Securities Law Commons^™

Realizing Diversity, Sustainability, And Stakeholder Capitalism, Peter H. Huang

Publications

Stakeholder capitalism conceives of capitalism with companies maximizing their long-term value, while considering in addition to the interests of their shareholders, also the interests of all their other stakeholders. Examples of such additional stakeholders include customers, employees, communities, creditors, competitors, society at large, and our planet. America today does not have stakeholder capitalism. Instead, America presently has shareholder capitalism, in which publicly held corporations only maximize their stock value to shareholders.

This Essay analyzes proposals for the United States Securities Exchange Commission to require that all reporting companies make periodic mandatory Environmental, Social, and Governance (ESG) disclosures of comparable, standardized, …

Rethinking Kirschner V. J.P. Morgan: How Securities And Banking Laws Should Apply To Syndicated Loans, Joel Crank

University of Colorado Law Review

No abstract provided.

Shareholder Primacy And The Moral Obligation Of Directors, Mark J. Loewenstein, Jay Geyer

Publications

One of the most written-about and important topics in corporate law is the fiduciary obligations of corporate directors. Increasingly, critics of American capitalism have urged that corporations, and implicitly, corporate directors, act in a more socially responsible fashion and thus eschew the notion that shareholder primacy is the exclusive guide to a director’s fiduciary duty. Under this view, directors must consider the effect of their actions on “stakeholders” other than shareholders and be guided by morality—doing the right thing—when making business judgments.

When directors move away from shareholder primacy, however, decision-making becomes more difficult and problematic. This article analyzes the …

Crowdfunding Issuers In The United States, Andrew A. Schwartz

Publications

Startup companies can now legally sell shares of stock, bonds, or other securities to the broad public using equity crowdfunding, a new type of online capital market modeled on Kickstarter and other reward crowdfunding websites. Through equity crowdfunding, entrepreneurs can go directly to the broad public (the “crowd”) for investment, without having to go through the usual (and costly) process of an initial public offering (IPO). Equity crowdfunding thus offers a chance for all entrepreneurs, regardless of their physical location, gender, or anything else, to solicit investors and raise capital.

In 2012, new federal legislation—the Jumpstart Our Business Startups (JOBS) …

Remutualization, Erik F. Gerding

Publications

Policymakers need to rediscover the organizational form of business entity as a tool of financial regulation. Recent and classic scholarship has produced evidence that financial institutions organized as alternative entity forms – including investment bank partnerships and banks and insurance companies organized as mutual or cooperatives – tend to take less risk, exploit customers/consumer less, or commit less misconduct compared to counterparts organized as investor-owned corporations. This article builds off the work of Hill and Painter on investment banks organized as partnerships, Hansmann on the history and economics of banks and insurance companies organized as mutuals and cooperatives, and other …

Pushing The Envelope: Salzberg V. Sciabacucchi And Delaware's Evolving View Of The Internal Affairs Doctrine, Mark J. Loewenstein

Publications

In January, 2020, the Delaware Supreme Court handed down its decision in Salzberg v. Sciabacucchi, upholding a provision in a certificate of incorporation that designated the federal courts as the exclusive jurisdiction for the litigation of claims under the federal Securities Act of 1933. The inclusion of these provisions in Delaware charters and bylaws – often referred to as “Federal Forum Provisions” or FFPs – raised important questions as to the reach of the internal affairs doctrine. This doctrine provides that the jurisdiction of incorporation regulates the internal affairs of its corporations: the relationship among and between the corporate …

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”)."

Mandatory Disclosure In Primary Markets, Andrew A. Schwartz

Publications

Mandatory disclosure—the idea that companies must be legally required to disclose certain, specified information to public investors—is the first principle of modern securities law. Despite the high costs it imposes, mandatory disclosure has been well defended by legal scholars on two theoretical grounds: ‘Agency costs’ and ‘information underproduction.’ While these two concepts are a good fit for secondary markets (where investors trade securities with one another), this Article shows that they are largely irrelevant in the context of primary markets (where companies offer securities directly to investors). The surprising result is that primary offerings—such as an IPO—may not require mandatory …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …

Thinking Fast And Slow About The Concept Of Materiality, Mark J. Loewenstein

Publications

Determining whether, for securities law purposes, a misrepresentation or omission is material raises interesting questions. The Court of Appeals in SEC v. Texas Gulf Sulphur Co. provided some guidance on materiality, and the U.S. Supreme Court has weighed in several times in the past 50 years. This article first discusses what Texas Gulf Sulphur contributed to the doctrine of materiality, then briefly considers other dimensions of the doctrine, and finally moves to its thesis: The doctrine of materiality should take into account important psychological insights and heuristics that may affect the way that a fact finder decides whether a misrepresentation …

Royalty Securitization, Kristelia García

Publications

No abstract provided.

Inclusive Crowdfunding, Andrew A. Schwartz

Publications

Securities “crowdfunding” — the sale of unregistered securities over the internet to large numbers of investors, each of whom contributes only a small amount — is a new concept that comes in at least three types: (1) retail crowdfunding under Title III of the federal JOBS Act of 2012; (2) accredited crowdfunding under Title II of the JOBS Act, which is legally restricted to accredited investors; and (3) intrastate crowdfunding under state law. Which of these three types — all at the dawn of their existence — holds the most promise?

Without claiming to finally resolve the issue, this Article …

Disclosure 2.0: Can Technology Solve Overload, Complexity, And Other Information Failures?, Erik F. Gerding

Publications

In recent years, securities law scholars have either renewed an old attack on mandatory issuer disclosure or questioned the effectiveness of securities disclosure in the context of modern financial instruments. Some scholars argue that mandatory disclosure rules prove ineffective because investors suffer from “information overload.” Others claim that securities disclosure cannot describe adequately the complexity of modern firms and finance. These academic criticisms of mandatory securities disclosure provide some of the intellectual underpinnings for recent efforts to roll back some mandatory securities disclosure rules, such as the SEC’s Disclosure Effectiveness initiative.

This Article questions these critiques of securities disclosure, including …

The Nonfinancial Returns Of Crowdfunding, Andrew A. Schwartz

Publications

Securities crowdfunding — the sale of unregistered securities to the public over the Internet — has come under attack before it has even begun. Legal scholars in particular have expressed concern that investors will lose any money they invest in crowdfunding companies. Even assuming that this may be true from a purely financial perspective, these critics are missing an important point: Crowdfund investors with negative returns will not simply have lost their money, but rather they will have spent it (at least in part) on nonpecuniary benefits, including entertainment, political expression and community building. These nonfinancial returns of crowdfunding are …

Private And Public Ordering In Safe Asset Markets, Anna Gelpern, Erik F. Gerding

Publications

An influential literature in economics explores the phenomenon of “safe assets” – when participants across financial markets act “as if” certain debt is risk free – as well as its role in the global financial crisis and its implications for post-crisis reform.

We highlight the role of private ordering in constructing safe assets. Private ordering, including contractual devices and transaction structures, contributes to the creation of these debt contracts, to their collective treatment in financial markets as low risk investments, and to the making of deep and liquid markets in them. These contracts and transaction structures also provide a template …

The Digital Shareholder, Andrew A. Schwartz

Publications

Crowdfunding, a new Internet-based securities market, was recently authorized by federal and state law in order to create a vibrant, diverse, and inclusive system of entrepreneurial finance. But will people really send their money to strangers on the Internet in exchange for unregistered securities in speculative startups? Many are doubtful, but this Article looks to first principles and finds reason for optimism.

Well-established theory teaches that all forms of startup finance must confront and overcome three fundamental challenges: uncertainty, information asymmetry, and agency costs. This Article systematically examines this “trio of problems” and potential solutions in the context of crowdfunding. …

The Next British Invasion Is Securities Crowdfunding: How Issuing Non-Registered Securities Through The Crowd Can Succeed In The United States, Robert H. Steinhoff

University of Colorado Law Review

Securities crowdfunding is the novel concept of using the power of the Internet to raise business capital through the "crowd." British companies and investors have proven adept at using the relatively new medium of crowdfunding as a means of providing much needed capital to startups and other small businesses. This Comment examines securities crowdfunding in the United Kingdom in an effort to show how this means of capital formation might succeed in the United States once the SEC implements proposed rules exempting crowdfunded securities from registration. Other commentators have already provided ample criticism of the crowdfunding exemption in the JOBS …

Corporate Legacy, Andrew A. Schwartz

Publications

Many public companies have shed takeover defenses in recent years, on the theory that such defenses reduce share price. Yet new data presented here shows that practically all new public companies--those launching their initial public offering (IPO)--go public with powerful takeover defenses in place. This behavior is puzzling because the adoption of takeover defenses presumably lowers the price at which the pre-IPO shareholders can sell their own shares in and after the IPO. Why would founders and early investors engage in this seemingly counterproductive behavior? Building on prior attempts to solve this mystery, this Article claims that IPO firms adopt …

Teenage Crowdfunding, Andrew A. Schwartz

Publications

Teenage startups are in the public interest and should be encouraged, yet the federal CARD Act of 2009 eliminated credit card financing for many such companies, cutting off an important source of early-stage business capital for teenage entrepreneurs. Since then, however, Congress passed the CROWDFUND Act of 2012 which will allow teenagers to raise early-stage financing through Internet crowdfunding. Teens, being masters of the Internet, are well positioned to exploit this new opportunity, with the upshot being that securities crowdfunding may become an important way for youthful entrepreneurs to fund their business dreams.

Crowdfunding Securities, Andrew A. Schwartz

Publications

A new federal statute authorizes the online "crowdfunding" of securities, a new idea based on the concept of "reward" crowdfunding practiced on Kickstarter and other websites. This method of selling securities had previously been banned by federal securities law but the new CROWDFUND Act overturns that prohibition.

This Article introduces the CROWDFUND Act and explains that it can be expected to have two primary effects on securities law and capital markets. First, it will liberate startup companies to use peer networks and the Internet to obtain modest amounts of capital at low cost. Second, it will help democratize the market …

Keep It Light, Chairman White: Sec Rulemaking Under The Crowdfund Act, Andrew A. Schwartz

Publications

Title III of the JOBS Act, known as the CROWDFUND Act, authorizes the “crowdfunding” of securities, defined as raising capital online from many investors, each of whom contributes only a small amount. The Act was signed into law in April 2012, and will go into effect once the Securities and Exchange Commission (“SEC”) promulgates rules and regulations to govern the new marketplace for crowdfunded securities. This Essay offers friendly advice to the SEC as to how to exercise its rulemaking authority in a manner that will enable the Act to achieve its goals of creating an ultralow-cost method for raising …

Rural Crowdfunding, Andrew A. Schwartz

Publications

One reason that economic development in rural America lags behind its urban counterpart is the persistent lack of venture capital for rural entrepreneurs. Geography deserves much of the blame, as angel investors and venture capitalists tend to live and work in metropolitan areas on the coasts, in places like Silicon Valley and Boston. Many rural areas are literally thousands of miles away, with the result that venture capital has rarely found its way to rural regions.

Recent federal legislation, however, has the potential to change this dynamic. The JOBS Act authorizes the sale of securities over the Internet to large …

The Perpetual Corporation, Andrew A. Schwartz

Publications

Courts and commentators take for granted that the ultimate objective of a business corporation is long-run profitability, not immediate profits. But a corporation is a creature of statute, so a statutory source for this rule must be found--or it is not really a rule. Yet prior literature has not identified any such legal basis, leaving a gap in corporate theory. This Article fills that gap by showing that the modern corporation is obliged to act with a long-term view because it has "perpetual existence" under the law. This Article then explains that because they must plan for a perpetual future, …

How Do Securities Laws Influence Affect, Happiness, & Trust?, Peter H. Huang

Publications

This Article advocates that securities regulators promulgate rules based upon taking into consideration their impacts upon investors' and others' affect, happiness, and trust. Examples of these impacts are consumer optimism, financial stress, anxiety over how thoroughly securities regulators deliberate over proposed rules, investor confidence in securities disclosures, market exuberance, social moods, and subjective well-being. These variables affect and are affected by traditional financial variables, such as consumer debt, expenditures, and wealth; corporate investment; initial public offerings; and securities market demand, liquidity, prices, supply, and volume. This Article proposes that securities regulators can and should evaluate rules based upon measures of …

Laws Against Bubbles: An Experimental-Asset-Market Approach To Analyzing Financial Regulation, Erik F. Gerding

Publications

This article analyzes the effectiveness of proposed and actual securities, financial, and tax laws designed to prevent, or dampen the severity of asset price bubbles, including laws designed to mitigate excessive speculation. The article employs experimental asset market research to measure the effectiveness of these anti-bubble laws in correcting mispricings. Experimental asset markets represent complex simulations of stock markets in which subjects trade securities over a computer network. These markets allow scholars to test causal links between legal policies and market effects in ways that empirical research alone cannot. With these virtual markets, researchers can identify asset price bubbles - …

A Perspective On Federal Corporation Law, Mark J. Loewenstein

Publications

No abstract provided.

Updating Our Understanding Of The Role Of Lawyers: Lessons From Mastercard, Scott R. Peppet

Publications

No abstract provided.

Beyond Enron: Regulation In Energy Derivatives Trading, Alexia Brunet, Meredith Shafe

Publications

No abstract provided.

The Next Epidemic: Bubbles And The Growth And Decay Of Securities Regulation, Erik F. Gerding

Publications

This article explores how speculative bubbles undermine the effectiveness of securities regulations and spawn epidemics of securities fraud. A brief historical survey demonstrates that stock market bubbles almost invariably coincide with epidemics of securities fraud, and provides a compelling argument that the outbreak of fraud in the Enron era did not stem merely from factors unique to the 1990s, but from the dynamics of an asset price bubble as well.

Drawing on perspectives from securities law practice and economic theory, the article argues that bubbles dilute the deterrent effect of antifraud rules and promote deregulation. Both effects alter the calculus …

Merrill Lynch V. Dabit: Federal Preemption Of Holders' Class Actions, Mark J. Loewenstein

Publications

No abstract provided.