The U.S. Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”), have found themselves fighting in the same arena this year as the DOJ aggressively tackled two high profile civil cases. The overlap has sparked speculation as to why the DOJ is poaching territory that is usually under the SEC’s purview.
Supreme Court’s Review of Halliburton: Potential Turn in the Foundations of Securities Class Actions
On November 15, 2013 the Supreme Court agreed to hear Halliburton Co. v. Erica P. John Fund, Inc., a case that has the potential to overturn one of the foundations of securities class actions. In Halliburton, the Court will decide whether to continue applying the fraud-on-the-market doctrine to securities class actions.
On November 20, 2013, in a broadcast streamed live on the internet, the CFPB unveiled the long awaited final rule that contains the Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (“RESPA”), Regulation X, and the Truth-In-Lending Act (“TILA”), Regulation Z.
The Obama administration has been fighting to eliminate a “tax loophole” that benefits private equity executives by taxing their profits from investments in companies (“carried interest”) by the capital gains rate of 20 percent instead of the regular income rate of nearly 40 percent. Congress has kept this from happening, but the decision in a recent case by the Federal Court of Appeals for the First Circuit in Massachusetts might put enough power in the hands of the Treasury Department and the Internal Revenue Service to win the fight.
IM Guidance Update Clarifies Stance on Aggregating the Investments of Certain Investors Across Funds to Satisfy Qualified Client Standard
In November 2013, the Division of Investment Management of the Securities and Exchange Commission (the “SEC”) issued an IM Guidance Update regarding the status of certain investors in private funds (including hedge funds and private equity funds) as “qualified clients” as defined in Rule 205-3 under the Investment Advisers Act of 1940 (the “Advisers Act”).
According to Moody’s, Dodd-Frank is the main culprit for its recent downgrade of four major United States banks’ credit ratings. On November 14, the credit rating agency released a report announcing that it lowered the credit ratings of Morgan Stanley, Goldman Sachs, JPMorgan, and Bank of New York Mellon by one notch. To explain, the agency pointed to the new framework implemented by the FDIC under Title II of the Dodd-Frank Act, which “reduce[s] the likelihood and predictability of systemic support” in the event of a bank holding company’s insolvency by shifting costs from the public sector to the private sector, increasing the risk of default.
SEC Focused on Compliance Programs
The Securities and Exchange Commission (SEC) continues to be very focused on compliance programs, and is bringing more enforcement actions to drive home the importance of maintaining a good compliance program. This means the relationship between a board of directors and the fund’s chief compliance officer is of utmost importance.
On Thursday, November 21, the U.S. Department of the Treasury (“Treasury”) announced its third major sale of General Motors (“GM”) common stock since the 2009 bailout, this time unloading 70.2 million shares. The sale, part of Treasury’s pre-defined written trading plan, further reduced Treasury’s GM holdings to 31.1 million shares, or approximately 2.2 percent of GM’s outstanding shares.
The Libor scandal continues unfolding as British prosecutors have identified twenty-two individuals as potential co-conspirators in an investigation of suspected London Interbank Offered Rate (“Libor”) manipulation. Libor, the estimated average interest rate charged by London banks for inter-bank borrowing, is linked to over $300 trillion in loans, financial products and contracts.
The individuals, who were also named in criminal charges brought earlier this year against former Citigroup trader Tom A.W. Hayes and two former brokers at RP Martin Holdings, were notified of the investigation in mid-October. Some of the individuals identified could face additional criminal charges in the United States.