Securities Law Commons^™

The Hedge Fund Transparency Act Of 2009, Anita Krug

All Faculty Scholarship

This white paper provides a review and critique of a bill introduced by Senators Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) in the Senate in early 2009 that, if enacted, would have imposed certain registration and disclosure requirements on hedge funds and certain other private funds.

One Hat Too Many? Investment Desegregation In Private Equity (Symposium) (With M. Henderson), William A. Birdthistle

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The nature of private equity investing has changed significantly as two dynamics have evolved in recent years: portfolio companies have begun to experience serious financial distress, and general partners have started to diversify and desegregate their investment strategies. Both developments have led private equity shops - once exclusively interested in acquiring equity positions through leveraged buyouts - to invest in other tranches of the investment spectrum, most particularly public debt. By investing now in both private equity and public debt of the same issuer, general partners are generating a host of new conflicts of interest between themselves and their limited …

Corporate Environmental Reporting And Climate Change Risk: The Need For Reform Of Securities And Exchange Commission Disclosure Rules, Constance Z. Wagner

All Faculty Scholarship

This article argues for strengthened Securities and Exchange Commission (“SEC”) rules mandating the disclosure by businesses of the impacts of climate change on their operations. The author surveys the existing SEC regulatory scheme and concludes that it is insufficient since few companies are currently disclosing climate change risks in their SEC filings. Alternative approaches to filling the environmental risk disclosure gap are examined, but found to be poor alternatives to enhanced SEC requirements, since they fail to provide a scheme for uniform and consistent disclosures across companies.

Arrow's Theorem And The Exclusive Shareholder Franchise, Grant M. Hayden, Matthew T. Bodie

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In this essay, we contest one of the main arguments for restricting corporate board voting to shareholders. In justifying the limitation of the franchise to shareholders, scholars have repeatedly turned to social choice theory—specifically, Arrow’s theorem—to justify the exclusive shareholder franchise. Citing to the theorem, corporate law commentators have argued that lumping different groups of stakeholders together into the electorate would result in a lack of consensus and, ultimately, the lack of coherence that attends intransitive social choices, perhaps even leading the corporation to self-destruct. We contend that this argument is misguided. First, we argue that scholars have greatly overestimated …

Shareholders In The Jury Box: A Populist Check Against Corporate Mismanagement, Ann M. Scarlett

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The recent subprime mortgage disaster exposed corporate officers and directors who mismanaged their corporations, failed to exercise proper oversight, and acted in their self-interest. Two previous waves of corporate scandals in this decade revealed similar misconduct. After the initial scandals, Congress and the Securities and Exchange Commission attempted to prevent the next crisis in corporate governance through legislative and regulatory actions such as the Sarbanes-Oxley Act of 2002. Those attempts failed. Shareholder derivative litigation has also failed because judges accord corporate executives great deference and thus rarely impose liability for breaches of fiduciary duties.

To prevent the next crisis in …

The Fortunes And Foibles Of Exchange-Traded Funds: A Positive Market Response To The Problems Of Mutual Funds, William A. Birdthistle

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One of the most dynamic and complex new investment vehicles on the market today is the exchange-traded fund (ETF), a security that provides the diversification of a mutual fund but trades on a securities exchange like a stock. In just fifteen years, the number of ETFs has proliferated to well over 600, attracting more than half a trillion dollars in investment. The majority of that expansion has occurred in just the past two years, largely as a consequence of recent difficulties in the mutual fund industry. With ETF sponsors aggressively seeking to create novel kinds of ETFs and to add …

The False Promise Of One Share, One Vote, Grant M. Hayden, Matthew T. Bodie

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Shareholder democracy has blossomed. The once moribund shareholder franchise is now critical in takeover contests, merger decisions, and board oversight. However, the mechanisms of this vote remain largely under theorized. In this Article, we use voting rights and social choice theory to develop a new approach to the corporate franchise. Political democracies typically tie the right to vote to the level of a person's interest in the outcome of the election. Corporate democracies, on the other hand, tend to define the requisite institutional interest quite narrowly, and thus restrict the right to vote to shareholders alone. This restriction has found …

Mother Jones Meets Gordon Gekko: The Complicated Relationship Between Labor And Private Equity, Matthew T. Bodie

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In 2007 private equity firms came under increasing scrutiny for the favorable tax treatment accorded to their fund managers' compensation. Labor, particularly the Service Workers International Union (SEIU), was instrumental in bringing this issue to the attention of the media and the public. However, SEIU's private equity campaign is just one way in which the union is pursuing its primary concern: increasing the ranks of its members. This Article examines the role that the SEIU private equity campaign plays both in the overall debate about private equity taxation as well as the union's negotiations with private equity firms. It argues …

A Better Approach For Balancing Authority And Accountability In Shareholder Derivative Litigation, Ann M. Scarlett

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Corporations present an interesting illustration of the authority versus accountability dilemma. Shareholders elect the directors of the corporation and the law vests those directors with almost unlimited authority to manage the corporation. Yet, shareholders have few effective means for holding directors accountable for their decisions other than through shareholder derivative litigation. In such litigation, the business judgment rule serves as the mechanism by which courts attempt to balance directors' authority to make decisions for the corporation against shareholders' right to hold directors accountable for those decisions.

As this Article discusses, numerous theories exist as to the proper formulation of the …

Workers, Information, And Corporate Combinations: The Case For Non-Binding Employee Referenda In Transformative Transactions, Matthew T. Bodie

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Employees present a curious puzzle for corporate law. The success of a corporation depends on its employees, from the chief executive officer down to the front-line production or service worker. But for the most part, corporate law relegates employees to the sidelines. Perhaps nowhere is this difference as dramatic as in the realm of mergers, acquisitions, and other transformative transactions. Such transactions are usually negotiated at the highest levels of management, approved by the board, and ultimately approved by the shareholders. In contrast, employees at most may be able to bargain about the effects of the merger through union representatives; …

Demystifying Hedge Funds: A Design Primer, Henry Ordower

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Describes and analyzes hedge fund structures in the context of the United States statutes and regulations that inform those structures.

Confusion And Unpredictability In Shareholder Derivative Litigation: The Delaware Courts' Response To Recent Corporate Scandals, Ann M. Scarlett

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The Delaware courts responded to the recent wave of corporate scandals, exemplified by Enron and WorldCom, by changing their approach to shareholder derivative litigation. This Article analyzes the Delaware courts' response to these scandals and concludes that the courts have created doctrinal confusion and introduced unpredictability into derivative litigation. This Article also analyzes the future negative consequences for shareholders, corporations, directors, investors, and other litigants. Finally, this Article proposes improvements for derivative litigation that may alleviate the confusion and unpredictability created by the Delaware courts' response to the recent scandals.

Compensating Power: An Analysis Of Rents And Rewards In The Mutual Fund Industry, William A. Birdthistle

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The allegations of malfeasance in the investment management industry - market timing, late trading, revenue sharing, and several others - involve a broad range of mutual fund operations. This Article seeks to explain the common source of these irregularities by focusing upon a trait they share: the practice of investment advisers' capitalizing upon their managerial influence to increase assets under management in order to generate greater fees from those assets. This Article extends theories of executive compensation into the context of investment management to understand the extraction of rents by mutual fund advisers. Investment advisers, as collective groups of portfolio …

Aol Time Warner And The False God Of Shareholder Primacy, Matthew T. Bodie

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The blockbuster merger between AOL and Time Warner, in the twilight of the dot-com boom, is now characterized as perhaps the worst business combination ever. Shareholders lost over $200 billion in value; the deal's architects were forced out in disgrace; and the surviving executives jettisoned the AOL name as if towipe clean our collective memory. Despite the merger's seismic effects, relatively little has been written about its potential legal ramifications. In this article, I suggest that the collapse of AOL Time Warner is a cautionary tale for those who would advocate greater adherence to the norm of shareholder primacy. Before …

Public Company Shareholders Acting As Owners: Three Reforms--Introducing The "Oversight Shareholder" (With E. Fogel & D. Addis), Edward C. Harris

All Faculty Scholarship

No abstract provided.

Enron, Watergate And The Regulation Of The Legal Profession, Arnold Rochvarg

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The most famous scandal of the twentieth century was the Watergate scandal, which most notably led to the resignation of Richard Nixon as President of the United States. The significance of Watergate, however, extends further than the resignation of Nixon. Because Watergate involved so many lawyers, it had a great impact on the regulation of the legal profession. Although the twenty-first century has just started, the strongest contender for this century's most famous scandal is the Enron scandal. Although the Enron scandal is identified mostly with misconduct by accountants and corporate officials, it too involved lawyers and has impacted on …

Aligning Incentives With Equity: Employee Stock Options And Rule 10b-5, Matthew T. Bodie

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When the Internet boom was in full swing and the stock markets skyrocketed to new levels, companies new and old used stock options to attract and retain employees. Implicit in those options was the promise that employees could participate in the growth of a company's value. However, as the scandals involving WorldCom, Enron, and Global Crossing demonstrate, corporate managers were not always honest with employees or public investors about the company's true value. Public investors can seek civil remedies for securities fraud through a private action under the Securities and Exchange Commission's Rule 10b-5. The Rule's purchase or sale requirement, …

Revised Article 9 Meets The Bankruptcy Code: Policy And Impact, (With C. Mooney, Jr.)., Steven L. Harris

All Faculty Scholarship

No abstract provided.

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

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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 …

Privatizing Regulation: Whistleblowing And Bounty Hunting In The Financial Services Industries, Henry Ordower, James Fisher, Ellen F. Harshman, William B. Gillespie, Leland Ware, Fred C. Yeager

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Addresses use of whistleblowers and suggests private enforcement methodologies to supplement or supplant public enforcement activities in financial services under new law.

Filing And Enforcement Under Revised Article 9, (With C. Mooney, Jr.)., Steven L. Harris

All Faculty Scholarship

No abstract provided.

How Successful Was The Revision Of U.C.C. Article 9?: Reflections Of The Reporters,(With C. Mooney, Jr.)., Steven L. Harris

All Faculty Scholarship

No abstract provided.

Choosing The Law Governing Perfection: The Data And Politics Of Article 9 Filing, (With C. Mooney, Jr.). , Steven L. Harris

All Faculty Scholarship

No abstract provided.

Negotiability, Electronic Commercial Practices, And A New Structure For The Ucc Article 9 Filing System: Tapping The Private Market For Information Technology, (With C. Mooney, Jr.). , Steven L. Harris

All Faculty Scholarship

No abstract provided.

A Property-Based Theory Of Security Interests: Taking Debtors' Choices Seriously, (With C. Mooney, Jr.). , Steven L. Harris

All Faculty Scholarship

No abstract provided.

The Article 9 Study Committee Report: Strong Signals And Hard Choices, (With C. Mooney, Jr.). , Steven L. Harris

All Faculty Scholarship

No abstract provided.

The Interaction Of Articles 6 And 9 Of The Uniform Commercial Code: A Study In Conveyancing, Priorities, And Code Interpretation, Steven L. Harris

All Faculty Scholarship

No abstract provided.

Non-Negotiable Certificates Of Deposit: An Article 9 Problem, Steven L. Harris

All Faculty Scholarship

No abstract provided.