Earlier today, the Justice Department announced that it had reached a non-prosecution agreement with Credit Suisse.  The bank admitted to hiring the relatives of Chinese government officials and exempting them from performance reviews in order to curry favor.  The DOJ press release lays out the issue:

“In the banking industry, not every undertaking is fair game,” said Assistant Director-in-Charge Sweeney.  “Trading employment opportunities for less-than-qualified individuals in exchange for lucrative business deals is an example of nepotism at its finest. The criminal penalty imposed today provides explicit insight into the level of corruption that took place at the hands of Credit Suisse Group AG’s Hong Kong-based subsidiary.”

According to CSHK’s admissions, between 2007 and 2013, several senior CSHK managers in the Asia Pacific (APAC) region engaged in a practice to hire, promote and retain candidates referred by or related to government officials and executives of clients that were state-owned entities (SOEs).  The employment of these “relationship hires” or “referral hires” was part of a quid pro quo with the officials who referred the candidates for employment, whereby CSHK bankers sought to and did win business from the referral sources.  Employees of other subsidiaries of CSAG were aware of the referral

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If you’re teaching securities regulation and touch on GAAP v. Non-GAAP metrics, you may catch millennial attention by talking about National Beverage Corp., notable to millennial audiences as the maker of LaCroix.  National Beverage’s CEO put out a press release saying that:

National Beverage employs methods that no other company does in this area – VPO (velocity per outlet) and VPC (velocity per capita)… Unique to National Beverage is creating velocity per capita through proven velocity predictors. Retailers are amazed by these methods.

If you’re looking to evaluate the company’s financial situation, more clarity on these metrics might help.  The SEC reached out to ask for that information and got an odd response from a company executive, claiming that the “information is as secretive as the formulas of our beverages and should not be disclosed to our competition.”

It’s odd to tell the market that it should get excited about particular metrics and then refuse to provide information about what the metrics mean.  This little tempest may also be a good way to touch on puffery again.

A few days ago, the SEC’s Investor Advisory Committee convened at Georgia State University’s law school.  They took testimony from the AARP about how to structure disclosures about financial professionals for use with retail customers.  Retirement security will be a bigger and bigger issue as more and more Baby Boomers enter retirement.

The AARP pointed out that effective disclosure needs to be short, simple, and clear:

We believe that the current four page relationship is too long, technical, and therefore too onerous for the average investor and household to process. The text of the relationship summary should be simply written and should avoid technical terms like “fiduciary” and “asset‐based fee” unless such complex terms are clearly defined. Behavioral science has shown that when faced with a complicated choice, people often simplify by focusing on only two or three aspects of the decision. The less they are able to frame the decision in narrow terms, the more likely they will end up overwhelmed, undecided or procrastinating. As with other disclosure statements, it is best if key information can be included on one page – additional secondary information can be attached as supplemental information. A good disclosure statement will highlight the information most important to the consumer.

As the SEC thinks about…

A few weeks ago, President Trump tweeted that he was “looking forward” to seeing the Labor Department’s employment report.  I put together an op-ed for The Hill arguing that this type of executive action forces the market to closely watch his Twitter feed because it sets a precedent that it may reveal significant clues about economic information before the official release.  The sudden change may impact overall confidence.  If the President selectively discloses economic information through Twitter, it raises concern that there might be selective disclosures through other channels:

Trump’s leaky administration and sudden decision to disseminate market-moving information through Twitter may cause many to fear that confidential economic information may be selectively released by the administration.

If investors fear that the president’s favored few have more information, they may hesitate to take the other side of trades or discount the amount they are willing to pay to account for the risk. Ordinary investors may not get fair value for their savings when they need to sell.

Some may discount these concerns as mere hand-wringing by pointing to numbers indicating strong job growth. Although those numbers matter, they cannot capture the value of investor confidence in our system’s integrity and

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Although lawyers (and other professionals) are not baseball players, some clients may benefit by looking at outcome statistics when making decisions about who to hire for a particular job.  Still, it’s tough to figure out the right statistics to use.  What counts as a “win” may not always be clear.  A defense lawyer that “loses” on liability but “wins” with a small damages award probably has a happy client.  In a couple of op-eds, I’ve suggested that immigration court outcomes might be a useful place to start.  A recent news story has me thinking about the issue again.

Publishing outcome statistics by attorney might help asylum seekers that now bet their lives on particular attorneys.  The real question is whether they should know how different counsel might affect the odds. We’ve already got stats for the judges.  And outcomes vary dramatically by presiding judge.  For example, immigrants pressing asylum claims in recent years before Los Angeles’s Immigration Court Judge Lorraine J. Munoz had 97.1% of their claims denied.  In contrast, asylum seekers fare better before Los Angeles Immigration Court Judge Stephen L. Sholomson, winning 78.2% of their asylum claims.  

But we don’t have ready access to the stats…

Deal Structure, a new paper by Cathy Hwang and Matthew Jennejohn, explains how sophisticated parties now structure increasingly complex contracts to achieve contracting’s various goals.  The article does an excellent job of explaining how today’s corporate contracts differ from the relatively straightforward contracts encountered in most contracts casebooks. 

Hwang and Jennejohn explain that parties may be able to structure their deals to nudge courts toward adopting a preferred interpretative approach. Courts facing lengthy, complex contracts must decide whether they want to adopt a textual or contextual approach.  Prior research has noted that when parties use standards, they nudge a court toward contextualism—looking outside of the four corners of the contract for interpretive clues. In contrast, rules signal to courts to use a textual approach to interpretation. That pairing—of standards with contextualism and rules with textualism—allows Hwang and Jennejohn to make a further argument: that for this pairing to work, parties need to pay attention to how they structure the provisions within their complex agreements.  For instance, if parties intend to circumscribe judicial intervention in an issue with a rule-like provision, they must take care to isolate that provision from others in the agreement using a modular design.  In …

The current Department of Labor has shown little interest in continuing to defend its fiduciary rule after the Fifth Circuit struck it down.  The AARP and three different state attorney generals recently sought to intervene to request review by the entire Fifth Circuit.  The AARP has a substantial interest in the rule.  It argues that “the panel’s decision also presents an exceptionally important issue because it robs workers, retirees, and their families of crucial protections for their retirement investments.” 

Even though the SEC recently launched its investment-advice initiative by proposing  regulation Best Interest, Labor’s rule remains critical.  Insurance pitchmen now characterize themselves as “financial advisers” and sell a variety of insurance products.  In many instances, these “financial advisers” sell annuities or whole life insurance to people with little need for the products, causing them to miss out on substantial gains over time.   Without the Labor rule, there may be few restraints on improper insurance sales.