Securities Law Commons^™

Private Ordering In The Old Dominion: A Solution To Frivolous Litigation Or The Elimination Of A Fundamental Shareholder Right?, Rebekah Biggs

University of Richmond Law Review

No abstract provided.

Corporate And Business Law, Christopher L. Mclean

University of Richmond Law Review

The past two years have produced a number of pieces of legislation from the Virginia General Assembly that serve to bring the set of Virginia business entity statutes up to date with its peers around the country. Part I highlights changes to the Virginia Stock Corporation Act (“VSCA”) and the Virginia Nonstock Corporation Act (“VNSCA”). Part II highlights changes to the Virginia Securities Act (“VSA”) and other statutes affecting Virginia business entities. Part III reviews two significant cases that the Supreme Court of Virginia decided over the past two years with respect to Virginia corporate law. Those decisions provided guidance …

Texas Gulf Sulphur And The Genesis Of Corporate Liability Under Rule 10b-5, Adam C. Pritchard, Robert B. Thompson

Articles

This Essay explores the seminal role played by SEC v. Texas Gulf Sulphur Co. in establishing Rule 10b-5’s use to create a remedy against corporations for misstatements made by their officers. The question of the corporation’s liability for private damages loomed large for the Second Circuit judges in Texas Gulf Sulphur, even though that question was not directly at issue in an SEC action for injunctive relief. The judges considered both, construing narrowly “in connection with the purchase or sale of any security,” and the requisite state of mind required for violating Rule 10b-5. We explore the choices of the …

The Elephant In The Room: Helping Delaware Courts Develop Law To End Systemic Short-Term Bias In Corporate Decision-Making, Kenneth Mcneil, Keith Johnson

Michigan Business & Entrepreneurial Law Review

Short-termism in corporate decision-making is as problematic for long-term investors as relying on a three-mile radar on a supertanker. It is totally inadequate for handling the long-term risks and opportunities faced by the modern corporation. Yet recent empirical research shows that up to 85% of the S&P 1500 have no long-term planning. This is costing pension funds and other long-term investors dearly. For instance, the small minority of companies that do long-term planning and risk management had a long-term profitability that was 81% higher than their peers during the 2001–2014 period—with less stock volatility that costs investors dearly as well. …

Corporate Distress, Credit Default Swaps, And Defaults: Information And Traditional, Contingent, And Empty Creditors, Henry T. C. Hu

Brooklyn Journal of Corporate, Financial & Commercial Law

Federal securities law seeks to ensure the quality and quantity of information that corporations make publicly available. Informational asymmetries associated with companies in financial distress, but not in bankruptcy, have received little attention. This Article explores some important asymmetries in this context that are curious in their origin, nature, and impact. The asymmetries are especially curious because of the impact of a world with credit default swaps (CDS) and CDS-driven debt “decoupling.” The Article explores two categories of asymmetries. The first relates to information on the company itself. Here, the Article suggests there is fresh evidence for the belief that …

Outcome Report Of Roundtable On International Investment Regime And Access To Justice, Michelle Chan, Kanika Gupta, Jesse Coleman, Kaitlin Y. Cordes, Lise Johnson

Columbia Center on Sustainable Investment Staff Publications

On October 18, 2017, the UN Working Group on Business and Human Rights and the CCSI co-hosted a one-day roundtable on the impacts of the international investment regime on access to justice for investment-affected individuals and communities.

Held at Columbia University in New York, the roundtable brought together 32 individuals from civil society organizations, communities affected by investments at the heart of investor-state claims, governments, academia, donor organizations, UN mandate holders, and other stakeholder groups. The roundtable provided an opportunity for participants to: (i) explore and assess the specific impacts of international investment agreements and investor-state dispute settlement on access …

Equity Crowdfunding Portals Should Join And Enhance The Crowd By Providing Venture Formation Resources, Jeff Thomas

Nova Law Review

No abstract provided.

Do Independent Directors Curb Financial Fraud? The Evidence And Proposals For Further Reform†, S. Burcu Avci, Cindy A. Schipani, Nejat Seyhun

Indiana Law Journal

In this Article, we argue that the U.S. corporate governance rules put too much faith in the independent board members and insufficient emphasis on the shareholders to control and monitor top management. Given the agency problem between the board of directors and the shareholders, outside directors can be captured by management, thereby leading to inadequate checks on management. The evidence presented in this Article shows that outside board members do not exercise sufficient controls on management even when management has gone awry. To solve this agency problem, we propose increasing the power of the principals: make shareholder resolutions binding on …

Proxy Access Voting: Evaluating Proxy Access And The Recent Phenomenon Of Corporations Adopting Shareholder Protective Policies, Danielle Vukovich

San Diego International Law Journal

Shareholders hold a financial stake in a corporation, and therefore are often viewed as owners of the corporation and believed to be in control for all corporate actions. However, their powers are circumscribed. Board of directors committees nominate directors to serve the corporation and these directors have the power to select the corporation’s officers. The committees provide shareholders a slate of proposed directors that are voted on and approved at the annual shareholder meeting. Shareholders may also propose their own slate of directors, but this typically requires a proxy contest, which can be expensive due to the costs both associated …

Essay: Corporate Triplespeak: Responses By Investor-Owned Utilities To The Epa’S Proposed Clean Power Plan, Alan R. Palmiter

Brooklyn Law Review

During the year following the EPA’s proposed Clean Power Plan to regulate CO2 emissions in the power sector, the largest investor-owned electric utilities engaged in a curious triplespeak. Employing the moral language of political conservatives, the utilities focused on whether and how the EPA had transgressed its “traditional” regulatory role, thus altering the “structure” of energy federalism and potentially “degrading” orderly power supplies. In disclosure filings with the Securities and Exchange Commission, the utilities used the moral language of political libertarians, focusing on the “financial risks” that federal government “intervention” poses to efficient power “markets” and to the “freedom” of …

Rules Are Meant To Be Amended: How Regulation Crowdfunding's Final Rules Impact The Lives Of Startups And Small Businesses, Dylan J. Hans

Brooklyn Law Review

The Securities and Exchange Commission effectuated the final crowdfunding rules in 2016, and since then, those rules have become the target of scrutiny from startups and investors. Crowdfunding, a form of public capital raising, is an exciting means by which new companies raise money. But, how long will this regulation be a viable option for startups and small businesses? Will the regulation continue to create opportunities for small market enterprises to raise capital? This Note argues that the Securities and Exchange Commission must make adjustments to the Regulation Crowdfunding exemption to improve investor protection, while also reducing draconian disclosure requirements …

Enforcing The Bargain V. Materiality Requirement: The Future Of Disclosure-Only Settlements Post-Trulia, Hao Jiang

Pace Law Review

In In re Trulia, Inc. Stockholder Litigation, the Delaware Court of Chancery broke away from its tradition of routinely approving disclosure-only settlements and required disclosures to be material in order to cure the conflict of interest between plaintiff’s counsel and the plaintiff class. I argue that fairness of settlement is the only standard in approving class action settlements and fairness will not be achieved by requiring materiality. Shareholders are legally entitled to all material information, as the board’s fiduciary duty dictates. Thus, material disclosures are enforcement of a legal duty that is no consideration for the release of shareholder claims. …

Do Institutional Owners Monitor? Evidence From Voting On Connected Transaction Proposals In Hong Kong-Listed Companies, Félix E. Mezzanotte, Simon Fung

Michigan Business & Entrepreneurial Law Review

The conventional view in Hong Kong has been that institutional owners tend to be passive owners and that they do little to monitor the companies’ management. We investigated whether the presence of institutional owners in Hong Kong-listed companies was associated with greater monitoring of management through dissent voting by hand-collecting information for a sample (n= 96) of connected transaction proposals (“CT proposals”) and of their voting outcomes, as announced in the Stock Exchange of Hong Kong during the period from 2012–14. Our study shows that voting approval rates on CT proposals were lower (i.e. greater dissent voting) when institutional owners …

Theories And Solutions On Wolf Pack Activism, Kimberly Goldman

Michigan Business & Entrepreneurial Law Review

Section I will describe the key players involved in wolf pack activism and their conflicting motives, including both the members of wolf packs and those affected by them. Given that not all shareholders have common interests, this will include an analysis of the motives of various types of shareholders and an analysis of how these diverse motives may affect the wealth sustainability of companies. Section II will explain the phenomenon of wolf packs in corporate governance by describing the circumstances that lead to their formation and the various regulations (or lack thereof) pertaining to them. Section III will describe divergent …

China's Anti-Corruption Crackdown And The Foreign Corrupt Practices Act, Daniel C.K. Chow

Texas A&M Law Review

China’s highly publicized crackdown on corruption may affect the type and number of cases in China that arise under the Foreign Corrupt Practices Act (“FCPA”), but it should not be assumed that the crackdown will necessarily lead to fewer FCPA prosecutions. Although there is some overlap of the goals of China’s corruption crackdown and the goals of the FCPA, China’s crackdown also serves important goals of the ruling Communist Party. The main goal of the current crackdown is to reinforce the Party’s power by targeting enemies and rivals of the current leadership. The crackdown is not aimed at prohibiting bribes …

What Would We Do Without Them: Whistleblowers In The Era Of Sarbanes-Oxley And Dodd-Frank, Sean Griffith, Jane A. Norberg, Ian Engoron, Alice Brightsky, Tracey Mcneil, Jennifer M. Pacella, Judith Weinstock, Jason Zuckerman

Fordham Journal of Corporate & Financial Law

No abstract provided.

Third-Party Institutional Proxy Advisors: Conflicts Of Interest And Roads To Reform, Matthew Fagan

University of Michigan Journal of Law Reform

With the rise of institutional activist investors in recent decades—including a purported 495 activist campaigns against U.S. corporations in 2016 alone—the role that third-party institutional proxy advisors play in corporate governance has greatly increased. The United States Office of Government Accountability estimates that clients of the top five proxy advisory firms account for about $41.5 trillion in equity throughout the world. For several years, discussions have developed regarding conflicts of interest faced by proxy advisors. For example, Institutional Shareholder Services, the top proxy advisory firm in the world, frequently provides advice to institutional investors on how to vote proxies while …

Fighting Technology With Technology: Taking Aim At Electronic Sales Suppression, Richard Thompson Ainsworth, Robert Chicoine

Faculty Scholarship

Electronic sales suppression (ESS) is a fraud that has been a (prominent) feature of the North American retail business since at least 1996. The first EES case in the US dates from 1981. ESS is a global problem. Depending on the jurisdiction, and the research study consulted, ESS is estimated to be present in 34% (of Canadian), 50% (of German – two studies), and 70% (of Swedish and Slovenian) businesses. It may be the case today, that “you cannot leave home without” encountering (or participating in) ESS.

The most common types of sales suppression technology are Zappers and Phantomware programming. …

Regulating The “Too Big To Jail” Financial Institutions, Jerry W. Markham

Brooklyn Law Review

This article addresses the “too big to jail” regulatory model in which large banks pay hundreds of billions of dollars to settle multiple and duplicative regulatory charges brought by a horde of state, federal, and even foreign regulators. The banks pay those massive settlements in order to keep their banking charters and to obtain immunity from prosecution for senior executives. In turn, regulators benefit from the headlines these fines generate. Much criticism has been directed at these settlements because the banks are allowed to continue business as usual and no senior executives are jailed. Other critics contend that these settlements …

Opacity, Fragility, & Power: Lessons From The Law Enforcement Response To The Financial Crisis, Gregory M. Gilchrist

Brooklyn Law Review

Review of Mary Kreiner Ramirez and Steven A. Ramirez, THE CARE FOR THE CORPORATE DEATH PENALTY: RESTORING LAW AND ORDER ON WALL STREET (New York 2017) The Case for the Corporate Death Penalty, by Mary Kreiner Ramirez and Steven A. Ramirez, argues that the limited law enforcement response to the 2008 financial crisis represented an unprecedented failure of the rule of law. It further maintains that the weak response by law enforcement was caused by the economic and political power of the largest financial institutions and those who run them. It concludes that the failure to vigorously prosecute the people …

Sexual Harassment And Corporate Law, Daniel Hemel, Dorothy S. Lund

Faculty Scholarship

The #MeToo movement has shaken corporate America in recent months, leading to the departures of several high-profile executives as well as sharp stock price declines at a number of firms. Investors have taken notice and taken action: Shareholders at more than a half dozen publicly traded companies have filed lawsuits since the start of 2017 alleging that corporate fiduciaries breached state law duties or violated federal securities laws in connection with sexual harassment scandals. Additional suits are likely in the coming months.

This Article examines the role of corporate and securities law in regulating and remedying workplace sexual misconduct. We …

How Investors Can (And Can't) Create Social Value, Paul Brest, Ronald J. Gilson, Mark A. Wolfson

Faculty Scholarship

Most investors throughout the world have a single goal: to earn the highest risk- adjusted financial returns. They would not accept a lower financial return from an investment that also produced social benefits.

More recently, an increasing number of socially-motivated investors have goals beyond maximizing returns. They also seek to align their investments with their social values (value alignment), and some also seek to cause the companies in which they invest to create more social value as a result of their investment (social value creation). We show in this essay that while it is relatively easy to achieve value alignment, …

The Case Against Passive Shareholder Voting, Dorothy S. Lund

Faculty Scholarship

American investors have begun to embrace the reality that academics have been championing for decades — that a broad-based, passive indexing strategy is superior to picking individual stocks or investing in actively managed funds. But there are several reasons to believe that the rise of passive investing will have harmful consequences for firm governance, shareholders, and the economy. First, because passive funds seek only to match the performance of an index — not outperform it — they lack a financial incentive to ensure that each of the companies in their very large portfolios are well-run. Second, passive funds face an …

Does Shareholder Voting Matter? Evidence From The Takeover Market, Paul Mason, Usha Rodrigues, Mike Stegemoller, Steven Utke

Scholarly Works

Voting rights are a basic shareholder-protection mechanism. Outside of the core voting requirements state law imposes (election of directors and votes on fundamental changes), federal law grants shareholders additional voting rights. But these rights introduce concomitant costs into corporate governance. Each grant of a voting right thus invites the question: is the benefit achieved worth the cost the vote imposes?

The question is not merely a theoretical one. Recently the SEC, concerned about Nasdaq’s potential weakening of shareholder voting protections, has lamented that little evidence exists on the value of the shareholder vote. This Article provides that evidence. It examines …

Guardians Of The Galaxy: How Shareholder Lawyers Won Big For Their Clients And Vindicated The Integrity Of Our Economy, Daniel J. Morrissey

Loyola of Los Angeles Law Review

Securities class actions are the most economically significant form of litigation. Highly skilled lawyers expend huge sums and relentless efforts in these matters but because of the costs involved and the potential for enormous liability very few of them ever make it to trial. This Article is the story of one that did, a mammoth fraud where a jury returned a $1.5 billion verdict that, with interest, increased to almost $2.5 billion by the time the case reached the appellate court.

There the Court upheld the shareholders’ theory that their damages could be measured by the excessive amounts they had …

Caremark's Hidden Promise, Ezra Wasserman Mitchell

Loyola of Los Angeles Law Review

In re Caremark, decided in 1996, established for the first time a director’s duty to monitor under Delaware law. A significant amount of jurisprudence and commentary has developed. Almost all of this literature parses the language of the case and those following, and disregards the underlying claims for damages. As a result of this linguistic focus, many have concluded that the duty to monitor largely is toothless and, importantly, deals only with claims of failure to monitor legal risk. A duty to monitor business risk has been disavowed.

Following the money reveals a different story. Classifying the cases according to …

The Up-C Revolution, Gregg D. Polsky, Adam H. Rosenzweig

Scholarly Works

Over the past few years, a revolutionary new tax structure, known as the Up-C, has become increasingly popular, particularly in instances where an LLC is being taken public. In such an Up-C IPO, a newly formed C corporation is placed on top of the existing LLC, which continues to operate the business. Shares of the C corporation are sold to new investors, and the proceeds are used by the C corporation to buy an interest in the LLC. Meanwhile, the legacy owners of the LLC (typically, founders and private investment funds) retain their interests in the LLC, while receiving exchange …

The Fiduciary Principle Of Insider Trading Needs Revision, Roberta S. Karmel

Faculty Scholarship

No abstract provided.

Corporate Governance, Capital Markets, And Securities Law, Adam C. Pritchard

Book Chapters

This chapter explores the dividing line between corporate governance and securities law from both historical and institutional perspectives. Section 2 examines the origins of the dividing line between securities law and corporate governance in the United States, as well as the efforts of the SEC to push against that boundary. That history sets the stage for section 3, which broadens the inquiry by examining the institutional connections between capital markets and corporate governance. Are there practical limits to the connection between securities law and corporate governance? The US again illustrates the point, as Congress has increasingly crossed the traditional boundary …

The Evolution Of Entrepreneurial Finance: A New Typology, J. Brad Bernthal

Publications

There has been an explosion in new types of startup finance instruments. Whereas twenty years ago preferred stock dominated the field, startup companies and investors now use at least eight different instruments—six of which have only become widely used in the last decade. Legal scholars have yet to reflect upon the proliferation of instrument types in the aggregate. Notably missing is a way to organize instruments into a common framework that highlights their similarities and differences.

This Article makes four contributions. First, it catalogues the variety of startup investment forms. I describe novel instruments, such as revenue-based financing, which remain …