Securities Regulation
Congress Examining IPO Process in Wake of Facebook Offering
A bipartisan group of congressional members are calling for an overhaul of the initial public offering process after Facebook’s stock dropped precipitously after it became listed on a public exchange. In a June 19, 2012 letter to Mary Schapiro chairman of the SEC, Rep Darrell Issa chairman of the Committee on Oversight and Government Reform, expressed concern that under existing securities laws:
“underwriters have discretion to determine the price of an IPO, while subject to conflicts of interest stemming from economic relationships with those institutional clients that ultimately will purchase the bulk of an issuance. In conjunction with this discretion, communications restrictions and legal liability enable underwriters to provide information to institutional clients, while precluding access to the broader public.”
As an alternative to the traditional IPO, Issa suggests the Dutch auction: typically investment banks market the initial offering and make sales to investors. There is an alternative process called a “Dutch auction” where a company invites bids, calculates a clearing price and then sells directly to investors who meet the clearing price. Dutch auctions are not commonly used because they are seen as having greater pricing risk, and because many companies need the investment banks to make a sales pitch to investors about the stock. With well-known companies, the Dutch auction is a more appealing option, since investors will be familiar with the company without the promotion from investment banks. Famously, Google used a Dutch Auction for their IPO, although their IPO was initially viewed as somewhat of a flop.
Mergers and Acquisitions
UK Office of Fair Trading Investigating Facebook’s $1 Billion Bid for Instagram
The UK competition regulator is concerned that Facebook’s acquisition of Instagram may restrict uploads from Instagram to other sites, and similarly, that it may restrict the ability of other apps to upload to Facebook. According to the Guardian:
“The OFT aims first to decide whether it has jurisdiction over the takeover, and will then determine whether to drop its investigation if it does not or cannot see any harmful effects, or to either seek undertakings from the two companies or refer the entire bid to the UK Competition Commission, by 23 August.”
It has also been reported that the FTC is looking into the acquisition to determine whether the acquisition may violate US antitrust laws.
Local News
Seattle Retailers Soon to be Prohibited from Offering Single Use Plastic Bags
Effective July 1 Seattle retailers will no longer be able to offer single use plastic bags to their customers. The Seattle City Council passed the ordinance banning the plastic bags in December of 2011. Paper bags and thicker multiple use plastic bags may be offered. However, stores must charge a 5 cent fee for paper carryout bags.
Recommended Reading
From the Non-Legal Department: Some Recommended Reading
I’m always on the lookout for thought provoking material online. I stumbled across a great blog that had a roundup of some of the best stuff on the web this week: Abnormal Returns. This post led me to a few articles, two of which I highly recommend:
- From Thirty Two a thoroughly enjoyable essay ”The Fall of the Creative Class” that is partially a biographical narrative and partially a study on whether the creative class of individuals is a cause or an effect of a flourishing economy.
- From The Atlantic a fascinating article on the modern Turing test. Famous computer engineer and philosopher Alan Turing would have been 100 this month. Turing theorized that computers would be intelligent if they could respond to humans for more than five minutes without humans being able to tell man from machine. The modern test, discussed at length in this article, looks at what we can learn from a human-to-human Turing test, where one test subject pretends to be something they are not (Christian, blind, color-blind).
