March 8, 2017

 Question Time

Our Law Firm Memo Survey examines law firm memoranda to identify trends in business law. To prepare the survey, our Experts On-Call reviewed 146 memos from 21 large law firms.

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Uncertainty was the watchword in the fourth quarter of 2016. From the unsettled regulatory climate created by a change in administration to banking regulators’ tendency to seek comment before proposing rules, questions outnumbered answers.

Regulation & A New President

28 memoranda

Readers weary of Presidential politics will be dismayed to learn that Q4 2016’s top agenda item (among law firms surveyed) was regime change in Washington, with the uncertain fate of the Dodd-Frank Act (1) receiving special attention. In a November 30, 2016 memo, Debevoise predicted that although the President-elect had “repeatedly criticized” Dodd-Frank, “wholesale repeal” was “unlikely,” although Congress “appears poised” to revise the law (2). Additionally, Paul Hastings observed, single-party control of Congress and the White House might result in revisions that previously “would likely never have been seriously considered (3)”. For those seeking specificity, Davis Polk cautiously suggested the Financial CHOICE Act (4) as “a starting point that signals a potential general direction … for financial reform (5)”.

  1. Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub L No 111-203, 124 Stat. 1376 (2010) (codified in various sections of 7, 12 and 15 USC)
  2. Debevoise & Plimpton LLP, The Outlook for Financial Regulatory Reform Under President Trump, Nov. 30, 2016
  3. Paul Hastings LLP, Back to the Future—Trump Administration Seeks to Roll Back Financial Services Regulation, Nov. 30, 2016
  4. Financial CHOICE Act of 2016, HR 5983, 114th Cong (2015)
  5. Davis Polk & Wardwell LLP, The Trump Transition and Possible Directions for Financial Regulatory Reform, Nov. 17, 2016


Financial Institutions


28 memoranda

On December 2, 2016, the Office of the Comptroller of the Currency (OCC) released a white paper (1) which, in the words of Cleary Gottlieb, posed “a series of questions for public comment (2)” regarding the possible creation of a special bank charter for financial technology (Fintech) companies. Gibson Dunn cautioned that the white paper was “best described as opening a discussion (3)”. Cleary Gottlieb added that, “while encouraging … the OCC paper” leaves “many issues unresolved”. Several firms questioned the efficacy of the OCC’s approach suggesting, as Sullivan & Cromwell put it, that a national Fintech charter might not prove “a useful and effective way for FinTech companies to organize their business activities (4),” because, Jones Day added, “the culture of the Fintech industry and the culture sought by the bank regulators may clash (5)”.

  1. Responsible Innovation, Office of the Comptroller of the Currency
  2. Cleary Gottlieb Steen & Hamilton LLP, The OCC’s New FinTech National Banking Charter, Dec. 6, 2016
  3. Gibson, Dunn & Crutcher LLP, The Comptroller’s Special Purpose Charter Proposal for Fintech: A Way Forward? Dec. 16, 2016
  4. Sullivan & Cromwell LLP, Office of the Comptroller of the Currency Proposal to Charter Special Purpose National Banks for FinTech Companies: OCC Outlines Supervisory Expectations and Seeks Public Comment, Dec. 4, 2016
  5. Jones Day, Fintech Banks—Comptroller of the Currency Proposes New Special Purpose Charter, Dec. 2016



11 memoranda

On October 26, 2016, the OCC, the Federal Reserve, and the Federal Deposit Insurance Corporation issued a joint “Advance Notice of Proposed Rulemaking” (ANPR) (1). Per Morrison & Foerster, the ANPR laid out a proposed “framework” for “enhanced” cybersecurity risk-management standards for “certain ‘large and interconnected’ financial institutions (2)”. Rather than offering a proposed rule, the ANPR solicits comments to be used in formulating a future proposal. Paul Weiss observed that, “overall these standards are indeed ‘enhanced’ and … complying … would likely prove costly and complex (3)”. White & Case noted the ANPR follows hard on the heels of a cybersecurity rule proposal from the New York State Department of Financial Services that differs “significantly in approach” from the ANPR (4)”. Sullivan & Cromwell described the ANPR as evidence of “the increasing importance that … regulators are assigning to … cybersecurity risks … posed by the interconnectedness of the largest financial institutions (5)”.

  1. Enhanced Cyber Risk Management Standards, 81 FR 74315-01 (Oct. 26, 2016)
  2. Morrison & Foerster LLP, Federal Banking Agencies Signal Enhanced Cyber Standards, Oct. 21, 2016
  3. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Federal Banking Agencies Issue Advanced Notice of Proposed Rulemaking on Enhanced Cybersecurity, Oct. 21, 2016
  4. White & Case LLP, Regulators Diverge on How Best to Manage Growing Cybersecurity Risks, Nov. 8. 2016
  5. Sullivan & Cromwell LLP, Federal Banking Agencies Solicit Comments on Enhanced Cyber Risk Management Standards: Once Established, Enhanced Cyber Risk Standards Would Apply to “Large and Interconnected” Banking Organizations and Certain Non-Bank Service Providers, Oct. 21, 2016


Governance & Disclosure


23 memoranda

In Q4 2016, a flurry of administrative actions generated nearly two dozen memos about US sanctions on foreign countries. On October 7th, President Obama lifted sanctions on Myanmar (1). Gibson Dunn observed that it is “rare for an active sanctions regime to be terminated in such a comprehensive fashion (2)”. Ten days later, in what Jones Day called “coordinated revisions,” the Office of Foreign Assets Control (OFAC) (3) and the Bureau of Industry and Security (4) ratcheted down US sanctions on Cuba, but Jones Day warned that, “Cuba remains subject to a comprehensive U.S. trade embargo (5)”. On December 15th, OFAC updated Iran nuclear deal FAQs (6) in order, in the words of Jones Day, to “provide additional guidance regarding winding down activities … in the event the United States reimposes currently lifted sanctions (7)” on Iran. And finally, on December 28th, President Obama imposed further sanctions on Russia (8). Gibson Dunn observed that “Russia’s retaliation may be in the cyber realm and consequently unannounced and unseen publicly (9)”.

  1. Order No. 13,742, 81 FR 70593 (Oct. 7, 2016)
  2. Gibson, Dunn & Crutcher LLP, United States Lifts Burma (Myanmar) Sanctions in Response to Ongoing Democratic Reforms, Oct. 10, 2016
  3. Cuban Assets Control Regulations, 81 FR 71372-01 (Oct. 17, 2016)
  4. Cuba: Revisions to License Exceptions, 81 FR 71365-01 (Oct. 17, 2016)
  5. Jones Day, Beyond Rum and Cigars: Further Easing of Sanctions Paves Way for Increased Business Opportunities in Cuba, Oct. 2016
  6. Publication of Iran-related Frequently Asked Questions and General License J-1, US Department of the Treasury Notice, Dec. 15, 2016
  7. Jones Day, OFAC Issues Guidance Regarding Wind-Down of Business Activities Involving Iran if Sanctions Snap Back, Dec. 2016
  8. Order No. 13,757, 82 FR 1 (Dec. 28, 2016)
  9. Gibson, Dunn & Crutcher LLP, President Obama Announces New Russian Sanctions in Response to Election-Related Hacking, Dec. 30, 2016



23 memoranda

On November 10, 2016, the SEC proposed Rule 14a-19 (1) that, if adopted, would mandate the use of a “universal” proxy card in contested director elections. Cahill Gordon explained that the proposed rule “would require each proxy card to include the names of all nominees named in any proxy statement (2)”. Gibson Dunn added that the rule is intended to “minimize differences that currently occur in contested director elections when shareholders vote by proxy (3),” by giving proxy voters what Cahill Gordon called “the voting rights a shareholder would have if the shareholder voted in person … at a shareholder meeting”. Davis Polk noted that the proposal “nodded” to concerns regarding “investor confusion” and the “implication that the soliciting party endorses the other party’s nominees (4)”.

  1. Universal Proxy, 81 FR 79122-01 (Nov. 10, 2016)
  2. Cahill Gordon & Reindel LLP, SEC Proposes Universal Proxy Cards in Contested Director Elections, Nov. 8, 2016
  3. Gibson, Dunn & Crutcher LLP, SEC Proposes New Universal Proxy Card Rules for Contested Elections, Nov. 1, 2016
  4. Davis Polk & Wardwell LLP, SEC Proposes Universal Proxy Cards, Oct. 28, 2016



22 memoranda

On December 16, 2016, the Supreme Court resolved a split between the Second and Ninth Circuits regarding what constitutes a “personal benefit” sufficient to confer criminal insider trading liability on a “tipper” (1). In what Wilson Sonsini described as a “partial reversal of the recent Second Circuit decision in United States v. Newman (2),” the Supreme Court upheld the conviction of an insider who passed confidential information to a family member without receiving “any tangible personal or financial benefit … in exchange (3)”. Fried Frank pointed out that Salman was “one more sad chapter in the annals of family insider trading cases (4),” and thus, as Wilson Sonsini noted, belongs to a body of case law “limited to insider trading cases involving close friends or family”. “Notably,” Paul Weiss explained, “the Court elected not to adopt the government’s argument that a gift to ‘anyone’ satisfies the personal benefit requirement (5)”.

  1. Salman v. United States, 137 S. Ct. 420 (2016)
  2. United States v. Newman, 773 F.3d 438 (2d Cir. 2014) abrogated by Salman v. United States, 137 S. Ct. 420 (2016)
  3. Wilson Sonsini Goodrich & Rosati, Government Prevails in Significant Insider Trading Case, Dec. 6, 2016
  4. Fried, Frank, Harris, Shriver & Jacobson LLP, Managing Insider Trading Risks After Salman, Dec. 9, 2016
  5. Paul, Weiss, Rifkind, Wharton & Garrison LLP, Supreme Court Reaffirms Dirks, Confirms that a Gift of Information to a Trading Relative or Friend, Dec. 7, 2016


Public M&A


15 memoranda

On October 13, 2016, the IRS issued final, and as Sullivan & Cromwell noted, “widely anticipated (1),” regulations (2) aimed at limiting intra-corporate earnings stripping and reducing what Simpson Thacher described as “the over-leveraging of U.S. entities in the cross-border context … and ‘inversion’ transactions (3)”. Skadden Arps reported that while the final rules retained “much of the general approach and structure of the proposed Regulations (4),” they were, as Sullivan & Cromwell observed, “significantly narrowed … in response to feedback”. Simpson Thacher expected the new regulations to “meaningfully limit the ability of U.S. entities to engage in earnings stripping,” but Sullivan & Cromwell expected the “principal effect” of the final regulations to be “on foreign-parented multinationals, and … particularly … on non-financial multinationals”.

  1. Sullivan & Cromwell LLP, Follow-Up Discussion of the Final Section 385 Related-Party Debt Rules: Final and Temporary Regulations, Oct. 20, 2016
  2. Treatment of Certain Interests in Corporations as Stock or Indebtedness, 81 FR 72858-01 (Oct. 21, 2016)
  3. Simpson Thacher & Bartlett LLP, IRS Issues Regulations Addressing Related-Party Debt, Oct. 17, 2016
  4. Skadden, Arps, Slate, Meagher & Flom LLP, IRS and Treasury Issue Final Debt/Equity Regulations, Oct. 25, 2016