Law Commons^™

The Sec Staff's "Cybersecurity Disclosure" Guidance: Will It Help Investors Or Cyber-Thieves More?, Sarah Jane Hughes, Roland L. Trope

Articles by Maurer Faculty

No abstract provided.

The Madoff Scandal, Market Regulatory Failure And The Business Education Of Lawyers, Robert J. Rhee

Faculty Scholarship

This essay suggests that a deficiency in legal education is a contributing cause of the regulatory failure. The most scandalous malfeasance of this new era, the Madoff Ponzi scheme, evinces the failure of improperly trained lawyers and regulators. It also calls into question whether the prevailing regulatory philosophy of disclosure of disclosure is sufficient in a complex market. This essay answers an important question underlying these considerations: What can legal education do to better train business lawyers and regulators for a market that is becoming more complex? One answer, it suggests, is a simple one: law schools should teach a …

Securities Class Actions As Pragmatic Ex Post Regulation, Elizabeth Chamblee Burch

Scholarly Works

Securities class actions are on the chopping block-again. Traditional commentators continue to view class actions with suspicion; they see class suits as nonmeritorious byproducts of self-interest and the attorneys who bring them as rent-seekers. Their conventional approach has popularized securities class actions' negative effects. High-profile commissions capitalizing on this rhetoric, such as the Committee on Capital Markets Regulation, have recently recommended eliminating or severely curtailing securities class actions. But this approach misses the point: in the ongoing push and pull of securities regulation, corporations are winning the battle.

Thus, understanding the full picture and texture of securities class actions necessitates …

Private Investment Funds: Hedge Funds' Regulation By Size, Tamar Frankel

Faculty Scholarship

This Article focuses on hedge funds-a species of private investment funds. These funds appeared in the 1950s and remained active but small. Then, in a fairly short period, they grew enormously to over $1.5 trillion, although the estimates vary.¹ Hedge fund managers engage in more than twenty-five different categories of investment strategies.² Since 2002, the number of hedge funds has more than doubled to an estimated 9,000 funds,³ and their assets have grown by 400% to an estimated $1.4 trillion since 1999.⁴ Other estimates are higher, suggesting current hedge fund assets at $2 trillion and their …

Sarbanes-Oxley, Kermit The Frog, And Competition Regarding Audit Quality, Matthew J. Barrett

Journal Articles

The regulatory scheme after Sarbanes-Oxley has significantly improved public company audits in the United States, or at least has demonstrated the potential to do so, but the obligation to preserve client confidentially still prevents auditors from competing for new clients on the basis of audit quality. This paper suggests a simple way for the SEC to facilitate such competition within the existing regulatory framework. The SEC should require issuers and registrants to disclose whether their independent audits uncovered any financial fraud and, within specified ranges, the number and amount of all audit adjustments incorporated into the financial statements filed with …

The Flight From Arbitration: An Empirical Study Of Ex Ante Arbitration Clauses In The Contracts Of Publicly Held Companies, Theodore Eisenberg, Geoffrey P. Miller

Cornell Law Faculty Publications

Informed parties bargaining for their mutual advantage will tend to agree to provisions that maximize the social surplus. Such bargaining includes provisions regarding the resolution of disputes that might arise under the contract. Thus, if a form of alternative dispute resolution, such as binding arbitration, provides greater social benefits than litigation, the dynamics of the process should tend to induce the parties to include a clause submitting future disputes to arbitration. This Article studies the actual contracting practices of large, sophisticated actors with respect to arbitration clauses. We examined over 2800 contracts, filed with the Securities Exchange Commission (SEC) in …

Criminalization Of Corporate Law: The Impact Of Criminal Sanctions On Corporate Misconduct, Donna M. Nagy

Articles by Maurer Faculty

No abstract provided.

Dialectical Regulation, Robert B. Ahdieh

Faculty Scholarship

While theories of regulation abound, woefully inadequate attention has been given to growing patterns of "intersystemic" and "dialectical" regulation in the world today. In this rapidly expanding universe of interactions, independent regulatory agencies, born of autonomous jurisdictions, nonetheless face a combination of jurisdictional overlap with, and regulatory dependence on, one another. Here, the cross-jurisdictional interaction of regulators is no longer the voluntary interaction embraced by transnationalists; it is, instead, an unavoidable reality of acknowledgement and engagement, potentially culminating in the integration of discrete sets of regulatory rules into a collective whole.

Such patterns of regulatory engagement are increasingly evident, across …

Are Advisers Contributing To Fund Rule Avalanche?, Tamar Frankel

Shorter Faculty Works

The SEC has been prolific in the past few years. By its own initiative, or because of congressional directives, the Commission has issued a record number of rules directed at the mutual funds advisory profession.

From 1975 to 2000 the SEC enacted about 135 substantive rules. However, it has enacted 70 such rules over the five-year span from 2001 to 2006. These rules are progressively more specific, eliminating flexibility, putting the profession in a straight-jacket, and imposing significant costs. The costs of these rules are especially irritating to advisors who have done no wrong.

Professional advisors blame the SEC for …

The Irrational Auditor And Irrational Liability, Adam C. Pritchard

Articles

This Article argues that less liability for auditors in certain areas might encourage more accurate and useful financial statements, or at least equally accurate statements at a lower cost. Audit quality is promoted by three incentives: reputation, regulation, and litigation. When we take reputation and regulation into account, exposing auditors to potentially massive liability may undermine the effectiveness of reputation and regulation, thereby diminishing integrity of audited financial statements. The relation of litigation to the other incentives that promote audit quality has become more important in light of the sea change that occurred in the regulation of the auditing profession …

Regulation A: Small Businesses’ Search For “A Moderate Capital”, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Small businesses are an important part of our national economy, accounting for as much as 40% of our total economic activity and providing society with important services and products.

Small businesses face daunting economic, structural, and legal impediments when they attempt to acquire external capital. The absence of financial inter-mediation services means that they are almost always on their own to find investors. Their small capital needs mean that their relative offering costs are often sky high. Federal and state securities rules significantly exacerbate these economic and structural disadvantages by imposing onerous and unwarranted conditions on their search for external …

Resistances To Reforming Corporate Governance: The Diffusion Of Qlccs, Robert Eli Rosen

Articles

No abstract provided.

The Corporation As Insider Trader, Mark J. Loewenstein, William K.S. Wang

Publications

With regard to issuer purchases, some of the traditional policy rationales against insider trading do not apply or apply with less force. Nevertheless, courts, commentators, and the SEC have all stated or assumed that a public corporation violates rule 10b-5 by buying its own shares in the market based on material, nonpublic information. In rule 10b-5 cases involving face-to-face transactions, several circuit courts have ruled that the company may not purchase its own stock based on material information not known to the seller. No good reason exists not to apply these precedents to stock market trades by issuers, especially because …

From Insull To Enron: Corporate (Re)Regulation After The Rise And Fall Of Two Energy Icons, William D. Henderson, Richard D. Cudahy

Articles by Maurer Faculty

For most Americans, the collapse of the Enron Corporation is without doubt the most memorable corporate event of their generation. Remarkably, few people are aware that the New Deal regulatory framework - which Congress recently reformed and toughened to in response to the Enron debacle - was itself erected in the wake of a strikingly similar corporate crash. In late 1931 and early 1932, the country looked on in horror as Samuel Insull's mighty and seemingly invulnerable electric utility holding company empire collapsed without warning, wiping out the holdings of over 1 million investors, most of whom believed that they …

Let The Money Do The Governing: The Case For Reuniting Ownership And Control, Usha Rodrigues

Scholarly Works

Part I of the Article outlines the problems with the current method of board selection and functioning. Management or management-sympathetic board members often select the board nominees, who share social ties with other board members. Boards tend to avoid "rocking the boat" by questioning management's recommendations, and because of the way the proxy process is structured, shareholders cannot effectively use their votes to oust unsatisfactory board members.

Part II analyzes the SEC's recent proposals for reform, which center on granting shareholders more opportunities to nominate candidates to the board. These proposals attempt to give shareholders a greater voice in the …

Bring On 'Da Noise: The Sec's Proposals Concerning Professional Conduct For Attorneys Under Sarbanes-Oxley, Marilyn Blumberg Cane, Sarah Smith Kelleher

Faculty Scholarship

In the wake of Enron's and numerous other corporate scandals, Congress enacted the Sarbanes-Oxley Act, which empowered the Securities and Exchange Commission (the Commission) to establish rules of professional conduct for attorneys who appear before it. In November 2002, the Commission released a proposal where attorneys would be required to report perceived violations of corporate governance and Commission rules up-the-ladder. Additionally, if the company failed to make an appropriate response, the attorney would be required to make a noisy withdrawal. After an onslaught of comments against the proposal, the Commission issued an alternative proposal for comment.

Under the alternative rule, …

The Overwhelming Case For Elimination Of The Integration Doctrine Under The Securities Act Of 1933, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

The thesis of this Article is that the Securities and Exchange Commission should entirely eliminate the integration doctrine from the Securities Act of1933. Under the integration doctrine, a single "offering" or "issue" of securities cannot be split. The doctrine is expensive for society and furthers no valid policy of the 1933 Act. More specifically, the doctrine does not promote investor protection but does retard capital formation, an outcome that is contrary to the presently articulated purposes of the 1933 Act.

Part II of this Article traces the history of the adoption of the integration doctrine both by the Commission and …

The "Possession Vs. Use" Debate In The Context Of Securities Trading By Traditional Insiders: Why Silence Can Never Be Golden, Donna M. Nagy

Articles by Maurer Faculty

Traditional insiders occupy a very special position in the scheme of federal securities regulation. However, in a misguided quest for a single answer to the possession vs. use debate, courts, commentators, and even the SEC have tended to marginalize the significant differences between traditional insiders and other securities traders who may possess material nonpublic information. In the aftermath of the circuit court decisions in United States v. Smith and Securities and Exchange Commission v. Adler, courts and the SEC should follow a categorical approach in addressing the possession vs. use question, and should recognize that silence can never be golden …

Trends In The Regulation Of Investment Companies And Investment Advisers, Tamar Frankel

Faculty Scholarship

Statutes, rules and enforcement actions are tea leaves we can read to predict future trends of mutual fund regulation. While statutes and rules are specific, the trends they signify are far more speculative. This Essay engages in such speculation to envision the long-term implications of the recent new N- 1A disclosure form, I the plain English Rule,² and the profile. ³ More generally, the Essay speculates on future trends in Securities and Exchange Commission ("Commission") enforcement, and predicts a continued and stronger use of informal enforcement by the Commission.

The Impact Of Nsmia On Small Issuers, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Small businesses may account for 40% of the business activities in this country, but capital formation rules always have discriminated against small businesses and imposed rules that make it unreasonably difficult for small companies to exploit external sources of capital. NSMIA, through its broad statutory delegation to the SEC of the right to expand the preemption of state blue sky laws, provides a unique opportunity for the Commission to deliver much-needed and much-deserved help to small issuers engaged in capital formation and to finally break the hegemonic hold states have over the rules governing capital formation by small businesses. Society …

Reflections On Executive Compensation And A Modest Proposal For (Further) Reform, Mark J. Loewenstein

Publications

No abstract provided.

The Sec And The Future Of Corporate Governance, Mark J. Loewenstein

Publications

No abstract provided.

The Pros And Cons Of A Self-Regulatory Organization For Advisers And Mutual Funds, Tamar Frankel

Faculty Scholarship

Congress is seriously considering bills to establish self-regulatory organizations (SROs) for investment advisers (advisers) and investment companies (Funds). These bills would require members of the investment management industry to regulate themselves under the watchful eye of the Securities and Exchange Commission, similar in approach to the regulation of broker-dealers by the National Association of Securities Dealers, Inc. (NASD) and the securities exchanges. Proposals to establish SRO for investment advisers have arisen before. However, those proposals did not cover Funds and their advisers,

Untenable Status Of Corporate Governance Listing Standards Under The Securities Exchange Act, Douglas C. Michael

Law Faculty Scholarly Articles

United States securities markets operate under a system of supervised self-regulation created by the Securities Exchange Act of 1934 (Exchange Act). That system includes substantive regulation of the traders and the issuers of securities traded in those markets through the use of listing standards.

These listing standards have a unique status. They are part of a self-regulatory system, but are not classic self-regulation. The markets do not govern the traders of which it consists; rather, it governs outsiders—the issuers. The markets and the Securities and Exchange Commissions have sought to control issuers in ways not clearly related to trading in …

Reinventing The Outside Director: An Agenda For Institutional Investors, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Managerialist rhetoric puts the institutional investor between a rock and a hard place. The institutional investor is depicted as a paper colossus, alternatively greedy and mindless, but in all events a less important corporate constituency than that other kind of investor, the "real" shareholder. The unspoken corollary is that, regardless of the institution's investment strategy, its interests may appropriately be ignored.

An institution that trades stock frequently is considered a short-term shareholder without a stake in the future of the corporation. According to the familiar argument, the short-term shareholder has no more legitimate claim on management's attention than does a …

An Economic Justification For Corporate Reorganizations, Charles Adams

Articles, Chapters in Books and Other Contributions to Scholarly Works

No abstract provided.

Of Lollipops And Law -- A Proposal For A National Policy Concerning Tender Offer Defenses, Ted J. Fiflis

Publications

Early last year, Mesa Petroleum Company made a tender offer for shares of Unocal Corporation in an effort to take over Unocal. Unocal responded by using the "lollipop" defense, which is a discriminatory issuer self-tender offer. Unocal's use of this defense resulted in huge economic losses to many of Unocal's small shareholders who were not knowledgeable about the ramifications of their participation or non-participation in the tender offer. The Delaware Supreme Court upheld Unocal's use of this defense as an appropriate exercise of business judgment. A federal district court in California refused to strike down the lollipop under federal law …

The Plight Of Small Issuers (And Others) Under Regulation D: Those Nagging Problems That Need Attention, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

Regulation D traces its roots to section 4(2) and section 3(b) of the Securities Act of 1933. Both of these sections are designed to relieve an issuer from the pains of registration under the 1933 Act in situations where Congress deemed such registration inappropriate. Therefore, under section 4(2), no registration is required for "transactions by an issuer not involving any public offering." Section 3(b) is not a self-executing exemption but instead permits the Securities and Exchange Commission to enact rules and regulations exempting issuers from registration requirements "if it finds that ... [registration] is not necessary in the public interest …

Investment Company Advertising, Tamar Frankel

Faculty Scholarship

SEC Regulation has changed from specific guidelines for advertisers to a general antifraud provision. Despite greater latitude, conflicts may arise between the commission's regulation and first amendment protection of commercial speech.

Choice Of Federal Or State Law For Attorneys' Professional Responsibility In Securities Matters, Ted J. Fiflis

Publications

Professional standards of duty are implicated in the federal securities laws in two types of cases: those instituted by the SEC to impose sanctions for lack of character or unethical conduct and those brought by the SEC or private parties for violations of substantive provisions of the securities laws. The question faced by Professor Fiflis is whether state or federal standards should define the duties imposed under these laws. He argues that the proper method of resolving this question is to apply an interest analysis. Analyzing the various state and federal interests leads Professor Fiflis to the conclusion that federal …