Securities Law Commons^™

Federalizing Fiduciary Duty: The Altered Scope Of Officer Fiduciary Duty Following Orderly Liquidation Under Dodd-Frank, Dorothy S. Lund

Faculty Scholarship

The financial crisis of 2008 ushered in a new era of regulatory reform in the United States. The failure of several large banks prompted Congressional scrutiny ofthe U.S. bank regulatory system. Many critics highlighted the government's failure to intervene to prevent Lehman Brothers' insolvency, which resulted in economic turmoil not yet resolved. Against this backdrop, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") in July 2010.

Dodd-Frank mandates institutional changes to minimize economic instability and establishes regulatory processes to guide the government's response to future bank failures. At the heart of the regulation is the Orderly …

Delaware Court Of Chancery: Change, Continuity – And Competition, John C. Coffee Jr.

Faculty Scholarship

For Delaware, it is the best of times and the worst of times. The institutional prestige of the Delaware Court of Chancery has never been higher. Under the leadership of Chancellors Allen, Chandler and Strine, the court has converted many (and possibly most) of the academics, who once tended to be skeptical of Delaware. Academics and practitioners alike have been impressed by both the depth and thoughtfulness of the court of chancery's decisions and the hardworking style of its vice chancellors (who regularly seem able to turn out lengthy decisions in days that would take many federal circuit courts months …

Social Proposals Under Rule 14a-8: A Fall-Back Remedy In An Era Of Congressional Inaction, Margaret V. Sachs

Scholarly Works

More than a decade ago, institutional investors, notably labor unions and pension plans, began using shareholder proposals as a vehicle for advancing progressive social causes. These proposals have recently garnered heightened levels of shareholder support. While even majority support for a proposal does not insure its adoption by the board of directors, appreciable (even if not majority) support can nonetheless sometimes precipitate adoption, or at least negotiation (which can lead to adoption). This Essay argues, first, that with Congress now largely dysfunctional, social proposals have acquired a whole new role—that of a company-by-company, fall-back mechanism for solving social problems that …

A National Systemic Risk Clearinghouse?, Cristie Ford, Hardeep S. Gill

All Faculty Publications

In December 2011, in Reference re Securities Act, the Supreme Court of Canada dashed the Canadian federal government’s hopes of being able to create a federal securities regulator. Instead, it left the constitutional jurisdiction over “day-to-day operations of the securities markets” with the provinces and allocated to the federal government responsibility for just two things: data collection, and the management of systemic risk. Our claim in this essay is that the Reference can be understood as an invitation to create a meaningful and ambitious national systemic risk regulator for the securities markets. The essay points to five recent examples (the …

Direct And Indirect U.S. Government Debt, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Shadow Banking, Financial Markets, And The Real Estate Sector, Steven L. Schwarcz

Faculty Scholarship

This is a relatively brief “firestarter” talk prepared by the author for the World Economic Forum’s Industry Partnership Strategists Meeting 2012 (held on October 3, 2012) on transformation of the real estate sector in light of ongoing shifts in the financial markets and broader global trends.

The Evolution Of Contractual Terms In Sovereign Bonds, Stephen J. Choi, Mitu Gulati, Eric A. Posner

Faculty Scholarship

In reaction to defaults on sovereign debt contracts, issuers and creditors have strengthened the terms in sovereign debt contracts that enable creditors to enforce their debts judicially and that enable sovereigns to restructure their debts. These apparently contradictory approaches reflect attempts to solve an incomplete contracting problem in which debtors need to be forced to repay debts in good states of the world; debtors need to be granted partial relief from debt payments in bad states; debtors may attempt to exploit divisions among creditors in order to opportunistically reduce their debt burden; debtors may engage in excessively risky activities using …

Regulatory Techniques And Liability Regimes For Asset Managers, Deborah A. Demott

Faculty Scholarship

No abstract provided.

In-House Counsel’S Role In The Structuring Of Mortgage-Backed Securities, Steven L. Schwarcz, Shaun Barnes, Kathleen G. Cully

Faculty Scholarship

The authors introduce the financial crisis and the role played by mortgage-backed securities. Then describe the controversy at issue: whether, in order to own and enforce the mortgage loans backing those securities, a special-purpose vehicle “purchasing” mortgage loans must take physical delivery of the notes and security instruments in the precise manner specified by the sale agreement. Focusing on this controversy, the authors analyze (i) the extent, if any, that the controversy has merit; (ii) whether in-house counsel should have anticipated the controversy; and (iii) what, if anything, in-house counsel could have done to avert or, after it arose, to …

Shadow Banking, Financial Markets, And The Real Estate Sector, Steven L. Schwarcz

Faculty Scholarship

This is a relatively brief “firestarter” talk prepared by the author for the World Economic Forum’s Industry Partnership Strategists Meeting 2012 (held on October 3, 2012) on transformation of the real estate sector in light of ongoing shifts in the financial markets and broader global trends.

Four Uncharted Corners Of Anti-Corruption Law: In Search Of Remedies To The Sanctioning Effect, Andrew B. Spalding

Law Faculty Publications

This Article is the third installment in a long-term research project that examines the effects of the U.S. Foreign Corrupt Practices Act in relation to its underlying policy goals. It first reiterates the various data points showing that enforcement now has the unintended effect of reducing investment in higher-corruption markets. Because this amounts to the withdrawal of capital from developing countries in protest of their political conditions, I call this the "sanctioning effect." The paper then seeks to push the envelope of current anti-bribery debates by exploring connections to four fields of academic inquiry not typically associated with the FCPA. …

Sovereign Debt Restructuring Options: An Analytical Comparison, Steven L. Schwarcz

Faculty Scholarship

The recent financial woes of Greece, Ireland, Portugal, and other nations have reinvigorated the debate over whether to bail out defaulting countries or, instead, restructure their debt. Bailouts are expensive, both for residents of the nation being bailed out and for parties providing the bailout funds. Because the IMF, which is subsidized by most nations (including the United States), is almost always involved in country debt bailouts, we all share the burden. Yet bailouts are virtually inevitable under the existing international framework; defaults are likely to have systemic consequences, whereas an orderly debt restructuring is currently impractical. This article analyzes …

The Use And Abuse Of Special-Purpose Entities In Public Finance, Steven L. Schwarcz

Faculty Scholarship

States increasingly are raising financing indirectly through special-purpose entities (SPEs), variously referred to as authorities, special authorities, or public authorities. Notwithstanding their long history and increasingly widespread use, relatively little is known or has been written about these entities. This article examines state SPEs and their functions, comparing them to SPEs used in corporate finance. States, even more than corporations, use these entities to reduce financial transparency and avoid public scrutiny, seriously threatening the integrity of public finance. The article analyzes how regulation could be designed in order to control that threat while maintaining the legitimate financing benefits provided by …

The Roberta Mitchell Lecture: Structuring Responsibility In Securitization Transactions, Steven L. Schwarcz

Faculty Scholarship

In this Lecture, Professor Schwarcz examines how complex securitization transactions may have created a “protection gap,” the conundrum that transaction parties may be unable to purchase or might not want to pay the price for full protection. As a result, they sometimes choose or are forced to assume the good faith of the other parties to the transaction and the consistency and completeness of protections provided in the transaction documents.

Regulating Shadow Banking, Steven L. Schwarcz

Faculty Scholarship

Inaugural Address for Boston University Review of Banking & Financial Law's Inaugural Symposium: “Shadow Banking” February 24, 2012.

Although shadow banking is said to be huge, estimated at over $60 trillion, it is not well defined. This short and accessible paper attempts to define shadow banking by identifying its overall scope and its basic characteristics. Based on the definition derived, the paper also conceptually examines how shadow banking can be regulated to try to maximize its efficiencies while minimizing its risks.

Controlling Financial Chaos: The Power And Limits Of Law, Steven L. Schwarcz

Faculty Scholarship

This Essay examines how law can help to control financial chaos. To that end, regulation should strive to not only maximize economic efficiency within the financial system but also protect the financial system itself. Any regulatory framework for achieving these goals, however, will be imperfect and have tradeoffs. Increasing financial complexity has created information failures that even disclosure cannot remedy, whereas law-imposed standardization would have its own flaws. Bounded human rationality limits the effectiveness of even otherwise ideal laws. Furthermore, the increasing dispersion of financial risk is undermining monitoring incentives. We also do not yet fully understand how systemic risk …

The Emperor Has No Clothes: Confronting The Dc Circuit’S Usurpation Of Sec Rulemaking Authority, James D. Cox, Benjamin J.C. Baucom

Faculty Scholarship

In The Emperor Has No Clothes: Confronting the D.C. Circuit’s Usurpation of SEC Rulemaking Authority, Professor James D. Cox of Duke University School of Law & Benjamin J.C. Baucom, recent law clerk to Justice Don R. Willett of the Supreme Court of Texas, argue “that the level of review invoked by the D.C. Circuit in Business Roundtable and its earlier decisions is dramatically inconsistent with the standard enacted by Congress.” They conclude “that the D.C. Circuit has assumed for itself a role opposed to the one Congress prescribed for courts reviewing SEC rules.”

Introduction, Danny Busch, Deborah A. Demott

Faculty Scholarship

Asset management, a distinctive sector within the financial services industry, centers on an agency relationship between a client and an individual manager or firm appointed to manage the client's investment portfolio. Additionally, in many jurisdictions asset managers are subject to a technically complex set of regulatory requirements, which differ across jurisdictions. This book is the only comparative analysis of the law of asset manager liability in the major European jurisdictions, the United States, and Canada, with chapters written by specialists from the relevant jurisdictions plus a comprehensive chapter covering the relevant European law, in particular the MiFID directive. The book's …

The 2011 Diane Sanger Memorial Lecture Protecting Investors In Securitization Transactions: Does Dodd–Frank Help, Or Hurt?, Steven L. Schwarcz

Faculty Scholarship

Securitization has been called into question because of its role in the recent financial crisis. Schwarcz examines the potential flaws in the securitization process and compare how the Dodd–Frank Act treats them. Although Dodd–Frank addresses one of the flaws, it underregulates or fails to regulate other flaws. It also overregulates by addressing aspects of securitization that are not flawed.

The Dynamics Of Contract Evolution, Mitu Gulati, Stephen J. Choi, Eric A. Posner

Faculty Scholarship

Contract scholarship has given little attention to the production process for contracts. The usual assumption is that the parties will construct the contract ex nihilo, choosing all the terms so that they will maximize the surplus from the contract. In fact, parties draft most contracts by slightly modifying the terms of contracts that they have used in the past, or that other parties have used in related transactions. A small literature on boilerplate recognizes this phenomenon, but little empirical work examines the process. This Article provides an empirical analysis by drawing on a data set of sovereign bonds. The authors …

The Plight Of The Individual Investor In Securities Class Actions, David H. Webber

Faculty Scholarship

Individual investors victimized by securities fraud have no voice in directing class actions brought on their behalf once institutional investors obtain lead plaintiff appointments. The same holds for state-level transactional class actions claiming breaches of fiduciary duty by boards of directors in connection with mergers and acquisitions. In theory, the interests of institutional and individual investors align, nullifying the need for a separate voice for individuals; one rationale for the lead plaintiff modifications of the Private Securities Litigation Reform Act of 1995 was that individuals would benefit from the sophistication of institutional investor lead plaintiffs. But in practice, individual investors’ …