Law Commons^™

State Securities Enforcement, Andrew K. Jennings

BYU Law Review

Each year, state securities regulators bring over twice the enforcement actions brought by the Securities and Exchange Commission, yet their work is largely missing from the literature. This Article provides an institutional account of state securities enforcement and identifies two key advantages — detection granularity and institutional decentralization — that states enjoy over their federal counterparts in policing localized frauds involving individual, often small-dollar, victims. Although states share enforcement jurisdiction with the SEC and DOJ, their enforcement activity reflects their institutional advantages and constraints and thus largely does not overlap with that of federal authorities. Instead, states serve as the …

Relational Enforcement Of Stock Exchange Rules, Geeyoung Min, Kwon-Yong Jin

BYU Law Review

Stock exchanges, as regulating entities supervised by the Securities and Exchange Commission (SEC), have wielded their rulemaking power on various corporate governance issues, ranging from the independent board committee requirement adopted in 2003 to the board diversity requirement approved in 2021. Simultaneously, as for-profit corporate entities, major stock exchanges have been competing against each other to attract and retain more companies. This dual status of stock exchanges — as regulators and as profit driven entities — brings into question the stock exchanges' incentive to enforce their own rules against listed companies. What happens if a listed company violates stock exchange …

Avoiding Wasteful Competition: Why Trading On Inside Information Should Be Illegal, Michael D. Guttentag

Brooklyn Law Review

This article offers a new and compelling reason to make all trading based on inside information illegal. The value realized by trading on inside information is unusual in two respects. First, inside information is produced at little or no incremental cost and is nevertheless quite valuable. Second, profits made from trading on inside information come largely at the expense of others. When the value of something exceeds the cost to produce it, a wasteful race to be the first to capture the resulting surplus is likely to ensue. Similarly, resources expended solely to take something of value from others are …

Business Judgment Rule Or Due Diligence? How To Reduce Vicarious Liability For Spac Directors And Officers, Beau Duty

University of Arkansas at Little Rock Law Review

No abstract provided.

Structural Barriers To Inclusion In Arbitrator Pools, Nicole G. Iannarone

Washington Law Review

Critics increasingly challenge mandatory arbitration because the pools from which decisionmakers are selected are neither diverse nor inclusive. Evaluating diversity and inclusion in arbitrator pools is difficult due to the black box nature of mandatory arbitration. This Article evaluates inclusion in arbitrator pools through a case study on securities arbitration. The Article relies upon the relatively greater transparency of the Financial Industry Regulatory Authority (FINRA) forum. It begins by describing the unique role that small claims securities arbitration plays in maintaining investor trust and confidence in the securities markets before describing why ensuring that the FINRA arbitrator pool is both …

Karmel’S Dissent: The Sec’S Use And Occasional Misuse Of Section 21(A) Reports Of Investigation, James J. Park

Brooklyn Journal of Corporate, Financial & Commercial Law

Section 21(a) of the Securities Exchange Act gives the SEC the option of publishing a report of its findings after conducting an investigation. Typically, the SEC issues such reports about once a year to highlight major compliance and enforcement issues. This Article examines the SEC’s use of Section 21(a) investigative reports with special attention to its 1979 report in Spartek, where Commissioner Roberta Karmel filed a famous dissent. In that opinion, she argued that the report effectively sanctioned conduct over which the SEC did not have jurisdiction and that Spartek did not have sufficient notice of its regulatory obligations. While …

Full Of Questions And Wonder: Roberta Karmel's Legacy, Alan R. Palmiter

Brooklyn Journal of Corporate, Financial & Commercial Law

Roberta Karmel has been perhaps the keenest observer and commentator on the securities industry and its regulation for the past five decades. Her observations about securities regulation—during the SEC’s precocious adolescence and into its young adulthood—have framed the academic inquiry of all of us who have written on the subject during this period. But more valuable to us than her observations have been her questions, full of wonder and penetrating insight. We securities academics, the enterprise of securities regulation, and especially market capitalism, all owe an enormous debt of gratitude to Professor Karmel.

Murky Materiality & Scattered Standards: In Favor Of A More Uniform System Of Sst Disclosure Requirements, Megan Ganley

Fordham Law Review

The Securities and Exchange Commission (SEC) requires corporations to disclose their business in or with state sponsors of terrorism (SSTs). The SEC solicits these disclosures with varying standards arising under several different mechanisms. These mechanisms include the requirements of the materiality standard, the provisions of Regulation S-K, targeted inquiry in individually issued comment letters, and affirmative requirements mandated under specific legislation. Each of these mechanisms requires disclosure of slightly different information regarding SSTs with varying degrees of exactitude. This Note examines the SEC’s current SST disclosure framework, considering the benefits, as well as the criticisms, of these disclosure mandates. This …

Do Esg Funds Deliver On Their Promises?, Quinn Curtis, Jill Fisch, Adriana Z. Robertson

Michigan Law Review

Corporations have received growing criticism for contributing to climate change, perpetuating racial and gender inequality, and failing to address other pressing social issues. In response to these concerns, shareholders are increasingly focusing on environmental, social, and corporate governance (ESG) criteria in selecting investments, and asset managers are responding by offering a growing number of ESG mutual funds. The flow of assets into ESG is one of the most dramatic trends in asset management.

But are these funds giving investors what they promise? This question has attracted the attention of regulators, with the Department of Labor and the Securities and Exchange …

Arbitrating Security Class Actions: The Limits Of Forum Selection Bylaws, Paul Schochet

St. John's Law Review

No abstract provided.

Board Diversity Shareholder Suits: Diverging Materiality Tests Under Rules 10b-5 And 14a-9, John C. Friess

Michigan Business & Entrepreneurial Law Review

Environmental, social, and governance (ESG) investing has grown significantly as an investment strategy over the past decade, leading to intensified demands among investors for more ESG disclosures from publicly listed companies. Perhaps the most high-profile example of this trend is the recent widespread demand among institutional investors, proxy advisory firms, and exchanges for more disclosure and compliance as it relates to board and workplace diversity. Given these efforts and the signals coming from the SEC that it intends to take a more proactive approach to ESG disclosure and compliance, issuers can expect an environment of more specific and detailed diversity …

Qualified Opportunity Funds: Private Equity Exemptions From Public Responsibility, Audrey E. Abate

Brooklyn Journal of Corporate, Financial & Commercial Law

The historic Tax Cuts and Jobs Act (TCJA), passed and signed into law in 2017, included a pilot program of a new kind of tax advantage: the Qualified Opportunity Zone. The obscure provision has since spawned novel investment vehicles, called Qualified Opportunity Funds, through which qualified individuals and entities participate in what are often significant tax advantages, including deferral of capital gains for up to ten years. Because Qualified Opportunity Funds have come into existence so recently, regulation has been slow to catch up to the ways in which this tax program is rapidly attracting capital from private equity, investment …

Proxy Advisors As Issue Spotters, Douglas Sarro

Brooklyn Journal of Corporate, Financial & Commercial Law

When institutional investors hire proxy advisors to prepare reports on matters up for vote at public company shareholder meetings, are they interested primarily in acquiring a bottom-line recommendation on how to vote, on which they can then blindly rely? Or in acquiring information that will help them make their own voting decisions? Supporters of controversial reforms introduced by the Securities and Exchange Commission (SEC) in 2019 and 2020 gravitate toward the former position, arguing that reform is needed to discourage undue reliance on proxy advisor recommendations. Opponents gravitate toward the latter position, arguing that additional regulation generally is unnecessary given …

Reducing Conflicts Of Interest: A "Glass-Steagall" Split Of Advisory And Consulting Services Of Proxy Advisory Firms, Austin Manna

Brooklyn Journal of Corporate, Financial & Commercial Law

This Note explores a solution to the potential problem with proxy advisory firms that involves an inherent conflict of interest arising from the structure of two services—advisory and consulting services—offered at certain proxy advisory firms in the United States. The solution proposed in this paper applies a Glass-Steagall framework to breakup these two services of the proxy advisory firms. In theory, this would eliminate the inherent conflicts of interest.

International Securities And Capital Markets, Jennifer Y. Poon, Dr. Manfred Ketzer, Walter Stuber, Robert Lando, Audrey Kravets, Sandeep Parekh, Perry Wildes, Ayelet Krispin, Piyansena Perera, Mario Piana, Jose Carrillo, Daniel Winterfeldt, Trish O'Donnell, Jennifer Pence

The Year in Review

No abstract provided.

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 …

Striving For Simplicity: Updates To Regulation S-K Items 101 And 105, John D. Frey

Louisiana Law Review

The article discusses the amendments implemented by the U.S. Securities and Exchange Commission (SEC) to its Regulation S-K regulating the disclosure of non-financial statements for the benefits of both registrants and investors.

Staying True To Nsmia: A Roadmap For Successful State Fiduciary Rules After Reg Bi, Maria E. Vaz Ferreira

St. John's Law Review

(Excerpt)

As Americans, there is hardly anything we value more than freedom. Being “free to choose” is the core guarantee through which we pursue our livelihood and succeed at happiness. The more choices, the better. But what if we we are supposed to choose blindly? In our postindustrial society, we often feel overwhelmed by the myriad choices we must make simply to get through our daily lives. To inform our choices, we rely on assumptions. More importantly, we rely on each other.

Reliance is central in the world of financial investments. Financial products are increasingly complex, and investors need specialized …

Discussing Privacy In Sec Subpoena Practice After Carpenter V. United States, William A. Ballentine

Chicago-Kent Law Review

No abstract provided.

United States V. Blaszczak Brings Insider Trading Law To A Tipping Point, Michael T. Byrne

Villanova Law Review

No abstract provided.

Can The Liquidity Rule Keep Mutual Funds Afloat? Contextualizing The Collapse Of Third Avenue Management Focused Credit Fund, Nicolas Valderrama

Catholic University Law Review

In 2016, the Securities and Exchange Commission adopted Rule 22e-4 (the “Liquidity Rule”) under the Investment Company Act of 1940, as amended, and related reporting and disclosure requirements. One industry analyst described the Liquidity Rule’s objective as making sure that mutual funds implement “effective liquidity risk management programs,” especially in light of mutual funds’ prevalence in the economy and in American households. Yet, as one Reuters analyst suggested, the SEC also seemed to have adopted these liquidity regulations, to avoid a “repeat of the kind of problems that surfaced with the collapse of the [mutual fund] Third Avenue Focused Credit …

The Rescue Of Fannie Mae And Freddie Mac – Module A: The Conservatorships, Daniel Thompson, Rosalind Z. Wiggins

Journal of Financial Crises

Two government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), dominated the secondary mortgage market during the US housing crisis, collectively holding or guaranteeing $5.3 trillion in mortgage assets by late 2007. As the crisis escalated, the two GSEs began to report substantial losses and their survival became uncertain. On September 6, 2008, the GSEs’ new regulator, the Federal Housing Finance Agency (FHFA), placed the firms into indefinite conservatorships, one step of a four-part government intervention to stabilize the enterprises. This case study evaluates the purpose and efficacy of the …

A Tale Of Two Regulators: Antitrust Implications Of Progressive Decentralization In Blockchain Platforms, Evan Miller

Washington and Lee Law Review Online

Competition regulators have identified the potential for blockchain technology to disrupt traditional sponsor-led platforms, like app stores, that have received increased antitrust scrutiny. Enforcement actions by securities regulators, however, have forced blockchain-based platforms to adopt a strategy of progressive decentralization, delaying decentralization objectives in favor of the centralized model that competition regulators hope they will disrupt. This regulatory tension, and the implications for blockchain’s procompetitive potential, have yet to be explored. This Article first identifies the origin of this tension and its consequences through a competition law lens, and then recommends that competition regulators account for this tension in monitoring …

Regulating The Sale Of Stock Exchange Market Data To High-Frequency Traders, Jerry W. Markham

Florida Law Review

In 2014, author Michael Lewis published a bestselling book titled Flash Boys: A Wall Street Revolt, in which he argued that “high frequency traders” have been able to gain an unfair advantage in the stock market, in part because stock exchanges and “dark pools”—alternative venues for trading stocks—have enabled those traders to obtain and trade on market data faster than other investors. A litany of lawsuits followed in short succession, asserting various theories of liability.

Designing Dual-Class Sunsets: The Case For A Transfer-Centered Approach, Marc T. Moore

William & Mary Business Law Review

Dual-class stock (DCS) structures, and their implications for managerial accountability and corporate governance more broadly, have become prevalent concerns for corporate lawyers and policymakers. Recent academic and practitioner debates on DCS have tended to focus less on the general merits and drawbacks of DCS versus one share/one vote structures, and more on the specific common-ground concern as to whether and how such structures are subjected to contingent reversal or “sunset”. This Article compares the relative advantages and disadvantages of time-, ownership- and transfer-centered models of DCS sunset provisions. It argues in favor of the transfer-centered model on the grounds that: …

Cooperative Insurance In Light Of The Protection And Indemnity Clubs, Imad Al-Din Abdel-Hai

UAEU Law Journal

Insurance draws attention as a sector that is understood much better in terms of its importance especially in recent years globally, the protection and compensation is considered one of the images of cooperative insurance, which provides service to members of the participating clubs or shareholders (the insured) in the club in a collaborative way. These clubs are not intended primarily to make a profit, and through the initiative of the participating members to make contributions as a form of donation to be cooperative insurance fund. These donations are used to compensate the members when a maritime hazard is insured against …

A Historical Analysis Of The Investment Company Act Of 1940, Michael B. Weiner

Michigan Business & Entrepreneurial Law Review

More than 100 million Americans invest $25 trillion in mutual funds and exchange-traded funds (collectively, “funds”) regulated by the Investment Company Act of 1940 (the “Act”), making funds the predominant investment vehicle in the United States. Everyday investors rely on funds to save for retirement, pay for college, and seek financial security. In this way, funds demonstrate how “Wall Street” can connect with “Main Street” to improve people’s lives.

By way of background, funds are created by investment advisers (“advisers”) that provide investment advisory (e.g., stock selection) and other services to their funds in exchange for a fee. …

Equity Market Structure Regulation: Time To Start Over, Paul G. Mahoney

Michigan Business & Entrepreneurial Law Review

Over the past half-century, the U.S. Securities and Exchange Commission (SEC)’s regulations have become key determinants of the way in which stocks trade and the fees that exchanges charge for their services. The current equity market structure rules are contained primarily in the SEC’s Regulation NMS. The theory behind Regulation NMS is that a system of dispersed markets operating pursuant to SEC-mandated information and order routing links will provide the benefits of consolidation and competition simultaneously.

This article argues that Regulation NMS has failed in that quest. It has produced fragmented markets and created questionable incentives for market participants, possibly …

The Cyan Decision And Its Impact On State-Level Securities Class Actions, B. John Torabi

Fordham Journal of Corporate & Financial Law

The Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund^† preserved the Securities Act of 1933’s bar on removing securities class actions brought in state court to federal court. The unanimous ruling cut against a nearly quarter-century long trend of pushing securities class action litigation to the federal courts. Cyan was resolved purely through statutory interpretation, leaving many of the underlying policy questions to be resolved by state courts and in future rulings.

This Note examines the intention of the drafters of the Securities Act of 1933 in designing a disclosure-focused regulatory scheme with a private …

Fixing Esg: Are Mandatory Esg Disclosures The Solution To Misleading Ratings?, Javier El-Hage

Fordham Journal of Corporate & Financial Law

This Note provides an overview of the debate around the current state of ESG disclosure practices, and the perceived need for the SEC to establish a system of mandatory ESG disclosures. Part I explores the inherent difficulty of defining ESG, the problematic nature of quantifying and measuring ESG factors, and the tools currently being used by market-leading ratings firms and investment vehicles. In particular, this part addresses the inconsistencies of ESG self-reporting, the influence of this practice on the ensuing ratings, and the potential for investors to be misled as a result.

Part II of the Note explores the possible …