Securities Law Commons^™

Financial Innovation And Flexible Regulation: Destabilizing The Regulatory State, Cristie Ford

All Faculty Publications

The author examines the regulatory failures leading up to the financial crisis, the rise of “flexible regulation,” the effects of financial innovation on regulation, and three different case studies that illuminate the drastic effects of that innovation: the Basel II banking regulations, the Canadian Asset-Backed Commercial Paper market, and the process for writing the Volcker Rule. Finally, she examines the underlying assumptions that should be re-examined in order to create more effective regulatory policies.

A Canadian Model Of Corporate Governance, Carol Liao

All Faculty Publications

What is Canada’s actual legal model to govern its corporations? Recent landmark judicial decisions indicate Canada is shifting away from an Anglo-American definition of shareholder primacy. Yet the Canadian securities commissions have become increasingly influential in the governance sphere, and by nature are shareholder-focused. Shareholders’ rights have increased well beyond what was ever contemplated by Canadian corporate laws, and the issue of greater shareholder vs. board control has now become the topic of live debate. The future of Canada's overall model seems to rest on what will be more compelling: the constancy of the corporate statutes and trajectory of the …

A Canadian Model Of Corporate Governance: Where Do Shareholders Really Stand?, Carol Liao

All Faculty Publications

This feature article in the Director Journal summarizes the findings from the report, "A Canadian Model of Corporate Governance: Insights from Canada's Leading Legal Practitioners," produced for the Canadian Foundation for Governance Research and the Institute of Corporate Directors (also available on SSRN).

In the report, interviews were conducted with 32 leading senior legal practitioners across Canada to opine on the fundamental principles that are driving the development of Canadian corporate governance. The report found that Canadian common law has made the process of considering stakeholders in the "best interests of the corporation" more overt, well beyond what is assumed …

Don't Throw The Baby Out With The Bath Water: The Merits Of The Intermediate Approach To The Securities Litigation Uniform Standards Act, Selby P. Brown

Oklahoma Law Review

No abstract provided.

Aaron Swartz’S Secret Service Files

United States Department of Justice: Publications and Materials

These documents concern the indictment in Massachusetts for downloading JSTOR content from MIT library network.

Parts 1 & 2 are included in the main document.

Additional files are linked below, as follows:

Part 3 (3 files) -- 379 pages, 4067 pages (spreadsheet), & 190 pages (photos)

Part 4 -- 1 page

Part 5 -- 1 page

Part 6 -- 1 page

Part 7 -- 7 pages

Part 8 -- 237,397 pages (yes)

Part 9 -- 90 pages

Part 10 -- 259 pages

Part 11 -- 17 pages

Part 12 -- (not released as of 9/29/2014)

Part 13 -- 254 pages …

Substituted Compliance And Systemic Risk: How To Make A Global Market In Derivatives Regulation, Sean J. Griffith

Faculty Scholarship

The conventional wisdom is that the global financial crisis of 2007-2008 revealed faults in the ability of international financial regulation to contain the problem of systemic risk. Further conventional wisdom suggests that the failure to regulate comple

Crowdfunding's Impact On Start-Up Ip Strategy, Sean M. O'Connor

Articles

This Paper proceeds in Part I by reviewing the crowdfunding landscape and its potential benefits for start-ups, especially with regard to IP strategies. Part II examines the provisions of the JOBS Act and argues that the disclosure requirements of the CROWDFUND Act title will make the latter less attractive than other start-up financing options and may negatively affect start-ups’ IP strategies, in part by risking the disclosure of enabling aspects of patentable inventions.

Part III explores issues arising from the widespread involvement of many potentially unsophisticated investors who have no connection to the start-up. This contrasts with current unsophisticated investors …

Opening The Floodgates Of Small Customer Claims In Finra Arbitration: Finra V. Charles Schwab & Co., Inc., Teresa J. Verges

Articles

No abstract provided.

'Quack Corporate Governance' As Traditional Chinese Medicine – The Securities Regulation Cannibalization Of China's Corporate Law And A State Regulator's Battle Against Party State Political Economic Power, Nicholas C. Howson

Articles

From the start of the People’s Republic of China’s (PRC) “corporatization ” project in the late 1980s, a Chinese corporate governance regime subject to increasingly enabling legal norms has been determined by mandatory regulations imposed by the PRC securities regulator, the China Securities Regulatory Commission (CSRC). Indeed, the Chinese corporate law system has been cannibalized by all - encompassing securities regulation directed at corporate governance, at least for companies with listed stock. This Article traces the path of that sustained intervention and makes a case — wholly contrary to the “quack corporate governance” critique much aired in the United States …

The Governance Structure Of Shadow Banking, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

The Sec Adds A New Weapon: How Does The New Admission Requirement Change The Landscape?, Paul Radvany

Faculty Scholarship

Over the past several years, the Securities and Exchange Commission (the “SEC”) has settled the vast majority of the cases it has brought. Some people have suggested, however, that settlements by public agencies such as the SEC should be scrutinized more closely. For instance, in a series of recent opinions, Judge Jed S. Rakoff of the Southern District of New York has “question[ed] the wisdom” of the SEC’s well-established practice of permitting defendants to enter into consent judgments while neither admitting nor denying the allegations. During the past two years, the SEC has implemented new policies that have altered its …

Taking Section 10(B) Seriously: Criminal Enforcement Of Sec Rules, Steve Thel

Faculty Scholarship

The Supreme Court has determined the scope of federal securities laws in a series of cases in which it has read section 10(b) of the Securities Exchange Act as either prohibiting certain misconduct or authorizing the SEC to regulate that conduct and only that conduct. Judging by the language, structure and history of the Exchange Act, the Court’s reading is wrong. Section 10(b) does not prohibit anything, and it neither grants the SEC rulemaking power nor limits the rulemaking power granted to the SEC elsewhere in the Exchange Act. Instead, section 10(b) simply triggers criminal sanctions for certain rule violations. …

Nationalization And Necessity: Takings And A Doctrine Of Economic Emergency, Nestor M. Davidson

Faculty Scholarship

Serious economic crises have recurred with regularity throughout our history. So too have government takeovers of failing private companies in response, and the downturn of the last decade was no exception. At the height of the crisis, the federal government nationalized several of the country’s largest private enterprises. Recently, shareholders in these firms have sued the federal government, arguing that the takeovers constituted a taking of their property without just compensation in violation of the Fifth Amendment. This Essay argues that for the owners of companies whose failure would raise acute economic spillovers, nationalization without the obligation to pay just …

Whose Trojan Horse? The Dynamics Of Resistance Against Ifrs, Martin Gelter, Zehra Kavame Eroglu

Faculty Scholarship

The introduction of International Financial Reporting Standards (“IFRS”) has been debated in the United States since at least the accounting scandals of the early 2000s. While publicly traded firms around the world are increasingly switching to IFRS, often because they are required to do so by law or by their stock exchange, the Securities Exchange Com-mission (“SEC”) seems to have become more reticent in recent years. Only foreign issuers have been permitted to use IFRS in the United States since 2007. By contrast, the EU has mandated the use of IFRS in the consolidated financial statements of publicly traded firms …

Has Expungement Broken Brokercheck?, Christine Lazaro

Faculty Publications

Stockbrokers are subject to one of the most comprehensive public disclosure regimes. They must disclose substantial information about their backgrounds, their employment history, and their disciplinary history. FINRA, the self-regulatory organization that regulates the brokerage industry, also requires that brokers disclose customer complaints and makes much of this information available to the public through an online database called BrokerCheck. The allegations of wrongdoing remain on the broker’s record permanently, unless the broker succeeds at having customer dispute information expunged. The broker is able to accomplish this by requesting that the arbitration panel that hears the customer dispute grant expungement, and …

The Fragmented Regulation Of Investment Advice: A Call For Harmonization, Christine Lazaro, Benjamin P. Edwards

Faculty Publications

(Excerpt)

Decades of short-term thinking and regulatory fixes created the bewilderingly complex statutory and regulatory structures governing the giving of personalized investment advice to retail customers. Although deeply flawed, the current systems remain entrenched because of the difficulties inherent in making radical alterations. Importantly, the current patchwork systems do not seem to serve retail customers particularly well. Retail customers tend to make predictable and costly mistakes in allocating their assets. Some of this occurs because many investors lack basic financial literacy. A recent study released by the staff of the Securities and Exchange Commission (the “Commission”) on financial literacy among …

Liability And Admission Of Wrongdoing In Public Enforcement Of Law, Samuel W. Buell

Faculty Scholarship

Some judges and scholars have questioned the social value of the standard form in which the Securities and Exchange Commission settles its corporate enforcement actions, including the agency’s use of essentially unreviewed consent decrees that include no admission of liability or wrongdoing. This essay for a symposium on SEC enforcement provides an analysis of the deterrent effects of the three main components of settlements in public enforcement of law: liability, admission, and remedy. The conclusions are the following. All three components have beneficial deterrent effects. Cost considerations nonetheless justify some settlements that dispense with liability or admission, or even both. …

Rollover Risk: Ideating A U.S. Debt Default, Steven L. Schwarcz

Faculty Scholarship

This article examines how a U.S. debt default might occur, how it could be avoided, its potential consequences if not avoided, and how those consequences could be mitigated. To that end, the article differentiates defaults caused by insolvency from defaults caused by illiquidity. The latter, which are potentiated by rollover risk (the risk that the government will be temporarily unable to borrow sufficient funds to repay its maturing debt), are not only plausible but have occurred in the past. Moreover, the ongoing controversy over the federal debt ceiling and the rise of the shadow-banking system make these types of defaults …

The Governance Structure Of Shadow Banking: Rethinking Assumptions About Limited Liability, Steven L. Schwarcz

Faculty Scholarship

In an earlier article, I argued that shadow banking — the provision of financial services and products outside of the traditional banking system, and thus without the need for bank intermediation between capital markets and the users of funds — is so radically transforming finance that regulatory scholars need to rethink their basic assumptions. This article attempts to rethink the corporate governance assumption that owners of firms should always have their liability limited to the capital they have invested. In the relatively small and decentralized firms that dominate shadow banking, equity investors tend to be active managers. Limited liability gives …

Brief Of Financial Economists As Amici Curiae In Support Of Respondents, Ernest A. Young

Faculty Scholarship

No abstract provided.

Brief Of Common Law Scholars As Amici Curiae In Support Of Respondents, Samuel W. Buell, Deborah A. Demott, James D. Cox, Ernest A. Young, Ann Lipton

Faculty Scholarship

No abstract provided.

Towards More Sustainable And Less Crisis-Driven Financial Regulation, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

The Systemic Risk Paradox: Banks And Clearinghouses Under Regulation, Felix B. Chang

Faculty Articles and Other Publications

Consolidation in the financial industry threatens competition and increases systemic risk. Recently, banks have seen both high-profile mergers and spectacular failures, prompting a flurry of regulatory responses. Yet consolidation has not been as closely scrutinized for clearinghouses, which facilitate trading in securities and derivatives products. These nonbank intermediaries can be thought of as middlemen who collect deposits to ensure that each buyer and seller has the wherewithal to uphold its end of the deal. Clearinghouses mitigate the credit risks that buyers and sellers would face if they dealt directly with each other.

Yet here lies the dilemma: large clearinghouses reduce …

A Return To Old-Time Religion? The Glass-Steagall Act, The Volcker Rule, Limits On Proprietary Trading, And Sustainability, Douglas M. Branson

Articles

Pursuant to directions contained in the Dodd-Frank Act (2010), five federal agencies collaborated to produce a 983 page rule limiting proprietary trading by financial institutions (the Volcker Rule, which becomes effective in summer, 2015). The Volcker Rule limits proprietary trading to no more than 3 percent of “Tier One” assets. The hoped for effects are that financial institutions will be strictly limited in trading for their own accounts. Some say, propelled by unbridled greed, U.S. financial institutions borrowed excessive amounts of money, inflating leverage ratios as high as 36 or 40 to 1, using the borrowed funds to engage in …

Does Board Independence Reduce The Cost Of Debt?, Michael Bradley, Dong Chen

Faculty Scholarship

Using the passage of the Sarbanes-Oxley Act and the associated change in listing standards as a natural experiment, we find that while board independence decreases the cost of debt when credit conditions are strong or leverage low, it increases the cost of debt when credit conditions are poor or leverage high. We also document that independent directors set corporate policies that increase firm risk. These results suggest that, acting in the interest of shareholders, independent directors are increasingly costly to bondholders with the intensification of the agency conflict between these two stakeholders.

The Ban Has Lifted: Now Is The Time To Change The Accredited-Investor Standard, Larissa Lee

Utah Law Review

Lifting the ban on general advertising and general solicitation will ultimately change how emerging companies receive funding. With greater access to previously untapped investors, more new businesses will be able to get on their feet and be successful. This success depends on the regulation of these offerings to ensure they are free of fraud and that investors maintain confidence in the market.

As the standard currently stands, it is likely that the removal of the ban will result in a regulatory gap, which may take advantage of several investors. The accredited investor standard should be changed to reflect not only …

The Gathering Storm: Restructuring Sovereign Contingent Liabilities, Lee C. Buchheit, Mitu Gulati

Faculty Scholarship

The contingent liabilities of a sovereign, such as guarantees of the debts of third parties, can normally be kept off the balance sheet of the sovereign guarantor. That is their charm. As the debt to GDP ratios of many developed countries approach red-zone levels, contingent liabilities are increasingly being favored over direct, on-the-balance-sheet, borrowings.

But what happens if a country carrying large contingent liabilities needs to restructure its debt? The borrower dare not leave its contingent claims out of the restructuring. To do so would risk undermining the financial predicates of the sovereign’s economic recovery program should the beneficiaries of …

Bypassing Congress On Federal Debt: Executive Branch Options To Avoid Default, Steven L. Schwarcz

Faculty Scholarship

Even a “technical” default by the United States on its debt, such as a delay in paying principal or interest due to Congress’s failure to raise the federal debt ceiling, could have serious systemic consequences, destroying financial markets and undermining job creation, consumer spending, and economic growth. The ongoing political gamesmanship between Congress and the Executive Branch has been threatening — and even if temporarily resolved, almost certainly will continue to threaten — such a default. The various options discussed in the media for averting a default have not been legally and pragmatically viable. This article proposes new options for …

Santa Anna And His Black Eagle: The Origins Of Pari Passu?, Benjamin Chabot, Mitu Gulati

Faculty Scholarship

One of the most debated issues in international finance is the meaning of the pari passu clause in sovereign bonds. The clause is ubiquitous; it is in almost every single foreign-law sovereign bond out there. Yet, almost no one seems to agree on its meaning. One way to cut the Gordian knot is to track down the origins of the clause. Modern lawyers may have simply copied the clause from the documents of their predecessors without understanding its meaning. But surely the people who first drafted the clause knew what it meant. Four enterprising students at Duke Law School may …

Do The Securities Laws Matter? The Rise Of The Leveraged Loan Market, Elisabeth De Fontenay

Faculty Scholarship

One of the enduring principles of federal securities regulation is the mantra that bonds are securities, while commercial loans are not. Yet the corporate bond and loan markets in the U.S. are rapidly converging, putting significant pressure on the disparity in their regulatory treatment. As securities, corporate bonds are subject to onerous public disclosure obligations and liability regimes, which corporate loans avoid entirely. This longstanding regulatory distinction between loans and bonds is based on the traditional conception of a commercial loan as a long-term relationship between the borrowing company and a single bank, in contrast to bonds, which may be …