Securities Law Commons^™

China, Business Law, And Finance -- Accession To The World Trade Organization, Joseph Vining

Law & Economics Working Papers Archive: 2003-2009

China's entry into the world economy will affect not just how we act but how we think. It will affect especially what "business," "business law," and "business corporation" come to mean both in a transnational setting and in American law. The nature of American business law today still stands in the way of a wholly profit-maximizing approach to law or the world in general. But there is strong pressure, consistent with a general tendency in Western thought, to make business and corporate decision-making entirely manipulative and calculating and to eliminate the force of human value from it. This Youde Lecture …

How Do Securities Laws Influence Affect, Happiness, & Trust?, Peter H. Huang

Publications

This Article advocates that securities regulators promulgate rules based upon taking into consideration their impacts upon investors' and others' affect, happiness, and trust. Examples of these impacts are consumer optimism, financial stress, anxiety over how thoroughly securities regulators deliberate over proposed rules, investor confidence in securities disclosures, market exuberance, social moods, and subjective well-being. These variables affect and are affected by traditional financial variables, such as consumer debt, expenditures, and wealth; corporate investment; initial public offerings; and securities market demand, liquidity, prices, supply, and volume. This Article proposes that securities regulators can and should evaluate rules based upon measures of …

Globalization And Corporate Social Responsibility: Challenges For The Academy, Future Lawyers, And Corporate Law, Faith Stevelman

NYLS Law Review

No abstract provided.

Do Investors In Controlled Firms Value Insider Trading Laws? International Evidence, Laura Nyantung Beny

Articles

This article characterizes insider trading as an agency problem in firms that have a controlling shareholder. Using a standard agency model of corporate value diversion through insider trading by the controlling shareholder, I derive testable hypotheses about the relationship between corporate value and insider trading laws among such firms. The article tests these hypotheses using firm-level cross-sectional data from twenty-seven developed countries. The results show that stringent insider trading laws and enforcement are associated with greater corporate valuation among the sample firms in common law countries, a result that is consistent with the claim that insider trading laws mitigate agency …

Domestic Bonds, Credit Derivatives, And The Next Transformation Of Sovereign Debt, Anna Gelpern

Scholarly Articles in Law Reviews & Journals

Not long ago, financial markets in most poor and middle-income countries were shallow to nonexistent, and closed to foreigners. Governments often had to rely on risky borrowing abroad; the private sector had even fewer options. But between 1995 and 2005, domestic debt in the emerging markets grew from $1 trillion to $4 trillion. In Mexico, domestic debt went from just over 20% of the total government debt stock in 1995 to nearly 80% in 2007. Foreign and local investors are buying. Over the same period, derivative contracts to transfer emerging market credit risk surpassed the market capitalization of the benchmark …

From Federal Rules To Intersystemic Governance In Securities Regulation, Robert B. Ahdieh

Faculty Scholarship

In this brief essay, prepared as part of a symposium on The New Federalism: Plural Governance in a Decentered World, I explore the regulatory dynamics at work: (1) in the operation of Securities Exchange Act Rule 14a-8, (2) in the interventions of then-Attorney General Eliot Spitzer in the national securities markets, and (3) in recent steps by the Securities and Exchange Commission to reconcile U.S. and international accounting standards. In each case, a distinct dynamic of regulatory interaction - what I term intersystemic governance - can be observed. In such cases, overlapping jurisdiction combines with various sources of interdependence to …

The Economic Impact Of Backdating Of Executive Stock Options, M. P. Narayanan, Cindi A. Schipani, H. Nejat Seyhun

Michigan Law Review

This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about 7%. This translates to about $400 million per firm. By contrast, we estimate that the …

The Corporate Monitor: The New Corporate Czar?, Vikramaditya Khanna, Timothy L. Dickinson

Michigan Law Review

Following the recent spate of corporate scandals, government enforcement authorities have increasingly relied upon corporate monitors to help ensure law compliance and reduce the number of future violations. These monitors also permit enforcement authorities, such as the Securities & Exchange Commission and others, to leverage their enforcement resources in overseeing corporate behavior. However there are few descriptive or normative analyses of the role and scope of corporate monitors. This paper provides such an analysis. After sketching out the historical development of corporate monitors, the paper examines the most common features of the current set of monitor appointments supplemented by interviews …

The Social Construction Of Sarbanes-Oxley, Donald C. Langevoort

Michigan Law Review

Part I will take a close look at the legitimacy of SOX by examining the two plausible stories of SOX's origins and considering the early post-SOX evidence on its costs and benefits. There is no clear-cut answer to the question of how much SOX benefits investors; both positive and critical positions are plausible. Costs have been far greater than expected, but more from SOX's implementation than from the legislative text. Before turning to how and why implementation has occurred that way-which to me is the central question of interpretation-Part II considers whether there is an alternative interpretation of SOX that …

Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey

Michigan Law Review

The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on "whistleblower information," that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized. Often, insider trading will be far more effective than whistleblowing at bringing fraud …

Sec Enforcement And Examinations Concerning Hedge Funds, Barry W. Rashkover, Laurin Blumenthal Kleiman

NYLS Law Review

No abstract provided.

Laws Against Bubbles: An Experimental-Asset-Market Approach To Analyzing Financial Regulation, Erik F. Gerding

Publications

This article analyzes the effectiveness of proposed and actual securities, financial, and tax laws designed to prevent, or dampen the severity of asset price bubbles, including laws designed to mitigate excessive speculation. The article employs experimental asset market research to measure the effectiveness of these anti-bubble laws in correcting mispricings. Experimental asset markets represent complex simulations of stock markets in which subjects trade securities over a computer network. These markets allow scholars to test causal links between legal policies and market effects in ways that empirical research alone cannot. With these virtual markets, researchers can identify asset price bubbles - …

A Social Defense Of Sarbanes-Oxley, James Fanto

NYLS Law Review

No abstract provided.

Internal Whistleblowing And Sarbanes-Oxley Section 806: Balancing The Interests Of Employee And Employer, Kevin Rubinstein

NYLS Law Review

No abstract provided.

Insider Trading Laws And Stock Markets Around The World: An Empirical Contribution To The Theoretical Law And Economics Debate, Laura Nyantung Beny

Articles

The primary goal of this Article is to bring empirical evidence to bear on the heretofore largely theoretical law and economics debate about insider trading. The Article first summarizes various agency, market, and contractual (or "Coasian") theories of insider trading propounded over the course of this longstanding debate. The Article then proposes three testable hypotheses regarding the relationship between insider trading laws and several measures of stock market performance. Exploiting the natural variation of international data, the Article finds that more stringent insider trading laws are generally associated with more dispersed equity ownership, greater stock price accuracy and greater stock …

Insider Trading Rules Can Affect Attractiveness Of Country's Stock Markets, Laura Nyantung Beny

Articles

The academic debate about the desirability of prohibiting insider trading is longstanding and as yet unresolved. Until Henry Manne’s 1966 book, Insider Trading and the Stock Market, the debate centered on whether insider trading is unfair to public investors who are not privy to private corporate information. However, the fairness approach is malleable and indeterminate and thus does not lend itself to clear-cut policy prescriptions. Since Manne’s book, the focus of the debate has been on the effect of insider trading on economic efficiency. Manne argued that, contrary to the prevailing legal and moral opinion of the time, insider trading …

Fixing 404, Joseph A. Grundfest, Steven E. Bochner

Michigan Law Review

Although debate persists as to whether the costs of Sarbanes-Oxley's Section 404 regulations exceed their benefits, there is broad consensus that the rules have been inefficiently implemented. Substantive and procedural factors contribute to the rules' inefficiency. From a substantive perspective, the terms "material weakness" and "significant deficiency" are central to the implementing regulations and are easily interpreted to legitimize audits of controls that have only a remote probability of causing an inconsequential effect on the issuer's financial statements. As a quantitative matter the literature suggests that a control with a remote probability of causing an inconsequential effect has an expected …

A Business Ethics Perspective On Sarbanes-Oxley And The Organizational Sentencing Guidelines, David Hess

Michigan Law Review

This Article assesses the ability of Sarbanes-Oxley and other recent changes in the law and stock exchange listing requirements to reduce the incidence of fraud and to increase the reporting of financial misconduct. It begins by examining the individual decision-makers within a corporation and analyzing their intentions and behaviors under the Theory of Planned Behavior. It then examines the ability of the organization to influence the employees' intentions and behaviors through codes of ethics and compliance programs, and finds growing support for the usefulness of integrity based compliance programs. Finally, the Article considers how the Sarbanes-Oxley legislation and Organizational Sentencing …

Sarbanes-Oxley And The Cross-Listing Premium, Kate Litvak

Michigan Law Review

This article tests whether the Sarbanes-Oxley Act ("SOX") affected the premium that investors are willing to pay for shares of foreign companies cross-listed in the United States. I find that from year-end 2001 (pre-SOX) to year-end 2002 (after SOX adoption), the Tobin's q and market/book ratios of foreign companies subject to SOX (cross-listed on levels 2 or 3) declined significantly, relative to Tobin's q and market/book ratios of both (i) matching non-cross-listed foreign companies from the same country, the same industry, and of similar size, and (ii) cross-listed companies from the same country that are not subject to SOX (listed …

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

Re-Thinking Securities Regulation: A Comparative Study Of Asx, Nyse, And Sgx , Benedict Sheehy

ExpressO

This article approaches the issue of securities regulation starting with an examination of the nature and role of markets and financial markets. It next outlines the various arguments for and against regulation, and then looks at approaches taken by markets and their regulators. The approaches are government regulation, self-regulation and co-regulation, and the structural changes via demutualization and corporate governance. With this background, it turns to examine how these approaches have played out in the markets themselves. The article surveys the regulatory aspects of the ASX, NYSE and the SGX, and reviews the regulatory and financial performance of the markets. …

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

Explaining The Value Of Transactional Lawyering, Steven L. Schwarcz

ExpressO

This article attempts, empirically, to explain the value that lawyers add when acting as counsel to parties in business transactions. Contrary to existing scholarship, which is based mostly on theory, this article shows that transactional lawyers add value primarily by reducing regulatory costs, thereby challenging the reigning models of transactional lawyers as “transaction cost engineers” and “reputational intermediaries.” This new model not only helps inform contract theory but also reveals a profoundly different vision than existing models for the future of legal education and the profession.

Compensation Representatives: A Prudent Solution To Excessive Ceo Pay, Lawton W. Hawkins

ExpressO

Currently, CEO pay is determined by a company’s board of directors, subject to limited shareholder approval in certain circumstances. However, as Lucian Bebchuk and Jesse Fried have demonstrated, boards of directors and CEOs do not necessarily engage in real arms length bargaining over CEO pay. Instead, CEOs may exert managerial power to extract economic rents above and beyond what they could have obtained in an arms length negotiation. To address the problem, Bebchuk and Fried have proposed that large shareholders be allowed to nominate candidates for the board, and that companies be required to pay the expenses for any proxy …

Reassessing Damages In Securities Fraud Class Actions, Elizabeth C. Burch

ExpressO

No coherent doctrinal statement exists for calculating open-market damages for securities fraud class actions. Instead, courts have tried in vain to fashion common-law deceit and misrepresentation remedies to fit open-market fraud. The result is a relatively ineffective system with a hallmark feature: unpredictable damage awards. This poses a significant fraud deterrence problem from both a practical and a theoretical standpoint.

In 2005, the Supreme Court had the opportunity to clarify open-market damage principles and to facilitate earlier dismissal of cases without compensable economic losses. Instead, in Dura Pharmaceuticals v. Broudo, it further confused the damage issue by (1) perpetuating the …

Ringing The Bell On The Nyse: Might A Nonprofit Stock Exchange Have Been Efficient?, Stephen F. Diamond

ExpressO

Abstract

This spring the New York Stock Exchange, Inc. (Exchange or NYSE) completed an historic restructuring. On March 7, 2006, the NYSE completed its merger with Archipelago Holdings Inc. (Archipelago), a publicly traded electronic trading platform. As a result, the old NYSE itself became the New York Stock Exchange LLC, a wholly owned subsidiary of NYSE Group, Inc. (NYSE Group). The former members, or seat holders, of the NYSE received one of three forms of consideration: all cash, all stock in NYSE Group, or a package of cash and stock. The NYSE Group then allowed those former members to offer …

Bond Repudiation, Tax Codes, The Appropriations Process And Restitution Post-Eminent Domain Reform, John H. Ryskamp

ExpressO

This brief comment suggests where the anti-eminent domain movement might be heading next.

Dialectical Regulation, Robert B. Ahdieh

Faculty Scholarship

While theories of regulation abound, woefully inadequate attention has been given to growing patterns of "intersystemic" and "dialectical" regulation in the world today. In this rapidly expanding universe of interactions, independent regulatory agencies, born of autonomous jurisdictions, nonetheless face a combination of jurisdictional overlap with, and regulatory dependence on, one another. Here, the cross-jurisdictional interaction of regulators is no longer the voluntary interaction embraced by transnationalists; it is, instead, an unavoidable reality of acknowledgement and engagement, potentially culminating in the integration of discrete sets of regulatory rules into a collective whole.

Such patterns of regulatory engagement are increasingly evident, across …

Brand New Deal: The Branding Effect Of Corporate Deal Structures, Victor Fleischer

Michigan Law Review

Consider the unusual legal structures of the following four deals: When Google went public in 2004, it used an Internet auction to sell its stock to shareholders. When Ben & Jerry's went public in 1984, it sold its stock only to Vermont residents. Steve Jobs's contract with Apple entitles him to an annual cash salary of exactly one dollar. Stanley Works, a Connecticut toolmaker, considered reincorporating in Bermuda to reduce its tax liability. Under public pressure, it changed its mind and remains legally incorporated in Connecticut. What do these deals have in common? In each case, the legal infrastructure of …

The Chameleon Effect: Beyond The Bonding Hypothesis For Cross-Listed Securities, Cally Jordan

ExpressO

This paper is based on a presentation made at the New York Stock Exchange Conference on the Future of Global Equity Trading, March 12, 2004, Sarasota, FL.

Looking back, was it a momentary enthusiasm? The dramatic increase in cross-listed securities, particularly in the United States, was one of the remarkable phenomena of the 1990s capital markets. The bonding, or corporate governance, hypothesis was one of the more intriguing theories to surface to explain the phenomenon. Cross-listing, the hypothesis suggested, might be a bonding mechanism by which firms, incorporated in a jurisdiction with “weak protection” of minority shareholder rights or poor …