Business Organizations Law Commons^™

Ending 30 Years Of Imf Exceptionalism: A Call For An Accountability Mechanism At The International Monetary Fund, Luiz Vieria

Perspectives

This year marks the 30^th anniversary of the World Bank’s Inspection Panel (WBIP or Panel), created as the result of grass-roots and international pressure on the Bank to address the well-documented negative impacts on marginalised communities of the Bank-financed Narmada dam and similar projects.

The establishment of the world’s first independent accountability mechanism (IAM) at the World Bank led to the creation of similar mechanisms at nearly all international financial institutions (IFIs), with the IMF an important exception. The establishment of the WBIP and other IAMs was a step-change in accountability, as previously IFIs were only accountable to shareholders …

Loophole Entrepreneurship, Brian M. Sirman

Fordham Journal of Corporate & Financial Law

All entrepreneurs seek favorable legal or regulatory treatment for their businesses. Sometimes this leads an entrepreneur to build a business within a gap in the law—a loophole. In so doing, these “loophole entrepreneurs” may avoid steep regulatory compliance costs that otherwise would beset (or perhaps prohibit) their businesses, thereby gaining advantages over competitors. Despite these benefits, loophole entrepreneurship is fraught with risks. Loopholes, by nature, are fragile, and their contours are often uncertain. Moreover, the stigma of “exploiting a loophole” (which connotes unfairness or deception) can provoke ill will among competitors, policymakers, and the public.

The ranks of loophole entrepreneurs …

Expanding Mfw: Delaware Law Should Offer A Business Judgment Rule Safe Harbor For All Conflicted Controller Transactions, Alex Lindsey

Fordham Journal of Corporate & Financial Law

While courts usually defer to a board’s business decisions under the business judgment rule, courts will apply a much less deferential standard of review due to loyalty concerns if a conflicted controller is involved in a business decision such as a merger. However, in Kahn v. M & F Worldwide (“MFW”) when a squeeze out merger was challenged by a minority stockholder, the Delaware Supreme Court reviewed the transaction under the deferential business judgment rule standard because the Court found that the structure of the transaction neutralized the controller loyalty concerns. Building on this reasoning, the Court developed a checklist …

Interest Rates, Venture Capital, And Financial Stability, Hilary J. Allen

Articles in Law Reviews & Other Academic Journals

Following several prominent bank failures and as central banks continue to tighten interest rates to fight inflation, there is increasing interest in the relationship between monetary policy and financial stability. This Article illuminates one path through which the prolonged period of low interest rates from 2009-2021 has impacted financial stability: it traces how yield-seeking behavior in the wake of the Global Financial Crisis and Covid pandemic led to a bubble in the venture capital industry, which in turn spawned a crypto bubble as well as a run on the VC-favored Silicon Valley Bank. This Article uses this narrative to illustrate …

Regulatory Managerialism Inaction: A Case Study Of Bank Regulation And Climate Change, Hilary J. Allen

Articles in Law Reviews & Other Academic Journals

In November of 2029, Hurricane Penelope struck New York City as a category two storm. Work had started on a wall to protect Manhattan from rising sea levels and storm surges, but the work was incomplete, and significant damage to Manhattan real estate was sustained. While almost all that real estate was insured, insurance companies were compromised by the sheer magnitude of the losses. Even with significant federal subsidies, they were unable to meet their full commitments on insurance policies. Some commercial real estate firms, who had never really recovered from the shift to remote working during the Covid pandemic, …

Regulatory Innovation And Permission To Fail: The Case Of Suptech, Hilary J. Allen

Articles in Law Reviews & Other Academic Journals

The recent U.S. Supreme Court decision West Virginia v. EPA has cast a pall over the discretion of administrative agencies at a very inopportune time. The private sector is currently adopting new technologies at a rapid pace, and as regulated industries become more technologically complex, administrative agencies must innovate technological tools of their own in order to keep up. Agencies will increasingly struggle to do their jobs without that innovation, but the private sector is afforded something that is both critical to the innovation process, and often denied to administrative agencies: “permission to fail.” Without some grace for the inevitable …

Beware The Proposed Us Crypto Regulation— It May Be A Trojan Horse, Hilary J. Allen

Popular Media

Following the spectacular failure of crypto exchange FTX International, there have been renewed calls for crypto legislation (including from the industry itself).But many of the proposals so far would be worse than the status quo — at least for the general public. Crypto firms such as FTX were involved in drafting many of the mooted US bills. The exchange’s implosion should not become a pretext for rushing these into law.

Who's Looking Out For The Banks?, Jeremy C. Kress

University of Colorado Law Review

When the Gramm-Leach-Bliley Act authorized financial conglomeration in 1999, Professor Arthur Wilmarth, Jr. presciently predicted that diversified financial holding companies would try to exploit their bank subsidiaries by transferring government subsidies to their nonbank affiliates. To prevent financial conglomerates from taking advantage of their insured depository subsidiaries in this way, policymakers instructed a bank's board of directors to act in the best interests of the bank, rather than the bank's holding company. This symposium Article, written in honor of Professor Wilmarth's retirement, contends that this legal safeguard ignores a critical conflict of interest: the vast majority of large-bank directors also …

The Alarming Legality Of Security Manipulation Through Shareholder Proposals, Artem M. Joukov, Samantha M. Caspar

Seattle University Law Review

Shareholder proposals attract attention from scholars in finance and economics because they present an opportunity to study both quasidemocratic decision-making at the corporate level and the impact of this decision-making on firm outcomes. These studies capture the effect of various proposals but rarely address whether regulations should allow many of them in the first place due to the possibility of stock price manipulation. Recent changes to shareholder proposal rules, adopted in September 2020, sought to address the potential for exploitation that some proposals create (but ultimately failed to do so). This Article shows the potential for apparently legal stock price …

Economic Democracy And Enterprise Form In Finance, William H. Simon

Faculty Scholarship

This article considers the relative advantages of alternative enterprise forms in finance from the point of view of public accountability. The business corporation is compared to the state agency or authority, the cooperative, the state corporation, and the charitable nonprofit. These forms can be distinguished according to whether they aspire to enhance general electoral democracy or stakeholder democracy and whether their democratic controls operate directly or indirectly. The article suggests that the indirect democratic forms may be more promising than the direct ones. It also argues that the project of democratizing finance depends on the development of practices of multifactor …

Failed Anti-Activist Legislation: The Curious Case Of The Brokaw Act, Alon Brav, J.B. Heaton, Jonathan Zandberg

The Journal of Business, Entrepreneurship & the Law

The Brokaw Act was proposed legislation aimed at “financial abuses being carried out by activist hedge funds who promote short-term gains at the expense of long-term growth . . . .” Sponsoring Senators named it after a small town in Wisconsin that, according to the Act’s sponsors, was decimated by the actions of a hedge fund activist in shutting down the local paper mill with a loss of hundreds of jobs. The Brokaw Act represented the first attempt at federal legislation aimed at restricting hedge fund activism. Since then, new and similar bipartisan proposals have appeared as have threats of …

The Law And Finance Of Initial Coin Offerings, Aurelio Gurrea-Martinez, Nydia Remolina Leon

Research Collection Yong Pung How School Of Law

The rise of new technologies is changing the way companies raise funds. Along with the increase of crowdfunding in recent years, the use of Initial Coin Offerings (ICOs) has emerged more recently as a new form to raise capital. Companies in the United States raised more than $4 billion in 2017 and over $6.3 billion were raised through ICOs in the first three months of 2018. In a typical ICO, a company receives cryptocurrencies in exchange for certain rights embodied in “tokens”, whose nature, treatment and implications are generating controversy among securities regulators around the world.

Hb 192 - Banking And Finance, Caroline G. Mayson, Jesse C. Moore

Georgia State University Law Review

The Act changes the provisions relating to the responsibilities and standard of care for directors and officers of banks, trust companies, and corporations. The Act codifies the business judgment rule. The operative liability standard for directors and officers is gross negligence, as opposed to simple negligence, and directors and officers may rely on other individuals in the performance of their duties. A rebuttable presumption exists that directors and officers act in good faith.

Financing The Benefit Corporation, Dana Brakman Reiser, Steven A. Dean

Seattle University Law Review

The hybrid organizational forms designed with social enterprises in mind have proven to be hothouse flowers. Flourishing in state legislatures, even those with the most distinguished pedigrees—such as Delaware’s public benefit corporation—have so far failed to thrive in the marketplace. Fortunately, hybrid financial instruments offer a source of strength and stability that can help social enterprise to take root. This Article examines the valuable role that financial instruments can play in providing social enterprises with the capital they need to grow. Debt with equity features and equity with debt characteristics constitute the lion’s share of such financial tools. More exotic …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

José Gabilondo

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

Public Actors In Private Markets: Toward A Developmental Finance State, Robert Hockett, Saule Omarova

Saule T. Omarova

The recent financial crisis brought into sharp relief fundamental questions about the social function and purpose of the financial system, including its relation to the “real” economy. This Article argues that, to answer these questions, we must recapture a distinctively American view of the proper relations among state, financial market, and development. This programmatic vision – captured in what we call a “developmental finance state” – is based on three key propositions: (1) that economic and social development is not an “end-state” but a continuing national policy priority; (2) that the modalities of finance are the most potent means of …

Avenues To Foreign Investment In China’S Shipping Industry—Have Lease Financing Arrangements And The Free Trade Zones Opened Markets For Foreign Non-Bank Investment?, Rick Beaumont

Rick Beaumont

No abstract provided.

Avenues To Foreign Investment In China’S Shipping Industry—Have Lease Financing Arrangements And The Free Trade Zones Opened Markets For Foreign Non-Bank Investment?, Rick Beaumont

Rick Beaumont

No abstract provided.

The Moral Undercurrent Beneath The Regulatory Regime Of Investor Protection, Huhnkie Lee

Huhnkie Lee

No abstract provided.

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 …

Australia’S Experience With Foreign Direct Investment By State Controlled Entities: A Move Towards Xenophobia Or Greater Openness?, Greg Golding

Seattle University Law Review

Over the last few years, there has been considerable debate in Australia as to the appropriate regulation of foreign direct investment by entities affiliated with foreign governments. During that time, Australia has been a significant beneficiary of investment by sovereign wealth funds from many foreign jurisdictions, particularly by Chinese state owned enterprises. The Australian government, similar to governments of many developed Western countries, has struggled to properly calibrate its policy settings for regulating this type of investment activity. This Article considers the Australian regulatory regime and assesses Australia’s experience in regulating those investment flows during this period.

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 …

Culture Wars: Rate Manipulation, Institutional Corruption, And The Lost Normative Foundations Of Market Conduct Regulation, Justin O'Brien

Seattle University Law Review

The global investigations into the manipulation of the London Interbank Offered Rate (Libor) have raised significant questions about how conflicts of interest are managed for regulated entities contributing to benchmarks. An alternative framework, which brings the management of the rate process under direct regulatory supervision, is under consideration, coordinated by the International Organization of Securities Commissions taskforce. The articulation of global principles builds on a review commissioned by the British government that suggests rates calculated by submission can be reformed. This paper argues that this approach is predestined to fail, precisely because it ignores the lessons of history. In revisiting …

Financial Innovation In East Asia, Ross P. Buckley, Douglas W. Arner, Michael Panton

Seattle University Law Review

Finance is important for development. However, the Asian financial crisis of 1997–1998 and the global financial crisis of 2008 highlighted the serious risks associated with financial liberalization and excessive innovation. East Asia’s strong focus on economic growth has necessitated a careful balancing of the benefits of financial liberalization and innovation against the very real risks inherent in financial sector development. This Article examines the role of regulatory, legal, and institutional infrastructure in supporting both financial development and limiting the risk of financial crises. The Article then addresses a series of issues with particular developmental significance in the region: trade finance, …

Evaluating The Performance And Accountability Of Regulators, Colin Scott

Seattle University Law Review

The global financial crisis came in the wake of significant reforms to the structures, processes, powers, and rules of the regulatory regimes for financial markets in many of the countries adversely affected by the crash. The global financial crisis came in the wake of significant reforms to the structures, processes, powers, and rules of the regulatory regimes for financial markets in many of the countries adversely affected by the crash. In this Article, I follow the logic of an argument that regulation necessarily has political dimensions, even where it may appear technical. I am asking questions about how we might …

Toward A More Resilient Financial System?, Joanna Gray

Seattle University Law Review

The concept of “resilience” in the context of financial systems calls for closer analysis, as most of the current efforts to reshape financial systems seek to render them more resilient. Resilience has become a necessary complement to the paradigm shift taking place in global financial regulation toward “macroprudential” regulation—a term used to describe a new viewing platform and decisionmaking plane for financial regulation. From this new perspective, regulators can address the state of the financial system as a whole, as well as its component parts. This Article seeks to illustrate how legal and regulatory measures that foster resilience have become …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

Seattle University Law Review

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

The Long Road Back: Business Roundtable And The Future Of Sec Rulemaking, Jill E. Fisch

Seattle University Law Review

The Securities and Exchange Commission (SEC or Commission) has faced a number of challenges in the last few years. Judge Rakoff’s decision in Citigroup, the Madoff scandal, and the Business Roundtable decision are just a few of the developments that have dealt lasting damage to the SEC’s reputation. Critics have scrutinized the agency’s decisionmaking on multiple fronts—from its enforcement policy to the quality of its rulemaking—and the SEC has largely come up short in the analysis. The once-revered top cop of the securities markets has taken a hit, and it is unclear whether it can recover. The Business Roundtable decision …

The Future Of Shareholder Democracy In The Shadow Of The Financial Crisis, Alan Dignam

Seattle University Law Review

This Article argues that the U.K. regulatory response to the financial crisis, in the form of “stewardship” and shareholder engagement, is an error built on a misunderstanding of the key active role shareholders played in the enormous corporate governance failure represented by the banking crisis. Shareholders’ passivity, rather than activity, has characterized the reform perception of the shareholder role in corporate governance. This characterization led to the conclusion that if only they were more active they would be more responsible “stewards” of the corporation. If, as this Article argues, shareholder activity was part of the problem in the banks, then …

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 …