Securities Law Commons^™

Goodbye Buybacks? Why Recent Stock Buyback Reform Proposals Go Beyond What Is Necessary, Joshua Zelen

Fordham Journal of Corporate & Financial Law

This note provides an overview of the intensifying debate around the impact that stock buybacks have on economic inequality and the proposals designed to reform the practice. With the advent of the Securities and Exchange Commission’s (SEC) 1982 promulgation of Rule 10b-18, corporations began allocating vast portions of their profits to stock buybacks. In recent years, this practice has become increasingly more common and has surpassed previous historical benchmarks.

Critics of stock buybacks primarily view the practice as a misuse of excess corporate funds that could instead be allocated to improve employee working conditions, benefits, and future outcomes. Opponent’s concerns …

The Cryptic Nature Of Crypto Digital Assets Regulations: The Ripple Lawsuit And Why The Industry Needs Regulatory Clarity, Jacqueline Hennelly

Fordham Journal of Corporate & Financial Law

The tension and associated time lag between technology and regulation has been well documented. Paradigmatic of this phenomenon is the global evolution of blockchain technology and digital assets. Digital assets in the blockchain allow users to transact directly without financial intermediaries. However, the regulatory guidelines for the assets, their issuance, and the subsequent transactions are unclear. The Securities and Exchange Commission (SEC) has filed an action to apply its existing regulations and the judicial interpretations to Ripple’s issuance of XRP, its token, and Ripple’s control over subsequent user transactions of XRP. This Note uses SEC v. Ripple as a case …

Do Esg Funds Deliver On Their Promises?, Quinn Curtis, Jill E. Fisch, Adriana Z. Robertson

All Faculty Scholarship

Corporations have received growing criticism for their role in climate change, perpetuating racial and gender inequality, and other pressing social issues. In response to these concerns, shareholders are increasingly focusing on environmental, social, and corporate governance (ESG) criteria in selecting investments, and asset managers are responding by offering a growing number of ESG mutual funds. The flow of assets into ESG is one of the most dramatic trends in asset management.

But are these funds giving investors what they promise? This question has attracted the attention of regulators, with the Department of Labor and the Securities and Exchange Commission (SEC) …

Mutual Fund Stewardship And The Empty Voting Problem, Jill E. Fisch

All Faculty Scholarship

When Roberta Karmel wrote the articles that are the subject of this symposium, she was skeptical of both the potential value of shareholder voting and the emerging involvement of institutional investors in corporate governance. In the ensuing years, both the increased role and engagement of institutional investors and the heightened importance of shareholder voting offer new reasons to take Professor Karmel’s concerns seriously. Institutional investors have taken on a broader range of issues ranging from diversity and political spending to climate change and human capital management, and their ability to influence corporate policy on these issues has become more significant. …

The Virus, Risk, And Commercial Mortgage-Backed Securities: Examining Dodd-Frank’S Impact In The Midst Of A Pandemic, Owen Haney

Fordham Journal of Corporate & Financial Law

When lawmakers sought to reshape the financial industry through the passage of the Dodd-Frank Act in 2010, they specifically attacked the “moral hazard” in the asset-backed securities market that they believed was partly responsible for the collapse of global financial markets. Congress identified several practices in asset-backed securitizations that posed a risk to the world economy. In particular, regulators believed that the “originate-to-distribute” model, whereby loan originators—those parties armed with the best knowledge regarding the quality of the loans in the transaction and who consequently set underwriting standards—could sell off the loans without bearing any risk should those borrowers (homeowners …

Synthetic Governance, Byung Hyun Anh, Jill E. Fisch, Panos N. Patatoukas, Steven Davidoff Solomon

All Faculty Scholarship

Although securities regulation is distinct from corporate governance, the two fields have considerable substantive overlap. By increasing the transparency and efficiency of the capital markets, securities regulation can also enhance the capacity of those markets to discipline governance decisions. The importance of market discipline is heightened by the increasingly vocal debate over what constitutes “good” corporate governance.

Securities product innovation offers new tools to address this debate. The rise of index-based investing provides a market-based mechanism for selecting among governance options and evaluating their effects. Through the creation of bespoke governance index funds, asset managers can create indexes that correspond …

A False Sense Of Security: How Congress And The Sec Are Dropping The Ball On Cryptocurrency, Tessa E. Shurr

Dickinson Law Review (2017-Present)

Today, companies use blockchain technology and digital assets for a variety of purposes. This Comment analyzes the digital token. If the Securities and Exchange Commission (SEC) views a digital token as a security, then the issuer of the digital token must comply with the registration and extensive disclosure requirements of federal securities laws.

To determine whether a digital asset is a security, the SEC relies on the test that the Supreme Court established in SEC v. W.J. Howey Co. Rather than enforcing a statute or agency rule, the SEC enforces securities laws by applying the Howey test on a fact-intensive …

The New Titans Of Wall Street: A Theoretical Framework For Passive Investors, Jill E. Fisch, Asaf Hamdani, Steven Davidoff Solomon

All Faculty Scholarship

Passive investors — ETFs and index funds — are the most important development in modern day capital markets, dictating trillions of dollars in capital flows and increasingly owning much of corporate America. Neither the business model of passive funds, nor the way that they engage with their portfolio companies, however, is well understood, and misperceptions of both have led some commentators to call for passive investors to be subject to increased regulation and even disenfranchisement. Specifically, this literature takes a narrow view both of the market in which passive investors compete to manage customer funds and of passive investors’ participation …

The Broken Buck Stops Here: Embracing Sponsor Support In Money Market Fund Reform, Jill E. Fisch

All Faculty Scholarship

Since the 2008 financial crisis, in which the Reserve Primary Fund “broke the buck,” money market funds (MMFs) have been the subject of ongoing policy debate. Many commentators view MMFs as a key contributor to the crisis because widespread redemption demands during the days following the Lehman bankruptcy contributed to a freeze in the credit markets. In response, MMFs were deemed a component of the nefarious shadow banking industry and targeted for regulatory reform. The Securities and Exchange Commission’s (SEC) misguided 2014 reforms responded by potentially exacerbating MMF fragility while potentially crippling large segments of the MMF industry.

Determining the …

Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan

All Faculty Scholarship

There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naïve diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses.

This article offers a first step in understanding the investor decision-making process. We use an internet-based …

A Framework For Analyzing Attorney Liability Under Section 10(B) And Rule 10b-5, Gary M. Bishop

The University of New Hampshire Law Review

[Excerpt] “Lawyers who make their living representing securities issuers face a myriad of challenges. Securities lawyers must navigate and master an intricate body of statutory, regulatory, and case law at both the state and the federal level and ensure that their clients comply with the law. The compliance requirement, however, is not limited to the issuer clients. Defrauded investors will often seek recovery of their losses from both the issuer of the failed investment securities and from the lawyers who represent the issuer, which only exacerbates the complexity of the securities lawyer’s work. These securities fraud actions against lawyers raise …

Burning Down The House Or Simply Rolling The Dice: A Comment On Section 621 Of The Dodd-Frank Act And Recommendation For Its Implementation, Joshua R. Rosenthal

Fordham Journal of Corporate & Financial Law

Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act modifies the Securities Act of 1933 to prohibit the underwriter, placement agent, initial purchaser, or sponsor, or any affiliate or subsidiary of any such entity of an asset-backed financial product from betting against that very product for one year after the product’s initial sale. The rule prohibits anyone who structures or sells an asset-backed security or a product composed of asset-backed securities from going short, in the specified timeframe, on what they have sold, and labels such transactions as presenting material conflicts of interest. This Comment discusses traces …

The End Of The Internal Compliance World As We Know It, Or An Enhancement Of The Effectiveness Of Securities Law Enforcement? Bounty Hunting Under The Dodd-Frank Act's Whistleblower Provision, Justin Blount, Spencer Markel

Fordham Journal of Corporate & Financial Law

In the wake of Bernard Madoff’s $65 billion Ponzi scheme and the recent economic crisis stemming largely from loosely regulated subprime lending and mortgage-backed securities, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, signaling loudly and clearly that change is coming to Wall Street. But Wall Street is not the only one receiving a message. Buried deep within the 2,319 pages of the Dodd-Frank Act, companies can find Section 922, the whistleblower provision, which provides a bounty for whistleblowers who report securities violations to the Securities and Exchange Commission.These bounty provisions and …

Lessons From The Flash Crash For The Regulation Of High-Frequency Traders, Edgar Ortega Barrales

Fordham Journal of Corporate & Financial Law

Are equity markets vulnerable to a sudden collapse if the traders who account for about half of the volume have no regulatory obligations to stabilize prices? After the “Flash Crash” of May 6, 2010, policymakers have resoundingly answered this question in the affirmative. During the worst of the crash, some of the so-called high-frequency trading firms that dominate equity markets stopped trading and prices collapsed, momentarily wiping out almost $1 trillion in market value. In response, the U.S. Securities and Exchange Commission is considering whether high-frequency trading firms should be required to act as the traders of last resort. This …

Can An Old Dog Learn New Tricks? Applying Traditional Corporate Law Principles To New Social Enterprise Legislation, Alicia E. Plerhoples

Georgetown Law Faculty Publications and Other Works

Seven U.S. states have recently adopted the benefit corporation or the flexible purpose corporation—two novel corporate forms intended to house social enterprises, i.e., those ventures that pursue social and environmental missions along with profits. And yet, these corporate forms are not viable or sustainable if they do not attract social entrepreneurs or social investors due to the lack of understanding and inquiry into how traditional corporate law principles will be applied to them. This article begins this necessary examination. As a first approach, this article assesses shareholder primacy and the shareholder wealth maximization norm in the context of the sale …

Lessons From Single-Company Event Studies: The Importance Of Controlling For Company-Specific Events, Scott D. Hakala

Scott D Hakala

Single-company event studies are commonly employed in applied practice, such as in analyzing market efficiency, reliance, and damages in securities litigation. However, the presence of significant company-specific events among the observations used to estimate the market model results in significantly biased, overstated standard errors (a well-known omitted variables problem) and less reliable coefficient estimates in such studies. This is a frequently over-looked or neglected issue that renders the statistical inferences in single-company event studies employing using more traditional event study techniques biased and often unreliable. This paper demonstrates through simulation and actual examples that, even allowing for errors in implementation, …

Trusts Versus Corporations: An Empirical Analysis Of Competing Organizational Forms, A. Joseph Warburton

College of Law - Faculty Scholarship

This paper studies the effects of organizational form on managerial behavior and firm performance, from an empirical perspective. Managers of trusts are subject to stricter fiduciary responsibilities than managers of corporations. This paper examines the ramifications empirically, by exploiting data generated by a change in British regulations in the 1990s that allowed mutual funds to organize as either a trust or a corporation. I find evidence that trust law is effective in curtailing opportunistic behavior, as trust managers charge significantly lower fees than their observationally equivalent corporate counterparts. Trust managers also incur lower risk. However, evidence suggests that trust managers …

The Power Of Proxy Advisors: Myth Or Reality?, Stephen Choi, Jill E. Fisch, Marcel Kahan

All Faculty Scholarship

Recent regulatory changes increasing shareholder voting authority have focused attention on the role of proxy advisors. In particular, greater shareholder empowerment raises the question of how much proxy advisors influence voting outcomes.

This Article analyzes the significance of voting recommendations issued by four proxy advisory firms in connection with uncontested director elections. We find, consistent with press reports, that Institutional Shareholder Services (ISS) is the most powerful proxy advisor and that, of the others, only Glass, Lewis & Co. seems to have a meaningful impact on shareholder voting. This Article also attempts to measure the impact of voting recommendations on …

Current Economic Issues In Securities Litigation, Scott D. Hakala

Scott D Hakala

This paper discusses the economic framework for determining economic loss in securities litigation and the then current case law. This includes discussions regarding assessing materiality and reliance, the use of event study analyses to identify loss causationg and the interaction of legal and economic principles.

The Essential Role Of Securities Regulation, Zohar Goshen, Gideon Parchomovsky

All Faculty Scholarship

This Article posits that the essential role of securities regulation is to create a competitive market for sophisticated professional investors and analysts (information traders). The Article advances two related theses-one descriptive and the other normative. Descriptively, the Article demonstrates that securities regulation is specifically designed to facilitate and protect the work of information traders. Securities regulation may be divided into three broad categories: (i) disclosure duties; (ii) restrictions on fraud and manipulation; and (iii) restrictions on insider trading-each of which contributes to the creation of a vibrant market for information traders. Disclosure duties reduce information traders' costs of searching and …

Investor Skepticism V. Investor Confidence: Why The New Research Analyst Reforms Will Harm Investors, John L. Orcutt

Law Faculty Scholarship

Part I of this Article provides an overview of research analysts and their basic functions, including a discussion of sell-side analysts' role in the market's recent boom and bust. Part II examines the conflicts of interest that have plagued sell-side research, and Part III reviews the Regulatory Actions that are meant to address these conflicts. In Part IV, the author will make the case for encouraging, rather than lessening, investor skepticism in sell-side research and will explain why the Regulatory Actions are not likely to improve the performance of sell-side analysts. Finally, Part V will offer a simpler proposal to …

Securities Regulation As Lobster Trap: A Credible Commitment Theory Of Mandatory Disclosure, Edward B. Rock

All Faculty Scholarship

No abstract provided.