BCLBE Symposium Recap: Unlocking Capital for Efficiency Improvements

By Christopher Hammond, J.D. Candidate 2015 | Posted on

Last Friday, October 5, 2012, the Berkeley Center for Law, Business and the Economy co-hosted a symposium in San Francisco, entitled:  “Where is the money?  Unlocking Capital for Real Estate Efficiency Improvements.”

The event included presentations from leaders in law, finance, energy, and policy—all addressing the lack of adequate funding models for energy efficient remodels and retrofits.  Panels throughout the day covered energy improvement risk from owners’ and lenders’ perspectives, underwriting challenges, recent technology improvements to fill critical data gaps, bond and secondary markets, and state and federal financing policies and initiatives.  United States Senator Ron Wyden, D-Oregon, and John Chiang, California’s State Controller, were in attendance.  This is the first in a series of posts that will summarize the event, its recommendations and forecasts. (more…)

London’s Changing Market Regulation

By Constance Descout, LLM Candidate 2013 | Posted on

Since the start of the financial crisis in 2007, England’s tripartite model of financial regulation—where the HM treasury, Bank of England and Financial Services Authority (FSA) shared responsibility for financial regulation—has been widely criticized for failing to prevent or adequately respond to the financial crisis.  Critics argue that the crisis revealed the need to incorporate macro-prudential regulation into the financial system.  Earlier this year, the British government decided to change the operating model, and on September 18, it solicited comments on this reform effort.

On January 26, 2012, the government published the Financial Services Bill, which introduced a new model of firm regulation to replace and strengthen the existing regulatory architecture.

The Bill introduced the creation of three new entities: the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The FPC will be charged with regulating the financial system as a whole using macro-prudential prudential powers.  The PRA and FCA will regulate individual financial institutions, though each with different responsibilities. (more…)

CFTC Chairman Addresses European Parliament Committee on the Future of LIBOR

By Luke Burton, J.D. Candidate 2015 | Posted on

On September 24, the Chairman of the CFTC, Gary Gensler, addressed the European Parliament Economic and Monetary Affairs Committee about the state of LIBOR. His comments came in the wake of the LIBOR scandal, initially revealed to the public in March 2011, and in advance of the Financial Services Authority’s recommendations on the future of LIBOR.

Chairman Gensler’s remarks included a call to look at the possibility of adopting alternate rates to replace LIBOR. His reasoning alluded to many of the same problems found in the emerging allegations of improper conduct against member banks. Gensler noted the banks lack “specific controls to prevent [them] from intentionally or unintentionally herding together and reporting the same or similar rates” and that banks have “inherent conflicts of interest” when submitting their own borrowing rates.

Governmental agencies in the US have been investigating the sixteen banks that set LIBOR for the US dollar since reports of the scandal began to surface last year. British bank Barclays has already paid a settlement of over $453 million to authorities in the US and UK.

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Firm Advice: Your Weekly Update

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

Weil has published The 10b-5 Guide: A Survey of 2010-2011 Securities Fraud Litigation. The review crosses topics and circuits with updates on pleading standards, liability issues, and class action mechanisms. The survey also includes a preview of the upcoming Supreme Court term, including Amgen, a case considering whether plaintiffs in a securities fraud class action must prove materiality to invoke the fraud-on-the-market presumption.  

Does an employee qualify as a SOX whistleblower if he sends his tip to the SEC via snail mail instead of one of the statutorily prescribed methods? On a motion to dismiss, Trans-Lux argued that he should not. A federal judge in the District of Connecticut disagreed and allowed the employee’s retaliation claim to proceed. Orrick has the details on their blog.

Last week, President Obama blocked a Chinese company’s purchase of a wind farm in Oregon citing national security concerns. The much-criticized decision was the first by a President in over twenty years. Skadden advises companies “to be aware that transactions that may not appear to be sensitive on their faces — such as the sale of a small wind farm — may indeed raise significant concerns within the CFIUS agencies and at the presidential level.” That, and more advice here.

The Wheatley Review on LIBOR Releases Final Report

By Amanda Berloni, LLM Candidate 2013 | Posted on

“We need reform not replacement.” – Guy Sears, Investment Management Association to the Financial Times on September 10, 2012

“Despite a long and painful recovery, sometimes replacement is the better choice when a hip or a knee or even a benchmark rate has worn out.” – Gary Gensler, Chairman, Commodity Futures Trading Commission quoted in the New York Times on September 24, 2012.

The Wheatley Review:

On Friday, the Financial Services Authority (the “FSA”) unveiled the findings of its study of the future of the London interbank lending rate (“LIBOR”). Martin Wheatley, Managing Director of the FSA and Chief Executive-designate of the Financial Conduct Authority, delivered a speech setting out the findings of the study and proposed recommendations on how the system should be reformed (the “Review”). (more…)

Banks and Industry Groups Continue to Question the Soundness of Volcker Rule

By Rebecca Kwan, J.D. Candidate 2014 | Posted on

The Volcker Rule, which bans banks from participating in proprietary trading, is still worrying bankers.  Financial industry groups are now focusing on an exemption from the rule that allows banks to make certain investments as a part of a legitimate liquidity management program. Regulators will have to distinguish between liquidity trading and proprietary trading. Unfortunately, liquidity trading and proprietary trading are not such discrete activities, making regulators’ jobs difficult, if not impossible.

Banks and industry groups argue that the exemption is so narrow that legitimate liquidity trades could be mistakenly labeled proprietary trades by regulators. In any case, bankers know that the narrower the exemption is, the more trading activity they will have to defend to regulators down the line. According to Berkeley Law Assistant Professor, Stavros Gadinis, “The more flexibility [banks] manage at this stage, the less negotiation they will have to do at a later stage, so this is where it’s at stake, where they can nip it in the bud.” Bankers have to be able to hedge to protect themselves, and the exemption is an attempt to allow that activity while prohibiting the kinds of risky trades that destabilize the market.

Regulators take the opposite view, arguing that the exemption is too broad, and that banks will easily disguise proprietary trading activities as liquidity trading. They worry that the exemption will function as a loophole and allow for risky whale-like trades. But the Volcker Rule, Gadinis said, “would not have stopped the [London] Whale trades. The question of what is a hedge is subject to interpretation. There are things that are definitely hedges, but there are things where it could be, but it’s doubtful.” (more…)

Eminent Domain of Mortgage Securities: The Other Side

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

In our continuing coverage of Mortgage Resolution Partners’ (MRP) effort to facilitate local governments’ use of eminent domain to stem the mortgage crisis, today we present the other side—specifically, the comments submitted to the Federal Housing Finance Agency (FHFA) by the American Securitization Forum (ASF) on September 7.  The ASF is a professional forum with over 330 members, including issuers, investors, servicers, ratings agencies, and other professional organizations involved in securitization transactions.

We have previously described MRP’s plan here and here. In general, MRP is advocating that local governments use eminent domain to seize and restructure private-label underwater mortgages. These repackaged loans would ultimately be resold to investors with the value set at the current market value of the underlying property. This proposal has sparked controversy in terms of both its affect on the mortgage market and its constitutionality.  Not surprisingly, ASF argues that the plan will negatively impact the mortgage market and is unconstitutional.

[Update: Click through to read the rest of the article and a comment from Bill Falik challenging the accuracy of ASF’s statements]

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Corporate Law: Firm Advice

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

This is the first in a series of posts rounding up firms’ advice on corporate law.

  • California has a new private fund adviser exemption. The Dodd-Frank Act eliminated a similar federal exemption.  California has followed suit by limiting exemption from California’s “investment adviser registration requirements for advisers to only ‘qualified private funds.’”  What are “qualified private funds”?  Morrison & Foerster has the full update in their recent client alert.
  • How standardized should credit ratings be? Not much more than they already are, so says a recent SEC study prepared for Congress as part of the implementation of the Dodd-Frank Act.  Instead, the SEC suggests efforts would be better spent on increasing transparency of ratings methodologies and performance.  Goodwin Proctor has a full summary of the study in its financial services alert.
  • What’s your number? For a breakup fee in an M&A deal that is. The size of the deal and market precedent are a good place to start. But choosing an amount in advance that will comply with courts’ requirement that the amount not “be preclusive of a true superior proposal” can be difficult. Kirkland & Ellis has advice on picking your number.

Bill Falik Speaks About a Controversial New Plan to Fix the Mortgage Crisis

By Ana Amodaj, J.D. Candidate 2014, UC Berkeley School of Law | Posted on

On Thursday, September 6, Berkeley Law Adjunct Professor Bill Falik gave a presentation on his pioneering efforts to stabilize the mortgage market and prevent future foreclosures through the government’s use of eminent domain.

Having expertise in real estate, land use and development, Bill Falik started thinking about ways to stop the deterioration of the housing market after one of his housing developments in Roseville, CA was hit by a wave of foreclosures. “A group of us got together and started thinking about creative approaches to resolving the mortgage crisis and stopping foreclosures”, says Falik about the founding of Mortgage Resolution Partners (MRP), an organization seeking to implement this innovative strategy as a way to keep homeowners in their homes.

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SEC Proposes to Ease Access to Capital for Entrepreneurs, But Will It?

By Joseph Santiesteban, J.D. Candidate 2014 | Posted on

Earlier this year, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, a provision of which directed the SEC to relax regulations regarding general solicitation of private securities offerings. On Wednesday, August 29th, the SEC did just that, proposing to amend Rule 506 of Regulation D to allow general solicitation of private securities offerings, provided that all purchasers are accredited investors or investors whom the issuer reasonably believes are accredited investors.

The goal of the original legislation was to ease regulations faced by entrepreneurs seeking financing. Without the rule change, startups face limited options for funding. Their first option is a private placement in which the offering is made only to a limited number of accredited investors generally with whom the issuer already has a preexisting relationship. Section 502 of Regulation D currently prohibits marketing these investments to the public. Startups’ other option is a public offering (IPO). This option, however, requires registration with the SEC, which is often cost-prohibitive for many startups.

The rule change permits the general solicitation of private offerings provided that:

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