Law Commons^™

Using The Actual-Trader Model In Federal Securities Cases To Meet Daubert Standards And To Offset Inflationary Gains Against Inflationary Losses, Ran Wei, Ricardo Cossa, Mark Zmijewski

Ran Wei

Aggregate damages in securities class action lawsuits have two distinct elements: inflation in the prices of the subject company’s securities and the trading behavior of the subject company’s investors. Experts typically have not been able to use statistical and empirically-based methods to measure the trading behavior of all investors in the class. In this paper we outline a methodology, the actual-trader model, to quantify aggregate damages for non-institutional investors. This methodology provides appropriate and sufficient empirical foundation for the aggregate damage calculations in securities class action lawsuits. When implemented appropriately, we believe this methodology meets Daubert and other standards of …

The Subprime Crisis--A Test Match For The Bankers: Glass-Steagall Vs. Gramm-Leach-Bliley, Jerry W. Markham

Jerry W. Markham

This article addresses the ongoing debate over whether the repeal of the Glass-Steagall Act of 1933 by the Gramm-Leach-Bliley Act of 1999 (“GLBA”) laid the groundwork for the subprime crisis. The Glass-Steagall Act prohibited commercial banks from engaging in investment banking activities such as underwriting and dealing in equity securities. The GLBA removed that barrier, allowing banks to become financial supermarkets. However, the article concludes that GLBA played little if any role in the events surrounding the subprime crisis.

Illinois Mortgage Foreclosure: Problems And Solutions, John N. Oest

John N Oest

This article contends that various provisions of Illinois' mortgage foreclosure law conflict with other bodies of law. Existing practice of publishing against unknown claimants is also overly expansive and needlessly increases the cost of foreclosure. This article recommends solutions to all these problems.

Criminal Insider Trading: Prosecution, Legislation, And Justification, Steven Brody

Steven Brody

Since the passage of the Securities Exchange Act of 1934, insider trading has been codified as a federal crime. For many years, however, civil cases were rare, and criminal prosecutions resulting in prison terms were nearly unheard of. Yet during the 1980’s, white collar crime—and insider trading in particular—became the subject of more public scrutiny than it had ever previously received. During this period, major developments occurred in the criminalization, prosecution, and sentencing of those who had committed securities fraud. High profile cases of inside traders like Ivan Boesky and Dennis Levine made targets of federal prosecutions household names and …

Freeze-Outs: Transcontinental Analysis And Reform Proposals, Marco Ventoruzzo

Marco Ventoruzzo

One of the most crucial, but systematically neglected, comparative differences between corporate law systems in Europe and in the United States, as crucial as often neglected, concerns the regulations governing freeze-out transactions in listed corporations. Freeze-outs can be defined as transactions in which the controlling shareholder exercises a legal right to buy out the shares of the minority, and consequently delists the corporation and brings it private. Beyond this essential definition, the systems diverge profoundly.

This gap exists despite the fact that minority freeze-outs are one of the most debated issues in corporate law, in the public media, in a …

Do Death Trap Provisions Breathe Life Into A Chapter 11 Reorganization Plan?, Amanda K. Bloch

Amanda K. Bloch

In modern day Chapter 11 bankruptcy proceedings, pre-petition secured creditors often provide debtor-in-possession financing, and these lenders consequently become the controlling entity in the bankruptcy. Several new practices have developed as a result of this financing scheme which permit the pre-petition lenders to increase their status in the bankruptcy (e.g. roll-ups, the new value exception). One such practice is the inclusion of a “death trap” provision in a reorganization plan. These provisions stipulate that an impaired class, usually an equity class in an insolvent corporation, will receive a distribution under the plan in return for an affirmative vote, but no …

Implications Of Reputation Economics Of Regulatory Reform Of The Credit Rating Industry, Paul Lasell Bonewitz

Paul Lasell Bonewitz

Credit rating agencies have for years maintained that they would never intentionally issue or maintain inaccurate ratings due to the damage their reputation, and therefore their business, would suffer as a result. The reputation of credit rating agencies perhaps never suffered more than when thousands of structured debt securities proved to hold inflated ratings in the run-up to the credit crisis. Yet credit rating agencies remain as engrained as ever in the global financial system. What is more, Congressional testimony shows that credit rating agencies had the ability to rate more accurately than they did, but intentionally failed to do …

Myths About Mutual Fund Fees: Economic Insights On Jones V. Harris, D. Bruce Johnsen

D. Bruce Johnsen

Mutual funds stand ready at all times to sell and redeem common stock to the investing public for the net value of their assets under management. In the language of transaction cost economics, they are open-access common pools subject to virtually free investor entry and exit. The Investment Company Act (1940) requires mutual funds to be managed by an outside advisory firm pursuant to a written contract, which normally pays the adviser a small share of net asset value, say, one-half of one percent per year. Following 1970 amendments to the Investment Company Act imposing a fiduciary duty on advisers …

The Financial Crisis Of 2009 - Have Reorganization Proceedings In Emerging Markets Gone Bankrupt? Israel As A Case Study, David Hahn

David Hahn

The financial crisis of 2009 affected markets all over the world, presenting an unprecedented challenge for international regulators. In emerging markets, firms began raising significant amounts of debt through corporate bonds only in recent years. When such markets crashed, and firms could no longer pay bondholders, regulators were forced to adopt innovative policies to cope with the problem. This paper explores the possible regulatory responses to the crisis, by focusing on the actions taken by regulators in Israel. The paper outlines the various mechanisms that have been employed and offered to combat the crisis and highlights their shortcomings. It then …

Intent And Empirics: Race To The Subprime, Carol N. Brown

Carol N Brown

ABSTRACT INTENT AND EMPIRICS: RACE TO THE SUBPRIME The United States’ history of racially discriminatory banking, housing, and property policies created a community of black Americans accustomed to exploitative financial services and vulnerable to victimization by subprime lenders. My thesis is that black borrowers are experiencing a new iteration of intentional housing discrimination in the twentieth and twenty-first centuries; lenders identified a vulnerable “emerging market” of black homeowners and borrowers and knowingly targeted them to receive subprime or predatory loan products when equally situated white borrowers were given superior, prime mortgage products. This Article explores how disparate lending practices coupled …

The Regulation Of Structured Debts: Why? What? And How?, Cyrus C. Y. Chu

Cyrus C. Y. Chu

This article contributes to the legal theoretical foundation of the regulation of structured notes. We shall first anatomize the most typical kind of structured note, the collateralized debt obligation (CDO). We analyze the similarity between a CDO and a constructed pledged mortgage, point out the embedded fuzzy information behind this structured mortgage, and then identify the implicit externality of this mortgage construction. We argue that CDOs can be treated as properties instead of contracts, and the usual notion of numerus clausus does support more severe regulations on such properties. Most existing literature has emphasized the moral hazard problem of investment …

Hedge Funds: The Missing Link In Executive Pay Reform, Robert Illig

Robert C Illig

No abstract provided.

The Illegal Actions Of The Federal Reserve: An Analysis Of How The Nation’S Central Bank Has Acted Outside The Law In Responding To The Current Financial Crisis, Chad Emerson

Chad Emerson

Abstract

The Illegal Actions of the Federal Reserve:

An Analysis of How the Nation’s Central Bank Has Acted Outside the Law in Responding to the Current Financial Crisis

In the Spring of 2008, the United States Federal Reserve Bank, under the Chairmanship of Ben Bernanke, took emergency measures in an attempt to forestall a national, if not international, economic meltdown. The actual effectiveness of these unprecedented measures has been hotly-debated. Unfortunately, regardless of their efficacy, the Federal Reserve acted outside the scope of its legal authority in taking several of these actions.

This essay will analyze how the Federal Reserve …

Of Victims, Villains And Fairy Godmothers: Regnant Tales Of Predatory Lending, Carolyn Grose

carolyn grose

The subprime mortgage crisis has exposed a system of predatory and irresponsible lending on a scale we are only beginning to comprehend. Those initially harmed in this crisis – the canaries in the coal mine – were largely low-income people of color. As the crisis has unfolded, the potential solutions available to such borrowers seem to privilege one kind of legal story over all others: the story of the poor person as a victim in need of rescuing.

In order to win, therefore, lawyers who represent these clients often fall back on a default narrative about their clients as unwitting …

What’S In A Name? The Role Of Danielson In The Taxation Of Credit Card Securitizations, Grace S. Lee

Grace S Lee

While the doctrine of substance over form has been a part of tax law for over seventy years, courts look disfavorably upon taxpayers who invoke the doctrine to argue against the forms of their own transactions under what is commonly referred to as the Danielson rule. Although the Danielson rule appears sound on its face, it holds less force when applied outside of its original context. In particular, the Danielson rule should not apply when the form given to a transaction is given for non-tax reasons, such as to achieve a particular accounting treatment. The taxation of credit card securitizations …

What’S In A Name? The Role Of Danielson In The Taxation Of Credit Card Securitizations, Grace S. Lee

Grace S Lee

While the doctrine of substance over form has been a part of tax law for over seventy years, courts look disfavorably upon taxpayers who invoke the doctrine to argue against the forms of their own transactions under what is commonly referred to as the Danielson rule. Although the Danielson rule appears sound on its face, it holds less force when applied outside of its original context. In particular, the Danielson rule should not apply when the form given to a transaction is given for non-tax reasons, such as to achieve a particular accounting treatment. The taxation of credit card securitizations …

Intent And Empirics: Race To The Subprime, Carol N. Brown

Carol N Brown

ABSTRACT INTENT AND EMPIRICS: RACE TO THE SUBPRIME The United States’ history of racially discriminatory banking, housing, and property policies created a community of black Americans accustomed to exploitative financial services and vulnerable to victimization by subprime lenders. My thesis is that black borrowers are experiencing a new iteration of intentional housing discrimination in the twentieth and twenty-first centuries; lenders identified a vulnerable “emerging market” of black homeowners and borrowers and knowingly targeted them to receive subprime or predatory loan products when equally situated white borrowers were given superior, prime mortgage products. This Article explores how disparate lending practices coupled …

Prioritizing Justice: Combating Corporate Crime From Task Force To Top Priority, Mary K. Ramirez

mary k ramirez

Inadequate law enforcement against corporate criminals appears to have created perverse incentives leading to an economic crisis – this time in the context of the subprime mortgage crisis. Prioritizing Justice proposes institutional reform at the Department of Justice in pursuing corporate crime. Presently, corporate crime is pursued nationally primarily through the DOJ Corporate Fraud Task Force and other task forces, the DOJ Criminal Division Fraud Section, and the individual U.S. Attorney’s Offices. Rather than a collection of ad hoc task forces that seek to coordinate policy among a vast array of offices and agencies, the relentless waves of corporate criminality …

Invigorating The Role Of The In-House Legal Advisor As Steward In Ethical Culture And Governance At Client-Business Organizations: From 21st Century Failures To True Calling, Ben G. Pender

Ben G Pender II

Invigorating the Role of the In-House Legal Advisor as Steward in Ethical Culture and Governance at Client-Business Organizations From 21st Century Failures to True Calling J.D., University of St. Thomas School of Law, 2009 M.A. Sociology, Organizational Effectiveness, Clark Atlanta University, 1996. B.S., Sociology, Virginia Polytechnic Institute and State University, 1988. All Rights Reserved. © 2009. This Article examines the need to invigorate the role of the in-house legal advisor from ‘mere legal technician’ to simultaneous legal advisory gatekeeper and ethical steward at client-business organizations. This article asserts that the often-acquiescent in-house legal advisor as ‘mere legal technician’ is partially …

Locating Innovation: The Endogeniety Of Technology, Organizational Structure And Financial Contracting, Ronald J. Gilson

Ronald J. Gilson

There is much we do not understand about the “location” of innovation; the confluence, for a particular innovation, of the technology associated with the innovation, the innovating firm’s size and organizational structure, and the financial contracting that supports the innovation. This article develops the theme that these three determinants of the location of innovation are simultaneously determined through examination of examples of innovative activity whose location is characterized by tradeoffs between pursuing the activity in a an established company or in a smaller, earlier stage company, or some combination of the two. It first considers the dilemma faced by an …

From Lily Bart To The Boom Boom Room: How Wall Street’S Social And Cultural Response To Women Has Shaped Securities Regulation, Christine Sgarlata Chung

Christine Sgarlata Chung

In Edith Wharton’s 1905 novel House of Mirth, Lily Bart learns in one brutal moment what happens to women who get tangled up with the stock market. Though she is beautiful and well-born, Lily is vulnerable when she seeks salvation in the stock market – she has no family to support her, no fortune of her own, no training in business matters, and no socially acceptable means of acquiring money, save marriage. When the husband of a friend (Gus Treanor) offers to help Lily by speculating in the stock market, Lily agrees. And when Treanor begins presenting Lily with money, …

Simultaneous Distress Of Residential Developers And Their Secured Lenders: An Analysis Of Bankruptcy & Bank Regulation, Sarah P. Woo

Sarah P Woo

With falling home prices and home foreclosures currently acknowledged as a severe problem in the U.S., more attention needs to be paid to the contributing phenomenon of residential developers undergoing liquidation, which has left behind a trail of partially-completed or abandoned properties. In order to understand this phenomenon, we analyzed 222 residential developers that filed Chapter 11 bankruptcy petitions between November 2007 and December 2008. We find that only a very small proportion of these developers, as compared to previous similar large studies, confirmed a reorganization plan. Most cases ended in liquidations. In the sample, 72.5% of the cases showed …

The Effects Of Devaluation Of The Tenge Upon The Kazakhstan Economy, John Ja Burke

John JA Burke

This article examines the probable effect of the February 2009 devaluation of the Tenge on the Kazakhstan economy. Conventional wisdom holds that currency devaluation increases exports, protects domestic production, and preserves foreign exchange currency reserves. While the latter states the obvious, the causal relation between currency devaluation and increased export revenue and increased domestic production, though logically valid, requires the passage of time to measure. In the context of Kazakhstan, the question of devaluation and its effects also must be examined within the “Dutch Disease” model, as Kazakhstan is an oil dependent country. History teaches that devaluing the Tenge is …

What Law Schools Should Teach Future Transactional Lawyers: Perspectives From Practice, Michael A. Woronoff

Michael A Woronoff

Since at least the 1980’s, law schools have been chided for doing a poor job at teaching skills. This criticism has been accompanied by pressure to increase their emphasis on skills training. The pressure increased with the publication of the McCrate Report in 1992, and then again with the publication of the Carnegie Report in 2007. This article is based on my remarks given on June 10 at the 2009 mid-year meeting of the AALS Conference on Business Associations. In those remarks, I respond to the questions “Are law schools teaching students adequate transactional skills?” and “From the standpoint of …

From Lily Bart To The Boom Boom Room: How Wall Street’S Social And Cultural Response To Women Has Shaped Securities Regulation, Christine Sgarlata Chung

Christine Sgarlata Chung

In Edith Wharton’s 1905 novel House of Mirth, Lily Bart learns in one brutal moment what happens to women who get tangled up with the stock market. Though she is beautiful and well-born, Lily is vulnerable when she seeks salvation in the stock market – she has no family to support her, no fortune of her own, no training in business matters, and no socially acceptable means of acquiring money, save marriage. When the husband of a friend (Gus Treanor) offers to help Lily by speculating in the stock market, Lily agrees. And when Treanor begins presenting Lily with money, …

From Lily Bart To The Boom Boom Room: How Wall Street’S Social And Cultural Response To Women Has Shaped Securities Regulation, Christine Sgarlata Chung

Christine Sgarlata Chung

In Edith Wharton’s 1905 novel House of Mirth, Lily Bart learns in one brutal moment what happens to women who get tangled up with the stock market. Though she is beautiful and well-born, Lily is vulnerable when she seeks salvation in the stock market – she has no family to support her, no fortune of her own, no training in business matters, and no socially acceptable means of acquiring money, save marriage. When the husband of a friend (Gus Treanor) offers to help Lily by speculating in the stock market, Lily agrees. And when Treanor begins presenting Lily with money, …

Trust In The Shadows: Law, Behavior And Financial Re-Regulation, Raymond H. Brescia

Raymond H Brescia

In the deep throes of the Great Depression, in an effort to restore faith in America’s economy, the Roosevelt Administration promoted the development of voluntary codes of conduct to govern employment and manufacturing practices across hundreds of industries. Compliance with these codes permitted a company to display a Blue Eagle, which was supposed to signify support for New Deal efforts, and that the company was trustworthy. In this way, the Blue Eagle served as a heuristic—a cognitive shortcut— that helped consumers identify those companies engaged in fair practices so that those consumers could show their support for the recovery effort …

Protecting Foreign Investors From International Securities Fraud, Derek N. White

Derek N White

This article discusses the subject matter jurisdiction of national courts in a little-known type of international securities cause of action that has vexed courts of the developed world. The cause of action is labeled the “foreign-cubed class action”, which is brought when a dispute arises regarding purported improprieties in an international securities transaction that contains foreign investors who purchase securities of foreign issuers on foreign stock exchanges. Notice the three “foreign” elements of the transaction ("foreign" meaning foreign to the court presiding over the action).

The number of foreign-cubed class actions brought in U.S. courts has risen sharply over the …

Free Falling With A Parachute That May Not Open: Debtor-In-Possession Financing In The Wake Of The Great Recession, Jarrod B. Martin, Kristofor Nelson, Eric Rudenberg, Jonathan Squires

Jarrod B Martin

Debtor-in-possession (DIP) financing is one of the most important building blocks of a Chapter 11 bankruptcy case. The recent economic downturn, however, has frozen the DIP financing market. Absent the financing necessary to reorganize, many companies will be forced to liquidate. Who will fill the void in DIP financing as banks exit the market? This note seeks to explore alternative options—local banks, the government, and private equity or hedge funds—that may fill the vacuum left by the banks, and the risks and rewards associated with DIP financing. As these alternate institutions go forward, the landscape of DIP financing may forever …

Mortgage Market Regulation And Moral Hazard: Equity Stripping Under Sanction Of Law, Vincent Di Lorenzo

Vincent Di Lorenzo

No abstract provided.