After a period of breathtaking growth, China’s biggest e-commerce company, Alibaba, has recently planned its initial public offering. Now the two major U.S. stock exchanges are ready to fight for the right to host. Though it has not been announced yet, Alibaba’s plan to raise $10 to $15 billion will likely overshadow Twitter’s highly anticipated Nov. 15 listing on the New York Stock Exchange. Relatively loose regulations in the United States, in contrast to Hong Kong’s stringent regulations, may be the fundamental factor that contributes to the biggest IPO since Facebook’s rocky debut last year.
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A San Francisco-based startup has created a new financial product that may push sports betting to a new level, challenging regulators and existing law.
Fantex, Inc. wants you to buy stock in Arian Foster, the Houston Texan’s Running Back. As an investor, you can receive up to 20% of Foster’s future earnings from his playing contracts, endorsement deals, broadcasting contracts, or any other income that he receives from contracts attributed to his brand.
Twitter, Inc. publicly filed its IPO documents on Thursday, revealing the microblogging company’s financials for the first time. Analysts expect the seven-year-old site to be valued in the $10- to $15-billion range, although it is still unprofitable. Rapid growth has been outmatched (for now) by accelerated expenses: in the first half of this year, revenue doubled to $254 million but net loss increased by 40% to $69 million. Twitter, which has chosen the ticker symbol TWTR, is still behind the pace set by Facebook. By comparison, Facebook’s IPO sales pitch showcased a $1 billion annual profit in 2011 and 845 million active users (Twitter has 215 million). Twitter’s co-founder and former CEO Evan Williams will expect the largest payout once the liquidity event is completed; he owns 12 percent of the company. Co-founder Jack Dorsey owns 4.9 percent.
The federal government is paralyzed as lawmakers have failed to agree on the nation’s budgetary priorities. Divided government in hyper-partisan Washington, D.C., has proven to be a recipe for stalemate. While most of the coverage has focused on House Republicans’ objection to funding the Affordable Care Act, the debate will likely be viewed as a much broader battle on federal spending. Two storms will soon converge—the current battle over a Continuing Resolution (essentially legislative authorization to write certain checks from the U.S. Treasury) and the imminent necessity to raise the federal government’s $16.7 trillion debt ceiling (to further add to the nation’s debt). Treasury Secretary Jack Lew has estimated that the U.S. government will need to raise the ceiling before October 17th, less than two weeks away. For lawmakers, resolving the current shutdown by passing a “clean CR” will solve little unless the deal also addresses the debt ceiling—thus, the conversation for congressional leaders of both parties appears to have shifted to a grand bargain or large-scale budget deal. For now, Wall Street has remained mostly apathetic, but prolonged brinksmanship is likely to change the market’s attitude in a hurry.
The world’s third-busiest social media website appears ready to follow in the footsteps of Facebook and LinkedIn, having recently announced its intent to file for an initial public offering.
Twitter made the announcement last week via one of its trademark “tweets,” revealing only that it had filed “confidential[ly]” with the Securities and Exchange Commission. As a company earning less than $1 billion in annual revenues, Twitter qualifies under a 2012 JOBS Act provision whereby “emerging growth companies” are allowed to make their filings in secrecy.
A confidential filing will provide some benefits to the company: in addition to being able to keep its early discussions with regulators behind closed doors, Twitter can also elect to release only two years of financial statements rather than the standard three, and the company does not have to disclose all of the executive compensation details usually required of other companies. The company will still be expected to release necessary financials three weeks before it begins its investor road show.
As the real estate market was turning sour in 2007, Blackstone Group LP was preparing to go public. Timing was not quite perfect, however, as the world’s largest private equity firm happened to be heavily invested in property and other particularly vulnerable holdings. While Blackstone’s IPO launched at $31 per share, market troubles and the firm’s exposure led to sharp declines within the next year–in 2008, its shares were trading at less than one-quarter of that price. Litigation ensued, with some investors claiming that Blackstone’s executives had not properly disclosed the declining values of some of its assets during the IPO process.
After five years of litigation, the parties have reached a settlement. A U.S. federal judge, sitting in Manhattan, must still approve of the $85 million agreement. For more detailed coverage of the case and its developments, see Businessweek and Reuters.
The Hong Kong Stock Exchange Releases Revised Rules and Procedures to Implement New IPO Sponsor Regime
[Editor's Note: The following update is authored by Davis Polk & Wardwell LLP]
On 23 July 2013, The Stock Exchange of Hong Kong Limited released a large number of amendments to the Rules Governing the Listing of Securities on the Exchange, revised checklists, guidance materials and templates. Subject to certain transitional provisions, these materials will come into effect on the same date, 1 October 2013, as the amendments to various guidelines and codes released by the Securities and Futures Commission (the “SFC”) in December last year. Together, they will implement the new regulatory regime for sponsors in a listing application or initial public offer (“IPO”) conducted in Hong Kong. Read the rest of this entry »
As a result of Facebook’s initial public offering (IPO) mishap last year, the SEC has charged NASDAQ with securities laws violations resulting from its poor systems and decision-making in handling the IPO and secondary market trading of Facebook shares. In order to settle the SEC’s charges, NASDAQ has agreed to pay a $10 million penalty – the largest ever against an exchange.
Exchanges such as NASDAQ have an obligation to ensure that their systems, processes, and contingency planning are adequate to manage an IPO without disruption to the market. However, despite the anticipation that the Facebook IPO would be among the largest in history, NASDAQ failed to address a design limitation in their system that matched buy and sell orders, causing disruptions to the Facebook IPO. These disruptions then led NASDAQ to make a series of ill-fated decisions that led to the rules violations.
In Levitt v. J.P. Morgan Sec., Inc., 10-4596-CV, 2013 WL 1007678 (2d Cir. Mar. 15, 2013), the Second Circuit reversed a district court’s grant of class certification to a group of plaintiffs who alleged that Bear Sterns (subsequently bought by J.P. Morgan) had violated its duty to disclose when it did not notify investors of a fraudulent scheme by Sterling Foster, a now-defunct brokerage firm.
The case concerned allegations of fraud arising from a September 1996 IPO of ML Direct, a television marketing firm. Sterling Foster orchestrated the IPO as the introducing broker, with Bear Sterns (subsequently acquired by J.P. Morgan) acting as the clearing broker. In general, the clearing broker in a transaction owes no duty of disclosure to the customers of the introducing broker. However, the plaintiffs sought to overcome this hurdle by establishing that Bear Sterns actively participated in the fraudulent scheme.
The district court agreed with the plaintiffs that Bear Sterns’s participation was extensive enough to trigger a duty to disclose. However, the Second Circuit held that the plaintiffs had failed to allege “sufficiently direct involvement” by Bear Sterns.
The Second Circuit noted that providing “normal clearing services” do not give rise to a duty to disclose, even when the broker providing those services is aware of the introducing broker’s fraudulent intentions. Rather, to trigger a disclosure duty, the clearing broker would have to actively depart from its normal passive clearing functions and affirmatively exert “direct control” over the introducing broker and the fraudulent trades. The court found that Bear Sterns, by merely “allowing” such trades to proceed, had not assumed such a level of control.
The plaintiffs’ counsel characterized the ruling as “a sad day for investor protection,” stating that the court had “has for the first time held that a clearing firm has no duty to disclose that it is knowingly participating in market manipulation by its introducing broker.”
The court, however, carefully declined to address the legal implications of “market manipulation itself” on the duty to disclose, confining itself to its factual conclusion that Bear Sterns did not directly engage in such manipulation. Underscoring the narrowness of the Second Circuit’s ruling, the New York district court refused to apply Levitt to a case where a defendant had made misleading statements, holding that the making of misleading statements constituted direct involvement. The same district court has also recently observed that the question of market manipulation remains open.
The SEC has charged former Oregon gubernatorial candidate, Craig Berkman, with a violation of the antifraud provisions of federal securities laws. Berkman’s fraud has been referred to as a Ponzi-like scheme where investors were promised access to pre-IPO shares in Facebook, Groupon, Zynga, and LinkedIn. The SEC alleges that John B. Kern, and Berkman’s lawyer, aided and abetted this violation.
Within a month of the Initial Public Offering (“IPO”) Task Force’s white paper, “Rebuilding the IPO On-Ramp,” Congress developed the Jumpstart Our Business Startups (“JOBS”) Act. The legislation aims to create new companies, and ultimately new jobs. The JOBS Act loosens security regulations, making it easier for startups to access funding and go public. Professor Robert Bartlett recently spoke about the effects of the JOBS Act at a Berkeley Law Alumni Center event held at Orrick, Herrington & Sutcliffe LLP.