Securities Law Commons^™

Special Purpose Acquisition Companies: Wall Street’S Latest Shell Game, Daniel J. Morrissey

Arkansas Law Review

Special Purpose Acquisition Companies (“SPACs”) have been called “Wall Street’s biggest gold rush of recent years.” In reality, they are just another version of an old strategy to exploit a loophole in the federal securities laws that issuers of stock have used to avoid full registration with the SEC, the federal agency set up to administer and enforce the securities laws. The SPAC process circumvents that important protection for investors by taking private firms public through the back door—merging them into shell corporations. Those are companies whose shares are widely held but have no operations or assets.

Giving Shareholders The Right To Say No, Albert H. Choi, Adam C. Pritchard

Articles

When a public company releases misleading information that distorts the market for the company’s stock, investors who purchase at the inflated price lose money when (and if) the misleading information is later corrected. Under Rule 10b‑5 of the Securities Exchange Act of 1934, investors can seek compensation from corporations and their officers who make materially misleading statements that the investors relied on when buying or selling a security. Compensation is the obvious goal, but the threat of lawsuits can also benefit investors by deterring managers from committing fraud.

A Tokenized Future: Regulatory Lessons From Crowdfunding And Standard Form Contracts, Darian M. Ibrahim

Faculty Publications

This Article examines the world of risk investing in the cryptoeconomy. The broader crypto market is booming despite the latest downturn. People and institutions are buying in. The question is now how to regulate it.

This Article first tackles the question of whether coins, tokens, and other investable cryptoassets are securities. Second, for those cryptoassets that are not securities, this Article seeks to find a regulatory solution that balances promoting innovation with investor protection, just as the Securities and Exchange Commission (SEC) would do. To strike the right balance, this Article adopts a proposal by Ian Ayres and Alan Schwartz …

Foreign Judgments And Foreign Arbitral Awards Enforceability As A Factor And A Guarantee For Foreign Investments: The Case Of Saudi Arabia, Mohammed Rashed Mohammed Arhama Alshamsi

Maurer Theses and Dissertations

Foreign investments are considered an efficient and effective instrument to diversify and strengthen the economy; foreign investors generally need guarantees before entering a new market. One of these guarantees is a stable, transparent, predictable legal and judicial system. Such a system must be open to foreign laws and judgments as well as foreign arbitral awards, and it must also be flexible to increase foreign investments. Saudi Arabia has tried since the 50s’ to be more attractive to foreign investors and investments by enacting legislation and creating a modern court system to diversify their economy. However, the discretion of Saudi judges …

Corporate Response To The War In Ukraine: Stakeholder Governance Or Stakeholder Pressure?, Anete Pajuste, Anna Toniolo

Emory Corporate Governance and Accountability Review

This Article empirically investigates the corporate response to the Russian invasion of Ukraine in the framework of the stakeholder capitalism debate. Some describe corporate leaders’ decision to withdraw from Russia as an example of stakeholder governance, maintaining that they placed social responsibility over profits. Others question the authenticity of corporate support for Ukraine and argue that companies left Russia mainly driven by operational and reputational concerns.

Against this backdrop, we conduct an empirical study of reactions to the outbreak of the war from companies in the S&P500 and STOXX600 indices. We explore whether managers effectively decided mostly on ethical and …

Ftx: How The Sec Should React, Darian M. Ibrahim

Popular Media

No abstract provided.

Law School News: Omshehe Wins Top National Prize With Securities Regulation Article 11-4-2022, Michael M. Bowden

Life of the Law School (1993- )

No abstract provided.

Just Say No? Shareholder Voting On Securities Class Actions, Albert H. Choi, Stephen J. Choi, Adam C. Pritchard

Articles

The U.S. securities laws allow security-holders to bring a class action suit against a public company and its officers who make materially misleading statements to the market. The class action mechanism allows individual claimants to aggregate their claims. This procedure mitigates the collective action problem among claimants, and also creates potential economies of scale. Despite these efficiencies, the class action mechanism has been criticized for being driven by attorneys and also encouraging nuisance suits. Although various statutory and doctrinal solutions have been proposed and implemented over the years, the concerns over the agency problem and nuisance suits persist. This paper …

Attack On The Spac: The Push To Regulate Special Purpose Acquisition Companies As Investment Companies Under The Investment Company Act, Sean Meyer

University of Cincinnati Law Review

No abstract provided.

Gamestop And The Reemergence Of The Retail Investor, Jill E. Fisch

Faculty Scholarship at Penn Carey Law

The GameStop trading frenzy in January 2021 was perhaps the highest profile example of the reemergence of capital market participation by retail investors, a marked shift from the growing domination of those markets by large institutional investors. Some commentators have greeted retail investing, which has been fueled by app-based brokerage accounts and social media, with alarm and called for regulatory reform. The goals of such reforms are twofold. First, critics argue that retail investors need greater protection from the risks of investing in the stock market. Second, they argue that the stock market, in term, needs protection from retail investors. …

Making Whistleblowers Whole, Jennifer Pacella

UC Irvine Law Review

If ever there was a time in history in which whistleblowers have taken center stage, it has been the past two years. From COVID-19 to Trump’s first impeachment trial, whistleblowers have played a vital role in bringing to light information otherwise impossible to obtain. While the value that whistleblowers bring to government, organizations, and society has always been immeasurable, it is still the case that whistleblowers ultimately suffer a disastrous fate. They have made the decision to speak out against wrongdoing, often risking their jobs, livelihoods, and ability to thrive in their respective industry due to harassment, demotion, exclusion, or …

Taming Unicorns, Matthew Wansley

Indiana Law Journal

Until recently, most startups that grew to become valuable businesses chose to become public companies. In the last decade, the number of unicorns—private, venture-backed startups valued over one billion dollars—has increased more than tenfold. Some of these unicorns committed misconduct that they successfully concealed for years. The difficulty of trading private company securities facilitates the concealment of misconduct. The opportunity to profit from trading a company’s securities gives short sellers, analysts, and financial journalists incentives to uncover and reveal information about misconduct the company commits. Securities regulation and standard contract provisions restrict the trading of private company securities, which undermines …

Special Purpose Acquisition Companies (Spacs) And The Sec, Neal Newman, Lawrence J. Trautman

Faculty Scholarship

Special Purpose Acquisition Companies (SPACs) are simply enterprises that raise money from the public with the intention of purchasing an existing business and becoming publicly traded in the securities markets. If the SPAC is successful in raising money and the acquisition takes place, the target company takes the SPAC’s place on a stock exchange in a transaction that resembles a public offering. Also known as “blank-check” or “reverse merger” companies, this process avoids many of the pitfalls of a traditional initial public offering.

During late 2020 and 2021 an unprecedented surge in the popularity and issuance of Special Purpose Acquisition …

A Proposed Sec Cyber Data Disclosure Advisory Commission, Lawrence J. Trautman, Neal Newman

Faculty Scholarship

Constant cyber threats result in: intellectual property loss; data disruption; ransomware attacks; theft of valuable company intellectual property and sensitive customer information. During March 2022, The Securities and Exchange Commission (SEC) issued a proposed rule addressing Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, which requires: 1. Current reporting about material cybersecurity incidents; 2. Periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risks; 3. Management’s role in implementing cybersecurity policies and procedures; 4. Board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk; 5. Registrants to provide updates about previously reported cybersecurity …

Is Everything Securities Fraud?, Emily Strauss

UC Irvine Law Review

“An odd fact of the U.S. legal system for public companies is that every crime is also securities fraud: If a company does a bad thing, and regulators find out about it, then the bad-thing regulators can punish it for doing the bad thing, but the securities regulators can also punish it for not disclosing the bad thing to shareholders. . . . It is a strange combination: Generally speaking the companies do the bad things on behalf of shareholders—to make more money for them—but then the securities regulators come in and fine them for defrauding shareholders.”

-Matt Levine

Securities …

Federal Courts Take The Wheel: The Delaware Supreme Court Validates Federal Forum Provisions For '33 Act Litigation In Salzberg V. Sciabacucchi, Brittany Mann

Villanova Law Review

No abstract provided.

Purpose Proposals, Jill E. Fisch

Faculty Scholarship at Penn Carey Law

Repurposing the corporation is the hot issue in corporate governance. Commentators, investors and increasingly issuers, maintain that corporations should shift their focus from maximizing profits for shareholders to generating value for a more expansive group of stakeholders. Corporations are also being called upon to address societal concerns – from climate change and voting rights to racial justice and wealth inequality.

The shareholder proposal rule, Rule 14a–8, offers one potential tool for repurposing the corporation. This Article describes the introduction of innovative proposals seeking to formalize corporate commitments to stakeholder governance. These “purpose proposals” reflect a new dynamic in the debate …

Regulatory Capture Of Self-Regulatory Organizations (Sros) In Canada: Do Sros Serve Public Or Industry Interests?, Oluwadamilola Adesanya, Western University

Master of Laws Research Papers Repository

The Canadian securities industry relies heavily on self-regulation, with two self-regulatory organizations (SROs), the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) regulating the industry. The former regulates all investment dealers and trading on Canada's debt and equities markets, while the latter governs domestic distributors of mutual funds, except fixed-income products. As expected in an SRO model of regulation, the structure of both IIROC and the MFDA presents a risk that industry members may influence or capture its operations, advancing industry interests at the cost of its public interest mandate.

This Article …

When Are We Going To Learn: The Role Of Lawyers In Corporate Fraud, Alexander Klein

University of St. Thomas Journal of Law and Public Policy

No abstract provided.

Quinquagenaries, Anthony Duggan

Dalhousie Law Journal

This article is part of a symposium to mark the 50th anniversary, or quinquagenary, of the Dalhousie Law Journal. The invitation to participate in the symposium asked authors to reflect on developments in their field over the past 50 years. My field is the law of secured transactions and, as it happens, the Canadian Personal Property Security Acts (PPSAs) are approaching their own quinquagenary. There have been numerous statutory and case law developments over the past 50 years, but one of the most remarkable turn of events is the influence the Canadian PPSAs have had on the reform of secured …

Don't Get Burned: Why The De-Spac Transaction Must Be Excluded From The Pslra's Safe Harbor Provision For Forward-Looking Statements, Jean-Claire Perini

Villanova Law Review

No abstract provided.

In Vogue Again: The Re-Rise Of Spacs In The Ipo Market, Maria Lucia Passador

Brooklyn Journal of Corporate, Financial & Commercial Law

If the capital markets described the year 2020 in a few words, it would certainly be Special Purpose Acquisition Company (SPACs), which - although to a different extent - are now gaining momentum on both shores of the pond. While, in the United States, SPACs are really enjoying a new lease on life due to the pandemic, the outlook seems positive in Europe too, although data are not comparable to those registered across the Atlantic. This article focuses on SPACs in the United States prior to the COVID-19 pandemic (between January 2010 and December 2019), in order to understand their …

A Continental Rift? The United States And European Union's Contrasting Approaches To Regulating The Monopolistic Behavior Of Gatekeeper Platforms, Peter R. Enia

Brooklyn Journal of Corporate, Financial & Commercial Law

Over the past decade, gatekeeper platforms, such as Amazon.com, Inc. (Amazon), have created highly monopolistic business models to benefit themselves while undermining third-party merchants on digital marketplaces. To illustrate, Amazon collects third-party merchant and consumer data on its marketplace to improve its private-label brands while simultaneously selling them alongside third-party merchant products, creating a significant conflict of interest business model. To address this anticompetitive behavior, the United States (U.S.) and the European Union (E.U.) have proposed contrasting approaches. The U.S., through the Ending Platform Monopolies Act, offers a structural separation remedy, giving the Department of Justice and Federal Trade Commission …

Bardy Diagnostics V. Hill-Rom: New Lessons On Material Adverse Effect Clauses, Robert T. Miller

Brooklyn Journal of Corporate, Financial & Commercial Law

In Bardy Diagnostics, Inc. v. Hill-Rom, Inc., the Delaware Court of Chancery once again had to apply a Material Adverse Effect clause to determine whether an acquirer was required to close an acquisition. The case develops the law of MAEs in several important ways. First, the agreement between the parties substituted for the customary MAE objects (e.g., the company’s business, financial condition, and results of operations) a bespoke defined term. The court interpreted the definition of that term in a way that made it functionally equivalent to more customary MAE objects; then, consistent with an unacknowledged trend in Delaware law, …

Mutual Fund Advisory Fees: Forty Years Of Failure, Stewart L. Brown Phd., Cfa

Brooklyn Journal of Corporate, Financial & Commercial Law

In the 1960s, the Securities and Exchange Commission (SEC) attempted to correct an oversight in the Investment Company Act of 1940 (ICA) that allowed investment management firms to overcharge investors, namely, the absence of enforceable protections over excessive fees. Congress, in the 1970 amendments to the ICA, was influenced by the investment management industry and the resultant legislation sent ambiguous signals to the judicial system. Lacking clear guidance from Congress, in the seminal fee case Gartenberg v. Merrill Lynch, the Second Circuit fashioned a fiduciary standard favorable to the investment management industry. Under this standard, no plaintiff has ever won …

Freeing Cryptoassets From Howey: A Defense Of Genuine Token Offering, Kathryn A. Daly

Brooklyn Journal of Corporate, Financial & Commercial Law

The Securities Exchange Commission (SEC) is the most powerful regulator of the U.S. securities market and serves to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” The agency’s task of protecting retail investors and regulating market participants has been, at times, reduced to a binary choice between “Main Street” investors and “Wall Street” insiders. Some regulators and legislators rely on this binary to put pressure on cryptoassets, claiming that more regulation leads to more effective investor protections. This Note rejects that premise. Genuine tokens offerings (i.e., unregistered security offerings not designed to defraud investors) must be …

Targeted Regulation Of Proxy Voting Advice: Balancing Monitoring With Information Flow In The Age Of Esg, Jara R.Y. Jacobson

Brooklyn Journal of Corporate, Financial & Commercial Law

Proxy voting advice businesses have historically been guided by disjointed rules and regulations based on their relationship to other entities, but under a 2020 rulemaking they were officially brought under the auspices of the Securities and Exchange Commission. However, after a change in presidential administrations, the Securities and Exchange Commission in 2021 issued a proposed amendment which, if adopted, would rescind some of the more contentious elements of the initial 2020 rulemaking. This Note considers how, even if the 2021 proposed amendments are adopted, the Securities and Exchange Commission can simultaneously regulate and protect proxy voting advice businesses through the …

How Existing Securities Law Authorizes The Sec To Mandate And Regulate Sustainability Reporting, Kenya Rothstein

Buffalo Environmental Law Journal

No abstract provided.

A Regulatory Budget For The Public Company Accounting Oversight Board, J.W. Verret

Georgia State University Law Review

The Public Company Accounting Standards Board (PCAOB) was created by the Sarbanes–Oxley Act (SOX) in 2002 in response to the Enron and WorldCom auditing scandals. The PCAOB regulates the $20 billion annual auditing industry, which itself provides assurance for the financial integrity of $27 trillion in outstanding global publicly traded equity. The PCAOB is uniquely a quasi-private entity overseen by the Securities and Exchange Commission (SEC), which approves its budget and must approve any changes in its rules. The PCAOB has undertaken initiatives to attenuate the cost–benefit calculus of its rules, most notably in a change from Auditing Standard 2 …

A Lesson From Startups: Contracting Out Of Shareholder Appraisal, Jill E. Fisch

Faculty Scholarship at Penn Carey Law

Appraisal is a controversial topic. Policymakers have debated the goals served by the appraisal remedy, and legislatures have repeatedly revised appraisal statutes in an effort to meet those goals while minimizing the cost and potential abuse associated with appraisal litigation. Courts have struggled to determine the most appropriate valuation methodology and the extent to which that methodology should depend on case-specific factors. These difficulties are exacerbated by variation in the procedures by which mergers are negotiated and the potential for conflict-of-interest transactions.

Private ordering offers a market-based alternative to continued legislative or judicial efforts to refine the appraisal remedy. Through …