Securities Law Commons^™

Artificial Intelligence & Artificial Prices: Safeguarding Securities Markets From Manipulation By Non-Human Actors, Daniel W. Slemmer

Brooklyn Journal of Corporate, Financial & Commercial Law

Securities traders are currently competing to use Artificial Intelligence (A.I.) in order to make more profitable decisions in the marketplace. While A.I. provides superior abilities in recognizing market patterns, its complexity can obscure its decision-making process beyond human comprehension. Problematically, the current securities laws prohibiting manipulation of securities prices rest liability for violations on a trader’s intent. In order to prepare for A.I. market participants, both courts and regulators need to accept that human concepts of decision-making will be inadequate in regulating A.I. behavior. However, the wealth of case law in the market manipulation doctrine need not be cast aside. …

A Practice Worth Ending: Eps Guidance Harming Long-Term Growth, Rachel G. Miller

Notre Dame Law Review

This Note focuses on one factor—earnings per share (EPS) guidance—that contributes to myopic behavior and short-termism within public companies. Part I discusses the history of the shareholder primacy norm and the need for management to act in the best interest of its shareholders. Additionally, this Part provides background on EPS guidance and the notion of short-termism. Part II lays out a framework for quarterly reporting and argues that the current disclosure requirements should remain intact. This Part addresses the importance of frequency in quarterly reporting and provides two examples—the United Kingdom and Regulation A—of practices with longer reporting frequencies that …

Index Funds And The Future Of Corporate Governance: Theory, Evidence, And Policy, Scott Hirst, Lucian Bebchuk

Faculty Scholarship

Index funds own an increasingly large proportion of American public companies. The stewardship decisions of index fund managers—how they monitor, vote, and engage with their portfolio companies—can be expected to have a profound impact on the governance and performance of public companies and the economy. Understanding index fund stewardship, and how policymaking can improve it, is thus critical for corporate law scholarship. In this Article we contribute to such understanding by providing a comprehensive theoretical, empirical, and policy analysis of index fund stewardship.

We begin by putting forward an agency-costs theory of index fund incentives. Stewardship decisions by index funds …

Watching Insider Trading Law Wobble: Obus, Newman, Salman, Two Martomas, And A Blaszczak, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

“The crime of insider trading,” Judge Jed Rakoff has said, “is a straightforward concept that some courts have managed to complicate.” In the last eight years or so, insider trading law has wobbled visibly (in the Second Circuit in particular) in applying the standard for tipper-tippee liability originally set in the Supreme Court’s Dirks decision in 1983: from Obus (2012) to Newman (2014), with a detour to the Supreme Court in Salman (2016), and then two Martoma opinions (2017 and 2018). Most recently, the court of appeals offered what to many was a major surprise in its Blaszczak …

Social Activism Through Shareholder Activism, Lisa M. Fairfax

Washington and Lee Law Review

This article is based on the author's keynote address at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.

In 1952, the SEC altered the shareholder proposal rule to exclude proposals made “primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes.” The SEC did not reference civil rights activist James Peck or otherwise acknowledge that its actions were prompted by Peck’s 1951 shareholder proposal to Greyhound for desegregating seating. Instead, the SEC indicated that its change simply reflected a codification …

Chancery’S Greatest Decision: Historical Insights On Civil Rights And The Future Of Shareholder Activism, Omari Scott Simmons

Washington and Lee Law Review

This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.

Shareholder activism—using an equity stake in a corporation to influence management—has become a popular tool to effectuate social change in the twenty-first century. Increasingly, activists are looking beyond financial performance to demand better corporate performance in such areas as economic inequality, civil rights, human rights, discrimination, and diversity. These efforts take many forms: publicity campaigns, litigation, proxy battles, shareholder resolutions, and negotiations with corporate management. However, a consensus on …

From Public Policy To Materiality: Non-Financial Reporting, Shareholder Engagement, And Rule 14a-8’S Ordinary Business Exception, Virginia Harper Ho

Washington and Lee Law Review

This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.

In 2017, shareholder proposals urging corporate boards to report on their climate-related risk made headlines when they earned majority support from investors at ExxonMobil, Occidental Petroleum, and PPL. The key to this historic vote was the support of Blackrock, State Street, and Vanguard, which broke with management and cast their votes behind the proposals. The 2018 proxy season saw several more climate-related proposals earn majority support, and in 2018 …

The Social Costs Of Dividends And Share Repurchases, J.B. Heaton

The Journal of Business, Entrepreneurship & the Law

A long-held view in the academy is that shareholders are "residual claimants” in the sense that shareholders are paid in full only after the corporation pays its creditors. The reality on the ground is far different. Corporations give assets away to their shareholders long before they have satisfied creditors, both voluntary contract creditors and involuntary tort creditors. In particular, existing U.S. corporate and voidable transfer laws allow corporations to pay dividends and make share repurchases up to the point where the corporation is insolvent or nearly so. Voluntary creditors can limit dividends and share repurchases by contract, but involuntary creditors …

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 …

Breaking Up The Focus On Relationships For Nonpecuniary Insider Trading Personal Benefits, Bradley Larkin

Fordham Law Review

In 1983, the U.S. Supreme Court adopted the “personal benefit” requirement as an objective test for insider trading to help determine when confidential information is tipped for an improper purpose. Under this test, a tipper acts improperly by receiving a personal benefit for sharing confidential, nonpublic information, even if the tipper does not trade using the information. For instance, when a tipper leaks confidential information to a trading friend or relative, the tipper benefits personally because this amounts to trading on the confidential information and then gifting the profits. The personal benefit requirement is applied differently among the circuits, however, …

Table Of Contents, Seattle University Law Review

Seattle University Law Review

No abstract provided.

Stock-Market Law And The Accuracy Of Public Companies’ Stock Prices, Kevin S. Haeberle

Kevin Scott Haeberle

The social benefits of more accurate stock prices—that is, stock-market prices that more accurately reflect the future cash flows that companies are likely to produce—are well established. But it is also thought that market forces alone will lead to only a sub-optimal level of stock-price accuracy—a level that fails to obtain the maximum net social benefits, or wealth, that would result from a higher level. One of the principal aims of federal securities law has therefore been to increase the extent to which the stock prices of the most important companies in our economy (public companies) contain information about firms’ …

Law Professor Comment Letter On Harmonization Of Private Offering Rules, Elisabeth D. De Fontenay, Erik Gerding, John Coffee, Jr., James D. Cox, Stephen F. Diamond, Merritt B. Fox, Michael Guttentag, Colleen Honigsberg, Renee M. Jones, Donald Langevoort, Saule T. Omarova, James Park, Jeff Schwartz, Andrew F. Tuch, Urska Velikonja

Research Data

Comment letter filed on Sept. 24, 2019.

"File No. S7-08-19"

"We are fifteen law professors whose scholarship and teaching focuses on securities regulation. We appreciate the opportunity to comment on the U.S. Securities and Exchange Commission’s (“SEC” or the “Commission”) Concept Release on Harmonization of Securities Offering Exemptions (the “Concept Release”)."

How Did We Get Here? Dissecting The Hedge Fund Conundrum Through An Institutional Theory Lens, Cary Martin Shelby

Scholarly Articles

This article dissects both the origins and resulting harms of what the author terms the "hedge fund conundrum," in which institutional investors, such as pension plans and endowments, have consistently increased hedge fund allocations over the past decade despite pervasive evidence of excessive fees and subpar returns. It then utilizes an historical institutionalist lens to examine how lawmakers may have enabled a conundrum of this magnitude. By and large, this phenomenon is a symptom of regulatory loopholes that have permitted the private hedge fund market to increase in "publicness" through its expanding access and subsequent harm to retail investors. Such …

Making Sustainability Disclosure Sustainable, Jill E. Fisch

All Faculty Scholarship

Sustainability is receiving increasing attention from issuers, investors and regulators. The desire to understand issuer sustainability practices and their relationship to economic performance has resulted in a proliferation of sustainability disclosure regimes and standards. The range of approaches to disclosure, however, limit the comparability and reliability of the information disclosed. The Securities & Exchange Commission (SEC) has solicited comment on whether to require expanded sustainability disclosures in issuer’s periodic financial reporting, and investors have communicated broad-based support for such expanded disclosures, but, to date, the SEC has not required general sustainability disclosure.

This Article argues that claims about the relationship …

The Specter Of The Giant Three, Scott Hirst, Lucian Bebchuk

Faculty Scholarship

This Article examines the large, steady, and continuing growth of the Big Three index fund managers — BlackRock, Vanguard, and State Street Global Advisors. We show that there is a real prospect that index funds will continue to grow, and that voting in most significant public companies will come to be dominated by the future “Giant Three.”

We begin by analyzing the drivers of the rise of the Big Three, including the structural factors that are leading to the heavy concentration of the index funds sector. We then provide empirical evidence about the past growth and current status of the …

Activist Shareholders At De Facto Controlled Companies, Gaia Balp

Brooklyn Journal of Corporate, Financial & Commercial Law

Activist campaigns are likely to increasingly target controlled companies. Studies concerning activism at controlled companies focus on shareholder-empowering tools, such as the right to nominate and elect minority directors on the board, as a pathway for limiting the principal-principal agency problem. However, not enough attention has been paid to the distinction between de jure and de facto controlled companies. Building on a recent case concerning a leading Italian corporation, this Article analyzes the possible unexpected corporate governance consequences of successful activist intervention at de facto controlled companies, showing that, where minority shareholders are granted the right to appoint directors on …

Intermediated Securities Holding Systems Revisited: A View Through The Prism Of Transparency, Thomas Keijser, Charles W. Mooney Jr.

All Faculty Scholarship

This chapter explains several benefits of adopting transparent information technology systems for intermediated securities holding infrastructures. Such transparent systems could ameliorate various prevailing problems that confront existing tiered, intermediated holding systems, including those related to corporate actions (dividends, voting), claims against issuers and upper-tier intermediaries, loss sharing and set-off in insolvency proceedings, money laundering and terrorist financing, and privacy, data protection, and confidentiality. Moreover, transparent systems could improve the functions of intermediated holding systems even without changes in laws or regulations. They also could provide a catalyst for law reform and a roadmap for substantive content of reforms. Among potential …

Crowdfunding In Arkansas? Yes, You Can!, Carol Goforth

Arkansas Law Notes

Following enactment of the Jumpstart Our Business Startups Act (also known as the JOBS Act) in 2012, the SEC expanded the options for issuers seeking an exemption from the registration requirement for the sale of securities under federal law, while simultaneously preempting inconsistent state law. One such innovation was Regulation Crowdfunding, generally referred to as Reg. CF, which currently allows compliant issuers to raise up to $1,070,000 in any 12-month period by seeking relatively small investments from a large number of investors.

Collected Lectures And Talks On Corporate Law, Legal Theory, History, Finance, And Governance, William W. Bratton

Seattle University Law Review

A collection of eighteen speeches and lectures, from 2003 to 2018, discussing and expanding on the writings and theories of Adolf Berle and Gardiner Means.

Made For This Moment: The Enduring Relevance Of Adolf Berle’S Belief In A Global New Deal, Leo E. Strine Jr.

Seattle University Law Review

At a time when the insecurity of working people in the United States and Europe is being exploited by nativist forces, the concept of a global New Deal is more relevant than ever. But, instead of a global New Deal, the predominant force in international trade in recent decades has been spreading pre-New Deal, laissez-faire approaches to markets, without extending with equal vigor the regulations essential to providing ordinary people economic security. Adolf Berle recognized that if the economy did not work for all, the worst impulses in humanity could be exploited by demagogues and authoritarians, having seen this first …

Table Of Contents, Seattle University Law Review

Seattle University Law Review

No abstract provided.

On The Origins Of The Modern Corporation And Private Property, Bernard C. Beaudreau

Seattle University Law Review

The Modern Corporation and Private Property (MCPP) by Adolf A. Berle Jr. and Gardiner Means, published in 1932, is undisputedly the most influential work ever written in the field of corporate governance. In a nutshell, Berle and Means argued that corporate control had been usurped by a new class of managers, the result of which included (1) shareholder loss of control (a basic property right), (2) questionable corporate objectives and behavior, and (3) the potential breakdown of the market mechanism. In this paper, I examine the origins of MCPP, paying particular attention to the authors’ underlying motives. I argue that …

The Rise And Fall (?) Of The Berle–Means Corporation, Brian R. Cheffins

Seattle University Law Review

This Article forms part of the proceedings of the 10th Annual Berle Symposium (2018), which focused on Adolf Berle and the world he influenced. He and Gardiner Means documented in The Modern Corporation and Private Property (1932) what they said was a separation of ownership and control in major American business enterprises. Berle and Means became sufficiently closely associated with the separation of ownership and control pattern for the large American public firm to be christened subsequently the “Berle–Means corporation.” This Article focuses on the “rise” of the Berle–Means corporation, considering in so doing why ownership became divorced from control …

“All Lawyers Are Somewhat Suspect”: Adolf A. Berle And The Modern Legal Profession, Harwell Wells

Seattle University Law Review

Adolf A. Berle was perhaps the preeminent scholar of the modern corporation. He was also an occasional scholar of the modern legal profession. This Article surveys his writings on the legal profession from the 1930s to the 1960s, from the sharp criticisms he leveled at lawyers, particularly corporate lawyers, during the Great Depression, to his sunnier account of the lawyer’s role in the postwar era. I argue that Berle’s views were shaped both by the reformist tradition he inherited from Louis Brandeis and his writings on the corporation, which left him convinced that the fate of the legal profession would …

Berle X: Berle And His World: An Homage To William W. Bratton, Charles R. T. O'Kelley

Seattle University Law Review

An introduction to the Berle X symposium, honoring William W. (Bill) Bratton.

Technological And Institutional Crossroads: The Life And Times Of Adolf A. Berle Jr., Bernard C. Beaudreau

Seattle University Law Review

In this paper, I examine the life and times of Adolf A. Berle Jr., perhaps the most influential scholar in the field of corporate governance. Specifically, I examine his contribution in light of the technological and institutional changes that occurred in the late nineteenth century—changes that were germane to his thinking and understanding of corporate governance. I argue that, despite his perspicacity, he failed to appreciate the changing role of corporate officers—that is, from that of fiduciary agent to that of visionary, founder, and essential element in corporate success. Put differently, in the early twentieth century, the key asset in …

“In Time Of Stress, A Civilization Pauses To Take Stock Of Itself”: Adolf A. Berle And The Modern Corporation From The New Era To 1933, Mark Hendrickson

Seattle University Law Review

This Article demonstrates three things. First, an examination of Berle’s work and thinking in this critical period reveals the ways in which public problems and the need to “know capitalism,” to borrow a phrase from Mary Furner, converged in the post-WWI era in remarkable and unprecedented ways that would shape New Deal and post-New Deal politics and policy. Berle’s gift for synthesizing evidence and constructing narratives that explained complex events were particularly well suited to this era that prized the expert. Second, identifying a problem and developing a persuasive narrative is one thing, but finding solutions is another. Berle joined …

The ‘Berle And Means Corporation’ In Historical Perspective, Eric Hilt

Seattle University Law Review

This Article presents new evidence on the evolution of the business corporation in America and on the emergence of what is commonly termed the “Berle and Means corporation.” Drawing on a wide range of sources, I investigate three major historical claims of The Modern Corporation: that large corporations had displaced small ones by the early twentieth century; that the quasi-public corporations of the 1930s were much larger than the public corporations of the nineteenth century; and that ownership was separated from control to a much greater extent in the 1930s compared to the nineteenth century. I address each of these …

Berle And Corporation Finance: Everything Old Is New Again, Frank Partnoy

Seattle University Law Review

In this essay, I want to illustrate how Adolf A. Berle Jr.’s Studies in the Law of Corporation Finance1 was prescient about the kinds of financial innovation that are central to today’s markets. For scholars who are not familiar with this publication, Corporation Finance is a compilation of edited versions of several of Berle’s articles, along with some new material, most of which is focused on 1920s corporate practice. My primary goal here is simply to shine a light on this work and to memorialize for scholars the key passages that echo many of today’s challenges. The punch line of …