Securities Law Commons^™

Uncovering Elon's Data Empire, Carliss Chatman, Carla L. Reyes

Faculty Journal Articles and Book Chapters

In 2022, Elon Musk publicly announced that he would purchase Twitter after acquiring a five percent stake in the company. His failure to report this acquisition—and the company’s failure to notice—allowed Musk to continue purchasing stock at a deflated price, costing the company more than $156 million. After the signing of a merger agreement, the details of the transaction caused wild fluctuations in Tesla’s stock price. Musk’s complaints about the management of Twitter and the existence of bots on the platform led Twitter’s stock to also drop in value, as did Musk’s attempts to withdraw from the transaction. Even after …

Pricing Corporate Governance, Albert Choi

Articles

Scholars and practitioners have long theorized that by penalizing firms with unattractive governance features, the stock market incentivizes firms to adopt the optimal governance structure at their initial public offerings (IPOs). This theory, however, does not seem to match with practice. Not only do many IPO firms offer putatively suboptimal governance arrangements, such as staggered boards and dual-class structures, but these arrangements have been gaining popularity among IPO firms. This Article argues that the IPO market is unlikely to provide the necessary discipline to incentivize companies to adopt the optimal governance package. In particular, when the optimal governance package differs …

Wireless Investors & Apathy Obsolescence, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

This Article discusses how a subgenre of retail investors makes investors’ apathy obsolete. In prior work, we dub retail investors who rely on technology and online communications in their investing and corporate governance endeavors “wireless investors.” By applying game theory, this Article discusses how wireless investors’ global-scale online interactions allow them to circulate information and coordinate, obliterating collective action problems.

A Proposed Sec Cyber Data Disclosure Advisory Commission, Lawrence J. Trautman, Neal Newman

Faculty Scholarship

Constant cyber threats result in: intellectual property loss; data disruption; ransomware attacks; theft of valuable company intellectual property and sensitive customer information. During March 2022, The Securities and Exchange Commission (SEC) issued a proposed rule addressing Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, which requires: 1. Current reporting about material cybersecurity incidents; 2. Periodic disclosures about a registrant’s policies and procedures to identify and manage cybersecurity risks; 3. Management’s role in implementing cybersecurity policies and procedures; 4. Board of directors’ cybersecurity expertise, if any, and its oversight of cybersecurity risk; 5. Registrants to provide updates about previously reported cybersecurity …

The Wireless Investors Movement, Sergio Alberto Gramitto Ricci, Christina M. Sautter

Faculty Works

The inaugural guest academic article for the University of Chicago Business Law Review Blog discusses how Millennial and GenZ investors can set in motion a social movement with disruptive effects on the current corporate governance paradigm. It refers to Millennial and GenZ investors as “wireless investors” and their social movement as the “Wireless Investors Movement.” The Wireless Investors Movement, fueled by wireless investors’ vision of the world and technology savviness, will bring corporations to pursue social and environmental causes. This short contribution analyzes the characteristics of the Wireless Investors Movement and the effects it will have on corporate governance.

Tepoel Lecture: Bond Trustees And The Rising Challenge Of Activist Investors, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Don't Go Chasing Waterfalls: Fiduciary Duties In Venture Capital Backed Startups, Sarath Sanga, Eric L. Talley

Faculty Scholarship

Venture-capital-backed startups are often crucibles of conflict between common and preferred shareholders, particularly around exit decisions. Such conflicts are so common, in fact, that they have catalyzed an emergent judicial precedent – the Trados doctrine – that requires boards to prioritize common shareholders' interest and to treat preferred shareholders as contractual claimants. We evaluate the Trados doctrine using a model of startup governance that interacts capital structure, corporate governance, and liability rules. The nature and degree of inter-shareholder conflict turns not only on the relative rights and options of equity participants, but also on a firm's intrinsic value as well …

Crashing The Boards: A Comparative Analysis Of The Boxing Out Of Women On Boards In The United States And Canada, Diana C. Nicholls Mutter

The Journal of Business, Entrepreneurship & the Law

This paper will first provide a critical, comparative look at the Canadian and the federal American responses to the under-representation of women on boards of large, publicly traded corporations. There will be a discussion about the competing conceptions which emerge in addressing the regulation of women on boards in the United States and Canada and why each jurisdiction implemented its policy when it did. The conceptions arising out of questions about under-representation of women on boards tend to fall within two categories: business case rationales and normative rationales. Given the competing conceptions of this issue, this paper will attempt to …

Disclosure's Purpose, Hillary A. Sale

Georgetown Law Faculty Publications and Other Works

The United States securities regulatory infrastructure requires disclosure of a wide array of information both by and about covered companies. The basic purpose of the disclosures is to level the playing field – for investors, for issuers, and for the public. Although investor protection is the disclosure goal often touted, this article develops the purposes of disclosure extending beyond investors to issuers and the public. Indeed, the disclosure system is designed to level the playing field for issuers— addressing confidentiality concerns, for example. In addition, the system helps to promote confidence in the markets, which, in turn, enables growth and …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

Who Bleeds When The Wolves Bite? A Flesh-And-Blood Perspective On Hedge Fund Activism And Our Strange Corporate Governance System, Leo E. Strine Jr.

All Faculty Scholarship

This paper examines the effects of hedge fund activism and so-called wolf pack activity on the ordinary human beings—the human investors—who fund our capital markets but who, as indirect of owners of corporate equity, have only limited direct power to ensure that the capital they contribute is deployed to serve their welfare and in turn the broader social good.

Most human investors in fact depend much more on their labor than on their equity for their wealth and therefore care deeply about whether our corporate governance system creates incentives for corporations to create and sustain jobs for them. And because …

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.

Downstream Securities Regulation, Anita Krug

All Faculty Scholarship

Securities regulation wears two hats. Its “upstream” side governs firms in connection with their obtaining financing in the securities markets. That is, it regulates firms’ and issuers’ offers and sales of securities, whether in public offerings to retail investors or in private offerings to institutional investors. Its “downstream” side, by contrast, governs financial services providers, who assist with investors’ activities in those markets. Their services include providing advice regarding securities investments, as investment advisers do; aggregating investors’ assets for purposes of enabling those investors to invest their assets collectively, as mutual funds do; and acting as “middlemen” between buyers and …

A Comparative Study Of Monitoring Of Management In German And U.S. Corporations After Sarbanes-Oxley: Where Are The German Enrons, Worldcoms, And Tycos?, Florian Stamm

Georgia Journal of International & Comparative Law

No abstract provided.

The Governance Structure Of Shadow Banking, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

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 …

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 …

Janus Capital Group, Inc. V. First Derivative Traders: Further Limited Liability, And Missing An Opportunity To Curb Corporate Misconduct, Zachary K. Ostro

Journal of Business & Technology Law

No abstract provided.

Ring-Fencing, Steven L. Schwarcz

Faculty Scholarship

“Ring-fencing” is often touted as a regulatory solution to problems in banking, finance, public utilities, and insurance. However, both the precise meaning of ring-fencing, as well as the nature of the problems that ring-fencing regulation purports to solve, are ill defined. This article examines the functions and conceptual foundations of ring-fencing. In a regulatory context, the term can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk. So utilized, ring-fencing can help to protect public-benefit activities performed by private-sector firms, as well as to mitigate systemic risk and the too-big-to-fail problem inherent …

Overseeing Controlling Shareholders: Do Independent Directors Constrain Tunneling In Taiwan?, Yu-Hsin Lin

San Diego International Law Journal

This Article intends to explore the extent to which independent directors constrain tunneling by controlling shareholders in Taiwan. Taiwan serves as an appropriate jurisdiction for research since the private benefits agency problem is prevalent among Taiwanese public companies. A further twist in Taiwan?s case is that independent directors were newly introduced to Taiwan?s corporate boards, which follow dual-board system where the traditional monitoring function is served by statutory supervisors, instead of board committees, which adds to the complexity in analyzing the effectiveness of independent directors in constraining tunneling activities. Part II reviews relevant literature and lays the foundation for this …

Inside-Out Corporate Governance, David A. Skeel Jr., Vijit Chahar, Alexander Clark, Mia Howard, Bijun Huang, Federico Lasconi, A.G. Leventhal, Matthew Makover, Randi Milgrim, David Payne, Romy Rahme, Nikki Sachdeva, Zachary Scott

All Faculty Scholarship

Until late in the twentieth century, internal corporate governance—that is, decision making by the principal constituencies of the firm—was clearly distinct from outside oversight by regulators, auditors and credit rating agencies, and markets. With the 1980s takeover wave and hedge funds’ and equity funds’ more recent involvement in corporate governance, the distinction between inside and outside governance has eroded. The tools of inside governance are now routinely employed by governance outsiders, intertwining the two traditional modes of governance. We argue in this Article that the shift has created a new governance paradigm, which we call inside-out corporate governance.

Using the …

The Model Business Corporation Act At Sixty: Shareholders And Their Influence, Lisa Fairfax

All Faculty Scholarship

In the sixty years since the Committee on Corporate Laws (Committee) promulgated the Model Business Corporation Act (MBCA), there have been significant changes in corporate law and corporate governance. One such change has been an increase in shareholder activism aimed at enhancing shareholders’ voting power and influence over corporate affairs. Such increased shareholder activism (along with its potential for increase in shareholder power) has sparked considerable debate. Advocates of increasing shareholder power insist that augmenting shareholders’ voting rights and influence over corporate affairs is vital not only for ensuring board and managerial accountability, but also for curbing fraud and other …

Fiduciary Exemption For Public Necessity: Shareholder Profit, Public Good, And The Hobson's Choice During A National Crisis, Robert J. Rhee

UF Law Faculty Publications

This Article is written as two discrete, independently accessible topical sections. The first topical section, presented in Part I of this Article, is a case study of Bank of America’s acquisition of Merrill Lynch and the impact of a flawed merger execution on the board’s subsequent decisions. The second topical section, presented Parts II-IV of this Article, advances a theoretical basis for fiduciary exemption during a public crisis. The financial crisis of 2008 was the worst economic disaster since the Great Depression. It nearly resulted in a collapse of the global capital markets. A key event in the history of …

Evolving Regulation Of Corporate Governance And The Implications For D&O Liability: The United States And Australia, Joan T.A. Gabel, Nancy R. Mansfield, Paul Von Nessen, Austin W. Hall, Andrew Jones

San Diego International Law Journal

This Article compares the modern corporate regulatory environments in the United States and Australia, including an analysis of the climate for Directors & Officers (D & O) liability coverage. Comparing these regulations across two large markets with similar historical bases for assessing director and officer liability allows us to explore which reforms may be more effective as new scandals emerge.

Fiduciary Exemption For Public Necessity: Shareholder Profit, Public Good, And The Hobson's Choice During A National Crisis, Robert J. Rhee

Robert Rhee

This Article is written as two discrete, independently accessible topical sections. The first topical section, presented in Part I of this Article, is a case study of Bank of America’s acquisition of Merrill Lynch and the impact of a flawed merger execution on the board’s subsequent decisions. The second topical section, presented Parts II-IV of this Article, advances a theoretical basis for fiduciary exemption during a public crisis. The financial crisis of 2008 was the worst economic disaster since the Great Depression. It nearly resulted in a collapse of the global capital markets. A key event in the history of …

Fiduciary Exemption For Public Necessity: Shareholder Profit, Public Good, And The Hobson's Choice During A National Crisis, Robert J. Rhee

Faculty Scholarship

This Article is written as two discrete, independently accessible topical sections. The first topical section, presented in Part I of this Article, is a case study of Bank of America’s acquisition of Merrill Lynch and the impact of a flawed merger execution on the board’s subsequent decisions. The second topical section, presented Parts II-IV of this Article, advances a theoretical basis for fiduciary exemption during a public crisis. The financial crisis of 2008 was the worst economic disaster since the Great Depression. It nearly resulted in a collapse of the global capital markets. A key event in the history of …

Foreword: In Berle’S Footsteps, Charles R.T. O'Kelley

Seattle University Law Review

On the weekend of November 6–8, 2009, scholars from around the world gathered in Seattle for a symposium—In Berle’s Footsteps—celebrating the launch of the Adolf A. Berle, Jr. Center on Corporations, Law and Society. As founding director of the Berle Center, I described our undertaking: “It is with a profound sense of obligation to the legacy that has been entrusted to my care, that I announce the launching of the Adolf A. Berle, Jr. Center on Corporations, Law and Society. It is a privilege to follow in Berle’s footsteps.”

Opening Remarks, Chancellor William B. Chandler Iii

Seattle University Law Review

Law is, in many ways, a backwards-looking field. We litigate over facts that have already occurred, challenge deals that have already been signed, and apply rules of decision based on previously-established precedent or statutes already enacted. To the extent that this Center and the symposium reflect on Berle’s work, they too are an exercise in looking back. Indeed, some might say the establishment of a Center named in Berle’s honor is a monument to the past.

The Birth Of Corporate Governance, Harwell Wells

Seattle University Law Review

Part I of this Article briefly examines the concept of “corporate governance” and argues for dating the concept’s origins to the debates of the 1920s. Part II then moves on to examine early scholarly and popular discussions of the separation of ownership and control. After surveying the historical developments that produced the recognizably modern corporate economy around the turn of the century, it examines early scholarly and popular discussions of the separation of ownership and control, focusing on three major thinkers, Louis D. Brandeis, Walter Lippmann, and Thorstein Veblen. It argues that, while each of these authors examined the separation …