Securities Law Commons^™

What Can We Learn From Stock Prices? Cash Flow, Risk And Shareholder Welfare, Joshua Mitts

Faculty Scholarship

Price is expected cash flows discounted at the risk-free rate plus an additional discount for risk exposure. Price equivalency does not always imply welfare equivalency: shareholders are not necessarily indifferent between a price increase of $1 from higher cash flows and the same $1 increase from lower risk exposure. Even in complete markets, if managers enjoy private benefits of control, the social planner may prefer lower risk exposure to a price-equivalent increase in firm value from greater investor protection. This has implications for event studies, the trade-off between principal costs and agency costs, and the link between macroeconomic risk and …

Fintech And The Innovation Trilemma, Yesha Yadav, Chris Brummer

Vanderbilt Law School Faculty Publications

Whether in response to roboadvising, artificial intelligence, or crypto-currencies like Bitcoin, regulators around the world have made it a top policy priority to supervise the exponential growth of financial technology (or "fintech") in the post-Crisis era. However, applying traditional regulatory strategies to new technological ecosystems has proven conceptually difficult. Part of the challenge lies in the tradeoffs involved in regulating innovations that could conceivably both help and hurt consumers and market participants alike. Problems also arise from the common assumption that today's fintech is a mere continuation of the story of innovation that has shaped finance for centuries.

This Article …

After Corwin: Down The Controlling Shareholder Rabbit Hole, Ann Lipton

Publications

As Delaware has developed its doctrine with respect to controlling shareholders, its view of their relationship to directors has evolved. This evolution has produced some pronounced inconsistencies with respect to the weight placed on director approval of controlling shareholder action. The recent Delaware Supreme Court decisions in Corwin v. KKR Financial Holdings LLC, Kahn v. M & F Worldwide Corp., and C & J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust introduced further uncertainty into the mix by making the determination as to whether a transaction involves a controlling shareholder practically outcome-determinative of …

Mandatory Disclosure In Primary Markets, Andrew A. Schwartz

Publications

Mandatory disclosure—the idea that companies must be legally required to disclose certain, specified information to public investors—is the first principle of modern securities law. Despite the high costs it imposes, mandatory disclosure has been well defended by legal scholars on two theoretical grounds: ‘Agency costs’ and ‘information underproduction.’ While these two concepts are a good fit for secondary markets (where investors trade securities with one another), this Article shows that they are largely irrelevant in the context of primary markets (where companies offer securities directly to investors). The surprising result is that primary offerings—such as an IPO—may not require mandatory …

Automating Securities Class Actions Settlements, Jessica M. Erickson

Law Faculty Publications

Securities class actions are supposed to vindicate the rights of investors injured by corporate fraud. Yet, despite multimillion- or even multibillion- dollar settlements, many injured investors never receive a dime in compensation. To receive money from a settlement in a securities class action, investors must comply with a cumbersome claims process, documenting their transactions in the defendant corporation’s stock and detailing their losses. Faced with this hurdle, many investors never claim their shares of the settlement funds. Courts continue to insist that investors comply with cumbersome claims processes because they do not think they have another way to accurately identify …

Boilerplate And The Impact Of Disclosure In Securities Dealmaking, Jeremy Mcclane

Vanderbilt Law Review

Capital markets dealmaking, like many kinds of business transactions, is built on a foundation of copied and recycled language what many call boilerplate. Regulators and the bar periodically call for less reliance on boilerplate, but despite these pressures, boilerplate remains a fixture of ever-growing securities disclosures. This Article explores why boilerplate persists and how it affects investors, showing that boilerplate may have a more complex role than commonly recognized. This Article does so by developing a theory on the effect of boilerplate in securities disclosure-a context that is little studied despite a wealth of literature on boilerplate in other settings--and …

Financial Contracting With The Crowd, Usha Rodrigues

Scholarly Works

Equity crowdfunding is broken. The current model imposes too many burdens on entrepreneurs in exchange for too little money. For alternative models, this Article looks to the time-tested venture capital financial contract, and the recent experience of initial coin offerings (ICOs). ICOs made headlines over the past two years, as the means by which blockchain technology companies raised billions of dollars to launch new cryptocurrency ventures. Although their novelty as a monetary and investing device is well known, ICOs also presented significant, unappreciated insights into financial contracting.

ICOs furnished an unprecedented experiment into how bargains would look if entrepreneurs raised …

The Second Circuit's Curious Journey Through The Law Of Tippee Liability For Insider Trading: Newman To Martoma, Andrew C. Spacone

Roger Williams University Law Review

No abstract provided.

Digital Realty Trust V. Somers: Whistleblowers And Corporate Retaliation, Susan B. Heyman

Law Faculty Scholarship

No abstract provided.

Obtaining And Enforcing A Security Interest In Local Currency Under Article 9 Of The Ucc, Marina C. Leary

Law Student Publications

Community currency is known by many names including complementary currency, alternative currency, and parallel currency. Community currency operates alongside an official or national currency (e.g., dollars or euros) with the purpose of circulating within a small geographic area to facilitate the sale of goods and services. In other words, community currency refers to a privatized form of currency that is not backed by a government entity. With the increased use of community currency, it has the potential to serve as collateral for a security interest under the Article 9 of the Uniform Commercial Code. Although there are several types of …

The Eu’S Struggles With Collective Action For Securities Fraud: An American Perspective, Dan Morrissey

Texas A&M Law Review

Notwithstanding the apparent exit of the United Kingdom, the European Union (“EU”) has grown in membership and power since its modest beginnings after World War II, now rivaling the U.S. in economic strength. With the goal of promoting the security and prosperity of all the citizens of the countries that belong to it, the EU is pressing ahead to adopt laws that will promote their political and financial integration. Along those lines, it has also recently acknowledged a deficiency in the legal systems of its member states when it comes to allowing collective actions for victims of various types of …

Proxy Advisor Influence In A Comparative Light, Andrew F. Tuch

Scholarship@WashULaw

The reform of proxy advisors is on the U.S. regulatory agenda, with debate focusing on the extent of influence that these actors exert over institutional investors and corporate managers. But the debate examines the U.S. position in isolation from other systems. If we broaden our focus, we see that the factors usually cited for proxy advisors’ influence exist similarly in the United Kingdom but that proxy advisors there exert significantly weaker influence than they do in the United States. Why this difference when we would expect a similar role for proxy advisors in both systems based on the presence of …

The Foundations Of Anglo-American Corporate Fiduciary Law, Andrew F. Tuch

Scholarship@WashULaw

How does legal doctrine form, why does it change, and why do doctrines with a common starting point, in legal systems with a shared heritage, diverge? This essay reviews and critiques a book by David Kershaw that addresses these questions. The book charts the evolution of corporate fiduciary law in the United Kingdom and United States and, comparing the two systems, explains how and why the respective legal regimes evolved as they did. Kershaw weighs in on contested U.S. scholarly debates, confronting the common claim that doctrinal change is less the product of internal logic or strict precedent than a …

Reassessing Self-Dealing: Between No Conflict And Fairness, Andrew F. Tuch

Scholarship@WashULaw

Scholars have long disagreed on which of two rules is more effective when a fiduciary engages in self-dealing. Some defend the “strict” no-conflict rule, which categorically bans self-dealing. Others prefer the “flexible” and “pragmatic” fairness rule, which allows self-dealing if it is fair to beneficiaries. The centrality of this debate cannot be overstated: corporate law as a field is fundamentally concerned with self-dealing by fiduciaries. Yet a lack of firm data means that this debate has dragged on for decades, with no end in sight. This article makes a simple but powerful point: the entire debate is somewhat misguided because, …

Fiduciary Principles In Banking Law, Andrew F. Tuch

Scholarship@WashULaw

When are banks fiduciaries of their customers and clients? This question is of more than theoretical interest given the organizational structure of modern financial institutions and the broad-ranging functions they perform. In this chapter of the Oxford Handbook of Fiduciary Law, I canvass fiduciary principles in banking law. I consider when fiduciary duties exist and what they require, the range of remedies available for breach, and the various techniques banks use to exclude or modify fiduciary duties. One puzzling feature of the legal landscape is that clients bring actions less often than banks’ size and conduct might suggest, which contributes …

Judges And Judgment: In Praise Of Instigators, Kathryn Judge

Faculty Scholarship

This Essay is about mutual funds. Because of that, it may put many to sleep long before we get to the heart of the matter. I encourage you right now to stay awake, or at least keep one eye propped open. For embedded in this story about mutual funds, rent seeking, the challenge of separating the good and the bad, and the even greater challenge of respecting autonomy in an environment where so many choices seem to be bad ones, is the story of a judge. That judge is the Honorable Richard A. Posner, aka RAP, Dick, Professor Posner, the …

Transplanting Chapter 11 Of The Us Bankruptcy Code Into Singapore's Restructuring And Insolvency Laws: Opportunities And Challenges, Gerald Mccormack, Wai Yee Wan

Research Collection Yong Pung How School Of Law

In 2017, Singapore introduced wide-ranging reformsto its insolvency and restructuring laws with a view to enhancing itsattractiveness as an international centre for debt restructuring. Central tothese reforms is the transplantation (with modification) of certain provisionsfrom Chapter 11 of the US Bankruptcy Code including the automatic moratorium, cross-creditorcram-down, rescue financing and pre-packs. Drawing upon the US experience andsimilar reform proposals in the EU (including the UK), we critically evaluate theimpact of the new Singapore law. We argue that there remain challenges inensuring that the transplantation works well and highlight the possibleunintended consequences of such transplantation.

Reconstructing The Corporation: A Mutual-Control Model Of Corporate Governance, Grant M. Hayden, Matthew T. Bodie

All Faculty Scholarship

The consensus around shareholder primacy is crumbling. Investors, long assumed to be uncomplicated profit-maximizers, are looking for ways to express a wider range of values in allocating their funds. Workers are agitating for greater voice at their workplaces. And prominent legislators have recently proposed corporate law reforms that would put a sizable number of employee representatives on the boards of directors of large public companies. These rumblings of public discontent are echoed in recent corporate law scholarship, which has cataloged the costs of shareholder control, touted the advantages of nonvoting stock, and questioned whether activist holders of various stripes are …

The Corporation Reborn: From Shareholder Primacy To Shared Governance, Grant M. Hayden, Matthew T. Bodie

All Faculty Scholarship

The consensus around shareholder primacy is crumbling. Investors, long assumed to be uncomplicated profit-maximizers, are looking for ways to express a wider range of values in allocating their funds. Workers are agitating for greater voice at their workplaces. And prominent legislators have recently proposed corporate law reforms that would put a sizable number of employee representatives on the boards of directors of large public companies. These rumblings of public discontent are echoed in recent corporate law scholarship, which has cataloged the costs of shareholder control, touted the advantages of nonvoting stock, and questioned whether activist holders of various stripes are …

International Multiple Derivative Actions, King F. Tsang

Vanderbilt Journal of Transnational Law

This Article explores two choice of law issues in international multiple derivative actions: (1) the choice of substantive law that should govern multiple derivative actions and (2) the characterization of different aspects of the multiple derivative actions between substantive and procedural laws. After a comparison of choice of law approaches among various common law jurisdictions, the author advocates that the first choice of law issue--the substantive law to be applied to the action--should be governed by the law with the closest connections to the multiple derivative actions. This is the only practical choice given the complex nature of international multiple …

Securities Regulation, George Lee Flint Jr.

SMU Annual Texas Survey

No abstract provided.

Engineered Credit Default Swaps: Innovative Or Manipulative?, Gina-Gail S. Fletcher

Articles by Maurer Faculty

Credit default swaps (“CDS”) are, once again, making waves. Maligned for their role in the 2008 financial crisis and condemned by the Vatican, investors are once more utilizing CDS to achieve results of questionable market benefit. A CDS is a financial contract that allows investors to “bet” on whether a borrower will default on its loan. However, rather than waiting to see how their bets pan out, some CDS investors are collaborating with financially distressed borrowers to guarantee the profitability of their CDS positions—“engineering” the CDS’ outcome. Under the CDS contract, these collaborations are not prohibited, yet they have roiled …

Central Clearing Of Financial Contracts: Theory And Regulatory Implications, Steven L. Schwarcz

Faculty Scholarship

To protect economic stability, post-crisis regulation requires financial institutions to clear and settle most of their derivatives contracts through central counterparties, such as clearinghouses associated with securities exchanges. This Article asks whether regulators should expand the central clearing requirement to non-derivative financial contracts, such as loan agreements. The Article begins by theorizing how and why central clearing can reduce systemic risk. It then examines the theory’s regulatory and economic efficiency implications, first for current requirements to centrally clear derivatives contracts and thereafter for deciding whether to extend those requirements to non-derivative contracts. The inquiry has real practical importance because the …

Revolving Elites: The Unexplored Risk Of Capturing The Sec, James D. Cox, Randall S. Thomas

Faculty Scholarship

Fears have abounded for years that the sweet spot for capture of regulatory agencies is the "revolving door" whereby civil servants migrate from their roles as regulators to private industry. Recent scholarship on this topic has examined whether America's watchdog for securities markets, the Securities and Exchange Commission (SEC), is hobbled by the long-standing practices of its enforcement staff exiting their jobs at the Commission and migrating to lucrative private sector employment where they represent those they once regulated. The research to date has been inconclusive on whether staff revolving door practices have weakened the SEC' s verve. In this …

Engineered Credit Default Swaps: Innovative Or Manipulative?, Gina-Gail S. Fletcher

Faculty Scholarship

Credit default swaps (“CDS”) are, once again, making waves. Maligned for their role in the 2008 financial crisis and condemned by the Vatican, investors are once more utilizing CDS to achieve results of questionable market benefit. A CDS is a financial contract that allows investors to “bet” on whether a borrower will default on its loan. However, rather than waiting to see how their bets pan out, some CDS investors are collaborating with financially distressed borrowers to guarantee the profitability of their CDS positions—“engineering” the CDS’ outcome. Under the CDS contract, these collaborations are not prohibited, yet they have roiled …

The Conflicted Advice Problem: A Response To Conflicts & Capital Allocation, Gina-Gail S. Fletcher

Faculty Scholarship

No abstract provided.

Beyond The Numbers: Substantive Gender Diversity In Boardrooms, Yaron Nili

Faculty Scholarship

No abstract provided.

Arbitration Law Update: 2018-2019, Teresa J. Verges, Elissa Germaine

Faculty Publications

(Excerpt)

This article summarizes the leading federal and state arbitration cases during the last year that are of particular relevance to the securities arbitration practitioner. The Supreme Court decided three cases related to arbitration involving the “wholly groundless” exception, class arbitration, and arbitrability. Courts also addressed issues concerning arbitrability, vacating arbitration awards, a receiver action on behalf of defrauded investors, the limits of FINRA arbitration over member’s other business activities, and discovery in arbitration.

The Seller’S Curse And The Underwriter’S Pricing Pivot: A Behavioral Theory Of Ipo Pricing, Patrick M. Corrigan

Journal Articles

From the Article

Canonical theories of law and economics predict that issuing firms in initial public offerings (IPOs) demand — and that competitive markets produce — a transaction structure that maximizes value to issuers. Yet, since 1980, corporate America has left approximately 19 cents of foregone proceeds on the table for every dollar it has raised in IPOs. Moreover, the standard IPO contract appears designed to exacerbate rather than resolve agency costs, information asymmetries, and other foreseeable causes of IPO underpricing. This Article studies a new puzzle: why don’t issuers anticipate their transactional vulnerability and bargain for a sale of …

What We Talk About When We Talk About Shareholder Primacy, Ann Lipton

Publications

No abstract provided.