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Dodd-Frank

Banking and finance roundup

by Walter Olson on December 17, 2014

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Steve Bainbridge has a wish list for reforms to financial and securities law in the new Congress, especially the damaging Dodd-Frank and Sarbanes-Oxley laws. Included: repeal of conflicts minerals disclosure, “say on pay,” and pay ratio disclosure; more leeway for public companies to opt out of various regulatory obligations to shareholders that their own shareholders have not contractually seen fit to impose; and litigation reform.

Meanwhile, my Cato colleague Mark Calabria points out that there “are numerous protectors of the status quo in both major political parties,” which may frustrate the relatively free-market instincts of the responsible committee chairs, Sen. Richard Shelby and Rep. Jeb Hensarling. “But at least financial regulation is unlikely to get any worse.”

Prof. Bainbridge flags this disturbing Wall Street Journal piece:

The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court.

Previously, the agency had tended to use the ALJs (administrative law judges) for relatively cut-and-dried enforcement actions, while taking more complex or cutting-edge disputes to federal court. Now, following the Dodd-Frank expansion of its powers, it prefers ALJs even for many complex and demanding cases arising from charges such as insider trading. Defendants enjoy a range of protections in federal court that are not provided in administrative litigation, including juries as well as the presence of federal judges who are independent of agency control, held to a more demanding ethical code, and drawn generally from higher and more sophisticated circles within the legal profession. Read the entire Bainbridge commentary, with followups linking Henry Manne (adjudicatory actions are ways to avoid the more demanding process of rulemaking) and Keith Bishop (current system open to constitutional challenge?).

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  • Still money left in that piggy bank: Justice Department shakes $1.7 billion out of J.P. Morgan because its custody wing kept handling a primary Bernie Madoff account while a distant equity desk grew suspicious of him, in what “looks a bit like a tax on bigness and integration” [Matt Levine, Bloomberg; NPR].
  • Legacy of TARP one of cronyism and lawlessness [Mark Calabria, USA Today]
  • NYT assails a couple of academics as mouthpieces for Wall Street, Felix Salmon has a bit to say about that [Reuters, EconBrowser, Bainbridge, Pirrong] Daniel Fisher on a possible tie-in with Times reporter David Kocieniewski’s earlier piece flaying Goldman Sachs over aluminum warehousing [Forbes]
  • “Court Receptive to Overturning SEC’s Conflict Minerals Disclosure Rule” [Fed Soc Blog]
  • “Target Breach — Are Dodd-Frank ‘Swipe Fee’ Price Controls to Blame?” [John Berlau, CEI "Open Market"] “Volcker Rule Overshoots Wall Street to Hit Utah” [same]
  • “CFPB and Disparate Impact” [Hester Peirce, Point of Law]
  • “It might cost you $39K to crowdfund $100K under the SEC’s new rules” [Sherwood Neiss, VentureBeat via @jerrybrito]
  • Here’s a novel proposal for corporate governance: use the rules agreed upon by the original parties to the transaction [Hodak]

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Banking and finance roundup

by Walter Olson on November 21, 2013

  • J.P. Morgan and the Dodd-Frank system: “With Wall Street’s capable assistance, government has managed to institutionalize and monetize the perp walk.” [Michael Greve, related from Greve on the self-financing regulatory state]
  • Harvard needs to worry about being seen as endorsing its affiliated Shareholder Rights Project [Richard Painter]
  • Under regulatory pressure, J.P. Morgan “looking to pull back from lending to politically incorrect operations like pawn shops, payday lenders, check cashers” [Seeking Alpha]
  • Rare securities class action goes to trial against Household lending firm, HSBC; $2.46 billion judgment [Reuters]
  • Car dealers only thought they were winning a Dodd-Frank exemption from CFPB. Surprise! [Carter Dougherty/Bloomberg, Funnell]
  • “Memo to the Swiss: Capping CEO Pay is not an Intelligent Way of dealing with Income Inequality” [Bainbridge]
  • American Bankers Association vs. blogger who compiled online list of banks’ routing numbers [Popehat]

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Much more rewarding to act as a government informant than to help the employer address the problem: “Allegations of wrongdoing within a company often surface in the compliance department, which often is involved in internal investigations and receives employee complaints. Like other employees, compliance staff can under various statutes submit information on potential wrongdoing for whistleblower awards or claim retaliation for raising concerns about alleged wrongdoing.” [WSJ via CompliancEX]

Banking and finance roundup

by Walter Olson on October 22, 2013

  • “Dodd-Frank and The Regulatory Burden on Smaller Banks” [Todd Zywicki]
  • Side-stepping Morrison: way found for foreign-cubed claims to get into federal court? [D&O Diary]
  • “Alice in Wonderland Has Nothing on Section 518 of the New York General Business Law” [Eugene Volokh, swipe fees]
  • “Financial Reform in 12 Minutes” [John Cochrane]
  • Why the state-owned Bank of North Dakota isn’t a model for much of anything [Mark Calabria, New York Times "Room for Debate"]
  • Regulated lenders have many reasons to watch SCOTUS’s upcoming Mount Holly case on housing disparate impact [Kevin Funnell]
  • Cert petition: “Time to undo fraud-on-the-market presumption in securities class actions?” [Alison Frankel]

I’ve now got a guest column at PointOfLaw.com on the Securities and Exchange Commission’s proposed rule (earlier) requiring public companies to calculate and make public the ratio between chief executive officer (CEO) pay and the pay of a median worker. For companies with international operations in particular, the calculation may be quite difficult (it might depend on assumed exchange rates, for example, to say nothing of noncash benefits) and it might also depend on the ability to gather in one place certain types of data whose export is forbidden by some privacy-sensitive foreign laws. And all for what, aside from stoking demagogy? Or was that the point of the Dodd-Frank mandate that the SEC is now implementing?

I have fond memories of launching Point of Law during my years at the Manhattan Institute, and I was its primary writer for many years, so it is especially rewarding to contribute a guest column there. Under the leadership of MI’s Jim Copland, the site (and MI in general) has become especially active in corporate governance, shareholder and SEC controversies.

“U.S. corporations will need to disclose how the paychecks of their chief executive officers compare with those of their workers under a new proposal released [in September] by a sharply divided U.S. Securities and Exchange Commission.” [Reuters] The measure, pushed by labor advocates, was prescribed as part of the maximalist-regulation Dodd-Frank law, but opponents say the SEC majority is requiring needlessly costly compliance methods: “Proponents have acknowledged the sole objective of the pay ratio is to shame CEOs, but the shame from this rule should not be put on CEOS- it should be put on the five of us,” said Republican commissioner Michael Piwowar. “Shame on us for putting special interests ahead of investors.” [Towers Watson/MarketWatch] Because of the high expected cost of compliance, “we are almost certain to see quite a few companies paying more than they actually pay their CEO to figure out how much more their CEO makes than their median worker. If this rule was really being implemented for the benefit of the shareholders, then Congress could have let each company’s shareholders opt in or opt out of this disclosure regime. Clearly, the people pushing this ratio had no interest in giving actual shareholders a veto over this racket.” [Marc Hodak] More: Prof. Bainbridge, Keith Paul Bishop, Michael Greve, Jeffrey Miron on FBN. The agency is taking public comments through December 2.

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  • “The Dodd-Frank Say-on-Pay Cases Are on the Brink of Death” [Kevin LaCroix]
  • Kevin Funnell of Bank Lawyers Blog interviewed [Crystal Gimesh via BLB]
  • How taxpayer lending props up business model of banks, fast-food franchisors [Dayton Daily News on SBA via Tad DeHaven]
  • Independent currency = money laundering? “How Bitcoin Dies” [Econ Policy Journal] Or death by trial lawyer? [Coyote, Andrew Sullivan]
  • Nose of the camel: Obama budget plans to limit IRAs to $3 million [Politico]
  • How Swiss bank secrecy protected freedom [Daniel Fisher]
  • Sure, what could go wrong? Obama push for more mortgage lending to borrowers with weaker credit [Gideon Kanner, Coyote] More: Arnold Kling testifies before Congress on housing finance, and feels a resulting “need to scream” [ASKBlog, more]
  • More: Per NYT’s expert, “Shareholders have been demanding” disclosure on corporate political spending. Well, 18% of shareholders anyway [Jim Copland]
  • After bank trespass, Occupy Philadelphia benefits from jury nullification and a cordial judge [Kevin Funnell]
  • Cato commentaries on Cyprus crisis [Steve Hanke and more, Dan Mitchell, Richard Rahn podcast]
  • “NY Court Reinstates Foreclosure, Chides Judge For `Robosigning’ Sanctions” [Daniel Fisher] “Impeding Foreclosure Hurts Homeowners As Well As Lenders” [Funnell]
  • SEC charging Illinois with pension misrepresentation? Call it a stunt [Prof. Bainbridge]
  • “Plaintiff Lawyers Seek Their Cut On Virtually All Big Mergers, Study Shows” [Fisher] As mergers draw suits, D&O underwriting scrutiny escalates [Funnell] “Courts beginning to reject M&A strike suits” [Ted Frank]
  • Will Dodd-Frank conflict minerals rules actually help folks in places like Congo? [Marcia Narine, Regent U. L. Rev. via Bainbridge, earlier here]
  • “Securities Lawyers Gave To Detroit Mayor’s Slush Fund”; city served as plaintiff for Bernstein Litowitz [Fisher]

The Economist on an unplanned (at least one hopes it was unplanned) effect of Dodd-Frank:

THE Dodd-Frank law of 2010 requires a “say-on-pay” vote for shareholders of American companies. Clever lawyers scent a payday for themselves.

One law firm in particular, Faruqi & Faruqi, has filed a series of class-action suits demanding more information about how companies decide what to pay their senior executives. It seeks to prevent its targets from holding their annual meetings until the extra information turns up. One such suit, against Brocade Communications, a Californian company, forced the suspension of the annual meeting last February. Brocade quickly settled. Faruqi’s fees were $625,000. Several other companies, not wanting to delay their meetings, have settled similar suits.

Prof. Bainbridge is reminded of the specialized group of non-lawyers in Japan known as sokaiya, who extract money from target companies by threatening (among other things) to disrupt annual meetings.

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