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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S.E.C. Adopts JOBS Act Title III to Allow Equity Crowdfunding

By Joyce Li, J.D. Candidate 2018 | Posted on

As of October 30, the S.E.C. has adopted new crowdfunding rules that will allow small investors to purchase equity shares in startup companies. Under Title III of President Obama’s JOBS Act (Jump-Start Our Business Start-Ups), the revisions seek to improve upon an earlier draft that was widely rejected for requiring unworkable compliance costs and procedures.

The new Title III rules cap companies at $1M per year, and limit individual investor contributions based on annual income and net worth. Those with an annual income or net worth of less than $100K are restricted to investing between 5% of such or $2K, while those with greater than $100K, are limited to investing 10% of such. Each company is also required to disclose financial statements that must be independently audited, unless they are seeking less than $500K or are equity crowdfunding for the first time. Further, each funding portal must register with the S.E.C. and be subject to regulation.

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Ferrari Files Its First IPO

By Madisson Goorman, J.D. Candidate 2018 | Posted on

Ferrari’s first initial public offering on October 20, 2015 was priced at $52. 10% of Ferrari’s shares are now being sold on the New York Stock Exchange. All of the shares are being sold by Fiat Chrysler Automobiles (FCA), which owns 90% of Ferrari, while Pieror Ferrari, the son of the company’s founder, owns the other 10%. The stocks are being sold in order to separate Ferrari from FCA, which is planned to happen by the beginning of next year. The remaining 80% of FCA’s stake in Ferrari will be transferred to their stockholders.

After its first trading day Ferrari closed at $55 and increased overnight to $56.75. The next important factor to be determined is if the company will be labeled a carmaker or luxury brand. If Ferrari is viewed as a carmaker its valuation greatly exceeds that of its rivals.

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Volkswagen Woes Continue as Emissions Issues Spread to Gasoline Cars

By Molly Pon J.D. Candidate 2017 | Posted on

On Tuesday, Volkswagen AG announced that it found misstated emissions readings in gasoline-powered cars for the first time. The announcement widened the crisis that had so far focused only on diesel-powered vehicles and marked the first time carbon-dioxide emissions had been brought under fire.

The scandal first emerged in September, when Volkswagen admitted they had been deceiving U.S. pollutions tests with illegal software for years. In response to the discovery, stock price has plummeted by more than a third and the company has made significant leadership changes.

In this latest revelation, Volkswagen said that an internal probe showed “unexplained inconsistencies” in carbon-dioxide output affecting possibly 800,000 gasoline-powered cars. This number is on top of the estimated 11 million diesel vehicles Volkswagen admitted were outfitted with deceptive software. Before the issues expanded to gasoline-powered cars, Volkswagen had estimated the scandal would cost them €6.7 billion. The addition of the problems with gasoline-powered vehicles will cost the company an additional €2 billion or $2.2 billion in possible financial penalties.

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Pfizer Contemplates Benefits Of Becoming Behemoth For Tax Purposes

By David Gomez, J.D. Candidate 2018 | Posted on

Pfizer has recently engaged in talks to purchase Allergen. This deal would be the one of the largest in a year of large deals—Pfizer and Allergen combined would amount to over a $330 billion market valuation. In the proposed scenario, these two large pharmaceutical companies would combine for the purposes of an inversion deal.

An inversion deal is a transaction used by a company where it becomes a subsidiary of a new parent company in a different country for the purpose of falling under more beneficial tax laws than it had in its previously domiciled country. In this case, Pfizer would like to pay the lower taxes in Ireland, where Allergen is currently domiciled, instead of the tax rate of the United States where it is currently domiciled.

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