Law Commons^™

The Market For Securities And Its Regulation Through Gatekeepers, Carsten J. Gerner-Beuerle

Carsten J Gerner-Beuerle

The financial scandals of the last decade have called into question the effectiveness of the system of securities regulation in many countries. Articles that have examined the origins of the regulatory crisis have concluded that the classical tools of corporate governance for the supervision of management have lost their force in light of new incentive structures in the financial markets. They see as the solution to the regulatory lacunae the utilisation of financial intermediaries and other market participants as gatekeepers, i.e. as agents that ensure compliance of the primary market actor (the issuer) with applicable rules by reviewing its disclosures …

Detrimental Legal Implications Of Off-Balance Sheet Special Purpose Vehicles In Light Of Implicit Guarantees, Tyson E. Taylor

Tyson E Taylor

In the face of financial institutions’ spiraling asset prices, large write-offs, and excessive risk exposure firms are being forced to guarantee their SPVs and VIEs. In light of current accounting standards, financial firms’ efforts to preserve their institutional reputation by maintaining implicit guarantees on off-balance sheet SPVs have rendered the SPV moot as a viable vehicle of off-balance sheet asset transfers. The fundamental problem with these implicit guarantees is that they appear to violate the “true sale” element of the ABS process under FAS 140 and cause the sponsor to be designated a “primary beneficiary” under FIN 46(R). Under FAS …

Circularity If Life In Securities Class Actions, Frank C. Torchio

Frank C Torchio

No abstract provided.

Challenging The State: The Tort Of Misfeasance In Public Office And The Case Of Three Rivers District Council V The Bank Of England, Noel Cox

Noel Cox

The tort of misfeasance in public office is designed to target “the deliberate and dishonest abuse of power”. Public officers are not liable merely because a bona fide administrative act is later found to be unlawful. However, there is a misfeasance in public office if a person suffers loss or damage as a result of administrative action known to be unlawful by those persons taking it, and those persons knew that the plaintiff would suffer loss or were recklessly indifferent as to whether the plaintiff would suffer loss. A deliberate and vindictive act by a public official, targeted at the …

The Nyse Response To Specialist Misconduct: An Example Of The Failure Of Self-Regulation, Nan S. Ellis, Lisa M. Fairchild, Harold D. Fletcher

Nan S Ellis

Public attention has been focused on the financial services industry in the wake of questionable lending practices in the mortgage market, the demise of traditional investment banks and the failure of large commercial banks. We argue in this article that part of the wide-sweeping reform that is likely to result from the current financial crisis should include a reform of NYSE regulation. The NYSE is currently a self-regulatory organization (SRO). This paper examines the scandal involving specialist misconduct that occurred in 2003 and the NYSE response to that scandal. We argue that NYSE inattention contributed to the occurrence of misconduct …

Will Benefits Of Communicating Face-To-Face Drive Widespread Adoption Of Telepresence For Use In Commercial Negotiation?, Brian D. Mckenzie

Brian D. McKenzie

People are famously egocentric, short-sighted, risk-averse, competitive, and insecure. All of these human characteristics are in play during a face-to-face negotiation, where a negotiator’s ability to control his own characteristics while observing those of his opponent can have a significant impact on the outcome of the negotiation. While highly effective, face-to-face negotiation suffers from the expense of drawing geographically disparate parties into close physical proximity. As a result, alternatives for business have been developed, such as telephone, and email, but this paper will demonstrate how each falls short of the “personal experience” of face-to-face negotiation, and how such a deficiency …

Subprime Communities: Reverse Redlining, The Fair Housing Act And Emerging Issues In Litigation Regarding The Subprime Mortgage Crisis, Raymond H. Brescia

Raymond H Brescia

As the nation struggles to find its bearings in the current financial crisis, and venerable pillars of Wall Street crumble, hundreds of billions of dollars will be spent to shore up the financial system and re-capitalize credit markets. While the eyes of Washington are directed towards Wall Street, there is much talk of the need to prop up Main Street as well, and nowhere is this more apparent than in communities and neighborhoods across the United States that have experienced the first wave of the financial crisis hit: home upon home of foreclosed properties, abandoned and neglected, their absent silence …

Foss Vs Harbottle, Sujata Roy

Sujata Roy

No abstract provided.

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 …

Credit Rating Agencies And The 'Worldwide Credit Crisis': The Limits Of Reputation, The Insufficiency Of Reform, And A Proposal For Improvement, John P. Hunt

John P Hunt

The “worldwide credit crisis” has thrust credit rating agencies into the spotlight, with attention focused on their ratings of novel structured finance products. Policymakers have undertaken a number of initiatives intended to address perceived problems with such ratings – enhancing competition, promoting transparency, reducing conflicts of interest, and reducing ratings-dependent regulation. These approaches are all broadly consistent with the dominant academic theory of rating agencies, the “reputational capital” model, which is taken to imply that under the right circumstances a well-functioning reputation mechanism will deter low-quality ratings. The policy initiatives currently under consideration can be seen as efforts to fix …

Hedge Funds’ Empty Voting In Mergers And Acquisitions: A Fiduciary Duties Perspective, Andrea Zanoni

Andrea Zanoni

Hedge funds have become lately active also in the market for corporate control. Their active involvement has been propelled by a tactic allowing them to decouple voting rights from economic ownership and labelled in the literature as “encumbered shares” or “empty voting”.

The aim of this Article is twofold. On the one hand, I address the impact of hedge funds’ activism on the financial markets and on the portfolio companies. In general terms, hedge funds’ activism should be seen as a neutral element. After a cost-benefit analysis, I show that the costs implied by hedge funds’ activism are at least …

The Shadow Bankruptcy System, Jonathan C. Lipson

Jonathan C. Lipson

This article exposes and explores a puzzle at the heart of the current economic crisis: The surprising under-use, and increasing misuse, of Chapter 11 of the United States Bankruptcy Code, the principal legal system for salvaging troubled businesses.

The answer offered here: The rise of the shadow bankruptcy system. “Shadow bankruptcy” describes the severely under-regulated non-bank financial institutions (e.g., hedge funds, private equity funds and investment banks) that increasingly dominate and manipulate Chapter 11 reorganizations.

Like the “shadow banking” system for which it is named, shadow bankruptcy thrives on and promotes opacity and undisclosed, possibly perverse, incentives. Shadow bankruptcy players …

Greenspan's Lament: Incentive Mechanisms And The Contamination Of The Safety And Soundness Of Depository Institutions From Risky Derivative Securities, Daniel J. Boyle

Daniel J Boyle

The attached paper attempts to synthesize the foundational tools of industrial organization economics and how they interacted with law and public policy choices to explain the genesis of the current competitive dynamics in banking and financial products. The paper examines the underlying assumptions of microeconomic theories of efficiency and competitive equilibrium including externalities, information asymmetry, game theory and mechanism design, and how those combine dynamically with the process of formation, implementation and adjudication of the law to allow actors to rationally and systematically adjust their ownership structures and their transaction costs to internalize benefits and externalize costs and risk. This …

Innovative Destruction: Structured Finance & Credit Market Reform In The Bubble Era, Aaron J. Unterman

Aaron J. Unterman

The combination of unregulated financial innovation and human greed has, and will continue to have, dire effects on the international economy. The financial crisis which began in the American sub-prime housing market, and spread across the globe, has devastated the structured finance industry and cast doubts on the new era of credit risk transfer, which had come to represent the achievements of financial innovation. This paper explores the role structured finance played in the credit crisis, dissecting the complex instruments which drove the industry and allowed the American sub-prime housing market to infect the international economy. This paper argues that …

Il Contagio Dei Subprime

Patricia A. McCoy

No abstract provided.

With Avarice Aforethought: Insider Trading And 10b5-1 Plans, Karl T. Muth

Karl T Muth

The 10b5-1 plan and its growing popularity create a variety of governance problems and temptations for executives at publicly-traded corporations. The thought, in creating a safe harbor for such plans, was to allow insiders to diversify their individual holdings while in possession of nonpublic, material information. The 10b5-1 plan allows the actual liquidation transaction to occur while the plan participant is in possession of inside information, so long as the orders or instructions causing the trade were created as part of a "plan" that predates the insider's acquisition of the pertinent information. This creates a sort of time machine, where …

Learning From Our History: Evaluating The Modern Housing Finance Market In Light Of Ancient Principles Of Justice, Brian M. Mccall

Brian M McCall

Since I first accepted an invitation to join this symposium, the subprime mortgage crisis has exploded into a systemic financial crisis. Analysis and pundits alike seem on a quest to outdo each other in using dramatic phrases to describe its historic proportions. The causes of a crisis so large must have a multiplicity of causes lying in the realms of bank regulation and supervision, the operation and regulation of the securitization market and the derivatives and insurance markets. Yet, the root and spark of the various financial reverberations initiated in the home mortgage finance market. My presentation will focus on …

It's Just Secured Credit: The Natural Law Case In Defense Of Some Forms Of Secured Credit, Brian M. Mccall

Brian M McCall

For decades scholars have been debating whether of not the institution of security can be explained and justified. After much discussion from varying points of view and hermeneutics, although some insights have been gained, the answer to the original question remains unresolved. This article attempts to bring new life to this debate by building on Professors Mooney and Harris’ idea of security interest as property right while taking account of the valid concerns of scholars such as Elizabeth Warren and Lyn Lopucki that certain results produced by the current system seem unjust. This reconciliation of these two strands of secured …