Jonathan B. Wilson

Legal Resources
Business Law Updates
Out of Balance
Legislation for Renewable Energy

Jonathan Wilson is an Atlanta attorney with more than 19 years of experience guiding growing private and public companies.  He currently serves as the outside general counsel of several companies and is the former general counsel of (NASDAQ: WWWW) and EasyLink Services (NASDAQ: ESIC).  He is also the founding chair of the Renewable Energy Committee of the American Bar Association's Public Utility Section.

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Tuesday, June 30, 2009

Carbon Trading in Europe

Bradford Plumer, writing in TNR, claims that although Europe had some early "miscues" in its carbon trading program, that it is actually working now to reduce carbon emissions and encourage energy efficiency.  He concludes:

"Bottom line: The EU cap-and-trade system suffered a slew of early mishaps, but the United States has been watching and learning, and we should be able to avoid most of those fumbles. What's more, now that the problems have been ironed out, Europe's cap genuinely appears to be working, spurring companies to become more energy-efficient and making meaningful cuts in emissions. That said, the China factor is still huge: Europe obviously can't stop global warming all by itself, and there's no substitute for an international treaty."

3:00 pm edt 

Thursday, June 25, 2009

Would Waxman Markey Transform Green Energy?

President Obama says that Waxma Markey would spark a "green energy transformation" but the Environmental Protection Agency disagrees.  The EPA recently released a report saying that Waxman Markey would actually slow the growth of renewable energy. 

The WSJ has a story on the administration's dueling viewpoints. 

You might think that the administration would get its story straight before embarking on a legislative odyssey that will result in wealth transfers in the billions of dollars.  But in these days of bailouts and bankruptcies, who'll quibble over details.

The EPA's view is that cap and trade legislation will not increase the price of fossil fuels "enough" to spur additional growth in renewables in the face of the decline in energy use that will come from energy conservation. 

That circular logic, sadly, will only inject more confusion into the debate.

The bottom line is that the energy conservation provisions of Waxman Markey, while significant, will take decades to have an impact.  Tax incentives for retrofitting energy-inefficient buildings will do little to induce change and America's usage of energy has increased unabated for more than one hundred years.  In all likelihood it will continue to increase (ignoring of course the growth of energy consumption from the rapidly developing economies of China, India and Brazil). 

Waxman Markey will, without a doubt, increase energy prices to consumers and will induce a land rush into renewable energy.  Whether this is wise public policy is open to debate but the practical effect of capping CO2 emissions will create a new market that will dramatically change the way the industry and consumers think about energy. 

The EPA analysis also ignores the extent to which some renewable energy providers willl become CO2 sinks, creating emission credits that they will be able to trade.  Those values will offset at least part of the higher cost of renewable energy and further promote renewable energy development.

7:29 am edt 

Wednesday, June 24, 2009

Waxman Markey Alive Again

After seeming to fall apart over Democrats' inability to resolve differences involving impacts on farming, the environmental cap and trade legislation known as Waxman Markey is now back to life.

Reports indicate that the bill will be brought to the floor of the House for a vote on Friday. 

If enacted, the bill would cap industries' emissions of carbon dioxide and other greenhouse gases and create a national trading market for carbon credits.  Entities that reduced carbon dioxide gases (or that produced less than their mandatory maximum) would be able to sell their credits to emitters who could not reduce below their maximums.

The bill would also implement a national renewable energy standard and impose a national building code to reduce energy consumption. 

7:59 am edt 

Sunday, June 21, 2009

Protests in Iran Escalate


CNN is following the story.
8:32 am edt 

Saturday, June 20, 2009

Is Waxman Markey Dead?
It is widely reported that a Democratic caucus over changes to the Waxman Markey bill blew up this week:

House Agriculture Chairman Collin Peterson (D-Minn.) on Friday said climate change bill negotiators are heading back to the drawing board after discussions between Democrats “blew up last night.”

A meeting between chairmen drafting the climate bill and Democrats on the Agriculture Committee “by and large blew up last night” over the issue of offsets, Peterson said.

Specifically, he said, Agriculture Democrats rejected a concept pitched by bill drafters that would set money aside for a new greenhouse gas conservation program tied together with some offsets.

“It’s a whole new concept being brought in at the last minute,” Peterson said. “Many didn’t like it. ... The bottom line is we’re not going to consider anything unless we actually see the language and have it for three or four days so we can figure out what it does.”

Does this mean that Waxman Markey is dead?  If Democrats with a commanding majority in both house of Congress cannot bring the bill out of committee, it is hard to imagine the measure ever passing through Congress. 

7:20 am edt 

Seventh Georgia Bank Fails

Southern Community Bank was taken into FDIC receivership after the close of business yesterday, making it the seventh Georgia bank to be closed in 2009. 

The bank's deposits were taken over by United Community Bank in Blairsville, Georgia. 

7:10 am edt 

Friday, June 19, 2009

Financial Reform Meets Initial Resistance

The Obama administration's sweeping financial reform proposal appeared to meet with bipartisan resistance yesterday during Treasury Secretary Geithner's testimony before the Senate Banking Committee. 

Some Senators questioned how the Federal Reserve could be expected to act both like a central bank and like a regulator.  Others, including some Democrats on the committee, claimed that the Fed had "dropped the ball" when it came to the leading indicators of the current crisis. 

The administration's proposal seems to have been a 'split the baby approach.'  It combines sweeping new powers and a mandate to regulate banking and business interests in a way never before considered, but without the creation of a new agency of government.  As such it seeks to mollify conservatives by creating no new branches of government and simultaneous appeal to liberals by imposing substantial restrictions on commercial interests. 

At its core, however, is a problem of focus: the measure does not articulate what caused the current crisis and explain how the measure would have prevented it.  The administration may rail about the inequity of oversized executive pay, but does anyone really think that executive pay caused the housing bubble and the subprime meltdown?

The Obama proposal claims to include measures to expand consumer protection, but wasn't the desire to expand home financing to borrowers who couldn't afford it part of the cause of the housing bubble?  If so, what "consumer protection" scheme would have prevented the banking collapse we saw in 2008? 

Without an over-arching storyline that the administration can sell to explain the banking collapse and a plausible rationale for a reform that would have prevented that collapse, the administration is unlikely to be able to pull together a Congressional majority for reform. 

6:29 am edt 

Thursday, June 18, 2009

Financial Regulatory Reform: A New Foundation
President Obama released his administration's proposal to reform financial regulation entitled Financial Regulatory Reform: A New Foundation

The Wall Street Journal has the best
summary so far, which includes the following:

For the regulation of financial firms, the proposal:

  • Creates Financial Services Oversight Council, which would coordinate activities among regulators, replacing the President's Working Group.
  • Ensures that any financial firm big enough to pose a risk to the financial system would be heavily regulated by the Federal Reserve, including regular stress tests.
  • Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.
  • Says the Treasury will re-examine capital standards for banks and bank-holding companies.
  • Tells regulators to issue guidelines on executive compensation, with the goal of aligning pay with long-term shareholder value, including a re-examination of the utility of golden parachutes.
  • Creates a new bank agency, the National Bank Supervisor, and kills the Office of Thrift Supervision. The new agency will look over national banks, including federal branches and agencies of foreign banks.
  • Forces industrial banks, non-bank financial firms and credit-card banks to become more traditional bank holding companies subject to federal oversight.
  • Kills the SEC program that supervised Wall Street investment banks.
  • Requires hedge funds, private-equity funds and venture-capital funds to register with the SEC, allowing the agency to collect data from the firms.
  • Subjects hedge funds to new requirements in areas such as record keeping, disclosure and reporting. The oversight would include assets under management, borrowings, off-balance sheet exposures.
  • Urges the SEC to give directors of money-market mutual funds the power to suspend redemptions, and take other action to strengthen regulation of money-market mutual funds to prevent runs.
  • Beefs up oversight of insurance by creating an office within the Treasury to coordinate information and policy.
  • Kicks off a process by which the Treasury and the Department of Housing and Urban Development will figure out the future of mortgage giants Fannie Mae (FNM), Freddie Mac (FRE) and the federal home-loan banks.

For the regulation of financial markets, the proposal:

  • Brings the markets for over-the-counter derivatives and asset-backed securities into a regulatory framework, strengthens regulation of derivatives dealers and forces trades to be executed through public counterparties, such as exchanges.
  • Toughens the regulatory regime, including more conservative capital requirements and tougher rules on counterparty credit exposure.
  • Strengthens laws designed to protect "unsophisticated parties" from trading derivatives "inappropriately."
  • Gives the Fed more power over the infrastructure that governs these markets, such as payment and settlement systems.
  • Harmonizes the powers and authority of the SEC and CFTC to avoid conflicting rules relating to the same products.
  • Requires that originators, for example, mortgage brokers, should retain some economic interest in securitized products.
  • Directs regulators to "align" participants' compensation with the long-term performance of underlying loans.
  • Urges the SEC to continue its efforts to improve the transparency and standardization of securitization markets and recommends the SEC have clear authority to require reporting from issuers of asset-back securities.
  • Urges the SEC to strengthen its regulation of credit-rating firms, including disclosing conflicts of interest, better differentiating between structured and unstructured debt and more clearly stating the risks of financial products.
  • Tells regulators to reduce their reliance on credit-rating firms.

With respect to consumer and investor protection:

  • Creates a new agency, the Consumer Financial Protection Agency, with broad authority over consumer-oriented financial products, such as mortgages and credit cards. The new agency would work with state regulators.
  • Gives the new agency power to write rules and levy fines based on a wide range of existing statutes.
  • Proposes new authority for the Federal Trade Commission over the banking sector, in areas such as data security.
  • Gives the new agency authority to ban or restrict mandatory arbitration clauses.
  • Empowers the new regulator to define standards for simple "plain vanilla" products, such as mortgages, which would have to be offered "prominently" by companies.
  • Expands the agency's power to regulate unfair, deceptive or abusive practices.
  • Imposes "duties of care" that will have to be followed by financial intermediaries, such as stock brokers and financial advisers.
  • Regulates overdraft protection plans, treating them more like credit-card cash advances.
  • Strengthens SEC's framework for investor protection by expanding the agency's powers to beef up disclosures to investors, establish a fiduciary duty for broker-dealers who offer advice and expand protection for whistleblowers, including a fund that would pay for certain information.
  • Requires non-binding shareholder votes on executive compensation packages.

With respect to future crisis management, the proposal:

  • Creates a mechanism that allows the government to take over and unwind large, failing financial institutions.
  • Creates a formal process for deciding when to invoke this power, which could be initiated by the Treasury, Fed, FDIC or SEC.
  • Gives Treasury the authority to make the final decision, with the backing of other regulators.
  • Gives the Treasury the authority to decide how to fix such a failing firm, whether through a conservatorship, receivership or some other method.
  • Empowers the FDIC to act as conservator or receiver, except in the case of broker dealers or securities firms, in which case the SEC would take over.
  • Limits the Fed's emergency lending powers by requiring prior written approval by the Treasury Secretary.

With respect to international matters, the proposal:

  • Recommends international regulators strengthen their definition of regulatory capital to improve the quality, quantity, and international consistency of capital.
  • Recommends that various international bodies implement the Group of 20 recommendations, including requiring banks to hold more capital.
  • Urges that national authorities standardize oversight of credit derivatives and markets.
  • Urges other countries to follow the U.S. lead and subject systemically significant companies to stricter oversight.
7:41 am edt 

Wednesday, June 17, 2009

Obama to Propose Sweeping Fed Reform
President Obama, in an interview with Bloomberg, provided a glimpse into the Federal Reserve Bank reform he will propose later today. 

The proposal will grant the Federal Reserve additional powers and jurisdiction, regulate derivatives and include limitations on executive pay, according to the interview.
6:46 am edt 

Monday, June 15, 2009

Geithner Has a Plan
Timothy Geither, Secretary of the Treasury, and Lawrence Summers, Chair of the National Economic Council, writing in today's Washington Post, outline the coming legislative proposal:

"First, existing regulation focuses on the safety and soundness of individual institutions but not the stability of the system as a whole. As a result, institutions were not required to maintain sufficient capital or liquidity to keep them safe in times of system-wide stress. In a world in which the troubles of a few large firms can put the entire system at risk, that approach is insufficient.

The administration's proposal will address that problem by raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms. In addition, all large, interconnected firms whose failure could threaten the stability of the system will be subject to consolidated supervision by the Federal Reserve, and we will establish a council of regulators with broader coordinating responsibility across the financial system.

Second, the structure of the financial system has shifted, with dramatic growth in financial activity outside the traditional banking system, such as in the market for asset-backed securities. In theory, securitization should serve to reduce credit risk by spreading it more widely. But by breaking the direct link between borrowers and lenders, securitization led to an erosion of lending standards, resulting in a market failure that fed the housing boom and deepened the housing bust.

The administration's plan will impose robust reporting requirements on the issuers of asset-backed securities; reduce investors' and regulators' reliance on credit-rating agencies; and, perhaps most significant, require the originator, sponsor or broker of a securitization to retain a financial interest in its performance.

The plan also calls for harmonizing the regulation of futures and securities, and for more robust safeguards of payment and settlement systems and strong oversight of "over the counter" derivatives. All derivatives contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse.

Third, our current regulatory regime does not offer adequate protections to consumers and investors. Weak consumer protections against subprime mortgage lending bear significant responsibility for the financial crisis. The crisis, in turn, revealed the inadequacy of consumer protections across a wide range of financial products -- from credit cards to annuities.

Building on the recent measures taken to fight predatory lending and unfair practices in the credit card industry, the administration will offer a stronger framework for consumer and investor protection across the board.

Fourth, the federal government does not have the tools it needs to contain and manage financial crises. Relying on the Federal Reserve's lending authority to avert the disorderly failure of nonbank financial firms, while essential in this crisis, is not an appropriate or effective solution in the long term.

To address this problem, we will establish a resolution mechanism that allows for the orderly resolution of any financial holding company whose failure might threaten the stability of the financial system. This authority will be available only in extraordinary circumstances, but it will help ensure that the government is no longer forced to choose between bailouts and financial collapse.

Fifth, and finally, we live in a globalized world, and the actions we take here at home -- no matter how smart and sound -- will have little effect if we fail to raise international standards along with our own. We will lead the effort to improve regulation and supervision around the world."

8:36 am edt 

Sunday, June 14, 2009

Baucus and Grassley Propose Amendment to Renewable Fuel Excise Tax Credits
Senators Max Baucus and Charles Grassley are floating a proposal to end the alternative fuel excise tax credit applicable to paper companies who mix diesel fuel with "black liquor". 

Black liquor is a dark sludge, created in the paper-making process, that can be used as a low grade fuel to generate heat to assist in the manufactuing process.  For years paper companies have been (wisely) recycling this byproduct of their manufacturing to make their process more sustainable.

A law passed in 2005 create a 50 cent per gallon refundable excise tax credit on "renewable" fuels that were mixed with "taxable" fuels like gasoline and diesel.  When the law was passed, paper companies began mixing diesel fuel with their black liquor in order to qualify for the credit. 

Now that paper companies are tacking advantage of the law, the politicians who wrote the law are claiming that its use is an "unintended loophole."

What were the intended loopholes, one wonders.  If Congress makes a law that gives you a tax credit for mixing renewable fuel with diesel, why should anyone in Congress complain when paper companies do exactly what the law says they should to qualify for the credit?

A draft of the proposed amendment is available here. 
7:57 am edt 

Thursday, June 11, 2009

Welcome to Georgia: The Chernobyl of Banking
At long last we're 'first' in something: bank failures.

This WSJ article chronicles community bank failures and finds that Georgia leads the nation in this statistic, quoting Camden Fine of the Independent Community Bankers of America who calls Georgia the "Chernobyl of Banking."

Georgia has seen six community bank failures since the beginning of 2009, accounting for approximately 20% of all bank failures in the U.S.   
6:53 am edt 

Monday, June 8, 2009

Signs of the Times
Atlanta's Buckhead neighborhood is known for its trendy bars and restaurants and high-end lifestyles.  (By way of background, Elton John's Atlanta pied-a-terre is in Buckhead as were many of the scenes in Tom Wolfe's fictional accounting of modern Atlanta in A Man in Full). 

Buckhead's newest boutique, however, is Judi Gerhardt's Career Fashion Consignment, a consignment store focusing on high-end business fashions that are 'gently used.'

The approach blends business and fashion with an emphasis on value and recycling.  Why discard that $800 Tom James suit that's become a little snug around the waist when you can consign it and recover some of your investment?  

The store's website says that it will start accepting consigments in July and looks forward to a grand opening in August.   
7:39 am edt 

Sunday, June 7, 2009

The Waxman-Markey Stimulus Bill
Waxman-Markey is the short-hand name H.R. 2454, the environmental cap and trade bill currently pending in the house. 

In a  nutshell (and it had better be a pretty large nut because the bill is more than 900 pages long) the bill would impose caps on the emission of CO2, allocate "credits" for the emission of stated quantities of CO2, allocate "offsets" to businesses that create activities that reduce the emission of CO2 and then facilitate a market in which "emitters" may purchase "offsets" and offset-producers may sell their offsets.

The theory is that the marketplace will more efficiently allocate the costs of producing offsets than would a naked mandate that emitters reduce their emissions.

Many remain skeptical as to the extent of global warming and its ultimate cause.  Even more remain skeptical that reductions in CO2 emissions will have any effect on global climate change.  But one thing is certain: a national marketplace for CO2 offsets will create an economic boom for service providers who can help clients make a market for CO2 offsets.

Green Ink - the WSJ's environmental business blog - recently ran a list of businesses scrambling to find a way to make money in the coming cap and trade environment.  The list often approaches the comical (did you know that the U.S. Rancher's Association is working on ways to "sweeten cows' breath" so that cattle produce less methane and CO2 in their burps?). 

For those inclined to favor congressional rectitude when it comes to legislation some solace may be found in the thought that even if Waxman-Markey has little impact on the environment the mere action of compelling trading in the newly-minted coin of carbon offsets will spur economic activity. 
8:41 am edt 

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Jonathan B. Wilson is an Atlanta attorney at the law firm of Taylor English Duma LLP.  Jonathan B. Wilson provides legal advice to investors, companies and business executives involving corporate law, securities law, SEC matters, intellectual property, website and Internet legal issues, start-ups, limited liability companies, partnerships, 1934 Act matters, outsourcing, strategic alliance agreements, contracts, and other matters of importance to growing private and publicly-traded companies.