Securing the Cloud: Microsoft’s Battle with the Department of Justice

By Jenna Al-Huneidi, J.D. Candidate 2017 | Posted on

Reliance on cloud storage has become an integral, and often overlooked, aspect of the daily activities of individuals and businesses throughout the world. Information stored in the “cloud” such as emails, photos, contact lists, and documents are actually stored in data centers located in many different countries. The information stored by a user is located in the data center closest to the location in which the individual or business registered their account. The purpose of these worldwide datacenters is to improve the efficiency and security of obtaining, accessing, and distributing such information. For example, Microsoft stores European users’ cloud data in its Irish data center.

An ongoing battle between Microsoft and the Department of Justice has raised many concerns among a number of tech companies that reap significant revenue from cloud computing throughout the global community. Microsoft is in the midst of an appeal from a New York Magistrate decision, adopted in full by the District Court, to uphold a warrant, compelling Microsoft to seize the emails, photos, and contacts of account data stored in Ireland and turn them over to the DoJ for a criminal investigation. On appeal to the Second Circuit, the government argues that it has the right to demand the information stored abroad by any US corporation regardless of jurisdictional issues, conflicts of laws problems, and international treaties to the contrary.

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Valeant Pharmaceuticals Shares Drop Following Subpoena by U.S. Officials

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

On October 14, 2015, prosecutors from the U.S. Attorney’s Offices for the District of Massachusetts and the Southern District of New York subpoenaed Valeant Pharmaceuticals for details on its patient assistance programs, drug pricing, and distribution practices.

Valeant shares fell following this announcement, closing down 4.7 percent at $168.87. The shares stumbled further by 1.2 percent a week later after the company said that it formed a committee to review allegations against the company.

The company is under attack for sharply raising the prices of its drugs, a practice illegal in most developed countries but legal in the U.S. The company defended its practice by mentioning that it hired a consultant to review this aspect of the business. The consultant found “considerable room to increase the price of both drugs.”

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Volkswagen to Recall 8.5 Million EU Vehicles

By Whitney Florian, J.D. Candidate 2017 | Posted on

On October 15, Volkswagen announced plans to recall 8.5 million diesel vehicles in Europe, after Germany’s Federal Motor Transportation Authority (KBA) ordered a compulsory recall of 2.4 million vehicles in Germany earlier that day. Volkswagen’s decision to adopt a broad interpretation of the KBA order reflects the company’s challenging task to remedy the 11 million vehicles worldwide that contain illegal defeat device software, which temporarily lowers vehicle emissions for testing purposes. The KBA has demanded that Volkswagen remove the software in these diesel engines and ensure that the vehicles meet emissions standards.

A recall of 11 million vehicles by a single automaker would be among the largest in history. Volkswagen has indicated that the completion of the repairs may extend into 2017, and the cost of the repairs may exceed 6.5 billion euros. While software must be replaced in the 1.2- and 2-liter engines, the 1.6-liter models require additional expensive hardware to meet emissions standards. Furthermore, some analysts estimate that lawsuits and regulatory fines, in addition to repairs, may cost Volkswagen up to 35 billion euros. After the recall announcement, Volkswagen shares were down 3.2 percent; the company has lost over a quarter of its stock market value since Volkswagen revealed the emissions deception on September 18.

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Slumping IPO Market Bodes Poorly for Private Equity Firms Seeking to Cash Out

By Ziqun Guo, J.D. Candidate 2018 | Posted on

The recent slowdown of the initial public offering market has made private equity firms suffer. Private equity produce profits through two main channels: management fees based on assets, and commissions generated from the profits of the private equity funds. The latter method is their dominant moneymaking strategy. Bringing the companies in their portfolios to initial public offerings is one of the main ways that funds generate profits. As a result, a slowdown of the IPO market means that private equity firms are losing their potential profit.

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A Pact between Lyft and Didi Kuadi against Uber

By Aditya Parolia, LLM Candidate 2016 | Posted on

Lyft, a San Francisco-based cab-hailing service, and its Chinese counterpart, Didi Kuaidi, have announced a partnership that will allow both companies to operate in each other’s countries. Starting early next year, Didi Kuaidi will allow American users to find rides in China using the Lyft app. Likewise, Chinese users entering the US will be able to find rides using the Didi Kuaidi app. The partnership will also allow the ride-hailing passengers to pay for the rides in their native currencies. From a business strategy perspective, the partnership is an alliance against a common competitor, Uber.

To date, Uber has raised over $5 billion in venture capital, and it is valued at more than $50 billion. Over the last five years, Uber has expanded its presence in 300 cities across 60 countries. In the U.S., Uber and Lyft have been fiercely competing for capital, at times forcing investors to choose sides. Lyft continues to lag behind Uber significantly in many areas. However, Didi Kuaidi’s and Carl Icahn’s recent investments in Lyft have helped raise the company’s profile in domestic as well as the international markets.

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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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