High Frequency Trading, Dark Pools, and Call for a New Stock Exchange

By Shodhan Babu, LLM Candidate, 2016 | Posted on

The volatility of the stock market requires no introduction. It has long been acknowledged that the volatility is as much a reflection of non-economic factors as economic ones. An understanding of trends, based on both economic and non-economic factors, and the time that investors take to react to changes in the stock market can be the crucial difference between gains and losses in the stock market.

It is common for investors to buy stocks of companies in which they perceive the prize to go up, in small tranches, in order to ensure that the price does not go up at once, which would occur if investors purchased large blocks of shares at once. In order for this to work effectively and fairly, all investors have to be presented with the ability to place purchase or sell orders at prices that are uniformly communicated to all investors at one single point in time. Until 1998 this proposition was fairly routine since buyers and sellers traded on the floor of the stock exchanges.

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Pharmaceutical Price Hikes Prompt Senate Action

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

The desire to reduce healthcare costs may have finally reached critical mass with the latest drug price hikes, prompting a U.S. Senate panel to launch an investigation regarding the ethicality of such increases. The Senate panel’s actions come after several recent drug acquisitions resulted in an exponential increase in prices, including the 5000 percent price increase of Turing’s Daraprim, a toxoplasmosis drug, and the 600 percent price increase of Valeant’s Nitropress, a blood pressure treatment. By initiating a drug pricing task force, the panel hopes to push for new legislation regulating the price of pharmaceuticals.

While the American public has criticized price increases as unconscionable, drug manufacturers argue that the price increases reflect the drugs’ true market value. The current cost of bringing a drug to the market hovers in the billions of dollars over a period of approximately 14 years, reflecting a drug development process riddled with inefficiency, rising costs, and a high risk of failure. According to one study, only 11.8 percent of drugs receive regulatory approval after clinical testing, a figure that is half the rate of drug approvals in the 1990s. Others attribute the rising prices to patent cliffs—the expiration of patents for breakthrough drugs developed in the pharmaceutical Golden Age—as well as to increased regulatory measures set forth by a more risk-averse FDA.

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Mandatory Arbitration Clauses Under the Spotlight

By Sean Pinckney, J.D. Candidate 2018 | | Posted on

In recent years, the use of mandatory arbitration clauses by corporations has increased following several Supreme Court decisions. Most credit card, cellular phone, utility, Internet purchase, and employment contracts today require customers and employees to sign lengthy and nebulous agreements that mandate private arbitration for any disputes arising from the contract. Some commenters feel that the privatization of justice leads to pro-corporation outcomes: customers are unable to bargain for different or better terms with the company, and the only way around the mandatory arbitration clause is to not enter the contract. However, with nearly every company in the industry adhering to this practice, avoiding arbitration clauses is all but impossible. Critics claim that the clause denies customers the fundamental right to their day in court, protected by the Seventh Amendment.

Arbitration clauses additionally prevent customers and employees from forming class actions against companies. This raises questions of fairness as it is very difficult for an individual to successfully sue a corporation with vast resources; the lawsuit often costs far more than the relief sought. By precluding the formation of class actions, companies are able to deny challenges to questionable business practices such as predatory lending, wage theft, overdraft fees, and discrimination. The New York Times reports that between 2010 and 2014, companies were able to push 80% of class actions into arbitration, where then the claims would often be dismissed due to the class action waiver in the arbitration clause.

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Maker of ‘Candy Crush’ Acquired by ‘Call of Duty’ Mastermind

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

Two of the highest-grossing video games are set to become unlikely siblings due to an announcement made last Monday by Activision Blizzard (ATVI) to acquire King Digital Entertainment (King) for $5.9 billion. ATVI, the creator of console video-games such as ‘Call of Duty,’ is valued at roughly $25 billion, making it one of the video game industry’s highest-valued companies. King, the third-ranked mobile game publisher, is best known for its highly-addicting ‘Candy Crush Saga.’ The acquisition has been approved by the boards of both companies, but because King is based in Ireland, it must also be approved by King’s shareholders and the Irish High Court, pursuant to Ireland’s Companies Bill of 2012.

In a press release, ATVI CEO Bobby Kotick expressed excitement about snatching up “one of the world’s most successful mobile game companies.” Instead of starting from scratch, ATVI has positioned itself in the fast-lane to capitalize on the developing mobile gaming market, which Kotick asserts “is the largest and fastest-growing opportunity for interactive entertainment.” With mobile game sales expected to increase by 21 percent over the next year, in comparison to 7 percent for computer games and only 2 percent for console games, Kotick’s statement certainly carries some punch.

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SEC as Investigator, Prosecutor and Judge: Defendant’s Right to Jury Trial

By Aditya Parolia, LLM Candidate 2016 | Posted on

The New York Times recently ran an article criticizing SEC’s filing of securities cases before its own judges—administrative law judges employed by the SEC. Last year, the Wall Street Journal weighed in against SEC being prosecutor and judge in its own cause. On a practical level, the criticism is that SEC is filing more cases before its judges to side step federal courts where it does not have a successful record of winning. On a doctrinal level, the SEC’s new policy is decried for being constitutionally suspect, being allegedly against the tenets of due process, equal protection and a right to jury trial.

The clamor against SEC’s new policy comes in the wake of numerous lawsuits pending before federal courts challenging the constitutional validity of adjudication by SEC judges. The criticisms seem to carry water in the light of the fact that SEC rarely loses before its judges. However, the arguments against adjudication by SEC judges have not withstood doctrinal scrutiny. It behooves us to ask: does the SEC have the power to file cases before its judges?

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In The Peak Of A Hedge Fund Asset Crisis, The Supreme Court Might Have Just “Broke The Camel’s Back” For Investor Confidence In Hedge Funds

By Alvaro Pereira, L.L.M. Candidate 2016 | Posted on

The Supreme Court rejected the petition for certiorari in United States v. Newman last month—a case about insider trading. In so doing it reaffirmed the Second Circuit Court of Appeals’ decision, which held that liability for insider trading requires proof of (1) that the discloser received a personal benefit, and (2) that the person receiving the information (“tippee”) knew about that benefit. This position not only troubles prosecutors in current insider trading cases and investigations, but is also likely to intensify the current hedge fund asset crisis by calling the credibility of the whole system into question among investors.

In a jury trial in the Southern District of New York, federal prosecutors presented evidence that Todd Newman and Anthony Chiasson (among others) were involved in insider trading. Pursuant to the evidence, it was found that these hedge fund managers received financial information from insiders about Dell and NVIDIA before that information was made available to the public—allowing them to earn millions of dollars in trades during the 2008 fiscal year. Accordingly, they were convicted in 2013 for conspiracy to commit insider trading.

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The White Collar Defense Dilemma: To Testify or Not?

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

The question of whether or not a defendant should take the stand remains a rightfully contested issue for legal professionals in the practice of white collar criminal defense. With no clear empirical evidence to suggest an advantage from this nuanced decision, lawyers are racked with the quandary of predicting how their client(s) would handle the high stakes of cross examination and direct jury exposure in legal matters that turn mostly on a defendant’s perceived credibility and motives at the time of the alleged crime.

Back in late October, a federal court in the Southern District of New York heard oral testimony from Anthony Allen, former head of global liquidity and finance at Rabobank and lead defendant in the first US criminal trial of traders involved in the London interbank offered rate (Libor) interest rate scandal. The prosecution questioned Allen regarding a number of communications made between him and traders in the bank. In one instance, Allen had responded in a message to a trader, “No worries mate, glad to help.” Allen contended that the response was simply a dismissal to the trader that he was not going to comply with the request, which Allen testified as “not right.”

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Fed’s New Rule Aims To Stop “Too Big To Fail” Banks

By Xiaolin Ma, LL.M. Candidate 2016 | Posted on

On October 30, 2015, the Federal Reserve Board announced a new proposal to change banking requirements for certain banks. The proposal requires domestic global systemically important banks (GSIBs) and the U.S. operations of foreign GSIBs to meet a new long-term debt requirement, as well as a new “total loss-absorbing capacity,” or TLAC, requirement. Janet Yellen, the Federal Reserve chairwoman, said, “This is an important step toward ending the market perception that any banking firm is ‘too big to fail.”

“Too big to fail” refers to the notion that the government has to bail out the largest banks in economic catastrophes, since allowing them to fail would create a negative domino effect on the remainder of the economy. In the last financial crisis in 2008, the U.S. government dropped their oppositions to bailout soon after the Lehman Brothers collapsed and the global financial system was seriously affected. Such bailouts ultimately impose losses on the taxpayers rather than allocating responsibility for risky banking practices on the organizations themselves. Therefore, the post-crisis regulations, including but not limited to the Dodd-Frank Act, are aimed at making it safer to let a big bank die.

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Ohio Says No to Marijuana and Monopolies

By Claire Oxford, J.D. Candidate 2018 | Posted on

On Tuesday, November 3, voters rejected a proposal that would have made Ohio the fifth and largest state to legalize the recreational use of marijuana.

Issue 3 would have amended the Ohio Constitution to legalize marijuana for medical and recreational use, but it also would have created a monopoly for marijuana production. The proposed measure granted exclusive rights for marijuana growth and distribution to ten facilities, all owned by investors in the legalization movement. The proposal was defeated by a nearly 2-1 margin.

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Valeant’s Financial Reporting Poses Problems for Investors

By Brigid McCurdy, J.D. Candidate 2017 | Posted on

Already under fire for recent price hikes, pharmaceutical company Valeant is now facing criticism for its financial reporting methods.

Valeant presents two types of financial results when reporting its earnings: GAAP numbers that adhere to generally accepted accounting principles, and pro forma or non-GAAP numbers. These non-GAAP numbers are adjusted figures that exclude certain costs from calculations of a company’s earnings. Companies have broad discretion in deciding which costs they want to leave out. Valeant typically excludes stock-based compensation expenses, legal settlements, and acquisition-related costs from its adjusted earnings. More specifically, Valeant does not recognize the diminishing value of the intangible assets it acquires when it buys another company.

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