By Danica Bennewies
We’re back with another Friday Finds – the weekly series on the CBLB where we share five of the top corporate and securities law news stories that grabbed our attention in the past week. Topping this week’s headlines are stories from Hydro One, QuadrigaCX, Apple, and more. Let’s jump in!
One of the biggest stories making news this week was the tension between Hydro One and the Ontario Provincial Government over Hydro One’s proposed executive compensation plan. The original plan had Hydro One paying a new CEO up to $2.775-million, marking an over 60% reduction in CEO compensation. In a tensely-worded letter to Hydro One’s board sent on Wednesday, Energy Minister Greg Rickford called the new plan “unacceptable” and said that CEO compensation should be capped at $1.5-million. If Hydro One refuses to bring its executive compensation plan in line with these guidelines, Rickford said that the government is “prepared to take any and all action necessary.” Hydro One has since published its compensation framework, which explains how the compensation plan was determined and illustrates Hydro One’s CEO compensation relative to its peers. In comparison, Hydro One’s key financial metrics fall above the median, while CEO compensation falls below the median. And yet, Rickford says that this new plan does not sufficiently address “the interests and concerns of Ontario’s ratepayers.” How exactly are ratepayers influenced by CEO compensation, though? As Anita Anand said in a recent Globe and Mail article, “…we must all realize that Ontario’s hydro rates are set by the Ontario Energy Board (OEB), not Hydro One… reducing CEO compensation further has zero impact on the costs of energy in the province.” This is just the latest example of the Ontario government intervening in Hydro One’s governance – one of the key reasons that Hydro One’s deal with Avista Corp fell through.
Moving across the country, a hearing took place in the Nova Scotia Supreme Court on Thursday to determine which law firm will represent the 115,000 QuadrigaCX users that have collectively lost $250-million. Unfortunately, Quadriga users will have to wait another week to find out who will represent them in court. Justice Michael Wood said that he will issue a written opinion next Friday regarding how representation should be handled. However, even once the question of representation is decided, its uncertain whether Quadriga will have any money left to compensate investors. One of Quadriga’s lawyers revealed in Thursday’s hearing that Quadriga is currently out of money to fund the process, though they hope to receive funding in the near future. Up to this point, the fees for Quadriga’s legal proceedings have been paid by Jennifer Robertson, the widow of Quadriga’s late CEO, amounting to a total of $250,000.
Speaking of cryptocurrency news, JP Morgan announced this week that it’s rolling out its own cryptocurrency, called “JPM Coin”. While initially only a small number of transactions will be carried out using JPM Coin, this marks the first real-world use of a digital currency by a major bank. JP Morgan says that they are preparing for a future where more transactions, such as cross-border payments and corporate debt issuance, will move to blockchain. JPM Coin will be redeemable for one US dollar, meaning that its price is expected not to fluctuate, and will be issued once clients have deposited dollars in the bank. After the tokens have been used in the intended transaction, JP Morgan will destroy the coins and return to clients the appropriate number of US dollars. The development of JPM Coin is surprising for some, considering JP Morgan’s CEO, Jamie Dimon, has in the past called bitcoin a fraud. The early applications of JPM Coin include international payments for large corporate clients and securities transactions.
In enforcement news, the US Department of Justice has criminally charged Gene Levoff, a former top corporate lawyer at Apple Inc, with insider trading. The charges allege that Levoff exploited his position at Apple to review draft copies of the company’s financial results and then trade on them prior to their release over the time period of 2011 to 2016. According to the prosecutors, Levoff generated US$604,000 in illegal gains before he was fired from Apple in September. If found guilty of securities fraud, Levoff could face a 20-year prison sentence and a fine of US$5-million. The Securities and Exchange Commission (SEC) has also filed related civil charges. In a statement issued on Wednesday, the associate director of the SEC’s enforcement division said that Levoff’s actions are particularly serious “given his responsibility for implementing the company’s insider trading compliance policy”.
Finally, lets talk about Lyft. The tech company is one of this year’s highly anticipated IPOs, and is planning to go public in the first half of 2019. This week it was released that the founders, John Zimmer and Logan Green, are working with underwriters and lawyers to create a special class of shares which will be held by them and will have extra voting powers. Introducing this new class of shares will allow the founders to have near-majority voting control, despite only holding a 10% stake. Though the precise details of the new shares haven’t been publicized yet, Zimmer and Green will have substantial influence over Lyft’s major decisions, such as the election of directors. These “supervoting” shares are not uncommon to technology start-ups. Facebook, Alphabet, and Snap, which all went public in recent years, also have supervoting shares that give their founders significant control. Proponents of supervoting shares believe that they protect founders from short-sighted investor demands. However, critics argue that this sort of share structure gives founders “unchecked power”.
We hope you enjoyed this week’s installment of Friday Finds! Join us back on the CBLB next week for another round-up of the top corporate and securities law news stories.