Securities Law Commons^™

Reconceptualizing The Whistleblower's Dilemma, Miriam Baer

Faculty Scholarship

No abstract provided.

Sovereign Debt And The “Contracts Matter” Hypothesis, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The academic literature on sovereign debt largely assumes that law has little role to play. Indeed, the primary question addressed by the literature is why sovereigns repay at all given the irrelevance of legal enforcement. But if law, and specifically contract law, does not matter, how to explain the fact that sovereign loans involve detailed contracts, expensive lawyers, and frequent litigation? This Essay makes the case that contract design matters even in a world where sovereign borrowers are hard (but not impossible) to sue. We identify a number of gaps in the research that warrant further investigation.

Evaluating Stock-Trading Practices And Their Regulation, Merritt B. Fox, Kevin S. Haeberle

Faculty Scholarship

High-frequency trading, dark pools, and the practices associated with them have come under tremendous scrutiny lately, giving rise to much hot rhetoric. Missing from the discussion, however, is a principled, comprehensive standard for evaluating such practices and the law that governs them. This Article fills that gap by providing a general framework for making serious normative judgments about stock-trading behavior and its regulation. In particular, we argue that such practices and laws should be evaluated with an eye to the secondary trading market’s impact on four main aspects of our economy: the use of existing productive capacity, the allocation of …

Frozen Charters, Scott Hirst

Faculty Scholarship

In 2012, the New York Stock Exchange changed its policies to prevent brokers voting shares on corporate governance proposals where they had not received instructions from beneficial owners. Although the change was intended to protect investors and improve corporate governance, it has had the opposite effect: a significant number of U.S. public companies are no longer able to amend important parts of their corporate charters, despite the support of their boards of directors and overwhelming majorities of shareholders. Their charters are frozen.

This paper provides the first empirical and policy analysis of the broker voting change and its significant unintended …

Differing Perceptions? Market Practice And The Evolution Of Foreign Sovereign Immunity, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The 20th century witnessed a transformative, “tectonic” shift in international law, from “absolute” to “restrictive” theories of sovereign immunity. As conventionally understood, however, this dramatic transformation represented only a shift in the default rule. Under absolute immunity, national courts could not hear lawsuits and enforce judgments against a foreign sovereign without its consent. Under restrictive immunity, foreign sovereigns were presumptively not immune when they engaged in commercial acts. We demonstrate that market practices undermine this conventional understanding. Using an extensive, two-century data set of contracts between foreign governments and private creditors, we show that contracting parties have long treated absolute …

Regulatory Competition And The Market For Corporate Law, Ofer Eldar, Lorenzo Magnolfi

Faculty Scholarship

This article develops an empirical model of firms’ choice of corporate laws under inertia. Delaware dominates the incorporation market, though recently Nevada, a state whose laws are highly protective of managers, has acquired a sizable market share. Using a novel database of incorporation decisions from 1995- 2013, we show that most firms dislike protectionist laws, such as anti-takeover statutes and liability protections for officers, and that Nevada’s rise is due to the preferences of small firms.Our estimates indicate that despite inertia, Delaware would lose significant market share and revenues if it adopted protectionist laws. Our findings support the hypothesis that …

The Puzzle Of Pdvsa Bond Prices, Paolo Colla, Anna Gelpern, Mitu Gulati

Faculty Scholarship

Market reports in the summer of 2016 suggest that Venezuela is on the brink of default on upwards of $65 billion in debt. That debt comprises of bonds issued directly by the sovereign and those issued by the state-owned oil company PDVSA. Based on the bond contracts and other legal factors, it is not clear which of these two categories of bonds would fare better in the event of a restructuring. However, market observers are convinced — and we agree — that legal and contractual differences would likely impact the payouts on the bonds if Venezuela defaults. Using a comparison …

Restructuring Sovereign Debt After Nml V. Argentina, Lee C. Buchheit, G. Mitu Gulati

Faculty Scholarship

The decade and a half of litigation that followed Argentina’s sovereign bond default in 2001 ended with a great disturbance in the Force. A new creditor weapon had been uncloaked: The prospect of a court injunction requiring the sovereign borrower to pay those creditors that decline to participate in a debt restructuring ratably with any payments made to those creditors that do provide the country with debt relief.

For the first time holdouts succeeded in fashioning a weapon that could be used to injure their erstwhile fellow bondholders, not just the sovereign issuer. Is the availability of this new weapon …

The Financial Crisis And Credit Unavailability: Cause Or Effect?, Steven L. Schwarcz

Faculty Scholarship

Although the relationship between credit availability and financial decline leading to the global financial crisis was somewhat interactive, a loss of credit availability appears to have caused the financial crisis more than the reverse. The potential for credit unavailability to cause a financial crisis suggests at least three lessons: (i) because credit availability is dependent on financial markets as well as banks, regulation should protect the viability of both credit sources; (ii) diversifying sources of credit might increase financial stability if each credit source is robust and does not create a liquidity glut or inappropriately weaken central bank control; and …

Sovereign Debt Restructuring And English Governing Law, Steven L. Schwarcz

Faculty Scholarship

The problem of sovereign indebtedness is becoming a worldwide crisis because nations, unlike individuals and corporations, lack access to bankruptcy laws to restructure unsustainable debt. Decades of international efforts to solve this problem through contracting and attempted treaty-making have failed to provide an adequate debt-restructuring framework. A significant amount of outstanding sovereign debt is governed, however, by English law. This Article argues that the U.K. Parliament has the extraordinary power to help solve the problem of unsustainable country debt by changing English law to facilitate fair and consensual debt restructuring. This Article also proposes modifications to English law that Parliament …

The Deregulation Of Private Capital And The Decline Of The Public Company, Elisabeth De Fontenay

Faculty Scholarship

From its inception, the federal securities law regime created and enforced a major divide between public and private capital raising. Firms that chose to “go public” took on substantial disclosure burdens, but in exchange were given the exclusive right to raise capital from the general public. Over time, however, the disclosure quid pro quo has been subverted: Public companies are still asked to disclose, yet capital is flooding into private companies with regulators’ blessing.

This Article provides a critique of the new public-private divide centered on its information effects. While regulators may have hoped for both the private and public …

The Great Etf Tax Swindle: The Taxation Of In-Kind Redemptions, Jeffrey M. Colon

Faculty Scholarship

Since the repeal of the General Utilities doctrine over 30 years ago, corporations must recognize gain when distributing appreciated property to their shareholders. Regulated investment companies (RICs), which generally must be organized as domestic corporations, are exempt from this rule when distributing property in kind to a redeeming shareholder.

In-kind redemptions, while rare for mutual funds, are a fundamental feature of exchange-traded funds (ETFs). Because fund managers decide which securities to distribute, they distribute assets with unrealized gains and thereby significantly reduce the future tax burdens of their current and future shareholders. Many ETFs have morphed into investment vehicles that …

How To Restructure Venezuelan Debt (¿Cómo Restructurar La Deuda Venezolana?), Mitu Gulati, Lee C. Buchheit

Faculty Scholarship

English Abstract: There is a growing consensus that Venezuela will not be able to persist for much longer with its policy of full external debt service. The social costs are just too great. This implies a debt restructuring of some kind. Venezuela, principally through its state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”), has extensive commercial contacts with the United States. Not since Mexico in the 1980s has an emerging market country with this level of commercial contacts attempted to restructure its New York law-governed sovereign debt. Holdout creditors in a restructuring of Venezuelan sovereign debt will therefore present a …

Brief Of Professors At Law And Business Schools As Amicus Curiae In Support Of Respondents, James D. Cox, J. Robert Brown Jr., Lyman Johnson, Lawrence W. Treece, Joan Macleod Heminway

Faculty Scholarship

This Amicus Brief was filed with the U.S. Supreme Court on behalf of nearly 50 law and business faculty in the United States and Canada who have a common interest in ensuring a proper interpretation of the statutory securities regulation framework put in place by the U.S. Congress. Specifically, all amici agree that Item 303 of the Securities and Exchange Commission's Regulation S-K creates a duty to disclose for purposes of Rule 10b-5(b) under the Securities Exchange Act of 1934.
The Court’s affirmation of a duty to disclose would have little effect on existing practice. Under the current state of …

Deterring Holdout Creditors In A Restructuring Of Pdvsa Bonds And Promissory Notes (¿Cómo Disuadir A Acreedores 'Holdout' En Una Restructuración De Bonos Y Pagarés De Pdvsa?), Lee C. Buchheit, Mitu Gulati

Faculty Scholarship

The prospect of the potential mischief that may be caused by holdout creditors in a Venezuelan sovereign debt restructuring is probably the main reason why the Maduro administration has not attempted such an exercise. The next administration in Venezuela — whenever and however it may arrive — will not want for suggestions about how to minimize or neutralize this holdout creditor threat. This short article is another contribution to that growing literature. Were the Republic of Venezuela to acknowledge that there really is only one public sector credit risk in the country, and that the distinction between Republic bonds and …

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

Faculty Scholarship

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.

Contractual Arbitrage, Stephen J. Choi, Mitu Gulati, Robert E. Scott

Faculty Scholarship

Contracts are inevitably incomplete. And standard-form or boilerplate commercial contracts are especially likely to be incomplete because they are approximations; they are not tailored to the needs of particular deals. Not only do these contracts contain gaps but, in an attempt to reduce incompleteness, they often contain clauses with vague or ambiguous terms. Terms with indeterminate meaning present opportunities for strategic behavior well after a contract has been concluded. This linguistic uncertainty in standard form commercial contracts creates an opportunity for “contractual arbitrage”: parties may argue, ex post, that the uncertainties in expression mean something that the contracting parties, ex …

Class Actions In The Era Of Trump: Trends And Developments In Class Certification And Related Issues, John C. Coffee Jr., Alexandra D. Lahav

Faculty Scholarship

In this memorandum prepared for the Annual ABA National Institute on Class Actions, Professors Coffee and Lahav review and assess developments in class certification over recent years, and track trends in approaches to certification. Special attention is given to securities litigation, the use of confidential witnesses, ascertainability, attorney's fees, standing, mootness, statutes of repose, and the impact of recent Supreme Court decisions, including Halliburton II and Spokeo.

Legal Pathways For A Massive Increase In Utility-Scale Renewable Generation Capacity, Michael Gerrard

Faculty Scholarship

Decarbonizing the U.S. energy system will require a program of building onshore wind, offshore wind, utility-scale solar, and associated transmission that will exceed what has been done before in the United States by many times, every year out to 2050. These facilities, together with rooftop photovoltaics and other distributed generation, are required to replace most fossil fuel generation and to help furnish the added electricity that will be needed as many uses currently employing fossil fuels (especially passenger transportation and space and water heating) are electrified. This Article, excerpted from Michael B. Gerrard & John Dernbach, eds., Legal Pathways to …

Stock Market Futurism, Merritt B. Fox, Gabriel Rauterberg

Faculty Scholarship

The U.S. stock market is undergoing extraordinary upheaval. The approval of the application of the Investors Exchange (IEX) to become the nation’s newest stock exchange, including its famous “speed bump,” was one of the SEC’s most controversial decisions in decades. Other exchanges have proposed a raft of new innovations in its wake. This evolving equity market is a critical piece of national infrastructure, but the regulatory scheme for its institutions is increasingly frayed. In particular, current regulation draws sharp distinctions among different kinds of markets for trading stocks, treating stock exchanges as self-regulatory organizations immune from private civil litigation, while …