Securities Law Commons^™

Jumpstart Regulation Crowdfunding: What Is Wrong And How To Fix It, Jo Won

Lewis & Clark Law Review

In 2015, the Securities and Exchange Commission adopted Regulation Crowdfunding, which permitted small businesses and startups to raise capital from the general public online. Unfortunately, Regulation Crowdfunding failed its essential purpose to facilitate capital formation for small businesses and startups due to its high transaction costs and low offering limit. But it turns out that equity crowdfunding in other countries—especially in Great Britain—is highly successful, and in some cases, exceeds venture capital funding. In these countries, equity crowdfunding’s transaction costs and disclosure requirements are much lower than, and issuers may raise more money than, offerings under Regulation Crowdfunding. Furthermore, the …

Will Swing Pricing Save Sedentary Shareholders?, Anne M. Tucker, Holly Van Den Toorn

Scholarly Works

This Article explains and explores new Securities Exchange Commission rules authorizing optional swing pricing for mutual funds. Swing pricing is an anti-dilution tool intended to protect sedentary investors who enter, and stay, in a fund. Workers setting aside money for retirement are often sedentary investors. Mutual funds are the mainstay vehicle for retirement investors, yet as sedentary shareholders they can experience significant asset dilution over their savings lifetime. Swing pricing—a mutual fund pricing mechanism that allocates transaction costs to the triggering shareholders—could save sedentary shareholders, collectively, billions of dollars. The mutual fund industry's operational complexities and competing regulatory obligations may …

Center-Left Politics And Corporate Governance: What Is The 'Progressive' Agenda?, Christopher Bruner

Scholarly Works

For as long as corporations have existed, debates have persisted among scholars, judges, and policymakers regarding how best to describe their form and function as a positive matter, and how best to organize relations among their various stakeholders as a normative matter. This is hardly surprising given the economic and political stakes involved with control over vast and growing "corporate" resources, and it has become commonplace to speak of various approaches to corporate law in decidedly political terms. In particular, on the fundamental normative issue of the aims to which corporate decision-making ought to be directed, shareholder-centric conceptions of the …

The Weakening Of Fiduciary Law, Andrew F. Tuch

Scholarship@WashULaw

In the 1970s and 80s, as major financial institutions grew and diversified their operations, courts and scholars recognized that fiduciary law posed profound challenges for the organizational practices of these firms. The challenges were considered existential by some: firms, ultimately, would need to slim down their operations, and perhaps even need to disaggregate some units, to avoid fiduciary liability. However, since these challenges were recognized, financial conglomerates have grown massively and focused more on taking direct stakes as principals, a practice that accentuates the risk of conflicts of interest.

How were financial conglomerates able to continue growing and diversifying despite …

Shareholder Divorce Court, Ann Lipton

Publications

No abstract provided.

Piling On? An Empirical Study Of Parallel Derivative Suits, Stephen J. Choi, Jessica Erickson, Adam C. Pritchard

Articles

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and, …

Reviving Reliance, Ann M. Lipton

Fordham Law Review

This Article explores the misalignment between the disclosure requirements of the federal securities laws and the private causes of action available to investors to enforce those requirements. Historically, federally mandated disclosures were designed to allow investors to set an appropriate price for publicly traded securities. Today’s disclosures, however, also enable stockholders to participate in corporate governance and act as a check on managerial misbehavior. To enforce these requirements, investors’ chief option is a claim under the general antifraud statute, section 10(b) of the Securities Exchange Act of 1934. But courts are deeply suspicious of investors’ attempts to use the Act …

Distributed Governance, Carla L. Reyes, Nizan Geslevich Packin, Ben Edwards

William & Mary Law Review Online

Distributed ledger technology disrupts traditional business organizations by introducing new business entities without the directors and officers of traditional corporate entities. Although these emerging entities offer intriguing possibilities, distributed entities may suffer significant collective action problems and expose investors to catastrophic regulatory and governance risks. Our Article examines key considerations for stakeholders and argues that distributed entities must be carefully structured to function effectively. This Article breaks new ground by critically examining distributed entities. We argue that a distributed model is most appropriate when distributed ledger technology solves a unique corporate governance problem. We caution against ignoring the lessons painstakingly …

Private Enforcement Of Company Law And Securities Regulation In Korea, Hwa-Jin Kim

Book Chapters

This chapter offers a brief overview of the private enforcement of corporate law and securities regulation in Korea, with particular reference to the current legislative efforts in the Korean National Assembly and recent court cases. This chapter also talks about Korea’s ill-fated and misguided adoption of the fraud-on-the-market theory in securities fraud litigation.

Typology Of Public-Private Equity, Sung Eun (Summer) Kim

Florida State University Law Review

Private equity, which pools funds for investment in private businesses, is one of the largest and fastest growing investment opportunities in the markets today. Private equity traditionally sought investments exclusively from sophisticated investors such as high net worth individuals and institutional investors. More recently, however, a growing number of private equity businesses have gone public and opened their doors to public investors, who are drawn to these investments because of the possibility of high returns and the opportunity to diversify their investment portfolios. In this Article, I review the universe of public-private equity (or PPE) businesses that are traded on …

To Be A "Whistleblower," Or Not To Be A "Whistleblower? " That Is The Question-Whether 'Tis Nobler In The Mind Of The Courts To Suffer For Reporting Wrongdoing To The Sec Or Employers Internally: Examining The Recent Circuit Split Regarding The Definition Of A Whistleblower Under Dodd-Frank, Luke I. Landers

The Journal of Business, Entrepreneurship & the Law

Under the current state of the law, the circuit courts are split over whether an employee must report corporate wrongdoing directly to the Securities and Exchange Commission (SEC), or report wrongdoing to a company’s management in order to receive whistleblower protection under Dodd–Frank. The resolution of this circuit split not only will have implications for American employees caught in situations similar to the fiction above, but also will provide a prime opportunity for the Supreme Court to clarify how courts are to understand the interpretive and deferential relationship between the language of legislative statutes and their corresponding bureaucratic regulations. In …

Clarifying The Original Clawback: Interpreting Sarbanes-Oxley Section 304 Through The Lens Of Dodd-Frank Section 954, J. Royce Fichtner, Patrick Heaston, Lou Ann Simpson

The Journal of Business, Entrepreneurship & the Law

In the early 2000s, major accounting scandals involving reporting violations and audit failures sent the United States financial markets into turmoil. Congress and President George W. Bush reacted to the controversy by passing the Public Company Accounting Reform and Investor Protection Act, better known as the Sarbanes–Oxley Act (SOX), in July of 2002. Section 304 created an explicit procedure, whereby the SEC could disgorge or clawback a CEO or CFO’s incentive-based compensation or stock gains when such profits were based on inflated financial statements later required to be restated to reflect the company’s true financial position. When the stock market …

Reconceptualizing The Whistleblower's Dilemma, Miriam Baer

Faculty Scholarship

No abstract provided.

Med-Arb Adoption In Securities Law Disputes: Advantages And Costs, Hyung Kyun Kwon

Concordia Law Review

This Article considers the adoption of a hybrid method of Alternative Dispute Resolution (ADR)—Med-Arb—in securities law disputes. Because securities law ADR is currently monopolized by claims that proceed through arbitration, this Article argues that the benefits of settling a claim through mediation are being lost. Med-Arb allows parties to access the benefits of both mediation and arbitration with potentially lower economic costs and the assurance of finality of the dispute. This Article therefore presents how best to use Med-Arb to successfully resolve securities law disputes.

Corporate Purpose And Litigation Risk In Publicly Held U.S. Benefit Corporations, Joan Macleod Heminway

Seattle University Law Review

With the likely prospect of publicly held U.S. benefit corporations in mind, this Article engages in a thought experiment. Specifically, the Article views the publicly held U.S. benefit corporation from the perspective of litigation risk. It first situates, in Part I, the U.S. benefit corporation in its structural and governance context as an incorporated business association. Corporate purpose and the attendant managerial authority, responsibilities, and fiduciary duties are the key points of reference. Then, in Part II, the Article seeks to identify and describe the salient, unique litigation risks that may be associated with publicly held corporations with the structural …

A Critical Canadian Perspective On The Benefit Corporation, Carol Liao

Seattle University Law Review

Part I of this Article provides a brief background and description of the American benefit corporation. Part II then delineates the Canadian model of corporate law and governance as it currently stands in the statutes, common law, and in practice. Part III applies the information gathered from the previous two sections to explain why the legal features in the American benefit corporation model are largely redundant to existing Canadian corporate laws. It also addresses how the implementation of the benefit corporation in Canada would conflate incorrect assumptions on Canada’s model of governance and potentially impede the progressive development of Canada’s …

Intermediate Scrutiny For Corporate Political Contributions, Joseph K. Leahy

Florida State University Law Review

A corporation contributes to a Super PAC that supports a candidate for public office. A shareholder sues, alleging that management breached its duty of loyalty by making the contribution to promote its own political views rather than to serve the corporation’s best interests—i.e., by acting in bad faith. What standard will a Delaware court apply when reviewing management’s decision to cause the corporation to make the contribution?

Myriad scholars have opined that the court will apply the standard of review for ordinary business decisions: the management-friendly business judgment rule. Unfortunately for our shareholder plaintiff, this rule presumes that management acts …

Finance And Growth: The Legal And Regulatory Implications Of The Role Of The Public Equity Market In The United States, Ezra Wasserman Mitchell

Michigan Business & Entrepreneurial Law Review

The important study of the relationship between finance and economic growth has exploded over the past two decades. One of the most significant open questions is the role of the public equity market in stimulating growth and the channels it follows if it does. This paper examines that question from an economic, legal, and historical perspective, especially with regard to its regulatory and corporate governance implications. The US market is my focus.

In contrast to most studies, I follow both economic history and the actual flow of funds in addition to empirics and theory to conclude that the public equity …

A Glass-Half-Empty Approach To Securities Regulation, Wendy Gerwick Couture

Maryland Law Review

No abstract provided.

Rethinking Corporate Governance For A Bondholder Financed, Systemically Risky World, Steven L. Schwarcz

William & Mary Law Review

This Article makes two arguments that, combined, demonstrate an important synergy: first, including bondholders in corporate governance could help to reduce systemic risk because bondholders are more risk averse than shareholders; second, corporate governance should include bondholders because bonds now dwarf equity as a source of corporate financing and bond prices are increasingly tied to firm performance.

An Exception To The Derivative Rule: Allowing Mutual Fund Investors To Bring Suits Directly, Jamie D. Kurtz

Brooklyn Law Review

Mutual funds differ greatly from traditional corporations in the way they are formed and operated. Despite these differences, courts apply the same rules for derivative shareholder litigation to both types of entities. While these rules make sense and were mostly created with corporations in mind, courts have generally been unwilling to consider mutual funds’ unique characteristics in determining whether to allow direct litigation from shareholders. This note explores those unique characteristics and the usual policy reasons for requiring derivative litigation. It concludes that in most cases these unique characteristics make a derivative suit nearly impossible to sustain. Further, the normal …

To Fund Or Not To Fund: Deficiencies In The Wisconsin Crowdfunding Act That Hamper The Viaiblity Of Intrastate Crowdfunding, Andrew S. Hovestol

Marquette Law Review

"Crowdfunding," which is described as "the practice of . . . soliciting [financial] contributions from a large number of people especially from the online community," has recently taken the financial world by storm through the advent of websites like "Kickstarter," "Fundable," "IndieGogo," "Razoo," and "Appbackr." Such websites provide a marketplace whereby companies, small businesses, and entrepreneurs looking for startup capital can solicit funding from individual investors. The concept is relatively straightforward: project creators initiate a profile that includes informative bits like short videos, a brief synopsis of the project, and images to further showcase the project. Each project has a …

Preface, Robin H. Huang, Nicholas C. Howson

Book Chapters

This volume collects the fruits of an unprecedented international academic conference, ‘Public and Private Enforcement of Company Law and Securities Regulation – China and the World’, which was held at the Chinese University of Hong Kong (CUHK) in December 2014 and convened by the Centre for Financial Regulation and Economic Development (CFRED) of the Faculty of Law of CUHK, the University of Michigan Law School and the Lieberthal Rogel Center for Chinese Studies at the University of Michigan. The aim of the conference was to gather, in one place and at one time, some of the world’s top academic specialists, …

A Big Gap Between ‘Law In Books’ And ‘Law In Action’ And "A New Taxonomy Of Enforcement Strategies", Robin H. Huang, Nicholas C. Howson

Other Publications

Any attempt to comprehensively analyse the enforcement of corporate law and securities regulation is difficult, not only because there are so many distinct national systems in play, but also because, we need to examine both formal enforcement mechanisms and the way in which such mechanisms are applied in practice. If nothing else, the expert analyses presented in the foregoing chapters of this book confirm that with respect to enforcement issues a rather large gap does exist between what Roscoe Pound memorably called ‘law in books’ and ‘law in action’.

How Do Llc Owners Contract Around Default Statutory Protections?, Peter Molk

UF Law Faculty Publications

Limited liability companies are built on the idea of contractual freedom. Unlike other business organization forms, most owner protections apply only by default to LLCs, which are free to waive or modify them as desired. This freedom promises economic efficiency if parties are sophisticated but raises the potential for opportunism by relatively more sophisticated managers and majority owners. While companies ranging from small landscape firms to Chrysler and Fidelity organize as LLCs, remarkably little is known about whether or how LLCs use this contractual flexibility. I analyze the operating agreements of 283 privately owned LLCs organized under Delaware and New …

Evaluating Stock-Trading Practices And Their Regulation, Merritt B. Fox, Kevin S. Haeberle

Faculty Scholarship

High-frequency trading, dark pools, and the practices associated with them have come under tremendous scrutiny lately, giving rise to much hot rhetoric. Missing from the discussion, however, is a principled, comprehensive standard for evaluating such practices and the law that governs them. This Article fills that gap by providing a general framework for making serious normative judgments about stock-trading behavior and its regulation. In particular, we argue that such practices and laws should be evaluated with an eye to the secondary trading market’s impact on four main aspects of our economy: the use of existing productive capacity, the allocation of …

The Limits Of Gatekeeper Liability, Andrew F. Tuch

Scholarship@WashULaw

Gatekeeper liability – the framework under which actors such as law firms, investment banks and accountants face liability for the wrongs committed by their corporate clients – is one of the most widely used strategies for controlling corporate wrongdoing. It nevertheless faces well-recognized flaws: gatekeepers often depend financially on the clients whose conduct they monitor; to carry out their gatekeeping function, gatekeepers rely on individuals – often their employees – whose interests diverge from their own; and major transactions typically involve multiple gatekeepers, each with specific areas of expertise and information, which produces both gaps and overlaps in the gatekeeping …

From Systemic Risk To Financial Scandals: The Shortcomings Of U.S. Hedge Fund Regulation, Marco Bodellini

Brooklyn Journal of Corporate, Financial & Commercial Law

In the recent past, hedge funds have demonstrated that they can pose and spread systemic risk across the financial markets, and that their managers can use them to commit fraud and misappropriation of fund assets. Even if the first issue now seems to be considered a serious one by the U.S. legislature, which in 2010, as a legislative response to the global financial crisis of 2007-2008, enacted the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (Dodd-Frank), the current regulation still appears inconsistent and inappropriate to prevent and face it. By contrast, the second issue is not always considered …

Full Disclosure: Moving Beyond Disclosure Regulations To Affirmative Regulation Of Executive Compensation, Christopher Saverino

Brooklyn Journal of Corporate, Financial & Commercial Law

In the period following the financial crisis of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which compelled the Securities and Exchange Commission (SEC) to engage in substantial rulemaking. The Dodd-Frank mandate in Section 953(b) required the SEC to promulgate a rule, which it eventually finalized and is currently known as Pay Ratio Disclosure. Historically, SEC rulemaking has received great deference when rules are judicially challenged. However, following the passage of Dodd-Frank, the D.C. Circuit Court of Appeals has begun to grant less deference to SEC rulemaking where it has found that the SEC has …

Distributed Governance, Carla L. Reyes, Nizan Geslevich Packin, Bejamin Edwards

Faculty Journal Articles and Book Chapters

Distributed ledger technology enables disruption of traditional business organizations by introducing new business entities without the directors and officers of traditional corporate entities. Although these emerging entities offer intriguing possibilities, distributed entities may suffer significant collective action problems and expose investors to catastrophic regulatory and governance risks. Our essay examines key considerations for stakeholders and argues that distributed entities must be carefully structured to function effectively.

This essay breaks new ground by critically examining distributed entities. We argue that a distributed model is most appropriate when DLT solves a unique corporate governance problem. We caution against ignoring the lessons painstakingly …