Securities Mosaic® Blogwatch
June 14, 2019
“Cyan,” Reverse-“Erie,” and the PSLRA Discovery Stay in State Court
by Wendy Gerwick Couture

In the wake of the Supreme Court’s holding in Cyan, Inc. v. Beaver County Employees Retirement Fund[1] that state courts have concurrent jurisdiction over Securities Act claims, even if asserted as class actions, there has been an influx of Securities Act class actions filed in state courts. A key question has divided courts and commentators: Does the Private Securities Litigation Reform Act (“PSLRA”) discovery stay apply in state court? For example, in September 2018, a Superior Court in California held that the stay did not apply in state court,[2] while in May 2019 a Superior Court in Connecticut held that it did.[3]

The issue implicates the so-called “reverse-Erie” doctrine. As explained by Kevin M. Clermont in his seminal article, Reverse-Erie, this doctrine governs the very issue posed here: “In state court, when does state law apply and when does federal law apply?”[4] Drawing from Supreme Court case law and scholarly commentary on the reverse-Erie doctrine, I argue that the PSLRA discovery stay does not apply in state court.

When applying the reverse-Erie doctrine to potentially displace state rules that are procedural in nature (like discovery rules), two presumptions weigh against that displacement. First, there is a “normal presumption against pre-emption.”[5] Second, there is a “general rule, ‘bottomed deeply in belief in the importance of state control of state procedure,’ . . . that ‘federal law takes the state courts as it finds them.’”[6] And yet, pursuant to the reverse-Erie doctrine, federal law sometimes displaces state rules that are procedural in nature when federal claims are heard in state court.

First, I argue that the PSLRA does not expressly preempt states’ permissive discovery rules. The PSLRA provisions in the Securities Act contain explicit statements about the scope of their applicability. Some of those provisions, such as the one covering the appointment of a lead plaintiff, apply only to “each private action arising under this Act that is brought as a plaintiff class action pursuant to the Federal Rules of Civil Procedure” and thus do not purport to apply in state court.[7] Other provisions, including the one covering a discovery stay, apply “[i]n any private action arising under this Act.”[8] Relying on this different language, some courts and commentators have concluded that the PSLRA expressly preempts states’ permissive discovery rules. I argue, however, that a more reasonable interpretation of this language is that Congress intended for some provisions to apply only to class actions (e.g., the appointment of lead plaintiff provisions) and other provisions to apply to both individual and class actions (e.g., the discovery stay). Indeed, all of the provisions preceded by the more restrictive-scope language relate to procedures that only make sense in the context of class actions. Thus, I contend that such language is not intended to differentiate between provisions that apply in state court and those that do not; rather, it is intended to differentiate between provisions that apply only in class actions and those that apply in both individual and class actions.

Second, I argue that, whether under a preemption analysis or a judicial choice-of-law analysis (which the Supreme Court sometimes merges in the reverse-Erie context), the PSLRA discovery stay does not apply in state court. Drawing on the key Supreme Court precedent and scholarly commentary thereon, I identify eight considerations applicable to the reverse-Erie analysis, absent express preemption: (1) the state’s interest in applying its own procedure; (2) whether the state procedure applies to all like claims or singles out the federal claim; (3) whether the state procedure applies to both parties or singles out one party; (4) the degree to which the state procedure undercuts federal policy; (5) whether the federal procedure is internally-sourced or externally-sourced; (6) the degree to which the choice of procedure is potentially outcome-determinative; (7) if outcome-determinative, the risk of forum-shopping; and (8) if outcome-determinative, the risk of treating similarly situated parties differently based on access to different fora.

Applying these considerations, I argue that the following four weigh against applying the PSLRA discovery stay in state court: (1) each state has both normative and administrative interests in applying its own discovery rules, which are at the core of state procedure; (2) states’ permissive discovery rules apply to all like claims and do not single out Securities Act claims; (3) states’ permissive discovery rules apply to both parties, rather than singling out one party, although they admittedly are more likely to benefit Securities Act plaintiffs in practice; and (4) states’ permissive discovery rules do not undercut the federal policy of providing a remedy for meritorious Securities Act claims, although they do admittedly undercut the specific policies supporting the PSLRA discovery stay of preventing fishing-expedition discovery and extortive discovery.

I contend that the following four considerations weigh in favor of applying the PSRLA discovery stay in state court: (1) the PSLRA discovery stay is internal to the Securities Act; (2) the application of states’ permissive discovery rules to Securities Act claims has the potential, in practice, to indirectly affect the ultimate disposition of a subset of cases where the plaintiff uncovers facts in discovery that enable the plaintiff to amend an otherwise deficient complaint so as to avoid dismissal; (3) the outcome-determinative impact of states’ permissive discovery rules in these cases has the potential to contribute to forum-shopping, although that impact is marginal in light of the other reasons that plaintiffs might elect to proceed in state court; and (4) the defendant, which is the party potentially harmed by the outcome-determinative impact of states’ permissive discovery rules, does not have the right to remove the case to federal court.

On balance, although these considerations are mixed, I contend that they weigh against applying the PSLRA discovery stay in state court, especially against the backdrop of the presumption against preemption and the general rule that federal law takes state courts as it finds them.


[1] 138 S. Ct. 1061 (2018).

[2] Order Denying Defendants’ Motion to Stay Further Discovery Pending Ruling on Demurrer, Switzer v. W.R. Hambrecht & Co., Nos. CGC-18-564904, CGC-18-565324, 2018 WL 4704776, at *1 (Cal. Super. Ct. Sept. 19, 2018).

[3] Memorandum of Decision Re Defendants’ Motions for Protective Order Staying Discovery Pursuant to 15 U.S.C. Section 77z-1(b)(1), City of Livonia Retiree Health & Disability Benefits Plan v. Pitney Bowes Inc., No. X08-FST-CV-186038160-S, 2019 WL 2293924 (Conn. Super. Ct. May 15, 2019).

[4] Kevin M. Clermont, Reverse-Erie, 82 Notre Dame L. Rev. 1, 4 (2006).

[5] Johnson v. Fankell, 520 U.S. 911, 918 (1997).

[6] Id. at 919 (quoting Hart, The Relations Between State and Federal Law, 54 Colum. L. Rev. 489, 508 (1954)).

[7] 15 U.S.C. § 77z-1(a).

[8] 15 U.S.C. § 77z-1(b)(1).

This post comes to us from Professor Wendy Gerwick Couture at the University of Idaho College of Law. It is based on her recent paper, “Cyan, Reverse-Erie, and the PSLRA Discovery Stay in State Court,” available here.

June 14, 2019
Defined Contribution Plans and the Challenge of Financial Illiteracy
by Andrea Hasler, Annamaria Lusardi, Jill Fisch

Retirement saving in the United States has changed dramatically. The classic defined-benefit (DB) plan has largely been replaced by the defined-contribution (DC) plan. With the latter, individual employees’ decisions about how much to save for retirement and how to invest those savings determine the benefits available to them upon retirement.

This system relies on employees to save and invest their money for retirement, decisions that they are poorly equipped to make. A variety of studies document low levels of financial literacy in the general population. People with low financial literacy are susceptible to a number of investment mistakes, including choosing products that do not meet their needs and paying excessive fees. They are also vulnerable to fraud. Moreover, investment decision-making is complicated. The typical 401(k) plan offers participants products that many of them do not understand. Effective retirement savings also requires people to begin saving early, to reallocate their portfolios periodically as they age and, when they retire, to determine how to manage the balance in their accounts to provide income for the rest of their lives.

Although financial illiteracy is a widespread problem, the evolution of workplace pensions exacerbates the problem by imposing responsibility for financial well-being in retirement on a group of people who are particularly ill-suited to the task. We term these people “workplace-only investors,” which we define as people whose only exposure to investment decisions is by virtue of their participation in an employer-sponsored 401(k) plan or equivalent DC plan; they do not have other retirement accounts or financial investments. We view workplace-only investors as forced or involuntary investors in that their participation in the financial markets is a product of their employment and unlikely the result of informed choice. They are a sizeable share of participants in DC pension plans.


In our article, Defined Contribution Plans and the Challenge of Financial Illiteracy, forthcoming in the Cornell Law Review, we present the first research to focus specially on the characteristics of workplace-only investors. We analyze data from the 2015 National Financial Capability Study to show that workplace-only investors suffer from higher levels of financial illiteracy than other, more active, investors, making them particularly poorly equipped to make sound financial decisions. The financial literacy of workplace-only investors is particularly low and alarming when looking at concepts specifically connected with investment decisions. In addition, we find that workplace-only investors differ from other investors, not just in financial decisions with respect to their retirement accounts, but also in other financial decisions, such as debt management. In short, workplace-only investors are particularly vulnerable.

This problem of financial illiteracy is compounded by the fact that the existing regulatory treatment of DC plans relies heavily on participant choice to limit the responsibility of employers in connection with retirement investing. So long as employers offer their employees some reasonable investment options, they have limited responsibility for their employees’ financial well-being.

We consider the implications of our findings for the viability of participant-directed retirement savings and identify two potential responses. One possibility is that ERISA could be modified to impose greater responsibility on employers who sponsor participant-directed retirement plans. We identify several limitations in the viability of this option. We also note the risk that greater liability exposure could decrease employer willingness to provide retirement plans for their workers. Alternatively, employer-sponsors of participant-directed retirement plans could be required to evaluate and remediate the financial literacy of plan participants, thereby enhancing the effectiveness of participant choice. We argue that this second option is more promising and that ERISA or the Department of Labor should mandate financial education as a component of employer-provided DC plans.

We conclude by offering preliminary reflections on how employers could do so effectively. We identify three components of an effective employer-provided financial education program that could be implemented by all employers: (1) a self-assessment enabling employees to measure their financial literacy, (2) minimum information about both the employer-provided plan and the process of saving and investing for retirement, and (3) timing the provision of financial education so that it occurs at critical moments when employees make financial decisions. Importantly, we reason that financial education should not be limited to the time an employee enrolls in a plan but should continue to provide that employee with information relating to rebalancing, changes in employment, and managing plan assets at and after retirement.

There are several reasons why a mandate is necessary in light of the market-based trend toward providing workplace-based financial education. First, it would ensure that all employees, not only those working in big firms or firms providing generous pension benefits, have access to financial education in the workplace. Second, our proposal leaves room for firm-specific decisions about the details of employee financial education; a mandate only sets a floor with respect to minimum standards. Third, a regulatory mandate encourages market-based innovation and bolsters the exchange of information and experience across firms, improving the supply and quality of programs over time. Finally, a requirement that applies to all firms is necessary to address worker mobility. Many workers change jobs during their working career.

In the same way in which DB plans were not an adequate pension system in a dynamic labor market, DC plans that do not take into consideration and address the different needs of workers are not adequate for the current labor force. The minimum financial education requirements that we propose in this article are necessary for DC plans to be viable and for workplace-only investors to save and plan effectively for their retirement.

The complete article is available for download here.

June 14, 2019
Exchanging Views on Exchange-Traded Funds
by Hester Peirce, U.S. Securities and Exchange Commission

Welcome to all of you. We are so delighted to be able to host you at the Securities and Exchange Commission for today’s workshop on exchange-traded funds (ETFs). The discussion today is sure to be fascinating. Aside from my greeting, everything I say reflects my own views and not necessarily those of the Commission or my fellow Commissioners. [1]

It is graduation season, so if you have time to walk around the city, you might see graduates of our local schools celebrating in their caps and gowns. The big story of this graduation season was the announcement by a wealthy commencement speaker at one college that he would pay off the debt of the entire graduating class to whom he was speaking. [2] His gift is wonderful, but it may become much more difficult to find commencement speakers, as I suspect that there are few who would be able to match such generosity. The reality is that most graduates will not be the beneficiaries of such kindness from a stranger.


Our capital markets, however, have enabled many parents to save in advance for their children’s education, as well as for their own retirements. ETFs are among the favorite products of American investors. Through ETFs, investors can gain inexpensive and convenient exposure to the markets. As of mid-2017, ETFs were in the portfolios of 7.8 million U.S. households. [3] ETFs are gaining more investor assets every year as more investors come to appreciate that they are a low-cost investment option with tremendous diversity. It is important, therefore, to keep in mind the value of this market innovation to investors even as you think about the important technical aspects of ETFs, the way they operate, and how they affect the broader markets.

The lens of the investor is just one lens through which we should view these markets. The academics and market participants who are with us today will give us a glimpse of ETFs through their lenses. The picture we see will be all the richer because we also can look at it through the different jurisdictional lenses we have in the room. ETFs and ETF marketplaces are not uniform the world over, so we can learn from one another’s experiences. Regulators, academics, and market participants have a long history with ETFs, which should inform our policy discussions.

We ought to approach this topic in the same way that we approach other marketplace phenomena. We need to gather and analyze data before we develop policy conclusions, let alone put those policies into law. As we seek to understand the risks of these products, we need to delve deeply into the institutional details of how ETFs and their markets operate. Without doing so, we will not be able to understand the magnitude of any risks, and whether and how such risks might be transmitted to other parts of the market. A close consideration of market mechanics will also help us to understand the role that ETFs can play in making our financial markets more resilient and efficient. We must undertake our inquiries in a manner that is transparent to market participants, academics, and other interested parties.

These themes of transparency and analytical rigor are ones that Randal Quarles, Chairman of the Financial Stability Board, underscored in a speech he gave earlier this year. In the words of Chairman Quarles: “[A]s we devote more attention to evaluation of new and evolving risks in the financial sector, we must ensure that our assessment of vulnerabilities is based on cutting-edge thinking and a disciplined methodology . . . .” [4] Such assessments, he explained, require the input of a broad range of outside parties—reflective of the broad reach of the policies that might emerge from the assessments. Today’s workshop is an important opportunity for analytical rigor. As we continue the conversation about ETFs, we should make sure to bring in the full range of expert voices on the topic.

The first ETF debuted in the United States in 1993. [5] Without relief from certain aspects of our regulatory framework, these funds could not operate at all. Fund sponsors have to come to us to ask for an exemptive order before they can launch their funds, and we have granted numerous such orders over the past twenty-five plus years. Over this time period, the ETF industry has matured. During the last quarter century, we and market participants have also gathered a lot of information about, for example, how ETF arbitrage mechanisms work, how investors use these products, and the way these products behave during periods of market stress.

After much anticipation, last year, we proposed a rule to standardize the way that ETFs operate. [6] We have received many helpful comments, and I look forward to working on adopting an ETF rule, informed by the comments, later this year. Such a rule will cut the time it takes for an ETF to come to market, which should enhance competition, which, in turn, should benefit investors. A rulemaking is long overdue for a product with which we have so much experience through a range of market events. A prior effort at putting a rule into place petered out in the whirlwind of the financial crisis. The long experience with ETFs that is allowing us to craft a standard framework for these products ought also to inform the continuing international conversation about ETFs.

One aspect of the discussion that deserves consideration is the great variety that characterizes ETFs. Like their traditional mutual fund counterparts, ETFs include index-based funds and actively managed funds. Last month, we approved a non-fully transparent actively managed ETF. [7] Investors also have access to leveraged and inverse ETFs. Leveraged ETFs seek to provide returns that exceed the performance of a market index by a specified multiple over a period of time. Inverse ETFs seek to provide returns that have an inverse relationship to, or that are an inverse multiple of, the performance of a market index over a fixed period of time. These products are not for everyone, and we have taken care to ensure that their disclosures reflect that fact. In addition to diversity of type, there is diversity in how ETFs operate. There is variety, for example, in arbitrage mechanisms, the number and nature of authorized participants, the use of derivatives, and the composition of redemption baskets. ETFs in different jurisdictions may differ from one another on these points, which suggests that we have much to learn from each other.

Given their popularity with investors, ETFs are likely to grow in numbers and assets. A candid and careful analysis of risks associated with ETFs is, therefore, important. Our experience with ETFs suggests that most ETFs are very liquid and their arbitrage mechanisms tend to function well almost all of the time. In the United States, these arbitrage mechanisms have worked so effectively that there have been only a handful of instances in which ETF prices deviated significantly from their fundamental net asset values. There were deviations during the 2010 and 2015 Flash Crashes, but they were short-lived. Authorized participants, driven by the desire to make arbitrage profits, generally manage to keep ETF prices in line with their fundamental values. Economic motivations of this sort can be extremely effective at driving behavior that benefits the markets.

Even informed by the positive history of ETFs, nobody would argue that ETFs will always function without incident. As we try to assess the probability that something will go wrong, we ought also to ask what the likelihood is that if something does go wrong, it will have a meaningful negative effect on the broader financial system. It is important for us to consider the channels through which any ETF problems would roil the financial markets or affect the rest of the economy. For a risk to implicate financial stability concerns, the bar is quite high. During today’s data-filled discussion, I hope that you will encourage one another to be as precise as possible about the exact mechanism by which problems in ETFs could spill over and disrupt the larger financial system or the real economy and how plausible such a scenario is. It is easy to get caught up in the fact that market mechanisms do not work perfectly all of the time, but we need to bear in mind that government interventions to address these imperfections also do not work perfectly all of the time.

Thank you all for your attention. Although I may, in one sense of the phrase, be the commencement speaker for today’s event, I will not be offering to pay off any of your debts. I am, however, indebted to all of you for your participation in this workshop. I am sorry that I will not be able to stay for the discussions, but I know that the Commission staff will benefit greatly from the dialogue. I look forward to hearing the insights they draw from this wonderful opportunity to view ETFs through so many different lenses.



I am grateful to Penelope Saltzman of the Division of Investment Management and Alexander Schiller of the Division of Economic and Risk Analysis for their assistance in preparing this statement. All views and errors are my own.(go back)


Mike Murphy, Happy Graduation! Billionaire Pays Off Morehouse College Grads’ Student-Loan Debt, MarketWatch (May 19, 2019), back)


See ICI, 2018 Investment Company Fact Book 101 (58th ed. 2018), back)


Randal Quarles, Vice Chairman for Supervision, Bd. of Governors of the Fed. Reserve Sys., Remarks at Bank for International Settlements Special Governors Meeting (Feb. 10, 2019), back)


See The History of Exchange-Traded Funds, etfguide, (last visited June 10, 2019).(go back)


Exchange-Traded Funds, Investment Company Act Release No. 33140 (June 28, 2018), back)



See Precidian ETFs Trust, et al., Investment Company Act Release Nos. 33440 (Apr. 8, 2019) (notice), and 33477 (May 20, 2019) (order), and related application.(go back)
June 14, 2019
This Week In Securities Litigation (Week ending June 14, 2019)
by Tom Gorman

The Commission did not file any new enforcement actions this week. The agency did, however, settle or partially resolve, three pending enforcement actions.

Congress again took up the question of inspecting the auditors and work papers for U.S. traded issuers. Legislation was introduced to require such action. This, of course, is nothing new. In 2002 the Sarbanes Oxley Act imposed such a requirement which the PCAOB was directed to implement. For the most part that requirement has been met. The exception – China.

Finally, Singapore and U.K. authorities entered into a consultation of cyber securities, a key issue for all firms.


PCAOB Inspections: Senators Rubio and Menendez introduced legislation which would require that the PCAOB inspection of Chinese issuers, among others. The bill, in essence, seeks to effectuate the promise of the Sarbanes Oxley Act by requiring auditors of China based issuers, as well as all others, permit inspections. From the beginning the Chinese government has largely refused. Despite enforcement actions, and repeated discussions between U.S. and Chinese officials, little has changed over the years. The legislation seeks to remedy this situation. While the Board could revoke the registration of audit firms which do not furnish the work papers and permit inspection, to date it has not invoked this authority with respect to Chinese issuers who typically cite local law and CSRC when not producing the requested work papers.

SEC Enforcement – Filed and Settled Actions

The Commission filed no civil injunctive actions and no administrative proceedings this week, exclusive of 12j and tag-along actions.

Insider trading: SEC v. Salis, Civil Action No. 2:16-cv-00231 (N.D. Ind.) is an action which named as defendants Christopher Salis, a former SAP executive, and two of his friends, Douglas Miller and Edward Miller. The action centered on the acquisition by SAP of Concur Technologies. Prior to the deal announcement Mr. Salis, who had been entrusted with confidential information about the transaction by a close friend at Concur, tipped Douglas Miller who then tipped Edward Miller. Each man traded prior to the deal announcement along with other friends and family members. Collectively the group secured trading profits of over half a million dollars. This week the Court entered final judgments resolving all the issues as to each Defendant. The final judgment as to each Defendant, entered by consent, prohibits future violations of Exchange Act Sections 10(b) and 14(e). In addition, Mr. Salis will pay disgorgement of $90,000 along with prejudgment interest of $2,067; Douglas Miller will pay disgorgement of $119,003 along with prejudgment interest of $22,258; and Edward Miller will pay disgorgement of $149,117 along with prejudgment interest of $27,891. The monetary component of each judgment will be deemed satisfied by the forfeiture orders entered in the parallel criminal action brought by the Fraud Section of DOJ. In that case Mr. Salis pleaded guilty to conspiracy to commit securities and wire fraud and was sentenced to serve six months in prison. Douglas Miller pleaded guilty to conspiracy to commit securities and wire fraud and making false statements and was sentenced to serve twenty-four months in prison. Edward Miller pleaded guilty to one count of conspiracy to commit securities and wire fraud and to obstruction of justice and was sentenced to serve six months in prison. See Lit. Rel. No. 24499 (June 12, 2019).

Insider trading: SEC v. Fishoff, Civil Action No. 24498 (S.D.N.Y.) is a previously filed action against, among others, Winston Tang and Deshan Govender, two friends. Mr. Tang was the vice president clinical research for Sangamo BioSciences, Inc. This week the Court entered final judgments by consent against the two men, imposing permanent injunctions based on Exchange Act Section 10(b). The judgment as to Mr. Tang also imposed a penalty of $750,000. The judgment as to Mr. Govender provides that the Court will consider monetary penalties in the future. The underlying complaint alleges that prior to the announcement of a licensing agreement between Sangamo and another firm Mr. Tang tipped his friend who traded. Mr. Govender later tipped Steven Fishoff who was part of an insider trading ring. Ultimately the trading resulted in about $1.5 million in profits. See Lit. Rel. No. 24498 (June 11, 2019).

Misappropriation: SEC v. Kitts, Civil Action No. 1:18-cv-11507 (D. Mass.) is a previously filed action against investment adviser Kimberly Pine Kitts. The SEC’s complaint alleged that over a six year period Ms. Kitts misappropriated over $3 million from client investment and retirement accounts. The Court entered a final judgment imposing permanent injunctions based on Advisers Act Sections 206(1), 206(2) and Exchange Act Section 10(b). The judgment also requires her to pay $2,882,221 in disgorgement and prejudgment interest. Her payment obligation is deemed satisfied by the entry of a restitution order entered in the parallel criminal case. Defendant was, in addition, barred by the Commission from the securities business and from participating in any penny stock offering. See Lit. Rel. No. 24497 (June 11, 2019).

Criminal Cases

Offering fraud: U.S. v. Falcone, No. 19-cr-257 (E.D.N.Y.). Defendant Joseph Falcone is the owner of 3G’S VINO LLC. He developed a product that is a sealed glass holding a single serving of wine. The product was sold at his stores. His creation was also featured on the national television show “Shark Tank.” Potential investors were solicited for about a year beginning in September 2014. They were told about the single glass of wine product featured on TV. Investors were also told their money would be put into developing the business. The investor funds came in. Those same funds also went out, but not to 3G’S VINO as promised. Rather, over half a million dollars in investor money went to acquire a home in Florida and fund online securities trading by the wine store owner. Mr. Falcone pleaded guilty to one count of wire fraud on June 10, 2019. The date for sentencing has not been announced. U.S. v. Falcone, No. 19-cr-257 (E.D.N.Y.).

Insider trading: U.S. v. Jung, No. 1:18-cr-00518 (S.D.N.Y.) is an action which named as a defendant Woojae Jung, an employee at an investment bank. This week Mr. Jung was sentenced to serve three months in prison for insider trading. The underlying charges alleged that on multiple occasions he accessed material non-public information at his firm and used it trade in advance of corporate transactions. As a result, he netted nearly $130,000 in illicit profits. The sentence also directed that Mr. Jung pay a penalty of $30,000, forfeit the trading profits and be subject to two years of supervised release following his release from prison. See also SEC v. Jung, Civil Action No. 1:18-cv-04811 (S.D.N.Y.).


World Bank: The bank debarred Dongfang Electronics Co. Ltd, a Chinese electrical engineering firm. The action came in connection with bids for the Liberian Accelerated Electricity Expansion Project $60 million contract. Additional financing was being sought to increase access to electricity and strengthen institutional capacity in the West African country’s energy sector.

Dongfang was charged with engaging in fraudulent practices. Specifically, the firm was alleged to have falsified two letters during the bidding process. This is considered a fraudulent practice. The debarment has a term of 15 months. It also qualifies for cross-debarment by the Asian Development Bank, the European Bank of Reconstruction and Development, the Inter-American Development Bank and the African Development Bank. In connection with the resolution Dongfang has undertaken to strengthen its procedures.


The Monetary Authority of Singapore and the Bank of England announced a collaboration on cyber security. The collaboration will involve MAS and the UK financial authorities identifying effective ways to share information on the topic. The two authorities already cooperate on cyber security bilaterally and by supporting the Basel Committee’s work to develop best practices to supervise cyber risk in banks and contributing to the Financial Stability Board’s Cyber Lexicon.

FCPA Institute: On June 20 and 21, 2019, Professor Mike Koehler will conduct the FCPA Institute at the Offices of Dorsey & Whitney LLP in Minneapolis, Minnesota. The Institute provides a unique learning experience for those seeking to elevate their knowledge of the Foreign Corrupt Practices Act. Professor Koehler is one of the foremost scholars on the FCPA and conducts an interesting and most informative program. The program is live in Minneapolis and also webcast. You can obtain more information about the program and register here.

June 14, 2019
“The Three Ruths”
by Liz Dunshee

At our “Women’s 100” event in NYC, Shelley Dropkin of Citigroup was honored with a lifetime achievement award. Shelley was kind enough to let us blog about her remarks. Here’s an excerpt:

Before I close, I would like to pay tribute to three women who in very different ways inspired and guided me. Interestingly, they are all named Ruth.

For years I carried for inspiration the words of Ruth Bader Ginsburg – who spoke most eloquently about what the support of her mother had meant to her – she described her mother as “the bravest and strongest person I have known, who was taken from me much too soon. I pray that I may be all that she would have been had she lived in an age when women could aspire and achieve and daughters are cherished as much as sons.”

The second is my sister-in -law Ruth Hochberger – Ruth was the editor in chief of the New York law journal raising her children in New York City when we met. She had figured out that balance that so many women were searching for and that I had just begun to grapple with. It was with her as a role model that I figured out that I could make a life as a mother and a professional work – and for that I am grateful.

Finally – and this is the most difficult – is my mother Ruth, who I lost way too young. She believed in me as only a mother can and made me believe in myself. I can only hope that I have provided that same foundation of love and support to my boys. It is to my mom that I dedicate this award.

Our “Women’s 100” Events: 10 Things We Discussed

Our annual “Women’s 100 Conferences” – in both Palo Alto & NYC – continue to be my favorite thing. Here are 10 discussion topics that Aon’s Karla Bos & I came up with for our “Big Kahuna” session:

1. Linking executive compensation to E&S/sustainability metrics: will it get much traction outside of energy companies?

2. State Street’s new “R-Factor” ESG rating

3. Investor & company views on the “Long-Term Stock Exchange”

4. Providing non-GAAP reconciliations in the CD&A

5. Proxy advisor/shareholder proposal reform

6. How to get started with sustainability reporting

7. Investor & company views on involving IR in engagement meetings

8. Equal pay audits & disclosure

9. Investor expectations for “human capital” disclosure

10. How to interact with shareholder proponents at meetings

Sights & Sounds: “Women’s 100 Conference ’19”

This 45-second video captures the sights & sounds of the “Women’s 100” events that recently wrapped up in Palo Alto & NYC:

Liz Dunshee

June 14, 2019
Climate Change Issues Prompting New Disclosures in Public Filings
by Alyson Clabaugh

Major investors and corporate America may be at odds over a range of governance issues today, but they do seem united on one important topic: climate change. New research illustrates just how serious the concerns are on both sides of the divide.

According to research released this week by UBS Asset Management, a groundswell of institutional investors now believe environmental factors will overtake financial performance metrics in the next five years in terms of importance to their capital allocations. In fact, more than 80% of large investors surveyed by UBS said it would represent a “material risk” to leave environmental, social and governance criteria out of investment decisions. A similar percentage of asset owners representing pensions, endowments, and sovereign wealth funds said they already take ESG factors into account, according to the survey.

Meanwhile, a recent survey reveals that a large number of companies from across the industrial spectrum are coming to grips with the possibility that climate change could dramatically threaten their financial health in the near future. More than half of the approximately 7,000 companies included in the global climate change analysis from CDP, a nonprofit organization that collects and maintains environmental data, said they have incorporated ESG considerations into their risk management processes. Additionally, CDP found that estimates of the potential financial impact from the environmental risks reported by 215 of the world’s largest companies totaled nearly $1 trillion. (Companies that neglect to account for threats to their businesses posed by climate change may want to consider the fate of California utility company PG&E Corp., which filed for Chapter 11 bankruptcy protection in January in the wake of wildfires across the state.)

Some publicly traded companies are beginning to lay out environmental risks in their filings with the Securities and Exchange Commission. For example, Ohio-based oil company Marathon Petroleum Corp. included a note regarding “a number of environmental enforcement matters arising in the ordinary course of business” in its latest quarterly report. Marathon also disclosed that it has accrued liabilities for remediation of hazardous waste disposal sites. Additionally, the oil company said it is facing lawsuits from “governmental and other entities” in multiple states alleging damages related to climate change. Houston-based oil company ConocoPhillips made similar disclosures in its latest quarterly report.

Another company that disclosed its involvement in climate change lawsuits is Peabody Energy Corp. The St. Louis-based company said in its most recent quarterly filing that it had been named as a defendant along with multiple companies in three “nearly identical lawsuits” filed by local governments in California. The lawsuits charge that the fossil fuels produced by Peabody and the other companies caused the sea level to rise, damaging their communities.

These novel climate change suits are winding their way through the court appeals process. To quote Marathon: “At this early stage, the ultimate outcome of these matters remain uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined.”

The energy sector seems like an obvious source of more ESG-related disclosures. Yet, in light of the growing importance of environmental issues to investors, look for a broader range of companies to begin including similar notes in their public filings going forward.

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Blog – Intelligize: Climate Change Issues Prompting New Disclosures in Public Filings

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