Dodd-Frank Act

Prepared by:
Name: Nikhil Mani
Roll No: 2016088
Div: A
MMS-2
SEM- III
 INDEX

Sr. No Particulars Page. No

1 Introduction to Company Law 1-5
2 Statutory Analysis 6-10
3 Judicial Analysis: Case Law 11-14
4 Conclusion 15
5 Bibliography 16

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 Introduction to Dodd-Frank Act

The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L.
111–203, H.R. 4173, commonly referred to as Dodd–Frank) was signed into
federal law by President Barack Obama on July 21, 2010. Passed as a response
to the financial crisis of 2007–2008, it brought the most significant changes to
financial regulation in the United States since the regulatory reform that
followed the Great Depression. It made changes in the American financial
regulatory environment that affected all federal financial regulatory agencies
and almost every part of the nation's financial services industry.

The law was initially proposed by the Obama administration in June 2009,
when the White House sent a series of proposed bills to Congress. A version of
the legislation was introduced in the House in July 2009. On December 2, 2009,
revised versions were introduced in the House of Representatives by the then
Financial Services Committee Chairman Barney Frank, and in the Senate
Banking Committee by former Chairman Chris Dodd. Due to Dodd and Frank's
involvement with the bill, the conference committee that reported on June 25,
2010, voted to name the bill after them. Studies have found Dodd-Frank has
improved financial stability and consumer protection, although there is evidence
it may have had a negative impact on small banks.

On June 8, 2017, the Republican-led House passed the Financial Choice Act
which, if enacted, would roll back many of the provisions of Dodd–Frank. In
June 2017, the Senate was crafting its own reform bill.

The financial crisis of 2007–2010 led to widespread calls for changes in the
regulatory system. In June 2009, President Obama introduced a proposal for a
"sweeping overhaul of the United States financial regulatory system, a

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transformation on a scale not seen since the reforms that followed the Great
Depression".

As the finalized bill emerged from conference, President Obama said that it
included 90 percent of the reforms he had proposed. Major components of
Obama's original proposal, listed by the order in which they appear in the "A
New Foundation" outline, include:

1. The consolidation of regulatory agencies, elimination of the national thrift

charter, and new oversight council to evaluate systemic risk;
2. Comprehensive regulation of financial markets, including increased
transparency of derivatives (bringing them onto exchanges);

3. Consumer protection reforms including a new consumer protection

agency and uniform standards for "plain vanilla" products as well as
strengthened investor protection;

4. Tools for financial crises, including a "resolution regime" complementing

the existing Federal Deposit Insurance Corporation (FDIC) authority to
allow for orderly winding down of bankrupt firms, and including a
proposal that the Federal Reserve (the "Fed") receive authorization from
the Treasury for extensions of credit in "unusual or exigent
circumstances";

5. Various measures aimed at increasing international standards and

cooperation including proposals related to improved accounting and
tightened regulation of credit rating agencies.

At President Obama's request, Congress later added the Volcker Rule to this
proposal in January 2010.

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Of the existing agencies, changes are proposed, ranging from new powers to the
transfer of powers in an effort to enhance the regulatory system. The institutions
affected by these changes include most of the regulatory agencies currently
involved in monitoring the financial system (Federal Deposit Insurance
Corporation (FDIC), U.S. Securities and Exchange Commission (SEC), Office
of the Comptroller of the Currency (OCC), Federal Reserve (the "Fed"), the
Securities Investor Protection Corporation (SIPC), etc.), and the final
elimination of the Office of Thrift Supervision (further described in Title III –
Transfer of Powers to the Comptroller, the FDIC, and the FED).

As a practical matter, prior to the passage of Dodd–Frank, investment advisers

were not required to register with the SEC if the investment adviser had fewer
than 15 clients during the previous 12 months and did not hold itself out
generally to the public as an investment adviser. The act eliminates that
exemption, thereby rendering numerous additional investment advisers, hedge
funds, and private equity firms subject to new registration requirements.

Senator Chris Dodd, who co-proposed the legislation, has classified the
legislation as "sweeping, bold, comprehensive, [and] long overdue". In regards
to the Fed and what he regarded as their failure to protect consumers, Dodd
voiced his opinion that “I really want the Federal Reserve to get back to its core
enterprises. We saw over the last number of years when they took on consumer
protection responsibilities and the regulation of bank holding companies, it was
an abysmal failure. So the idea that we're going to go back and expand those
roles and functions at the expense of the vitality of the core functions that
they're designed to perform is going in the wrong way." However, Dodd pointed
out that the transfer of powers from the Fed to other agencies should not be
construed as criticism of Fed Chairman Ben Bernanke, but rather that "t's about
putting together an architecture that works".

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With regards to the lack of bipartisan input on the legislation, Dodd alleged that
had he put together a “bipartisan compromise, I think you make a huge mistake
by doing that. You're given very few moments in history to make this kind of a
difference, and we're trying to do that." Put another way, Dodd construed the
lack of Republican amendments as a sign "that the bill is a strong one".

Richard Shelby, the top-ranking Republican on the Senate Banking Committee

and the one who proposed the changes to the Fed governance, voiced his
reasons for why he felt the changes needed to be made: "It's an obvious conflict
of interest. It's basically a case where the banks are choosing or having a big
voice in choosing their regulator. It's unheard of." Democratic Senator Jack
Reed agreed, saying "The whole governance and operation of the Federal
Reserve has to be reviewed and should be reviewed. I don't think we can just
assume, you know, business as usual."

Barney Frank, who in 2003 told auditors warning him of the risk caused by
government subsidies in the mortgage market, "I want to roll the dice a little bit
more in this situation toward subsidized housing" proposed his own legislative
package of financial reforms in the House, did not comment on the Stability
Pact directly, but rather indicated that he was pleased that reform efforts were
happening at all – "Obviously the bills aren't going to be identical, but it
confirms that we are moving in the same direction and reaffirms my confidence
that we are going to be able to get an appropriate, effective reform package
passed very soon."

During a Senate Republican press conference on April 21, 2010, Richard Shelby
reported that he and Dodd were meeting "every day", and were attempting to
forge a bipartisan bill. Shelby also expressed his optimism that a "good bill"
will be reached, and that "we're closer than ever". Saxby Chambliss echoed
Shelby's sentiments, saying "I feel exactly as Senator Shelby does about the
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Banking Committee negotiations.", but voiced his concern about maintaining an
active derivatives market and not driving financial firms overseas. Kay Bailey
Hutchison indicated her desire to see state banks have access to the Fed, while
Orrin Hatch had concerns over transparency, and the lack of Fannie and Freddy
reform.

Statutory Analysis
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The Act is categorized into sixteen titles and, by one law firm's count, it requires
that regulators create 243 rules, conduct 67 studies, and issue 22 periodic
reports.

The stated aim of the legislation is: To promote the financial stability of the
United States by improving accountability and transparency in the financial
system, to end "too big to fail", to protect the American taxpayer by ending
bailouts, to protect consumers from abusive financial services practices, and for
other purposes.

The Act changes the existing regulatory structure, by creating a number of new
agencies (while merging and removing others) in an effort to streamline the
regulatory process, increasing oversight of specific institutions regarded as a
systemic risk, amending the Federal Reserve Act, promoting transparency, and
additional changes. The Act's intentions are to provide rigorous standards and
supervision to protect the economy and American consumers, investors and
businesses; end taxpayer-funded bailouts of financial institutions; provide for an
advanced warning system on the stability of the economy; create new rules on
executive compensation and corporate governance; and eliminate certain
loopholes that led to the 2008 economic recession. The new agencies are either
granted explicit power over a particular aspect of financial regulation, or that
power is transferred from an existing agency. All of the new agencies, and some
existing ones that are not currently required to do so, are also compelled to
report to Congress on an annual (or biannual) basis, to present the results of
current plans and explain future goals. Important new agencies created include
the Financial Stability Oversight Council, the Office of Financial Research, and
the Bureau of Consumer Financial Protection.

Of the existing agencies, changes are proposed, ranging from new powers to the
transfer of powers in an effort to enhance the regulatory system. The institutions
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affected by these changes include most of the regulatory agencies currently
involved in monitoring the financial system (Federal Deposit Insurance
Corporation (FDIC), U.S. Securities and Exchange Commission (SEC), Office
of the Comptroller of the Currency (OCC), Federal Reserve (the "Fed"), the
Securities Investor Protection Corporation (SIPC), etc.), and the final
elimination of the Office of Thrift Supervision (further described in Title III –
Transfer of Powers to the Comptroller, the FDIC, and the FED).

As a practical matter, prior to the passage of Dodd–Frank, investment advisers

were not required to register with the SEC if the investment adviser had fewer
than 15 clients during the previous 12 months and did not hold itself out
generally to the public as an investment adviser. The act eliminates that
exemption, thereby rendering numerous additional investment advisers, hedge
funds, and private equity firms subject to new registration requirements.

Certain non-bank financial institutions and their subsidiaries will be supervised

by the Fed in the same manner and to the same extent as if they were a bank
holding company.

To the extent that the Act affects all federal financial regulatory agencies,
eliminating one (the Office of Thrift Supervision) and creating two (Financial
Stability Oversight Council and the Office of Financial Research) in addition to
several consumer protection agencies, including the Bureau of Consumer
Financial Protection, this legislation in many ways represents a change in the
way America's financial markets will operate in the future. Few provisions of
the Act became effective when the bill was signed. Only over the next 18
months as various regulatory agencies write rules that implement various
sections of the Act, will the full importance and significance of the Act be
known.

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The bills that came after Obama's proposal were largely consistent with the
proposal, but contained some additional provisions and differences in
implementation.

The Volcker Rule was not included in Obama's initial June 2009 proposal, but
Obama proposed the rule later in January 2010, after the House bill had passed.
The rule, which prohibits depository banks from proprietary trading (similar to
the prohibition of combined investment and commercial banking in the Glass–
Steagall Act), was passed only in the Senate bill, and the conference committee
enacted the rule in a weakened form, Section 619 of the bill, that allowed banks
to invest up to 3% of their Tier 1 capital in private equity and hedge funds as
well as trade for hedging purposes.

The initial version of the bill passed the House largely along party lines in
December by a vote of 223–202, and passed the Senate with amendments in
May 2010 with a vote of 59–39 again largely along party lines. The bill then
moved to conference committee, where the Senate bill was used as the base text
although a few House provisions were included in the bill's base text. One
provision on which the White House did not take a position and remained in the
final bill allows the SEC to rule on "proxy access" – meaning that qualifying
shareholders, including groups, can modify the corporate proxy statement sent
to shareholders to include their own director nominees, with the rules set by the
SEC. This rule was unsuccessfully challenged in conference committee by Chris
Dodd, who – under pressure from the White House – submitted an amendment
limiting that access and ability to nominate directors only to single shareholders
who have over 5% of the company and have held the stock for at least two
years.

The "Durbin amendment" is a provision in the final bill aimed at reducing debit
card interchange fees for merchants and increasing competition in payment
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processing. The provision was not in the House bill; it began as an amendment
to the Senate bill from Dick Durbin and led to lobbying against it.

The New York Times published a comparison of the two bills prior to their
reconciliation. On June 25, 2010, conferees finished reconciling the House and
Senate versions of the bills and four days later filed a conference report. The
conference committee changed the name of the Act from the "Restoring
American Financial Stability Act of 2010". The House passed the conference
report, 237–192 on June 30, 2010. On July 15, the Senate passed the Act, 60–
39. President Obama signed the bill into law on July 21, 2010.

The Dodd–Frank Act has several provisions that call upon the Securities and
Exchange Commission (SEC) to implement several new rules and regulations
that will affect corporate governance issues surrounding public corporations in
the United States. Many of the provisions put in place by Dodd–Frank require
the SEC to implement new regulations, but intentionally do not give specifics as
to when regulations should be adopted or exactly what the regulations should
be. This will allow the SEC to implement new regulations over several years
and make adjustments as it analyses the environment. Public companies will
have to work to adopt new policies in order to adapt to the changing regulatory
environment they will face over the coming years.

Section 951 of Dodd–Frank deals with executive compensation. The provisions

require the SEC to implement rules that require proxy statements for
shareholder meetings to include a vote for shareholders to approve executive
compensation by voting on "say on pay" and "golden parachutes." SEC
regulations require that at least once every three years shareholders have a non-
binding say-on-pay vote on executive compensation. While shareholder are
required to have a say-on-pay vote at least every three years, they can also elect
to vote annually, every two years, or every third year. The regulations also
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require that shareholders have a vote at least every six years to decide how often
they would like to have say-on-pay votes. In addition, companies are required to
disclose any golden parachute compensation that may be paid out to executives
in the case of a merger, acquisition, or sale of major assets. Proxy statements
must also give shareholders the chance to cast a non-binding vote to approve
golden parachute policies. Although these votes are non-binding and do not take
precedence over the decisions of the board, failure to give the results of votes
due consideration can cause negative shareholder reactions. Regulations
covering these requirements were implemented in January 2011 and took effect
in April 2011.

Judicial Analysis

 Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), as revised (May 24,
2016): In this highly-anticipated decision, the Supreme Court of the United

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States held that alleging a “bare procedural violation” of the Fair Credit
Reporting Act(FCRA) is insufficient to establish Article III standing. In
2011, Thomas Robins filed a proposed class action against the website
Spokeo in the U.S. District Court for the Central District of California.
Robins claimed that the website, which aggregates and discloses publicly
identifiable information upon request, violated the FCRA when it provided
inaccurate information about him. The false information included reports
that Robins was in his 50s, that he held a professional degree, that he
worked in a professional or technical field, that he was married with
children, and that he was wealthy. Robins stated that the information
harmed his employment prospects because employers could believe, for
instance, that he was overqualified for the job. The District Court
dismissed the lawsuit with prejudice saying that Robins had failed to
plead an injury-in-fact that was traceable to Spokeo’s alleged conduct.
For the court, claiming a possible future injury was not enough to meet
the standing requirements of Article III. The Ninth Circuit, however,
reversed and held that when Congress creates a private right of action,
alleged violations of these statutory rights are enough to satisfy the
injury-in-fact requirement of Article III. The Ninth Circuit further held
that when a plaintiff brings a lawsuit on wilful violation grounds, the
FCRA does not require a showing of actual harm. Writing for the
majority, Justice Samuel Alito explained that the Ninth Circuit’s analysis
was incomplete because it did not include both aspects of the injury-in-
fact requirement. Article III requires an injury that is both “concrete”
and “particularized.” Even though the Ninth Circuit made the finding
that the injury was “particular,” the court failed to determine whether the
injury was “concrete.” The Supreme Court provided guidance on the
meaning of “concreteness,” including that while an injury could be
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 intangible, an alleged bare procedural violation is not a “concrete”
injury and does not satisfy the standing requirement of Article III. A
“concrete” injury must be de facto, i.e., it must actually exist. The risk of
real harm could satisfy this requirement, and legislative history and the
judgment of Congress are instructive in the determination of whether
“an intangible harm constitutes injury in fact.” For this reason, the Court
vacated and remanded the case to the Ninth Circuit for further
determination of whether Robin’s alleged claims are enough to meet the
concreteness standard.
 Beacom v. Oracle Am., Inc., Fed. Sec. L. Rep. P 99110 (8th Cir. 2016):
Despite adopting a lower standard for determining whether a plaintiff may
proceed with a retaliation brought under the Sarbanes-Oxley Act (SOX),
the Eighth Circuit affirmed summary judgment entered against a plaintiff
who filed a retaliation suit, under Dodd-Frank and SOX, alleging that
Oracle terminated his employment as relation for his complaints about
Oracle’s revenue projections. In determining whether a whistle blower has
engaged in a protected activity, SOX requires that the whistleblower hold a
“reasonable belief” that his or her corporate employer’s conduct constitutes
fraud. This reasonable belief standard carries both a subjective and an
objective element. The employee must subjectively believe that the
employer has engaged in prohibited conduct and this belief must be
objectively reasonable. In Platone v. FLYI, Inc., the objective component
of the reasonable belief standard received strict application by the
Administrative Review Board (ARB) of the Department of Labour, which
adjudicates SOX whistle blower claims. ARB No. 04–154, 2006 WL
3246910 (ARB Sept. 29, 2006). In Platone, the ARB held that, in order to
succeed, an employee’s claim must “definitively and specifically” relate to
prohibited conducted listed in SOX’s whistle blower statute. The ARB later

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 rejected Platone’s “definite and specific” standard. Sylvester v. Parexel
Int’l LLC, ARB No. 07–123, 2011 WL 2165854, at *12 (ARB May 25,
2011) (en banc). In Sylvester, the ARB held that the objective component
of the reasonable belief standard is satisfied by an employee who proves
that “a reasonable person in the same factual circumstances with the same
training and experience would believe that the employer violated securities
laws.” The Eight Circuit concluded that this less-stringent standard would
allow a mistaken belief to qualify as objectively reasonable. In rejecting
the stricter Platone standard and adopting the new Sylvester standard, the
Eighth Circuit joins the Second, Third, and Sixth Circuits. Since the
plaintiff’s claim was found to be objectively unreasonable, even under the
lower Sylvester standard, the court held that the plaintiff had not made any
disclosure protected by SOX. Since Dodd-Frank protects employees who
have made disclosures protected by SOX, the court concluded that Dodd-
Frank’s retaliation protections do not extend to the plaintiff.

 Chu v. U.S. Commodity Futures Trading Comm’n, 16 Cal. Daily Op.

Serv. 5379 (9th Cir. 2016): On May 25, 2016, the Ninth Circuit held that
because the Dodd-Frank Amendment to the Commodity Futures Trading
Commission Act of 1974 does not specify how a court should review the
Commodity Futures Trading Commission’s (CFTC’s) findings, courts need
to follow the Administrative Procedure Act (APA), which establishes that
the standard of review of an agency’s factual findings is substantial
evidence. In this case, a trading investor with significant experience, Chen
Li Chu, claimed that her long-time trading advisor, Jennifer Huang, along
with her futures commission merchant, James Kelly, disregarded her
instructions and conducted unauthorized trading in her account. Despite
the fact that the ALJ found for Chu, the CFTC reversed because Huang and
Kelly presented enough evidence that Chu had given Huang actual and

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 apparent authority to carry the contested trades with the funds that Chu had
deposited in the account. On appeal, the Ninth Circuit denied Chu’s
petition to revise the CFTC’s findings. First, the court found that although
the Dodd-Frank Amendment to the CFTC Act granted courts of appeal
power to “affirm, set aside or modify [an] order of the Commission,” the
Dodd-Frank Amendment does not specify a standard of review. Looking at
legislative history, Judge Margaret Mckeown found that the Amendment’s
deletion of the “weight of evidence” standard was not accidental but
purposeful. The Judge further noted that although Dodd-Frank’s legislative
history did not provide much guidance, it was clear from the history that
Congress deleted the standard of review during the reconciliation process.
Because Congress did not specify a standard of review, the Ninth Circuit
held that courts must follow the APA’s substantial evidence standard. The
court then proceeded to hold that, in this case, there was substantial
evidence that Chu had given Huang actual and apparent authority to trade
on her account and for this reason, the evidence supported CFTC’s
conclusion that no violation had occurred.

Conclusion

The Dodd-Frank Wall Street Reform Act is a law that regulates the financial
markets and protects consumers. Its eight components help prevent a repeat
of the 2008 financial crisis.

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It is the most comprehensive financial reform since the Glass-Steagall Act.
Glass-Steagall regulated banks after the 1929 stock market crash. The Gramm-
Leach-Bliley Act repealed it in 1999. That allowed banks to once again invest
depositors' funds in unregulated derivatives. This deregulation helped
cause the 2008 financial crisis.

The Dodd-Frank Act is named after the two Congressmen who created it.
Senator Chris Dodd introduced it March 15, 2010. On May 20, it passed the
Senate. U.S. Representative Barney Frank revised it in the House, which
approved it June 30. On July 21, 2010, President Obama signed the Act into
law. (Sources: "Dodd-Frank Wall Street Reform Act," U.S. Senate. "Summary
of Dodd-Frank Reform Act," Morrison & Forster.)

Bibliography

https://www.thebalance.com/dodd-frank-wall-street-reform-act-3305688

http://media.mofo.com/files/uploads/Images/SummaryDoddFrankAct.pdf

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https://en.wikipedia.org/wiki/Dodd
%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Act#Cor
porate_governance_issues_and_U.S._public_corporations

http://www.burr.com/wp-content/uploads/2017/06/Dodd-FrankNews_JULY-
2016.pdf

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