Former Rabobank Traders Face First U.S. Libor Trial

By Kevin Castillo, J.D. Candidate 2017 | Posted on

On October 14, 2015, Anthony Allen and Anthony Conti, two London-based former Rabobank traders, were the first to stand trial for criminal charges in the U.S. for allegedly manipulating the London Interbank Offered Rate (Libor) to benefit their colleagues’ trading positions.

Libor is the average interest rate at which banks borrow from one another. It serves as a key benchmark for interest rates around the world, and is widely used as a reference rate for many financial contracts including mortgages, student loans, and other consumer lending products. Trillions of dollars in derivatives and other financial instruments are tied to Libor.  The benchmark rate is calculated as an average of daily bank submissions to the British Bankers’ Association (BBA).

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Capital Outflow from Emerging Markets, Role of IMF and Central Bankers

By Shodhan Babu, LLM Candidate, 2016 | Posted on

The understanding in conventional economics that the free flow of capital to developing countries results in the increase in investment rates has come under review by the International Monetary Fund. In the past year emerging-markets have seen a net outflow of one trillion dollars. Emerging markets faced a similar collapse in 2008 and 2009 when the huge influx in 2006 and 2007 was followed by huge outflows. As a result of these outflows, financial instability in emerging countries has become more apparent as the value of the local currency drops drastically against the dollar. In turn, both the price of imports is rising substantially and the value of the debt in dollars is rising to unsustainable levels.

The reasons for the outflow is the prospect of the Federal Reserve raising interest rates from near zero percent for the first time in about a decade. The excess supply of oil has also resulted in the price of oil dropping which has adversely affected countries such as Brazil, Russia and Venezuela, which depend on oil exports. The Federal Reserve has cited the health of the US economy as the reason to increase the rate of interest but has not taken any decision with regard to the extent or the time of the rate hike. This uncertainty has resulted in foreign investors taking out money from emerging economies to find safer places of investment. While most governments have passed reforms and cut down on their foreign borrowings and abandoned fixed exchange rates, they have been unable to prevent domestic companies from foreign borrowings.

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BEPS Provides Guidance on Definition of CFCs

By Vinh-Khoi Le, J.D. Candidate 2016 | Posted on

The Organization for Economic Co-operation and Development (OECD) released the final report of Base Erosion and Profit Shifting (BEPS) on October 5, 2015. The report seeks to make a more uniform global legal system to recover deferred tax revenues from multinational corporations who engage in aggressive international tax planning.

Because the report is not self-executing, individual countries must modify their own tax rules to implement BEPS-suggested changes. While the OECD intended to create a coordinated set of rules, the rules may have the opposite effect. As some countries will likely adopt the suggestions more swiftly than others, the rules may create an even more complex global tax system.

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Administrative Judge Raises S.E.C’s Burden to Convict Insider Trader

By Matt Kempf, J.D. Candidate 2017 | Posted on

In a pivotal 1983 ruling, the Supreme Court held that to find a breach of duty to stockholders resulting in “insider trading,” a party must prove that a personal gain, either material or immaterial, resulted from confidential information provided by a trading relative or “friend.” The Court, however, left ambiguous the term, “friend” for over three decades, causing much confusion.  Did the Court intend to mean a close friend? A friend with whom you occasionally converse? A Facebook friend?

Recently, Judge Patil provided some context, although controversial, to this central term in a S.E.C. administrative decision, by dismissing insider trading charges against Joseph Ruggieri, a former securities trader at Wells Fargo. At issue in the case was the question of how close a non-familial relationship must be to qualify as “meaningfully close.” Ruggieri mentored Gregory Bolan, a Wells Fargo analyst, and allegedly profited approximately $117,000 from tips received from Bolan. In order to have succeeded, the Department of Justice needed to prove that benefits Bolan received from the mentorship and feedback was substantial enough to qualify their relationship as meaningfully close. The Department of Justice argued that mere friendship was enough to establish the benefit. In his decision, however, judge Patil disagreed, holding that the benefit received by the mentorship was insufficient.

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CFPB Seeks to Restrict Arbitration Clauses in Consumer Finance Agreements

By Alex Williamson, J.D. Candidate 2018 | Posted on

Last week the Consumer Financial Protection Bureau (CFPB) announced proposals for new regulation on consumer financial markets, most notably a restriction on arbitration clauses and class action limitations in consumer contracts for financial products and services such as checking and debit accounts, credit cards, and private student loans. The proposals arise from the findings of a study mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010. Title X of the act formed the CFPB and set the ball in motion for the agency’s investigation into the use and effects of arbitration clauses in the sphere of consumer financial contracts.

The study included analysis of six product markets, 850 consumer financial agreements, a national survey of over 1,000 credit card holders, filings in small claims court and disputes reported between 2010 and 2012 to the American Arbitration Association (AAA), the largest provider of alternative dispute resolution services in the United States. The study showed that most major providers of financial services include pre-dispute arbitration clauses in their contracts with consumers. Within those contracts, the CFPB found that nearly all of the clauses studied also contained a provision that prohibited parties from participating in class action arbitrations or lawsuits. These clauses allow companies that provide financial services to bar consumers from sharing the financial and administrative burden of legal action. By placing such a cumbersome responsibility on individual consumers, these companies can effectively reduce the likelihood that any legal action will be taken against them at all.

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Trans-Pacific Partnership to shake up U.S. and Chinese Markets?

By Samantha Eddahbi, J.D. Candidate 2018 | Posted on

The Trans-Pacific Partnership (the “TPP”) agreement, a multination trade agreement, was finalized on October 5, 2015 after five years of negotiations. The finalization of the accords is a win for the U.S. in its attempt to directly compete with China in Asian markets. However, the Obama Administration, who has been pushing for this agreement since 2011, still needs congressional approval for the accords to be ratified domestically.

The TPP is specifically between the U.S., Japan, Australia, Peru, Malaysia, Vietnam, New Zealand, Chile, Singapore, Canada, Mexico, and Brunei Darussalam. Along with its principal focus of lowering trade barriers such as tariffs, the TPP will also establish a common framework for intellectual property, enforcement standards for labor law and environmental law, and an investor-state dispute settlement mechanism.

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Corporations are People…Except in the Tax World: Study Finds U.S. Corporations Stockpile $2.1 Trillion Overseas

By Sheila Salehpour, J.D. Candidate 2018 | Posted on

Ever since Citizens United, the infamous notion that “corporations are people” has been a point of controversy and aversion among the American public. While the landmark case entreated corporations with the same rights as individuals in the context of political spending, such a mentality remains to be seen in the tax world, where a recent study found that $2.1 trillion in profits is being harbored in overseas tax havens by U.S. companies.

Citizens for Tax Justice, the non-profit group responsible for the study, reported that General Electric remains at the top of the list for the fifth year in a row with $119 billion overseas. Among others, technology companies such as Apple, Google, and Microsoft maintain more than one fifth of the $2.1 trillion overseas, a figure that is up 8% from 2014. These funds are generally held in low-tax countries such as Bermuda, Ireland, Luxembourg, and the Netherlands, and profits are stockpiled there in order to evade payment of the repatriation tax upon transfer to the U.S.

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Controlling the Narrative: Bank of America’s Corporate Governance Controversy

By Shneur Wolvovsky, J.D. Candidate 2018 | Posted on

Recently, Bank of America announced that its CEO, Brian T. Moynihan, will be retaining the title of Chairman, along with the title of CEO. In 2009, during the fallout of the “great recession,” shareholders voted, by a slim 50.3% majority, to enact a bylaw preventing the combination of these two roles.

In 2014, the board repealed the bylaw, and elected Moynihan into both roles. Understandably, shareholders were not happy that Bank of America made the decision without a shareholder vote. To rectify the situation, Bank of America put the proposal up for a vote. On September 22, 2015, shareholders voted, with a 63% majority, to strike down the bylaw, and, thus, opening the way for Mr. Moynihan to fill both roles.

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Volkswagen May Face Civil and Criminal Charges

By Thao Thai, J.D. Candidate 2018 | Posted on

According to the Environmental Protection Agency (EPA), Volkswagen installed “defeat devices,” designed to cheat emissions tests, in 11 million diesel cars worldwide. VW’s “diesel dupe” has already caused the company considerable financial damage, as it has set aside $7.39 billion to cover recall costs in the U.S. alone. In addition, VW may now face civil and criminal charges for violations of the Clean Air Act (CAA) as well as class action lawsuits from private individuals.

Under the CAA, an automaker can be fined up to $37,500 for every noncompliant vehicle. The EPA could impose a total civil fine of more than $18 billion on Volkswagen for its approximately 500,000 noncompliant cars in the U.S, though allegations of violated environmental rules are often settled for much less than the maximum fine.

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SCOTUS to Decide Whether RICO Reaches Overseas

By Kevin Chiu, J.D. Candidate 2018 | Posted on

With a docket already filled with politically charged and highly contentious issues, the U.S. Supreme Court hopes to also address the reach of U.S. law overseas, specifically as it pertains to the Racketeer Influenced and Corrupt Organizations Act. Commonly referred to as RICO, the law was designed to combat organized crime by allowing for the criminal prosecution of “patterns of racketeering activity in an enterprise,” which may include money laundering, bribery, embezzlement, drug trafficking, and a number of other questionable activities.

A few days prior to the start of its new term beginning October 2015, the highest court in the land granted a writ of certiorari to hear the case RJR Nabisco, Inc., et al. v. European Community, et al, in order to resolve the question of whether RICO applies extraterritorially and if so, to what extent.  The petition, filed by counsel at Jones Day representing R.J. Reynolds, questioned the reversing of the lower court’s dismissal of the case in the Eastern District of New York by the sharply divided 2nd U.S. Circuit Court of Appeals Court of Appeals, which held that because the scope of RICO encompassed activities that apply to overseas conduct, claims filed based on these activities can proceed in a U.S. federal court.

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