The debate around breaking up big banks has become a focal point of the 2016 Presidential Election. With Wall Street facing growing market pressures there is uncertainty over whether reforms that have been put in place will be able to help withstand these challenges. One of the major reforms at question is the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act was created to address the causes of the 2008 financial crisis, one of which was high leverage. Dodd Frank has been successful in reducing the leverage of large banks as seen by Citigroup whose “leverage peaked at 33 to one, [but] today it stands at less than 10 to one.”
Earning Stripping, Tax Inversions, and the Gaming of America’s Corporate Tax System
Earning stripping and tax inversions are allowing US-based corporations to shelter their tax burdens outside of the reach of the IRS. In an inversion, a US-based company relocates their corporate headquarters overseas, allowing them to lower their domestic tax bill. A key element of this scheme is earning stripping. Earning stripping works by having a company complete their inversion deal, moving their headquarters outside of the US for tax purposes, while retaining their operations within the US. The US subsidiary then borrows large amounts of money from the foreign parent. The US subsidiary can then use the interest payments they make for the foreign parent to offset the American earnings, thus lowering the amount they are taxed domestically.
Judge Orders HSBC to Make Money-Laundering Report Public
In December 2012, the Department of Justice filed to prosecute HSBC Bank for violating the Bank Secrecy Act, Emergency Economic Powers Act, and Trading with the Enemy Act. The Department of Justice’s investigation revealed significant evidence showing HSBC officers engaged in business protocol that allowed drug cartels in several different nations to launder money internationally. Before taking the case to trial, the Department of Justice agreed on a settlement with HSBC.
Recap: “Venture Capital Speaker Series—Paul Vronsky, Kleiner Perkins Caufield & Byers”
On February 10, 2016, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Paul Vronsky, general counsel of Kleiner Perkins Caufield & Byers, for a discussion of his role at Kleiner Perkins and the future of venture capital.
A graduate of Stanford Law, Vronsky made his start at Gunderson Dettmer Stough Villeneuve Franklin & Hacigian, LLP, where he first encountered venture fund formation and management. Venture funds are unique among corporate work in that they require long-term legal strategies to anticipate the unpredictable life cycles of companies. The exceptionally high tax rate on capital gains also necessitates skills in tax law in order to truly master venture fund work, which Vronsky honed in a post-graduation class at his alma mater. Subsequently, by the end of Vronsky’s four years at Gunderson, 70 to 80 percent of his time was being dedicated to Kleiner Perkins alone.
Three, Two, One, Coke Zero: Coca-Cola’s Trademark Battle Nears its End
Since Coke Zero was first introduced in 2005, the Coca-Cola Company (Coke) has been involved in domestic and international efforts to acquire rights over the English word “zero.” The fight over the term “zero” may seem trivial at first glance, but Coke Zero currently makes up 3% of the $168 billion soda industry. Though Diet Coke remains the top-selling diet cola with 4.8% share of the soda market, global sales of Coke Zero rose 6% while Diet Coke fell 6% in 2015. This large success is essentially because men tend to avoid drinks labeled “diet” but not drinks labeled “zero.” Realizing that men could not “bridge the gender gap image-wise without a new brand and product just for them,” the black-canned cola was specially marketed to this demographic.
Though Coke Zero has been a market success, Coke’s trademark battle has been largely unsuccessful. Coke has argued that their creative marketing campaign has made the term “zero” distinctive. However, in Canada and the United Kingdom, regulators have rejected Coke’s trademark applications.
US Foods Plans to Go Public Following Failed Merger
On February 9, 2016, US Foods filed a “Form S-1” registration statement with the US Securities and Exchange Commission (SEC) for an initial public offering (IPO). US Foods’s announcement marks only the third US IPO of 2016, a year marred by heightened volatility in global equity markets.
Founded in 1988, US Foods is the second largest food distributor in the United States, supplying over 250,000 customer locations nationwide. US Foods delivers national brand foods and its own food products to supermarkets, educational institutions, restaurants, and medical facilities throughout the nation. Two private equity firms, Clayton Dubilier & Rice (CD&R) and Kohlberg Kravis Roberts & Co. (KKR), own the food distributor.
Supreme Court Presses Pause on Carbon Regulation
The Obama Administration and the Environmental Protection Agency (“EPA”) suffered a setback on February 9, 2016 when the Supreme Court put a temporary halt on enforcement of the EPA’s Clean Power Plan. The Clean Power Plan is an attempt to reduce carbon pollution from its largest source, power plants, by returning the costs of negative externalities stemming from the worst carbon-producing power plants back to them. It punishes heavy carbon-producing power sources such as coal while simultaneously rewarding investment in cleaner energy-producing alternatives such as solar, wind, and natural gas.
New York Governor Andrew Cuomo has gone on record as stating, “[the Clean Power Plan is] crucial to ensuring a cleaner, greener, and safer future for all.” U.S. Solicitor General Donald Verrilli stated in his legal filings that “[a] stay that delays all of the rule’s deadlines would postpone reductions in greenhouse gas emissions and thus contribute to the problem of global climate change even if the rule is ultimately sustained.”
Tech Valuation Utopia Projected to Take a Hit in 2016
In recent years, Venture Capital firms around the country have enjoyed the surplus of “unicorn” companies, companies that have not gone public but are privately funded and valued over one billion dollars. However, despite attempts to accelerate valuation growth in tech companies, the stock market seems to indicate that exorbitantly high valuations may take a hit in 2016.
A valuation, determined by different sets of criteria, is the estimated figure of what a company is potentially worth and how much the shareholder’s interest in a company is worth at any given time. It has become standard practice in the tech world for a company to have a valuation in order to attract more venture capital and private equity funding, which creates momentum for high stock prices when and if the company goes public. After a company goes public, a company’s valuation relies heavily on how well its stocks are doing in the market and on its current tangible assets.
Your Uber Receipt is About to Change
Last week, Uber agreed to settle an unlawful-business-practice lawsuit. The terms of the settlement require Uber to pay a total of $28.5 million to some 25 million people. That is $1.14 per person before attorney fees. Windfall. There are many reasons companies will settle suits, not the least of which is to avoid a protracted and expensive litigation process. Lyft, Uber’s key U.S. rival, recently settled a similar suit. This is one in a series of cases surrounding this issue – if it can be called an issue at all.
University of Phoenix to Be Taken Private Amid Mounting Investigations and Losses
Apollo Education Group, the owner of for-profit education giant University of Phoenix, agreed on February 8 to a $1.1 billion sale to a group of private investors. The for-profit education industry has been quite controversial in recent years, especially as educational institutions have historically been almost entirely non-profit, including private institutions. For-profit education exploded after Congress implemented the “90-10 rule” which, albeit barring for-profit colleges from receiving more than ninety percent of their revenues from the Department of Education, assisted for-profit institutions in receiving more federal aid. From 1990 to 2009, the number of undergraduate students enrolled at for-profit institutions grew from approximately 2 percent to 11.8 percent of the nation’s total number of students.