The ripple effects from the sudden collapse of more than one federally insured bank are being felt throughout the financial services and emerging business sectors. Policymakers and US government agencies have stepped in to reinforce the stability of the banking system, but lingering questions for bank customers, counterparties, and creditors remain.
The legal and practical issues are complex and raise numerous questions, including how the FDIC receivership process and related government actions will impact (1) the practical access to funds held at these institutions, (2) other banks and financial institutions, (3) potential follow-on litigation, (4) cash managements and positioning options, (5) payroll concerns, and (6) bankruptcy proceedings of affected companies and institutions.
Morgan Lewis is well suited to identify and understand these issues and to advise clients on how best to protect their interests. Our Distressed Banks Task Force—encompassing partners and former government officials from our banking regulatory, investment management, litigation, antitrust, restructuring, emerging business, and SEC regulatory practices—stands ready to provide answers and guidance on these and other issues that will arise.
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04/14/2023 - Common Cash Management Practices and Associated Protections and Risks
03/14/2023 - SVB and Distressed Banks: Lessons Learned from a Wild Weekend
03/13/2023 - Silicon Valley Bank Shutdown: Antitrust Considerations
03/12/2023 - Silicon Valley Bank Collapse: Initial Issues Raised
US governmental authorities, including the US Department of the Treasury, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation, took actions to provide both insured and uninsured depositors of Silicon Valley Bank (SVB) (as well as Signature Bank) access to their deposits beginning Monday, March 13. However, despite these actions, many customers are still dealing with the aftermath of an uncertain weekend, and practical questions remain to be answered.
While complex questions remain about what impact the Silicon Valley Bank (SVB) crisis will have on the financial services and emerging business sectors, it is important to be mindful of antitrust considerations when mitigating risk. As seen in prior financial crises, antitrust observers will closely scrutinize conduct in response to the crisis to assess whether any industry efforts to stabilize SVB or other banks and avoid further contagion have, in turn, harmed competition under federal and/or state antitrust law. We identify the antitrust considerations relevant to industry collaborations in response to the SVB crisis and discuss how firms may mitigate antitrust risk.
The California Department of Financial Protection & Innovation on March 10 declared Silicon Valley Bank insolvent and appointed the FDIC as receiver. To help with the resolution of SVB, the FDIC created the Deposit Insurance National Bank of Santa Clara, which will essentially serve as a bridge bank to facilitate access to SVB deposits insured by the FDIC. Having a large insured depository institution fail without warning is a significant event that has already caused ripples across the financial industry, although many see the risk of serious contagion in the financial sector as relatively low. In this LawFlash, our lawyers break down some high-level questions that many are asking in this quickly evolving situation.
New York has enhanced its fraud prevention tools, while consumers can identify crypto scams using California’s scam tracker. A week after the US Securities and Exchange Commission (SEC) proposed amendments to cover cryptoassets under the Custody Rule applicable to investment advisers, federal banking agencies issued a statement reminding banks of their risk management obligations in connection with holding crypto companies’ deposits. The United Kingdom is considering fund tokenization, particularly as it relates to retail investors, and the Hong Kong Securities and Futures Commission is gearing up for a crypto exchange platform licensing regime while considering whether retail investors should trade on licensed crypto platforms.
In the continuation of our new blog series highlighting recent developments in the digital asset space, this post details continued action policy and enforcement actions by US regulators.
In this new series, we will provide an overview of recent noteworthy developments in the digital asset space around the world. The start of February was a busy period for regulators in the United States, where the US Securities and Exchange Commission (SEC) settled charges against an exchange in connection with its staking services and where other regulators issued digital asset guidance. Both the United Kingdom and Dubai Virtual Asset Regulatory Authority introduced plans to regulate digital asset activities. The Hong Kong Monetary Authority released a framework for stablecoin regulation, but it is unclear whether a new law will be adopted or existing laws will be amended to incorporate the framework.
In the depth of a crypto winter, the New York State Department of Financial Services (DFS) issued guidance (the Guidance) on custodial standards for those with a BitLicense or that are registered as New York state limited purpose trust companies that engage in virtual currency (VC) business activity (VC Trust Companies and, together with BitLicensees, VC Custodians). In addition to providing customer segregation and compliance standards, DFS also announced in the Guidance its position that a VC Custodian that enters into a sub-custody arrangement must obtain prior DFS approval before the arrangement’s implementation.
The last few years have thrown many surprises at businesses. Organizations across all sectors have faced inflation, global conflicts, supply chain challenges, a pandemic, and continually changing government policies. In 2023, many companies are looking to get ahead of the issues that are expected to shape the next few years. In a high-level overview of what’s in store for various global industry sectors, Morgan Lewis lawyers highlight some of the major trends they are tracking and what regulatory and legislative developments are on the horizon.
The IRS has effectively delayed the implementation of the new digital asset broker rules under Internal Revenue Code Sections 6045 and 6045A.
The FDIC Board of Directors issued a proposal on December 13 amending and updating the rules regarding the use of the official FDIC sign and advertising statements to better reflect the modern consumer banking landscape. As noted in a memorandum from the FDIC staff, the update is also meant to address the growth of the fintech sector and partnerships between banks and fintechs. The proposed rule also seeks to clarify instances when FDIC deposit insurance coverage is being misrepresented to consumers.
Just shy of a month since FTX declared bankruptcy, the US Securities and Exchange Commission’s (SEC’s) Division of Corporation Finance (Division or staff) published informal guidance on how public companies could be asked to address the possible impact of financial distress in the cryptoasset market. The guidance includes a “sample” crypto-specific comment letter focused on disclosure that public companies should consider providing in filings made under the Securities Act of 1933 (Securities Act) and Securities Exchange Act of 1934 (Exchange Act), as applicable.
The Senate Agriculture, Nutrition & Forestry Committee held a hearing, “Why Congress Needs to Act: Lessons Learned From the FTX Collapse,” on December 1, 2022, receiving testimony from Commodity Future Trading Commission (CFTC) Chairman Rostin Behnam. With the exception of very few exchanges during the Q&A portion of the hearing, the committee, which asked several questions about the CFTC’s oversight of FTX’s CFTC-registered affiliate, LedgerX, was supportive of the CFTC and did not lay much blame at the feet of the regulator. Rather, many senators were most eager to discuss robust, “whole of government” oversight and regulation of the digital asset economy.
In the early days of a life science company, there can be confusion and a number of landmines where legal missteps may happen. As part of our 2022 Startup & Accelerate Webinar Series, we look at five key commercial agreements that startup and early-stage life science companies should consider implementing to help protect and assist in the strategic growth of business.
More than six years after it was decided, the practical consequences of the US Court of Appeals for the Second Circuit’s Madden v. Midland Funding, LLC decision continue to diminish. The decision—which held that, under some circumstances, a loan originated by a bank became subject to state usury laws once transferred to a non-bank—implicitly rejected the long-standing doctrine of “valid when made” and once threatened to upend the lending industry. It has been repeatedly narrowed and rarely expanded.
The Basel Committee on Banking Supervision (Basel Committee), a committee of global central bankers and regulators, issued a Consultative Document on June 10 on the prudential treatment of cryptoasset exposures for international banks (the Proposal). The Basel Committee has asked for comments by September 10, 2021.
The OCC granted preliminary conditional approval on April 23 to an application to charter Paxos National Trust (Paxos) as an uninsured national trust bank. Paxos, which currently operates as a New York state-charted limited liability trust company regulated by the New York Department of Financial Services and has indicated in public statements that it intends to maintain both federal and state licenses, will be permitted under the OCC approval to provide “a range of services associated with digital assets,” including custody, payment, exchange, and other agent services related to cryptocurrency.
Join us for an overview of corporate venture capital (CVC), covering recent trends and terms for the largest CVC deals.
Join our emerging business and technology lawyers for this webinar covering how venture debt can drive business growth.
Join our capital markets lawyers for a presentation on how to set up your startup for success. For companies with an end goal of going public this session will provide practical advice to keep your company on track through economic turbulence.
Please join us for a 45-minute webinar to discuss lessons learned and the continuing issues facing customers, counterparties, and creditors of distressed banks.
The legal issues are complex and raise numerous questions. Please join us for a 45-minute webinar as we run through some of the practical questions you may be facing.
Join our emerging business and technology lawyers for this webinar where we will discuss the various deal structures frequently used for later stage and preferred stock financings, as well as the range of market terms for each.
Join us for a review of corporate venture capital trends including an analysis of recent deal trends and terms for the largest corporate venture capital deals.
Partner Kelly Gibson will speak on the Federal Criminal Law Committee for the Eastern District of Pennsylvania (FCLC) presentation of “Federal Enforcement Trends in Digital Assets & Crypto.”
The Association of Corporate Counsel New Jersey Chapter is hosting a virtual panel event focusing on corporate venture capital and strategic investing.
We will take a deeper dive into the key issues and terms relevant to a founder’s agreements, seed financing, convertible notes, and SAFEs. Looking at long-term goals will help guide you through appropriate financing options for your company’s direction.
Join Benjamin David Novak and Jessie J. Li for this webinar where we will discuss the various deal structures frequently used in digital health company seed financings, as well as the range of market terms for each.
Partners Edwin Smith, Ignacio Sandoval, Christopher Paridon, and Erin Martin wrote a Law360 Expert Analysis article.
Partners Jennifer Feldsher and Edwin Smith are featured in a Law360 article, explaining the receivership process considering the Federal Deposit Insurance Corporation’s (FDIC’s) actions regarding Silicon Valley Bank (SVB) and how it compares to traditional bankruptcy proceedings.
In the aftermath of Silicon Valley Bank’s (SVB’s) collapse, Law360 covers disclosures public companies are obligated to make. The article includes partner Erin Martin’s comments from a recent firm webinar.
In an article for The National Law Journal, partner Ignacio Sandoval and of counsel Sarah Riddell discussed how to mitigate risk while federal and state regulators consider how to govern digital assets.
Partners Christopher Paridon and Kristin Lee spoke to Global Banking Regulation Review for a three-part article series looking at the 2023 banking regulatory landscape—the third installment focusing on regional regulation issues.
Partner Kristin Lee took part in a Q&A series for the Financial Technology Association’s Fintech Explained blog, where she discussed fintech policy issues on the horizon. In her profile, Kristin said one of the regulatory and legislative matters she is tracking is the question of whether regulation dealing with digital assets is needed, given a turbulent year.
Partners Christopher Paridon and Kristin Lee spoke to Global Banking Regulation Review for a three-part article series looking at the 2023 banking regulatory landscape. In the first article—focusing on crypto—Kristin noted that during this year, it is likely that banking agencies will remain “extremely cautious with respect to digital assets and crypto initiatives.”
Partner Justin Weitz is quoted in a Law360 article regarding the arrest of FTX founder Sam Bankman-Fried the day before Bankman-Fried was slated to testify before US Congress on the cryptocurrency exchange’s collapse.
Morgan Lewis’s 150-lawyer market-leading investment management practice continues to add depth with the arrival of Christopher Paridon, a former Davis Polk lawyer who previously served with the Federal Reserve System, and Kristin Lee, former senior vice president and assistant general counsel in Citi’s bank regulatory group. Chris and Kristin join as partners resident in Washington, DC, and New York, respectively. They will continue their broad-based bank regulatory work, including considerations for traditional banks, fintechs and digital assets, and cryptocurrencies.
Partner Justin Weitz spoke to The Wall Street Journal about the decision by FTX to hire former enforcement chiefs at the US Securities and Exchange Commission and the Commodity Futures Trading Commission to investigate the cryptocurrency exchange’s collapse. Justin, who spent nearly a decade in the US Department of Justice’s Criminal Division, discussed the perspective lawyers with a government background have toward investigations.
Partner Justin Weitz spoke on the Cryptonite with Rich Goldberg podcast, where he discussed the US Department of Justice’s (DOJ’s) approach to cases involving allegations of crypto fraud and what fintech companies can learn from the collapse of centralized cryptocurrency exchange FTX.
The Responsible Financial Innovation Act—a long-awaited bipartisan bill—that would assign most oversight of cryptocurrencies to the US Commodity Futures Trading Commission (CFTC) was recently introduced.