When British bank HSBC admitted in December that it had illegally laundered $881 million for two drug cartels, the $1.2 billion it forfeited under a settlement with the U.S. government drew a lot of attention.

But for Sean J. Griffith, another facet of the settlement was equally interesting: an agreement to hire a compliance monitor.

Griffith, the T.J. Maloney Chair in Business Law, has recently added corporate compliance to his research agenda of mergers and acquisitions and international financial regulation.

As director of the Fordham Corporate Law Center, Griffith is also spearheading the summer launch of a three-week institute on compliance, and is involved in a new Master of Laws program in compliance, to be launched in the fall.

“If you make one or two financial institutions ramp up their compliance departments, the other three or four or five or 10 financial institutions that didn’t get sued by the prosecutor are looking around at their peers, saying, ‘Holy cow, these people have thousands of people in compliance. We’d better hire,’” he said.

That’s because in the wake of the 2008 financial crisis, the willingness of government prosecutors and regulators to bring enforcement actions against financial institutions has made corporate compliance departments almost as important as boards of directors.

“We’re looking for a growth industry for our graduates, a way we can roll graduates out ready to practice law in the future, and compliance is one of those ways,” he said.

An example of his research on mergers and acquisitions can be found in, “The Market for Preclusion in Merger Litigation,” which he co-wrote with Alexandra D. Lahav, professor of law at the University of Connecticut School of Law.

The paper, forthcoming in the Vanderbilt Law Review, advocates “horizontal comity” among judges in mergers and acquisitions cases. The issue arises when a company is incorporated in Delaware but has its principal place of business elsewhere, like New York. As such, shareholders have the option of suing in those different jurisdictions or in federal court if they want to challenge a transaction as unfair or otherwise disadvantageous to their interests.

When shareholders in New York, for example, reach a settlement with a corporation, that settlement will also apply to shareholders who might have brought suit in another jurisdiction. The substance of the law they’re beholden to is the same in all jurisdictions, but procedural rules, such as whether a case is decided by a jury or a judge, differ. Plaintiffs may prefer the rules of one forum because they feel these rules give them more control over the litigation.

Griffith argues that judges in all the affected jurisdictions should discuss among themselves to oversee how and where the settlement is reached.

“You have a market mechanism. It’s not perfect, and it’s a mechanism with plenty of flaws, but the defendant can buy a settlement from three or more different sets of plaintiffs’ lawyers, and potentially drive down the price of the settlement,” he said.

“If judges are overseeing that mechanism in some way, we don’t have to worry so much about a race to the bottom.”

The effects of the 2008 financial crisis also reverberate in his research. “Governing Systemic Risk: Towards a Governance Structure for Derivatives Clearinghouses,” a paper published in the Emory Law Journal, addresses the development of clearinghouses for over-the-counter derivatives.

Over-the-counter derivatives have been blamed for creating the systemic risk that felled financial giants like Lehman Brothers and Bear Stearns in 2008, so the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 mandated the creation of clearinghouses to monitor and collect collateral from all the parties involved in derivatives trades. That way, if one party goes bankrupt and defaults on its obligations, it doesn’t take down the rest of the system.

But banks and financial institutions have been pushing back against stricter regulations.
For Griffith, the question is, what kind of corporate governance does a government-regulated clearinghouse like this require? And just as important, how is it going to assess risk differently than did the banks that failed so spectacularly?

“People who want to explain the financial crisis as a governance problem often point to the financial incentives of the management and key people inside the banks. Extra risks mean extra compensation for them,” he said.

“Because the clearinghouse is a public/private entity, it’s performing a public function and shouldn’t be governed in a purely private way.

“A dual-board structure, consisting of management and supervisory boards, like those found in many European companies, may be the best option.”

It is time to return to that optimistic attitude, a panel of government leaders said on Jan. 23 at the Lincoln Center campus.

“Making Cities Work: The Future of New York’s Public Infrastructure,” a breakfast panel at Pope Auditorium, was the second in Fordham’s Urban Dialogues Lecture Series. The inaugural event was held in September at the Morgan Library.

Richard Ravitch, former lieutenant governor of New York and former chairman of the Metropolitan Transit Authority, moderated of a panel that featured:

• Patrick J, Foye, executive director of the Port Authority of New York and New Jersey;
• Joseph J. Lhota, head of the Metropolitan Transportation Authority, and
• Gil Quiniones, president and CEO of the New York Power Authority.

Foye noted that urbanization is on the ascent, declaring that “Brooklyn is the new Hicksville, and Queens is the new Stony Brook.”

“Those trends are likely to continue, and it’s going to make mass transit even more important,” he said.

“Population growth in the New York City region is likely to be people who are even greater consumers of mass transit services, so we’ve got to make sure, as a region, we make the investments to service those citizens.”

Lhoto echoed Foye, noting that by 2035, New York will grow by an estimated 1 to 1.5 million people, putting tremendous strain on a subway system that already is operating near capacity.

At the same time, aid from the state and federal government is decreasing, which has necessitated toll increases that hurt businesses, Lhoto acknowledged. He said he was actively working to reduce bloat within the MTA, to show that the agency is sharing in the burden. He also pointed out that the subway system is more than 100 years old and has never been fully renovated.

“If a real estate developer were to buy a 100-year-old building, the first thing they would do is knock it down and start from scratch. Or if it’s landmarked, they would gut it from the inside as best they could and start from scratch,” he said.

“I don’t have that luxury.”

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There is also a severe disconnect in the value of the agency’s services, as evidenced by a state senator who told Lhoto during his confirmation hearing that the senator was going to spend his entire time in the senate trying to eliminate taxpayer funding for the MTA.

“There’s an unbelievable desire on the part of most Americans—and this is a bizarre concept—that the services they receive from their government should be free, and that [the services]should cost as much as they do in other countries,” he said.

Foye lamented how long it takes to get things done, pointing out a New York Times story that detailed how iPhones are built in China because that nation can produce them much more quickly.

“We’re too slow to get projects permitted, to get replacement projects permitted, and for construction to begin, and it’s a depressant on economic growth,” Foye said. “We’ve got to figure out a way, without compromising the environment, to move projects along quicker.”

Quiniones likewise spoke of the need for investment. A 500-megawatt natural gas powered plant recently opened in Queens, and a 660-megawatt transmission line is being laid across the Hudson River, but there are many power plants that are 40 to 60 years old.

“We have excess power upstate, but we have congestion points, especially in the Utica-Albany area and in the Hudson Valley area. If we can unclog those congestion points, we can shift excess cheaper power from upstate into downstate,” he said.

So where will we be in five years? Foye predicted that future projects will be funded by an increasingly sophisticated use of private capital in a way that has occurred for decades in Europe and Asian markets.

“I believe that, as Churchill said, ultimately Americans will do the right thing and there will be a consensus that we need to spend on infrastructure, and the New York region’s importance to the national economy will be taken into account,” he said.

Lhota looks forward to the completion of projects such as the extension of the 7 subway line to the far West Side, the opening of the new Fulton Street subway station and the opening of the Second Avenue subway, which is sorely needed.

“The 4, 5 and 6 trains, on a daily basis, have more people traveling on them than the entire Chicago Transit Authority, Atlanta’s MARTA system and the Washington Metro system,” he said.

Quiniones said he foresees more integration of wind farms upstate into the energy grid. On top of the 1,300 megawatts that already are online, he predicted that another 6,700 megawatts would be added. More imports of hydroelectric power from Canada could be on the way, as well as increased energy efficiency

“The technology choices and technology and infrastructure investments that we will make in the energy sector of the next 10 years will define what the power sector will look like for the next 40, 50 years. So it’ll be a crucial time for investing.”

In a nutshell, that’s the problem GreenSoul Shoes, a company founded by Alastair Onglingswan, (LAW, 95) hopes to alleviate. The company’s plan, which Onglingswan came up with after visiting the infamous shantytown, is to use recycled rubber from discarded tires to supply shoes to some of the 300 million barefoot children around the world who suffer from puncture wounds. It recently got the thumbs up from the Fordham’s Graduate School of Business’s (GBA) Bert Twaalfhoven Center for Entrepreneurship, which awarded the company a $10,000 prize as part of its first annual business plan competition.

The competition was the culmination of several workshops, submissions, a day of coaching with mentors and a final round, where four teams presented their ideas to a panel of investors, lawyers and entrepreneurs. The award, which was presented by GBA Dean Howard Tuckman, will be used to purchase the first two months of inventory for the company, which plans to market the shoes toward eco-conscious consumers attracted to a “buy one, give one policy.”