Law Commons^™

Political Uncertainty And The Market For Ipos, Jay B. Kesten, Murat C. Mungan

Faculty Scholarship

This Article presents a simple theory and model of the effects of political uncertainty on the market for IPOs. Our model generates four central predictions: (i) increased political uncertainty reduces the frequency of IPOs; (ii) firms that choose to conduct an IPO during periods of political uncertainty are, on average, of higher quality and generate greater return on investment in the secondary market; (iii) political uncertainty increases the cost of capital for IPO firms; but (iv) underpricing is less pronounced during periods of heightened political uncertainty. We demonstrate that each of these predictions is consistent with available empirical evidence.

Our …

The Vanishing Supervisor, James A. Fanto

Faculty Scholarship

No abstract provided.

Coordination And Conflict: The Persistent Relevance Of Networks In International Financial Regulation, Robert B. Ahdieh

Faculty Scholarship

Over the last two decades, scholarly enthusiasm about transnational regulatory networks has seen something of a boom-and-bust cycle. Such networks – informal groupings of mid-level national officials, convened to develop nonbinding “soft law” norms of behavior in specialized fields of regulation – were identified as an important new phenomenon, were studied widely, and came to be seen as central pillars of the international legal order, especially in financial regulation. Yet today, regulatory networks go largely unmentioned in polite academic conversation: a kind of “he-who-must-not-be-named” of international law.

Among the many critiques of transnational networks that have contributed to this decline …

From Fedspeak To Forward Guidance: Regulatory Dimensions Of Central Bank Communications, Robert B. Ahdieh

Faculty Scholarship

In the face of the financial crisis that engulfed the globe beginning in 2007, the U.S. Federal Reserve quickly found itself without the key lever of monetary policy on which it had traditionally relied: short-term interest rate adjustments designed to move long-term rates, and thereby expected levels of lending, investment, and capital retention. By late 2008, short-term rates were already close to zero, yet unemployment remained strikingly high – with no sign of any likely renewal of bank lending or commercial investment.

Famously, the Fed embraced so-called quantitative easing – the purchase of massive volumes of public and private debt …

Vat Fraud And Terrorist Funding - The Azizi Extradition Allegations Part Ii, Richard Thompson Ainsworth

Faculty Scholarship

This paper considers the remaining seven (7) Missing Trader Intra-Community (MTIC) fraud schemes alleged (some conceded) to have been conducted by Samir Azizi, a 25 year old German/Afghan citizen, who was extradited from the United States to Germany on April 14, 2015. The MTIC fraud schemes considered in this Part II involve alleged losses of €45,801,403 under 63 further criminal counts.

Underlying both Parts of this assessment is a fundamental (but unanswered) question: “Who exactly is Samir Azizi? Is he the mastermind of a multi-million euro VAT fraud, a fundraising fraudster for terrorist organizations, or a youthful face-of- convenience disguising …

Vat Fraud And Terrorist Funding -- The Azizi Extradition Allegations Part I, Richard Thompson Ainsworth

Faculty Scholarship

On April 14, 2015 Samir Azizi, a 25 year old German/Afghan citizen, was extradited from the United States to Germany. The Extradition Compliant alleged (in 89 criminal counts) that Azizi had denied the German Treasury €61,104,368 in VAT revenue with 12 distinct Missing Trader Intra-Community (MTIC) fraud schemes. At the time of arrest the 26 year old Azizi admitted that his involvement in MTIC frauds stretched back even before 2008, the initial reference year of the Complaint.

This paper assesses the Azizi extradition in two parts. The first part considers the first 26 criminal counts, representing alleged VAT losses of …

Phishing & Vat Fraud In Co2 Permits: Dice In The Eu-Ets Now; Dice In Power Tomorrow, Richard Thompson Ainsworth

Faculty Scholarship

In accordance with Directive 2003/87/EC of October 13, 2003, trade in greenhouse gas emissions commenced in the European Union (EU) on January 1, 2005. The EU-Emissions Trading System (EU-ETS) was born.

The EU has a Value Added Tax (VAT). VAT is a transaction-based levy on all trade in goods and services. Each Member State has a VAT as a condition of membership. Until January 3, 2017 transactions in CO2 permits are taxed as services. After this date they are exempt as financial instruments.

This change in VAT treatment of CO2 permits is directly attributable to rampant fraud in the market. …

Law's Acceleration Of Finance: Redefining The Problem Of High-Frequency Trading, Frank A. Pasquale

Faculty Scholarship

High-frequency traders automate stock trading, placing thousands of orders over fractions of a second. Their algorithmic strategies are all too often mere rule manipulation or methods of using brute speed to gain advantages over rivals. Normative evaluation of finance’s algorithms must take into account the sector’s social function: to spur efficient, fair, and sustainable investment practices. The complex modeling deployed in high-frequency trading does not reliably contribute to these goals. Therefore, rather than straining to accommodate high-frequency trading strategies, regulators should eliminate many of them.

Brief Of Prof. Steven L. Schwarcz As Amicus Curiae, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Reprofiling Sovereign Debt, Lee C. Buchheit, Mitu Gulati, Ignacio Tirado

Faculty Scholarship

• The IMF staff’s 2013 proposal to reprofile (i.e., stretch out for a short period without haircutting principal or interest) the maturing debt of a country that has lost market access is a sensible policy in cases where the IMF is uncertain whether the country’s debt stock is sustainable.

• The motivation for the policy is to avoid situations, such as occurred during the Eurozone debt crisis, in which Fund resources are used to bail-out commercial creditors in full.

• But a debt reprofiling is a species of debt restructuring and as such is susceptible to holdout creditor behaviour.

• …

Intermediary Influence, Kathryn Judge

Faculty Scholarship

Ronald Coase and others writing in his wake typically assume that institutional arrangements evolve to minimize transaction costs. This Article draws attention to a powerful, market-based force that operates contrary to that core assumption: Intermediary influence." The claim builds on three observations: (1) many transaction costs now take the form of fees paid to specialized intermediaries, (2) intermediaries prefer institutional arrangements that yield higher transaction fees, and (3) intermediaries are often well positioned to promote self-serving arrangements. As a result, high-fee institutional arrangements often remain entrenched even in the presence of more-efficient alternatives.

This Article uses numerous case studies from …

Rules Of Thumb For Intercreditor Agreements, Edward R. Morrison

Faculty Scholarship

Intercreditor agreements frequently restrict the extent to which subordinated creditors can participate in the bankruptcy process by, for example, contesting liens of senior lenders, objecting to a cash collateral motion, or even exercising the right to vote on a plan of reorganization. Because intercreditor agreements can reorder the bargaining environment in bankruptcy, some judges have been unsure about their enforceability. Other judges have not hesitated to enforce the agreements, at least when they do not restrict the voting rights of subordinated creditors. This essay argues that intercreditor agreements are controversial because they pose a trade-off: they reduce bargaining costs (by …

The Value Of Uncertainty, Cathy Hwang, Benjamin P. Edwards

Faculty Scholarship

No abstract provided.

Closed-End Fund Ipo Considerations, Benjamin P. Edwards

Faculty Scholarship

No abstract provided.

Disaggregated Classes, Benjamin P. Edwards

Faculty Scholarship

No abstract provided.

The Failed Reform: Congressional Crackdown On Repeat Chapter 13 Bankruptcy Filers, Sara Sternberg Greene

Faculty Scholarship

After decades of lobbying to “get tough” on bankruptcy repeat filers, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The Bankruptcy Code now requires that the automatic stay, which prevents creditors from pursuing the property of bankruptcy debtors, expires after thirty days for petitioners who file for bankruptcy within one year of a previously failed petition. Debtors can file a motion to extend the stay, but there is a presumption of a bad faith filing, only overcome if a debtor can show there has been a “substantial change in his or her financial or personal …

Evaluating The 2013 Euro Cac Experiment, Elena Carletti, Paolo Colla, Mitu Gulati

Faculty Scholarship

On January 1, 2013, it became mandatory that every new sovereign bond issued by a member of the European Monetary Union include a new contract clause called a Collective Action Clause or CAC. This, we believe, constituted the biggest one-time change to the terms of sovereign debt contracts in history, impacting a market of many trillions of euros. And it was not just that the change was big in terms of the size of the market it impacted; it was big in terms of its impact on the documentation of each individual Euro area sovereign bond contract. To illustrate, prior …

The Relevance Of Law To Sovereign Debt, W. Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

The literature on sovereign debt treats law as of marginal significance, largely because the doctrine of sovereign immunity leaves creditors few potent legal remedies against sovereign borrowers. Although sovereign debts can indeed by hard to enforce, the goal of this Essay is to demonstrate that law plays a central, and constantly evolving, role in structuring sovereign debt markets. To list just a few examples, legal rules and institutions (i) decide when a borrower is sovereign, (ii) define the consequences of sovereignty by drawing (or refusing to draw) artificial boundaries between the sovereign and other legal entities, (iii) play some role …

Corporate Risk-Taking And Public Duty, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Derivatives And Collateral: Balancing Remedies And Systemic Risk, Steven L. Schwarcz

Faculty Scholarship

U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This Article examines whether exempting those transactions from bankruptcy’s automatic stay, including the stay of foreclosure actions against collateral, is necessary or appropriate in order to minimize systemic risk.

Banking And Financial Regulation, Steven L. Schwarcz

Faculty Scholarship

This chapter provides a basic overview of banking and financial regulation for the forthcoming Oxford Handbook of Law and Economics (Francesco Paris, ed.). Among other things, the chapter compares traditional and shadow banking and their regulation, differentiating “micro prudential” regulation (which focuses on protecting individual components of the financial system, such as banks) and “macro prudential” regulation (which focuses on protecting against systemic risk). The chapter also examines how regulation can help to correct market failures that undermine financial efficiency. In that context, it discusses, among other things, capital requirements, ring-fencing, and stress testing. Finally, the chapter examines how regulation …

Keynote Reflections: The Public Governance Duty, Steven L. Schwarcz

Faculty Scholarship

Firms must take ever greater risks to try to innovate and create value in our increasingly competitive and complex global economy. Corporate governance law generally delegates control over excessive risk-taking to the firm’s investors, principally its risk-seeking shareholders. But this does not cover the type of risk-taking that led to the global financial crisis and that is becoming ever more common - risk-taking that could have systemic consequences to the financial system. I argue for a “public governance duty,” requiring managers of systemically important firms to assess the impact of risk-taking on the public as well as on investors, and …

A Model-Law Approach To Restructuring Unsustainable Sovereign Debt, Steven L. Schwarcz

Faculty Scholarship

Unresolved sovereign debt problems are hurting debtor nations, their citizens and their creditors, and also can pose serious systemic threats to the international financial system. The existing contractual restructuring approach is insufficient to make sovereign debt sustainable. Although a more systematic legal resolution framework is needed, a formal multilateral approach, such as a treaty, is not currently politically viable. An informal model-law approach should be legally, politically and economically feasible. This informal approach would not require multilateral acceptance. Because most sovereign debt contracts are governed by either New York or English law, it would be sufficient if one or both …

The Volcker Rule: A Brief Political History, Kimberly D. Krawiec, Guangya Liu

Faculty Scholarship

Today, more than five years after Dodd-Frank was first signed into law, uncertainty surrounds many aspects of the Volcker Rule’s application and ultimate impact on financial markets and bank stability. Many more years will likely pass before that uncertainty is resolved. We demonstrate through a quantitative and qualitative analysis that these difficulties were presaged by the Volcker Rule’s political history. The Volcker Rule -- originally rejected by Congressional lawmakers and economists within the Obama administration as unworkable -- arose as a political concession designed to quiet critics who contended that Dodd-Frank did not do enough to control risky bank activity. …

Through The Looking Glass To A Shared Reflection: The Evolving Relationship Between Administrative Law And Financial Regulation, Gillian E. Metzger

Faculty Scholarship

Administrative law and financial regulation have an uneasy relationship today. It was not always so. Indeed, the two were closely intertwined at the nation's birth. The Treasury Department was a major hub of early federal administration, with Alexander Hamilton crafting the first iterations of federal administrative law in his oversight of revenue generation and customs collection. One hundred and fifty years later, administrative law and financial regulation were conjoined in the New Deal's creation of the modern administrative state. This time it was James Landis, Chair of the newly formed Securities and Exchange Commission (SEC) and author of the leading …

The New Stock Market: Sense And Nonsense, Merritt B. Fox, Lawrence R. Glosten, Gabriel Rauterberg

Faculty Scholarship

How stocks are traded in the United States has been totally transformed. Gone are the dealers on NASDAQ and the specialists at the NYSE. Instead, a company’s stock can now be traded on up to sixty competing venues where a computer matches incoming orders. High-frequency traders (HFTs) post the majority of quotes and are the preponderant source of liquidity in the new market.

Many practices associated with the new stock market are highly controversial, as illustrated by the public furor following the publication of Michael Lewis’s book Flash Boys. Critics say that HFTs use their speed in discovering changes in …

The Logic And Limits Of Liens, Edward Janger

Faculty Scholarship

No abstract provided.

The Future Of Direct Finance: The Diverging Paths Of Peer-To-Peer Lending And Kickstarter, Kathryn Judge

Faculty Scholarship

For centuries, the trend has been toward longer and more complex intermediation chains in a wide array of contexts. The growing length and complexity of intermediation chains were both the by-products and drivers of ever-greater globalization and specialization. In recent years, however, there has been a shift in the opposite direction. In a variety of markets, suppliers and consumers increasingly transact directly with one another. Many of these developments have arisen from technological innovations that reduce search costs and other hurdles to transacting, like verifying information and negotiating the terms of a transaction. Airbnb, Etsy, and their kin, for example, …

Equity's Unstated Domain: The Role Of Equity In Shaping Copyright Law, Shyamkrishna Balganesh, Gideon Parchomovsky

Faculty Scholarship

As used today, the term “equity” connotes a variety of related, but nonetheless distinct, ideas. In most contexts, equity refers to the body of rules and doctrines that emerged in parallel with the common law, and which merged with the common law by the late nineteenth century. At a purely conceptual level, some trace the term back to Aristotle’s notion of epieikeia, or the process of infusing the law with sufficient flexibility to avoid injustice. Lastly, at a largely practical level, a few treat equity as synonymous with a set of remedies that courts can authorize, all of which …

Mandatory Disclosure And Individual Investors: Evidence From The Jobs Act, Colleen Honisberg, Robert J. Jackson Jr., Yu-Ting Forester Wong

Faculty Scholarship

One prominent justification for the mandatory disclosure rules that define modem securities law is that these rules encourage individual investors to participate in stock markets. Mandatory disclosure, the theory goes, gives individual investors access to information that puts them on a more equal playing field with sophisticated institutional shareholders. Although this reasoning has long been cited by regulators and commentators as a basis for mandating disclosure, recent work has questioned its validity. In particular, recent studies contend that individual investors are overwhelmed by the amount of information required to be disclosed under current law, and thus they cannot and do …