Securities Law Commons^™

New Kids On The Blockchain: How Bitcoin's Technology Could Reinvent The Stock Market, Larissa Lee

Larissa Lee

Bitcoin is the first and most successful digital currency in the world. It is polarized in the news almost daily, with either glowing reviews of the many benefits of an alternative and international currency, or doomsday predictions of anarchy, deflation, and another tulip bubble.This Article focuses on the truly innovative aspect of Bitcoin—and that which has gone mostly unnoticed since its inception—the technological platform used to transfer Bitcoin from one party to another. This technology is called the Blockchain. The Blockchain eschews a bank or other middleman and allows parties to transfer funds directly to one another, using a peer-to-peer …

Democratizing Startups, Seth C. Oranburg

Seth C Oranburg

The Jumpstart Our Business Startups Act of 2012 intends to “help entrepreneurs raise the capital they need to put Americans back to work and create an economy that’s built to last.” The goal is to “democratize startups” by making capital available to diverse entrepreneurs in new geographies. Yet the net effect of securities regulations and market conditions is the opposite. Startup companies are encouraged to stay private so capital is consolidating in large, mature firms instead of recycling into new startups. Evidence of consolidation is that once-rare “Unicorns” (billion-dollar startups) now number over 111. More money is going into huge …

Gambling On Our Financial Future: How The Federal Government Fiddles While State Common Law Is A Safer Bet To Prevent Another Financial Collapse, Brian M. Mccall

Brian M McCall

Remic Tax Enforcement As Financial-Market Regulator, Bradley T. Borden, David J. Reiss

David J Reiss

Lawmakers, prosecutors, homeowners, policymakers, investors, news media, scholars and other commentators have examined, litigated, and reported on numerous aspects of the 2008 Financial Crisis and the role that residential mortgage-backed securities (RMBS) played in that crisis. Big banks create RMBS by pooling mortgage notes into trusts and selling interests in those trusts as RMBS. Absent from prior work related to RMBS securitization is the tax treatment of RMBS mortgage-note pools and the critical role tax enforcement should play in ensuring the integrity of mortgage-note securitization.

This Article is the first to examine federal tax aspects of RMBS mortgage-note pools formed …

E-Commerce And Electronic Payment System Risks: Lessons From Paypal, Lawrence J. Trautman

Lawrence J. Trautman Sr.

What are the major risks perceived by those engaged in e-commerce and electronic payment systems? What development risks, if they become reality, may cause substantial increases in operating costs or threaten the very survival of the enterprise? This article utilizes the relevant annual report disclosures from eBay (parent of PayPal), along with other eBay and PayPal documents, as a potentially powerful teaching device. Most of the descriptive language to follow is excerpted directly from eBay’s regulatory filings. My additions include weaving these materials into a logical presentation and providing supplemental sources for those who desire a deeper look (usually in …

Present At The Creation: Reflections On The Early Years Of The National Association Of Corporate Directors, Lawrence J. Trautman

Lawrence J. Trautman Sr.

Effective corporate governance is critical to the productive operation of the global economy and preservation of our way of life. Excellent governance execution is also required to achieve economic growth and robust job creation in any country. In the United States, the premier director membership organization is the National Association of Corporate Directors (NACD). Now over 36 years old, NACD plays a major role in fostering excellence in corporate governance in the United States and beyond. Over the past thirty-six years NACD has grown from a mere realization of the importance of corporate governance to become the only national membership …

Rise Of The Intercontinentalexchange And Implications Of Its Merger With Nyse Euronext, Latoya C. Brown

Latoya C. Brown, Esq.

This paper examines the impending merger between the IntercontinentalExchange (ICE) and NYSE Euronext against the backdrop of the current structure of the global financial services industry. The paper concludes that the merger embodies what the financial services industry is becoming and captures the model that will allow exchanges to remain competitive in today’s marketplace: mega-exchanges with broader asset classes and electronic platforms. As technology and globalization threaten their vitality, exchanges will need to continue reinventing and adapting. Increasingly over the last decade they have done so by merging and by moving, at least a part of, their operations on screen. …

The Regulation Of U.S. Money Market Funds: Lessons From Europe, Latoya C. Brown

Latoya C. Brown, Esq.

The recent financial crisis challenged long held perceptions of money market funds (“MMFs”) as stable and highly liquid instruments. Regulators in the US and in Europe now seek to impose additional rules on MMFs to avoid another significant failure as happened to the Reserve Fund. In the US, the debate is drawing even more media attention as question of which regulatory body - such as the Securities and Exchange Commission, the Treasury Department, and the Financial Stability Oversight Council – should lead the way has taken interesting twists and turns. This paper examines primary reform options being proposed in the …

Regulation Not Prohibition: The Comparative Case Against The Insurable Interest Doctrine, Sharo Michael Atmeh

Sharo M Atmeh

American law requires an insurable interest—a pecuniary or affective stake in the subject of an insurance policy—as a predi-cate to properly obtaining insurance. In theory, the rule prevents both wagering on individual lives and moral hazard. In practice, the doctrine is avoided by complex insurance transaction structuring to effectuate both origination and transfers of insurance by individuals without an insurable interest. This paper argues that it is time to ab-andon the insurable interest doctrine. As both the English and Aus-tralian experiences indicate, elimination of the insurable interest doctrine will have little detrimental pecuniary effect on the insurance industry, while freeing …

Changing The Paradigm Of Stock Ownership From Concentrated Towards Dispersed Ownership? Evidence From Brazil And Consequences For Emerging Countries, Erica Gorga

Cornell Law Faculty Working Papers

This paper analyzes micro-level dynamics of changes in ownership structures. It investigates a unique event: changes in ownership patterns currently taking place in Brazil. It builds upon empirical evidence to advance theoretical understanding of how and why concentrated ownership structures can change towards dispersed ownership.

Commentators argue that the Brazilian capital markets are finally taking off. The number of listed companies and IPOs in the Sao Paulo Stock Exchange (Bovespa) has greatly increased. Firms are migrating to Bovespa’s special listing segments, which require higher standards of corporate governance. Companies have sold control in the market, and the stock market has …

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

China’S Market Participation: The Case For A Paradigm Shift In Analyzing China’S Capital Market Regulation, David P. Finn

ExpressO

This paper deals with recent reforms governing China’s state owned enterprises and how those reforms affect both the domestic and international markets

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

Explaining The Value Of Transactional Lawyering, Steven L. Schwarcz

ExpressO

This article attempts, empirically, to explain the value that lawyers add when acting as counsel to parties in business transactions. Contrary to existing scholarship, which is based mostly on theory, this article shows that transactional lawyers add value primarily by reducing regulatory costs, thereby challenging the reigning models of transactional lawyers as “transaction cost engineers” and “reputational intermediaries.” This new model not only helps inform contract theory but also reveals a profoundly different vision than existing models for the future of legal education and the profession.

Bond Repudiation, Tax Codes, The Appropriations Process And Restitution Post-Eminent Domain Reform, John H. Ryskamp

ExpressO

This brief comment suggests where the anti-eminent domain movement might be heading next.

The Chameleon Effect: Beyond The Bonding Hypothesis For Cross-Listed Securities, Cally Jordan

ExpressO

This paper is based on a presentation made at the New York Stock Exchange Conference on the Future of Global Equity Trading, March 12, 2004, Sarasota, FL.

Looking back, was it a momentary enthusiasm? The dramatic increase in cross-listed securities, particularly in the United States, was one of the remarkable phenomena of the 1990s capital markets. The bonding, or corporate governance, hypothesis was one of the more intriguing theories to surface to explain the phenomenon. Cross-listing, the hypothesis suggested, might be a bonding mechanism by which firms, incorporated in a jurisdiction with “weak protection” of minority shareholder rights or poor …

Managing Risk On A $25 Million Bet: Venture Capital, Agency Costs, And The False Dichotomy Of The Corporation, Robert P. Bartlett Iii

ExpressO

An implicit dichotomy of the corporation exists in legal scholarship. On one side of the dichotomy rests the publicly-held corporation suffering from a significant conflict of interest between its managers and dispersed shareholders; on the other side, the closely-held corporation plagued by inter-shareholder conflict.

This Article argues that understanding the agency problems that can exist within a firm demands a rejection of this traditional dichotomy and the theories of the firm built upon it. Using venture capital finance, this Article demonstrates for the first time how this dichotomy obscures how all firms - public and private - often face the …

Attorneys As Gatekeepers: Sec Actions Against Lawyers In The Age Of Sarbanes-Oxley, Lewis D. Lowenfels, Alan R. Bromberg, Michael J. Sullivan

ExpressO

Following the enactment of the Sarbanes-Oxley Act on July 30, 2002, the Securities and Exchange Commission has substantially increased the number of actions it has initiated against lawyers. And a substantial number of these recent SEC actions against counsel to public companies (both internal and external) have highlighted the SEC’s resolve to hold lawyers accountable for not performing adequately their SEC-conceived role as “gatekeepers” to prevent fraud and other violations of the federal securities laws. This “gatekeeper” concept has been and is being implemented through SEC actions addressing a wide variety of alleged transgressions in a wide diversity of factual …

The Different Tax Treatment Of Investment Advisory Fees And Brokerage Fees; The Lower The Fiduciary Duty The Better The Tax Consequences, Barry W. Rickert

ExpressO

The current tax laws favor brokerage fees as compared to investment advisory fees, even though investment advisors are held to a higher standard of fiduciary duty. My article examines the different tax treatment of investment advisory fees and brokerage fees, analyzes the policy considerations of such treatment and proposes alternatives to the current system. Considering the large number of American investing in the securities markets, it is important that our tax laws be written in a way that encourages taxpayers to seek investment professionals who are held to higher standards of conduct. The policy implications of brokerage fees receiving preferable …

Tracing, Peter B. Oh

ExpressO

Tracing is a method that appears within multiple fields of law. Distinct conceptions of tracing, however, have arisen independently within securities and remedial law. In the securities context plaintiffs must “trace” their securities to a specific offering to pursue certain relief under the Securities Act of 1933. In the remedial context victims who “trace” their misappropriated value into a wrongdoer’s hands can claim any derivative value, even if it has appreciated.

This article is the first to compare and then cross-apply tracing within these two contexts. Specifically, this article argues that securities law should adopt a version of the “rules-based …

Breaking The Bank: Revisiting Central Bank Of Denver After Enron And Sarbanes-Oxley, Celia Taylor

ExpressO

No abstract provided.

What Makes Asset Securitization "Inefficient"?, Kenji Yamazaki

ExpressO

Despite the damage caused by the recent Enron scandal , the asset securitization market has been vibrant and has become a popular financing alternative . A number of academics emphasize its merits and suggest that it is a more favorable way of financing, and Congress’s proposal to make sales of asset in securitization immune from characterization as secured transactions under the Bankruptcy Reform Act of 2001 (the “Reform Act”) almost materialized when the Enron scandal hit the scene. Conversely, there have been accusations that securitization is not a legitimate way of financing because, for example, it fosters fraudulent transactions.

Why …

Price, Path & Pride: Third-Party Closing Opinion Practice Among U.S. Lawyers (A Preliminary Investigation), Jonathan C. Lipson

ExpressO

This article presents the first in-depth exploration of third-party closing opinions, a common but curious – and potentially troubling -- feature of U.S. business law practice. Third-party closing opinions are letters delivered at the closing of most large transactions by the attorney for one party (e.g., the borrower) to the other party (e.g., the lender) offering limited assurance that the transaction will have legal force and effect.

Hundreds, if not thousands, of legal opinions are delivered every week. Yet, lawyers often complain that they create needless risk and cost, and produce little benefit. Closing opinions thus pose a basic question: …

Reconsidering The Prohibition Against General Solicitation During Section 3(C)(7) Offerings, Daniel P. Taub

ExpressO

This paper examines the seventy year history of the general solicitation prohibition during private offerings and then analyzes its continuing relevance as applied to Section 3(c)(7) offerings. The S.E.C. Staff recently issued a report questioning the continuing value of prohibiting general solicitation during private offerings made pursuant to Section 3(c)(7) of the Investment Company Act. If the S.E.C. were to follow the recommendation in the S.E.C. Staff Report, this would have tremendous implications for a growing number of hedge funds, and other investment companies utilizing the Section 3(c)(7) exemption. By allowing general solicitation, the S.E.C. would be reversing a policy …