text:
Clients & Friends Memos - archive
The PATH Act
On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). In short, the PATH Act (i) extends or makes permanent a number of temporary tax provisions that had expired or were set to expire, (ii) significantly restricts the ability of companies that are not real estate investment trusts (REITs) to spin off REIT subsidiaries on a tax-free basis, (iii) expands the opportunities for certain foreign investors to invest in U.S. real estate without paying FIRPTA (Foreign Investors in Real Property Tax Act) taxes, and (iv) modifies a number of the REIT and FIRPTA rules.
Related Attorney(s): Jason Schwartz
Related Practice(s): Tax
Related Office(s): New York, Washington
President Obama Signs Cybersecurity Act of 2015 to Encourage Cybersecurity Information Sharing
On December 18, 2015, President Obama signed into law a $1.1 trillion omnibus spending bill that contained the Cybersecurity Act of 2015 (the "Act"), a compromise bill based on competing cybersecurity information sharing bills that passed the House and Senate earlier this year. The Act creates a voluntary cybersecurity information sharing process designed to encourage public and private sector entities to share cyber threat information.
Related Attorney(s): Keith Gerver
Related Practice(s): Cybersecurity and Data Privacy, White Collar Defense and Investigations
Related Office(s): Washington
CFTC Adopts Margin Requirements for Uncleared Swaps
Yesterday, the Commodity Futures Trading Commission held an open meeting at which it voted to adopt final rules governing margin requirements for uncleared swaps entered into by swap dealers and major swap participants who are not supervised by a "prudential regulator."
Related Attorney(s): Nihal Patel, Patrick Calves
Related Practice(s): Financial Regulation, Swap Regulation
2016 Proxy Season – Quick Reference Guide
The year is coming to an end and the 2016 proxy season is on the horizon. This quick reference guide identifies considerations based on themes from 2015, offers recommendations and resources for the upcoming season, and discusses expected future changes in disclosure rules that public companies will want to keep on their radar as proxy preparations begin.
Related Attorney(s): William Mills, Christopher Cox
Related Practice(s): Corporate, Corporate Governance
Update on the EU's Proposed Regulation on Securitisation and its Potential Impact on US Market Participants
We discussed the European Commission's (the "Commission") proposal for a regulation (the "Regulation") intended to harmonise existing EU laws applying to securitisations, including EU risk retention rules, and to create a legal framework intended to encourage "simple, transparent and standardised securitisations" ("STS securitisations") in our briefing note dated 1 October 2015. This update looks at jurisdictional and transparency aspects of the latest draft of the Regulation, in particular focusing on some of the ways in which it may affect market participants in the US.
Related Attorney(s): Stephen Day, Daniel Tobias, Nick Shiren, David Quirolo, Claire Puddicombe, Robert Cannon
Related Practice(s): Securitization & Asset Based Finance
Related Office(s): London
Contractual Recognition of Bail-In – Are You Ready?
The aim of the EU Bank Recovery and Resolution Directive (the "BRRD") is to establish a framework for the recovery and resolution of EU credit institutions and significant investment firms and to equip EU national authorities with harmonised powers and tools to tackle financial crises at such institutions and firms. These powers and tools include preparatory and preventative measures , early supervisory intervention and resolution. One of the resolution tools is the "bail-in" tool which enables EU national authorities to recapitalise in-scope entities or reduce the principal amount of, or to convert to equity, in-scope liabilities.
Related Attorney(s): Nick Shiren, Assia Damianova
M&A Update: Delaware Supreme Court Upholds Rural Metro Decision, but Financial Advisors Can Breathe a Sigh of Relief
In a November 30, 2015 decision, the Delaware Supreme Court upheld the Delaware Chancery Court's $76 million damages award against RBC Capital in In re Rural/Metro Corp. S'holders Litig. The ruling, however, notably rejected the trial court's characterization of financial advisors as "gatekeepers" of the M&A process, and the Court emphasized that its holding is to be narrowly viewed in the context of the specific facts of the case.
Related Attorney(s): William Mills, Lindsey Kister, Joshua Apfelroth
Related Practice(s): Corporate, Mergers & Acquisitions
The "State of Play" of the European Financial Transaction Tax: European Council Meeting, 8 December 2015
On 3 December 2015 the Luxembourg President of the Council of the European Union released a "state of play" announcement on the progress made during the course of this year by the ten European Union participating member states (Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain) towards the introduction of the European financial transaction tax (the "FTT").
Related Attorney(s): Catherine Richardson, Adam Blakemore
The End of the Implied Certification Theory?: The U.S. Supreme Court Grants Certiorari in Case That Could Substantially Limit the False Claims Act
On December 4, 2015, the United States Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar. In Universal Health Services, Inc., the Supreme Court will decide the legal validity of the "implied certification" theory of False Claims Act ("FCA") liability. Under this theory, a relator or the government may allege that whenever a government contractor, or a Medicare or Medicaid provider, submits a claim for payment to the government, that party has also impliedly certified that it has complied with all applicable statutory, regulatory, and contractual requirements.
Related Attorney(s): Keith Gerver, Anne Tompkins
Related Practice(s): False Claims Act and Health Care Fraud, White Collar Defense and Investigations
CFTC / CME Settle Misappropriation Case
On December 2, 2015, the U.S. Commodity Futures Trading Commission ("CFTC" or "Commission") and the New York Mercantile Exchange ("NYMEX") simultaneously announced settlements with Arya Motazedi, a gasoline trader, including for claims of insider trading under CFTC Rule 180.1. On numerous occasions from approximately September to December of 2013, while trading RBOB Gasoline Physical Futures and CL Light Sweet Crude Oil Futures, Motazedi allegedly engaged in: (1) trading that moved money from his employer's account to two of his personal accounts;2 and (2) transactions in his personal accounts, ahead of his employer's account, to the detriment of the employer's account. The Commission noted that Motazedi caused his employer to lose $216,955.80.
Related Attorney(s): Scott Cammarn, Lary Stromfeld, Steven Lofchie
Related Practice(s): Commodities & Futures Regulation
Related Office(s): Charlotte, Houston, New York, Washington
CFTC Extends No-Action Relief for Swaps Executed as Part of Certain Package Transactions
On October 14, 2015, the Division of Market Oversight ("DMO") for the U.S. Commodity Futures Trading Commission ("CFTC") issued an additional extension of no-action relief for swaps executed as part of "package" transactions. This relief provides additional time for the CFTC to resolve lingering market infrastructure challenges associated with limited execution methods for swaps subject to mandatory trade execution by permitting counterparties to execute package transactions using additional methods of execution through November 15, 2016.
Related Attorney(s): Andrew Greenberg
UK Autumn Statement 2015 – Key Tax Measures
The Chancellor of the Exchequer delivered his budgetary Autumn Statement on 25 November 2015. In this Client and Friends Alert we have outlined the key tax measures that we expect to be of interest to Cadwalader's clients and friends. Following the two UK Budgets held in March and September 2015, the number of announcements made by the Chancellor in the Autumn Statement is less than has been the case in previous years. As regards those announcements which have been made, much of the detail is absent at this stage. Further detail and proposed legislative drafting for these measures is expected in the Finance Bill 2016, scheduled to be published on 9 December 2015.
ISS Accepting Company-Selected Peer Group Submissions, including, for the first time, companies in the Russell MicroCap Index
Companies in the Russell 3000 and Russell MicroCap Index with annual meetings scheduled between February 1, 2016 and September 15, 2016 may submit updates to their self-selected compensation benchmarking peer groups from 9:00 AM EST on Tuesday, November 24, 2015 through 8:00 PM EST on Friday, December 11, 2015. A separate peer group update process for eligible companies with 2016 annual meetings after September 15, 2016 will be held in mid-2016.
Related Practice(s): Corporate
Related Office(s): New York
CFTC Releases Swap Dealer De Minimis Report
CFTC Staff's Preliminary Report on whether to modify the swap dealer de minimis threshold highlights the difficulty in identifying swap dealing activity and problems with swap data reporting
M&A Update: Treasury Announces Second Anti-Inversion Notice
On November 19, 2015, Treasury issued Notice 2015-79 (the "Notice"), which announces Treasury's intent to issue regulations reducing the tax benefits available to inverted groups and making it more difficult for some U.S. companies to invert. The Notice, which includes rules governing inversions and post-inversion restructuring, notably does not impose additional limits on earnings stripping. The Notice generally applies to inversions completed after November 18, 2015.
Related Attorney(s): Christopher Cox, Linda Swartz
Related Practice(s): Corporate, Tax
M&A Update: Chancery Court Finds Merger Price to be Most Persuasive Factor in Appraisal Action
In a recent decision in an appraisal action, the Delaware Chancery Court reaffirmed the Court's reluctance to substitute its own calculation of the "fair value" of a target company's stock for the purchase price derived through arms-length negotiations, provided it resulted from a thorough, effective and disinterested sales process. The October 21, 2015 decision, Merion Capital LP and Merion Capital II LP v. BMC Software, Inc., not only provides a comprehensive review of the fundamentals of appraisal actions, but also serves as a cautionary tale for merger arbitrageurs and other stockholders looking to seek appraisal remedies.
Related Attorney(s): William Mills, Joshua Apfelroth
Related Practice(s): Corporate, Global Litigation
Prudential Regulators Release Final Margin Rules for Swaps
On October 22, 2015, the Federal Deposit Insurance Corporation held an open meeting at which it voted to adopt: (i) final rules governing margin and capital requirements for uncleared swaps and (ii) an interim final rule to implement statutory amendments excluding certain entities from the requirements. The Rules, which were also approved by the Comptroller of the Currency and are to be jointly adopted by the other "Prudential Regulators," set margin requirements for uncleared swaps and uncleared security-based swaps entered into by swap dealers, security-based swap dealers, major swap participants and major security-based swap participants who are supervised by a Prudential Regulator (such entities, "Covered Swap Entities").
Related Attorney(s): Steven Lofchie, Nihal Patel
Related Practice(s): Bank Regulation, Financial Regulation, Swap Regulation
UK Financial Conduct Authority Issues Final Rules Concerning Whistleblowers
On October 6, 2015, the UK Financial Conduct Authority ("FCA") issued final rules formalizing whistleblower procedures to be implemented by certain banks, building societies, credit unions, investment firms, and insurance and reinsurance companies. While the FCA's final rules do not go as far as those promulgated by the U.S. Securities and Exchange Commission, which provide for whistleblower bounties in certain successful cases, they are consistent with a global trend to encourage whistleblowers and look harshly on employers who would appear to engage in retaliation.
Related Attorney(s): Joseph Moreno
Related Practice(s): White Collar Defense and Investigations
Buyer (and its Creditors) Beware: SemCrude District Court Finds That Purchasers Took Oil and Gas Free and Clear of Producers' Liens
Although almost eight years have lapsed since the chapter 11 cases of Tulsa, Oklahoma-based SemCrude L.P. were confirmed, many of the issues at the forefront of those cases are re-emerging in light of the recent uptick in oil and gas-related restructurings. The SemCrude cases provided useful guidance for oil and gas producers and purchasers to best address the perfection and management of security interests in oil and gas-related collateral.
Related Attorney(s): Mark Ellenberg, Ingrid Bagby, Michele Maman
Related Practice(s): Financial Restructuring
Chancery Court Provides Lessons on Conflicts of Interest in a Sales Process – Holds Only Financial Advisor Open to Liability
In an October 1st decision (In re Zale Corporation), the Delaware Chancery Court dismissed claims that Zale Corporation's directors breached their fiduciary duties in connection with Zale's agreement to merge with Signet. The Court, however, permitted a claim to proceed against Merrill Lynch, Zale's financial advisor, for aiding and abetting a breach of fiduciary duty by Zale's board of directors. In so holding, the Court sent yet another stern warning that financial advisors are well-served to disclose all potential conflicts of interest to their client in order to mitigate any potential aiding and abetting liability. The decision also offers valuable lessons with respect to potential director and stockholder conflicts of interest.
Related Attorney(s): Joshua Apfelroth, William Mills
Related Practice(s): Corporate, Global Litigation, Mergers & Acquisitions
M&A Update: Fully Informed Vote of Disinterested Stockholders Results in Business Judgment Rule Protection in Post-Closing Review of Merger
In an October 2, 2015 decision, Corwin, et al. v. KKR Financial Holdings LLC., et al., the Delaware Supreme Court clarified that once a merger closes, as long as it has been approved by a fully informed vote of the disinterested stockholders, the standard for reviewing the board's conduct will be the business judgment rule unless the transaction is subject to the entire fairness standard (as can be the case in a transaction with a controlling stockholder). The Court stated that business judgment rule protection would also apply in this scenario even if the Revlon enhanced scrutiny standard applied to the merger.
Related Attorney(s): William Mills
Securitisation: Keeping it Simple?
On 30 September 2015, the European Commission published a proposal for a regulation intended to harmonise existing EU laws applying to securitisations (including proposed changes to the EU risk retention rules) and to create a legal framework intended to encourage "simple, transparent and standardised securitisations."
Related Attorney(s): Stephen Day, David Quirolo, Nick Shiren, Daniel Tobias, Claire Puddicombe, Robert Cannon
New 871(m) Regulations Finalize Dividend Equivalent Payment Withholding Rules for Equity Derivatives
On September 17, 2015, the IRS and the Treasury Department issued final, temporary, and proposed regulations under section 871(m) of the Internal Revenue Code (collectively, the "new regulations") that provide the rules for withholding on "dividend equivalent payments" on derivatives that reference U.S. equity securities. In general, the rules narrow the class of derivatives that would have been subject to withholding under the proposed regulations issued in 2013 (the "2013 proposed regulations").
Delaware Court Leaves Ousted Executive on His Own for Legal Fees
In a September 11, 2015, decision, the Delaware Chancery Court denied a former officer and director advance reimbursement of legal fees in a dispute with his company, despite his insistence that multiple corporate documents and Delaware law entitled him to advancement. The opinion underscores the importance of careful drafting of indemnification and advancement agreements and also highlights the limits on the ability of officers or directors to receive indemnification or advancement for actions taken beyond the scope or span of their positions.
New DOJ Policy Regarding Individual Accountability for Corporate Wrongdoing
On September 9, 2015, the U.S. Department of Justice announced a new policy regarding individual accountability for corporate misconduct. The policy, described in a memo authored by Deputy Attorney General Sally Yates, posits that "one of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing." The focus on individuals represents the first formal announcement of a policy shift that Department of Justice (DOJ) officials have hinted at during the past year.
Related Attorney(s): Anne Tompkins, Jodi Avergun, J. Robert Duncan
Related Office(s): Charlotte, Washington
M&A Update: Delaware Court Finds Dole Executives Personally Liable for Millions in Damages for Defrauding Stockholders in Buy-Out and Undermining Special Committee Process
In its August 27th post-trial opinion, In re Dole Food Co., Inc. Stockholder Litigation, the Delaware Chancery Court held Dole executives David Murdock and Michael Carter personally liable for $148 million in damages for undermining and interfering with the special committee's efforts to obtain a fair price for Dole's minority stockholders following Murdock's decision to take the Company private in 2013. The decision emphasizes that transactions with a controlling stockholder that employ the dual procedural protections of independent director and "majority of the minority" approval must actually adhere to the substance and purpose of those protections.
Related Attorney(s): William Mills, Richard Brand
The Second Circuit Denies Midland's Request For Rehearing On Its Decision That Upended Longstanding Principles of Lending Law
On August 12, 2015, the United States Court of Appeals for the Second Circuit denied Midland Funding, LLC and Midland Credit Management (collectively, "Midland")'s petition for panel rehearing, or, in the alternative, rehearing en banc, of the Second Circuit's recent decision in Madden v. Midland Funding, LLC ("Madden"), that upended well-settled lending law by holding that the federal preemption of state usury laws does not extend to non-national bank assignees of national banks, thus calling into doubt the enforceability of loans that were valid when made, depending on the identity and location of the assignee.
Related Attorney(s): Nathan Bull, Scott Cammarn
Related Practice(s): Bank Regulation, Financial Regulation, Global Litigation
D.C. Circuit Upholds Attorney-Client Privilege Again in In re Kellogg Brown & Root, Inc.
On August 11, 2015, the U.S. Court of Appeals for the D.C. Circuit granted a petition by Kellogg Brown & Root, Inc. ("KBR") for a writ of mandamus in order to protect KBR's assertion of attorney-client privilege over its prior internal investigation of alleged violations of the False Claims Act. In re Kellogg Brown & Root, Inc., No. 14-5319, slip op. (D.C. Cir. Aug. 11, 2015) [hereinafter KBR II]. The opinion was actually the second writ of mandamus granted in this closely watched case over the course of only 14 months.
Related Attorney(s): Jodi Avergun
Related Practice(s): Global Litigation, White Collar Defense and Investigations
TCEH Bankruptcy: SDNY Transfers Delaware Trust Company v. Wilmington Trust N.A. Intercreditor Dispute to Delaware Bankruptcy Court, Reaffirming Broad View of Bankruptcy Jurisdiction
On July 23, 2015, in an action arising from the huge TCEH chapter 11 bankruptcy, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York issued an opinion in Delaware Trust Company v. Wilmington Trust N.A. denying plaintiff's motion to remand the case back to New York state court, and granting defendants' motion to transfer the case to the District of Delaware, from where it will be referred to the United States Bankruptcy Court for the District of Delaware.
Related Attorney(s): Ivan Loncar, Mark Ellenberg, Ellen Halstead, Michele Maman, Thomas Curtin, Howard Hawkins
Related Practice(s): Financial Restructuring, Global Litigation
Illinois Court Strikes Down Chicago Pension Reforms, Deepening City's Financial Crisis
On July 24, 2015, Judge Rita M. Novak of the Circuit Court of Cook County, Illinois struck down recently enacted legislation designed to shore up two of the City of Chicago's severely underfunded pension plans by, among other things, reducing benefits. Judge Novak viewed as controlling a decision by the Illinois Supreme Court from May of this year which held that similar legislation reducing benefits for members of state-funded pension plans violated the "pension protection clause" of the Illinois constitution.
Related Attorney(s): Lary Stromfeld, Ellen Halstead, Howard Hawkins, Michele Maman, Ivan Loncar, Mark Ellenberg, Casey Servais, Ingrid Bagby, Thomas Curtin
Related Practice(s): Distressed Municipal Finance, Financial Regulation, Financial Restructuring
UK Summer Budget 2015 – Key Tax Measures
The Chancellor of the Exchequer's first Budget of the new Parliament, delivered on 8 July 2015, will be remembered as a reforming Conservative budget, including significant changes to the United Kingdom's welfare provisions such as limiting the availability of personal working tax credits and introducing the new National Living Wage.
SEC Focus On Expense Allocation: In the Matter of KKR
On June 29, 2015, the SEC charged Kohlberg Kravis Roberts & Co. L.P. ("KKR"), an SEC-registered investment adviser, with misallocating more than $17 million in broken deal and diligence expenses to its flagship private equity funds in breach of its fiduciary duties under the Investment Advisers Act of 1940 (the "Advisers Act").
Related Attorney(s): Steven Lofchie, Dorothy Mehta
Related Practice(s): Financial Regulation, Fund Formation, Investment Management, Investment Management Regulation & Compliance
Investing in the United States: CFIUS Concerns for Chinese Investors
Michael Liu, Jane Ng, Viola Jing and Keith Gerver have authored a Clients & Friends Memo to discuss the latest trends in reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) for Chinese investors contemplating possible investments in U.S. assets. The Memo provides a recap of the CFIUS framework and process, and some recommendations to avoid unnecessary complications and after-deal scrutiny from CFIUS.
Related Office(s): Hong Kong
Second Circuit Holds Application of State Usury Laws to Third-Party Debt Purchasers Not Preempted by National Bank Act
On May 22, 2015, in Madden v. Midland Funding, LLC, ("Madden"), the United States Court of Appeals for the Second Circuit held that the application of state usury laws to third-party assignees is not preempted by the National Bank Act but rather such assignees remain subject to state usury limits. The Madden decision has potentially far-reaching implications for investors in, and securitizers of, bank-originated loans to the extent that it casts into doubt the ability of an assignee of a bank loan to collect interest at the rate originally provided for in the agreement.
Related Attorney(s): Stuart Goldstein, Michael Gambro, Nathan Bull, Scott Cammarn
Related Practice(s): Bank Regulation, Financial Regulation, Securitization & Asset Based Finance
M&A Update: IRS Mulls Change to Spinoff Rules
In a statement that would mark a stark change in approach, an IRS official recently indicated that the IRS may begin requiring that companies seeking to effect tax-free spinoffs conduct active businesses that represent a minimum percentage of the companies' assets. The official noted that the IRS may hold future requests by taxpayers for guidance on this issue in abeyance.
Related Attorney(s): William Mills, Linda Swartz
Related Practice(s): Corporate, Mergers & Acquisitions, Tax
Supreme Court Holds That Orders Denying Plan Confirmation Are Not Final for Appellate Purposes
On May 4, 2015, a unanimous United States Supreme Court in Bullard v. Blue Hills, 135 S. Ct. 1686 (2015), resolved a long-standing circuit court split by holding that a bankruptcy court's order denying confirmation of a debtor's proposed bankruptcy plan is not a "final" order that can be immediately appealed as a matter of right. Although arising in the chapter 13 context, the Court's holding also likely applies in chapter 11 and amounts to a major win for creditors, who gain important leverage during plan negotiations with debtors now left with fewer options following denial of confirmation.
Related Attorney(s): Casey Servais, Ingrid Bagby, Mark Ellenberg
A Looming Crisis: Illinois Supreme Court Strikes Down Statute Reducing Benefits
On May 8, 2015, the Supreme Court of the State of Illinois struck down recently enacted state public pension reform legislation on the grounds that the legislation violated the "pension protection clause" of the Illinois constitution. The legislation had sought to reduce Illinois's pension liabilities by reducing annuity benefits to some members of the State's public pension systems.
Related Attorney(s): Michele Maman, Ellen Halstead, Thomas Curtin, Howard Hawkins, Ingrid Bagby, Mark Ellenberg, Lary Stromfeld, Ivan Loncar, Casey Servais
M&A Update: Delaware Supreme Court Issues Important Ruling Protecting Independent Directors
On May 14, 2015, the Delaware Supreme Court ruled that claims against independent directors must be dismissed when a company charter provision shields directors from monetary liability for breach of the duty of care and the plaintiffs are unable to plead facts establishing that the directors breached the duty of loyalty, acted in bad faith or gained an improper personal benefit. The decision, In re Cornerstone Therapeutics Inc. Stockholder Litigation, illustrates the power of so-called "exculpatory" charter provisions and emphasizes that plaintiffs bear the burden of pleading facts to support a "non-exculpated" claim against independent directors.
Related Practice(s): Corporate, Corporate Governance, Mergers & Acquisitions
Revisions to the Securitisation Framework: Final Rules published by the Basel Committee
The Basel Committee on Banking Supervision (the "Basel Committee") has published the revised securitisation framework setting out the standards for regulatory capital requirements for securitisation exposures held in the banking book (the "Revised Securitisation Framework"). The Revised Securitisation Framework is largely based on the proposals published by the Basel Committee in December 2013, with some changes and clarifications.
Related Attorney(s): Glenn Weston, Suzanne Bell, Assia Damianova, Jake Lindsay, Nick Shiren, David Quirolo, Daniel Tobias, Robert Cannon, Claire Puddicombe, Stephen Day, Jennifer McIntosh
SEC Proposes Title VII Regulatory Framework for Non-US Dealers Transacting in the United States
The U.S. Securities and Exchange Commission (the "SEC") reproposed rules addressing the application of certain requirements under Title VII of the Dodd-Frank Act (the "Reproposal") to non-U.S. persons dealing in security-based swaps ("SBSs"), where the transactions, or certain aspects of the transactions, take place in the United States.
Final Regulations on Section 162(m) Deduction Limit Exceptions
New final regulations (the "Final Regulations") have been issued clarifying and altering the "qualified performance-based compensation" exception and the transitional "reliance period" exception for newly public companies to the $1 million limit on deductible compensation for covered employees of public companies.
Related Attorney(s): Linda Swartz
CFTC Issues No-Action Relief for Amended Legacy Swaps between SDs and SPVs
On March 31, 2015, the Division of Swap Dealer and Intermediary Oversight (the "Division") of the Commodity Futures Trading Commission (the "CFTC") issued no-action relief regarding compliance with certain of its swap regulations, including, but not limited to, business conduct and swap trading relationship documentation requirements for swap dealers ("SDs"), in connection with swaps entered into by structured finance special purpose vehicles ("SPVs") prior to October 10, 2013 ("Legacy SPV Swaps"). The relief was granted in response to a request by the Structured Finance Industry Group ("SFIG"). Cadwalader represented SFIG in connection with the request.
Related Attorney(s): Nihal Patel, Ivan Loncar, Neil Weidner
Related Practice(s): Commodities & Futures Regulation, Financial Regulation, Swap Regulation
UK Budget 2015 – Key Tax Measures
The Chancellor of the Exchequer's final Budget of the current Parliament, given on 18 March 2015, was held in the shadow of the UK's general election on 7 May 2015. With the backdrop of the UK's GDP growth increasing, continued low interest rates, rising employment and a reducing national debt, this was never going to be a Budget for surprise announcements. This was a consolidating budget – a "game closer", not a "game changer" as one newspaper reported.
Related Attorney(s): Adam Blakemore, Catherine Richardson
M&A Update: Market Pressures, Favorable Law Spur REIT Conversions and Spinoffs
Urged on by activists and institutional shareholders, a large number of companies with real estate holdings pursued real estate investment trust (REIT) conversions or spinoffs in 2014.
The Obama Administration's Personal Data Notification & Protection Act: An Analysis
On January 12, 2015, President Obama proposed the Personal Data Notification & Protection Act, which would create a federal standard for data breach notification. The proposed bill is part of a more wide-ranging effort by the Obama administration to shore up the nation's cybersecurity.
Unregistered CTA Summit Energy Services: Choose Your Words Wisely
A recent case highlights the importance of periodically reviewing an energy company's marketing materials and related activities (including statements made on websites) to ensure that the company is not holding itself out -- without CFTC registration -- as a CTA (commodity trading advisor).
U.S. District Court Holds that Puerto Rico's Recovery Act is Unconstitutional
On February 6, 2015, Judge Francisco Besosa of the U.S. District Court for the District of Puerto Rico held that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the "Recovery Act") is expressly preempted by section 903 of the Bankruptcy Code and is therefore unconstitutional. The court also denied the Commonwealth's motion to dismiss the plaintiffs' claims under the Contracts Clause and certain of the plaintiffs' claims under the Takings Clause.
Related Attorney(s): Howard Hawkins, Lary Stromfeld, Thomas Curtin, Mark Ellenberg, Ivan Loncar
Related Practice(s): Bankruptcy Litigation, Distressed Energy, Distressed Municipal Finance, Financial Restructuring, Municipal Derivatives, Municipal Securitization
SEC Issues Guidance for Shorter Debt Tender Offers
On January 23, 2015, the Staff of the U.S. Securities and Exchange Commission (the "SEC") issued a no-action letter that allows certain tender offers for non-convertible debt securities to remain open for five business days, as opposed to the 20 business day period specified in Rule 14e-1 under the Securities Exchange Act of 1934 (the "Exchange Act"). The no-action letter supersedes several prior no-action letters that had established market practice for abbreviated tender offers for nearly 30 years.
Second Circuit Denies Petition for En Banc Review of Fairfield Decision
On January 13, 2015, the U.S. Court of Appeals for the Second Circuit denied a petition for en banc review of the Second Circuit's September 2014 panel decision holding that bankruptcy courts are required to review the propriety of a Chapter 15 debtor's transfers of property interests within the territorial jurisdiction of the U.S., even if such a transfer has already been approved in the debtor's foreign proceeding. This decision represents a departure from prior cases, in which U.S. judges often enforced foreign court orders based on principles of comity and prohibited challengers from "re-litigating" such disputes in the U.S. Absent consideration and reversal by the U.S. Supreme Court, the Second Circuit's opinion and subsequent denial of en banc review could signal a paradigm shift in Chapter 15 jurisprudence and is sure to be cited with fervor by litigants in future Chapter 15 proceedings. The decision may als
Related Attorney(s): Ingrid Bagby
Related Practice(s): Bankruptcy Litigation, Financial Restructuring
FTC Announces 2015 Thresholds for Merger Control Filings Under HSR Act and Interlocking Directorates Under the Clayton Act
The Federal Trade Commission ("FTC") has announced its annual revisions to the dollar jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); the revised thresholds will become effective 30 days after the date of their publication in the Federal Register. These changes increase the dollar thresholds necessary to trigger the HSR Act's premerger notification reporting requirements. The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.
Related Attorney(s): Ngoc Hulbig
Related Practice(s): Antitrust
The EBA Report On Securitisation Risk Retention, Due Diligence And Disclosure – More Of The Same For The CLO Market?
On 22 December 2014, the European Banking Authority (the "EBA") published an opinion and a report (together, the "Report") on securitisation retention, due diligence and disclosure requirements under Regulation (EU) No 575/2013 (the "Capital Requirements Regulation"). The Report contains advice from the EBA that takes the form of:
Nine recommendations on the overall appropriateness of the securitisation retention, due diligence and disclosure requirements under the Capital Requirements Regulation; and
One recommendation on the convergence of the risk retention regulatory frameworks.
Related Attorney(s): Nick Shiren, David Quirolo, Daniel Tobias, Robert Cannon
Related Practice(s): CLOs, Securitization & Asset Based Finance
New York Enacts Revisions to the UCC
As many readers are aware, substantial revisions to Article 9 of the Uniform Commercial Code (the "UCC") became effective in all 50 states and the District of Columbia in 2001 or shortly thereafter. Although these amendments modernized and simplified commercial law and practice in important respects, enough ambiguities and frictions arose between theory and practice to justify statutory fine tuning. Accordingly, the Uniform Law Commission and the American Law Institute set to work on amendments in 2008. A version of these amendments were signed into law in New York by Governor Cuomo on December 17, 2014. They are part of an omnibus bill that, in addition to amending Article 9, updates several other articles of New York's version of the UCC (hereafter referred to as the "Act")
Related Attorney(s): Jeffrey Nagle
Related Practice(s): Corporate, Securitization & Asset Based Finance
Related Office(s): Charlotte, New York
M&A Update: Revlon: Motive, Market Checks and Injunctions
In two separate December 19th decisions, the Delaware Supreme Court and the Delaware Chancery Court declined to enjoin stockholder votes with respect to pending mergers for alleged violations of the target board's Revlon duties. The decisions affirmed longstanding Delaware caselaw providing that "there is no 'single blueprint' for directors to obtain the highest value reasonably attainable" for its stockholders in the satisfaction of its Revlon duties, "so long as they choose a reasonable route to get there." The decisions offer boards nuanced guidance on how to satisfy Revlon duties in the context of a sale of corporate control.
Related Practice(s): Global Litigation
M&A Update: New York State Court Extends Common Interest Privilege to Merger Talks
In a December 4, 2014 decision, the New York Appellate Court, First Department, held that documents and discussions related to negotiation of a merger could be protected by the common interest privilege. The ruling represents a change in New York law which, unlike Delaware, previously limited the common interest privilege to situations where litigation was pending or reasonably anticipated.
M&A Update: Federal Court Decision in Allergan Control Battle Raises Serious Questions for New Takeover Technique
The Federal District Court's November 4th ruling in Allergan, Inc. vs. Valeant Pharmaceuticals International, Inc. raises "serious questions" for the takeover partnership employed by Valeant and Pershing Square in their hostile bid to acquire Allergan.
Related Practice(s): Global Litigation, Mergers & Acquisitions
M&A Update: No Control, No Conflict, No Problem
On October 24th, the Delaware Chancery Court dismissed a lawsuit challenging the merger of Crimson Exploration and Contango Oil & Gas. Minority Crimson stockholders alleged that Oaktree Capital Management, Crimson's largest stockholder with a 33.7% stake, controlled Crimson and caused it to be sold below market value for "self-serving reasons." The Court disagreed, finding that even if Oaktree was a controlling stockholder—which was likely not the case—the merger should be reviewed under the deferential business judgment rule, and not the more stringent entire fairness standard, because Oaktree was not conflicted in the transaction. The Court concluded that the Crimson directors had not breached their fiduciary duties, and the case was dismissed.
Final Credit Risk Retention Requirements for Asset-Backed Securities Transactions
On October 21-22, 2014, the federal regulatory agencies responsible for implementing regulations under The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") finalized rules for risk retention requirements in asset-backed securities (as further defined below, "ABS") transactions. The final rules (the "Final Rules") contain clarifications and revisions to the reproposed rules (the "Reproposed Rules") highlighted in Part II–Executive Summary of Significant Changes from the Reproposed Rules below, but in most respects the Final Rules are substantially the same as the Reproposed Rules. Parts III through VII below are a restatement of our prior Clients & Friends Memo updated to reflect the Final Rules.
Related Attorney(s): David Burkholder, Patrick Quinn, Ray Shirazi, Ira Schacter, Lary Stromfeld, Lisa Pauquette, Y. Jeffrey Rotblat, Michael Gambro, David Gingold, Steven Lofchie, Peter Williams, Frank Polverino, Gregg Jubin, Cheryl Barnes, Henry LaBrun, Richard Schetman, Scott Cammarn, Michael McCormack, Neil Weidner, Stuart Goldstein, Anna Glick
Risk Retention for Commercial Mortgage-Backed Securities: Fact Sheet
On October 22, 2014, the federal regulatory agencies responsible for implementing regulations under Dodd-Frank finalized the risk retention rules for ABS transactions, including CMBS transactions. The final rules come more than three years after risk retention rules were originally proposed, and more than a year after the rules were re-proposed. The final rules contain a few clarifications and revisions to the re-proposed rules, but for the most part the final rules are substantially the same as the re-proposed rules.
Related Attorney(s): Lisa Pauquette, David Burkholder, Patrick Quinn, Stuart Goldstein, Michael Gambro, Anna Glick, Henry LaBrun, Y. Jeffrey Rotblat, Frank Polverino, Robert Kim
New MiFID I Consultation Paper Creates Further Challenges for Commodity Market Participants
On 29 September 2014, ESMA published a consultation paper (the Consultation Paper) seeking industry feedback for guidelines relating to certain commodity derivatives, namely those falling under C6 and C7 of Annex I of the Markets in Financial Instruments Directive (MiFID). One of the reasons for publication of the guidelines is to ensure consistent treatment of these contracts under the European Market Infrastructure Regulation (EMIR) which has been in force throughout the European Union (EU) since 12 August 2012. EMIR was implemented with the objective of increasing transparency and reducing risk in the European OTC derivatives markets. The obligations under EMIR include certain clearing, risk mitigation and reporting requirements for parties entering into OTC derivatives.
Related Attorney(s): Assia Damianova, Nick Shiren
M&A Update: Chancery Court Orders Financial Advisor to Pay Millions in Damages For Aiding and Abetting Breach of Fiduciary Duty
On October 10, 2014, Vice Chancellor Travis Laster ruled that RBC Capital was liable to the former stockholders of Rural/Metro Corporation for $75.8 million – representing 83% of the total damages – for aiding and abetting breaches of the duty of care by Rural/Metro's board in connection with the 2011 sale of the company to Warburg Pincus. The decision puts a chilling exclamation point on the continuing scrutiny by Delaware courts of conflicted sell-side advisers.
First Criminal Prosecution for Spoofing: High Frequency Trading Firm Owner Indicted in Northern District of Illinois
On October 2, 2014, the U.S. Attorney for the Northern District of Illinois announced the indictment of Michael Coscia, the owner of Panther Energy Trading ("Panther"), for six counts of commodities fraud and six counts of spoofing. This indictment represents the first ever criminal case to use the anti-manipulation authority provided in the Dodd-Frank Act to charge spoofing in the context of commodities transactions, and is one of the first major cases announced by the newly-formed Securities and Commodities Fraud section of the U.S. Attorney's office for the Northern District of Illinois.
Potential Impact of New SEC Rules on Cell Tower Securitizations
On August 27, 2014, the Securities and Exchange Commission (the "SEC") adopted two final rules implementing new regulations affecting asset-backed securities ("ABS"). The first set of rules, referred to in this memorandum as the "Third Party Reports Rules," include new rules requiring the filing of the findings and conclusions of reports of third-parties who have been employed by issuers and underwriters to provide due diligence services. The second set of rules, referred to in this memorandum by its popular name, "Regulation AB II," relate to asset-level disclosure and shelf registration requirements applicable to ABS transactions. These rules impose significant new filing, reporting and disclosure obligations on parties to ABS transactions. This memorandum discusses the applicability of these final rules to cell tower securitizations.
Related Attorney(s): Michael Gambro, Michael McCormack, Frank Polverino, Stuart Goldstein
Skandia: Intra-Company Supplies Treated as Taxable Transactions for VAT Purposes by the Court of Justice of the European Union
On 17 September 2104, the Court of Justice of the European Union (the "CJEU") gave its preliminary ruling in the case of Skandia America Corporation USA, Sweden Branch v Skatterverket (C-7/13) ("Skandia"). The decision of the CJEU has been awaited with interest throughout this summer, and the CJEU has now ruled that the supply of externally purchased services from a company's main establishment in the United States to its Swedish branch is a taxable transaction for value added tax ("VAT") purposes. The decision of the CJEU has not followed the opinion delivered by Advocate General Wathelet on 8 May 2014, in which he had opined that such services should not be subject to VAT.
Related Practice(s): Corporate Taxation, Tax, Tax Controversy
M&A Update: Treasury Announces New Anti-Inversion Rules
On September 22, 2014, the Treasury Department announced its intent to issue new regulations that will reduce the tax benefits available after an inversion and may make it more difficult for some U.S. companies to invert (the "Notice"). The Notice does not require congressional action and applies immediately to all inversions completed after September 21, 2014.
Related Attorney(s): Linda Swartz, Christopher Cox
CFTC Votes to Re-Propose Margin Requirements for Uncleared Swaps
On September 17, 2014, the Commodity Futures Trading Commission ("CFTC") voted to re‑propose rules to impose initial and variation margin requirements on uncleared swaps entered into by swap dealers and major swap participants that are not regulated by a "Prudential Regulator" (such entities, the "Covered Swap Entities"). The CFTC vote comes two weeks after the Prudential Regulators voted to re-propose analogous rules for swap dealers and major swap participants under their jurisdiction (the "PR Margin Proposal"). According to the discussion at the CFTC's open meeting, the CFTC proposal – the text of which has not yet been made publicly available – is expected to be substantially similar to the PR Margin Proposal.
No Market Interest Rate and No Make Whole: Momentive Performance Court Rejects Lender Arguments Against Confirmation
On August 26, 2014, Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York ruled that (i) the debtors could satisfy the cramdown requirements of section 1129(b) of the Bankruptcy Code by issuing to certain secured noteholders replacement notes with interest rates calculated at the prime rate plus a non-payment risk component, as opposed to a market rate, and (ii) the debtors' noteholders were not entitled to payment of make-whole premiums as part of their allowed claims. In re MPM Silicones, LLC, Case No. 14-22503-rdd (Bankr. S.D.N.Y.). By favoring a below-market risk premium in the cramdown context, this decision reinforces for lenders the importance of presenting clear evidence on plan feasibility and the risks facing a company post-chapter 11 emergence in order to be awarded higher interest rates on any cramdown paper.
Related Attorney(s): Mark Ellenberg, Ingrid Bagby
New Rules for Third-Party Due Diligence Reports for Asset-Backed Securities
On August 27, 2014, the Securities and Exchange Commission (the "SEC") adopted final rules (the "Final Rules") implementing, among other things, provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") relating to third-party due diligence reports for asset-backed securities.
Related Attorney(s): Joseph Beach, Lisa Pauquette, Michael McCormack, Cheryl Barnes, Neil Weidner, David Burkholder, Y. Jeffrey Rotblat, Gregg Jubin, Stuart Goldstein, Frank Polverino, Michael Gambro, Anna Glick, Patrick Quinn, Henry LaBrun
Related Practice(s): CLOs, Commercial Mortgage-Backed Securities, Derivatives & Structured Products, Financial Regulation, Municipal Securitization, Securitization & Asset Based Finance
Related Office(s): Charlotte, London, New York, Washington
CRA3 – Final Draft Regulatory Technical Standards in relation to Disclosure Requirements for Structured Finance Instruments
On 24 June 2014, ESMA published its Final Report on the draft regulatory technical standards under CRA3 (as defined below) (the "Final Report"). With respect to structured finance instruments, the Final Report sets out draft standards for the information to be disclosed, the frequency of disclosure and the presentation of the applicable information in relation to the disclosure requirements for structured finance instruments pursuant to Article 8b of the CRA Regulation.
Related Attorney(s): Nick Shiren, Assia Damianova, Suzanne Bell, Robert Cannon, Stephen Day
At Long Last—SEC Adopts Final Regulation AB II
On August 27, 2014 the Securities and Exchange Commission (the "SEC") approved final rules relating to asset-backed securities ("ABS") disclosure and registration (the "Final Rules"). The Final Rules are contained in a final release, which was published on September 4, 2014 on the SEC's website (the "Final Release"). The Final Rules represent the culmination of a lengthy rulemaking process, which began with the publication by the SEC in early 2010 of proposed rules (the "2010 Proposal") and the subsequent re-proposal in 2011 of a portion of the proposed rules (the "2011 Re-Proposal" and, collectively with the 2010 Proposal, the "Proposed Rules").
Related Attorney(s): Anna Glick, Frank Polverino, Ivan Loncar, Stuart Goldstein, Gregg Jubin, David Burkholder, Lisa Pauquette, Cheryl Barnes, Robert Kim, Michael Gambro, Joseph Beach, Patrick Quinn, Henry LaBrun, Neil Weidner, Y. Jeffrey Rotblat
Related Practice(s): CLOs, Commercial Mortgage-Backed Securities, Derivatives & Structured Products, Financial Regulation, Municipal Securitization
Summary of Prudential Regulators' Re-Proposed Margin Rules
On September 3, the Board of Governors of the Federal Reserve System ("Board"), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency (collectively, the "Prudential Regulators") voted to re-propose rules to implement Sections 731 and 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") (a draft of which has been published online – the "Draft Proposal"). The Draft Proposal would impose initial and variation margin requirements on prudentially regulated swap dealers, security-based swap dealers, major swap participants and major security-based swap participants ("Covered Swap Entities") entering into uncleared swaps and security-based swaps.
Related Attorney(s): Nihal Patel, Steven Lofchie
Related Practice(s): Financial Regulation
SEC Adopts Regulation AB II
This morning the Securities and Exchange Commission in an open meeting voted to adopt long-awaited final rules (the "Final Rules") implementing a series of changes to the registration and offering process for asset-backed securities ("ABS") and expanded disclosure and reporting under the SEC's Regulation AB. The package of rules, which is commonly referred to as "Regulaton AB II", was first proposed by the SEC on April 7, 2010 and certain elements were reproposed on July 26, 2011 (the "Reproposed Rules").
Related Attorney(s): Gregg Jubin, Robert Kim, David Burkholder, Anna Glick, Stuart Goldstein, Henry LaBrun, Joseph Beach, Lisa Pauquette, Neil Weidner, Y. Jeffrey Rotblat, Patrick Quinn, Cheryl Barnes, Michael Gambro, Ivan Loncar, Frank Polverino
Related Practice(s): Bank Regulation, CLOs, Commercial Mortgage-Backed Securities, Derivatives & Structured Products, Distressed Municipal Finance, Financial Regulation, Financial Restructuring, Municipal Derivatives, Municipal Securitization, Securitization & Asset Based Finance, Warehouse Lending
Restructuring of Unlisted EU Companies: AIFMD Applies to Non-EU Fund Managers on Acquisitions of Substantial Stakes
The Alternative Investment Fund Managers Directive ("AIFMD") imposes restrictions on "asset stripping" on managers ("AIFMs") of alternative investment funds ("AIFs") that acquire control of EU companies. The rules contain new notification requirements (as low as 10% of shares). These requirements apply to EU and non-EU AIFMs marketing in the EU and will impact private equity, venture capital and some hedge funds, their portfolio companies and target companies.
Related Attorney(s): Nick Shiren, Robert Cannon, Assia Damianova
Related Practice(s): Financial Restructuring, Securitization & Asset Based Finance
Finally Certainty About Licensing SPVs Under the FCA Consumer Credit Regime
From 1 April 2014, responsibility for the regulation of consumer credit in the UK was transferred from the Office of Fair Trading ("OFT") to the Financial Conduct Authority ("FCA"), drawing certain activities relating to consumer credit within the authorisation and regulated activity provisions of the Financial Services and Markets Act 2000 ("FSMA"). As the FSMA regime is regarded as more onerous than the previous Consumer Credit Act 1974 ("CCA") licencing regime and due to the timing implications of obtaining full authorisation, the applicability of an exemption (the "SPV Exemption") for SPVs introduced by statutory instrument to entities holding the benefit of consumer credit agreements will be of interest to market participants.
Related Attorney(s): Stephen Day, Nick Shiren
M&A Update | Inversions: The View from Ireland
On June 25, 2014, Ireland's Taoiseach (Prime Minister) Enda Kenny and Minister for Finance Michael Noonan, among others, met with Cadwalader Chairman-elect and Corporate Group Co-Chair James C. Woolery in Dublin regarding foreign direct investment in Ireland and, specifically, the recent acceleration in U.S.-to-Ireland inversion transactions.
Related Office(s): London, New York
Impact of the New PRC Cross-Border Security Regulations on Debt Financing
On May 12, 2014, the State Administration of Foreign Exchange ("SAFE") of the People's Republic of China (the "PRC") issued a notice on the Issuance of Administration Rules of Foreign Exchange on Cross-border Security (the "Notice") and promulgated the Administration Rules of Foreign Exchange on Cross-border Security (the "Rules") and the Operational Guidelines for Implementing the Administration Rules of Foreign Exchange on Cross-border Security (the "Guidelines", together with the Rules, the "New Rules"), effective on June 1, 2014. Twelve previous regulations or policies (the "Repealed Regulations") listed in Appendix 3 to the Notice, were repealed when the New Rules took effect.
Related Attorney(s): Gregory Petrick
Related Office(s): Beijing, Hong Kong, London
M&A Update: Senator Levin Introduces Anti-Inversion Act
On May 20, 2014, Sen. Carl Levin (D-MI) introduced the Stop Corporate Inversions Act of 2014 (the "Levin Bill"), which proposes significantly more stringent limits on the ability of U.S. companies to relocate outside the U.S. The Levin Bill, if enacted, would apply to transactions completed after May 8, 2014 and would sunset after two years, unless reenacted by Congress.
Related Practice(s): Corporate, Corporate Taxation, Tax
EMIR Clearing and Margin Consultation Paper Proposes Rules Which Will Impose Substantial Trading Costs on Market Participants
The European Market Infrastructure Regulation ("EMIR") imposes a number of risk mitigation techniques on counterparties to uncleared swaps. Some of those involve much tighter operational procedures (such as the rules for timely confirmations, portfolio reconciliation and dispute resolution). However, the most significant increase in the costs of trading over-the-counter ("OTC") derivatives will arise as a result of the rules on margin and eligible collateral for such trades. New legal and risk issues will need to be addressed in the running of what will become multiple collateral posting flows: for initial margin ("IM"), for variation margin ("VM"), possibly with silos for different currencies and different jurisdictions and separately, for legacy trades pre-dating the new rules (each separate from cleared trades).
Related Practice(s): Financial Regulation, Investment Management Regulation & Compliance
Related Office(s): London, Washington
Important Court Decision For No-Fault Insurers; Second Circuit Court of Appeals Rejects Limitation On State Farm v. Mallela
We are pleased to inform you that our firm, together with our co-counsel Bob Stern of Stern & Montana, obtained a very favorable and significant decision for no-fault insurers on an issue of first impression at the appellate level. Specifically, on May 6, 2014, in the case of Allstate Insurance Company v. David Mun, M.D., et. al., the United States Court of Appeals for the Second Circuit rejected the defendants' attempt to limit the ability of insurers to seek recovery of no-fault payments made to medical providers through affirmative fraud-based litigation. This decision is significant because it confirms the right of insurers to have their affirmative claims to recover fraudulently obtained no-fault payments heard in Court as opposed to requiring these c
Related Attorney(s): William Natbony
Related Practice(s): Insurance and Reinsurance
M&A Update: Delaware Court Upholds Sotheby's Poison Pill Defense Against Activist Citing "Negative Control" as a Corporate Threat
In a May 2, 2014 ruling relating to activist hedge fund Third Point LLC's proxy battle with auction house Sotheby's, the Delaware Chancery Court found that Third Point was not likely to succeed in its argument that the Sotheby's board violated its fiduciary duties when it adopted a two-tiered stockholder rights plan in response to a rapid accumulation of shares by activist funds and later refused Third Point's request for a waiver of the rights plan. While the Court did not address the claims on the merits, the preliminary injunction opinion offers important guidance for boards in deploying a rights plan, particularly one that treats active and passive stockholders differently.
Related Attorney(s): William Mills, Braden McCurrach, Jason Halper
Related Practice(s): Mergers & Acquisitions
EU Court of Justice Rejects UK Challenge to the EU Financial Transactions Tax
The progress of the European Financial Transaction Tax (the "FTT") towards becoming law in eleven participating Member States of the European Union overcame another hurdle on 30 April 2014 with the Court of Justice of the European Union (the "CJEU") dismissing, perhaps unsurprisingly, the UK's first legal challenge to the implementation of the FTT.
This Clients & Friends Alert provides the background to the UK's application to the CJEU, an overview of the CJEU's decision and a discussion of what the CJEU's decision means for the future of the FTT.
Related Practice(s): Corporate Taxation, Tax
M&A Update: Chancery Court Provides Another Lesson for a Reasonable Sale Process
In a recent decision, Chen v. Howard-Anderson, the Delaware Chancery Court once again questioned the reasonableness of how a board conducted the sale of a company when it permitted stockholder claims to go to trial. The decision provides yet another reminder—if one is needed—that boards and their advisors need to ensure that a sale process is conducted in a manner that promotes a level playing field for all bidders and that disclosure to stockholders provides a fair and balanced description of the process.
Related Attorney(s): William Mills, Jason Halper
M&A Update: New Rules Will Limit Shareholders' Tax-Free Treatment on Inversions
In what may be the first of a series of steps, the government took decisive action today to ensure that shareholders of US companies inverting by merger must pay tax on the transfer of their US company shares if they hold a majority of the combined company's equity.
SEC SBSD Recordkeeping and Reporting Proposal
The SEC has published proposed recordkeeping, reporting and capital deficiency notification requirements that would apply to security-based swap dealers ("SBSDs") and major security-based swap participants ("MSBSPs") as well as to other SEC-registered broker-dealers that enter into security-based swaps. The proposing Release contains a number of largely non-substantive, technical amendments to the existing recordkeeping and reporting requirements applicable to broker-dealers.
Cyprus: Time to Trade?
On 25 March 2013, the Bank of Cyprus and Laiki Bank (also known as Cyprus Popular Bank) entered resolution proceedings under the Resolution of Credit and Other Institutions Law 2013.
Laiki Bank, the second largest Cypriot bank, was immediately resolved and split into three parts: (i) its Greek operations which were sold to Piraeus Bank in Greece, (ii) a "good bank" comprised of deposits below EUR100,000 which were transferred to the Bank of Cyprus, and (iii) a "bad bank" comprised of deposits above EUR100,000 (holders of which will take part in Laiki Bank's liquidation, including the bank's remaining overseas operations and the 18% share capital of Bank of Cyprus received by Laiki Bank as compensation in the resolution process). Additionally, Laiki Bank's EUR9.2 billion Emergency Liquidity Assistance loan liability to the Central Bank of Cyprus was transferred to Bank of Cyprus and enjoys super-pri
Related Practice(s): Debt & Claims Trading, Distressed Finance, Distressed Structured Products, Financial Restructuring
M&A Update: Ohio Federal Judge Blocks Controlling Stockholder's Tender Offer Based On Target Board's Conflicts and Stockholder Coercion
In a March 14, 2014 decision that has received little commentary, an Ohio federal court in Spachman v. Great American Insurance Co. took the extraordinary step of enjoining a tender offer by Great American Insurance, a wholly-owned subsidiary of American Financial Group, for the 48 percent of National Interstate Corporation not already owned by AFG. The ruling provides important lessons to buyers and sellers in controlling shareholder tender offer situations.
Related Attorney(s): Joshua Apfelroth, William Mills, Jason Halper
DOJ and FTC Release Joint Antitrust Policy Statement Regarding Sharing of Cybersecurity Information
On April 10, 2014, the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC") issued an Antitrust Policy Statement on Sharing of Cybersecurity Information explaining that competitors can share legitimate threat information so long as appropriate safeguards are in place to limit the exchange of competitively-sensitive information. The Cybersecurity Policy Statement recognizes that private parties play an important role in preventing cyber-attacks and that sharing cybersecurity information has the potential to "improve security, integrity, and efficiency of the nation's information systems."
Related Practice(s): Antitrust, Cybersecurity and Data Privacy, White Collar Defense and Investigations
Cross-Border RTS Starts Countdown for EMIR Obligations for Non-EU Counterparties
OTC derivative contracts which have a counterparty located outside of the European Union ("EU") may now be subject to the requirements of the European Market Infrastructure Regulation ("EMIR").
Yesterday, twenty days after the publication of Commission Delegated Regulation (EU) No 285/2014 supplementing EMIR (the "Cross-Border RTS") in the Official Journal of the EU, the rules concerning the extraterritorial jurisdiction of EMIR entered into force. These rules specify the OTC derivative contracts which shall be considered to have a "direct, substantial and foreseeable" effect in the EU and those which shall be deemed to have been designed to circumvent the application of EMIR rules and obligations.
U.S. District Court Confirms FTC Authority to Regulate Corporate Data Security Practices
On April 7, 2014, Judge Esther Salas of the U.S. District Court for the District of New Jersey denied the first ever motion to dismiss filed in Federal court that challenged the authority of the Federal Trade Commission to regulate corporate data security practices under section 5(a) of the Federal Trade Commission Act. The ruling came as part of the ongoing litigation between the FTC and Wyndham Worldwide Corporation and its subsidiaries, including Wyndham Hotels and Resorts. Specifically, the District Court rejected Hotels and Resorts' motion to dismiss, which argued that the FTC lacked authority under section 5(a) of the Act to bring a complaint alleging that Hotels and Resorts' "failure to maintain reasonable and appropriate data security for consumers' sensitive personal information" was an "unfair" or "deceptive" business practice.
Related Attorney(s): Keith Gerver, Peter Moll
Related Practice(s): Antitrust, Global Litigation
FTC Continues Aggressive Posture on Reverse Payment Settlement Agreements with Reference to Disgorgement
In two recent statements, the FTC reaffirmed its intention aggressively to pursue reverse-payment patent settlement agreements in the pharmaceutical industry.
First, Commission officials stated that they are currently combing through previous pharmaceutical settlement agreements to determine quickly which cases to pursue following the Supreme Court's 2013 ruling in FTC v Actavis that reverse payment settlements – also known as "pay-for-delay" settlements – are not immune from antitrust scrutiny. Second, the head of the FTC's Bureau of Competition stated that the Commission will consider "a range of remedies" and will seek "whatever relief is necessary" in any particular case, including "disgorgement," i.e., requiring companies to give up profits obtained illegally.
Related Practice(s): Antitrust, Pharmaceutical Regulation and Compliance
The Chancellor of the Exchequer's Budget, held on 19 March 2014, was notable for the number of provisions focusing on individual taxation measures and the continued encouragement of "fairness" within the UK tax system. These themes were perhaps unsurprising given that the Budget precedes by barely a year the UK's general election scheduled for May 2015 and the attention which continues to be paid by the UK media to failed tax avoidance schemes in which celebrities have participated.
M&A Update: Delaware Court's Orchard Enterprises Decision Provides Key Insights For Special Committees In Controlling Stockholder Transactions
On March 14, 2014, the Delaware Supreme Court upheld the Court of Chancery's 2013 decision in In re MFW Shareholders Litigation, holding that in going-private mergers where there is a controlling stockholder, the use of both a truly independent special committee and a majority of the minority stockholder vote, allows for judicial review under the deferential business judgment standard. Vice Chancellor Laster's decision two weeks earlier in In re Orchard Enterprises, Inc. Stockholder Litigation applied the Chancery Court decision in MFW but found that business judgment rule review was not appropriate. Orchard demonstrates that MFW is not a magic bullet and that boards and their advisors need to take care if they wish to obtain a more favorable standard of judicial review based on that decision.
Related Attorney(s): William Mills, Jason Halper, Joshua Apfelroth
M&A Update: Delaware Supreme Court Upholds Business Judgment Rule Review for Certain Controlling Stockholder Transactions with Dual Minority Protections
On March 14, 2014, the Delaware Supreme Court upheld the Court of Chancery's 2013 decision in In re MFW Shareholders Litigation, holding that in going-private mergers where there is a controlling stockholder, the use of both a truly independent special committee and a majority of the minority stockholder vote, allows for judicial review under the deferential business judgment standard.
Related Attorney(s): Jason Halper, Joshua Apfelroth, William Mills
M&A Update: The "Gatekeepers": Delaware Court Holds Conflicted Financial Advisor Liable for Aiding and Abetting Breach of Fiduciary Duty
Delaware courts have increasingly shined a spotlight on what they consider to be conflicts of interest for sell-side financial advisors. On March 7th, the Delaware Chancery Court hit these conflicts with a laser beam. In a post-trial opinion in In re Rural/Metro Corp. S'holders Litig., Vice Chancellor Laster found RBC Capital liable for aiding and abetting breaches of fiduciary duty by the board of Rural/Metro in connection with Rural/Metro's 2011 sale to private equity firm Warburg Pincus, for $17.25 a share. Repeatedly noting that RBC was "highly compensated" and a "gatekeeper," the court found that RBC was monetarily liable, even though the directors themselves were shielded from liability under Delaware law, because RBC had prevented the board members from fulfilling their fiduciary and disclosure duties. The court cited evidence that RBC did not disclose its conflict in seeking to finance the buyer's bid, engaged in behind-t
M&A Update: Treasury Department Proposes To Expand Anti-Inversion Rules
The Treasury Department, in its Fiscal Year 2015 Revenue Proposals (the "Green Book"), has proposed to significantly tighten Section 7874 of the Internal Revenue Code, effective January 1, 2015, reducing the ability of a U.S. corporation or partnership (each, a "U.S. company") to "invert" or be acquired by a foreign company that is then substantially owned by the U.S. company's former equity owners. The prospects for the enactment of any significant tax legislation, including legislation relating to Section 7874, in the current year are uncertain at best. The completion of any inversion transactions by December 31, 2014 would avoid the application of these and any similar amendments that Treasury re-proposes in 2015 or later with the same effective date of January 1, 2015.
Related Practice(s): Mergers & Acquisitions, Tax
Revisions to the Securitisation Framework: Second Consultative Document published by the Basel Committee
The Basel Committee on Banking Supervision (the "Basel Committee") has published a second Consultative Document containing revised proposals for the Basel securitisation framework (the "Revised Proposals"). The Revised Proposals describe a revised set of approaches for determining the regulatory capital requirements in relation to securitisation exposures held in the banking book and include a draft standards text. Market participants will be taking a keen interest in these proposals, which are summarised below.
Related Attorney(s): Nick Shiren, Assia Damianova, Stephen Day, Suzanne Bell, Robert Cannon
M&A Update: Delaware Court Allows Claims for Breach of Implied Good Faith Covenant in Earn-Out Case
A recent Delaware Chancery Court opinion in American Capital Acquisition Partners, LLC, et. al. v. LPL Holdings, Inc., et.al. held that a seller's claim that its buyer diverted opportunities from the acquired business to a different subsidiary of the buyer, thereby denying the business the opportunity to meet post-closing earn-out payment thresholds, could survive the buyer's motion to dismiss. The case highlights the need for careful drafting of earn-out provisions in transaction agreements.
Related Attorney(s): William Mills, Joshua Apfelroth, Jason Halper
Lyondell Bankruptcy Court Holds That Safe Harbors Do Not Prohibit Creditors From Asserting State Law Constructive Fraudulent Transfer Claims
On January 14, 2014, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York in Weisfelner v. Fund 1. (In re Lyondell Chemical Co.), Adv. Proc. No. 10-4609 (REG), 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014) held that section 546(e) of the Bankruptcy Code did not bar or preempt state law fraudulent transfer claims asserted on behalf of creditors to recover certain leveraged buyout transfers made to shareholders. In so holding, the Bankruptcy Court adopted the rationale of Judge Richard J. Sullivan of the United States District Court for Southern District of New York in In re Tribune Co. Fraudulent Conveyance Litig., 499 B.R. 310 (S.D.N.Y. 2013), and rejected the rationale of Judge Jed. S. Rakoff in Whyte v. Barclays Bank PLC, 494 B.R. 196 (S.D.N.Y. 2013), thus adding to the recent debate in the Southern District of New York as to what effect the Bankruptcy Code's safe harbor provisions have on state law fraudul
Related Attorney(s): Mark Ellenberg
EU Risk Retention Requirement: A workable solution for US CLO collateral managers?
Article 405 of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (the "Capital Requirements Regulation") imposes on European Economic Area ("EEA") credit institutions and investment firms investing in securitisations issued on or after 1 January 2011, or in securitisations issued prior to that date where new assets are added or substituted after 31 December 2014, the requirement that each such institution: ...
Related Attorney(s): Stephen Day, Joseph Beach, Gary Silverstein, Y. Jeffrey Rotblat, Stuart Goldstein, Nick Shiren, Richard Schetman, Neil Weidner, Robert Cannon, Gregg Jubin
Related Practice(s): CLOs, Financial Regulation, Securitization & Asset Based Finance
M&A Update: Highlights from 2013 and Implications for 2014
During 2013 shareholder activism continued to surge and impact corporate-decision making. The Delaware courts also handed down several significant rulings during the year. 2013's activist campaigns and court rulings are likely to influence M&A market participants in 2014 and beyond.
Markets in Financial Instruments Directive: Agreement in Principle on Revised European Rules
On 14 January 2014 the European Parliament, the Council and the Commission reached a high-level agreement in principle on updating the rules for the revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). Further technical issues that remain outstanding are expected to be finalised over the coming weeks. Moreover, a number of provisions require further delegated legislation and/or technical standards to be finalised. As a result, implementation of final rules may not be complete until up to three years after the legislation is formally adopted, which could be late 2016 or 2017. Drafts of MiFID II and MiFIR were first published by the European Commission (EC) on 20 October 2011. They are intended to bring more efficiency and transparency to the financial markets (including commodity markets), and to strengthen the protection of investors. The fact that over two years have passed and we are now into the 6th rotating EU presidency to marsha
New Decision Increases Calculation of Patent Term
Yesterday, in Novartis AG v. Lee, 2013-1160 (Fed. Cir., Jan. 15, 2014), the Federal Circuit determined that the USPTO has been incorrectly calculating patent term adjustments, potentially shortening the terms of thousands of U.S. patents. Recently issued U.S. patents should be reviewed as soon as possible to determine whether the USPTO incorrectly calculated valuable patent terms so that any loss can be recaptured.
Related Attorney(s): Dorothy Auth Ph.D.
Related Practice(s): Patent & Trade Secret Litigation, Patent Preparation & Prosecution
European CLO 2.0 Issuer Jurisdiction Quick Reference Guide
New issuance of collateralised loan obligations ("CLOs") rose last year to its highest level since the credit crunch. 2013 saw U.S. CLO issuance rise to about US$81 billion, from US$54 billion the year before while European CLO issuance leapt to about €8 billion from zero during the same period.
Related Attorney(s): Adam Blakemore, Suzanne Bell, Nick Shiren, Stephen Day, Assia Damianova
Related Practice(s): Financial Regulation, Securitization & Asset Based Finance
Lehman Bankruptcy Court Issues Safe Harbor Decision
On December 19, 2013, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York issued his latest decision in the Lehman Brothers cases addressing the scope of the safe harbor provisions of the Bankruptcy Code. Michigan State Housing Development Authority v. Lehman Brothers Derivatives Products Inc. and Lehman Brothers Holdings Inc. (In re Lehman Brothers Holdings Inc.). Judge Peck's decision confirms that the contractual provisions specifying the method of calculating the settlement amount under a swap agreement are protected by the Bankruptcy Code's safe harbors. The decision follows the reasoning of the amicus brief filed by the International Swaps and Derivatives Association ("ISDA"), which was prepared by Cadwalader.
Related Attorney(s): Kathryn Borgeson, Mark Ellenberg, Lary Stromfeld
Related Practice(s): Bankruptcy Litigation, Financial Regulation, Financial Restructuring, Global Litigation
The Volcker Rule's Impact on Foreign Banking Organizations
On Tuesday, December 10, 2013, the three federal banking agencies – the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation – as well as the Securities & Exchange Commission and the Commodity Futures Trading Commission, approved a final regulation implementing Section 619 of the Dodd-Frank Act, a statutory provision more generally known as the "Volcker Rule." The 72-page final regulation with the accompanying 892-page explanatory "Preamble" were issued nearly three and a half years after the enactment of the Dodd-Frank Act, and more than two years following the proposed regulations issued in October 2011. In conjunction with the adoption of the final regulations, the Federal Reserve issued an order delaying the conformance date for Volcker for an additional year, until July 21, 2015.
Related Attorney(s): Steven Lofchie, Scott Cammarn
European Banking Authority Publishes Final Draft Regulatory Technical Standards on Securitisation Retention Rules – Who Can Now Retain in a Managed CLO?
Earlier this week, the EBA published its final draft Regulatory Technical Standards ("Draft RTS") on securitisation retention rules and related requirements. The RTS are intended to provide greater clarity and transparency for market participants, and to support compliance and foster convergence in supervisory practices across the European Union ("EU").
Related Attorney(s): Robert Cannon, Assia Damianova, Suzanne Bell, Nick Shiren
The Volcker Rule's Impact on Banking Entities' Ownership and Sponsorship of Structured Finance and Securitization Transactions
On December 10, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission released the long-awaited final regulations that implement Section 13 of the Bank Holding Company Act, which was added by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. On December 10, 2013, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission released the long-awaited final regulations that implement Section 13 of the Bank Holding Company Act (also known as the "Volcker Rule"), which was added by Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Related Attorney(s): Henry LaBrun, Y. Jeffrey Rotblat, Michael Gambro, Frank Polverino, Gregg Jubin, Lisa Pauquette, Stephen Day, Scott Cammarn, Cheryl Barnes, Anna Glick, Patrick Quinn, Stuart Goldstein, Peter Williams, David Burkholder, David Gingold
Related Practice(s): Bank Regulation, CLOs, Financial Regulation, Securitization & Asset Based Finance
Final and Proposed Regulations Address U.S. Withholding Tax on U.S. Equity Derivatives
On Tuesday, December 4, the IRS and the Treasury Department issued proposed regulations that, if finalized as proposed, would dramatically increase the extent to which U.S. withholding tax is imposed on U.S. equity derivatives. On the same day, the IRS and the Treasury Department also issued final regulations that extend the current withholding rules for these derivatives through December 31, 2015.
Related Attorney(s): Mark Howe, Jason Schwartz
Related Practice(s): Derivatives & Structured Products, OTC Derivatives, Securitization & Structured Products Taxation, Tax
Court Rules that Detroit is Eligible for Chapter 9 and that Pensions May be Impaired in Chapter 9
On December 5, 2013, the U.S. Bankruptcy Court for the Eastern District of Michigan released its 143 page decision upholding the City of Detroit's eligibility to be a debtor under chapter 9 of the United States Bankruptcy Code. In re City of Detroit, Michigan, Case No. 13-53846 (Bankr. E.D. Mich. Dec. 5, 2013). The Court's decision is the first ever to address the treatment of municipal pensions in bankruptcy, concluding that pension obligations may be adjusted in a chapter 9 case, notwithstanding protective provisions in the state constitution. A similar issue is pending, but not yet decided, in the Stockton and San Bernardino chapter 9 cases in California.
Related Attorney(s): Lary Stromfeld, Ivan Loncar, Howard Hawkins, Thomas Curtin, Ingrid Bagby, Mark Ellenberg
Related Practice(s): Bankruptcy Litigation, Distressed Energy, Distressed Municipal Finance, Financial Regulation, Financial Restructuring, Global Litigation, Investment Management Transactions, Municipal Derivatives
Chancery Court Takes Firm Stance on Seller's Pre-Closing Privileged Communication
A recent Delaware Chancery Court opinion highlights the risk to sellers and their advisors that pre-closing communications could become evidence in a post-closing lawsuit related to the transaction. The opinion, Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, provides a number of important lessons on merger agreement drafting and post-closing conduct, particularly in transactions involving private targets.
Delaware Court Confirms High Bar To Escape Deal
Two recent Delaware Chancery Court opinions, issued on October 25 and November 9, 2013, illustrate the high bar that buyers and sellers must clear to escape an unfavorable deal or obtain a court order requiring a deal to close.
Related Attorney(s): Jason Halper, William Mills
Insurers Seek Enforcement of State Law Protections for City of Detroit GO Bonds
On November 8, 2013, three monoline insurers of the City's general obligation bonds commenced adversary proceedings in the City of Detroit bankruptcy case. Through these actions, the monoline insurers seek to compel enforcement of the status quo for the general obligation bonds by requiring the City to continue to segregate ad valorem taxes in accordance with Michigan law. As these actions progress, they may clarify whether state law protections for general obligation bonds apply in chapter 9 and test the jurisdictional limitations imposed on a bankruptcy court by section 904(2) of the Bankruptcy Code.
Related Attorney(s): Ingrid Bagby, Mark Ellenberg, Thomas Curtin, Howard Hawkins, Lary Stromfeld
Related Practice(s): Bankruptcy Litigation, Distressed Municipal Finance, Financial Regulation, Financial Restructuring, Global Litigation, Investment Management Transactions, Municipal Derivatives
FTC Expands Reporting Requirements for Transfers of Pharmaceutical Patent Rights
The U.S. Federal Trade Commission ("FTC") issued final changes to the premerger notification rules that affect whether pharmaceutical companies must report certain proposed acquisitions of exclusive patent rights to the FTC and the Antitrust Division of the Department of Justice ("DOJ") for antitrust review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The final rules apply solely to the pharmaceutical industry and will become effective 30 days after their publication in the Federal Register. The amendments do not change the current HSR reporting requirements related to exclusive licenses in other industries.
Related Practice(s): Antitrust, Corporate, IP Due Diligence, Intellectual Property, Patent & Trade Secret Litigation, Patent Preparation & Prosecution
ESMA Authorises Trade Repositories
The European Market Infrastructure Regulation (including any implementing legislation, regulation, technical standards and guidance related thereto, "EMIR") was adopted on 4 July 2012 and entered into force on 16 August 2012 with the objective of increasing transparency and reducing risk in the European derivatives market. EMIR delegates direct responsibility to the European Securities and Markets Authority ("ESMA") for the registration, supervision, and recognition of trade repositories ("TRs") - entities that centrally collect and maintain the records of derivatives.
Master Asset Vehicle II: Redemption Unwind Process
On October 2, 2013, after a multi-year implementation process, amendments to the transaction documents of Master Asset Vehicle II ("MAV II") and related documents (collectively, the "Amendments") were executed. The Amendments establish a mechanism that allows holders of the Notes issued by MAV II to optionally redeem their Notes prior to the stated maturity thereof (each such redemption, a "Redemption Unwind"). Cadwalader, Wickersham & Taft LLP and Davies Ward Phillips & Vineberg LLP acted as United States and Canadian counsel, respectively, to a group of MAV II Noteholders (the "Group") represented by Moelis & Company LLC ("Moelis") in connection with the multi-year process that culminated with the implementation of the Amendments.
Related Attorney(s): Jed Miller, Nick Shiren, Richard Schetman
Related Practice(s): Structured Products
Court Holds that San Bernardino is Eligible to File for Chapter 9
On October 16, 2013, the U.S. Bankruptcy Court for the Central District of California ruled that the City of San Bernardino is eligible for protection under chapter 9 of the Bankruptcy Code. In re City of San Bernardino, Cal., Case No. 12-28006 (Bankr. C.D. Cal. Oct. 18, 2013). The Court's decision is an important milestone, as it clarifies that a municipality that does not file a plan with its petition may still meet the Bankruptcy Code requirement that it "desires to effect a plan to adjust [its] debts." The decision also establishes that a city can prove that it met the requirement that prepetition negotiations were impracticable simply by showing that it has a large number of creditors. Both of these rulings may ultimately have significant implications in the pending eligibility dispute in the City of Detroit's chapter 9 case.
Related Attorney(s): Mark Ellenberg, Thomas Curtin, Lary Stromfeld
Related Practice(s): Bankruptcy Litigation, Distressed Municipal Finance, Financial Restructuring, Municipal Derivatives
Detroit Bankruptcy Court Refuses Stay of Chapter 9 Eligibility Hearing Under Stern v. Marshall
On September 26, 2013, Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan denied the Official Committee of Retirees' (the "Committee") motion to stay all eligibility proceedings pending its motion to withdraw the reference. In re City of Detroit, Michigan, Case No. 13-53846, ECF No. 1039 (Bankr. E.D. Mich. Sept. 26, 2013). Notably, the Court refused to accept the Committee's broad interpretation of Stern v. Marshall, properly applied a traditional injunction test to the Committee's stay motion, and confirmed that a bankruptcy court has the power to decide issues of state law.
Related Attorney(s): Thomas Curtin, Mark Ellenberg, Lary Stromfeld, Ingrid Bagby, Howard Hawkins
Related Practice(s): Bankruptcy Litigation, Distressed Municipal Finance, Financial Restructuring, Global Litigation
Reproposed Credit Risk Retention Requirements for Asset-Backed Securities Transactions
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21, 2010. On April 29, 2011, the Federal banking agencies (the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System), the Securities and Exchange Commission, the Department of Housing and Urban Development, and the Federal Housing Finance Agency (collectively, the "Agencies") published a joint notice of proposed rulemaking containing proposed rules to implement the credit risk retention requirements of Section 941 of the Dodd-Frank Act, codified as Section 15G of the Securities Exchange Act of 1934.
Related Attorney(s): Frank Polverino, Lisa Pauquette, Patrick Quinn, Lary Stromfeld, Neil Weidner, Y. Jeffrey Rotblat, Gregg Jubin, David Burkholder, Ray Shirazi, Cheryl Barnes, Steven Lofchie, Henry LaBrun, Ira Schacter, Michael Gambro, Richard Schetman, Anna Glick, Stuart Goldstein
Related Practice(s): Distressed Municipal Finance, Financial Restructuring, Municipal Derivatives, Municipal Securitization, Securitization & Asset Based Finance
Related Office(s): Charlotte, New York, Washington
Risk Retention for Collateralized Loan Obligations (CLOs): Re-Proposal Fact Sheet
On August 28, 2013, the federal agencies (the "Applicable Regulators") responsible for implementing regulations under Dodd-Frank re-proposed rules for risk retention requirements in ABS transactions, including CLO transactions. The re-proposal comes more than two years after the original proposed rules, which contained only one reference to CLOs and CLO managers. The re-proposal, however, contains significant provisions regarding CLOs that could fundamentally alter the shape of the CLO market.
Related Attorney(s): Gregg Jubin, Peter Williams, Stuart Goldstein, Neil Weidner, David Gingold, Patrick Quinn, Joseph Beach
Related Practice(s): CLOs, Derivatives & Structured Products, Securitization & Asset Based Finance, Warehouse Lending
Risk Retention for Commercial Mortgage-Backed Securities: Re-Proposal Fact Sheet
On August 28, 2013, the federal regulatory agencies responsible for implementing regulations under Dodd-Frank re-proposed rules for risk retention requirements in ABS transactions, including CMBS transactions. The re-proposal comes more than two years after the original proposed rules and, while retaining much of the basic architecture of the original proposal, differs from the original in a number of significant ways.
Public comments on the re-proposal are due October 30, 2013.
Related Attorney(s): Patrick Quinn, David Burkholder, Michael Gambro, Henry LaBrun, Frank Polverino, Anna Glick, Stuart Goldstein, Lisa Pauquette, Y. Jeffrey Rotblat
Related Practice(s): Commercial Mortgage-Backed Securities, Securitization & Asset Based Finance
Sun Capital Partners Decision Expands the Risk to Private Equity Funds of Incurring Portfolio Company Pension Liabilities
The First Circuit recently held that, in some cases, a private equity fund could be found to engage in a "trade or business," and therefore be subject to joint and several liability for withdrawal liability assessed against the fund's portfolio company by a multiemployer pension plan. The ruling in Sun Capital Partners III LP v. New England Teamsters & Trucking Industry Pension Fund, issued July 24, 2013, potentially presents a new challenge for private equity funds as they invest in portfolio companies with contingent pension liabilities.
On August 7, 2013, Sun Capital filed a petition with the First Circuit for a panel rehearing or a rehearing en banc. On August 23, 2013, the petition was denied.
Related Attorney(s): James Frazier
Related Practice(s): ERISA, Executive Compensation & Benefits, Executive Compensation, Benefits & ERISA, Private Equity
Employee Benefits after Windsor
On June 26, 2013, the United States Supreme Court declared Section 3 of the federal Defense of Marriage Act ("DOMA") unconstitutional. Section 3 of DOMA, which defined "spouse" and "marriage" for all provisions of federal law, provided that a "spouse" was "a person of the opposite sex who is a husband or wife" and "marriage" was a "legal union between one man and one woman as husband and wife." However, the Supreme Court did not consider the validity of Section 2 of DOMA, which gives states the right to deny recognition of same-sex marriages valid in other states; accordingly, Section 2 remains in effect. The removal of Section 3 and the retention of Section 2 have broad implications for employee benefit plans and raise many questions regarding the choice of law between states that do and do not recognize same-sex marriage, whether any benefits are retroactive, and what position the Internal
Related Practice(s): Corporate, Executive Compensation & Benefits, Executive Compensation, Benefits & ERISA
Quick Help Guide to CFTC's New Rules for CPOs to RICs; Amended Rules for Other CPOs and CTAs
On August 22, 2013, the Commodity Futures Trading Commission (the "CFTC") published in the Federal Register its final rule-making regarding harmonization of compliance obligations for investment advisers to SEC-registered investment companies ("RICs") who are also required to register as commodity pool operators ("CPOs") under the Commodity Exchange Act In addition, the Harmonization Release contains relief from certain recordkeeping and disclosure requirements that is available to all CPOs and commodity trading advisors ("CTAs").
Related Practice(s): Commodities & Futures Regulation, Financial Regulation
SEC Adopts Significant Amendments to Private Placement Rules: JOBS Act Rules Eliminate Ban on General Solicitation and Dodd-Frank Mandate Disqualifies Bad Actors
On July 10, 2013, the U.S. Securities and Exchange Commission ("SEC") adopted rule changes that will permit "general solicitation and general advertising" ("GSGA") in "private" securities offerings effected under either Rule 506 of Regulation D under the Securities Act of 1933 (the "Securities Act") or Rule 144A under the Securities Act. The SEC's rule changes – which fulfill rulemaking requirements imposed on the SEC by the Jumpstart Our Business Startups Act (the "JOBS Act") – will become effective on September 23, 2013; i.e., 60 days after publication of the rule changes in the Federal Register (the "Effective Date").
Related Attorney(s): Steven Lofchie, Maurine Bartlett, Brian Foster, Dorothy Mehta
Related Practice(s): Financial Regulation, Fund Formation, Investment Management Regulation & Compliance, Swap Regulation
FAA Policy Clarification on Non-Citizen Trusts
On June 18, 2013, the Federal Aviation Authority ("FAA") published a Notice of Policy Clarification ("Notice") that aims to resolve what the FAA considered uncertainties about the regulatory responsibilities of trustees of United States registered aircraft beneficially owned by non-U.S. citizens. The FAA observed that it had struggled on occasion to obtain operational and maintenance information about aircraft registered in such non-citizen trust arrangements, in particular while the aircraft operated outside the United States. According to the FAA, the problems in obtaining such information in turn affected the FAA's ability to conduct fully effective oversight of such aircraft when operated outside the United States, and to provide foreign civil aviation authorities with information on those operations in support of those authorities' safety oversight activities, in accordance with international law.
Related Attorney(s): Steven Lenkowsky
ESMA Consults on the Extra-Territorial Application of EMIR
On 17 July 2013, the European Securities and Markets Authority ("ESMA") published a consultation paper (the "Consultation Paper") on draft regulatory technical standards ("RTS") aimed at implementing certain provisions of the European Markets Infrastructure Regulation ("EMIR") relating to (a) the extraterritorial application of EMIR, and (b) preventing the evasion of EMIR's provisions.
Related Practice(s): FCA Regulated Entities, Financial Regulation, Investment Management Regulation & Compliance, OTC Derivatives
CRA3 – New Requirements Affect Issuers, Originators and Sponsors as well as Rating Agencies
On 20 June 2013, the European Regulation known as CRA3[1] ("CRA3") came into force. CRA3 not only amends the European regulatory framework for credit rating agencies ("CRAs"), but also contains certain important obligations for issuers, originators and sponsors.
CRA3 introduces the following new provisions:
a requirement to appoint at least two CRAs in respect of rated structured finance instruments;
a requirement to consider appointing at least one small CRA;
a joint obligation for issuers, originators and sponsors of structured finance instruments to publish certain information in relation to the underlying assets and the transaction;
measures intended to reduce over-reliance on credit ratings; and
rotation requirements for CRAs in relation to re-securitisations,
Related Attorney(s): Nick Shiren, Stephen Day, Robert Cannon, Suzanne Bell, Assia Damianova
Related Practice(s): Bank Regulation, Credit Card Securitization, Securitization & Asset Based Finance
U.S. Department of Labor Finalizes New Criteria for Which Entities Would Qualify as "Rating Agencies" in Connection with the Underwriter Exemptions
On July 9, 2013, the U.S. Department of Labor (the "DOL") published an amendment to the so-called "Underwriter Exemptions," which provide relief from certain of the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Underwriter Exemptions are a group of individual prohibited transaction exemptions ("PTEs") and EXPRO final authorizations that permit employee benefit plans subject to ERISA or Section 4975 of the Internal Revenue Code ("Plans") to, among other things, purchase certain securities representing interests in asset-backed or mortgage-backed investment pools.
Related Practice(s): Commercial Mortgage-Backed Securities, Credit Card Securitization, Investment Management Regulation & Compliance, Investment Management Transactions, Securitization & Asset Based Finance
Court Approves Extension of the Automatic Stay in Detroit's Chapter 9 Case to State Officials
On July 24, 2013, Judge Steven W. Rhodes of the Bankruptcy Court for the Eastern District of Michigan approved the City of Detroit's motion to extend the automatic stay to various non-debtor parties, including certain state officials. The Court's ruling effectively stays all pending litigation against the City, allows the City to continue to move forward with its chapter 9 case, and paves the way for a dispute over the City's eligibility to file for chapter 9.
Related Attorney(s): Lary Stromfeld, Howard Hawkins, Ingrid Bagby, Mark Ellenberg, Thomas Curtin
Related Practice(s): Distressed Energy, Financial Regulation, Financial Restructuring
City of Detroit Files Chapter 9 Bankruptcy Petition - Challenges Ahead
On the afternoon of July 18, 2013, the City of Detroit filed its highly anticipated petition for relief under Chapter 9 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Michigan. This marks the largest municipal bankruptcy filing in United States history. As a result of the Chapter 9 filing, all actions by creditors to collect prepetition claims against the City are enjoined through the imposition of an automatic stay, except for the application of special revenues pledged to indebtedness.
Related Attorney(s): Lary Stromfeld, Howard Hawkins, Ivan Loncar, Ingrid Bagby, Mark Ellenberg
Related Practice(s): Bankruptcy Litigation, Distressed Energy, Distressed Municipal Finance, Financial Regulation, Global Litigation, Investment Management Transactions, Municipal Derivatives
Lessons Learned from Recent Penalties for Failures to File HSR Notification
Two recent enforcement actions for failure to file notification under the Hart-Scott-Rodino Improvements Act of 1976, as amended (the "HSR Act")—one against a corporate investor and one against an investment firm—along with a similar action brought against a company executive about 18 months earlier, serve as reminders to individual investors, companies, and their executives of the consequences of failing to comply with the HSR Act.
Supreme Court Decision Compels Brand-Name and Generic Drug Manufacturers Alike to Rethink Hatch-Waxman Litigation Strategies
On June 17, 2013, the U.S. Supreme Court overturned the Eleventh Circuit's decision that affirmed the dismissal of a "reverse payment" antitrust claim in FTC v. Actavis (formerly FTC v. Watson Pharmaceuticals when decided by the Eleventh Circuit). In a decision by Justice Stephen Breyer, the Supreme Court held that reverse payment settlements are subject to the rule of reason. In analyzing the reasonableness of reverse payment settlements, the Supreme Court focused on the size of settlement payments, inferring an anticompetitive intent where the size of the payment did not appear to reflect "traditional settlement considerations," such as litigation costs.
Related Attorney(s): Christopher Hughes, Dorothy Auth Ph.D.
Derivative Product Companies: A Comparison of New Rating Agency Guidelines
Derivative product companies ("DPCs") are structured financial entities that act as intermediaries for, or guarantors of, an affiliated entity (the "Sponsor") under interest rate or FX derivatives with a non-affiliated counterparty (a "Counterparty"). In a typical intermediation structure, a DPC will enter into a trade with a Counterparty and simultaneously enter into an offsetting mirror transaction with the Sponsor. In such manner, the DPC hedges its market risk while retaining the credit risk of its Counterparty.
Related Attorney(s): Ivan Loncar, Neil Weidner
What's Next for the Basel Securitisation Framework?
Comments have now been received by the Basel Committee on Banking Supervision (the "Basel Committee") in response to its consultative paper entitled "Revisions to the Basel Securitisation Framework", published in December 2012 (the "Consultation Paper"). The Consultation Paper contains important proposals for revisions to the regulatory capital requirements in relation to securitisation exposures. Many of the respondents expressed concern about various aspects of the proposals and the potential consequences for the securitisation industry.
Related Attorney(s): Nick Shiren, Stephen Day, Assia Damianova
Related Practice(s): Investment Management Regulation & Compliance, Securitization & Asset Based Finance
Treasury and the IRS Propose Regulations on $500,000 Compensation Deduction Limit for Health Insurers
On April 2, 2013, the Treasury Department and the IRS issued proposed regulations under section 162(m)(6) of the Internal Revenue Code, which generally imposes an annual $500,000 limitation on the amount that certain health insurers and their affiliates ("Covered Health Insurance Providers" or "CHIPs") may deduct for compensation paid to an employee. This limitation is contained within section 162(m) of the Code, which historically has governed the deductibility of compensation paid by public companies to certain of their senior executive officers. However, the $500,000 limitation in subpart (6) of section 162(m) is much broader in scope and applies to all CHIPs, whether public or private, and to all of a CHIP's current or former officers, directors, employees and related service providers.
Related Practice(s): Corporate Taxation, ERISA, Tax, Tax Controversy
Tempting Fate: Two Recent Federal Decisions Apply Fairness Test to Protect Attorney-Client Privilege in Face of Extrajudicial Disclosures
On February 25 and March 26, 2013, two federal district courts refused to find a broad waiver of the attorney-client privilege in the face of extrajudicial disclosures of privileged communications. In both decisions, the courts reasoned that extrajudicial disclosures of privileged communications should result in a waiver of the attorney-client privilege only where fairness compels such a result. A fairness inquiry, however, is highly fact-specific and subjective, and there is no guarantee that a court will find an absence of waiver. (In each case, the courts ultimately concluded that fairness did not warrant a waiver beyond the materials that actually were disclosed because they were not offered in the underlying actions.) The lesson learned, of course, is that companies should avoid the issue altogether by guarding against extrajudicial, or other, disclosures of their privileged communications in the first instance.
Related Attorney(s): Christopher Hughes
Related Practice(s): Global Litigation, ITC Litigation, Intellectual Property, White Collar Defense and Investigations
Court Holds that Stockton is Eligible to File for Chapter 9
On April 1, 2013, the U.S. Bankruptcy Court for the Eastern District of California ruled that the City of Stockton qualified to file for protection under chapter 9 of the Bankruptcy Code. The court's decision on this issue serves as an important milestone for chapter 9 jurisprudence, clarifying the requirements for "good faith" negotiations and being "insolvent" as conditions to filing for chapter 9 protection. Significantly, the court held that a municipal debtor need not negotiate with all of its creditors, only those that it intends to impair.
Related Attorney(s): Michele Maman, Lary Stromfeld, Thomas Curtin, Mark Ellenberg
Related Practice(s): Distressed Municipal Finance, Financial Restructuring
The Chancellor of the Exchequer's fourth Budget, held on 20 March 2012, continued the prevailing taxation themes in recent Budgets of balancing between stimulus and business incentives on the one hand, and anti-avoidance initiatives on the other. However, perhaps more than recent Budgets, the balance this time seemed materially weighted towards anti-avoidance legislation and initiatives, with the stimulus package being quite narrowly focused towards the UK fund management industry. Allied with the sombre tone of the prevailing macro-economic news (including a revision of UK GDP growth down to 0.6 per cent. for 2013), the focus on counteracting tax avoidance and numerous damning comments from the Chancellor on tax avoiders and abusers contributed to a Budget which was devoid of much sunlight. In short, a Budget to match the notoriously gloomy UK weather experienced so far in 2013.
Related Attorney(s): Adam Blakemore
SEC Issues Proposed Regulation SCI to Enhance its Regulatory Oversight of Exchanges, Plan Processors, ATSs, and other Key Market Participants
The SEC has issued a release (the "Release") proposing Regulation Systems Compliance and Integrity ("Regulation SCI"). The Release would impose a variety of requirements upon key market participants, e.g., exchanges and certain alternate trading systems ("ATSs"), clearing agencies, FINRA, the MSRB, and "plan participants," with respect to automated systems that directly support trading, clearance and settlement, order routing, market data, regulation or surveillance.
Related Attorney(s): Steven Lofchie
Related Practice(s): Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions
Revised Proposals for a European Union Financial Transactions Tax
This memorandum considers the revised proposal made by the European Commission for a European Council Directive on financial transaction tax (the "FTT") to be introduced under the EU's enhanced cooperation procedure by 11 participating Member States: Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the "FTT-zone").
Two Birds with One Stone: In Action Involving Civil RICO, Second Circuit Provides Defenses Against Mail Fraud and FLSA Allegations
On March 1, 2013, in Lundy v. Catholic Health System of Long Island, Inc., the United States Court of Appeals for the Second Circuit affirmed the dismissal of civil mail fraud claims asserted under the Racketeer Influenced and Corrupt Organizations ("RICO") statute and alleged violations of the Fair Labor Standards Act ("FLSA"). In doing so, the court reached at least two notable conclusions: (a) mail fraud claims, including under civil RICO, must fail if the alleged mailings made the alleged fraud easier to detect; and (b) the FLSA does not provide a claim for "gap time." The mail fraud conclusion could have a far-reaching impact; the mail fraud statute has broad reach in federal criminal and civil enforcement including in civil RICO actions, and in other federal civil actions such as those involving the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
Related Attorney(s): Brian Wallach
DOL Provides Important ERISA Guidance Regarding Cleared Swaps
On February 7, 2013, the U.S. Department of Labor (the "DOL") issued an advisory opinion concerning the application of the fiduciary and prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") to certain "cleared swap" transactions conducted pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").
Related Practice(s): ERISA, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions, Swap Regulation
State Review Team Finds Financial Emergency in City of Detroit. What is Next for the City of Detroit?
On February 19, 2013, the six-person Review Team appointed by Michigan's Governor to conduct a detailed financial review of the City of Detroit delivered its report to the Governor. The Report concludes that a financial emergency exists in the City. As a result of the Review Team's conclusion, the Governor is required to take action under Michigan's emergency financial manager law by no later than March 21, 2013.
Related Attorney(s): Mark Ellenberg, Lary Stromfeld
Related Practice(s): Distressed Municipal Finance, Financial Restructuring, Investment Management Transactions
The Final FATCA Regulations: Applications to Foreign Investment Vehicles
On January 17, 2013, the Internal Revenue Service issued final regulations that provide guidance on the "Foreign Account Tax Compliance Act" ("FATCA") provisions contained in sections 1471-1474 of the Internal Revenue Code.
City of Stockton: Bankruptcy Court Holds that Rule 9019 Does Not Apply to Chapter 9 Debtors
On January 30, 2013, Judge Christopher Klein of the Bankruptcy Court for the Eastern District of California held that, pursuant to section 904 of the Bankruptcy Code, a municipal debtor is not required to seek court approval to enter into settlements with and make settlement payments to prepetition creditors during the pendency of its chapter 9 case.
Related Attorney(s): Lary Stromfeld, Thomas Curtin, Mark Ellenberg
Energy Tax Provisions in the American Taxpayer Relief Act of 2012
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (the "Act"), which averted the "fiscal cliff." The Act contains several significant energy-related tax provisions.
HSR Thresholds Increased for 2013
The Federal Trade Commission's ("FTC") annual revisions to the dollar jurisdictional thresholds in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), will become effective on February 11, 2013. These changes increase the dollar thresholds necessary to trigger the HSR Act's premerger notification reporting requirements. The FTC also increased the thresholds for interlocking directorates under Section 8 of the Clayton Act.
Important Court Decision For No-Fault Insurers: Federal Court Rejects Limitation on State Farm v. Mallela
We are pleased to inform you that our firm has obtained a very favorable and significant decision for no-fault insurers on an important issue of first impression. Specifically, on January 7, 2013, in the case of Allstate Ins. Co. v. Elzanaty, the United States District Court for the Eastern District of New York (Honorable Arthur D. Spatt) rejected the defendants' attempt to limit the ability of insurers to seek affirmative recovery for fraud and the verification of compliance with licensing requirements from health care providers licensed pursuant to Article 28 of the New York Public Health Law("Article 28 Facilities"). The decision is significant because it is the first time a court has extended the reach of State Farm v. Mallela to health care providers other than professional medical corporations.
U.S. Department of Labor Proposes New Criteria for Which Entities Would Qualify as "Rating Agencies" in Connection with the Underwriter Exemptions
On December 28, 2012, the U.S. Department of Labor (the "DOL") published a proposed amendment to the so-called "Underwriter Exemptions," which provide relief from certain of the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Underwriter Exemptions are a group of individual prohibited transaction exemptions ("PTEs") and EXPRO final authorizations that permit employee benefit plans subject to ERISA or Section 4975 of the Internal Revenue Code ("Plans") to, among other things, purchase certain securities representing interests in asset-backed or mortgage-backed investment pools.
Related Practice(s): ERISA, Investment Management Regulation & Compliance, Investment Management Transactions
The American Taxpayer Relief Act of 2012
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (the "Act"), which averted the "fiscal cliff." This memorandum summarizes some of the more significant provisions of the Act. Section I discusses the provisions that apply to individuals, and section II discusses the provisions that apply to businesses.
Related Practice(s): Private Wealth, Tax
UK Chancellor's Autumn Statement 2012: Key Taxation Aspects
The Autumn Statement of the UK Chancellor of the Exchequer, presented to Parliament on 5 December 2012, was delivered with attention to three main themes: protecting the UK economy, growth and fairness. Within the overall strategy of combining deficit reduction with stimulating economic recovery, the UK taxation features of the Autumn Statement make interesting reading. The taxation provisions outlined in the Autumn Statement can be divided into those focused on "growth" and those which are more concerned with "fairness". At a time when short-term economic forecasts have been downgraded by the Office for Budget Responsibility and the Government's austerity programme has been extended until 2018, it is perhaps unsurprising that the taxation provisions relating to "fairness" (or, in other words, ensuring that tax evasion and tax avoidance is firmly counteracted) feature more than tax-stimulus measures to propel growth.
Federal Reserve Governor Tarullo Calls for Increased U.S. Regulation of Foreign Banking Organization
In a speech delivered last week to the Yale School of Management, Federal Reserve Governor Daniel K. Tarullo signaled that the Board of Governors of the Federal Reserve System (FRB) is now considering major changes to the regulation of foreign banks and their affiliates in the United States. These regulatory changes suggested by Governor Tarullo would substantially expand the authority of the Federal Reserve to regulate capital, liquidity, and risk management of the U.S. operations of foreign banking organizations, and would result in the creation of a new form of Fed-regulated vehicle, the "intermediate holding company" (IHC). In that regard, he is suggesting a very substantial re-thinking of the manner in which the U.S. operations of global financial institutions are regulated, as well as increasing the cost of foreign banks conducting business in the U.S.
Related Practice(s): Bank Regulation, Financial Regulation, Investment Management Regulation & Compliance, Swap Regulation
The Consumer Financial Protection Bureau Completes A Hat Trick With Two More Large Settlements With Financial Services Firms and Provides Warnings For the Road Ahead
The Consumer Financial Protection Bureau ("CFPB") recently announced its latest round of multi-hundred million dollar settlements of enforcement actions, all against major credit card issuers. Since July, three enforcement actions led by the CFPB have resulted in restitution payments and penalties in excess of $536 million payable to more than five and a half million customers, the CFPB, and other coordinating federal agencies. On September 24, 2012, the CFPB and the Federal Deposit Insurance Corporation ("FDIC") agreed to a joint settlement with Discover Bank ("Discover") to resolve enforcement actions. Pursuant to the Consent Order, Discover agreed to refund $200 million to three and a half million customers who purchased its credit card "add-on" products and to pay a $14 million fine, half payable to the CFPB's Civil Penalty Fund and half going to the FDIC.
Related Attorney(s): Scott Cammarn, Nathan Bull
Related Practice(s): Bank Regulation, Economic Sanctions, Financial Regulation, White Collar Defense and Investigations
U.S. Second Circuit Requires Argentina to Pay Defaulted Sovereign Debt Under "Equal Treatment" Clause
On 26 October 2012, the United States Court of Appeals for the Second Circuit upheld permanent injunctions designed to remedy Argentina's breach of a promise to pay certain bondholders after a 2001 default on its sovereign debt. Relying on an "equal treatment" clause which provided that payment of the bonds ranked at least equally with Argentina's other present and future bond issuances, the court held that Argentina could not discriminate against the defaulted bonds in favour of bonds issued in its 2005 and 2010 sovereign debt restructurings. Accordingly, the court enjoined Argentina from making payments on the 2005 and 2010 bonds without making comparable payments on the defaulted bonds.
Related Attorney(s): Gregory Petrick, Richard Nevins, Kathryn Borgeson
Announcement 2012-42 Provides Transitional FATCA Relief for Foreign Financial Institutions
On October 24, the Internal Revenue Service issued Announcement 2012-42, which (i) delays gross proceeds withholding under the "Foreign Account Tax Compliance Act" provisions contained in sections 1471-1474 of the Internal Revenue Code ("FATCA"), (ii) grandfathers (i.e., exempts from FATCA withholding) obligations that give rise only to foreign-source income or will give rise to U.S.-source dividend-equivalent payments under future section 871(m) regulations, and collateral arrangements that relate only to grandfathered swaps and other grandfathered "notional principal contracts," and (iii) extends the deadlines under FATCA for completing due diligence with respect to counterparties and financial account holders.
Related Attorney(s): Jason Schwartz, Mark Howe
Related Practice(s): Tax, Tax Controversy
English Supreme Court Refuses to Enforce U.S. Bankruptcy Avoidance Action Judgment
The recent judgment of the Supreme Court in the joined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in liquidation) and another v A E Grant and others [2012] UKSC 46, issued on 24 October 2012, established that judgments avoiding pre-bankruptcy transactions ("avoidance judgments") made by non-EU foreign courts (including U.S. bankruptcy courts) have no special enforceability status in England and Wales compared to ordinary judgments.
Related Attorney(s): Richard Nevins, Gregory Petrick
FATCA May Open a Pandora's Box of Civil and Criminal Tax Liability for U.S. Persons Who Have Not Timely Paid Their U.S. Taxes or Filed Returns—Now Is a Critical Time to Consider Voluntary Disclosure
The Foreign Account Tax Compliance Act ("FATCA"), signed into law on March 18, 2010, was enacted to combat tax evasion by United States citizens and residents who have offshore accounts and assets. Under FATCA, beginning in 2014, the U.S. Internal Revenue Service ("IRS") will receive annual reports ("FFI Reports") from certain foreign financial institutions ("FFIs") – including foreign banks and foreign investment funds – that disclose information regarding accounts and investments held or owned at the FFI by U.S. citizens and residents, including lawful permanent residents who hold U.S. "Green Cards" ("U.S. Persons").
Related Attorney(s): Dean Berry, Mark Howe
Related Practice(s): Private Wealth, Tax, White Collar Defense and Investigations
ESMA's Final Report on Draft Technical Standards under EMIR – Non-Financial Counterparties and Risk Mitigation for Non Cleared OTC Derivative Contracts
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC Derivatives, Central Counterparties and Trade Repositories ("EMIR") was introduced to provide a framework to improve the functioning of the OTC derivatives markets in the European Union. EMIR requires the European Securities and Markets Authority ("ESMA") to develop draft regulatory and implementing technical standards in relation to several key provisions of EMIR. On 27 September 2012, ESMA published its final report (the "Final Report") on such standards.
Related Practice(s): Bank Regulation, Commodities & Futures Regulation, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions, Securitization & Asset Based Finance
The Application of Commodity Pool Rules to Insurance Linked Securities
The Dodd-Frank Act's expansion of the definition of "commodity pool" to include any form of enterprise operated for the purpose of trading in "swaps," coupled with the Commodity Futures Trading Commission ("CFTC") and the Securities and Exchange Commission ("SEC") recently adopting an expansive definition of the term "swap" for purposes of the Dodd-Frank Act and the Commodity Exchange Act creates uncertainty regarding whether issuers of insurance linked securities are commodity pools that would require the registration of commodity pool operators ("CPO") and commodity trading advisors ("CTA") with the CFTC.
Related Attorney(s): Frank Polverino
Related Practice(s): Bank Regulation, Broker-Dealer Regulation, Commodities & Futures Regulation, ERISA, FCA Regulated Entities, Financial Regulation, Swap Regulation
The Rockefeller Letter and the Cybersecurity Debate
On September 19, 2012, Senator John D. Rockefeller IV (D-WV), Chairman of the Senate Committee on Commerce, Science, and Transportation, wrote directly to the CEOs of the Fortune 500 companies regarding cybersecurity. He solicited their views "without the filter of beltway lobbyists" and requested that they provide by October 19, 2012, answers to eight questions pertaining to their companies' cybersecurity practices and their concerns, if any, with certain aspects of the Cybersecurity Act of 2012 that failed to pass the Senate.
Related Practice(s): Anti-Money Laundering Investigations and Compliance, Cybersecurity and Data Privacy, Economic Sanctions, White Collar Defense and Investigations
Proposed Regulations Relax the Circular 230 Rules for Tax Practitioners
On September 17, 2012, the Department of Treasury and the Internal Revenue Service proposed regulations that would significantly relax Circular 230, which governs the conduct of tax practitioners and accountants.
Related Attorney(s): Mark Howe, Linda Swartz, Jason Schwartz
Related Practice(s): Corporate Taxation, Mergers & Acquisitions Taxation, Restructurings & Bankruptcies Taxation, Securitization & Structured Products Taxation, Tax, Tax Controversy
S&P's New Counterparty Risk Criteria for Structured Finance Securities Offer Additional Flexibility for Derivative Transactions
On May 31, 2012, Standard & Poor's ("S&P") published an article entitled "Counterparty Risk Framework Methodology and Assumptions", which outlines S&P's updated criteria for managing counterparty risk relating to certain structured finance transactions and covered bonds (the "2012 Criteria"). The 2012 Criteria replace prior criteria contained in the following S&P publications: (i) "Counterparty And Supporting Obligations Methodology And Assumptions" (published December 6, 2010), (ii) "Counterparty And Supporting Obligations Update" (published January 13, 2011), (iii) "Expanding The Scope of Counterparty Criteria To Corporate And Government Ratings" (published June 21, 2011) and (iv) "Global Counterparty And Supporting Obligations Framework For Classifying Currencies" (published June 28, 2011) (collectively, the "2010 Criteria").
Related Attorney(s): Lary Stromfeld, Ivan Loncar, Jed Miller
The Sixth Circuit Rules in United States v. Quality Stores, Inc. that Severance Payments Paid to Terminated Employees as a Direct Result of a Work Force Reduction Are Not Subject to FICA Tax
Downsizing is a fact of life in the recent U.S. economy. Over the past several decades, employers have involuntarily terminated large numbers of employees and made severance payments totaling hundreds of millions of dollars to the departing workers. The Internal Revenue Service (the "IRS") and courts agree that severance payments are income to the employees and subject to federal income tax. However, the employment tax statutes, FICA for non-railroad employees and RRTA for railroad employees, impose employer and employee taxation on only one subset of "income": "wages" under FICA and "compensation" under RRTA, both of which are generally defined as remuneration received for services rendered.
IRS Issues New Regulations Defining "Publicly Traded Property" for Purposes of Determining the Issue Price of Debt Instruments That Are Significantly Modified in a Restructuring or Issued for Property
On September 12, 2012, the IRS issued new regulations defining when property is "publicly traded" for purposes of determining the issue price of a debt instrument that is issued for property or treated as issued for property, as is the case when a debt instrument is "significantly modified" in a restructuring. The new regulations largely follow proposed regulations issued on January 6, 2011, which significantly expanded the definition of publicly traded property. As a result, the new regulations generally increase the situations in which issuers will realize "cancellation of debt" ("COD") income upon a debt restructuring.
Related Attorney(s): Linda Swartz, Gary Silverstein, Mark Howe
Related Practice(s): Corporate Taxation, Distressed Structured Products, Financial Restructuring, Mergers & Acquisitions Taxation, Restructurings & Bankruptcies Taxation, Securitization & Structured Products Taxation, Tax, Tax Controversy
United States and United Kingdom Sign Intergovernmental Agreement under FATCA
On September 14, the United States and the United Kingdom entered into an intergovernmental agreement that, if ratified by the U.K. parliament, would provide financial institutions that are resident in the United Kingdom, and branches of financial institutions that are located in the United Kingdom, with an alternative withholding regime to that imposed under the "Foreign Account Tax Compliance Act" ("FATCA") provisions contained in sections 1471 through 1474 of the Internal Revenue Code. The U.S.-U.K. intergovernmental agreement is substantially similar to the "reciprocal" model agreement released by the U.S. Treasury Department on July 26, under which each country exchanges information with the other.
Related Attorney(s): Jason Schwartz, Adam Blakemore, Mark Howe
Related Practice(s): Bank Regulation, Corporate Taxation, Financial Regulation, Tax
Related Office(s): London, New York, Washington
The Consumer Financial Protection Bureau, the Controversial New Regulator, Begins with an Aggressive Enforcement Settlement Against a Financial Services Company
On July 17, 2012, the Consumer Financial Protection Bureau ("CFPB") reached a groundbreaking $165 million settlement with a credit card issuer in its first enforcement action, ordering Capital One Bank (USA), N.A. to refund $140 million to two million customers who purchased its credit card "add-on" products and to pay a $25 million fine into the CFPB's Civil Penalty Fund. The CFPB is a powerful regulatory agency that was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act to implement and enforce federal consumer financial laws and to promote fair, transparent and competitive and accessible markets for consumer financial services and products. After a quiet first year, the CFPB now has aggressively asserted its vast enforcement powers and levied significant financial penalties in its regulation of the marketing and sale of consumer financial products.
Related Attorney(s): Nathan Bull
Related Practice(s): Financial Regulation, Swap Regulation, White Collar Defense and Investigations
U.S. Treasury Department Releases Model FATCA Intergovernmental Agreements
On July 26, the U.S. Treasury Department released two model intergovernmental agreements that will provide residents of signatory countries with an alternative withholding and reporting regime to that imposed under the "Foreign Account Tax Compliance Act" ("FATCA") provisions contained in sections 1471 through 1474 of the Internal Revenue Code. One model is "reciprocal"—that is, each country exchanges information with the other; the other is "nonreciprocal"—that is, only the signatory country provides information. Simultaneously with the release of the model agreements, France, Germany, Italy, Spain, the United Kingdom, and the United States issued a joint statement endorsing the model agreements. Over forty other countries have been reported to be interested in entering into similar agreements with the United States, including Australia, Brazil, Canada, the Cayman Islands, Ireland, Luxembourg, the Netherlands, New Zealand, Japan, and Russia.
The Dodd-Frank Act May Require Registration as a "Commodity Pool Operator" and a "Commodity Trading Advisor" for Entities Associated with Securitization Transactions
Upon effectiveness of the U.S. Commodity Futures Trading Commission ("CFTC") final rules defining "swaps" under the Dodd-Frank Act, entities associated with securitization transactions may be required to register as commodity pool operators ("CPOs") and/or commodity trading advisors ("CTAs"). Absent exemptive relief, these registration requirements will apply irrespective of whether the "swaps" are subject to mandatory clearing under the Dodd-Frank Act. Based on the Dodd-Frank Act and current CFTC regulations, certain entities associated with public and certain private securitization transactions are not exempt and may have to register as CPOs and/or CTAs.
Related Attorney(s): Francisco J. Linares, Aaron Benjamin, Ray Shirazi, Patrick Quinn
Related Practice(s): Derivatives & Structured Products, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions, Securitization & Asset Based Finance, Structured Products, Swap Regulation
SDNY Bankruptcy Court Interprets Section 546(e)'s Safe Harbors in Lehman-JPMorgan Dispute
On April 19, 2012, the U.S. Bankruptcy Court for the Southern District of New York granted in part and denied in part JPMorgan Chase, N.A.'s motion to dismiss an adversary complaint filed by Lehman Brothers Holdings Inc. ("LBHI") and its Official Committee of Unsecured Creditors. The Complaint seeks to recover approximately $8.6 billion in prepetition transfers made by LBHI to JPMorgan in the days leading up to LBHI's bankruptcy. JPMorgan filed a motion to dismiss the Complaint, arguing that it acted reasonably in requiring additional collateral at a time of great financial risk, and that the transfers that the Plaintiffs sought to unwind are immunized by the safe harbor protections of section 546(e) of the Bankruptcy Code.
Related Attorney(s): Kathryn Borgeson, Mark Ellenberg
The Sun Never Sets on Dodd-Frank
When Dodd-Frank (more formally, the Wall Street Reform and Consumer Protection Act) was adopted, the legislation was advertised as a legal blueprint that, although proudly stamped "Made in America," would serve as a light of financial safety as to derivatives, bank activities, and like matters for the entire world. The global commercial and financial community was assured that a cooperative, consistent, and rational scheme of regulation would be adopted in financial capitals across the world, from Afghanistan to Zimbabwe, all based closely (maybe even word-for-word!) on translations of Dodd-Frank.
Related Practice(s): Bank Regulation, Broker-Dealer Regulation, Commodities & Futures Regulation, Financial Regulation, Investment Management Regulation & Compliance, Swap Regulation
Delaware's Not So Safe Harbors: Third Circuit Bankruptcy Court Declines to Rule that a Payment on a Letter of Credit is an Avoidance-Proof "Settlement Payment"
On March 26, 2012, Judge Mary F. Walrath of the United States Bankruptcy Court for the District of Delaware refused to rule that, as a matter of law, payments made to satisfy a debtor's obligations under a letter of credit constitute "settlement payments" protected from avoidance under section 546(e) of the Bankruptcy Code. EPLG I, LLC v. Citibank, National Association et al. (In re Qimonda Richmond, LLC, et al.), No. 09-10589, 2012 Bankr. LEXIS 1264 (Bankr. Del. March 26, 2012). Although the decision helps to clarify the scope of one of the Bankruptcy Code's most important safe harbor provisions, it has also left some important questions unanswered regarding the scope of section 546(e).
Related Attorney(s): Casey Servais, Mark Ellenberg, Michele Maman
What is a Swap? Maybe (Almost) Everything? You Gotta Problem with That?
It has now been almost two years since Dodd-Frank was enacted in order to provide comprehensive regulation of those transactions the legislation calls "swaps." In a world regulated by common sense, "what is a swap" would have been the first question answered by the regulators—indeed, the term should have been clearly defined by the statute. After all, how can the regulators adopt rules that govern a group of transactions where the regulators themselves do not know the transactions to which the rules will apply? How can businesses comment as to whether the proposed rules are sensible, or even feasible, as applied to a set of transactions that is boundless?
Related Practice(s): Derivatives & Structured Products, Financial Regulation, Investment Management Regulation & Compliance, Structured Products, Swap Regulation
English Court of Appeal Interprets the ISDA Master Agreement
Last week the Court of Appeal of England and Wales handed down its decision in four appeals which raise a number of questions of construction in relation to derivatives in the form of interest rate swaps and forward freight agreements documented under the International Swaps and Derivatives Association Inc. Master Agreement (the "ISDA Master Agreement"). In particular, the decision focuses on the interpretation of section 2(a)(iii) of the ISDA Master Agreement.
Related Attorney(s): Ivan Loncar, Lary Stromfeld, Assia Damianova, Mark Ellenberg, Nick Shiren
Related Practice(s): Derivatives & Structured Products, Distressed Structured Products, Financial Restructuring, Investment Management Transactions, Municipal Derivatives, OTC Derivatives, Structured Products
New Pan-European Restrictions on Short Selling
On 24 March 2012, the European Parliament's Regulation on "short selling and certain aspects of credit default swaps" came into force.
Related Practice(s): Derivatives & Structured Products, FCA Regulated Entities, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions, Structured Products
ISDA March 2012 Supplement and Protocol: Updating Muni CDS
As of April 3, 2012, the documentation and industry standards for municipal CDS transactions ("Muni CDS") will be brought in line with the corporate and sovereign CDS market through several initiatives lead by ISDA and related publications by Markit. Cadwalader represented ISDA and Markit on these initiatives, which include the following features to enhance liquidity and transparency for Muni CDS: determinations Committee for the Americas Region will decide on Credit Events and other matters, mandatory auction settlement, rolling "look-backs" for Credit Events and Succession Events, Standardized Fixed Rate and full 3-month initial Calculation Periods, recovery assumption of 75%, changes to "Accreting Obligation" and "Accreted Amount" definitions and other Muni CDS-specific provisions, automatic trigger for "Restructuring Credit Event," new or revised templates for many types of Muni CDS transactions.
Related Attorney(s): Ivan Loncar, Lary Stromfeld
Related Practice(s): Derivatives & Structured Products, Investment Management Transactions, Municipal Derivatives, OTC Derivatives, Structured Products
The Chancellor of the Exchequer's third budget, held on 21 March 2012, might well be remembered in future years for a balancing act (at least in a taxation context) between stimulus and incentive on the one hand, and austerity and anti-avoidance on the other. A number of the Chancellor's provisions focused on enterprise incentives and were accompanied by an additional 1 per cent. reduction in the main rate of UK corporation tax from April 2012. While these announcements will be welcomed, they were balanced against a very tough message on tax avoidance – particularly in the areas of stamp duty land tax planning and income tax avoidance.
Retrospective Change of Law Announced for UK Debt Buybacks
In a Written Ministerial Statement, delivered on 27 February 2012, the UK Government has announced measures to counteract two tax avoidance schemes entered into by a UK bank, the UK Bank being a signatory to the Code of Practice on Taxation for Banks.
Related Practice(s): Bank Regulation, Corporate Taxation, Financial Regulation
The Consumer Financial Protection Bureau: The New, Powerful Regulator of Financial Products and Services
The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") created the Consumer Financial Protection Bureau ("CFPB") to oversee a broad array of financial products and services. Creation of the CFPB marked the first time in decades that Congress had formed a new federal agency. The political debate over who would lead the new agency initially overshadowed the more significant legal and policy concerns about the manner in which the CFPB was intended to operate. But now, after the procedurally controversial appointment of former Ohio Attorney General Richard Cordray on January 4, 2012, these broader concerns will be tested, both as a matter of governance and very possibly in the courts.
Related Attorney(s): Scott Cammarn, Steven Lofchie
Related Practice(s): Financial Regulation, Investment Management Regulation & Compliance, Swap Regulation
European Short Selling Bans Lifted
Amid growing evidence that short selling bans function, at best, as very temporary circuit breakers with no long term effect on volatility, several European regulators have lifted their bans on short selling as of February 2012. The bans, imposed in August 2011, have followed the trajectory set out below (along with a summary of the disclosure regime still in force in the UK and the on-going position in Greece). In all cases, while the regulators have lifted outright bans, disclosure requirements and various restrictions on naked short selling remain in place.
Related Attorney(s): Nick Shiren
Related Practice(s): Bank Regulation, FCA Regulated Entities, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions
Supreme Court Gives Protection to All UK Client Money
On 29 February, the Supreme Court of the United Kingdom handed down its judgment on the treatment of client money that had not been segregated, or was improperly segregated, as at the date Lehman Brothers International (Europe) ("LBIE") entered administration.
Related Practice(s): Bankruptcy Litigation, FCA Regulated Entities, Financial Regulation, Financial Restructuring, Investment Management Transactions
Application of Proposed FATCA Regulations to Foreign Investment Vehicles
On February 8, the Internal Revenue Service issued proposed regulations that provide guidance on the "FATCA provisions" contained in sections 1471-1474 of the Internal Revenue Code. The purpose of FATCA is to reduce U.S. tax evasion by requiring "foreign financial institutions" and certain other foreign entities to provide information to the IRS about U.S. holders of their debt and equity interests and other "financial accounts," or else be subject to a 30% withholding tax.
SEC Issues No-Action Letter Addressing Registration Requirements for Certain Advisory Affiliates
The staff of the Securities and Exchange Commission (the "Commission") issued a no-action letter on January 18, 2012 to the American Bar Association's Subcommittee on Hedge Funds clarifying the registration requirements for certain related entities under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The letter reaffirms and clarifies the Commission's previously existing position that registered advisers to private funds may file a single Form ADV that includes special purpose vehicles ("SPVs") established to function as general partners or managing members of a fund. In addition, the letter explains the conditions under which a group of related advisers organized as separate legal entities, but operating as a "single advisory business," may elect to file a single Form ADV.
Related Attorney(s): Steven Lofchie, Maurine Bartlett
Related Practice(s): Corporate, Corporate Finance, Financial Regulation, Fund Formation, Investment Management Regulation & Compliance
New Proposed and Temporary Regulations Address U.S. Withholding Tax on Cross-Border Equity Derivatives
On Thursday, August 30, 2012, the IRS issued temporary regulations that extend the current U.S. federal withholding tax regime under section 871(m). The temporary regulations extend the current section 871(m) withholding tax rules until January 1, 2014, instead of January 1, 2013, as indicated in this memorandum.
Related Practice(s): Derivatives & Structured Products, OTC Derivatives, Securitization & Structured Products Taxation, Structured Products, Tax
Time to Roll the Dice on Online Gaming?
On December 23, 2011, the U.S. Department of Justice Office of Legal Counsel ("OLC") issued a memorandum opinion dated September 20, 2011, eliminating one of the federal barriers to legalizing internet gambling and opening the door for the possibility of a regulatory regime shift. In the OLC Opinion, the Department of Justice addressed an apparent conflict between the Wire Act and UIGEA and concluded that "interstate transmissions of wire communications that do not relate to a sporting event or contest" fall outside the reach of the Wire Act. Finding that the Federal Wire Act does not prohibit the use of out-of-state transaction processors to sell in-state lottery tickets over the internet or the transmission of lottery data across state lines, the OLC Opinion reverses the long-held position that the Wire Act applied to all interstate gambling, whether sports-related or not.
Related Practice(s): Corporate, Financial Regulation, White Collar Defense and Investigations
Harrisburg: A Case Study in State Law Barriers to Chapter 9
On November 23, 2011, the Bankruptcy Court for the Middle District of Pennsylvania dismissed Harrisburg, Pennsylvania's Chapter 9 bankruptcy petition because, shortly before the filing, the state legislature expressly prohibited Harrisburg from seeking relief under Chapter 9. Harrisburg's failed attempt to remain in Chapter 9 highlights the political factors and state law constraints that municipalities must consider prior to seeking bankruptcy relief. This article will discuss the origins of Harrisburg's debt crisis, the Harrisburg City Council's attempt to file for Chapter 9 without the Mayor's approval, the legal obstacles placed in the path of the City Council's bankruptcy filing, and the lessons that other distressed municipalities and creditors can learn from Harrisburg's experience.
Related Attorney(s): Lary Stromfeld
A Critical Analysis of the Potential Impact of the Volcker Rule on Municipal Bonds
Federal regulators recently issued a notice of proposed rulemaking (the 'Proposal') under Section 619 of the Dodd-Frank Act, commonly known as the 'Volcker Rule.' If the Proposal were to be adopted in its present form, the regulators' narrow interpretation of the types of government securities exempted from the Volcker Rule would prohibit banking entities from proprietary trading in over half of the municipal bonds outstanding in the markets. Likewise, by the regulators' narrow interpretation, banking entities would be effectively prohibited from sponsoring or acquiring an ownership interest in municipal tender option bond ('TOB') trusts and from entering into the liquidity facilities that are an essential feature of TOB trusts.
Related Attorney(s): Jed Miller, Steven Lofchie, Scott Cammarn, Lary Stromfeld
Related Practice(s): Corporate, Corporate Finance, Derivatives & Structured Products, Financial Regulation, Investment Management Transactions, Municipal Derivatives, Swap Regulation
European Commission Announces Revisions to the Transparency Directive
Under the headline "More responsible businesses can foster more growth in Europe", the European Commission (the "Commission") unveiled proposals for directives to amend several legislative measures on 25 October 2011, including a directive to amend the Transparency Directive (the "Amendment Directive").
The Volcker Rule's Impact on Financial Institutions' Ownership and Sponsorship of Structured Finance and Securitization Transactions
The three federal banking agencies and the SEC recently approved for comment a proposed regulation implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Act'), more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance.
Related Attorney(s): Y. Jeffrey Rotblat, Henry LaBrun, Nathan Spanheimer, Steven Lofchie, Lisa Pauquette, Patrick Quinn, Gregg Jubin, Aaron Benjamin, Scott Cammarn, Neil Weidner, Anna Glick, Stuart Goldstein, Michael Gambro, Frank Polverino
Related Practice(s): Bank Regulation, CLOs, Commercial Mortgage-Backed Securities, Derivatives & Structured Products, Financial Regulation, Insurance-Linked Securities, Investment Management Regulation & Compliance, Investment Management Transactions, Mortgage Banking & Whole Loan Trading, Municipal Securitization, Residential Mortgage-Backed Securities, Securitization & Asset Based Finance, Structured Products, Swap Regulation, Warehouse Lending
Related Office(s): Charlotte, London, New York
MF Global UK Enters Special Administration Regime
The Financial Services Authority ("FSA") has confirmed that MF Global UK Limited ("MF Global UK") has entered the Special Administration Regime created under the Investment Bank Special Administration Regulations 2011 ("Regulations"). MF Global UK is the first investment bank to enter the Special Administration Regime. The decision to apply for special administration was initiated by the board of MF Global UK.
MiFID and MiFIR on Algorithmic Trading – and – Provision of Services AND Establishment of Branches by Third Country Firms
This is the sixth in our series of briefings on MiFID and MiFIR. In this alert, we describe new obligations set out in MiFID that apply to investment firms engaging in algorithmic trading to have in place risk control measures, and authorisation requirements for third country firms providing services into or establishing a branch within the European Union as set out in MiFID and MiFIR.
Related Practice(s): Financial Regulation, Investment Management Transactions
The SEC Approves Final Version of Form PF
The Securities and Exchange Commission (the "SEC") held an open meeting on Wednesday, October 26, 2011, regarding the adoption of a rule requiring certain registered investment advisers to hedge funds and other private funds to report information on Form PF for use by the Financial Stability Oversight Council ("FSOC") in monitoring systemic risk to the U.S. financial system. The new rule, Rule 204(b)-1 under the Investment Advisers Act of 1940, would implement sections 404 and 406 of the Dodd-Frank Act and was initially proposed, along with the Form PF, on January 26, 2011.
Related Attorney(s): Gregg Jubin, Steven Lofchie, Maurine Bartlett, Jonathan Wainwright
Related Practice(s): Corporate, Corporate Finance, Financial Regulation, Fund Formation, Investment Management Regulation & Compliance, Private Equity, Swap Regulation
MiFID and MiFIR on Supervision of Products – and – Circuit Breakers
This is the fifth in our series of briefings on MiFID and MiFIR. In this alert, we describe new powers of product intervention granted to ESMA and local regulators under MiFIR and new obligations set out in MiFID for regulated markets to have in place measures to ensure systems' resilience, including circuit breakers and controls over algorithmic trading.
MiFID on Client Categorisation and Transactions with 'Eligible Counterparties' – and – Organised Trading Facilities
This is the fourth in our series of briefings on MiFID and MiFIR. In this alert, we describe the proposed changes to the current client classification regime, and in particular, amendments to the regime for transactions with 'eligible counterparties'. We will also discuss the introduction of a new concept of regulated 'organised trading facilities'.
MiFIR on Pre and Post-Trading Transparency for Equities, Equity-Like Instruments, Structured Products, Bonds, Emission Allowances and Derivatives
This is the third in our series of briefings on MiFID and MiFIR. In this alert, we describe new obligations set out in MiFIR to make certain pre and post-trade information publicly available in relation to equities, equity-like instruments, certain structured products, bonds, emission allowances and derivatives.
Proposals for a European Union Financial Transactions Tax
The proposals made by the EU Commission on 28 September 2011 regarding an EU directive on a common system of financial transaction taxation in the 27 Member States of the EU have been debated widely in the three weeks since they were presented. The presentation of the proposed Directive (the "Directive"), together with proposals to amend Directive 2008/7/EC concerning indirect taxes on the raising of capital, represent the latest stage in a series of announcements by EU authorities directed towards ensuring that the European financial sector should "contribute more fairly" towards the costs of addressing and rectifying the current European financial crisis. A series of conclusions from the European Council, communications addressed to the European Parliament and EU Commission staff working papers and consultations throughout 2010 and 2011 have created a platform upon which the relative merits of various options for taxing the financial sector have been analysed.
Related Office(s): Brussels, London
MiFID and MiFIR on the Obligation to Trade Derivatives on Regulated Markets and Revisions to the Best Execution Regime
This is the second in our series of briefings on MiFID and MiFIR. In this alert, we describe new obligations to trade certain derivatives on regulated markets, MTFs or OTFs and the Commission's proposals for the best execution regime.
MiFID and MiFIR on Position Limits and Position Reporting for Commodities Derivatives and Emissions Trading
The first in a series of short briefings on radical changes proposed for the regulation and conduct of investment business set out in the European Commission's revised Markets in Financial Instruments Directive (MiFID) and Markets in Financial Instruments Regulation (MiFIR). This Client & Friends Alert outlines the "highlights" of the Commission's proposals for the imposition of position limits and position reporting requirements for commodities derivatives and emissions trading.
The Volcker Rule's Significant Impact on a Foreign Banking Organization's Proprietary Trading Activities
This week, the three federal banking agencies and the SEC approved for comment a proposed regulation implementing Section 619 of the Dodd-Frank Act, more generally known as the 'Volcker Rule.' The 298-page proposal has yet to be published in the Federal Register, but the agencies have already agreed to an extended comment period for the proposal - running until January 13, 2012 - given the subject matter's significance. Effective July 21, 2012, the Volcker Rule restricts proprietary trading activities and investing in or sponsoring of private equity funds by 'banking entities' - defined by statute to include FDIC-insured depository institutions, bank holding companies, savings and loan holding companies, other entities that control an FDIC-insured depository institution, and foreign banks that are regulated as if they are bank holding companies under the International Banking Act.
Related Practice(s): Bank Regulation, Financial Regulation, Investment Management Transactions, Swap Regulation
Bankruptcy Court for Southern District of New York Prohibits Triangular Setoff Provided for in Safe Harbored Contract
On October 4, 2011, the United States Bankruptcy Court for the Southern District of New York ruled that a contractual right of a triangular (non-mutual) setoff was unenforceable in bankruptcy, even though the contract was safe harbored. In re Lehman Brothers, Inc., No. 08-01420 (JMP), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011). In doing so, Judge Peck followed prior decisions by the Delaware bankruptcy and district courts in In re SemCrude, L.P., 399 B.R. 388 (Bankr. D. Del. 2009), aff'd, 428 B.R. 590 (D. Del. 2010) and his own decision in In re Lehman Brothers Holdings Inc., 433 B.R. 101 (Bankr. S.D.N.Y. 2010) ("Swedbank").
Related Attorney(s): Alexander Strom, Mark Ellenberg
SEC Proposes a New Rule Prohibiting Conflicts of Interest in Securitizations
On September 19, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Release") proposing new rule 127B (the "Proposed Rule") under the Securities Act, which would prohibit "material conflicts of interest" in securitizations. The Proposed Rule is intended to implement Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), codified as Section 27B ("Section 27B") of the Securities Act of 1933, as amended (the "Securities Act"). Subject to certain exceptions, Section 27B prohibits certain participants in asset-backed securities ("ABS") transactions from engaging in transactions within a designated time period that would involve or result in any material conflict of interest. Disclosure of such material conflicts of interest would not otherwise permit such prohibited transactions.
Related Attorney(s): Y. Jeffrey Rotblat, Joo Kim, Henry LaBrun, Stuart Goldstein, Lisa Pauquette, Richard Schetman, Anna Glick, Patrick Quinn, Ivan Loncar, Frank Polverino, Neil Weidner, Michael Gambro, Gregg Jubin
Related Practice(s): Asset-Backed Commercial Paper, Derivatives & Structured Products, Financial Regulation, Insurance-Linked Securities, Mortgage Banking & Whole Loan Trading, Securitization & Asset Based Finance, Structured Products, Swap Regulation, Warehouse Lending
Recent Amendments to Rule 14a-8 and the Implications for the 2012 Proxy Season
This memorandum discusses recent amendments to Exchange Act Rule 14a-8 that will require companies to include in their proxy materials, under certain circumstances, shareholder proposals that seek to establish a procedure for shareholders to include director nominees in the company's proxy materials. This memorandum also identifies certain actions companies should consider for the 2012 proxy season.
Related Attorney(s): William Mills, Braden McCurrach
Living Wills: FDIC Modifies, Finalizes Rules
On September 13, 2011, the Federal Deposit Insurance Corporation approved the final rule governing the implementation of the "living will" provision found in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule continues to require covered companies to submit to the Board of Governors of the Federal Reserve System, the FDIC and the Financial Stability Oversight Council annual plans for the rapid and orderly resolution of their business in the event of material financial distress. The rule must still be approved by the Federal Reserve (which is expected to approve the rule shortly) It will then become effective 30 days after its publication in the Federal Register.
Related Attorney(s): Mark Ellenberg, Gregory Petrick, Scott Cammarn, Steven Lofchie
Related Practice(s): Bank Regulation, Distressed Finance, Financial Regulation, Financial Restructuring, Swap Regulation, White Collar Defense and Investigations
Final SEC Rule Regulating Large Trader Reporting
On July 27, 2011, the Securities and Exchange Commission (the "SEC") adopted Rule 13h-1 ("Rule 13h-1" or the "Large Trader Rule") and related Form 13H as directed by Section 13(h) of the Securities Exchange Act of 1934 ("Exchange Act"). Rule 13h-1 requires each "Large Trader" (as defined in the Large Trader Rule) (i) to identify itself by filing and periodically updating Form 13H with the SEC and (ii) to disclose to each SEC-registered broker-dealer, through which it trades its large trader identification number ("LTID") and all accounts to which that LTID applies.
Related Practice(s): Broker-Dealer Regulation, Financial Regulation, Investment Management Regulation & Compliance
Proposed Treasury Regulations Regarding Swaps and Other Notional Principal Contracts
On Thursday, September 15, the Treasury Department and the Internal Revenue Service issued proposed regulations that affect swaps and other notional principal contracts. The proposed regulations are proposed to be effective for contracts entered into on or after the date the final regulations are published in the Federal Register.
Related Attorney(s): Mark Howe
Related Practice(s): Derivatives & Structured Products, Securitization & Structured Products Taxation, Structured Products, Swap Regulation, Tax
UK Corporate Tax Reform Update
While the UK Government's blue-print for corporation tax reform was put forward in June 2010, key elements of the reform programme have become much clearer during the course of the Summer of 2011. The long awaited detailed and extensive consultation documents on the reform of the UK controlled foreign companies rules and the UK Patent Box have been published, alongside a consultation on changes to the UK debt cap rules and extensive guidance on the foreign branch tax exemption which was enacted in the Finance Act 2011.
SEC Seeks Public Comment On Treatment of Asset-Backed Issuers under the Investment Company Act
The Securities and Exchange Commission (the "SEC") recently issued an advance notice of proposed rulemaking (the "ANPR") requesting public comment on the treatment of asset-backed issuers under Rule 3a-7 under the Investment Company Act of 1940 (the "Investment Company Act").
Related Attorney(s): Michael Gambro, Henry LaBrun, Patrick Quinn, Gregg Jubin, Maurine Bartlett, Y. Jeffrey Rotblat, Stuart Goldstein, Neil Weidner, Lisa Pauquette, Frank Polverino, Anna Glick
Related Practice(s): Asset-Backed Commercial Paper, CLOs, Financial Regulation, Insurance-Linked Securities, Investment Management Regulation & Compliance, Securitization & Asset Based Finance, Swap Regulation
SEC Re-Proposes Shelf Eligibility Conditions for Asset-Backed Securities
On July 26, 2011, the Securities and Exchange Commission (the "SEC") re-proposed rules (the "Re-Proposal") regarding new shelf eligibility requirements for asset-backed securities ("ABS"). In April 2010, the SEC had proposed rules that would revise the disclosure, reporting and offering process for ABS (the "2010 Proposal"), and the Re-Proposal is being made in light of changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") as well as to address certain comments that the SEC received on the 2010 Proposal.
Related Attorney(s): Henry LaBrun, Neil Weidner, Lisa Pauquette, Patrick Quinn, Stuart Goldstein, Gregg Jubin, Y. Jeffrey Rotblat, Anna Glick, Michael Gambro, Frank Polverino
Related Practice(s): CLOs, Insurance-Linked Securities, Securitization & Asset Based Finance
SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Applicability to Insurance-Linked Securities
On July 26, 2011 the Securities and Exchange Commission (the 'SEC') issued a release (the 'Proposing Release') revising and re-proposing certain rules (the 'Proposed Rules') initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act') and comments received on the 2010 ABS Proposals. Among other things, the 2010 ABS Proposals propose amendments to the safe harbor for exempt offerings and resales for 'structured finance products' in reliance on Securities Act Rule 144A, which would include many Insurance-Linked Securities ('ILS') such as CAT bonds. Under the Proposing Release, the SEC has requested additional comment on these proposals relating to exempt offerings.
Related Practice(s): Insurance Products, Insurance and Reinsurance, Insurance-Linked Securities, Securitization & Asset Based Finance, Swap Regulation
FTC/DOJ Announce Significant Changes to HSR Premerger Notification Form
On July 7, 2011, the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") announced significant changes to the Hart-Scott-Rodino ("HSR") Premerger Notification Rules and the Premerger Notification and Report Form ("HSR Form") that may substantially increase the burden placed on filing parties. The new HSR rules were published in the Federal Register on July 19, 2011, and will take effect on August 18, 2011. Any transactions notified to the agencies on or after that date must use the amended form.
FDIC Approves Rule Making With Respect to Orderly Liquidation Authority; Defers Ruling on Living Wills
On July 6, the FDIC approved a final rule implementing the Orderly Liquidation Authority. The FDIC had been expected to issue a final rule on the 'Living Will' requirements July 6 as well. However, the FDIC tabled this matter until its August 6 meeting. The rule on the Orderly Liquidation Authority is promulgated under Title II of the Dodd-Frank Act, which authorizes the FDIC to create an orderly liquidation mechanism for systemically important financial institutions, which are referred to in the rule as covered financial companies. The final rule defines key terms, creates a priority structure, and delineates the procedure for filing a claim. The final rule will become effective August 15, 2011.
Related Practice(s): Bank Regulation, Distressed Finance, Financial Regulation, Financial Restructuring, Swap Regulation
IRS Issues Proposed Regulations to Clarify Application of Section 162m
New proposed regulations clarifying perceived ambiguities in the application of the $1 million limit on deductible compensation for covered employees, including the transition rule applicable to privately held corporations that become publicly held, were recently published by the Internal Revenue Service. Companies should review their incentive compensation arrangements to determine whether these proposed regulations, once finalized, will affect such arrangements, and, if so, how such arrangements may need to be modified in order to comply with Section 162(m).
Stern v. Marshall: How Big Is It?
On June 23, 2011, the Supreme Court ruled 5-4, in an opinion by Chief Justice Roberts, that a Bankruptcy Judge lacked constitutional authority to issue a final ruling on state law counterclaims by a debtor against a claimant. This is the latest round of a well-known case involving the estate of former model Anna Nicole Smith and the estate of her late husband, wealthy oil magnate J. Howard Marshall.
SEC Proposed Rules Regarding Third-Party Due Diligence Disclosure
On June 8, 2011, the Securities and Exchange Commission (the "SEC") issued a release (the "Proposing Release") describing proposed rules (the "Proposed Rules") implementing the portion of Section 932 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") relating to third-party due diligence. The Proposed Rules describe i) the obligations of issuers and underwriters to disclose the findings and conclusions of third-party due diligence reports and ii) the form this disclosure should take.
Related Attorney(s): Henry LaBrun, Stuart Goldstein, Michael Gambro, Patrick Quinn, Y. Jeffrey Rotblat, Frank Polverino, Gregg Jubin, Neil Weidner, Lisa Pauquette
Related Practice(s): Financial Regulation, Securitization & Asset Based Finance, Swap Regulation
The Bribery Act 2010: Are You Ready?
The Bribery Act 2010 (the "Act") enters into force tomorrow and with it comes some of the most far-reaching anti-bribery laws in the world, surpassing the previous benchmark set by the U.S. Foreign Corrupt Practices Act (the "FCPA"). The Act will change profoundly the approach to business transactions and internal investigations of public and private companies.
Related Attorney(s): Jason Halper, Jodi Avergun, Nick Shiren, Richard Nevins, Assia Damianova, Adam Blakemore
Related Practice(s): Investment Management Litigation, Investment Management Transactions, White Collar Defense and Investigations
SEC Adopts Dodd-Frank Act Investment Adviser Rules and Delays Implementation of Some Deadlines
During an open meeting on June 22, 2011, the Securities and Exchange Commission (the "SEC") approved the adoption of new rules under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), as mandated by Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"). These rules, which are spelled out in three releases, will require advisers to hedge funds and other private funds to register with the SEC, establish new exemptions from SEC registration for certain advisers, reallocate regulatory responsibility for advisers between the SEC and states, expand Form ADV disclosure by investment advisers, revise the SEC's "pay-to-play" rule for advisers, and exclude certain "family offices" from the Advisers Act.
Related Attorney(s): Maurine Bartlett, Gregg Jubin, Jonathan Wainwright, Steven Lofchie
Related Practice(s): Corporate, Financial Regulation, Private Equity, Swap Regulation
The Dodd-Frank Act: How It Impacts Specific Institutions, Entities and Transactions
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. The Act consists of sixteen distinct Titles on a wide variety of topics. Once implemented by the required regulations, the Act will significantly alter the U.S. financial regulatory system. All financial institutions will be directly and materially affected by the Act's accompanying regulations, and non-financial institutions that use regulated financial products will be indirectly affected. Additionally, the Act's amendments to Sarbanes-Oxley and broad changes to executive compensation and corporate governance rules will impact all U.S. public companies.
Related Attorney(s): Ivan Loncar, Louis Bevilacqua, Jodi Avergun, Gregory Petrick, Steven Lenkowsky, Mark Howe, Lary Stromfeld, Y. Jeffrey Rotblat, Patrick Quinn, Mark Ellenberg, Linda Swartz, Brian Foster, James McDonnell, Anna Glick, Maurine Bartlett, Aaron Benjamin, Gregg Jubin, Jonathan Wainwright, Steven Lofchie, Lisa Pauquette, Frank Polverino, Nick Shiren, Ira Schacter, Neil Weidner, Henry LaBrun, Ray Shirazi, Scott Cammarn, Michael Gambro, Stuart Goldstein, James Frazier, Richard Schetman
Related Practice(s): Bank Regulation, Bankruptcy Litigation, Broker-Dealer Regulation, Commodities & Futures Regulation, Corporate, Corporate Governance, ERISA, FCA Regulated Entities, Family Office, Financial Regulation, Financial Restructuring, Fund Formation, Insurance and Reinsurance, Insurance-Linked Securities, Investment Management Regulation & Compliance, Investment Management Transactions, Securitization & Asset Based Finance, Securitization & Structured Products Taxation, Swap Regulation, Tax, White Collar Defense and Investigations
Regulatory Issues For European Funds: Updates on Synthetic ETFs and the Implementation of UCITS IV
A recent Financial Stability Board note ("Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs)" ) has raised, not for the first time, the risks to investors supposedly inherent in synthetic ETFs and whether or not those risks require active management by regulatory authorities. Given the focus on counterparty risk post-Lehman, and on the need to protect retail investors investing in "complex" products, the question is being asked again as to whether or not the particular risks generated by these funds require special mitigating measures and restraints.
Related Attorney(s): Nick Shiren, Assia Damianova, Adam Blakemore
Related Practice(s): Family Office, Financial Regulation, Fund Formation, Investment Management Regulation & Compliance
Living Wills: A User's Guide To Dodd-Frank's Bequest to Banks
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. While many of its provisions have received greater publicity — such as the Orderly Liquidation Authority of Title II and the swap provisions of Title VII — the so-called "living will" provisions of Dodd-Frank are now receiving more focused attention. Section 165(d) of Dodd-Frank requires "systemically significant" financial institutions to periodically report to the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Company and the Financial Stability Oversight Counsel a plan for the rapid and orderly resolution of their business in the event of material financial distress.
Related Attorney(s): Mark Ellenberg, Steven Lofchie, Gregory Petrick, Scott Cammarn
Related Practice(s): Bank Regulation, Corporate, Distressed Finance, Financial Regulation, Financial Restructuring, Investment Management Regulation & Compliance, Investment Management Transactions, Swap Regulation
Two Dodd-Frank Problems: The Effective Date and the Definitions - Contingency Planning in the Absence of a Regulatory Structure
This memorandum first explains the July 16, 2011 problem that will arise because the Dodd Frank derivatives legislation (Title VII of the statute) goes into effect without either a ready regulatory plan or an operating market structure. The effective date problem is made worse because of drafting problems in Dodd Frank, including the flawed definition of the single most important term in all of the statute: "swap."
Related Practice(s): Derivatives & Structured Products, Financial Regulation, Investment Management Transactions, Structured Products, Swap Regulation
S.D.N.Y. Bankruptcy Court Continues to Construe Bankruptcy Code's Safe Harbor Provisions Narrowly
In two recent decisions, the United States Bankruptcy Court for the Southern District of New York has interpreted narrowly certain of the Bankruptcy Code's safe harbor provisions.
Related Practice(s): Bankruptcy Litigation, Corporate, Derivatives & Structured Products, Financial Restructuring
Joint Agencies' Proposed Rules Governing Incentive-Based Compensation at Covered Financial Institutions
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") requires seven Federal agencies (the "Agencies") to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at covered financial institutions. On April 14, 2011, the government published proposed rules governing such incentive-based compensation arrangements at covered financial institutions (the "Proposed Rules").
Related Practice(s): Bank Regulation, Corporate Taxation, Financial Regulation, Swap Regulation, Tax
The Dodd-Frank Whistleblower Provisions: Considerations for Effectively Preparing for and Responding to Whistleblowers
As part of the Dodd-Frank Act ("Dodd-Frank" or the "Act"), Congress created powerful incentives to encourage persons to report (i) potential violations of the federal securities laws to the Securities and Exchange Commission ("SEC") and (ii) potential violations of the Commodity Exchange Act (the "CEA") to the Commodity Futures Trading Commission (the "CFTC"). While the Sarbanes-Oxley Act ("SOX") encouraged up-the-ladder reporting by employees and allowed for self-policing and self-reporting by companies of potential violations, the Dodd-Frank Act's whistleblower provisions will incentivize external reporting to the regulators that may hamper a company's ability to self-police and self-report.
Related Attorney(s): Steven Lofchie, Jodi Avergun
Related Practice(s): Financial Regulation, Investment Management Regulation & Compliance, Swap Regulation, White Collar Defense and Investigations
The Dodd-Frank Act's Impact on Affiliate Transactions
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") contains several provisions that will tighten the restrictions that govern transactions between banks and their affiliates – Sections 23A and 23B of the Federal Reserve Act – beginning in July 2012. These new provisions will (i) significantly increase the cost and burden of certain types of transactions between a bank and its nonbank affiliates, in particular, derivatives, securities lending/borrowing, and repo transactions; (ii) expand the scope of "affiliates" subject to Sections 23A and 23B; and (iii) increase the collateral burdens applicable to extensions of credit. As a result, banks should review, and may be required to modify, existing business arrangements with affiliates (as newly redefined) to comply with the new requirements.
Related Attorney(s): Scott Cammarn, Ray Shirazi, Steven Lofchie, Brian Foster
Related Practice(s): Bank Regulation, Financial Regulation, Fund Formation, Investment Management Regulation & Compliance, Investment Management Transactions, Swap Regulation
CFTC, Prudential Regulators Propose Margin Rules for Non-Cleared Swaps
On April 12, 2011, the Commodity Futures Trading Commission ("CFTC") voted 4-1 to issue proposed rules establishing minimum initial and variation margin requirements for non-cleared swaps entered into by CFTC-regulated swap dealers and major swap participants. Later the same day, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration and the Federal Housing Finance Agency(collectively, "Prudential Regulators") jointly issued their own rules establishing margin requirements for swap dealers and major swap participants that are subject to their respective prudential regulation.
Related Practice(s): Commodities & Futures Regulation, Derivatives & Structured Products, Financial Regulation, Structured Products, Swap Regulation
Proposed Credit Risk Retention Requirements for Asset-Backed Securities Transactions
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. On March 28, 2011, the Federal banking agencies (the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System), the Securities and Exchange Commission ("SEC"), the Department of Housing and Urban Development ("HUD"), and the Federal Housing Finance Agency ("FHFA") (collectively, the "Agencies") released a joint notice of proposed rulemaking (the "NPR") containing proposed rules ("Proposed Rules") to implement the credit risk retention requirements of Section 941(b) of the Act, codified as Section 15G ("Section 15G") of the Securities Exchange Act of 1934 (the "Exchange Act").
Related Attorney(s): Frank Polverino, Gregg Jubin, Lisa Pauquette, Stuart Goldstein, Henry LaBrun, Michael Gambro, Y. Jeffrey Rotblat, Anna Glick, Patrick Quinn, Neil Weidner
Related Practice(s): Asset-Backed Commercial Paper, CLOs, Commercial Mortgage-Backed Securities, Financial Regulation, Insurance-Linked Securities, Mortgage Banking & Whole Loan Trading, Municipal Securitization, Residential Mortgage-Backed Securities, Securitization & Asset Based Finance, Swap Regulation, Warehouse Lending
The UK Budget 2011 – Spotlight on Insurance
On 23 March 2011, the Chancellor of the Exchequer announced a number of measures that will both directly and indirectly affect the UK tax treatment of insurers. While the UK insurance sector will likely welcome the reduction in April 2011 of the main rate of corporation tax, there are a number of sector-specific areas in which further changes have been announced.
Related Practice(s): Corporate Taxation, Insurance and Reinsurance, Tax
UK Budget 2011: Key Taxation Aspects
The Chancellor of the Exchequer's second budget, held on 23 March 2011, was perhaps most notable for the attention placed on fiscal neutrality, coupled with plans for the stimulation of economic growth. The technical tax developments and announcements echoed this approach. One document described a "coherent framework" within which HMRC could tackle perceived tax avoidance, an approach supplemented by the closure of a number of loopholes and schemes and a general focus on measures to "shut down the open abuses that have been allowed to continue for too long". Other provisions focused on encouraging investment in UK enterprise and in developing the competitiveness of the UK economy.
SEC Launches FCPA Probe of Financial Services Industry's Interactions with Sovereign Wealth Funds
The U.S. Securities and Exchange Commission ("SEC") has, to our understanding, delivered letters of inquiry to at least 10 hedge funds, banks, and private equity firms requesting information about the firms' interactions with sovereign wealth funds ("SWF"). That list may expand to include other financial institutions. The investigation appears to be driven by: (i) the SEC's opinion that SWF employees are foreign government officials for purposes of the Foreign Corrupt Practices Act ("FCPA"); and (ii) reports that certain hedge funds, banks, and private equity firms may have paid bribes to those government officials to attract or retain business.
Related Attorney(s): Lary Stromfeld, Steven Lofchie
Related Practice(s): Corporate, Investment Management Litigation, Investment Management Regulation & Compliance, Private Equity, White Collar Defense and Investigations
New York State Supreme Court Upholds Springing Guaranty in Granting Summary Judgment
On March 8, 2011, in a decision enforcing a springing guaranty in a commercial real estate loan, the Supreme Court of the State of New York granted a motion for summary judgment in lieu of complaint pursuant to CPLR 3213. In UBS Commercial Mortg. Trust 2007-FL1, Commercial Mortg. Pass-through Certificates, Series 2007-FL1 v. Garrison Special Opportunities Fund L.P., the court not only found that such springing guaranty was an instrument for the payment of money only, thus entitling Plaintiffs to move for summary judgment in lieu of complaint, but the court also found that such springing guaranty was neither an unenforceable penalty nor against public policy.
Related Attorney(s): Steven Herman
Related Practice(s): Global Litigation, Real Estate
Third Circuit Upholds Use of Discounted Cash Flow Method Under Bankruptcy Code Section 562 in In re American Home Mortgage Holdings, Inc., et al.
On February 16, 2011, the United States Court of Appeals for the Third Circuit ruled that a discounted cash flow analysis constituted "a commercially reasonable determinant[] of value" for purposes of section 562(a) of the United States Bankruptcy Code. In so doing, the court upheld the United States Bankruptcy Court for the District of Delaware decision sustaining the objection of American Home Mortgage Holdings, Inc. (the "Debtors") to the $478.5 million claim of Calyon New York Branch for damages related to the termination of a mortgage loan repurchase agreement. Calyon had taken the position that no commercially reasonable determinants of value existed on the termination date, and, in reliance on section 562(b) of the Code, calculated its claim based on the "market value" of the specific loans at issue one year after the termination date.
Related Attorney(s): Michele Maman, Mark Ellenberg
Related Practice(s): Bankruptcy Litigation, Distressed Structured Products, Financial Restructuring
SEC Finalizes Rules Regarding Shareholder Approval of Executive Compensation and Golden Parachute Arrangements
On January 25, 2011, the Securities and Exchange Commission (the "SEC") adopted final rules (the "Final Rules") to implement the provisions of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to provide for non-binding shareholder votes on executive compensation ("say-on-pay votes"), the frequency of say-on-pay votes ("say-when-on-pay votes"), and golden parachute packages of named executive officers ("say-on-golden-parachute votes"). The Final Rules become effective on April 4, 2011 and are largely similar to proposed rules (the "Proposed Rules") that the SEC issued on October 18, 2010, discussed here. This Clients & Friends Memo supplements our previous discussion of the Proposed Rules by summarizing some of the substantive differences between the Proposed and Final Rules.
Related Practice(s): Corporate Taxation, Swap Regulation, Tax
Final Regulations Issued with Respect to FBAR Filing Requirements
On Wednesday, February 23, the Financial Crimes Enforcement Network ("FinCEN"), a bureau of the Treasury Department, issued final regulations (the "Final Regulations") describing the individuals and entities that are required to file Form TD F 90-22.1 – Foreign Bank and Financial Accounts Report ("FBAR"), and the foreign financial accounts that they must report. The Final Regulations are substantively identical to the proposed regulations that were issued on February 26, 2010 (the "Proposed Regulations"). Most significantly, the Final Regulations continue to reserve on whether equity interests in foreign hedge funds, private equity funds, and other non-mutual company investment funds are treated as financial accounts subject to FBAR reporting.
Related Attorney(s): Mark Howe, Linda Swartz, Gary Silverstein
Related Practice(s): Corporate Taxation, Tax, White Collar Defense and Investigations
Changes to the Rules on Client Assets Implications For Prime Brokers and Funds
On 1 March 2011, a series of amendments to the FSA's Client Assets Sourcebook ("CASS") come into force that will require the repapering of relationships between prime brokers and their fund customers as well as a review of any liens granted in custody agreements. These amendments are set out in FSA Policy Statement 10/16 which also contains new rules to: (i) limit deposits of client monies with other group entities to a maximum of 20% (comes into force on 1 June 2011); (ii) require firms to make a Client Money and Asset Return ("CMAR") (comes into force on 1 June 2011 ); and (iii) establish a CASS oversight controlled function (comes into force on 1 October 2011).
Related Practice(s): Broker-Dealer Regulation, FCA Regulated Entities, Financial Regulation, Investment Management Regulation & Compliance, Investment Management Transactions
Del Monte Decision Enjoins Shareholder Vote and Deal Protections; Holds Buyer Potentially Responsible for Aiding and Abetting Seller Board's Fiduciary Breach
In In re Del Monte Foods Company Shareholders Litigation, Consol. C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011), the Court of Chancery temporarily enjoined a shareholder vote on a high premium, all-cash merger to require an additional 20-day market check based on a preliminary finding that the sale process was potentially tainted by alleged misconduct by Del Monte's financial advisor and the private equity buyers. The Court also enjoined the parties from enforcing the buyer's deal protections and left open the door for a monetary damages claim against the buying consortium as an "aider and abettor" of a fiduciary breach by Del Monte's Board.
Related Attorney(s): Gregory Patti
Quantitative Investment Models and Compliance Policies and Procedures: the Securities and Exchange Commission Order Involving the AXA Rosenberg Entities
A recent order by the Securities and Exchange Commission strongly suggests that registered investment advisers that rely upon quantitative investment models to manage client assets are required by the Investment Advisers Act of 1940 to implement written compliance policies and procedures in order to identify and mitigate the risks associated with their quantitative models.
Tax Proposals in the Obama Administration's Fiscal Year 2012 Revenue Budget
On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals. This memorandum summarizes the tax proposals that are of most interest to U.S. corporate taxpayers, financial institutions, insurance companies, hedge funds, private equity funds, and high-income individuals.
Related Attorney(s): Mark Howe, Gary Silverstein, Linda Swartz
Energy Tax Provisions in the Obama Administration's Fiscal Year 2012 Budget
On Monday, the Treasury Department released the Obama Administration's Fiscal Year 2012 Revenue Proposals (the "Greenbook"), which includes several significant energy-related tax proposals. The proposals are all substantially similar to the energy-related tax proposals in last year's Greenbook, except for a new proposal to provide a tax credit in lieu of a deduction for energy-efficient commercial buildings.
Related Attorney(s): Linda Swartz, Mark Howe, Gary Silverstein
Proposed EU "Bail-in" Measures May Impact Credit Derivatives Framework
The European Commission recently launched a consultation on the Technical Details of a Possible EU Framework for Bank Recovery and Resolution (the "Consultation"). The Consultation is designed to be read with the Commission's October 2010 communication (the "Communication") on an EU framework for crisis management in the financial sector. The Consultation contains technical details which expand on the principles identified in the Communication.
Related Practice(s): Bank Regulation, FCA Regulated Entities, Financial Regulation, Investment Management Transactions
Fed Issues Final Regulations on the Volcker Rule's Extension Periods
On February 9, 2011, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") issued final regulations implementing the various conformance and extension periods under the Dodd-Frank Act's "Volcker Rule." These new regulations will be codified as new Subpart K of the Federal Reserve Board's Regulation Y.
Related Practice(s): Bank Regulation, Financial Regulation, Fund Formation, Investment Management Regulation & Compliance, Swap Regulation
Important Court Decision For No-Fault Insurers; New York Court Grants Summary Judgment To Insurers On Mallela Issue
On January 28, 2011, Cadwalader, together with co-counsel Bob Stern of Stern & Montana, obtained a significant decision for no-fault insurers from the Commercial Division of the New York County Supreme Court. Specifically, the Court found that four radiology providers were ineligible to receive no fault benefits because they had engaged in illegal fee splitting with non professionals and were unlawfully controlled and/or beneficially owned by a non professional. In addition to dismissing all of the providers' counterclaims against the insurers, the Court granted partial summary judgment in favor of the insurers, and against the providers, the radiologist and the real beneficial owner, on the insurers' claims for fraud and unjust enrichment.
Related Practice(s): Contentious Insurance, Global Litigation, Insurance and Reinsurance
SEC Issues Final Rules for New Disclosure Requirements Regarding Representations and Warranties in Asset-Backed Securities Offerings
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") was signed into law by President Obama on July 21, 2010. Section 943 of the Act requires the Securities and Exchange Commission (the "SEC") to prescribe regulations on the use of representations and warranties in the market for asset-backed securities. Such regulations must provide for disclosure by "securitizers," as defined in the Act, of fulfilled and unfulfilled repurchase requests across all trusts aggregated by the securitizer. They also require a description by nationally recognized statistical rating organizations ("NRSROs"), in reports accompanying credit ratings of securitization transactions, of the representations, warranties and enforcement mechanisms contained in each transaction and how they differ from those contained in issues of similar securities.
Related Attorney(s): Y. Jeffrey Rotblat, Lisa Pauquette, Stuart Goldstein, Frank Polverino, Michael Gambro, Gregg Jubin, Henry LaBrun, Anna Glick, Aaron Benjamin, Patrick Quinn, Neil Weidner
SEC Issues Final Rules Regarding Diligence and Disclosure in ABS Offerings
The Securities and Exchange Commission (the "SEC") issued final rules (the "Final Rule") on January 20, 2011, implementing the provisions of Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). Section 945 of the Act directed the SEC to issue rules that require an issuer of publicly offered asset-backed securities ("ABS") to perform a review of the assets underlying an ABS offering and disclose the nature of that review. The Final Rule adopts the SEC's earlier proposal with one important change, which is the inclusion of a minimum standard of review. The SEC also adopted amendments to Regulation AB that would require an ABS issuer to disclose information regarding assets that deviate from disclosed underwriting criteria.
Related Attorney(s): Neil Weidner, Lisa Pauquette, Gregg Jubin, Michael Gambro, Aaron Benjamin, Y. Jeffrey Rotblat, Anna Glick, Stuart Goldstein, Henry LaBrun, Patrick Quinn, Frank Polverino
Revising the Remuneration Code: Pan-European Requirements Applicable From 1 January 2011
On 17 December 2010, the Financial Services Authority (FSA) published final rules expanding on its Remuneration Code in order to implement amendments being brought in by the Capital Requirements Directive (CRD 3) and guidelines on remuneration from the Committee of European Banking Supervisors (CEBS). These new rules expand the scope of application of the FSA's existing Remuneration Code beyond the 26 larger banks covered by the original Code to include all banks, building societies and CAD investment firms (which will include asset managers, UCITS funds and most hedge fund managers).
Related Practice(s): Bank Regulation, FCA Regulated Entities, Financial Regulation, Investment Management Regulation & Compliance
High Court Interprets Section 2(a)(iii) of the ISDA Master Agreement
Yesterday, the High Court gave its judgment in the case of Lomas and others v JFB Firth Rixson, Inc and others upon application by the Joint Administrators of Lehman Brothers International Europe ("LBIE") for directions as to the construction and effect of five interest rate swap agreements ("Swaps") to which LBIE is a party.
Related Attorney(s): Nick Shiren, Richard Schetman, Robert Cannon, Lary Stromfeld, Mark Ellenberg, Assia Damianova, Ivan Loncar
Related Practice(s): Financial Regulation, Investment Management Transactions, Swap Regulation
Expert Networks and Insider-Trading Probes: Best Practices in Fostering Compliance and Reducing Legal Risks