Law Commons^™

Angels And Devils: The Early Crypto Entrepreneurs, Darian M. Ibrahim

Popular Media

No abstract provided.

Changemakers: 'Hard Work, Determination, And Dedication': Arya Omshehe, Roger Williams University School Of Law

Life of the Law School (1993- )

No abstract provided.

A Tokenized Future: Regulatory Lessons From Crowdfunding And Standard Form Contracts, Darian M. Ibrahim

Faculty Publications

This Article examines the world of risk investing in the cryptoeconomy. The broader crypto market is booming despite the latest downturn. People and institutions are buying in. The question is now how to regulate it.

This Article first tackles the question of whether coins, tokens, and other investable cryptoassets are securities. Second, for those cryptoassets that are not securities, this Article seeks to find a regulatory solution that balances promoting innovation with investor protection, just as the Securities and Exchange Commission (SEC) would do. To strike the right balance, this Article adopts a proposal by Ian Ayres and Alan Schwartz …

Ftx: How The Sec Should React, Darian M. Ibrahim

Popular Media

No abstract provided.

The Property Law Of Tokens, Juliet M. Moringiello, Christopher K. Odinet

Faculty Scholarship

Non-fungible tokens—or NFTs, as they are better known—have taken the world by storm. The idea behind an NFT is that by owning a certain thing (specifically, a digital token that is tracked on a blockchain), one can hold property rights in something else (either a real or intangible asset). In the early part of 2021, NFTs for items ranging from a gif of a pop-tart cat with a rainbow tail, to Twitter CEO Jack Dorsey’s first tweet, to a New York Times column (about NFTs!) have sold for millions of dollars over the internet. Promoters assert that NFTs are the …

Hidden Agendas In Shareholder Voting, Scott Hirst, Adriana Z. Robertson

Faculty Scholarship

Nothing in either corporate or securities law requires companies to notify investors what they will be voting on before the record date for a shareholder meeting. We show that, overwhelmingly, they do not. The result is “hidden agendas”: for 88% of shareholder votes, investors cannot find out what they will be voting on before the record date. This poses an especially serious problem for investors who engage in securities lending: they must decide whether the expected benefit of voting exceeds the expected benefit of continuing to lend their shares (or making them available for lending) without knowing what they will …

Disclosure's Limits, Usha Rodrigues, Mike Stegemoller

Scholarly Works

Special purpose acquisition companies (SPACs) have exploded in popularity, luring both adventurous retail investors and sophisticated institutional investors. In a SPAC, a publicly traded shell corporation acquires a private target, thereby taking it public in a manner that circumvents the rigors of a traditional initial public offering (IPO). Proponents vaunt SPACs’ ability to simplify the process of accessing the public markets and democratize capitalism, but in their current form they pose risks to retail investors and to the market as a whole. Using a hand-collected dataset, this Article fills a gap in the literature by providing new empirical data regarding …

Deterring Algorithmic Manipulation, Gina-Gail S. Fletcher

Faculty Scholarship

Does the existing anti-manipulation framework effectively deter algorithmic manipulation? With the dual increase of algorithmic trading and the occurrence of “mini-flash crashes” in the market linked to manipulation, this question has become more pressing in recent years. In the past thirty years, the financial markets have undergone a sea change as technological advancements and innovations have fundamentally altered the structure and operation of the markets. Key to this change is the introduction and dominance of trading algorithms. Whereas initial algorithmic trading relied on preset electronic instructions to execute trading strategies, new technology is introducing artificially intelligent (“AI”) trading algorithms that …

High Crimes: Liability For Directors Of Retail Marijuana Corporations, Lauren A. Newell

Law Faculty Scholarship

Selling retail marijuana in the United States is illegal — or is it? A rising number of states have legalized the retail sale of marijuana and are busily regulating these sales and the companies that make them. Even so, the sale of marijuana is a crime under federal law. Are companies that sell retail marijuana duly sanctioned, productive contributors to their state economies, or are they felons just waiting for the wheels of justice to turn in their direction? At this moment, no one can answer that question with certainty.

What is certain is that more companies are being formed …

Crowdfunding Issuers In The United States, Andrew A. Schwartz

Publications

Startup companies can now legally sell shares of stock, bonds, or other securities to the broad public using equity crowdfunding, a new type of online capital market modeled on Kickstarter and other reward crowdfunding websites. Through equity crowdfunding, entrepreneurs can go directly to the broad public (the “crowd”) for investment, without having to go through the usual (and costly) process of an initial public offering (IPO). Equity crowdfunding thus offers a chance for all entrepreneurs, regardless of their physical location, gender, or anything else, to solicit investors and raise capital.

In 2012, new federal legislation—the Jumpstart Our Business Startups (JOBS) …

Embrace The Sec, Usha Rodrigues

Scholarly Works

Securities law traditionally only permits corporations that have registered with the Securities and Exchange Commission (SEC) and completed an initial public offering (IPO) to sell equity to the general public—often a long, expensive process. Initial coin offering (ICOs) emerged in 2013 as a fundraising tool for non-public blockchain-based companies to raise billions of dollars while circumventing the SEC and public offering process altogether. But their early success brought the attention of the SEC, and in 2017 the SEC asserted the right to regulate ICOs. Since then, U.S. ICO promoters have struggled to avoid the SEC’s assertion of jurisdiction, contorting their …

Short And Distort, Joshua Mitts

Faculty Scholarship

Pseudonymous attacks on public companies are followed by stock price declines and sharp reversals. These patterns are likely driven by manipulative stock options trading by pseudonymous authors. Among 1,720 pseudonymous attacks on mid- and large-cap firms from 2010 to 2017, I identify over $20.1 billion in mispricing. Reputation theory suggests these reversals persist because pseudonymity allows manipulators to switch identities without accountability.

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 …

Mandatory Disclosure In Primary Markets, Andrew A. Schwartz

Publications

Mandatory disclosure—the idea that companies must be legally required to disclose certain, specified information to public investors—is the first principle of modern securities law. Despite the high costs it imposes, mandatory disclosure has been well defended by legal scholars on two theoretical grounds: ‘Agency costs’ and ‘information underproduction.’ While these two concepts are a good fit for secondary markets (where investors trade securities with one another), this Article shows that they are largely irrelevant in the context of primary markets (where companies offer securities directly to investors). The surprising result is that primary offerings—such as an IPO—may not require mandatory …

Revolving Elites: The Unexplored Risk Of Capturing The Sec, James D. Cox, Randall S. Thomas

Faculty Scholarship

Fears have abounded for years that the sweet spot for capture of regulatory agencies is the "revolving door" whereby civil servants migrate from their roles as regulators to private industry. Recent scholarship on this topic has examined whether America's watchdog for securities markets, the Securities and Exchange Commission (SEC), is hobbled by the long-standing practices of its enforcement staff exiting their jobs at the Commission and migrating to lucrative private sector employment where they represent those they once regulated. The research to date has been inconclusive on whether staff revolving door practices have weakened the SEC' s verve. In this …

Engineered Credit Default Swaps: Innovative Or Manipulative?, Gina-Gail S. Fletcher

Articles by Maurer Faculty

Credit default swaps (“CDS”) are, once again, making waves. Maligned for their role in the 2008 financial crisis and condemned by the Vatican, investors are once more utilizing CDS to achieve results of questionable market benefit. A CDS is a financial contract that allows investors to “bet” on whether a borrower will default on its loan. However, rather than waiting to see how their bets pan out, some CDS investors are collaborating with financially distressed borrowers to guarantee the profitability of their CDS positions—“engineering” the CDS’ outcome. Under the CDS contract, these collaborations are not prohibited, yet they have roiled …

Financial Contracting With The Crowd, Usha Rodrigues

Scholarly Works

Equity crowdfunding is broken. The current model imposes too many burdens on entrepreneurs in exchange for too little money. For alternative models, this Article looks to the time-tested venture capital financial contract, and the recent experience of initial coin offerings (ICOs). ICOs made headlines over the past two years, as the means by which blockchain technology companies raised billions of dollars to launch new cryptocurrency ventures. Although their novelty as a monetary and investing device is well known, ICOs also presented significant, unappreciated insights into financial contracting.

ICOs furnished an unprecedented experiment into how bargains would look if entrepreneurs raised …

Fintech And The Innovation Trilemma, Yesha Yadav, Chris Brummer

Vanderbilt Law School Faculty Publications

Whether in response to roboadvising, artificial intelligence, or crypto-currencies like Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or "fintech") in the post-Crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proven conceptually difficult. Part of the challenge lies in the tradeoffs involved in regulating innovations that could conceivably both help and hurt consumers and market participants alike. Problems also arise from the common assumption that today's fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article …

Seeking An Objective For Regulating Insider Trading Through Texas Gulf Sulphur, James D. Cox

Faculty Scholarship

Data summarized in the opening of this article document that inside trading is a growth industry. And, as deals get ever bigger, the growth curve becomes steeper as more the data confirms intuition that the more who know about a good thing the more who will seek to harvest its benefits. Even though insider trading appears to have thrived during the fifty years after Texas Gulf Sulphur, we gather in this symposium to celebrate the decision. But why? As developed below, the Second Circuit’s landmark decision gave way to the Supreme Court’s erection of a fiduciary framework that this article …

Insider Trading And The Myth Of Market Confidence, John P. Anderson

Journal Articles

This Article challenges the validity of the market-confidence claim as a justification for the regulation of insider trading on two grounds. First, insofar as it relies on a sociopsychological claim-that most investors perceive insider trading as economically harmful or morally wrong-it is subject to the problem of false consciousness (i.e., the psychological claim could be true though the shared belief is demonstrably false). Second, even if the problem of false consciousness is set aside, the market-confidence argument's empirical claims of a chilling effect among potential investors must be proven, not simply assumed.

Regulating Robo Advice Across The Financial Services Industry, Tom Baker, Benedict G. C. Dellaert

All Faculty Scholarship

Automated financial product advisors – “robo advisors” – are emerging across the financial services industry, helping consumers choose investments, banking products, and insurance policies. Robo advisors have the potential to lower the cost and increase the quality and transparency of financial advice for consumers. But they also pose significant new challenges for regulators who are accustomed to assessing human intermediaries. A well-designed robo advisor will be honest and competent, and it will recommend only suitable products. Because humans design and implement robo advisors, however, honesty, competence, and suitability cannot simply be assumed. Moreover, robo advisors pose new scale risks that …

Optimal Issuer Disclosure Of Opinions, Wendy Gerwick Couture

Articles

This Article adds to the scholarly literature about the optimal level of disclosure by issuers of securities by proposing a new theoretical framework that encompasses not only the choice between silence and disclosure, which has been widely discussed, but also the subsidiary decision between disclosure as an opinion and as a statement of fact, which has been ignored. This framework informs the Securities and Exchange Commission’s ongoing review of mandatory disclosure rules and contextualizes the potential impacts of the Supreme Court’s recent decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund,1 which clarified that differential liability standards …

Foreword: Bankruptcy’S New And Old Frontiers, William W. Bratton, David A. Skeel Jr.

All Faculty Scholarship

This Symposium marks the fortieth anniversary of the enactment of the 1978 Bankruptcy Code (the “1978 Code” or the “Code”) with an extended look at seismic changes that currently are reshaping Chapter 11 reorganization. Today’s typical Chapter 11 case looks radically different than did the typical case in the Code’s early years. In those days, Chapter 11 afforded debtors a cozy haven. Most everything that mattered occurred within the context of the formal proceeding, where the debtor enjoyed agenda control, a leisurely timetable, and judicial solicitude. The safe haven steadily disappeared over time, displaced by a range of countervailing forces …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

The New Bond Workouts, William W. Bratton, Adam J. Levitin

All Faculty Scholarship

Bond workouts are a famously dysfunctional method of debt restructuring, ridden with opportunistic and coercive behavior by bondholders and bond issuers. Yet since 2008 bond workouts have quietly started to work. A cognizable portion of the restructuring market has shifted from bankruptcy court to out-of-court workouts by way of exchange offers made only to large institutional investors. The new workouts feature a battery of strong-arm tactics by bond issuers, and aggrieved bondholders have complained in court. The result has been a new, broad reading of the primary law governing workouts, section 316(b) of the Trust Indenture Act of 1939 (“TIA”), …

The Tax Treatment Of Tokens: What Does It Betoken?, David J. Shakow

All Faculty Scholarship

Digital tokens have been used to raise substantial amounts of money. But little attention has been paid to the tax consequences surrounding their issuance and sale. There are significant potential tax liabilities lurking in the use of digital tokens. But, because of the anonymity inherent in the blockchain structures used for the issuance of tokens and payments for them, there is a significant question as to whether those tax liabilities will ever be collected.

The Case For Federal Preemption Of State Blue Sky Laws, Rutheford B. Campbell Jr.

Law Faculty Popular Media

In our market economy, imposing rules on capital formation makes economic sense. Well-constructed rules regarding capital formation can promote the efficient flow of capital to its highest and best use and prevent or ameliorate fraud or unfairness to investors. These rules, however, generate additional offering costs that may retard or in some cases completely choke off the flow of capital from investors to businesses. The problem with state blue sky laws is their registration requirements, which significantly impede efficient capital formation and provide no material economic or societal benefits, such as protection of investors from fraud.

The Case For Federal Pre-Emption Of State Blue Sky Laws, Rutheford B. Campbell Jr.

Law Faculty Scholarly Articles

State blue sky laws—state laws that regulate a company’s offer and sale of securities—are a substantial barrier to businesses’ efficient access to external capital. The registration provisions in state blue sky laws have been especially harmful to small businesses, a vital component of our economy that may account for 30% of the nation’s employment. The costs associated with complying with more than fifty separate and independent obligations to register securities often exceed what small businesses can pay and thus may foreclose small businesses from the capital market. At the same time, requiring small businesses to comply with multiple registration regimes …

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 …

Risk Of Regulatory Arbitrage: A Response To "Securities Regulation In Virtual Space", Wendy Gerwick Couture

Articles

In Securities Regulation in Virtual Space, Eric C. Chaffee explores the potential applicability of the securities laws to virtual transactions based on virtual activity and argues that, although many of these transactions likely qualify as “investment contracts” under S.E.C. v. W.J. Howey Co., they should be excluded under the context clause because, among other reasons, application of the securities laws would stifle creativity within this innovative space. This Response proposes a reframing of the Howey test as a response to the risk of regulatory arbitrage, argues that the context clause should only exclude transactions that do not pose such …