May 15, 2018

Parallel Investigations: DOJ Throws Flag for “Piling On”

Companies on the receiving end of enforcement proceedings involving multiple agencies or jurisdictions have long complained about “piling on” – the government’s assessment of penalties without considering those that have already been imposed by other authorities for the same conduct. This Paul Weiss memo says that Deputy AG Rod Rosenstein announced last week that the DOJ has adopted a new policy designed to address these concerns. Here’s an excerpt with some of the details:

In a speech announcing the new policy, DAG Rosenstein referred to the “piling on” of fines and penalties by multiple regulators and law enforcement agencies “in relation to investigations of the same misconduct.” DAG Rosenstein noted that the “aim” of the new policy “is to enhance relationships with our law enforcement partners in the United States and abroad, while avoiding unfair duplicative penalties.”

Specifically, the new policy requires DOJ attorneys to “coordinate with one another to avoid the unnecessary imposition of duplicative fines, penalties and/or forfeiture against [a] company,” and further instructs DOJ personnel to “endeavor, as appropriate, to . . . consider the amount of fines, penalties and/or forfeiture paid to federal, state, local or foreign law enforcement authorities that are seeking to resolve a case with a company for the same misconduct.”

The memo points out that the DOJ has left itself a lot of “wiggle room” under the policy. Among other things, the policy does not describe the extent to which parties will be given “credit” for fines paid to other regulators, and allows for consideration of subjective criteria, such as the “egregiousness of a company’s misconduct,” which could have an impact on its practical application. We’re posting memos in our “White Collar Crime” Practice Area.

IPOs: CII Asks Companies to Stop “Dual Class” Tempting Investors

We’ve previously blogged about investor – and CII – disdain for dual class capital structures. Last month, the CII sent letters to two prospective IPO candidates – Vrio and Pivotal Software – requesting them to reconsider going public with a dual class structure, or to at least adopt a “sunset” provision for that structure.

The circumstances of the two companies are a little different, but this excerpt from the CII’s letter to Pivotal Software gets to the gist of its concerns:

As long-term investors, we believe a decision by Pivotal Software to go public with the dual-class structure will undermine confidence of public shareholders in the company. Independent boards accountable to owners should be empowered to actively oversee management and make course corrections when appropriate.

Disenfranchised public shareholders have no ability to influence management or the board when the company encounters performance challenges, as most companies do at some point, and especially where management is accountable only to itself and the board that it appoints. For these reasons, we are particularly concerned about the process of electing directors, the unequal voting structure, and the lack of a reasonable time-based sunset provision.

Fair enough – the CII is doing its job and raising legitimate points. But in the current environment, if I were a controlling shareholder of either company, my response would likely be along the lines of “if you don’t like our capital structure, then don’t buy our stock.”

Frankly, if this is an issue that really matters to the institutions that are sitting on the biggest pile of money in the world, a strategy that relies on appeals to the “better angels of our nature” & pleas for regulatory intervention seems a little pathetic. Money talks, and this is an issue that institutions need to vote on with their wallets. Unless, of course, it really doesn’t matter that much to them.

A member points out that the CII has been sending letters like these to prospective IPO companies with dual class structures for quite some time – and copies are available on its website.

Tomorrow’s Webcast: “M&A Stories – Practical Guidance (Enjoyably Digested)”

Tune in tomorrow for the webcast – “M&A Stories: Practical Guidance (Enjoyably Digested)” – to hear Cleary Gottlieb’s Glenn McGrory, Sullivan & Cromwell’s Melissa Sawyer and Haynes and Boone’s Kristina Trauger share M&A “war stories” designed to both educate and entertain. The stories include:

1. Let It Go – how sometimes when you can’t seem to repair a deal after a lot of effort, maybe helping the client be disciplined and walk away actually is the right outcome

2. Déjà Vu, All Over Again – the central truth about the high-yield debt market: companies often plan to merely dip their toes in the debt market only to find, over time, that they have plunged deeper than expected

3. Knowing What the Other Side Doesn’t Know – how a seller figured out what an inexperienced buyer didn’t understand about financing and how it almost killed but ultimately saved the deal.

4. Just the Facts – how sometimes issues that seem like major obstacles in a deal can be resolved dispassionately just by taking a deeper dive into the facts and narrowing the field of the unknown

5. End Goal in Mind – for any type of deal, keep in mind the client’s ultimate objective

6. When Timing Matters, So Does Trust – how last minute issues can scupper deal announcements – and how trust between deal teams can facilitate quick solutions to allow the deals to proceed

7. Dealmakers are Architects in Four Dimensions – how solutions to complex issues in deals require non-linear, creative thinking under pressure

8. Expect the Unexpected – it’s common for clients to imagine a transaction playing out in a certain manner, only to have market conditions steer them in a new direction. So it’s vital for deal lawyers to stay nimble and be ready to quickly pivot, as needed

9. They’ll Never Be the Winner – the hazards of trying to figure out (and plan for) who you think will win an auction, only to have an unexpected contender (and its own particular issues) prevail

10. The Secret’s Not Out – the extreme measures parties take to protect the confidentiality of secret formulae in consumer product transactions

John Jenkins