February 18, 2011
Senate and House Committees Focus on Oversight of Dodd-Frank
Chairman Johnson of the Senate Banking Committee announced the Committee's priorities for this session of Congress:
The Committee’s top priorities and agenda will be viewed through the lens of continuing to support the economic recovery. Although real output is now growing, the rate of unemployment is 9 percent, the housing market remains weak, and output is below potential.
There are three overarching issue areas within the Banking Committee’s jurisdiction that will play the greatest part in the Committee’s focus on economic recovery and job growth:
1) Oversight of Dodd-Frank Wall Street Reform and Consumer Protection Act
2) Housing Finance Reform
3) Oversight of Taxpayer Investments in TARP and Auto Manufacturing
Similarly, the House Financial Services Committee Chairman Spencer Bachus today announced the committee’s planned hearing schedule for March 2011 and stated that:
The Committee will continue our efforts to promote economic recovery and job creation. We are committed to ensuring government policies promote, rather than hinder, a stronger economy and more jobs. That means the Committee will continue focusing on the need to end the bailouts of Fannie Mae and Freddie Mac, which have already cost taxpayers $150 billion. It means we will fulfill our Constitutional obligation to exercise rigorous oversight of the implementation of the Dodd-Frank Act and its impact on the economy, and it means we will pursue the elimination of unnecessary spending at a time of record deficits.
SEC Charges Seven with Global Warming Pump & Dump Scheme
The SEC today charged a group of seven individuals who perpetrated a fraudulent pump-and-dump scheme in the stock of a sham company that purported to provide products and services to fight global warming. The SEC alleges that the group included stock promoters, traders, and a lawyer who wrote a fraudulent opinion letter. The scheme resulted in more than $7 million in illicit profits from sales of stock in CO2 Tech Ltd. at artificially inflated prices. Despite touting impressive business relationships and anti-global warming technology innovations, CO2 Tech did not have any significant assets or operations. The company was purportedly based in London, and its stock prices were quoted in the Pink Sheets.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, the scheme was perpetrated through Red Sea Management Ltd., a Costa Rican asset protection company that laundered millions of dollars in illicit trading proceeds out of the United States on behalf of its clients. The U.S. Department of Justice today announced related criminal charges against six of the individuals.
According to the SEC’s complaint, the fraudulent pump-and-dump scheme in CO2 Tech stock occurred from late 2006 to April 2007 through the efforts of the following individuals:
- Jonathan R. Curshen, a Sarasota, Fla., resident who founded and led Red Sea.
David C. Ricci and Ronny Morales Salazar of San Jose, Costa Rica, who were Red Sea stock traders.
Ariav “Eric” Weinbaum and Yitzchak Zigdon of Israel, who were Red Sea clients.
Robert L. Weidenbaum of Coral Gables, Fla., a stock promoter who operates a company called CLX & Associates.
Michael S. Krome of Lake Grove, N.Y., a lawyer who allegedly wrote a fraudulent opinion letter.
In the related criminal action, charges brought by the Justice Department’s Criminal Division were unsealed against Curshen, Krome, Salazar, Weidenbaum, Weinbaum, and Zigdon. The defendants are charged in the Southern District of Florida variously with conspiracy to commit securities, mail and wire fraud; wire fraud; mail fraud; violating the securities regulation laws and obstruction of justice.
NASAA Proposes Changes to Model Rules on Investment Adviser Custody and Brochure Requirements
NASAA’s Investment Adviser Regulatory Policy and Review Project Group is soliciting comments from interested persons regarding proposed changes to the NASAA model rules pertaining to investment adviser custody, financial requirements, recordkeeping and brochure delivery. The comment period begins on Thursday, February 17, 2011, and will remain open for 14 days. Accordingly, all comments should be submitted on or before Wednesday, March 2, 2011. As the summary states:
The Project Group has been charged with amending these rules to address changes by the U.S. Securities and Exchange Commission (SEC) to its custody and brochure rules for investment advisers. As a result of changes to SEC rules and the changes to the uniform registration forms, states may have to change their rules. The NASAA Investment Adviser Section requested that the Project Group give expedited attention to the impact of the custody and brochure rule changes as well as changes to Form ADV Part 1A.
The proposed rules keep intact the increased investor protection standards presently required by the states, while bringing them into closer harmony with the corresponding rules of the SEC and revisions to Form ADV. The Proposed Rules also contain additional optional safeguards retained from the existing NASAA custody rule which may be adopted as desired by Administrators. The Proposed Rules are being provided under the Uniform Securities Act of 1956 and under the Uniform Securities Act of 2002.
February 17, 2011
Hank Morris Sentenced to up to Four Years for Pay-to-Play Kickback Scheme
The New York AG's Office announced that Henry “Hank” Morris, the chief political adviser to former Comptroller of the State of New York Alan Hevesi, has been sentenced to a term of one and one third to four years in prison, the maximum sentence available by law. Morris, who pleaded guilty in November 2010 to a felony for his involvement in a pay-to-play kickback scheme at the Comptroller’s Office, forfeited $19 million and is permanently banned from the securities industry in New York State.
According to the terms of his plea agreement with the Attorney General’s Office, Morris forfeited $19 million that will go to the state pension fund. He is permanently banned from the securities industry in New York State and prohibited from soliciting or receiving investments from the State of New York or any governmental entity within the state. In addition, Morris is prohibited from holding any public position or entering into any contractual relationship with the State of New York or any governmental entity within the state. He will also lose his license to practice law in New York State.
FINRA Fines Lincoln Financial for Failures to Protect Customer Information
FINRA announced today that it imposed fines of $450,000 against Lincoln Financial Securities, Inc. (LFS) and $150,000 against an affiliated firm, Lincoln Financial Advisors Corporation (LFA), for failure to adequately protect non-public customer information. In addition, LFS failed to require brokers working remotely to install security application software on their own personal computers used to conduct the firm's securities business.
SEC and FINRA rules require every broker-dealer to adopt written policies and procedures that address safeguards for the protection of customer records and information. FINRA found that for extended periods of time – seven years for LFS and approximately two years for LFA – certain current and former employees were able to access customer account records through any Internet browser by using shared login credentials. From 2002 through 2009, between the two firms, more than 1 million customer account records were accessed through the use of shared user names and passwords. Since neither firm had policies or procedures to monitor the distribution of the shared user names and passwords, they were not able to track how many or which employees gained access to the site during this period of time. As a result of the weaknesses in access controls to the firms' system, confidential customer records including names, addresses, social security numbers, account numbers, account balances, birth dates, email addresses and transaction details were at risk.
In assessing sanctions, FINRA took into consideration the firms' efforts to notify all customers whose account information was or had been potentially exposed on the firms' Web-based system, and offered those customers credit monitoring and restoration services for a period of one year. In settling these matters, LFS, based in Concord, New Hampshire, and LFA, based in Fort Wayne, Indiana, neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Senate Banking Committee Holds Hearing on Dodd-Frank Implementation
The Senate Banking Committee held a hearing today on Oversight of Dodd-Frank Implementation: A Progress Report by the Regulators at the Half-Year Mark. The witnesses were The Honorable Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System; The Honorable Sheila Bair, Chairman, Federal Deposit Insurance Corporation; The Honorable Mary Schapiro, Chairman, U.S. Securities and Exchange Commission; The Honorable Gary Gensler, Chairman, Commodity Futures Trading Commission; and Mr. John Walsh, Acting Comptroller of the Currency, Office of the Comptroller of the Currency. Their written testimony is posted on the Committee's website.
Yesterday Republican members of the Committee released a letter they sent to all federal financial regulators, asking them to slow down Dodd-Frank implementation.
“We are concerned that regulators are not allowing adequate time for meaningful public comment on their proposed rules,” the senators wrote. “We also believe that regulators are not conducting rigorous analyses of the costs and benefits of their rules and the effects those rules could have on the economy.”
InvNews, GOP zeroing in on fiduciary duty study.
University of Dayton Law Sponsors Symposium on Women in Corporate Governance
University of Dayton College of Law and its Project for Law & Business Ethics will host a symposium, Perspectives on Gender and Business Ethics: Women in Corporate Governance, on Friday, February 25. This symposium will examine the role of women in the governance of corporations and other business entities. The program will include legal academics, practicing attorneys, and corporate directors.
The event will feature a presentation by Professor Douglas Branson, the W. Edward Sell Chair in Business Law at the University of Pittsburgh School of Law and the author of No Seat at the Table: How Governance and Law Keep Women Out of the Boardroom and The Last Male Bastion: Gender and the CEO Suite at America’s Public Companies. He will speak about the subjects of board of director and corporate officer composition and women’s role therein.
In addition, the symposium will include a panel discussion by top legal academics, including Barbara Black, University of Cincinnati College of Law; Professor Lissa Lamkin Broome, University of North Carolina School of Law, Professor Joan MacLeod Heminway, University of Tennessee College of Law, and Professor Darren Rosenblum, Pace Law School.
The program will also feature a panel composed of practicing attorneys and corporate executives, including Kate Barber Nolan '97, the associate general counsel of Duke Energy Corporation; Pamela Morris, president and CEO of CareSource; Katie Lamme '80, former general counsel for Standard Register; Jennifer Breech Rhoads, president and CEO, Ohio Petroleum Marketers and Convenience Store Association; and Mildred Woryk, former vice president of human resources, Tomkins Limited.
February 16, 2011
FINRA Proposes Time Period to Reply to Responses to Motions in Arbitration
FINRA proposes to amend its arbitration rules to provide moving parties with a five-day period to reply to responses to motions. Currently the rules do not expressly provide the party that made the original motion (the “moving party”) an opportunity to reply to a response. FINRA’s practice has been to forward the reply to the arbitrators, even when staff already have sent the motion and response to the arbitrators. There have been instances where arbitrators reviewed the motion papers and even ruled on a motion before receiving a reply.
The proposed amendments would codify FINRA’s practice relating to replies to responses to motions and make it transparent. FINRA believes that the proposal would provide parties with an opportunity to brief fully the issues in dispute and ensure that arbitrators have all of the motion papers before issuing a final decision on the motion. Unfortunately, it may also encourage the filing of more replies and contribute to the trend of increase motion practice in securities arbitration.
SEC Settles Insider Trading Charges Against Relief Defendants in GlaxoSmithKline Merger Insider Trading Case
The SEC announced that, on January 25, 2011, the U.S. District Court for the Eastern District of Pennsylvania entered Final Judgments against Swiss Defendants Peter Kohler and Swiss Real Estate International Holding AG (Swiss Real Estate), and Bulgarian Relief Defendant Sacho Todorov Dermendjiev (Dermendjiev) in the Commission’s action alleging insider trading by Lorenz Kohler (Kohler) for his own account and for the accounts of Swiss Real Estate and Dermendjiev in advance of the October 9, 2006 public announcement of a $566 million merger between CNS, Inc. (CNS) and GlaxoSmithKline plc. Kohler died in 2010, while the Commission’s action against him was pending. His son, Peter Kohler, as the representative of Kohler’s heirs, subsequently consented to be substituted for his father as a defendant in the pending action. Neither Peter Kohler nor relief defendant Dermendjiev were charged with federal securities law violations. The Final Judgments order the Defendants collectively to pay disgorgement of $374,655. The Defendants and Relief Defendant consented to the entry of Final Judgments against them, without admitting or denying the allegations in the Commission’s First Amended Complaint, except as to jurisdiction.
In its First Amended Complaint, filed on June 8, 2009, the Commission alleged that Kohler, a Swiss national, purchased out-of-the-money call options in CNS in his personal account and in an account in the name of Swiss Real Estate, a company controlled by Kohler, based on material non-public information relating to the company's potential acquisition. The Commission also alleged that Kohler purchased call option contracts on CNS stock for Dermendjiev's account just prior to announcement of the acquisition of CNS and sold these options immediately after announcement of the CNS acquisition. The First Amended Complaint named Dermendjiev, a Bulgarian national, as a relief defendant.
The Final Judgments order Peter Kohler to pay disgorgement of $85,631, Swiss Real Estate to pay disgorgement of $214,369, and Dermendjiev to pay disgorgement of $74,655.
SEC Charged Brother of Cosmetics Executive with Misappropriating Merger Information
The SEC charged a San Francisco man with unlawfully profiting from advance knowledge of the pending acquisition of Bare Escentuals, Inc., a Bay Area cosmetics company, based on information he had garnered from his sister, a former executive with the company. According to the Commission, Zhenyu Ni, 36, overheard his sister discuss a then-secret acquisition of Bare while visiting her office, and misappropriated this information for his own benefit by purchasing Bare stock and call options. Without admitting or denying the allegations, Ni has agreed to pay disgorgement and penalties of over $300,000.
According to the SEC, Ni visited the office of his sister, Bare’s then Director of Tax, in December 2009 while she was in the midst of preparing due diligence for the possible acquisition of Bare Escentuals by Shiseido Co., Ltd, a Japanese company. While there, Ni is alleged to have overheard his sister taking phone calls during which she used words such as “due diligence file,” “potential buyer” and “merger structure.” Ni then began purchasing Bare stock and call options, ultimately spending almost $165,000 over the next month acquiring securities in his and his father’s brokerage accounts. When Bare announced the tender offer after market close on January 14, 2010, the company’s stock price jumped more than 40%, and Ni allegedly netted illegal profits of $157,066.
The Commission’s complaint, filed in federal district court for the Northern District of California, charges Ni with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. Ni has agreed to settle the SEC’s charges without admitting or denying the allegations. The SEC’s action does not name Ni’s sister as a party.
SEC Charges Patent Agent and Brother with Tipping Inside Information
On February 15, 2011, the SEC filed an amended complaint charging a San Diego-based patent agent and his brother with illegally tipping inside information regarding two biotechnology companies, as part of a larger insider trading scheme. According to the amended complaint, Aaron J. Scalia, a former patent agent for Sequenom, Inc., tipped material, non-public information regarding Sequenom and another biotechnology company, to his brother Stephen J. Scalia. Stephen Scalia then tipped his fraternity brother, Brett A. Cohen, who, in turn, tipped his uncle, David V. Myers. Myers traded on the illegally obtained inside information, garnering more than $600,000 in illicit profits, and provided Stephen Scalia with $14,000 in cash kickbacks.
The SEC filed its initial charges in the case in December 2010 against Cohen and Myers. In its amended complaint filed yesterday in federal court in San Diego, the SEC charged the Scalia brothers. In a parallel criminal proceeding, on February 15, 2011, the U.S. Attorney’s Office for the Southern District of California filed criminal charges against the Scalia brothers.
February 15, 2011
SEC Charges Amish Man with Defrauding Other Amish Investors
The SEC announced that it filed charges in the United States District Court for the Northern District of Ohio against Monroe L. Beachy, a 77-year-old Amish man from Sugarcreek, Ohio, who allegedly targeted his fellow Amish as investors in his fraudulent offering of securities that raised more than $33 million. According to the SEC, from as early as 1986 through June 2010, Beachy, doing business as A&M Investments, raised money from more than 2,600 investors through the offer and sale of investment contracts. Beachy enticed investors by promising interest rates that were greater than banks were offering at the time. Many of Beachy’s investors treated their investment accounts with Beachy like money market accounts, from which they could withdraw their money at any time. Beachy told his investors that their money would be used to purchase risk-free U.S. government securities, which would generate returns for the investors. In reality, Beachy used the money to make speculative investments in high yield (junk) bonds, mutual funds, and stocks.
Beachy filed for Chapter 7 bankruptcy on June 30, 2010, and his assets are currently under the control of a Chapter 7 bankruptcy trustee appointed by the bankruptcy court. Beachy has agreed to settle the SEC’s charges without admitting or denying the allegations. The SEC’s proposed judgment does not impose a civil penalty based on Beachy’s financial condition.
The settlement is subject to the approval of the United States District Court for the Northern District of Ohio.
Schapiro Testifies on Regulation of OTC Derivatives Marketplace
SEC Chairman Mary L. Schapiro testified today on Implementation of Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act by the U.S. Securities and Exchange Commission
before the United States House Financial Services Committee. These provisions primarily relate to the regulation of over-the-counter ("OTC") derivatives markets and the supervision of systemically important payment, clearing, and settlement systems. Title VII of the Act requires the SEC, among other regulators, to conduct a substantial number of rulemakings and studies. Her testimony briefly describes the progress and plans for implementing Titles VII and VIII of the Dodd-Frank Act, with a particular focus on the regulation of the OTC derivatives marketplace.
Securities Industry Professionals and Attorney Settle SEC Charges in Wall Street Insider Trading Case
The SEC announced that on February 9, 2011, the United States District Court for the Southern District of New York entered final judgments against defendants Jeffrey Glover, Frederick Bowers, Thomas Faulhaber and Eric Holzer in a case alleging widespread insider trading against nine defendants and three relief defendants. These four defendants are the first to settle the Commission’s pending civil action and have agreed to pay a total of more than $1.3 million in disgorgement, prejudgment interest and civil penalties.
The Commission’s complaint alleges that from at least March 2004 through July 2008, Matthew Devlin, then a registered representative at Lehman Brothers, Inc., traded on and tipped his clients and friends, including individuals in the securities and legal professions, with inside information about 13 impending corporate transactions. As alleged in the complaint, Devlin had misappropriated the inside information from his wife who was employed by a public relations firm working on the deals.
According to the complaint, Glover, an investment adviser and one of Devlin’s clients, traded on Devlin’s tips about five deals. The complaint alleges that Devlin also tipped his trading partner, Bowers, about three upcoming acquisitions. As alleged in the complaint, Bowers then tipped his client, Faulhaber, who was affiliated with a registered broker-dealer. Faulhaber traded in three deals, and kicked back cash to Bowers. The complaint further charges Holzer, Devlin’s friend and a former tax associate in the New York City office of an international law firm, with trading on Devlin’s tips in at least three deals. According to the complaint, Devlin and Holzer also agreed that Holzer would arrange for the purchase of shares for Devlin’s benefit so Devlin could profit from the nonpublic information but evade scrutiny.
Without admitting or denying the allegations in the complaint, Glover, Bowers, Faulhaber and Holzer settled the Commission’s insider trading charges. They agreed to injunctions from violating antifraud provisions, monetary relief and various bars in related administrative proceedings, as described below.
The Commission’s action against the other defendants and relief defendants is ongoing.
NYSE Euronext & Deutsche Boerse Announce Merger Agreement
As expected, the Deutsche Boerse AG and NYSE Euronext today announced that they have entered into a business combination agreement following approval from both companies' Boards. According to the press release:
Under the agreement, the companies will combine to create the world's premier global exchange group, creating the world leader in derivatives trading and risk management, and the largest, most well known venue for capital raising and equities trading. The combined group will offer clients global scale, product innovation, operational and capital efficiencies, and an enhanced range of technology and market information solutions.
The transaction will strengthen Frankfurt and New York as key financial centers, while benefiting Paris and London as well as Luxembourg. Each of the group's national exchanges, including those in Amsterdam, Brussels, and Lisbon, will keep its name in its local market and all exchanges will continue to operate under local regulatory frameworks and supervision. The combined group will work closely with regulators in all markets to facilitate transparency and standardization of capital markets globally.
The combined group will have 2010 combined net revenues of EUR1 4.1 billion/US$ 5.4 billion, and 2010 EBITDA of EUR 2.1 billion /US$ 2.7 billion, thus becoming the world's largest exchange group by revenues and EBITDA. Based on 2010 net revenues, the combined group will earn approximately 37% of total revenues in derivatives trading & clearing, 29% in cash listings, trading & clearing, 20% in settlement & custody, and 14% in market data, index & technology services.
The group will have dual headquarters in Frankfurt and New York City. The Compay will be led by a one-tier board with 17 members -- 15 directors and the CEO and the Chairman. Of the 15 directors, 9 will be designated by Deutsche Boerse and 6 by NYSE Euronext. Reto Francioni,CEO of Deutsche Boerse, will be Chairman, and Duncan Niederauer, NYSE Euronext CEO, will be CEO. The transaction is structured as a combination of Deutsche Boerse and NYSE Euronext under a newly created Dutch holding company that is expected to be listed in Frankfurt, New York and Paris.
February 14, 2011
What's in a Name?: NYSE and Deutsche Boerse
On February 12, in response to media reports, NYSE Euronext and Deutsche Börse AG issued the following statement:
"As we have previously reported, we are in advanced merger negotiations to create a group that is both a world leader in derivatives and risk management and the premier global venue for capital raising. Those negotiations continue. Any suggestion that a name for the resulting proposed holding company has been finalized is false. No name has been finalized and we expect any decision on a name would be made at a later date, subject to the successful completion of a merger agreement."
There are reports that the merger may be announced tomorrow.
SEC's Schapiro on Budget Request for SEC
The following is a statement from SEC Chairman Mary L. Schapiro regarding the President’s FY 2012 budget request of more than $1.4 billion for the SEC.
“These funds will provide the SEC with the resources needed to carry out both our longstanding core mission as well as our new responsibilities for derivatives, hedge fund advisers and credit rating agencies. By law, the 2012 funding is entirely offset by transaction fees such that the SEC budget will not add to the deficit.”
The SEC's FY 2012 Congressional Justification In Brief is posted on its website and states:
The SEC is requesting $1.407 billion for FY 2012. This represents an increase of $264 million over the agency’s current FY 2011 spending authority, and will support 4,827 positions (4,460 FTE), an increase of 780 positions (612 FTE) over projected FY 2011 levels. The FY 2012 request is designed to provide the SEC with the resources required to achieve multiple, high-priority goals: adequately staff the agency to fulfill its core mission of protecting investors, maintaining orderly and efficient markets, and facilitating capital formation; continue to implement the Dodd-Frank Act; and expand the agency’s information technology (IT) systems and management infrastructure to serve the needs of a more modern and complex organization
February 13, 2011
Verdier on Mutual Recognition
Mutual Recognition in International Finance, by Pierre-Hugues Verdier, University of Virginia - School of Law, was recently posted on SSRN. Here is the abstract:
In recent years, scholars have devoted considerable attention to transnational networks of financial regulators and their efforts to develop uniform standards and best practices. These networks, however, coexist with an emerging trend toward regional and bilateral mutual recognition arrangements. This Article proposes a theoretical account of mutual recognition that identifies its potential benefits, the cooperation problems it raises, and the resulting institutional frameworks in multilateral and bilateral settings. The multilateral model adopted in Europe relies on extensive delegation to supranational institutions, cross-issue linkages, and political checks on delegation. An alternative bilateral model, illustrated by the recent arrangement between the SEC and Australia, relies on selective membership, bilateral enforcement, and limited duration and renegotiation clauses. The multilateral model is unlikely to be effective without strong, preexisting supranational institutions – in other words, outside Europe. Therefore, international efforts at mutual recognition are more likely to resemble the SEC’s program. This bilateral model, however, is most likely to succeed between jurisdictions with developed financial markets as well as similar regulatory objectives and resources. It also requires sufficient private demand and enhanced cross-border supervision and enforcement agreements. Finally, it is less likely to be effective where one country seeks to improve regulatory standards in the other. These insights are relevant for other contemporary mutual recognition initiatives, such as between Europe and third countries and within ASEAN.
Bai on Credit Rating Agencies
The Performance Disclosures of Credit Rating Agencies: Are They Effective Reputational Sanctions?, by Lynn Bai, University of Cincinnati - College of Law, was recently posted on SSRN. Here is the abstract:
The SEC has recently added new provisions to the credit rating agency regulation. These provisions require credit rating agencies to disclose publicly their rating actions and performance measurements. The new requirements seek to achieve two goals: (1) deter conflicts of interest in the credit rating industry by invoking the reputational sanction power of performance statistics, and (2) help new entrants to the industry build a track record so they can compete with established agencies. This paper reveals empirical evidence that the current disclosure requirements cannot achieve these goals and makes recommendations on how the regulation should be improved in light of consumer choice research and cognitive science findings on effective communication.
Bereskin & Cicero on CEO Compensation Contagion
CEO Compensation Contagion: Evidence from an Exogenous Shock, by Frederick L. Bereskin, University of Delaware, and David C. Cicero, University of Delaware - Lerner College of Business and Economics, was recently posted on SSRN. Here is the abstract:
We identify an exogenous event that resulted in a subset of U.S. firms increasing CEO compensation, and show that many other firms responded by increasing their CEOs’ compensation as well. The exogenous event was the development in Delaware case law in the mid-1990s that greatly increased Delaware-incorporated firms’ ability to “just say no” to hostile takeovers. In response, firms where managers had the greatest protection from outside shareholders substantially increased CEO compensation. Firms not directly impacted by the legal changes increased their CEOs’ compensation when the legal changes directly affected a substantial number of firms in their industry. As a whole, our results support the contagion effect hypothesized by Gabaix and Landier (2008) modified to account for differing levels of competition for CEOs across industries, and firm-specific governance. Compensation contagion provides a compelling partial explanation for the large increases in CEO compensation in the 1990s.