Law Commons^™

What Liquidation Does For Secured Creditors, And What It Does For You, Riz Mokal

Riz Mokal

A core objective of collective insolvency regimes is to preserve value in the insolvent estate. This value is then to be distributed in accordance with the appropriate statutory scheme. Value might be lost for any of a variety of reasons, including, in particular, (i) misuse of corporate assets by those with influence over the distressed company, and (ii) precipitate individualistic enforcement action by particular claimants, which dismembers the corporate estate and thus destroys synergetic values. The statutory liquidation regime attempts to counter this, in order not simply to benefit those with claims against the company, but also with a view …

The Rise Of Customary Businesses In International Financial Markets: An Introduction To Islamic Finance And The Challenges Of International Integration, Ali A. Ibrahim

Ali A Ibrahim

This paper demonstrates theoretical foundations of Islamic finance and their correlation with the Islamic finance industry. In this respect, the paper presents an over-all survey of the Islamic finance industry, Islamic-law injunctions pertaining to Islamic finance, quasi regulatory institutions, financial engineering, transaction structures and the evolving practices. The paper also highlights various areas of further research, a comprehensive treatment of which is critical to the continuing growth of Islamic finance in the international financial markets.

The Fatal Flaw Of Proposals To Federalize Insurance Regulation, Elizabeth F. Brown

Elizabeth F Brown

While the federal government has had the option of regulating insurance since the decision by the U.S. Supreme Court in the United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533 (1944), the states have retained almost exclusive control over insurance regulation. Within the past seven years, Congress, however, has considered three different methods of federalizing insurance regulation. Some members of the insurance industry see these efforts to federalize insurance regulation as a means of eliminating the problems in the current state system, which they view as costly, cumbersome and confusing. In the Congressional hearings on federalizing insurance, both opponents and …

Efficiency And Effectiveness In Securities Regulation: Comparative Analysis Of The United States Competitive Regulatory Structure And The United Kingdom’S Single Regulator Model, Joseph Silvia

Joseph Silvia

Efficiency and Effectiveness in Securities Regulation: Comparative Analysis of the United States Competitive Regulatory Structure and the United Kingdom’s Single Regulator Model Does the form of regulatory institutions impact the efficiency and effectiveness of the regulatory structure? While the current status of the multi-level/multi-functional regulatory structure in the United States (US) has developed over many years, the recent adoption of a single regulator structure by the United Kingdom (UK) offers us opportunity to test the impact of form on substance. To what extent does each system efficiently and effectively monitor and enforce the regulations of the financial markets? This paper …

Emerging Market Competition Policy: The Brazilian Experience, Joseph Silvia

Joseph Silvia

Abstract: Emerging Market Competition Policy: The Brazilian Experience Brazilian competition policy has developed over decades into a policy system that has allowed Brazil to lead South American nations in generating economic growth and sustainability, as well as the development of a “fully functioning market economy” in Brazil. The Brazilian Competition Policy System regulates merger control, competitive behavior among Brazilian firms, antitrust issues, and economic stability within regulation. Brazil’s policies have been crucial to the nation’s development from mostly state-owned enterprise and government interference in the markets after World War II. Brazil’s status as an emerging economy has also required that …

The "Carrot" Approach To Accounting Standard Setting, Neal F. Newman

Neal F Newman

For years, accounting standard setters have been waging a battle against financial fraud and obfuscated and distorted financial reporting. The standard setters, however, have been steadily losing ground as accounting fraud and obfuscated financial reporting continues to proliferate the public company landscape. The ongoing battle between financial information prepares and regulators has resulted in an accounting and financial reporting regime that is fragmented, overly complex and allows for accounting results that are devoid of economic substance. Poor financial reporting has been deemed to be of such significance, that the Securities and Exchange Commission has formed an advisory committee whose purpose …

Taxing Blackstone, Victor Fleischer

Victor Fleischer

No abstract provided.

Renting The Good Life, Jim Hawkins

Jim Hawkins

Academic literature and court decisions are replete with calls to ban or severely inhibit the rent-to-own industry. The argument is simple enough: Rent-to-own firms charge exorbitant prices to the most needy and vulnerable segments of society. The case for burdensome regulations, however, is much more difficult to make out than past scholarship has admitted. For the most part, academics have proceeded directly to propose specific regulations for the industry without first carefully analyzing the rent-to-own business or the reasons for imposing drastic regulations. This Article examines the theoretical justifications for regulating the rent-to-own industry against the backdrop of interviews I …

Large-Scale Disasters Attacking The American Dream: How To Protect And Empower Homeowners And Lenders, Matthew D. Ekins

Matthew D Ekins

The 2005 hurricane season reminded the world that such catastrophes can and do occur anywhere at anytime. Recovery efforts continue long after tides recede and after-shocks cease. In the context of Hurricane Katrina, this article examines the homeowner-lender relationship to determine risks natural disasters pose to the mortgage industry, likely repercussions a fallout in the mortgage industry may have on the health of the general economy, and what preventative steps have been and may be taken to prevent further economic suffering in a post-catastrophe environment.

Reviving Cities - Legal Remedies To Municipal Financial Crises, Omer Kimhi

Omer Kimhi

Local fiscal crises are by no means a negligible phenomenon. In the last 30 years a significant number of the nation’s cities have suffered from serious financial strain, and several large and important cities (such as New York, Philadelphia and Miami) have even experienced a full-blown crisis (where they did not have sufficient resources to finance basic public services). In this paper I discuss the legal remedies developed over the years to address local insolvency (the creditors’ remedies, Chapter 9 of the bankruptcy code and state financial boards), and I explain the logic and limits of each remedy. The analysis …

Reconstructing The Odious Debt Exception, Bradley N. Lewis

Bradley N. Lewis

Sovereign debts are persistent--as financial obligations of a sovereign state, these debts survive the regime which contracted for them and bind future governments until the creditors are satisfied. Only under limited circumstances does international law allow for the cancellation of such debts. In the early twentieth century, Alexander Sack defined a class of sovereign debts--“odious debts”--which are particularly deserving of cancellation. To qualify as “odious,” a debt’s proceeds must have been literally or effectively stolen by a tyrant, leaving the population she once ruled to pick up the check.

Sack’s purpose for what has become known as the Odious Debt …

Usury Law, Payday Loans, And Statutory Sleight Of Hand: An Empirical Analysis Of American Credit Pricing Limits, Christopher L. Peterson

Christopher L Peterson

In the Western intellectual tradition usury law has historically been the foremost bulwark shielding consumers from harsh credit practices. In the past, the United States commitment to usury law has been deep and consistent. However, the recent rapid growth of the “payday” loan industry belies this longstanding American tradition. In order to understand the evolution of American usury law, this paper presents a systemic empirical analysis of all fifty state usury laws in two time periods: 1965 and the present. The highest permissible price of a typical payday loan authorized under each state’s usury law was calculated. These prices were …

Intermediated Securities, Legal Risk, And The International Harmonisation Of Commercial Law, Luc Thevenoz

Luc Thevenoz

Investors do not physically hold their investment securities any more. Securities are held and transferred through a complex, sophisticated, and international network of financial intermediaries, including central securities depositories, investment banks, and brokers-dealers. Investors buy and sell their holdings by having book-entries made to their securities accounts; they provide collateral to secured lenders by book-entries or by control agreements. Because transfers and collateral transactions are critical to the liquidity of the financial markets and to financial stability, market participants and regulators have become increasingly concerned with the legal soundness, the internal consistency, and the international compatibility of national laws regulating …

Regulating Hedge Fund Managers: The Investment Company Act As A Regulatory Screen, Mercer E. Bullard

Mercer E Bullard

The Blackstone IPO in June 2007 signaled a new strategy of exploiting all of the advantages of a public offering while avoiding critical regulatory constraints. Hedge fund managers such as Blackstone are the functional equivalent of private investment companies in which only sophisticated investors are eligible to invest. Regulators have ignored this economic reality, however, in permitting hedge fund managers to evade all of the restrictions that Congress imposed on publicly offered investment pools. Hedge fund managers should be subject to the Investment Company Act, which uses a combination of statutory and regulatory exemptions as screens to ensure the optimal …

The Uptick Rule Of Short Sale Regulation - Can It Alleviate Downward Price Pressures From Negative Earnings Shocks?, Lynn Bai

Lynn Bai

This paper empirically examines the effect of the uptick rule (including the bid test applicable to NASDAQ stocks) of short sale regulations on stock prices and short selling activities immediately after negative earnings surprises that occurred during the period of May to November 2005. It compares price paths and short selling activities of stocks restricted by the uptick rule with stocks that were exempted from the rule as a result of the SEC’s Pilot Program. The study has not found any evidence that prices of stocks subject to the rule declined at a slower speed than prices of exempted stocks …

Bond Defaults And The Dilemma Of The Indenture Trustee , Steven L. Schwarcz, Gregory M. Sergi

Steven L Schwarcz

This article, attached for your review, rethinks the standard of care for trustees of public bonds. The present standard is intolerably vague, generating cost and inefficiency in the public bond markets. Yet bondholder governance is increasingly recognized as a critical component of the larger realm of corporate governance, and indeed more than eighty percent of capital market financing raised by U.S. corporations now occurs through public bond offerings. This article examines how that standard of care should be modified to make indenture trustees more effective.

Systemic Risk, Steven L. Schwarcz

Steven L Schwarcz

This article is the first major work of legal scholarship on systemic risk, under which the world’s financial system can collapse like a row of dominoes. There is widespread confusion about the causes and even the definition of systemic risk, and uncertainty how to control it. This article attempts to provide a conceptual framework for examining what risks are truly “systemic,” what causes those risks, and how, if at all, those risks should be regulated.

It begins by carefully examining what systemic risk really means, cutting through the confusion and ambiguity to establish basic parameters. Economists and other scholars historically …

Search And Seizure On Steroids: United States V. Comprehensive Drug Testing And Its Consequences For Private Information Stored On Commercial Electronic Databases, Aaron S. Lowenstein

Aaron S Lowenstein

This article critiques the Ninth Circuit’s recent decision in United States v. Comprehensive Drug Testing. This case received some attention because it stems from the investigation into the use of steroids in Major League Baseball. It should have received much more attention, however, because of its troubling expansion of the government’s authority to access our private digital information without a warrant.

Executing a search warrant for information stored on a computer database poses special problems. Because targets of government investigations can easily conceal incriminating digital evidence, investigators often must search an entire computer hard drive in order to effectively execute …

Developing Governance And Regulation For Emerging Capital And Securities Markets, Ali Adnan Ibrahim

Ali A Ibrahim

This paper discusses various legal and regulatory issues for developing strong capital and securities markets in the transition economies. Toward this end, the paper analyses the available literature, and emphasizes that: (i) the development of corporate governance should be gradual and must take into consideration the customary laws that impact on the ownership structures and related preferences for doing business in the emerging markets; and (ii) the foreign investment policies should be consistent with the development of corporate governance and vice versa.

Dr. Jones And The Raiders Of Lost Capital: Hedge Fund Regulation, Part Ii, John W. Verret

John W Verret

Hedge funds can sometimes achieve remarkable returns. The market fees exceed that of other asset classes, leading some fund managers to engage in illicit behavior, including fraud, that violates their duty to their investors and tempts institutional investors to violate their fiduciary duty to their principals. I will examine the hedge fund registration requirement struck down during the summer of 2006, as well as the tools used by other regulators to oversee institutional investors. This study relies on a survey of literature on financial regulation, commentary on the hedge fund registration rule, models of self-regulation, and examples in other areas …

Turning A Blind Eye: Wall Street Finance Of Predatory Lending

Patricia A. McCoy

Today, Wall Street finances up to eighty percent of subprime home loans through securitization. The subprime sector, which is designed for borrowers with blemished credit, has been dogged by predatory lending charges, many of which have been substantiated. As subprime securitization has grown, so have charges that securitization turns a blind eye to financing abusive loans. In this paper, we examine why secondary market discipline has failed to halt the securitization of predatory loans.

When investors buy securities backed by predatory loans, they face a classic lemons problem in the form of credit risk, prepayment risk, and litigation risk. Securitization …

To Make Or To Buy: In-House Lawyering And Value Creation, Steven L. Schwarcz

Steven L Schwarcz

In recent years, companies have been shifting much of their transactional legal work from outside law firms to in-house lawyers, and some large companies now staff transactions almost exclusively in-house. Although this transformation redefines the very nature of the business lawyer, scholars have largely ignored it. This article seeks to remedy that omission, using empirical evidence as well as economic theory to help explain why in-house lawyers are taking over, and whether they are likely to continue to take over, these functions and roles of outside lawyers. The findings are surprising, suggesting that in-house lawyers may now be performing as …

Insider Waiting: The New Loophole Under 10b5-1, Maureen Mcgreevy

Maureen McGreevy

In October, 2000, the Securities and Exchange Commission (SEC) enacted Rule 10b5-1 which provides an affirmative defense for individuals charged with insider trading. The Rule states that a person is not deemed to have traded on the basis of material non-public information if, before he or she gained knowledge of that material, non-public information, the person had entered into a trading plan under which he or she contracted to sell the securities in question. As a result of this rule, many corporate executives have established what have become to be known as 10b5-1 trading plans in order to protect themselves …

Efficient And Inefficient Debt Restructuring: A Comparative Analysis On Voting Rules In Workouts, Hyun Chul Lee

Hyun-Chul Lee

Two jurisdictions, Korea and America, have contrasting legal rules governing voting in workouts: Voting Mandating Rule and Voting Prohibition Rule. Voting in a bond workout has long been prohibited in the Trust Indenture Act of the United States. In stark contrast, Korea enacted a unique statute that mandated a voting scheme in workout in an effort to resolve corporate insolvencies crisis and incompetent bankruptcy institutions. Voting facilitates the completion of workouts, but it gives majority creditors an opportunity to disproportionately benefit from workouts. I explore the contrariness of the two seemingly unrelated statutes, and bring their respective implications for efficiency …

What Hedge Funds Can Teach Corporate America: A Roadmap For Achieving Institutional Investor Oversight, Robert C. Illig

Robert C Illig

Hedge funds and other private equity funds are aggressive monitors of corporate America. Their investment strategies are designed to squeeze agency costs and other inefficiencies out of underperforming companies. Mutual funds and public pension funds, by contrast, have remained relentlessly passive despite their many resources. Rather than seek to improve the performance of their portfolio companies, they generally prefer to exit any investments that turn sour. Why the difference? In this Article, Professor Illig compares the business environments and regulatory regimes affecting different types of institutional investors. He concludes that the primary reason that most institutional investors do not better …

Rethinking Disclosure In A World Of Risk-Based Pricing

Patricia A. McCoy

The residential mortgage market in the United States has changed significantly since the passage of current federal mortgage disclosure laws in the 1960s and 1970s. In this Article, Professor Patricia McCoy advocates for the reform of these traditional disclosure rules. After describing the evolution of the subprime mortgage market and providing a description of current federal disclosure laws, she explores how these new market dynamics cause the traditional disclosure rules to break down in the subprime market. Professor McCoy concludes with proposals to counteract false advertising practices, facilitate "meaningful comparison-shopping, and formulate streamlined disclosures addressing loan applicants' greatest concerns in …

Predatory Lending And Community Development At Loggerheads

Patricia A. McCoy

For decades, cities have invested in decaying neighborhoods, leading to increases in home values and home equity. As a result, these neighborhoods have become ready targets for predatory lenders, who market their abusive loans to financially unsophisticated homeowners with home equity and no relationships with traditional lenders. Some borrowers lose their homes; others forsake home repairs to avoid default and foreclosure. Neighborhoods that once were stable become littered with abandoned and neglected homes, resulting in increased crime, falling home values, rising demands for social services, and lower tax revenues.

In the wake of the devastation done by predatory lenders, the …