Law Commons^™

Where Have All The Lenders Gone?: "Loan To Own Transactions" In The Current Credit Market, Stephanie A. Nadler

Stephanie A Nadler

Credit is not readily available in current markets. While distressed firms are in dire need of capital contributions, traditional lenders are not willing to make risky loans. Distressed firms have turned to hedge funds as lenders for much-needed capital. Thus, hedge funds engage in “loan to own” transactions, a lending technique that has recently drawn much criticism. In a loan to own transaction, the hedge fund makes a loan to a distressed company, while also taking an equity stake in the company. Pursuant to such activity, the hedge fund will generally gain a seat on the board of directors or …

Consumers Want To Be In Europe; Corporations Want To Be In The U.S.: How To Reform Mandatory Consumer Arbitration Agreements To Be Fair To Both Parties, Kelly Parfitt

Kelly Parfitt

Arbitration is a popular method of resolving legal disputes between businesses. However, in the last few years, corporations have begun putting mandatory consumer arbitration agreements in small print on sales contracts and receipts for consumer goods, credit cards, and mortgages. Consumers are forced to pay fees much higher than court costs, depending on the case. An arbitrator will do hundreds of cases with the same corporations, be familiar with and even in some cases be affiliated with the corporation. This system results in the overwhelming majority of cases being won by corporations. But in the European Union, consumers are given …

Criminal Insider Trading: Prosecution, Legislation, And Justification, Steven Brody

Steven Brody

Since the passage of the Securities Exchange Act of 1934, insider trading has been codified as a federal crime. For many years, however, civil cases were rare, and criminal prosecutions resulting in prison terms were nearly unheard of. Yet during the 1980’s, white collar crime—and insider trading in particular—became the subject of more public scrutiny than it had ever previously received. During this period, major developments occurred in the criminalization, prosecution, and sentencing of those who had committed securities fraud. High profile cases of inside traders like Ivan Boesky and Dennis Levine made targets of federal prosecutions household names and …

A Short Comment On The 2009 Report Of The Un Special Representative Of The Secretary-General On The Issue Of Human Rights And Transnational Corporations And Other Business Enterprises, Jernej Letnar Cernic

Jernej Letnar Černič

A short comment on the 2009 report of the UN Special Representative of the Secretary-General on the issue of human rights and Transnational corporations and other business enterprises, Professor John Ruggie to the United Nations Human Rights Council, “Business and human rights: Towards operationalizing the “protect, respect and remedy” framework” AH/HRC/8/5, 22 April 2009.

Freeze-Outs: Transcontinental Analysis And Reform Proposals, Marco Ventoruzzo

Marco Ventoruzzo

One of the most crucial, but systematically neglected, comparative differences between corporate law systems in Europe and in the United States, as crucial as often neglected, concerns the regulations governing freeze-out transactions in listed corporations. Freeze-outs can be defined as transactions in which the controlling shareholder exercises a legal right to buy out the shares of the minority, and consequently delists the corporation and brings it private. Beyond this essential definition, the systems diverge profoundly.

This gap exists despite the fact that minority freeze-outs are one of the most debated issues in corporate law, in the public media, in a …

Active Or Passive?---Rethinking Directors’ Roles In An Anti-Takeover Process, Hanyu Zhang

Hanyu Zhang

In this article, “takeovers” refer to activities of acquiring shares to obtain the actual control of a listed corporation (the target corporation) by the bidder. And “anti-takeovers” refer to activities of employing defensive tactics to prevent the controlling power of the target corporation being taken away from the original controller.

In many jurisdictions, scholars generally regard the existence of the takeover markets to be good because it could, at least, assist maintaining good corporate governance and generating economic welfare. So it is important, in this article, to ask why the target corporation should sometimes fight against takeovers, and who should …

Myths About Mutual Fund Fees: Economic Insights On Jones V. Harris, D. Bruce Johnsen

D. Bruce Johnsen

Mutual funds stand ready at all times to sell and redeem common stock to the investing public for the net value of their assets under management. In the language of transaction cost economics, they are open-access common pools subject to virtually free investor entry and exit. The Investment Company Act (1940) requires mutual funds to be managed by an outside advisory firm pursuant to a written contract, which normally pays the adviser a small share of net asset value, say, one-half of one percent per year. Following 1970 amendments to the Investment Company Act imposing a fiduciary duty on advisers …

The Financial Crisis Of 2009 - Have Reorganization Proceedings In Emerging Markets Gone Bankrupt? Israel As A Case Study, David Hahn

David Hahn

The financial crisis of 2009 affected markets all over the world, presenting an unprecedented challenge for international regulators. In emerging markets, firms began raising significant amounts of debt through corporate bonds only in recent years. When such markets crashed, and firms could no longer pay bondholders, regulators were forced to adopt innovative policies to cope with the problem. This paper explores the possible regulatory responses to the crisis, by focusing on the actions taken by regulators in Israel. The paper outlines the various mechanisms that have been employed and offered to combat the crisis and highlights their shortcomings. It then …

Who's Afraid Of Shareholder Power? A Comparative Law Perspective, Jennifer G. Hill

Jennifer Hill Professor

Who’s Afraid of Shareholder Power? A Comparative Law Perspective Jennifer G. Hill* Abstract US corporate law is undergoing a seismic shift in relation to shareholder power. Although shareholders have traditionally had restricted participatory rights under US corporate law, this paradigm has been challenged in recent times. The shareholder empowerment debate raised shareholder power as a serious subject for corporate law reform. The global financial crisis has given the issue further impetus, and an unprecedented array of reforms and proposals to increase shareholder power are now on the table in the US. There has, however, been great resistance to adjusting the …

The Illegal Actions Of The Federal Reserve: An Analysis Of How The Nation’S Central Bank Has Acted Outside The Law In Responding To The Current Financial Crisis, Chad Emerson

Chad Emerson

Abstract

The Illegal Actions of the Federal Reserve:

An Analysis of How the Nation’s Central Bank Has Acted Outside the Law in Responding to the Current Financial Crisis

In the Spring of 2008, the United States Federal Reserve Bank, under the Chairmanship of Ben Bernanke, took emergency measures in an attempt to forestall a national, if not international, economic meltdown. The actual effectiveness of these unprecedented measures has been hotly-debated. Unfortunately, regardless of their efficacy, the Federal Reserve acted outside the scope of its legal authority in taking several of these actions.

This essay will analyze how the Federal Reserve …

Harmonization Of International Legal Structure For Fostering Professional Services: Lessons From Early U.S. Federal-State Relations, Deth Sao

Deth Sao

In the current global marketplace, liberalization of trade in professional services (“services”) presents one of the biggest challenges and profitable opportunities for the international community. Changes in technology and state privatization polices over the past half century have made services the fastest growing sector in international trade. Despite such a transformation, the potential for further innovation and expansion in the services industries is in jeopardy. In response to public policy and regulatory concerns and political pressures to protect domestic jobs and industries, states have adopted a plethora of state-initiated discriminatory and restrictive policies against trade in services. Because existing international …

Who's Afraid Of Shareholder Power? A Comparative Law Perspective, Jennifer G. Hill

Jennifer Hill Professor

Who’s Afraid of Shareholder Power? A Comparative Law Perspective Jennifer G. Hill* Abstract US corporate law is undergoing a seismic shift in relation to shareholder power. Although shareholders have traditionally had restricted participatory rights under US corporate law, this paradigm has been challenged in recent times. The shareholder empowerment debate raised shareholder power as a serious subject for corporate law reform. The global financial crisis has given the issue further impetus, and an unprecedented array of reforms and proposals to increase shareholder power are now on the table in the US. There has, however, been great resistance to adjusting the …

Bottom-Up: An Alternative Approach For Investigating Corporate Malfeasance, Susan B. Schwab

Susan B. Heyman

At least since the Enron scandal, the government has focused intensive efforts on developing a strategy to investigate and prosecute corporate malfeasance. The prevailing method has been a “top-down” approach: government agents provide companies with incentives to conduct internal investigations, coerce employee cooperation, and disclose privileged information. Although many have expressed concern about violations of constitutional rights and erosions of privilege, the current system faces another critical problem: the top-down strategy will become less effective at unraveling corporate fraud as employees learn that it is not in their interest to cooperate. Further, the approach aims deterrence at the wrong people …

Bentham & Ballots: Tradeoffs Between Secrecy And Accountability In How We Vote, Allison Hayward

Allison Hayward

The way a group, jurisdiction, or nation votes, and makes decisions binding on their members and citizens, is fundamental and deceptively prosaic. Why do some groups (faculties, Congress, caucuses, HOAs) take public votes in most contexts, accompanied by debate, sometimes heated. Why do others (electorates, labor unions) take private votes (often by ballot cast in a secure setting where “heated debate” is not allowed) in most contexts? Moreover, what should we make of the exceptions to these general forms? This Article will demonstrate that the hybrid mode of voting – non-debated yet non-secret voting such as in contemporary absentee balloting, …

Prioritizing Justice: Combating Corporate Crime From Task Force To Top Priority, Mary K. Ramirez

mary k ramirez

Inadequate law enforcement against corporate criminals appears to have created perverse incentives leading to an economic crisis – this time in the context of the subprime mortgage crisis. Prioritizing Justice proposes institutional reform at the Department of Justice in pursuing corporate crime. Presently, corporate crime is pursued nationally primarily through the DOJ Corporate Fraud Task Force and other task forces, the DOJ Criminal Division Fraud Section, and the individual U.S. Attorney’s Offices. Rather than a collection of ad hoc task forces that seek to coordinate policy among a vast array of offices and agencies, the relentless waves of corporate criminality …

Who's Afraid Of Shareholder Power? A Comparative Law Perspective, Jennifer G. Hill

Jennifer Hill Professor

Who’s Afraid of Shareholder Power? A Comparative Law Perspective Jennifer G. Hill* Abstract US corporate law is undergoing a seismic shift in relation to shareholder power. Although shareholders have traditionally had restricted participatory rights under US corporate law, this paradigm has been challenged in recent times. The shareholder empowerment debate raised shareholder power as a serious subject for corporate law reform. The global financial crisis has given the issue further impetus, and an unprecedented array of reforms and proposals to increase shareholder power are now on the table in the US. There has, however, been great resistance to adjusting the …

Who's Afraid Of Shareholder Power? A Comparative Law Perspective, Jennifer G. Hill

Jennifer Hill Professor

Who’s Afraid of Shareholder Power? A Comparative Law Perspective Jennifer G. Hill* Abstract US corporate law is undergoing a seismic shift in relation to shareholder power. Although shareholders have traditionally had restricted participatory rights under US corporate law, this paradigm has been challenged in recent times. The shareholder empowerment debate raised shareholder power as a serious subject for corporate law reform. The global financial crisis has given the issue further impetus, and an unprecedented array of reforms and proposals to increase shareholder power are now on the table in the US. There has, however, been great resistance to adjusting the …

Charity Law's Essentials, Dana Brakman Reiser

Dana Brakman Reiser

The boundary between charity and business has become a moving target. Social enterprises, philanthropy divisions of for-profit companies (most notably at Google), and legislation creating hybrid nonprofit/for-profit forms all use business models and practices to mold and pursue charitable objectives. This article asserts that charity law must be streamlined in order to respond to these and other dramatic charitable innovations. My new vision of charity law centers around two essential requirements. First, charity law must continue to demand that charities maintain an other-regarding orientation, pursuing benefits for someone other than their own leaders and managers. Second, existing charity law must …

Invigorating The Role Of The In-House Legal Advisor As Steward In Ethical Culture And Governance At Client-Business Organizations: From 21st Century Failures To True Calling, Ben G. Pender

Ben G Pender II

Invigorating the Role of the In-House Legal Advisor as Steward in Ethical Culture and Governance at Client-Business Organizations From 21st Century Failures to True Calling J.D., University of St. Thomas School of Law, 2009 M.A. Sociology, Organizational Effectiveness, Clark Atlanta University, 1996. B.S., Sociology, Virginia Polytechnic Institute and State University, 1988. All Rights Reserved. © 2009. This Article examines the need to invigorate the role of the in-house legal advisor from ‘mere legal technician’ to simultaneous legal advisory gatekeeper and ethical steward at client-business organizations. This article asserts that the often-acquiescent in-house legal advisor as ‘mere legal technician’ is partially …

Locating Innovation: The Endogeniety Of Technology, Organizational Structure And Financial Contracting, Ronald J. Gilson

Ronald J. Gilson

There is much we do not understand about the “location” of innovation; the confluence, for a particular innovation, of the technology associated with the innovation, the innovating firm’s size and organizational structure, and the financial contracting that supports the innovation. This article develops the theme that these three determinants of the location of innovation are simultaneously determined through examination of examples of innovative activity whose location is characterized by tradeoffs between pursuing the activity in a an established company or in a smaller, earlier stage company, or some combination of the two. It first considers the dilemma faced by an …

On The Role And Regulation Of Private Negotiations In Governance, Joseph W. Yockey

Joseph W. Yockey

Developments in corporate law continue to give shareholders greater levels of power over public companies. Instead of using their power to seek changes within firms through such traditional means as proxy contests and litigation, shareholders are increasingly relying on private negotiations with directors as a key component of their governance activities. Regulations enacted in response to the recent financial crisis will likely trigger even more widespread use of negotiations in the years to come. In this Article, I analyze the legal and policy implications generated by the use of private negotiations as a means of corporate governance. I make two …

Unwitting Sanctions: Understanding Anti-Bribery Legislation As Economic Sanctions Against Emerging Markets, Andrew B. Spalding

Andrew B Spalding

Although the purpose of international anti-bribery legislation such as the U.S. Foreign Corrupt Practices Act is to deter bribery, empirical evidence demonstrates a more problematic effect. In countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment. Drawing on literature from political science and economics, this article argues that anti-bribery legislation, as presently enforced, functions as de facto economic sanctions. A detailed analysis of the history of FCPA enforcement shows that these sanctions have most often occurred in emerging markets, where historic opportunities for economic and social development otherwise …

Corporate Scandals, Executive Compensation, And International Corporate Governance Convergence: A U.S.-Australia Case Study, Jacob Barney

Jacob Barney

The first decade of the 2000s began with a rash of large-scale corporate scandals touching every corner of the globe, and it draws to a close in the midst of a worldwide recession which, somewhat ironically, has brought to light gargantuan executive compensation packages, resulting in widespread public outcry. Given the global nature of these two sets of corporate crises, it stood to reason that there would emerge a universal movement to revise the laws and practices controlling executive compensation. However, the mere fact that such a movement has emerged does not mean that the response to this movement will …

What Law Schools Should Teach Future Transactional Lawyers: Perspectives From Practice, Michael A. Woronoff

Michael A Woronoff

Since at least the 1980’s, law schools have been chided for doing a poor job at teaching skills. This criticism has been accompanied by pressure to increase their emphasis on skills training. The pressure increased with the publication of the McCrate Report in 1992, and then again with the publication of the Carnegie Report in 2007. This article is based on my remarks given on June 10 at the 2009 mid-year meeting of the AALS Conference on Business Associations. In those remarks, I respond to the questions “Are law schools teaching students adequate transactional skills?” and “From the standpoint of …

Protecting Foreign Investors From International Securities Fraud, Derek N. White

Derek N White

This article discusses the subject matter jurisdiction of national courts in a little-known type of international securities cause of action that has vexed courts of the developed world. The cause of action is labeled the “foreign-cubed class action”, which is brought when a dispute arises regarding purported improprieties in an international securities transaction that contains foreign investors who purchase securities of foreign issuers on foreign stock exchanges. Notice the three “foreign” elements of the transaction ("foreign" meaning foreign to the court presiding over the action).

The number of foreign-cubed class actions brought in U.S. courts has risen sharply over the …

Sarbanes-Oxley & The Culture Of Bribery: Expanding The Territorial Scope Of Private Whistleblower Suits To Overseas Employees, Matt A. Vega

Matt A Vega

SARBANES-OXLEY & THE CULTURE OF BRIBERY: EXPANDING THE TERRITORIAL SCOPE OF PRIVATE WHISTLEBLOWER SUITS TO OVERSEAS EMPLOYEES, by Matt A. Vega

This article has been accepted for publication in Vol. 46, No. 2 Harvard J. on Legis. 425 (Summer 2009).

Abstract: This paper examines the use of private transnational litigation to enforce the Foreign Corrupt Practices Act of 1977 (FCPA). Small, but repetitive bribery of foreign officials by local employees is the Achilles heel of corporate ethics. In fact, it is what perpetuates the “culture of bribery” that makes major corruption possible. Unless overseas employees refuse to give in to …

Structural Or Not? A Critical Analysis Of The Commission's New Notice On Remedies, Georges Kratsas

Georges Kratsas

In October 2008, the European Commission released its longawaited Notice on remedies acceptable under the EU merger Regulation. This Notice is a positive development in the sense that it incorporates much of the Commission’s past experience and the recent case law of the European Court of Justice. The Commission affirms its preference for structural over behavioral remedies and clarifies many aspects of the negotiations between the Commission and the interested parties. In all, it achieves its purpose of rendering merger control more predictable. However, a number of uncertainties and defects found in the Notice diminish its overall positive impact. This …

Failure To Consider Human Rights Suits As A Potential Basis For Derivative Actions, Daniel Augustus Sansone Foe

Daniel Augustus Sansone Foe

Failure to Consider Human Rights Suits as a Potential Basis for Derivative Actions

This note proposes that in instances where corporate boards have knowingly or through their gross negligence allowed potentially costly human rights abuses to occur or where boards have failed to utilize appropriate monitoring standards to ensure compliance with human rights laws, they may be held to account for resulting losses to their shareholders in derivative actions.

In arriving at this proposition the note explores the current prospects for being held liable under the Alien Torts Statute (28 U.S.C. § 1350) and the direct and indirect costs associated …

Turning A Short-Term Fling Into A Long-Term Commitment: Board Duties In A New Era, Nadelle Grossman

Nadelle Grossman

Corporate boards face significant pressure to make decisions that maximize profits in the short run. That pressure comes in part from executives who are financially rewarded for short-term profits despite the long-term risks associated with those profit-making activities. The current financial crisis, where executives at AIG and numerous other institutions ignored the long-term risks associated with their mortgage-backed securities investments, arose largely because those executives were compensated for the short-term profits generated by those investments despite their longer-term risks. Pressure on boards for short-term profits also comes from activist investors who seek to make quick money off of trading in …

The Road Not Taken: Rethinking Securities Regulation And The Case For Federal Merit Review, Daniel Morrissey

Dan Morrissey

Abstract of Morrissey Article The Article assesses the causes of the current financial meltdown and finds that it has resulted from insufficient regulation of the capital markets. The securities legislation of the 1930s enacted in response to the crisis of that era was never strong enough to prevent another severe economic collapse. Even the disclosure-based protection it did afford investors was undermined during the deregulatory movement of the last quarter century. Policy makers must now enact measures that were proposed but passed over during the New Deal reforms so that securities may not be offered or sold if they present …