Securities Law Commons^™

Constraining Dominant Shareholders' Self-Dealing: The Legal Framework In France, Germany, And Italy , Pierre-Henri Conac, Luca Enriques, Martin Gelter

Faculty Scholarship

All jurisdictions supply corporations with legal tools to prevent or punish asset diversion by those, whether managers or dominant shareholders, who are in control. As previous research has shown, these rules, doctrines and remedies are far from uniform across jurisdictions, possibly leading to significant differences in the degree of investor protection they provide. Comparative research in this field is wrought with difficulty. It is tempting to compare corporate laws by taking one benchmark jurisdiction, typically the US, and to assess the quality of other corporate law systems depending on how much they replicate some prominent features. We take a different …

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

Georgetown Law Faculty Publications and Other Works

The closer one looks at SOX and its origins in the financial scandals of the early 2000s, the blurrier the picture, which lets commentators see what they want to see and draw inferences accordingly. That is why social construction is so crucial. My aim in this paper is to illuminate the social nature of SOX's diffusion into practice. I will leave to the reader the judgment about whether this has been or will be good or bad, and for whom. If I seem to challenge SOX's critics more than its supporters, it is because the critics have been more venomous …

Criminalization Of Corporate Law: The Impact Of Criminal Sanctions On Corporate Misconduct, Donna M. Nagy

Articles by Maurer Faculty

No abstract provided.

Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict, Hannah Buxbaum

Articles by Maurer Faculty

This article examines a form of securities class action that is growing increasingly popular in U.S. courts: the foreign cubed action, brought against a foreign issuer on behalf of a class that includes foreign investors who purchased securities on a foreign exchange. These cases are becoming an important part of the regulatory landscape (as evidenced by recent high-profile lawsuits involving issuers such as Vivendi, Bayer and Royal Ahold), and they create the potential for particularly severe conflict with other countries on the question of how best to regulate global economic activity. Yet they point out quite clearly that the traditional …

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 …

Stapled Securities--"The Next Big Thing" For Income Trusts? Useful Lessons From The Us Experience With Stapled Shares, Reuven S. Avi-Yonah, Tim Edgar, Fadi Shaheen

Articles

The Department of Finance has introduced two separate sets of legislation that together attempt to limit demand in the income trust market (though with very different revenue consequences). However, neither the proposed legislation nor the existing Income Tax Act contains an equity recharacterization rule. Consequently, the tax results associated with the standard income trust and royalty trust structures can still be realized with direct holding structures, in which the use of a trust as a pooling mechanism is eliminated and investors hold directly a combination of high-yield junk debt and a specified number of shares of the issuer. Until now, …

Law And The Market: The Impact Of Enforcement, John C. Coffee Jr.

Faculty Scholarship

Are the U.S. capital markets losing their competitiveness? A fascinating question, but what does it mean and how can it be intelligently assessed? This Article will explore the newly popular thesis that draconian enforcement and overregulation are injuring the United States and will offer a sharply contrasting interpretation: higher enforcement intensity gives the U.S. economy a lower cost of capital and higher securities valuations. This higher intensity attracts some foreign listings, but deters others.

This Article will proceed by first mapping the marked variation in the intensity of enforcement efforts by securities regulators in selected nations and then relating these …

Predicting Corporate Governance Risk: Evidence From The Directors' & Officers' Liability Insurance Market, Tom Baker, Sean J. Griffith

Faculty Scholarship

This Article examines how liability insurers transmit and transform the content of corporate and securities law. Directors' & Officers' (D&O) liability insurers are the financiers of shareholder litigation in the American legal system, paying on behalf of the corporation and its directors and officers when shareholders sue. The ability of the law to deter corporate actors thus depends upon the insurance intermediary. How, then, do insurers transmit and transform the content of corporate and securities law in underwriting D& 0 coverage?In this Article, we report the results of an empirical study of the D&O underwriting process. Drawing upon in-depth interviews …

Hedge Fund Regulation: The Amended Investment Advisers Act Does Not Protect Investors From The Problems Created By Hedge Funds, Sean M. Donahue

Cleveland State Law Review

Hedge funds are a viable investment alternative for financially sophisticated investors. However, because traditional hedge funds and funds of funds are unsuitable for average investors, these investors should be restricted from making such investments. Regardless of who invests in hedge funds, advisers of these entities must be regulated to assure that they do not commit fraud. In addition to monitoring advisers, the SEC must limit hedge funds' use of leverage to assure that market collapse does not occur. Part II of this Note describes the history and development of hedge funds. Part III illustrates the current problems facing the hedge …

Resolving The Circuit Split On Standing In False Advertising Claims And Incorporation Of Prudential Standing In State Deceptive Trade Practices Law: The Quest For Optimal Levels Of Accurate Information In The Marketplace, Kevin M. Lemley

University of Arkansas at Little Rock Law Review

This article has two significant goals. First, it addresses the circuit split on the proper test for standing in false advertising claims under section 43 (a) of the Lanham Act. With slight modification, courts should adopt the reasonable interest test as articulated in two recent opinions authored by Justice Alito while he was sitting on the Third Circuit of Appeals, Second, this article proposes similar prudential standing considerations, along with proposed legislative amendments, for state deceptive trade laws. This section of the article focuses primarily on Arkansas law, but the proposals set forth can be applied to other jurisdictions. The …

The Investor Compensation Fund, Alicia J. Davis

Articles

The prevailing view among securities regulation scholars is that compensating victims of secondary market securities fraud is inefficient. As the theory goes, diversified investors are as likely to be on the gaining side of a transaction tainted by fraud as the losing side. Therefore, such investors should have no expected net losses from fraud because their expected losses will be matched by expected gains. This Article argues that this view is flawed; even diversified investors can suffer substantial losses from fraud, presenting a compelling case for compensation. The interest in compensation, however, should be advanced by better means than are …

Cost-Based And Rules-Based Regulatory Competition: Markets For Corporate Charters In The U.S. And The E.U., Marco Ventoruzzo

Faculty Scholarship

Regulatory competition in corporate law is increasing in Europe and, not differently from what happens in the US, a market for corporate charters is developing in Europe. This article examines the differences between the US corporate law market, and the European one - to the extent that one exists. The basic idea is that, in Europe, there is a stronger competition for the (first) incorporation of rather small, closely-held corporations; while in the US a small closely-held corporation usually incorporates locally, where its shareholders and directors are located, and reincorporates - often in Delaware - when it is growing and, …

Securities Underwriters In Public Capital Markets: The Existence, Parameters And Consequences Of The Fiduciary Obligation To Avoid Conflicts, Andrew F. Tuch

Scholarship@WashULaw

This article considers whether an investment bank, when acting as underwriter of a public securities offering, owes the issuing company the fiduciary obligation to avoid conflicts of interest. The question has not arisen for final judicial determination and has been overlooked by scholars and regulators. The highly lucrative and visible nature of underwriting work creates powerful incentives for investment banks to accept instructions in the face of this duty. At the same time, the web of loyalties that these institutions owe, by virtue of their broad and diverse range of products and services, creates intractable practical difficulties for compliance with …

Creative Sanctions For Online Investment Fraud, Jayne W. Barnard

Faculty Publications

No abstract provided.

The Rise Of Independent Directors In The United States, 1950-2005: Of Shareholder Value And Stock Market Prices, Jeffrey N. Gordon

Faculty Scholarship

Between 1950 and 2005, the composition of large public company boards dramatically shifted towards independent directors, from approximately 20% independents to 75% independents. The standards for independence also became increasingly rigorous over the period. The available empirical evidence provides no convincing explanation for this change. This Article explains the trend in terms of two interrelated developments in U.S. political economy: first, the shift to shareholder value as the primary corporate objective; second, the greater informativeness of stock market prices. The overriding effect is to commit the firm to a shareholder wealth maximizing strategy as best measured by stock price performance. …

The Challenge Of Hedge Fund Regulation, Houman B. Shadab

Articles & Chapters

Currently en vogue concerns about hedge funds are not nearly as substantial as is often claimed. Moreover, the funds themselves are reducing their risks to investors and the broader markets, in accordance with investor demands. As hedge funds benefit the broader market by mitigating price downturns, bearing risks that others will not, making securities more liquid, and ferreting out inefficiencies, policymakers should consider whether stricter regulation of hedge funds could do more harm than good.

Mickey, Can You Spare A Dime? Disneywar, Executive Compensation, Corporate Governance, And Business Law Pedagogy, Kenneth M. Rosen

Michigan Law Review

American business executives are under fire. Recent, notorious difficulties at companies such as the Enron Corporation brought attention to these individuals. Notwithstanding the conclusion of the trials of some of those top executives, skepticism remains about the inner workings of U.S. corporations and the quality of corporate governance. Drawing special scrutiny from some quarters is the compensation granted to corporate officers and directors. For instance, the timing of certain stock option grants, a key component of some compensation packages, raised ire because of those options' supposed backdating and fortuitous proximity to increases in share prices. Further, some questioned more generally …

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 …

Reassessing Damages In Securities Fraud Class Actions, Elizabeth Chamblee Burch

Scholarly Works

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 …

Beyond Enron: Regulation In Energy Derivatives Trading, Alexia Brunet, Meredith Shafe

Publications

No abstract provided.

A Perspective On Federal Corporation Law, Mark J. Loewenstein

Publications

No abstract provided.

Updating Our Understanding Of The Role Of Lawyers: Lessons From Mastercard, Scott R. Peppet

Publications

No abstract provided.

Reforming Punishment Of Financial Reporting Fraud, Samuel W. Buell

Faculty Scholarship

Present sentencing law in criminal cases of financial reporting fraud is embarrassingly flawed. The problem is urgent given that courts are now regularly sentencing corporate offenders, sometimes (but sometimes not) to extremely punitive terms of imprisonment. Policing of fraud by multiple jurisdictions in a federal system means that principled sentencing law is necessary not only for first-order policy reasons but also for coordination of sanctioning efforts. Proportionality and rationality demand that sentencing law have an agreed scale for measuring cases of financial reporting fraud in relation to each other, a sound methodology for fixing a given case on that scale, …

Antitrust And Ipos In The Supreme Court, Clark C. Havighurst

Faculty Scholarship

This short comment suggests a connection, so far unrecognized, between two antitrust cases currently awaiting decision by the Supreme Court. In one case, the Court is likely, though not certain, to overturn the long-standing rule that resale price maintenance is illegal per se. If that should occur, another case on the Court’s docket, involving the scope of the implied antitrust immunity enjoyed by underwriters of corporate securities offerings, would (or should) look very different. This comment suggests that, if the law of vertical restraints is finally rationalized so that an issuer of a security may lawfully restrict price and other …

Financial Accounting And Corporate Behavior, David I. Walker

Faculty Scholarship

The power of financial accounting to shape corporate behavior is underappreciated. Positive accounting theory teaches that even cosmetic changes in reported earnings can affect share value, not because market participants are unable to see through such changes to the underlying fundamentals, but because of implicit or explicit contracts that are based on reported earnings and transaction costs. However, agency theory suggests that accounting choices and corporate responses to accounting standard changes will not necessarily be those that maximize share value. For a number of reasons, including the fact that executive compensation often is tied to reported earnings, managerial preferences for …