Full Disclosure: Moving Beyond Disclosure Regulations To Affirmative Regulation Of Executive Compensation, Christopher Saverino
Brooklyn Journal of Corporate, Financial & Commercial Law
In the period following the financial crisis of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which compelled the Securities and Exchange Commission (SEC) to engage in substantial rulemaking. The Dodd-Frank mandate in Section 953(b) required the SEC to promulgate a rule, which it eventually finalized and is currently known as Pay Ratio Disclosure. Historically, SEC rulemaking has received great deference when rules are judicially challenged. However, following the passage of Dodd-Frank, the D.C. Circuit Court of Appeals has begun to grant less deference to SEC rulemaking where it has found that the ...
Regulation A-Plus’S Identity Crisis: A One-Size-Fits-None Approach To Capital Formation, 2017 Brooklyn Law School
Regulation A-Plus’S Identity Crisis: A One-Size-Fits-None Approach To Capital Formation, Zachary Naidich
Brooklyn Law Review
This note considers whether, and in what ways, Regulation A-Plus will change how businesses access growth capital. It concludes that Regulation A-Plus is a largely unnecessary addition to the already existing range of funding options. The Regulation is poised to change how firms access capital but is unlikely to increase total access or fundraising. Further, this change is unlikely to promote financial health. The note ultimately concludes that regulators should focus on improving existing mechanisms and not attempt to introduce a new and unnecessary one.
Clicks And Tricks: How Computer Hackers Avoid 10b-5 Liability, 2017 Brooklyn Law School
Clicks And Tricks: How Computer Hackers Avoid 10b-5 Liability, Ryan H. Gilinson
Brooklyn Law Review
This note argues that computer hackers who sell inside information instead of trading on it themselves, referred to in the note as hacker-sellers, avoid liability under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. Rule 10b-5 criminalizes the use of a manipulative or deceptive device “in connection with the purchase or sale of any security.” Hacker-sellers fall outside the scope of this rule for two reasons. First, the type of hacking employed by hacker-sellers is not always “deceptive,” and only the forms of hacking which deceive the computer into thinking an authorized user is seeking access ...
An Exception To The Derivative Rule: Allowing Mutual Fund Investors To Bring Suits Directly, 2017 Brooklyn Law School
An Exception To The Derivative Rule: Allowing Mutual Fund Investors To Bring Suits Directly, Jamie D. Kurtz
Brooklyn Law Review
Mutual funds differ greatly from traditional corporations in the way they are formed and operated. Despite these differences, courts apply the same rules for derivative shareholder litigation to both types of entities. While these rules make sense and were mostly created with corporations in mind, courts have generally been unwilling to consider mutual funds’ unique characteristics in determining whether to allow direct litigation from shareholders. This note explores those unique characteristics and the usual policy reasons for requiring derivative litigation. It concludes that in most cases these unique characteristics make a derivative suit nearly impossible to sustain. Further, the normal ...
A Legal Analysis On Enterprises Overseas Fundraising -- A Comparison Between The U.S. Market And The Taiwanese Market, 2017 Indiana University Maurer School of Law
A Legal Analysis On Enterprises Overseas Fundraising -- A Comparison Between The U.S. Market And The Taiwanese Market, Ke Ho
Theses and Dissertations
Since the 1990’s, Taiwan’s government has made efforts to upgrade economic development by attraction more foreign enterprises to enter the domestic capital market. However, in the early 2000s, statistics indicated that the number of such new enterprise listings in Taiwan actually decreased. Some believe a very important factor in the decrease to the number of new listings in Taiwan is the current regulatory framework’s lack of flexibility. It is assumed that the regulatory intensity for foreign enterprises is very high. In order to review this intensity on the foreign issuer, this dissertation presents research on the law ...
Sovereign Debt And The “Contracts Matter” Hypothesis, 2017 Duke Law School
Sovereign Debt And The “Contracts Matter” Hypothesis, W. Mark C. Weidemaier, Mitu Gulati
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.
Differing Perceptions? Market Practice And The Evolution Of Foreign Sovereign Immunity, 2017 Duke Law School
Differing Perceptions? Market Practice And The Evolution Of Foreign Sovereign Immunity, W. Mark C. Weidemaier, Mitu Gulati
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, 2017 Duke Law School
Regulatory Competition And The Market For Corporate Law, Ofer Eldar, Lorenzo Magnolfi
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 ...
The Puzzle Of Pdvsa Bond Prices, 2017 Duke Law School
The Puzzle Of Pdvsa Bond Prices, Paolo Colla, Anna Gelpern, Mitu Gulati
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 of recent ...
Restructuring Sovereign Debt After Nml V. Argentina, 2017 Duke Law School
Restructuring Sovereign Debt After Nml V. Argentina, Lee C. Buchheit, G. Mitu Gulati
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 ...
Sovereign Debt Restructuring And English Governing Law, 2017 Duke Law School
Sovereign Debt Restructuring And English Governing Law, Steven L. Schwarcz
Whether or not their fault, nations sometimes borrow at levels that become unsustainable. Until resolved, the resulting debt burden hurts not only those nations but also their citizens, their creditors, and—by posing serious systemic risks to the international financial system—the wider economic community. The existing contractual framework for restructuring sovereign debt is inadequate, often leaving little alternative between a bailout, which is costly and creates moral hazard, and a default, which raises the specter of financial contagion and chaos. Although global organizations, including the United Nations and the International Monetary Fund, have tried to strengthen the sovereign-debt-restructuring framework ...
Secured Transactions And Financial Stability: Regulatory Challenges, 2017 Duke Law School
Secured Transactions And Financial Stability: Regulatory Challenges, Steven L. Schwarcz
Although secured transactions traditionally are regulated to protect transacting parties and to make the transactions themselves more efficient, the financial crisis has revealed that regulation should also protect the stability of the financial system. This raises numerous future challenges. For example, regulation to control moral hazard in secured loan origination faces the challenge that the relevant market failure is less likely to be asymmetric information than mutual misinformation. Because of its impact on home ownership, the regulation of collateralization levels and interconnectedness faces fundamentally different challenges than those underlying the (technically) analogous post-Depression regulation of margin lending. Non-traditional secured transactions ...
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
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 ...
Piling On? An Empirical Study Of Parallel Derivative Suits, 2017 University of Richmond
Piling On? An Empirical Study Of Parallel Derivative Suits, Jessica Erickson
Law Faculty Publications
Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and ...
The Price Of Law: The Case Of The Eurozone's Collective Action Clauses, 2017 Duke Law School
The Price Of Law: The Case Of The Eurozone's Collective Action Clauses, Elena Carletti, Paolo Colla, Mitu Gulati, Steven Ongena
When do markets value contract protections? And does the quality of a legal system affect such valuations?To answer these questions we exploit a quasi-natural experiment whereby, after January 1, 2013, newly issued sovereign bonds of Eurozone countries under domestic law had to include Collective Action Clauses (CACs) which specify the minimum vote needed to modify repayment terms. We find that CAC bonds trade at lower yields than otherwise similar no-CAC bonds and that the quality of the legal system matters for this differential. Hence markets see CACs as reducing the legal risk embedded in domestic law sovereign bonds.
Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, 2017 Duke Law School
Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz
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, 2017 Duke Law School
Contractual Arbitrage, Stephen J. Choi, Mitu Gulati, Robert E. Scott
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 ...
The Financial Crisis And Credit Unavailability: Cause Or Effect?, 2017 Duke Law School
The Financial Crisis And Credit Unavailability: Cause Or Effect?, Steven L. Schwarcz
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 ...
The Deregulation Of Private Capital And The Decline Of The Public Company, 2017 Duke Law School
The Deregulation Of Private Capital And The Decline Of The Public Company, Elisabeth De Fontenay
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 ...
How To Restructure Venezuelan Debt (¿Cómo Restructurar La Deuda Venezolana?), 2017 Duke Law School
How To Restructure Venezuelan Debt (¿Cómo Restructurar La Deuda Venezolana?), Mitu Gulati, Lee C. Buchheit
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 ...