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Regulating Financial Guarantors, Steven L. Schwarcz
Regulating Financial Guarantors, Steven L. Schwarcz
Faculty Scholarship
To improve financial regulation, scholars have engaged in extensive research over the past decade to try to understand why systemically important financial firms engage in excessive risk-taking. None of that research fully explains, however, the unusually excessive risk-taking by financial guarantors such as bond insurers, protection sellers under credit-default-swap (CDS) derivatives, credit enhancers in securitization transactions, and even issuers of standby letters of credit. With tens of trillions of dollars of financial guarantees outstanding, the potential for failure is massive. This Article argues that financial guarantor risk-taking is influenced by a previously unrecognized cognitive bias, which it calls “abstraction bias.” …
Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar
Federal Forum Provisions And The Internal Affairs Doctrine, Dhruv Aggarwal, Albert H. Choi, Ofer Eldar
Faculty Scholarship
A key question at the intersection of state and federal law is whether corporations can use their charters or bylaws to restrict securities litigation to federal court. In December 2018, the Delaware Chancery Court answered this question in the negative in the landmark decision Sciabacucchi v. Salzberg. The court invalidated “federal forum provisions” (“FFPs”) that allow companies to select federal district courts as the exclusive venue for claims brought under the Securities Act of 1933 (“1933 Act”). The decision held that the internal affairs doctrine, which is the bedrock of U.S. corporate law, does not permit charter and bylaw provisions …
The Evolution Of Contractual Terms In Sovereign Bonds, Stephen J. Choi, Mitu Gulati, Eric A. Posner
The Evolution Of Contractual Terms In Sovereign Bonds, Stephen J. Choi, Mitu Gulati, Eric A. Posner
Faculty Scholarship
In reaction to defaults on sovereign debt contracts, issuers and creditors have strengthened the terms in sovereign debt contracts that enable creditors to enforce their debts judicially and that enable sovereigns to restructure their debts. These apparently contradictory approaches reflect attempts to solve an incomplete contracting problem in which debtors need to be forced to repay debts in good states of the world; debtors need to be granted partial relief from debt payments in bad states; debtors may attempt to exploit divisions among creditors in order to opportunistically reduce their debt burden; debtors may engage in excessively risky activities using …
An Empirical Study Of Securities Disclosure Practice, Mitu Gulati, Stephen J. Choi
An Empirical Study Of Securities Disclosure Practice, Mitu Gulati, Stephen J. Choi
Faculty Scholarship
Using a dataset of sovereign bond offering documents and underlying bond contracts for ten sovereign issuers from 1985-2005, we examine the securities disclosure practices of issuers and attorneys. The sovereign bond market is comprised of sophisticated issuers with highly paid law firms. If anyone complies fully with federal securities disclosure requirements, we expect sovereign issuers and their attorneys to do so. On the other hand, network effects that determine what information issuers chose to disclose as well as the high cost of determining what information is required for disclosure may lead issuers to fail to meet their disclosure duties. We …
Letting Billions Slip Through Your Fingers: Empirical Evidence And Legal Implications Of The Failure Of Financial Institutions To Participate In Securities Class Action Settlements, James D. Cox, Randall S. Thomas
Letting Billions Slip Through Your Fingers: Empirical Evidence And Legal Implications Of The Failure Of Financial Institutions To Participate In Securities Class Action Settlements, James D. Cox, Randall S. Thomas
Faculty Scholarship
In a pilot study we published two years ago, we reported that nearly two-thirds of the institutional investors with financial losses in 53 settled securities class actions fail to submit claims. As a consequence of this failure substantial sums they were entitled to receive were given to others. This article presents the results of a much more extensive investigation of the frequency with which financial institutions submit claims in settled securities class actions. We combine an empirical study of a much larger set of settlements with the results of a survey of institutional investors about their claims filing practices. Consistent …