On April 6, 2016, the United States Justice Department announced the filing of an antitrust suit in the U.S. District Court for the District of Delaware to block the proposed merger between Halliburton and Baker Hughes—citing its potential to “eliminate vital competition, skew energy markets and harm American consumers.” Originally brokered in 2014, the $35 billion deal would bring together the second and third largest oil field service firms in the world. Attorney General Loretta Lynch has voiced concerns that this merger of two of the top three firms would serve to create “non-competitive duopolies” in twenty-three separate markets throughout the United States.
In the context of any financial scandal, questions are asked about the scope of lawyers’ involvement in the financial misconduct. With respect to the 1980-90s savings and loan crisis, the Panama Papers shed light on the role of lawyers in aiding wealthy individuals, including public officials, in setting up offshore bank accounts and shell corporations to keep their assets from the public eye. The International Consortium of Investigative Journalists (ICIJ) published these 11 million plus confidential documents dating back to the 1980s that are reportedly connected to the Panamanian law firm Mossack Fonseca.
Ramón Fonseca, a founder of the firm, told The New York Times that Mossack Fonseca’s lawyers did not engage in any wrongdoing in helping their clients set up shell corporations. Fonseca explained, “We are like a car factory who sells its car to a dealer (a lawyer for example), and he sells it to a lady that hits someone. The factory is not responsible for what is done with the car.”
The venture capital industry has one goal: making startups incredibly lucrative and, thus, maximizing returns to venture capital investors. For the venture capital investor these outstanding returns are generally materialized 5 or 6 years after the Series A investment round, when the investor makes an exit and the startup either performs an initial public offering of its shares (IPO) or is sold to a strategic acquirer or a private equity fund.
However, in a business inherently risky as venture capital, there are also many examples of failures, where venture capital backed startups go insolvent or bankrupt. This happened recently with online retailor and Montreal-based Beyond the Rack, which had previously raised over U$90 million in venture capital investments and other financings. When the company was entering into insolvency, it pursued a sale with a potential buyer, but negotiations fell through, forcing it to file for creditor protection on March 23.
Disruptive technology is taking over the financial services industry, much like technology has reshaped the retail, hotel, music, and taxi industries in recent years. While investment in the Fintech market has been growing rapidly and substantially—from $514.5 million in 2010 to $7.6 billion in 2015—the regulatory framework is still immature, and we should expect to see substantial development in the near future. Fintech innovations bring major benefits to the economy and consumers, but they also raise concerns in relation to data privacy, security, and equality of access. For example, mobile payments create a parallel system outside the banking system, which central banks do not have the authority to oversee. Bank regulators worry that consumer data can be breached by, or through, third parties that gain access to data in the course of processing transactions, performing marketing roles, and offering shared or co-branded products or other services. Target’s major security breach in 2013 was initiated through its air-conditioning vendor.
“These laws are bad for people, bad for business and bad for job growth,” declared Brad Smith, Microsoft’s president and chief legal officer, in the wake of Anti-LGBTQ laws being enacted across the country. On March 23, 2016, Governor Pat McCrory signed House Bill 2 (HB2) into law. This bill destroyed all existing anti-discrimination protections for LGBTQ people throughout the state of North Carolina.
On April 13, 2016, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) jointly announced that five major banks – JPMorgan Chase, Bank of America, State Street, Wells Fargo and Bank of New York Mellow – failed to fulfill an important regulatory requirement of the Dodd-Frank Act, the major piece of legislation introduced in 2010 by Congress following the 2008 debacle. The “living wills” provision of the Dodd-Frank Act demands that big banks provide regulators with carefully drafted plans for how they would deal with a potential bankruptcy. This ambitious section seeks to make it easier for bank regulators to oversee potential bankruptcies by providing an orderly method to avoid the kind of chaos that followed the Lehman Brothers’ bankruptcy. The current process requires banks to submit updated living wills every year. Whether living wills pass muster critically hinges on whether they are “credible.”
Circle, a Boston-based Bitcoin start-up, was recently awarded the U.K.’s very first Electronic Money License. This award is a tangible sign of the English government’s commitment to promoting the development of financial technology. Furthermore Circle was not only selected for a license, it was also placed into the British “Innovation Hub,” which offers support to innovators in financial technology. The license allows Circle to help its customers transfer money via a mobile app in the U.K. This license also enables Circle to build a business relationship with Barclays, a major British bank that has tremendous interest in financial technology.
Circle, founded in 2013, is a start-up that allows its customers to use virtual currency in order to transfer money cheaply and quickly. It is backed by giant investors, such as Goldman Sachs and IDG Capital Partners. Traditional Bitcoin companies act as trading companies and focus their business on helping their customers buy and sell Bitcoins. Circle still possesses this traditional function, but their innovative emphasis is on facilitating the transfer of money between different national currencies. Customers can use dollars to buy Bitcoin and hold it for a short period of time before transferring the Bitcoin into pounds. By using Bitcoin as a medium, Circle allows people to exchange dollars and pounds instantly, with no cost. Circle customers will also be able to transfer money for euros in the near future, since its license is valid in the European Union as well.
The Sixth Amendment guarantees that criminal defendants “have the assistance of counsel,” which entails the freedom to choose said counsel, so long as he or she is able to pay for it. However, federal forfeiture laws related to asset “freezing” have served as a clever workaround to this Constitutional right for many years. That was until this March when the Supreme Court ruled in a 5-3 decision against such laws in the case of Luis v. United States.
Peabody Energy Corp, the world’s biggest private-sector coal producer, filed for Chapter 11 bankruptcy in St. Louis last week. Although American coal companies have struggled recently, with Alpha Natural Resources and Arch Coal also filing for bankruptcy, Peabody is the largest coal company to file for bankruptcy to date.
On April 6, 2016, U.S. pharmaceutical firm Pfizer abandoned its $160 billion planned merger with its Irish counterpart Allergan. The two companies called off what would have been the largest merger in the pharmaceutical sector after the U.S. Treasury announced new rules restricting tax-avoiding “inversions.”
An inversion is a corporate strategy to lower a company’s tax burden by moving its U.S. corporate headquarters to another country with lower corporate tax rates. The U.S. corporate tax rate is currently 35 percent—the highest among developing countries. Ireland, by comparison, has a tax rate of only 12.5 percent. Most U.S. corporations invert overseas by merging with a smaller foreign company and moving overseas, which is exactly what New York-based Pfizer sought in merging with Dublin-based Allergan. Pfizer stood to save over $35 billion in taxes by relocating to Ireland.