Mutual Fund’s Devaluation of Snapchat Raises Concerns for Tech Startups

By Ben Hinshaw, J.D. Candidate 2017 | Posted on

The number of unicorns, companies valued at over $1 billion, has greatly increased, growing from 43 companies at the beginning of 2014 to around 128 companies in November.  However, these companies are often difficult to value because the shares are privately held and there is no readily available market price.  This is a serious problem for mutual funds since they are legally obligated to value each of their portfolio holdings everyday. The values can fluctuate between mutual funds as firms use different methods to value startup companies.

On November 10, 2015, Fidelity devalued its stake in Snapchat by 25%.  Fidelity also devalued several more startup companies: Blue Bottle Coffee, Dataminr, Zenefits, and others. These markdowns may suggest that the market is slowing down or that these companies’ values were inflated.  The high valuations might have also been a result of competition between investors to acquire the next big startup, driving up valuations.  Fidelity is not the only fund devaluing its stake in startups, as the asset manager Blackrock devalued Dropbox.

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Treasury Releases New Guidance on Inversions

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

On Thursday, November 19, 2015, the Treasury Department issued a second notice designed to limit the tax benefits of overseas tax-inversion deals. This notice is a continuation of the US government’s recent anti-inversion actions, including the notice that the Treasury Department issued on September 22, 2014.

“Last year, Treasury took targeted action to address inversions,” said Treasury Secretary Jacob J. Lew. “This notice made a real difference by reducing some of the economic benefits of inversions, resulting in a decline in the pace of these transactions. This next action makes it even harder to invert, and further reduces the tax benefits for U.S. companies. While we intend to take additional action in the coming months, there is only so much the Treasury Department can do to prevent these tax-avoidance transactions. Only legislation can decisively stop inversions. The Administration has been working with Congress in an effort to reform our business tax system and address the issue of corporate inversions‎.”

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Global Financial Policy Makers Push Closer to the End of “Too Big to Fail” Banking Era

By Myriam Denis, J.D. Candidate 2016 | Posted on

An international group of financial policy makers, the Financial Stability Board (FSB), designed a framework seeking to keep 30 of the world’s biggest banks from becoming “too big to fail” and having to resort to taxpayers-backed bailouts in the event of a future financial crisis. The “too big to fail” conundrum refers to the government having to bail out big banks because letting them fail would inflict collateral damage too severe for the economy to recover.

The proposed rules would require these banks to maintain “capital buffers” capable of absorbing potential losses when a bank is failing, thus preventing the spreading of further pressure in the global banking system. Most of this buffer would come in the form of shareholders’ equity as well as long-term debt issued to investors. By making banks sell bonds explicitly exposed to losses, the risk would shift from the government to be borne by the banks’ investors, and taxpayer-funded bailouts would, in theory, no longer be necessary.

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U.S. Proposes to Cut Back on Solar Installation Tax Credits by 2017

By Kristofer Hatch, J.D. Candidate 2017 | Posted on

By the end of next year, the U.S. will cut back on tax credits for wind and solar.  Solar power’s most prominent tax credit will expire at the end of 2016, with the most significant tax credit for wind power having already expired.

Currently, federal subsidies provide residential solar installers with a thirty percent tax credit through the solar investment tax credit (ITC).  The ITC has been extended in the past, and has helped solar installation grow by over 1600% since its inception in 2006.  At the end of 2016, this subsidy will be reduced down to ten percent.

These cutbacks on credits for solar energy could have steep consequences on the solar industry in the United States.  Elon Musk has blamed the closing of Zep Solar UK, a subsidiary of his US-based parent company, Solar City, on cuts to solar subsidies in the UK.  Other markets however, have managed quite well, despite a lack of tax credits.  Solar energy in Chile, for example, has fared much better without governmental support: total installed solar capacity increased from less than 4 Megawatts to more than 220 Megawatts in a year, without the support of subsidies.

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Can Artificial Intelligence Protect Us From Cybercrime?

By Erika Kiran Solanki, .D. Candidate 2017 | Posted on

According to Symantec’s Norton Report, the global cost of cybercrime was $113 billion in 2013. That is an astounding number. Human beings tend to be the biggest barriers to computer security in the sense that passwords are predictable, random USB drives do not cause pause, and we routinely visit less than secure websites.

The U.S. Department of Defense experiences 41 million scans, probes, and attacks a month. The U.S. military, once a vulnerable IT behemoth, is now reformed as an adept defender of its well-secured networks. According to the Pentagon, while technical upgrades and advanced technology are important, minimizing human error is even more critical. Despite the unified architecture and state-of-the-art technology, in almost every successful attack on the .mil network, people have been the weak link. Hackers capitalize on mistakes by network administrators and users, which create loopholes for successful penetration. Experts contend that simply consistent monitoring of systems—fixing known vulnerabilities and double-checking security configurations—can prevent the majority of attacks. It seems that technology can create a false sense of security. People matter as much as, if not more than, technology in building an ethos and culture that minimize risk.

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Marriott to Acquire Rival Starwood Hotels in $12.2 Billion Deal

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

On November 16, 2015, Marriott International announced that it is acquiring its rival Starwood Hotels & Resorts Worldwide in a $12.2 billion deal, becoming the largest hotelier in the world.

The deal brings Starwood’s 11 brands, including W Hotels, St. Regis, and Westin, together with Marriott’s 19 brands, which include Ritz-Carlton, Residence Inn, and Courtyard. The combined company will be able to offer more than 5,500 owned or franchised hotels with 1.1 million rooms across more than 100 countries.

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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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