Securities Law Commons^™

The Petrochina Syndrome: Regulating Capital Markets In The Anti-Globalization Era, Stephen F. Diamond

Cornell Law Faculty Working Papers

This article argues that the process of globalization has generated a legitimation deficit that can be the source of wasteful, even destructive, social and political conflict. I stylize this outcome as "the PetroChina Syndrome," after a leading example of the kind of activity generated in response to globalization, the PetroChina Campaign, where a coalition of labor, human rights, environmental, anti-slavery and religious groups worked together to oppose the initial public offering of a major Chinese oil company led by Goldman Sachs. The article begins with a discussion of this important but largely unexplored dimension of the anti-globalization era triggered by …

The Mechanisms Of Market Inefficiency: An Introduction To The New Finance, Lynn A. Stout

Cornell Law Faculty Publications

During the 1970s and early 1980s, the Efficient Capital Market Hypothesis (ECMH) became one of the most widely-accepted and influential ideas in finance economics. More recently, however, the idea of market efficiency has fallen into disrepute as a result of market events and growing empirical evidence of inefficiencies. This essay argues that the weaknesses of the efficient market theory are, and were, apparent from a careful inspection of its initial premises, including the presumptions of homogeneous investor expectations, effective arbitrage, and investor rationality. By the same token, a wide range of market phenomena inconsistent with the ECHM can be explained …

Standing Up To Wall Street (And Congress), Richard W. Painter

Michigan Law Review

In 1992, Arthur Levitt co-chaired a fundraising dinner for William Clinton. The dinner raised $750,000 (p. 7). Clinton was elected President, and Levitt got the job he wanted: Chairman of the Securities and Exchange Commission. Levitt, a former Chairman of the American Stock Exchange and a connected Democrat, was well qualified for the job. His, however, became a pyrrhic victory when accountants, issuers, broker-dealers, and other special interests used their own political connections to frustrate just about everything he sought to do. Levitt tells the story of his struggle against these well-funded interests in Take on the Street. One of …

Investor Skepticism V. Investor Confidence: Why The New Research Analyst Reforms Will Harm Investors, John L. Orcutt

Law Faculty Scholarship

Part I of this Article provides an overview of research analysts and their basic functions, including a discussion of sell-side analysts' role in the market's recent boom and bust. Part II examines the conflicts of interest that have plagued sell-side research, and Part III reviews the Regulatory Actions that are meant to address these conflicts. In Part IV, the author will make the case for encouraging, rather than lessening, investor skepticism in sell-side research and will explain why the Regulatory Actions are not likely to improve the performance of sell-side analysts. Finally, Part V will offer a simpler proposal to …

The Mechanisms Of Market Efficiency Twenty Years Later: The Hindsight Bias, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Twenty years ago we published a paper, "The Mechanisms of Market Efficiency," that sought to describe the institutional underpinnings of price formation in the securities market. Since that time, financial economics has moved forward on many fronts. The sub-discipline of behavioral finance has struggled to bring yet more descriptive realism to the study of financial markets. Two important questions are (1) how much has this new discipline changed our understanding of the efficiency and nature of the institutional mechanisms that set price in financial markets; and (2) how far does this discipline carry novel implications for the regulation of financial …

Frictions And Tax-Motivated Hedging: An Empirical Exploration Of Publicly-Traded Exchangeable Securities, William M. Gentry, David M. Schizer

Faculty Scholarship

As financial engineering becomes more sophisticated, taxing income from capital becomes increasingly difficult. We offer the first empirical study of a high profile strategy known as "taxfree hedging," which offers economic benefits of a sale without tnggering tax. We explore nontax costs that taxpayers face when hedging by issuing so-called "DECS," "PHONES," and other publicly-traded exchangeable securities. Focusing on 61 transactions between 1993 and 2001, we shed light on why taxpayers might prefer to hedge through private "over-the-counter" transactions: An offering of exchangeable securities is announced in advance and implemented all at once, triggering an almost 4 percent decline in …

Understanding Venture Capital Structure: A Tax Explanation For Convertible Preferred Stock, Ronald J. Gilson, David M. Schizer

Faculty Scholarship

The capital structures of venture capital-backed U.S. companies share a remarkable commonality: overwhelmingly, venture capitalists make their investments through convertible preferred stock. Not surprisingly, much of the academic literature on venture capital has sought to explain this peculiar pattern. Financial economists have developed models showing, for example, that convertible securities efficiently allocate control between the investor and entrepreneur,signal the entrepreneur's talent and motivation, and align the incentives of entrepreneurs and venture capitalists.

In this Article, we examine the influence of a more mundane factor on venture capital structure: tax law. Portfolio companies issue convertible preferred stock to achieve more favorable …

Put-Call Parity And The Law, Michael S. Knoll

Cardozo Law Review

No abstract provided.

A Repo Opera: How Criimi Mae Got Repos Backwards, Jeanne L. Schroeder

Articles

The article argues that repurchase agreements (repos) should be treated as true sales rather than secured loans under bankruptcy law to maintain financial market stability. It critiques the *In re Criimi Mae* court for misapplying the "Debtors Equity Test," which assesses whether the seller retains meaningful property rights. The analysis emphasizes the need for clear legal standards to prevent misclassification and ensure market certainty.

Harmonization Of Disclosure Standards For Cross-Border Share Offerings: Approaching An "International Passport" To Capital Markets? (The Earl A. Snyder Lecture In International Law), J. William Hicks

Indiana Journal of Global Legal Studies

On March 1, 2001, Professor Hicks delivered the fifth annual Snyder Lecture at the University of Cambridge in the Lauterpacht Center for International Research.

Sovereign Bonds And The Collective Will, Lee C. Buchheit, G. Mitu Gulati

Faculty Scholarship

No abstract provided.

Ziggy Stardust Reborn: A Proposed Modification Of The Bowie Bond, Adam Grant

Cardozo Law Review

No abstract provided.

Building A Strong Subnational Debt Market, Paul S. Maco

Richmond Journal of Global Law & Business

Decentralization of responsibility for finance and growing infrastructure needs are two trends that are expected to stimulate a growth in government borrowing at the sub-national level. Statistics for the first half of 2000 show a significant increase in sub-national debt volume, with global public finance, excluding Canada and the United States, more than doubling that of the first half of 1999.

Securities Fraud In Cyberspace: Reaching The Outer Limits Of The Federal Securities Laws, Constance Z. Wagner

All Faculty Scholarship

This article discusses the increasing use of the Internet for securities transactions, the growth of securitiesfraud perpetrated through that medium and the Securities and Exchange Commission (“SEC”) enforcement program initiated to combat it. The author critiques the position taken by the SEC that the existing anti-fraudprovisions of the federal securities laws can be stretched to cover Internet fraud. Using an enforcement action brought by the SEC against an online stock trading guru named Tokyo Joe as an example of the confused jurisprudence that results when pre-cyberspace law is applied to securities fraud in cyberspace, the author proposes a different regulatory …

The Changing Nature Of Federal Regulation - Dedications, Joel Seligman

Scholarship@WashULaw

In 1911 the failure of state corporation statutes to prevent securities fraud gave rise to the first significant legislative response when Kansas enacted the first well known state securities law. The law was popularly known as a “blue sky” law, because its intention was to check stock swindlers so barefaced that they “would sell building lots in the blue sky.”

After the U.S. Supreme court held that the blue sky law was constitutional in 1917, the blue sky movement swept the country. By 1933 every state except Nevada had a state securities law in effect.

Information Technology And Non-Legal Sanctions In Financing Transactions, Ronald J. Mann

Faculty Scholarship

This Essay investigates the effect of advances in information technology on the private institutions that businesses use to resolve information asymmetries in financing transactions. The first part of the Essay discusses how information technology can permit direct verification of the information, obviating the problem entirely; the Essay discusses the example of the substitution of the debit card for the check, which provides an immediate payment that obviates the need for the merchant to consider whether payment will be forthcoming when the check is presented to the bank on which it is drawn.

The second part of the Essay discusses how …

Depoliticizing Financial Regulation, Steven A. Ramirez

Faculty Publications & Other Works

No abstract provided.

Laws Governing Bank Securities Activities In The United States, Hanning Zhang

LLM Theses and Essays

This thesis analyzes the previous regulatory approach to bank investment activities in the United States and its effects on the banking industry, discusses regulatory changes that expanded banking powers, reviews the new legislation and potential problems in the current movement of financial reform, and suggests some solutions. Chapter II reviews previous statutory regimes on bank securities activities, including those separating traditional and investment banking under the Glass-Steagall Act and Bank Holding Company Act. The regulatory regime under the E.U. banking system is addressed to give an example of successful deregulation, by which universal banks may fully enjoy the rapid changing …

The Use Of Intellectual Property As Collateral: Gap In The Perfection Of A Security Interest, Sofia Benammar

LLM Theses and Essays

The purpose of the present thesis is to let French lawyers know which step they need to take in order to best assist their client in securing a more solid investment. Lenders want to be protected. Lenders want to be sure that they can use the intellectual property rights in a commercial environment free from superior claims by third parties. In other words, a lender who provides a large loan to a borrower wants to know how and where its security interest will be perfected and what is the best way for him to have priority over other claims. This …

The Legal Regulation Of Hedge Funds In The United States Long-Term Capital Management Episode, Jong Cheol Park

LLM Theses and Essays

Mutual funds and hedge funds are popular forms of investment in the United States and throughout the world. Mutual funds are regulated by securities' regulators in the United States. Hedge funds, however, are not regulated because of their operational flexibility in investment. U.S. regulators are concerned that if they regulate hedge funds, hedge funds will, along with their economic benefits, emigrate to offshore havens. However, if we consider the importance of the American financial markets in the world, this idea can be dismissed. Due to globalization in the capital markets, small events in the United States can have large effects …

Is Hedge Fund Regulation Necessary?, Willa E. Gibson

Akron Law Faculty Publications

The financial collapse of Long Term Capital Management, L.P., has led federal regulators and financial regulators to question whether additional regulatory constraints on a hedge fund's use of leverage are necessary to protect against financial market disruption. This Article discusses whether additional regulation is needed to protect against the possibility of systemic loss triggered by a hedge fund's excessive use of leverage. After reviewing the existing federal regulations to which hedge funds are potentially subject, this article concludes that private market regulation, through the exercise of more diligent market discipline by both hedge funds and those entities that extend credit …

A Normative Analysis Of New Financially Engineered Derivatives, Peter H. Huang

Publications

This Article analyzes whether the introduction of new derivative assets makes a society better or worse off. Because trading such non-redundant derivatives produces new distributions of income across time and over possible future contingencies, individuals can utilize such financial instruments to hedge risks not possible before the introduction of these assets. Thus, it may seem that new derivatives unambiguously benefit society. In fact, introducing sufficiently many new derivatives completes asset markets. Asset markets are complete if trading on them can attain every possible payoff pattern of wealth across time and over possible future contingencies. The first fundamental theorem of welfare …

Teaching Corporate Law From An Option Perspective, Peter H. Huang

Publications

No abstract provided.

Impact Of The Capital Markets On Real Estate Law And Practice, 32 J. Marshall L. Rev. 269 (1999), Michael H. Schill

UIC Law Review

No abstract provided.

Why The Law Hates Speculators: Regulation And Private Ordering In The Market For Otc Derivatives, Lynn A. Stout

Cornell Law Faculty Publications

A wide variety of statutory and common law doctrines in American law evidence hostility towards speculation. Conventional economic theory, however, generally views speculation as an efficient form of trading that shifts risk to those who can bear it most easily and improves the accuracy of market prices. This Article reconciles the apparent conflict between legal tradition and economic theory by explaining why some forms of speculative trading may be inefficient. It presents a heterogeneous expectations model of speculative trading that offers important insights into antispeculation laws in general, and the ongoing debate concerning over-the-counter (OTC) derivatives in particular.

Although trading …

The Efficient Norm For Corporate Law: A Neotraditional Interpretation Of Fiduciary Duty, Thomas A. Smith

Michigan Law Review

To economically oriented corporate law professors, distinguishing between directors' fiduciary duty to shareholders and a duty to the corporation1 itself smacks of reification - treating the fictional corporate entity as if it were a real thing. Now the orthodox view among corporate law scholars is that the corporate fiduciary duty is a norm that requires firm managers to "maximize shareholder value." Giving the corporation itself any serious role in the analysis of fiduciary duty, the thinking goes, obscures scientific insight with bad legal metaphysics. Some recent scholarship and legislation, such as constituency statutes, have challenged this "shareholder primacy" view. Contestants …

Are Swap Agreements Securities Or Futures: The Inadequacies Of Applying The Traditional Regulatory Approach To Otc Derivatives Transactions, Willa E. Gibson

Akron Law Faculty Publications

This Article contends that the classification of swap agreements as securities or futures is inappropriate given that the OTC derivatives market is a wholly different market than the ones for which securities and commodities laws were devised. Part II provides an overview of the swaps market. Part III discusses the jurisdictional problems between the SEC and CFTC regarding derivatives. Part IV examines whether swap transactions are securities. Part V examines whether swap transactions are futures contracts. Part VI surveys the exemption of swaps from CFTC authority. Part VII discusses the public policy goals in the OTC derivatives market, including what …

Creating Law At The Securities And Exchange Commission: The Lawyer As Prosecutor, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Notary Bonds And Insurance: Increasing The Protection For Consumers And Notaries, 31 J. Marshall L. Rev. 839 (1998), Michael J. Osty

UIC Law Review

No abstract provided.

Understanding The Choice Between Public And Private Equity Financing Of Early Stage Companies: A Comment On Barry And Turki, Ronald J. Gilson

Faculty Scholarship

This Comment considers the results of Barry and Turki's research data that indicates that investments perform differently depending on whether innovation is financed by private or public equity investment. The Comment posits two hypotheses for the differential performance. The first highlights ex ante differences between private and public subsamples, that is that the financing choice separates good prospects from bad. The second hypothesis focuses on ex post differences in performance that results from differences in governance structure and incentives created by the structure of public and private equity investment. The ex ante separation hypothesis and the ex post performance hypothesis …