Law Commons^™

A Look Back In Time: Analyzing The Success And Value Of The 2014 Amendments To Rule 2a-7 And Reporting On Form N-Cr In Light Of The March 2020 Market Events, Jocelyn Near

Catholic University Law Review

Money market funds have frequently been a target of regulation by the Securities and Exchange Commission (“SEC”). Perhaps the most expansive regulation came as a response to the 2008 financial crisis, in which the Reserve Primary Fund “broke the buck.” The SEC’s misguided 2014 reforms exacerbated the inherent risks of money market funds, including the risk of runs and first mover advantage, particularly with the implementation of Form N-CR. Form N-CR requires a money market fund to publicly report when various events occur, including when a retail or government money market fund’s current net asset value per share deviates downward …

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

All Faculty Scholarship

Corporations have received growing criticism for their role in climate change, perpetuating racial and gender inequality, and 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 Commission (SEC) …

Climate Change As Systemic Risk, Barnali Choudhury

Articles & Book Chapters

Hindsight tells us that COVID-19, thought by former President Trump and others to have come out of nowhere, is more aptly labelled a “gray rhino” event, one that was highly probable and preventable. Indeed, despite considerable evidence of the impending threats of pandemics, for the most part, governments failed to prepare for the pandemic, resulting in wide-scale social and economic losses.

The lessons from COVID-19, however, should remind us of the perils of ignoring gray rhino risks. Nowhere is this more apparent than with climate change, a highly probable, high impact threat that has largely been ignored to date. Despite …

Esg And Climate Change Blind Spots: Turning The Corner On Sec Disclosure, Cynthia A. Williams, Donna M. Nagy

Articles by Maurer Faculty

This article examines four areas in which the SEC, for more than a decade, resisted reform or impeded shareholders’ access to sought-after environmental, social, and governance (ESG) information. These areas are: (1) the SEC’s refusal to act on several rulemaking petitions submitted during the years 2009 to 2018, which called for expanded ESG disclosure; (2) the SEC’s grudging promulgation of rules concerning social disclosures as required by Congress in the Dodd-Frank Act of 2010; (3) the SEC’s 2020 revisions to SEC Rule 14a-8, which make the submission of shareholder proposals more difficult, thereby thwarting investor efforts to raise ESG concerns; …

Pension Fiduciaries And Climate Change: A Canadian Perspective, Maziar Peihani

All Faculty Publications

Climate change has emerged as a major issue of financial risk for Canadian pension funds when determining where to place investments. The author argues that while such pension funds recognize climate change as an issue that holds the potential for significant financial risk, the funds’ current approach to climate-related risks faces critical limitations. The author identifies the current practices of the five largest pension funds in Canada when faced with climate-related financial risks, then discusses the key shortcomings in current practices among the pension funds in three main areas.
First, the author examines organizational governance, which seeks to understand investment …

Petition For Rulemaking On Short And Distort, John C. Coffee Jr., Joshua Mitts, James D. Cox, Peter Molk, Edward Greene, Randall S. Thomas, Meyer-Eisenberg, Robert B. Thompson, Colleen Honigsberg, Andrew Verstein, Donald C. Langevoort, Charles K. Whitehead

Faculty Scholarship

Today, some hedge funds attack public companies for the sole purpose of inducing a short-lived panic which they can exploit for profit. This sort of market manipulation harms average investors who entrust financial markets with their retirement savings. While short selling serves a critical function in the capital markets, some short sellers disseminate negative opinion about a company, inducing a panic and sharp decline in the stock price, and rapidly close that position for a profit prior to the price partially or fully rebounding. We urge the SEC to enact two rules which will discourage manipulative short selling. The petition …

Crashing The Boards: A Comparative Analysis Of The Boxing Out Of Women On Boards In The United States And Canada, Diana C. Nicholls Mutter

The Journal of Business, Entrepreneurship & the Law

This paper will first provide a critical, comparative look at the Canadian and the federal American responses to the under-representation of women on boards of large, publicly traded corporations. There will be a discussion about the competing conceptions which emerge in addressing the regulation of women on boards in the United States and Canada and why each jurisdiction implemented its policy when it did. The conceptions arising out of questions about under-representation of women on boards tend to fall within two categories: business case rationales and normative rationales. Given the competing conceptions of this issue, this paper will attempt to …

Grants, Nicholson Price Ii

Articles

Innovation is a primary source of economic growth and is accordingly the target of substantial academic and government attention. Grants are a key tool in the government’s arsenal to promote innovation, but legal academic studies of that arsenal have given them short shrift. Although patents, prizes, and regulator-enforced exclusivity are each the subject of substantial literature, grants are typically addressed briefly, if at all. According to the conventional story, grants may be the only feasible tool to drive basic research, as opposed to applied research, but they are a blunt tool for that task. Three critiques of grants underlie this …

Responsible Investing: Access Denied, Keith Macmaster

Articles, Book Chapters, & Popular Press

Retail investors are increasingly demanding responsible investments as part of their portfolios. Retail investors also, generally, require the services of an advisor. This article argues that traditional mutual funds, while structurally able to provide responsible investments, have not provided responsible holdings to their mass affluent retail investing clientele. While institutional investors, and certain very wealthy retail investors, have a multitude of options to avail themselves of responsible investments, mass affluent retail investors have less of an ability to invest responsibly. Advisors and investors do not have access to the majority of responsible investments, nor are advisors adequately trained or properly …

Fiduciary Law In Financial Regulation, Howell E. Jackson, Talia B. Gillis

Faculty Scholarship

This chapter explores the application of fiduciary duties to regulated financial firms and financial services. At first blush, the need for such a chapter might strike some as surprising in that fiduciary duties and systems of financial regulation can be conceptualized as governing distinctive and nonoverlapping spheres: fiduciary duties police private activity through open-ended, judicially defined standards imposed on an ex post basis, whereas financial regulations set largely mandatory, ex ante obligations for regulated entities under supervisory systems established in legislation and implemented through expert administrative agencies. Yet, as the chapter documents, fiduciary duties often do overlap with systems of …

Who Bleeds When The Wolves Bite? A Flesh-And-Blood Perspective On Hedge Fund Activism And Our Strange Corporate Governance System, Leo E. Strine Jr.

All Faculty Scholarship

This paper examines the effects of hedge fund activism and so-called wolf pack activity on the ordinary human beings—the human investors—who fund our capital markets but who, as indirect of owners of corporate equity, have only limited direct power to ensure that the capital they contribute is deployed to serve their welfare and in turn the broader social good.

Most human investors in fact depend much more on their labor than on their equity for their wealth and therefore care deeply about whether our corporate governance system creates incentives for corporations to create and sustain jobs for them. And because …

The Potential Effect Of The Department Of Labor’S New Fiduciary Rule On Broker-Dealers And The Middle Income Retirement Investors Who Rely On Them, Nadia Yoon

Catholic University Law Review

On April 6, 2016, the U.S. Department of Labor issued a final rule aimed at increasing the reach of the definition of fiduciary status under the Employee Retirement Income Security Act of 1974 (ERISA). This rule closed a loophole that had allowed broker-dealers to avoid becoming investment advisers under ERISA, allowing them to provide bad advice to their retirement clients without disclosing material conflicts of interest. This note begins by laying out the fiduciary rules and standards under ERISA and the U.S. Securities and Exchange Commission’s oversight regime before the final rule. It then lays out the relevant details of …

Buying Time In Spain: The Spanish Law Of Installment Sales, John M. Steadman

Georgia Journal of International & Comparative Law

No abstract provided.

Comment On Home Mortgage Disclosure Act Proposed Rulemaking, David J. Reiss

David J Reiss

The Consumer Financial Protection Bureau's Home Mortgage Disclosure Act proposed rulemaking (proposed Aug. 29, 2014) is a reasonable one. It increases the amount of information that is to be collected about important consumer products, such as reverse mortgages. It also increases the amount of important information it collects about all mortgages. At the same time, it releases lenders from having to determine borrowers’ intentions about how they will use their loan proceeds, something that can be hard to do and to document well. Finally, while the proposed rule raises some privacy concerns, the CFPB can address them.

Halliburton, Basic And Fraud On The Market: The Need For A New Paradigm, Charles W. Murdock

Charles W. Murdock

Summary: Halliburton, Basic and Fraud on the Market: The Need for a New Paradigm

If defrauded securities plaintiffs cannot bring a class-action lawsuit, there often will be no effective remedy since the amount at stake for individual plaintiffs is not sufficient to warrant the substantial costs of litigation. To surmount the problem of individualized reliance and establish commonality, federal courts for twenty-five years have been employing the Basic fraud-on-the-market theory which posits that, in an efficient market, investors rely on the integrity of the market price.

While class certification at one time was a matter of course, today it is …

Opening Schumer’S Box: The Empirical Foundations Of Modern Consumer Finance Disclosure Law, Hosea H. Harvey

University of Michigan Journal of Law Reform

This Article explores the fundamental failure of Congress’ twenty-five-year quest to utilize disclosure as the primary tool to both regulate credit card issuers and educate consumers. From inception until present, reforms to this disclosure regime, even when premised on judgment and decision-making behavioralism, were nomothetic in orientation and ignored clear differences in population behavior and the heterogeniety of consumers. Current law prohibits credit card issuers from acquiring consumer socio-demographic data and prevents issuers and regulators from using market and policy experimentation to enhance disclosure’s efficacy. To explain why this regime was structured this way and why it must change, this …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Steven Davidoff Solomon

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

The Timing And Source Of Regulation, Frank Partnoy

Seattle University Law Review

The distinction between specific concrete rules and general abstract principles has engaged legal theorists for decades. This rules–principles distinction has also become increasingly important in corporate and securities law, as well as financial market regulation. This Article adds two important variables to the rules–principles debate: timing and source. Although these two variables are relevant to legal theory generally, the specific goal here is not to address and engage the rules versus principles literature directly. Rather, the goal here is to ask whether the debate about financial market regulation might benefit from a more transparent analysis of temporal and legal source …

Judicial Inactivitism In Protecting Financial Consumer Against Predatory Sale Of Retail Structured Products: A Reflection From Retail Structured Notes Lawsuits In Taiwan, Chao-Hung Chen

Research Collection Yong Pung How School Of Law

This article analyzes 310 structured note lawsuits in Taiwan between 2000 and 2013 to examine courts’ attitude in dealing with claims of misselling retail structured notes. We find that courts were generally not favorable to retail investors. This provides a contrast with the financial regulator’s efforts to improve financial consumer protection since 2008. By examining plaintiffs’ key arguments and courts’ rulings, we find that it was difficult for investors to fulfill their burden of proof and courts were reluctant to award remedies when investors did sign on a contractual document confirming his knowledge on a few matters. While regulators are …

Judicial Inactivitism In Protecting Financial Consumer Against Predatory Sale Of Retail Structured Products: A Reflection From Retail Structured Notes Lawsuits In Taiwan, Chao-Hung Chen

Christopher Chao-hung CHEN

This article analyzes 310 structured note lawsuits in Taiwan between 2000 and 2013 to examine courts’ attitude in dealing with claims of misselling retail structured notes. We find that courts were generally not favorable to retail investors. This provides a contrast with the financial regulator’s efforts to improve financial consumer protection since 2008. By examining plaintiffs’ key arguments and courts’ rulings, we find that it was difficult for investors to fulfill their burden of proof and courts were reluctant to award remedies when investors did sign on a contractual document confirming his knowledge on a few matters. While regulators are …

E-Commerce And Electronic Payment System Risks: Lessons From Paypal, Lawrence J. Trautman

Lawrence J. Trautman Sr.

What are the major risks perceived by those engaged in e-commerce and electronic payment systems? What development risks, if they become reality, may cause substantial increases in operating costs or threaten the very survival of the enterprise? This article utilizes the relevant annual report disclosures from eBay (parent of PayPal), along with other eBay and PayPal documents, as a potentially powerful teaching device. Most of the descriptive language to follow is excerpted directly from eBay’s regulatory filings. My additions include weaving these materials into a logical presentation and providing supplemental sources for those who desire a deeper look (usually in …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Seattle University Law Review

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

Insider Trading, Informed Trading, And Market Making: Liquidity Of Securities Markets In The Zero-Sum Game, Stanislav Dolgopolov

William & Mary Business Law Review

This Article reexamines the nexus of relationships among informed transactions, information asymmetry, and liquidity of securities markets in the context of public policy debates about insider trading and its regulation.The Article analyzes this nexus, with the emphasis on recent empirical studies and developments in the securities industry, from a variety of perspectives and considers the validity of the alleged link between insider trading—as opposed to other forms of informed trading—and market liquidity as a justification for the existence of regulation.

Fragmentation Nodes: A Study In Financial Innovation, Complexity, And Systemic Risk, Kathryn Judge

Faculty Scholarship

This Article resents a case study in how complexity arising from the evolution and proliferation of a financial innovation can increase systemic risk. The subject of the case study is the securitization of home loans, an innovation which played a critical and still not fully understood role in the 2007-2009 financial crisis. The Article introduces the term "fragmentation node" for these transaction structures, and it shows how specific sources of complexity inherent in fragmentation nodes limited transparency and flexibility in ways that undermined the stability of the financial system. In addition to shedding new light on the processes through which …

Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policy makers typically approach human behavior from the perspective of the rational agent model, which relics on normativc, a priori analyses. The model assumes people make insightful, well-planned, highly controlled, and calculated decisions guided by considerations of personal utility. This perspective is promoted in the social sciences and in professional schools and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, and the one we will articulate here, provides a substantially difierent perspective on individual behavior and its policy and regulatory implications. According to the empirical perspective, behavior …

A Behavioral Framework For Securities Risk, Tom C.W. Lin

UF Law Faculty Publications

This article provides the first critical analysis and redesign of the existing securities risk disclosure framework given new insights from the emerging, interdisciplinary field of behavioral economics. Disclosure is the principle at the heart of federal securities regulation. Beneath that core principle of disclosure is the basic assumption that the reasonable investor is the idealized über-rational person of neoclassical economic theory. Therefore, once armed with the requisite information investors presumably can protect themselves through rational choice. Descriptively, however, real investors are not like their rational, neoclassical kin. This article examines this incongruence between the idealized rational investor and the imperfect …

Inside-Out Corporate Governance, David A. Skeel Jr., Vijit Chahar, Alexander Clark, Mia Howard, Bijun Huang, Federico Lasconi, A.G. Leventhal, Matthew Makover, Randi Milgrim, David Payne, Romy Rahme, Nikki Sachdeva, Zachary Scott

All Faculty Scholarship

Until late in the twentieth century, internal corporate governance—that is, decision making by the principal constituencies of the firm—was clearly distinct from outside oversight by regulators, auditors and credit rating agencies, and markets. With the 1980s takeover wave and hedge funds’ and equity funds’ more recent involvement in corporate governance, the distinction between inside and outside governance has eroded. The tools of inside governance are now routinely employed by governance outsiders, intertwining the two traditional modes of governance. We argue in this Article that the shift has created a new governance paradigm, which we call inside-out corporate governance.

Using the …

Placebo Ethics, Usha Rodrigues, Mike Stegemoller

Scholarly Works

While there are innumerable theories on the best remedy for the current financial crisis, there is agreement on one point, at least: increased transparency is good. We look at a provision from the last round of financial regulation, the Sarbanes Oxley Act of 2002 (SOX), which imposed disclosure requirements tailored to prevent some of the kinds of abuses that led to the downfall of Enron. In response to Enron's self-dealing transactions, Section 406 of SOX required a public company to disclose its code of ethics and to disclose immediately any waivers from that code the company grants to its top …

Top Cop Or Regulatory Flop? The Sec At 75, Jill E. Fisch

All Faculty Scholarship

In their forthcoming article, Redesigning the SEC: Does the Treasury Have a Better Idea?, Professors John C. Coffee, Jr., and Hillary Sale offer compelling reasons to rethink the SEC’s role. This article extends that analysis, evaluating the SEC’s responsibility for the current financial crisis and its potential future role in regulation of the capital markets. In particular, the article identifies critical failures in the SEC’s performance in its core competencies of enforcement, financial transparency, and investor protection. The article argues that these failures are not the result, as suggested by the Treasury Department Blueprint, of a balkanized regulatory system. Rather, …

The Case For Behaviorally Informed Regulation, Michael S. Barr, Sendhil Mullainathan, Eldar Shafir

Book Chapters

Policymakers approach human behavior largely through the perspective of the “rational agent” model, which relies on normative, a priori analyses of the making of rational decisions. This perspective is promoted in the social sciences and in professional schools, and has come to dominate much of the formulation and conduct of policy. An alternative view, developed mostly through empirical behavioral research, provides a substantially different perspective on individual behavior and its policy implications. Behavior, according to the empirical perspective, is the outcome of perceptions, impulses, and other processes that characterize the impressive machinery that we carry behind the eyes and between …