Corporate Governance

How the Wall Street Reform Act Impacts Smaller Businesses (Summary)

By J Robert Brown Jr.

On June 29, 2010, after months of wrangling, the House-Senate Conference Committee issued the conference report on the Dodd-Frank Wall Street Reform and Consumer Protection Act, a 2,319 page amendment to H.R. 4173 (the 'Act'). The House of Representatives approved the bill on June 30, 2010, the Senate approved it on July 15, 2010, and it became law when President Obama signed it on July 21, 2010. This bill has its genesis in the financial crisis of 2007-2008 and the perceived abuses by financial institutions, investment advisors, and credit rating organizations with respect to asset backed securities, sub-prime mortgages, collateralized debt obligations, and other derivative securities, as well as a backlash against what was perceived to be excessive executive compensation in publicly traded companies and financial institutions.

There has been a large amount written in law firm memoranda and news articles on how the Act impacts major banks and broker dealers, attempts to control derivative securities, and otherwise impacts Wall Street's financial practices. Other sections deal with mortgage-backed securities and mortgages in general which will be of significant interest to the real estate lawyer.  In this author's experience, there has been little written on the Act's impact on smaller public and private businesses, which is potentially significant. The Act implements a number of measures, from revising the definition of accredited investor, changing eligibility for Rule 506 and enhancing the Securities and Exchange Commission's enforcement powers, to mandating a number of studies that may further impact small businesses. The following describes some of these measures and their potential impact both on smaller businesses and the lawyers who represent them.?

Summary of the Act

A large part of the Act deals with matters that impact Wall Street and major financial institutions. For example, the Act establishes a Financial Stability Oversight Council with the authority to regulate non-bank financial companies and to resolve supervisory and jurisdictional disputes between various supervisory agencies (such as the Securities and Exchange Commission (the 'SEC'), the Commodities Futures Trading Commission (the 'CFTC'), and the Federal Reserve Board (the 'FRB')). The Act also:

• Modifies the existing provisions regarding liquidation of financial institutions and theSecurities Investor Protection Act,2
• Reorganizes powers among various governmental agencies,3
• Creates an office of national insurance4 and enacts improvements to regulation ofbank and savings association holding companies and depository institutions,5
• Improves the regulation of credit rating agencies,6 asset backed securities,7 and municipal securities,8
• Establishes the Bureau of Consumer Financial Affairs Protection with broad regulatory and enforcement powers,9 and
• Adopts the 'Mortgage Reform and Anti-Predatory Lending Act.'10

The foregoing is a broad summary of some of the Act's major provisions, each of which is worth discussing at length. The purpose of this article, however, is to focus on the provisions of the Act likely to be of interest to lawyers who represent public and private companies. These provisions are generally (but not solely) found in Titles IV ('regulation of advisors to hedge funds and others') and IX ('investor protections and improvements to the regulation of securities') of the Act. Many of the Act's provisions will not become effective until the SEC completes its rule-making actions, but some of the provisions become effective on or shortly after enactment.

Herrick K. Lidstone, Jr., Burns Figa & Will, PC

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1 Title I, Subtitle A.

2 Title II; Title IX, Subtitle B, Section 929H; among others.
3 Title III, entitled 'Transfer of Powers to the Comptroller of the Currency, the [Federal Deposit Insurance]
Corporation, and the Board of Governors.'
4 Title V.
5 Title VI.
6 Title IX, Subtitle C.
7 Title IX, Subtitle D.
8 Title IX, Subtitle F.
9 Title X.
10 Title XIV.

Full post as published by The Race to the Bottom on July 27, 2010 (boomark / email).