Category Archives: Corporate Finance

The Law of Non-Existent Markets

Written by: Todd Stevens

International borders are increasingly blending together in the corporate world, so it would seem natural that this would also be the case in corporate law. However, this is frequently far from reality, as securities regulations across the world often reveal themselves to be a patchwork quilt of individual legal systems struggling to interact. Such was the picture painted by Michael Mann, former first director for the Office of International Affairs at the SEC and current partner in the Washington, D.C. office of Richards Kibbe & Orbe, who spoke on the global regulation of financial markets at Chicago-Kent this past Thursday.

“One of the interesting things about international securities markets is that there is no such thing,” Mann said, introducing his presentation. “(The markets) are run by domestic bodies administering domestic laws.”

Having framed the international securities world in this light, Mann went on to emphasize the importance of individual relationships in international securities law. As securities markets differ from country to country, businesses are forced to work with different legal structures in each individual market. Thus, it is incredibly important to remember one’s position in any international business arrangement. An expert in the United States market is not necessarily an expert in the Chinese market, and being successful in the field of securities requires strong, mutually beneficial relationships with legal partners across the globe.

Mann went on to set up an outlook for the future. In the wake of the Supreme Court’s Morrison v. National Australia Bank decision, it is much harder to gain jurisdiction in the United States, even when presented with a company that has significant US contacts. This situation makes it all the more important for firms and their legal departments to focus on how they develop their own internal rules, making sure that they are prepared to deal with foreign legal systems as needed.
More importantly, attorneys working in securities markets need to communicate with utmost clarity the issues confronting clients who want to operate internationally so they can shield themselves against potentially hazardous foreign regulations.

“We need to make sure there’s an understanding in our customer of the rules of the marketplace,” Mann said.

On a grander scale, Mann said that the Morrison decision may offer an opportunity to take a new look at the international securities arena and retool it into something friendlier and more efficient, citing past compromises on insider trading law made by the United States and Switzerland as a possible example.
Similar concessions worldwide would be necessary to create an improved setting. As Mann stated, “If the marketplace is ever going to become internationalized, we need to redraw the jurisdictional boundaries… so that people can protect themselves as they so desire.

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Facebook’s Legal Woes and Growing Pains Continue

Facebook’s common stock plunged to a new low on high trading volume as original shareholders seized their first opportunity to sell their shares since the May IPO.  On Thursday, the 90 day lockout period on original shareholders selling ended as shares FB dropped 6.37% to close below $20.  Analysts are mixed on how to play the drop with some seeing this as a golden buying opportunity for an undervalued stock and others seeing this as another example of instability and uncertainty in the young company.

It has been anything but a walk in the park for Facebook as the most anticipated IPO in recent memory has been plagued since its first day on the market.  Trading glitches at the open led to a slew of class action suits from disgruntled investors as Facebook and Nasdaq tried to shift the blame to one another.  Moreover, the stock spent the summer trading well below its initial price of $43 as negative publicity about privacy concerns, and the maturity of the company was compounded by pressure from short sellers.

Additionally, legal pressure against Facebook’s privacy policies increased in recent days and weeks in the wake of an FTC settlement.  The ninth circuit is reconsidering a previously dismissed lawsuit which alleged improper use and sale of private user data.  The dismissed lawsuit is getting a second look as FTC allegations and a Facebook settlement has bolstered the plaintiff’s case.

Supreme Court Will Determine Constitutionality of PCAOB

Earlier this year, the Supreme Court agreed to hear oral arguments on the constitutionality of the Public Company Accounting Oversight Board, known as the “PCAOB”, or as many others have amicably dubbed it, “peek-a-boo” (a reference to the acronym, as well as its function to “surprise” inspect audits of accounting firms).  The PCAOB arose out of the Sarbanes Oxley Act (“SOX”), a rather infamous piece of legislation among accountants and CFOs alike. Continue reading

NBA Might Need New Collective Bargaining Agreement

nba_logo1mThe Sports Business Journal reported this week that despite a collective bargaining agreement between NBA players and owners that runs through the end of the 2010-2011 season, a new agreement will likely have to be agreed upon.

Because of the poor economic climate and the expected low business numbers league-wide, a new agreement seems forthcoming. But, collective bargaining agreements, like most normal union labor contracts, rarely are easy to negotiate or agree upon for that matter. On the contrary, they are often difficult to hammer out, and in this economic climate there is little chance players, looking for as many incentives as possible, and owners, looking to save as much as possible, will see eye to eye on anything.

NBA and its Teams not Spared in Continuing Economic Crisis – By: Jason Vismantas

Earlier this week, the Sports Business Journal shed light on the NBA’s plan to borrow a much needed $175 million. While this doesn’t seem like much, it comes as a supplement to an already existing $1.7 billion credit facility in place. Under the original loan, the NBA used its media contracts as collateral to secure the $1.7 billion, $1 billion of which was funded by JP Morgan and 12 other banks (no doubt banks receiving TARP money) through short term loans. Interestingly, the remaining $700 million of the original deal was privately funded by sources like pension funds and insurers, which will be the sources of the new $175 million.

Although this new deal was thought of as well executed on behalf of the NBA, the need for this new money has made some troubling issues apparent.

First, not only have the NBA and its teams gone through a good portion of the $1.7 billion already, but the new money will be primarily used to cover teams’ operating losses, something the NBA nor its lenders ever envisioned. Even more alarming, 15 teams, half the league, have indicated that they would like to receive a portion of the new funds. And, while some teams like the Orlando Magic have been open about sharing their economic woes and need for the new money, sources close to the NBA say that New Orleans, Sacramento, Memphis and New Jersey are teams that are in far more serious, but relatively unknown, financial trouble – even going as far as saying that the New Jersey Nets franchise is near broke. This knowledge begs the questions of whether the $1.7 billion had run out long ago and whether the new $175 million will even help.

In the grand scheme of things though, the most alarming part of all of this, especially for non-sports fans, is the eagerness that both JP Morgan and Bank of America exhibited in securing the financing. While professional sports have been relatively safe investments for institutional lenders over the last couple decades, it’s looking more and more like that will not be the case in the future. Shouldn’t these banks and even private institutions be taking on less risk now rather than more? Whatever the answer may be, the landscape of professional sports financing and operation is changing dramatically.