Law Commons^™

Defi: Shadow Banking 2.0?, Hilary J. Allen

William & Mary Law Review

The growth of so-called “shadow banking” was a significant contributor to the financial crisis of 2008, which had huge social costs that we still grapple with today. Our financial regulatory system still has not fully figured out how to address the risks of the derivatives, securitizations, and money market mutual funds that comprised Shadow Banking 1.0, but we are already facing the prospect of Shadow Banking 2.0 in the form of decentralized finance, or “DeFi.” DeFi’s proponents speak of a future where sending money is as easy as sending a photograph—but money is not the same as a photograph. The …

Regulating Crypto, On And Off The Chain, Eric D. Chason

William & Mary Law Review

Cryptocurrency had its most turbulent year in 2022. The collapse of TerraUSD ushered in a broad market decline, and the FTX debacle brought new publicity and scrutiny to crypto’s woes. Both events will likely spark new regulation and legislation.

Policymakers and regulators should regulate market structures like exchanges. While many cryptocurrencies are extremely transparent and require little if any additional disclosures, others are plagued by serious informational asymmetries. An exchange might allow participants to trade Bitcoin, and regulators need to protect investors who rely on such exchanges. Investors may face informational asymmetries regarding the operation and safety of the exchange. …

Why Comparability Is A Greater Problem Than Greenwashing In Esg Etfs, Ryan Clements

William & Mary Business Law Review

This Article argues that comparability in environmental, social, and governance (ESG) exchange traded funds (ETFs) is a much greater problem than greenwashing. Rising demand for sustainable investment products in recent years has been met with an explosion in ESG ETF varieties, and numerous ESG-themed funds have captured massive capital inflows. There is little evidence, however, that deceptive “greenwashing” is widespread in ETFs. ETF issuers face significant reputational costs from such behavior, and there are effectively no consumer switching costs for hyperliquid, easily accessible ETFs. While nondeceptive practices of asset managers are observable in the zero-sum, highly competitive, asset management game …

Corporate Venture Capital, Darian M. Ibrahim

Faculty Publications

This Article makes the case for corporate venture capital as a potentially game-changing entrant into entrepreneurial finance. Part II begins by retracing the ancillary players in entrepreneurial finance and their roles in the startup ecosystem. After finding each of them incapable of denting the venture capitalist’s current dominance, Part III introduces the large corporation as venture capitalist. Part III discusses the growing scale of corporate venture capital and why it may be desirable for startups, innovation, and society as a whole. Part IV looks at legal differences that may become important for corporate venture capitalists to consider, including securities, antitrust, …

Fraud Against Financial Institutions: Judging Materiality Post-Escobar, Matthew A. Edwards

William & Mary Business Law Review

In Neder v. United States, 527 U.S. 1 (1999), the Supreme Court held that proof of materiality is required for convictions under the federal mail, wire and bank fraud statutes. During the past 20 years, the federal courts have endeavored to apply the complex common law concept of materiality to the federal criminal law context. The Supreme Court’s recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), a civil case involving the False Claims Act, provided the federal appellate courts with an ideal opportunity to reconsider materiality standards in federal fraud …

Decentralized Finance: Regulating Cryptocurrency Exchanges, Kristin N. Johnson

William & Mary Law Review

Global financial markets are in the midst of a transformative movement. The creation of Bitcoin and Facebook’s proposed distribution of Diem mark a watershed moment in the evolution of the financial markets ecosystem. Purportedly, peer-to-peer distributed digital ledger technology eliminates legacy financial market intermediaries such as investment banks, depository banks, exchanges, clearinghouses, and broker-dealers.

Yet careful examination reveals that cryptocurrency issuers and the firms that offer secondary market cryptocurrency trading services have not quite lived up to their promise. Notwithstanding cryptoenthusiasts’ calls for disintermediation, evidence reveals that platforms that facilitate cryptocurrency trading frequently employ the long-adopted intermediation practices of their …

Contractual Tax Reform, Michael Abramowicz, Andrew Blair-Stanek

William & Mary Law Review

One-size-fits-all taxation fails to accommodate diverse taxpayer circumstances. This Article proposes allowing taxpayers to contract into alternative tax regimes administered by private intermediaries. Participating taxpayers would make payments to the intermediaries pursuant to contract, and the intermediaries would be required to pay to the government at least as much as these taxpayers would have paid the government otherwise. That amount is determined based on the actual tax receipts of a control group, taxpayers who wish to contract with an intermediary but instead are chosen at random to continue under the status quo. These alternative tax regimes might better accommodate taxpayers’ …

Modernizing The Bank Charter, David Zaring

William & Mary Law Review

The banking charter—the license a bank needs to obtain before it can open—has become the centerpiece of an argument about what finance should do for the rest of the economy, both in academia and at the banking agencies. Some advocates have proposed using the charter to pursue industrial policy or to end shadow banking. Some regulators have proposed giving financial technology firms bank charters, potentially breaking down the traditionally high walls between banking and commerce. An empirical survey of chartering decisions by the Office of the Comptroller of the Currency suggests that chartering is best understood as an ultracautious licensing …

Legal Literature Review Of Social Entrepreneurship And Impact Investing (2007-2017): Doing Good By Doing Business, Deborah Burand, Anne Tucker

William & Mary Business Law Review

Although the ambition to do good by doing business is not new, the burgeoning realization of this ambition is. As the fields of social entrepreneurship and impact investing advance in size, scope and complexity, questions about the roles of corporations and capital markets in society intensify.

What is legal scholarship contributing to this discussion? This Article reviews the scholarly contributions of 260 articles written by over 150 authors about the fields of social enterprise, social finance, and impact investing. The Article maps the contributions of legal scholarship over the last decade—from 2007 (when the term “impact investing” was first coined) …

Smart Contracts And The Limits Of Computerized Commerce, Eric D. Chason

Faculty Publications

Smart contracts and cryptocurrencies have sparked considerable interest among legal scholars in recent years, and a growing body of scholarship focuses on whether smart contracts and cryptocurrencies can sidestep law and regulation altogether. Bitcoin is famously decentralized, without any central actor controlling the system. Its users remain largely anonymous, using alphanumeric addresses instead of legal names. Ethereum shares these traits and also supports smart contracts that can automate the transfer of the Ethereum cryptocurrency (known as ether). Ethereum also supports specialized "tokens" that can be tied to the ownership of assets, goods, and services that exist completely outside of the …

Public Or Private Venture Capital?, Darian M. Ibrahim

Faculty Publications

The United States has an unparalled entrepreneurial ecosystem. Silicon Valley startups commercialize cutting-edge science, create plentiful jobs, and spur economic growth. Without angel investors and venture capital funds (VCs) willing to gamble on these high-risk, high-tech companies, none of this would be possible.

From a law-and-economics perspective, startup investing is incredibly risky. Information asymmetry and agency costs abound. In the United States, angels and VCs successfully mitigate these problems through private ordering and informal means. Countries without the robust private venture capital system that exists in the United States have attempted to fund startups publicly by creating junior stock exchanges …

Could Distributed Ledger Shares Lead To An Increase In Stockholder-Approved Mergers And Subsequently An Increase In Exercise Of Appraisal Rights?, Alyson Brown

William & Mary Business Law Review

Blockchain, the distributed ledger technology underlying cryptocurrencies like Bitcoin, is poised to revolutionize industries and processes across disciplines. In particular, government agencies and companies are looking for ways to leverage blockchain’s efficiencies to facilitate safe record-keeping. Municipalities are employing blockchain-issued deeds to accurately record property ownership. Progressive legal professionals are employing blockchainissued “smart-contracts” to more accurately record contract terms. Intellectual property attorneys and related government agencies are researching blockchain-issued copyrights and patents.

This Note examines how utilizing blockchain technology in securities trading to maintain accurate stockholder ledgers will allow for current market forces to be reflected in stockholder voting. Further, …

Evaluating The Costs And Benefits Of A Smart Contract Blockchain Framework For Credit Default Swaps, Ryan Clements

William & Mary Business Law Review

Despite wide speculation about its use-value, there are very few large-scale Blockchain implementations, particularly in sophisticated financial applications and mature markets. The extent of Blockchain’s disruptive potential in these domains is uncertain. This Article considers Blockchain’s use-value for credit default swap contract execution, fulfillment, and post-trade processing by using, as an assessment base, a series of derivative industry whitepapers, academic and technological evaluative studies, and commentary relating to current market undertakings. In summary, when applied to credit default swaps, there are many barriers to implementation, as well as costs, fragmentation risks, technological deficiencies, and practical drawbacks. As a result, there …

Reinventing The Wheel: How Securitization Can Bolster The Market For Residential Energy Efficiency Loans, Joseph Gonyeau

William & Mary Environmental Law and Policy Review

Currently, one of society’s greatest goals is the reduction of greenhouse gases. This goal is generally accepted worldwide, as evidenced by the Paris Climate Agreement, the parties to which agreed to establish frameworks for adopting clean energy and reducing greenhouse gases. After the United States’ controversial decision to withdraw from the Paris Agreement, the federal government’s future in reducing greenhouse gases remains uncertain. Despite this setback, there are existing programs aimed at reducing greenhouse gases in the United States that the government should ensure succeed. One such program is the Warehouse for Energy Efficiency Loans (“WHEEL”).

WHEEL operates as a …

How Bitcoin Functions As Property Law, Eric D. Chason

Faculty Publications

Bitcoin replicates many of the formal aspects of real estate transactions. Bitcoin transactions have features that closely resemble grantor names, grantee names, legal descriptions, and signatures found in real property deeds. While these “Bitcoin deeds” may be interesting, they are not profound. Bitcoin goes beyond creating simple digital deeds, however, and replicates important institutional aspects of real estate transactions, in particular recordation and title assurance. Deeds to real property are recorded in a central repository (e.g., the public records office), which the parties (and the public) can search to determine title. When one grantor executes more than one deed covering …

Public Or Private Venture Capital?, Darian M. Ibrahim

Popular Media

No abstract provided.

Crowdfunding Signals, Darian M. Ibrahim

Faculty Publications

Entrepreneurs can now “crowdfund,” or sell securities to unaccredited investors over the Internet, to raise capital. But will these companies be able to attract the follow-on investors (angels and venture capitalists) that are necessary for long-term success? Angels and VCs face extreme levels of information asymmetry when deciding whether to fund a company. Signals can reduce this asymmetry. Early commentary argues a company only crowdfunds as a last resort for fear of sending a negative signal about the company’s quality to follow-on investors. This Article argues the inverse. This Article argues a successful crowdfunding campaign can send a positive signal …

Borrowing In The Shadow Of Death: Another Look At Probate Lending, David Horton

William & Mary Law Review

“Fringe” lending has long been controversial. Three decades ago, demand for subprime credit soared, and businesses started to offer high-interest rate cash advances, such as tax refund anticipation loans, payday loans, and pension loans. These products have sparked intense debate and are subject to a maze of rules.

However, in Probate Lending, published in the Yale Law Journal, a coauthor and I examined a form of fringe lending that has gone largely unnoticed: firms that pay lump sums in return for an heir or beneficiary’s interest in a pending decedent’s estate. Capitalizing on a California law that requires …

Crowdfunding Signals, Darian M. Ibrahim

Popular Media

No abstract provided.

Crowdfunding Without The Crowd, Darian M. Ibrahim

Faculty Publications

The final crowdfunding rules took three years for the Securites and Exchange Commission to pass, but crowdfunding—the offering of securities over the Internet—is now a reality. But now that crowdfunding is legal, will it be successful? Will crowdfunding be a regular means by which new companies raise money, or will it be relegated to a wasteland of the worst startups and foolish investors? This Article argues that crowdfunding has a greater chance of success if regulators abandon the idea that the practice does (and should) employ “crowd-based wisdom.” Instead, I argue that crowdfunding needs intermediation by experts that mirrors the …

Going … Going … Public? Taking A United States Professional Sports League Public, Ian A. Mclin

William & Mary Business Law Review

The four major American professional sports leagues—the MLB, NBA, NHL, and NFL—are wildly popular, but the leagues fail to capitalize fully on their success because they are organized in a largely inefficient manner. By organizing as unincorporated non-profits, leagues forgo their ability to raise capital via investors, forcing taxpayers to bear the burden of league investments such as new stadium construction. Further, the current organizational model creates a collective action problem, as self-interested team owners focus their support on actions that benefit their own franchise and leave ineffective commissioners in power.

A solution to these problems is for a professional …

Ecological Economics And Sport Stadium Public Financing, Christopher M. Mcleod, John T. Holden

William & Mary Environmental Law and Policy Review

Given the recent importance that sport organizations, academics, and the public have placed on environmental sustainability this Article introduces the study of ecological economics—founded upon Nicholas Georgescu-Roegen’s application of thermodynamics to economics—to legal perspectives on public financing. The authors argue that the economic growth limits implied by thermodynamic principles should be incorporated in the public financing of sport stadiums. More specifically, municipalities can require facilities receiving public financing to produce environmental cost accounting reports and to make them publically available.

A “Green” Approach To Hedge Fund Regulation And Reform, Matthew Keehn

William & Mary Environmental Law and Policy Review

No abstract provided.

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

William & Mary Law Review

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.

You Can’T Stop What You Can’T See: Complementary Risk Mitigation Through Compensation Disclosure, Matt Reeder

William & Mary Business Law Review

Section 956 of the Dodd-Frank Act requires regulators to help prevent the next financial crisis by monitoring executive compensation arrangements to prevent them from becoming excessive or leading to “material financial loss.” A now-pending rule seeks to do just this. This Article argues that the rule is well-conceived inasmuch as it limits the total portion of compensation that can be based on risk-inducing incentives, ties incentive-based compensation to longer-term performance, places a ceiling on potential incentivebased earnings, provides for downward adjustment and clawbacks, prohibits many hedging behaviors, and institutionalizes governance mechanisms and oversight policies. But, by placing a number of …

Intrapreneurship, Darian M. Ibrahim

Faculty Publications

This Article on “intrapreneurship” has several goals. First, it points out that while much of the legal literature on innovation is concerned with startups (entrepreneurship), the innovation that takes place inside our largest corporations (intrapreneurship) is substantial, important, and understudied. Second, the Article observes that while large technology corporations that used to be startups may remain intrapreneurial in culture, intrapreneurship is less common in the aggregate than we might expect. Reasons include organizational bureaucracy, laws favoring entrepreneurship, and what Clayton Christensen (Harvard Business School) calls “the innovator’s dilemma.” The innovator’s dilemma is, put simply, that good management causes large corporations …

Crowdfunding Without The Crowd, Darian M. Ibrahim

Popular Media

No abstract provided.

If It Looks Like A Super Pac, Acts Like A Super Pac, And Is Restricted Like A Super Pac, Then Treat It Like A Super Pac: Why Contribution Limits On A Hybrid Pac’S Independent-Expenditure Arm Are Impermissible, Jacob N. Kipp

William & Mary Bill of Rights Journal

No abstract provided.

Crash And Learn: The Inability Of Transparency Laws To Penetrate American Monetary Policy, Benjamin W. Cramer, Martin E. Halstuk

William & Mary Bill of Rights Journal

No abstract provided.

The Volcker Rule And The Presumption Against Extraterritoriality: Utterly Incompatible, Christine P. Henry

William & Mary Business Law Review

The Volcker Rule, enacted in 2010 as part of the Dodd-Frank Wall Street Consumer Protection Act to address the “too big to fail” problem in today’s interconnected global economy, has been controversial from the outset. The deadline for banks to comply with Volcker regulations has been extended several times, with the most recent deadline set for July 21, 2016. This Note examines the impact of the Volcker Rule on foreign banks, detailing the specific effects of Volcker regulations on two prominent German banks, Deutsche Bank and Commerzbank, and analyzes the countervailing European approach to regulating proprietary trading and risky investment. …