so without revealing themselves to the public. In order to subject Mr. Lauer to legal repercussions, these women would likely have to shed their anonymity, and risk uprooting their careers as well as their personal lives. Difficult personal decisions and legal questions must be answered before we’ll see if Mr. Lauer (and others that have been similarly accused) should fear not only the end of their careers, but also the force of the rule of law.

Matt Lauer is No Longer at NBC, but will he Face Legal Repercussions (PDF)

The U.S. Department of Justice sued AT&T Inc. (AT&T) on November 20, 2017 to block its $85.4 billion acquisition of Time Warner Inc. (Time Warner), saying the deal would “greatly harm American consumers.”

AT&T is one of the nation’s largest internet and telephone providers and the largest satellite company and television distributor in the United States. Time Warner ranks among the largest content suppliers, including content from HBO, Warner Bros., TNT and CNN.

The Justice Department is arguing that the deal violates antitrust law because it would sufficiently harm consumers and weaken competition. Since AT&T would be able to charge more for licensing of valuable programming, consumers would most likely face higher prices for cable or satellite television subscriptions. Furthermore, the merger would slow the industry’s transition to online video and other new distribution models.

AT&T argues that the government’s lawsuit is a “departure from decades of antitrust precedent” because of AT&T and Time Warner do not compete with each other. Vertical mergers like this are routinely approved because they benefit consumers without removing a competitor from the market. AT&T contends that there is no legitimate reason for its merger to be treated differently. Moreover, AT&T contends that it needs media content in order to compete against internet firms for digital advertising dollars and subscribers.

This is the first merger blocked during the Trump Administration. AT&T speculates that the attention comes as a result of President Trump’s criticism of CNN since taking office. Whether or not President Trump played a direct role in the Justice Department’s attempt to block the deal is a subject of debate. But the move maybe indicate that the Trump administration will look closely at other big mergers.

Before the lawsuit, the Justice Department asked AT&T to sell off some assets. AT&T rejected the Justice Department’s demand to divest DirecTV or Time Warner’s Turner Broadcasting – which contains news network CNN.

At this time, AT&T is still continuing to talk with the government to negotiate a settlement. But as the process continues, there will be little opportunity for AT&T to settle the case. A lengthy, drawn-out court battle could cause AT&T and Time Warner to give up on the deal. AT&T stated that the company was prepared to defend itself in the court.

Justice Department sues to block ATT Time Warner Merger (PDF)

Recent negotiations to renew the North American Free Trade Agreement reached an impasse this past October, when the Trump administration put forward new rules of origin that Canada and Mexico have dismissed as unworkable and “insane,” holding that the administration’s position is inflexible. These concerns come at a time when many parties fear President Trump will follow through with his promise to pull the United States out of NAFTA.

Current NAFTA guidelines allow for tariff-free trade between Mexico, Canada, and the United States as long as 62.5% of all manufactured vehicle components are from the three members states. The administration’s recommended changes include increasing that number to 85% for NAFTA member states, with an added caveat that 50% of all those components come from the U.S. Consistent with campaign promises to bring back manufacturing jobs, the administration’s position looks to return jobs to the states by increasing the regulatory demands on NAFTA members.

The extent to which the administration’s proposed regulations would achieve this end, however, is heavily contested. Should automakers in Mexico and Canada fail to meet the new regulations, they would be subject to a 2.5% tariff on completed cars, which they might perceive as cheaper than the increased production costs that follow from the administrations U.S. centric policies. If that is the case, automakers might shift production from Mexico or Canada to other countries that would likewise be subject to the 2.5% tariff, albeit where other production costs might be cheaper. This strategy was possibly employed by Ford Motor Co. in a recent decision to move Focus production to China instead of Mexico.

The administration’s new regulations have also been met with considerable opposition from automotive industry groups, who contend that the current regulations are beneficial to the industry. One such group, Driving American Jobs, a coalition of major auto manufacturers, has decried the administration’s proposals, attributing much of the recent resurgence in the American automotive manufacturing industry to the success of NAFTA. Not all interested parties oppose the new regulations, however, as labor unions and blue collar workers, notably in states in which the President won the popular vote, support President Trump in denouncing NAFTA.

The administration’s approach is certainly no less frustrating for NAFTA Members than it is worrisome. It is not clear at present what the President’s ultimate goal with respect to NAFTA is; whether he intends for the new regulations to catalyze dissolution or whether the administration poses them in earnest remains to be seen.

Trump Administration’s NAFTA Rules for Cars that Run on Hot Air (PDF)

Uber has cleared the way for a multi-billion dollar investment by Softbank, a Japanese telecommunications company. SoftBank hopes to obtain 14% ownership by issuing a tender offer to current stockholders, and buying $1 billion in new shares issued by Uber.

SoftBank would agree to a deal only if Uber resolved some of its governance issues. Correspondingly, Uber’s board agreed to adopt a traditional one vote per share policy. This policy limits the power of Uber’s early investors – including its out-of-favor former CEO, Travis Kalanick – who held a ton of power in the company via “super voting rights.” In addition, Uber expanded its board of directors from 11 to 17, and brokered a deal for one of its influential shareholders to suspend a lawsuit against Kalanick.

Uber believes SoftBank’s investment will help it grow in emerging markets. SoftBank, which unconventionally invests in companies that compete in the same industry as part of its aggressive investing strategy, owns more than 30% of Ola. Uber and Ola are rivals in South Asia, but collectively have a 95% market share in India. SoftBank’s investment in Uber thus opens up the possibility of M&A activity. If permitted by India’s antitrust laws, such a deal will allow Uber to thrive in a market that has previously brought Uber its fair share of headaches. SoftBank also owns significant stakes in other ride-sharing giants, including Didi Chuxing (China), Grab (Southeast Asia), and 99 (Brazil).

Perhaps the biggest winners in the deal are Uber’s employees. Over the last year, employees have had to endure extensive turnover to the company’s C-suite, public relations crises, and increased competition from Lyft. The SoftBank deal gives employees a welcomed opportunity to cash-out their stock options at a high price.

The city of San Francisco will also benefit from SoftBank’s lucrative investment. Uber employees who cash-out will have earnings taxed at .711%, the city’s income tax. While employees of several tech companies in San Francisco are exempt from city income taxes, Uber employees are not eligible for the “Twitter tax break” because the company is not headquartered in the area of San Francisco where the city agreed to exempt certain companies from income taxes.

This is far from a done deal. SoftBank maintains that it has not yet decided whether it will invest in Uber. In addition, even if SoftBank does issue a tender offer, the deal can still fall through if not enough stockholders agree to sell. Nevertheless, a deal seems likely, and there are a lot of parties that stand to benefit from it.

SoftBank’s Potential Investment in Uber Outlook and Effects (PDF)