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Business Law: Finance: Capital Markets, Financial Reporting, Corporate Governance

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Business Law
Finance: Capital Markets, Financial Reporting, Corporate Governance

This career path focuses on the transactions undertaken to raise money from investors in the capital markets. Lawyers whose practice involves advising business clients about the types of instruments available for raising capital (such as debt or equity ownership interests in the business) are called “securities lawyers.” This practice, sometimes called a “corporate and securities practice,” has a significant overlap with the work of a MERGERS & ACQUISITIONS lawyer, whose focus is on transactions involving the transfer of ownership interests in a business.

The practice of securities law—the world of stocks, bonds, and similar instruments from a legal perspective—has three main branches: financing, regulatory work and litigation. Like the legal profession as a whole, the world of securities law has become highly specialized and has been much in the spotlight since the financial collapse of several large U.S. [...]

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This career path focuses on the transactions undertaken to raise money from investors in the capital markets. Lawyers whose practice involves advising business clients about the types of instruments available for raising capital (such as debt or equity ownership interests in the business) are called “securities lawyers.” This practice, sometimes called a “corporate and securities practice,” has a significant overlap with the work of a MERGERS & ACQUISITIONS lawyer, whose focus is on transactions involving the transfer of ownership interests in a business.

The practice of securities law—the world of stocks, bonds, and similar instruments from a legal perspective—has three main branches: financing, regulatory work and litigation. Like the legal profession as a whole, the world of securities law has become highly specialized and has been much in the spotlight since the financial collapse of several large U.S. public companies in the early 2000s, and even more since the financial crisis of the late 2000s.

Securities lawyers who help clients obtain financing through sales of debt or equity interests in the capital markets determine how the “public offering” transaction should be structured, including whether the instruments to be issued to investors comprise "securities" that must be registered with the Securities and Exchange Commission (SEC). They also negotiate the terms of the security with the underwriter; negotiate agreements with third parties involved in the financing, such as brokers and underwriters; and prepare the disclosure documents that will be filed with the SEC and made available as part of the securities offering to the public.

A corporate and securities lawyer, whether managing a public offering or a transfer of ownership involving debt or equity securities, bears the responsibility for overseeing all of the legal aspects of the transaction. These practitioners gain significant exposure to a wide array of legal disciplines, including environmental, intellectual property, litigation, ERISA, employee benefits, tax and international law. They are often very attuned to the state of the economy, since this has a significant impact on the feasibility of transactions. During periods of weak economic activity, corporations and financing sources frequently become more conservative in their risk-taking behavior, focusing instead on preservation of their capital. During periods of strong economic activity, the competition for transactions becomes fierce and activity in this practice area increases.

A second component of a corporate and securities law practice is advisory. Lawyers in the corporate and securities practice regularly advise their clients on regulatory compliance relating to corporate organizational matters, governance matters and the securities laws. The corporate organization and governance matters are generally the province of the state of incorporation, quite often Delaware, although the SEC has become more active in this area as well, particularly since the major corporate fraud cases in the last decade. Other agencies and organizations involved in the regulation of securities are self-regulatory organizations such as the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD), regulatory accounting organizations and comparable regulatory regimes established in foreign countries.

Compliance with public disclosure and reporting obligations, pursuant to the federal securities laws, requires filing of periodic, quarterly and annual reports with the SEC describing the financial condition and operations of the business. In addition to financial reporting, disclosures are required with respect to other qualitative aspects of the business, including, among other things, the background and compensation of management and the board of directors. Since the passage ofthe Sarbanes-Oxley Act of 2002, securities lawyers must also advise clients regarding rules requiring a comprehensive system of internal controls for adequate financial reporting, and rules about the composition and relationships of directors on the boards of public companies.

“Corporate governance” work is cross-disciplinary and hard to define. In an issuer-advisory practice at a large law firm, corporate and securities lawyers typically build a longstanding relationship with the general counsel of a business entity, along with other attorneys and business people of the company. They may raise questions on everything from director independence issues, proxy disclosure requirements, executive compensation and employee benefits questions. Corporate and securities lawyers are typically the general counsel’s point of reference when the entity seeks to navigate a complex regulatory environment and the interrelationships between the various communities of interest that constitute a corporation.

Corporate governance continues evolving in response to pressure from stockholders, other constituencies of a corporation, legislative and regulatory reforms and public perception. As a result, directors and senior managers are being held to ever higher standards of conduct. Best practices that corporate governance practitioners focus on evolve with markets and government policies – often as a reaction to significant market events, such as the option back-dating scandals – or the enactment of new rules, such as the executive compensation disclosure requirements of 2006. The balance of powers between boards and shareholders is a matter of renewed tension and focus.

The role of the activist shareholder has increased, and although the motivations of this group of shareholders cover a wide range of goals, they do utilize their significant capital to pressure corporations to implement strategies that seek to increase the near-term value of the corporation’s equity. Lawyers advising publicly held company clients must keep abreast of these trends and the evolving body of corporate governance law.

While many securities lawyers work in private practice at either large national firms or at securities law boutiques, it is very common for larger public companies to have one or more securities lawyers on staff “in-house” to advise management on day to day securities law questions and to manage the company’s representation by outside securities counsel. Opportunities also exist in the public sector with such government organizations like the SEC or with one of the self-regulatory organizations such as the NYSE the NASD.

As for litigation, the practice of “securities litigation” is thriving. A securities litigation case typically involves alleged deceptive or manipulative conduct in connection with buying and selling stocks, bonds, mutual funds, and other securities, whether privately or on an open market like the NYSE or Nasdaq. Cases may be either civil or criminal in nature. Cases include those against officers or directors for “insider trading” or against a company for failure to disclose important information about the company that adversely affected the company’s stock price. The latter is an example of a traditional “class action” securities case. Securities litigators on the civil side may work in private practice at large or boutique law firms either on the defense or prosecution side. On the criminal side, securities litigators may work in private practice defending clients or on the enforcement side for the SEC, Department of Justice or other government agency.

Corporate and securities practitioners are located in most cities of any size throughout the developed world. However, as a general rule in the United States, the larger transactions get executed in the country's commercial centers, with New York City being the hub for the very largest of transactions given the presence of investment banks, commercial banks and other financing sources, including private equity firms and hedge funds.

 
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