On February 25, 2016, the Energy and Environmental Markets Advisory Committee (EEMAC) of the Commodity Futures Trading Commission (CFTC) released a report, advising the CFTC to abandon its plan for position limits on the number of futures contracts a trader can hold on certain commodities such as oil and natural gas. The EEMAC was created under the 2010 Dodd Frank Act and functions “to advise the Commission on important new developments in energy and environmental derivatives markets that may raise new regulatory issues, and the appropriate regulatory response to ensure market integrity and competition, and protect consumers.”
Ganjapreneurs Are Baking Billions: A Look into the $5.4 Billion Pot Business
In 2013, Colorado made pioneering strides by becoming the first state to legalize the recreational use of marijuana. Fast-forward to 2016, and marijuana can now be used in three more states recreationally and in a total of 23 states medically. In tandem with the exponential boom of marijuana legalization is the sharp growth of the legal marijuana market. The legal cannabis market achieved $4.6 billion in sales in 2014 and was met with even more success in 2015 when it pulled in an estimated $5.4 billion, according to ArcView Market Research, the leading provider of market data on the cannabis industry. Not surprisingly, “edibles and other infused products” comprise at least half of legal marijuana sales in the United States. This number will likely continue to grow as more states legalize the recreational use of marijuana in coming years.
Wall Street Races to Secure FinTech Patents
America’s heavyweight financial institutions, including banks and payments networks, have started aggressively applying for patents at an unprecedented rate. In the past three years, they have snagged 1,192 patents, representing a 36 percent increase over the previous three years. Those patents include an incredible range of technology that runs the gamut from blockchain ledgers to mobile wallets and beyond, and this shift can be attributed to a revolution in the market for financial services. Digital financial service companies, now known as Financial Technology or “FinTech” startups, threaten to push banks out of the market if they can’t keep pace in the realm of innovation.
Apple Strikes Back
On February 25, 2016, Apple moved to vacate Magistrate Judge Sheri Pym’s order forcing the company to write computer code that would allow the FBI to break into the iPhone of Syed Farook, one the San Bernardino shooters that killed fourteen people last year. The FBI has been unable to access the information on Farook’s iPhone through its own efforts.
According to Apple CEO Tim Cook, “The government suggests this tool could only be used once, on one phone. But that’s simply not true. Once created, the technique could be used over and over again, on any number of devices. In the physical world, it would be the equivalent of a master key, capable of opening hundreds of millions of locks—from restaurants and banks to stores and homes.”
A New Era of Shareholder Activism in Silicon Valley
We are all familiar with legendary hedge fund investors like Bill Ackman and many others making history with shareholder activism in Wall Street, but this trend is also starting to appear on a smaller scale in other places…notably venture capital in Silicon Valley.
Picture the following scenario: A venture-backed startup valued at $4.5 Billion in its latest investment round, a hotshot CEO, and venture capital investors with a history of acquiescence with its portfolio companies—contributing to growth without major interferences in management. It seems like the perfect Silicon Valley tale, until the California Department of Insurance starts to investigate the company and its CEO for allegedly circumventing California State regulations in connection with employee’s insurance training. Zenefits exemplifies this scenario as it was subject to an investigation of such practices.
Business Judgment Rule Tentatively Prevails in Case against Dewey & LeBoeuf Executives
In 2012, the New York based law firm Dewey & LeBoeuf made headlines by filing for Chapter 11 bankruptcy. The firm, which was among Vault.com’s Top 50 Law Firm Rankings from 2009 to 2012, employed more than 1,400 attorneys across fifteen countries before announcing its collapse. Since the announcement, Dewey’s top managers have been at the center of both a criminal and civil lawsuit after allegations surfaced that they had made fraudulent accounting representations to obtain funding.
Dewey & LeBoeuf’s problems began shortly after its inception in 2007, when Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae combined in the largest law firm merger to date. The new firm quickly became a powerhouse in the legal industry, representing high-profile transactions for clients such as A.I.G., BP, JPMorgan Chase, Disney, Dell and eBay. The firm built this enviable list of clientele largely by making “lateral hires,” the practice of drawing high profile lawyers from other firms by extending highly profitable contracts. One such hire was Ralph Ferrara, a successful securities litigator that Dewey was able to lure with an annual salary of $1.6 million and signing bonus of $16 million.
Banks Leave it to Startups to Take the High Road in Providing Services to Dispensaries
After legalization victories in Alaska, Oregon, Washington, Colorado, and the District of Columbia, the war on drugs (and marijuana in particular) may finally be losing its thunder in the Court of Public Opinion. Still, a pro-marijuana victory lap is premature with twenty-five states continuing to ban both recreational and medical marijuana use.
Even in states that have fully legalized marijuana, a new battle is underway: federally regulated banks, major credit card companies such as Visa and MasterCard, and electronic payment services such as PayPal have refused to process pot-related transactions. Possession or distribution of marijuana still violates federal law, so banks and financial services providers that support those activities are at risk of being prosecuted or sanctioned. As a result, startup companies such as Tokken, Hypur, and Kind Financial have stepped in to provide much-needed financial services to authorized dispensaries that have been forced into cash-only transactions.
Reinforcements Arrive for Whistleblowers in Financial Services
Whistleblowing is the ultimate form of burning your bridges. So it comes as no surprise that while whistleblowers are lauded for their courage and willingness to call out their companies for material financial wrongdoing, the celebration pales in comparison to the common risks they face from their current and future employers. Whistleblowers are often mishandled, ignored, and their allegations lead to job terminations and being blacklisted from other prospective companies in the industry. In response, a new group seeks to change this recurring story.
The Politics of Dodd Frank
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.