Monday, September 18, 2017
Bernard S. Sharfman has posted A Private Ordering Defense of a Company's Right to Use Dual Class Share Structures in IPOs on SSRN with the following abstract:
The shareholder empowerment movement (movement) has renewed its effort to eliminate, restrict or at the very least discourage the use of dual class share structures in initial public offerings (IPOs). This renewed effort was triggered by the recent Snap Inc. IPO that utilized non-voting stock. Such advocacy, if successful, would not be trivial, as many of our most valuable and dynamic companies, including Alphabet (Google) and Facebook, have gone public by offering shares with unequal voting rights.
Unless there are significant sunset provisions, a dual class share structure allows insiders to maintain voting control over a company even when, over time, there is both an ebbing of superior leadership skills and a significant decline in the insiders’ ownership of the company’s common stock. Yet, investors are willing to take that risk even to the point of investing in dual class shares where the shares have no voting rights and barely any sunset provisions, such as in the recent Snap Inc. IPO. Why they are willing to do so is a result of the wealth maximizing efficiency that results from the private ordering of corporate governance arrangements and the understanding that agency costs are not the only costs of governance that need to be minimized.
In this essay, Zohar Goshen and Richard Squire’s newly proposed “principal-cost theory,” “each firm’s optimal governance structure minimizes the sum of principal costs, produced when investors exercise control, and agent costs, produced when managers exercise control,” is used to argue that the use of dual class shares in IPOs is a value enhancing result of private ordering, making the movement’s renewed advocacy unwarranted.
Thursday, September 14, 2017
NASAA has issued an advisory regarding binary option schemes. A notice provided on the NASAA site states:
The North American Securities Administrators Association (NASAA) is cautioning investors about schemes related to binary options amid the proliferation of online binary option platforms and a growing number of related investor complaints. The advisory provides information and resources to help investors better understand binary options, their risks and where to turn for help.
The advisory also discusses common investor complaints and offers common tactics and warning signs of schemes related to binary options, including: unsolicited investment offers; high-pressure sales tactics; personal information requests; and a lack of information about the offering firm or its management.
The full advisory is available here.
SEC Monitoring Impact of Hurricane Irma on Capital Markets, Continues to Monitor Impact of Hurricane Harvey
The following law review articles relating to securities regulation are now available in paper format:
Eric C. Chaffee, The Supreme Court as Museum Curator: Securities Regulation and the Roberts Court, 67 Case W. Res. L. Rev. 847 (2017).
Zachary Naidich, Note, Regulation A-Plus's Identity Crisis: A One-Size-Fits-None Approach to Capital Formation, 82 Brook. L. Rev. 1005 (2017).
James Walsh, Comment, "Look Then to Be Well Edified, When the Fool Delivers the Madman": Insider-Trading Regulation After Salman v. United States, 67 Case W. Res. L. Rev. 979 (2017).
Karen E. Woody, No Smoke and No Fire: The Rise of Internal Controls Absent Anti-Bribery Violations in FCPA Enforcement, 38 Cardozo L. Rev. 1727 (2017).
Saturday, September 9, 2017
The following law review articles relating to securities regulation are now available in paper format:
Miriam H. Baer, Reconceptualizing the Whistleblower's Dilemma, 50 UC Davis L. Rev. 2215 (2017).
Anthony B. Benvegna, Note, A Guiding Light to a More Efficient Market: Why High-Frequency Trading Is Not a Flash in the Dark, 16 J. Int'l Bus. & L. 309 (2017).
Joshua A. Gold, Note, Equity Crowdfunding of Film--Now Playing at a Computer Near You, 95 Tex. L. Rev. 1367 (2017).
Alexander I. Platt, Unstacking the Deck: Administrative Summary Judgment and Political Control, 34 Yale J. on Reg. 439 (2017).
Jennifer Robichaux Carter, Comment, Hedge Funds Should Be Able to Challenge Patent Validity Using Inter Partes Review Despite Mixed Motives, 54 Hous. L. Rev. 1315 (2017).
Kenneth M. Rosen, Limits on Exporting Corporate Social Responsibility Through Domestic Regulation, 12 S.C. J. Int'l L. & Bus. 41 (2015).
Paolo Saguato, The Ownership of Clearinghouses: When "Skin in the Game" Is Not Enough, The Remutualization of Clearinghouses, 34 Yale J. on Reg. 601 (2017).
Nicole G. Iannarone has posted Computer as Confidant: Digital Investment Advice and the Fiduciary Standard on SSRN with the following abstract:
Digital investment advisers are the fastest growing segment of financial technology (fintech) and are disrupting traditional investment advisory delivery models. The computer-led investment advisory service model may be growing particularly quickly due to a confluence of social and political factors. Politicians and regulators have increasingly focused on the standards of care applicable to investment advice providers. Fewer Americans are ready for retirement and many lack access to affordable investment advice. At the same time, comfort with digital platforms have increased, with some preferring electronic interaction over human interaction. Claiming that they can democratize retirement service by providing advice meeting a fiduciary standard at a fraction of the traditional pricing model, robo-advisers hope to capitalize on these social movements and argue that they provide a solution: conflict-free advice to investors with portfolios of all sizes. Though they have voluntarily subjected themselves to the requirements of the Investment Advisers Act of 1940 (1940 Act), questions remain as to how robo-advisers will meet the fiduciary standard required by such registration. The essay recommends a two-pronged approach for the regulation of robo-advisers in the near term. First, existing regulatory tools such as examination, enforcement, and disclosure should be deployed to robustly explore the sufficiency and malleability of their existing parameters before crafting any new regulatory schemes. Second, the disclosure device should be studied to determine whether the intended beneficiary of the disclosure, retail consumers, comprehend the information being disclosed to them and whether changes to the format, delivery, and/or content of disclosures would better protect consumer investors.
Marc I. Steinberg and Forrest C. Roberts have posted Laxity at the Gates: The SEC's Neglect to Enforce Control Person Liability on SSRN with the following abstract:
In recent years the SEC has repeatedly stressed the importance of holding gatekeepers accountable in order to promote effective corporate governance. In spite of these assertions, the Commission has failed to use two powerful tools at its disposal to pursue gatekeepers. Section 20(a) of the Securities Exchange Act provides for liability against “control persons.” This Section imposes liability upon any person who controls another liable person to the same extent as such controlled person, unless she can establish that she acted in good faith and did not directly induce the violation. Sections 15(b)(4)(E) and 15(b)(6))A) of the Exchange Act give the Commission power to institute administrative proceedings against broker-dealers and associated persons for their failure to reasonably supervise another person who commits certain enumerated securities law violations. Although these enforcement mechanisms seem ripe for use, the Commission has refused to allege claims against control persons or based upon a failure to supervise in cases against big banks and large publicly regulated companies, such as those responsible for the financial crises and subsequent instances of large-scale misconduct. Instead, the SEC agrees to large monetary settlements with these companies without holding corporate miscreants liable.
The objective of this article is to propose an enforcement regime which holds executives, directors, and other fiduciaries responsible for misconduct occurring at their enterprises when such misconduct can be attributed to their lack of control or failure to supervise their employees. We will show that by using Sections 20(a) and 15(b)(6)(A), the Commission incentivizes those in charge to actively sniff out misconduct or face the sobering reality of being named in an SEC enforcement action. In order to accomplish this task, this article will: 1) discuss the legal authority giving the SEC power to use these provisions, and explain the provisions’ advantages over the SEC’s frequently used enforcement tools; 2) outline recent misconduct resulting in large monetary settlements with such financial institutions as JP Morgan, Goldman Sachs, Merrill Lynch, and Bank of America; 3) showcase the SEC’s refusal to implement these tools against big players; 4) set forth rationales as to why the Commission has cast these provisions aside, and 5) recommend an enforcement policy in this context that seeks to effectuate law compliance and enhanced corporate governance practices.
Michael Ewens and Joan Farre-Mensa have posted The Evolution of the Private Equity Market and the Decline in IPOs on SSRN with the following abstract:
Despite the large drop in the number of initial public offerings (IPOs) in the United States, privately-held startups backed by venture capital continue to achieve capital raising, revenue, and employment levels historically available only to their public peers. We show that startups’ ability to finance their late-stage growth while remaining private has been facilitated by a marked increase in the supply of private entrepreneurial capital, both from traditional and non-traditional startup investors. Two factors have contributed to this increase: Technological changes that have lowered investor search costs, and regulatory changes that have decreased the frictions faced by startups and their financiers when raising private capital, among them a major securities law passed in 1996 (NSMIA). Our evidence suggests that the lower IPO volume stems from their founders/managers choosing to remain private, rather than a market failure in the going-public process. Consistent with this interpretation, we show that exogenous increases in founder control increase the likelihood that a firm remains private late in its life.
Benjamin P. Edwards has posted The Rise of Automated Investment Advice: Can Robo-Advisers Rescue the Retail Market? on SSRN with the following abstract:
Different types of financial advisers serve the massive and widely dispersed retail investment market. In a market riddled with conflicts of interests, many advisers exploit retail customers by pitching suboptimal products, leading to lower investment returns and lower overall growth — but also to greater profits for the financial advisers collecting kickback-style commissions. New financial technology firms, commonly known as Robo-Advisers, may disrupt this market and these exploitative practices. Still, these potentially disruptive automated investment advice firms face significant regulatory risks.
Andrew Verstein has posted Insider Tainting: Strategic Tipping of Material Non-Public Information on SSRN with the following abstract:
Insider trading law is meant to be a shield, protecting the market and investors from connected traders, but it can also be a sword. Insofar as we penalize trading on the basis of material non-public information, it becomes possible to share information strategically in order to disable or constrain innocent investors. A hostile takeover can be averted, or a bidding war curtailed, because information recipients must then refrain from trading. This Article offers the first general account of “insider tainting,” an increasingly pervasive phenomenon of weaponizing insider trading law.
Allen Ferrell and John Morley have posted New Special Study of the Securities Markets: Institutional Intermediaries on SSRN with the following abstract:
This essay, written for the Conference on the New Special Study of Securities Markets at Columbia Law School, identifies the key regulatory challenges posed by institutional intermediaries in America’s capital markets. We survey existing legal and economic research and suggest new areas for regulatory reform and scholarly inquiry. We cover registered investment companies (such as mutual funds), private investment funds (such as hedge funds and private equity funds), credit-rating agencies, and broker-dealers.
Tuesday, August 8, 2017
The following law review articles relating to securities regulation are now available in paper format:
Janet Austin, What Exactly Is Market Integrity? An Analysis of One of the Core Objectives of Securities Regulation, 8 Wm. & Mary Bus. L. Rev. 215 (2017).
John S. Baker Jr., Warning to Corporate Counsel: If State AGs Can do This to ExxonMobil, How Safe Is Your Company?, 15 Geo. J.L. & Pub. Pol'y 313 (2017).
Marco Bodellini, From Systemic Risk to Financial Scandals: The Shortcomings of U.S. Hedge Fund Regulation, 11 Brook. J. Corp. Fin. & Com. L. 417 (2017).
Charles R. Korsmo, The Audience for Corporate Disclosure, 102 Iowa L. Rev. 1581 (2017).
Adair Morse, Wei Wang & Serena Wu, Executive Lawyers: Gatekeepers Or Strategic Officers?, 59 J.L. & Econ. 847 (2016).
John Polise, A Bridge Too Far: A Critical Analysis of the Securities and Exchange Commission's Approach to Equity Market Regulation, 11 Brook. J. Corp. Fin. & Com. L. 285 (2017).
Christopher Saverino, Note, Full Disclosure: Moving Beyond Disclosure Regulations to Affirmative Regulation of Executive Compensation, 11 Brook. J. Corp. Fin. & Com. L. 541 (2017).
Jack Wroldsen, Crowdfunding Investment Contracts, 11 Va. L. & Bus. Rev. 543 (2017).
Tuesday, August 1, 2017
Eric C. Chaffee, A Call for Legislative Reform: Expanding the Extraterritorial Application of the Private Rights Action under Federal Securities Law while Limiting the Scope of Relief Available, 22 Stan. J.L. Bus. & Fin. 1 (2017).
Kathryn Judge, Information Gaps and Shadow Banking, 103 Va. L. Rev. 411 (2017).
Justin Offermann, Case Comment, Gibney v. Evolution Marketing Research, LLC., 61 N.Y.L. Sch. L. Rev. 529 (2016/17).
Fernan Restrepo & Guhan Subramanian, The New Look of Deal Protection, 69 Stan. L. Rev. 1013 (2017).
Bernard S. Sharfman, What Theory and the Empirical Evidence Tell Us About Proxy Access, 13 J.L. Econ. & Pol'y 1 (2017).
Drew Thornley & Justin Blount, SEC In-House Tribunals: A Call for Reform, 62 Vill. L. Rev. 261 (2017).
Saturday, July 22, 2017
Eric Beech (Reuters), Trump to Nominate Former Senate Aide Peirce for SEC Commissioner:
U.S. President Donald Trump intends to nominate former Senate Republican aide Hester Maria Peirce to be a member of the Securities and Exchange Commission, the White House said on Tuesday.
Peirce is a former Senate Banking Committee staff member and currently is the director of the Financial Markets Working Group at George Mason University's Mercatus Center.
She was nominated to the SEC last year by President Barack Obama, but the full Senate never acted on her nomination.
Democrats on the Senate Banking Committee attempted to block her nomination when she declined to fully commit to work as a commissioner on requiring corporations to publicly disclose their political donations.
She ultimately won the committee's blessing but her nomination stalled in the Senate as Republicans dragged their feet on approving names put forward by Obama, a Democrat.
Peirce could face a rocky time again in the chamber. Liberal firebrand Senator Elizabeth Warren is highly critical of Peirce, who is a member of the Federalist Society, an organization of conservative and libertarian lawyers.
Peirce could be instrumental in carrying out Trump's plan to reform regulations imposed after the 2007-09 financial crisis and recession.
She recently edited and contributed to a book published by the right-leaning Mercatus Center that called for totally restructuring the country's financial regulation.
Peirce would fill one of two vacancies on the five-member commission. If Trump follows tradition, he will suggest a Democrat for the other open slot at the top U.S. securities regulator.
Columbia University law professor Robert Jackson is a leading contender to fill the Democratic slot, people familiar with the matter said last month.
I received the following conference announcement:
Call for Papers: Symposium on Personalized Law
Presented by the University of Chicago Law Review and the Coase-Sandor Institute for Law and Economics
April 27-28, 2018
We are pleased to announce the 2018 University of Chicago Law Review symposium on “Personalized Law.” The event will be co-sponsored by the Coase-Sandor Institute for Law and Economics and aims to explore questions surrounding the potential for personalized law. With the rise of big data, the costs associated with creating and administering personalized legal rules tailored to specific individuals or circumstances have decreased significantly. Rules that currently apply uniformly—rules like standards of care in tort law; default and mandatory rules in contract law; disclosure mandates; sentencing rules; tax laws; and legal procedures—now face the possibility of becoming personalized in nature.
Scholars working in the field are invited to submit their work to the conference and for publication in the Law Review. The symposium will feature several panels representing diverse viewpoints on the value, feasibility, and implementation of personalization of various legal areas. Would such a system be moral or democratic? How would the implementation of personalized law take place? What are the benefits and drawbacks of shifting from uniform to personalized law? How would increased granularity of legal norms affect the legal system as a whole? Would it make the system more efficient, fair, or equal? Or would it serve to undermine the legitimacy of the legal system and infringe on individual privacy?
The University of Chicago Law Review invites authors exploring these and related issues to submit proposals for papers. Selected proposals will be developed into approximately 7,500-word papers for presentation at the Law Review’s annual Symposium, which will be held at the University of Chicago Law School on Friday and Saturday, May 11–12, 2018. Once authors have incorporated feedback from the panels, we plan to publish the final versions in Volume 86 of the Law Review.
We welcome both traditional and interdisciplinary approaches, including insights and methodologies from the social sciences, data sciences, and political philosophy, among others. A proposal may be as short as a two-page précis or as long as a full draft. We recommend that authors of empirical proposals include preliminary results.
Proposals should be submitted to Anagha Sundararajan at email@example.com no later than September 30, 2017. Submissions must be exclusive, and the organizers’ decisions will be communicated no later than October 31, 2017.
Travel expenses are eligible for reimbursement. Please direct any inquiries to Anagha Sundararajan, Book Review and Symposium Editor (firstname.lastname@example.org) and Professor Omri Ben-Shahar, Director, Coase-Sandor Institute for Law and Economics (email@example.com).
Monday, July 17, 2017
Jesus Garcia Aparicio, Note, Enhancing Shareholder Rights in Intermediated Securities Holding Structures Across Borders, 13 N.Y.U. J.L. & Bus. 465 (2017).
Erin Bauwens, Note, The Dodd-Frank Act and Government Overreach: How expanded SEC Authority Affects the Investing Public and How to Better Regulate the Financial Industry, 67 Syracuse L. Rev. 741 (2017).
Liza B. Fleming, Comment, Lenity Calling: a Plea to End Chevron Deference for Criminal Insider Trading Law, 89 Temp. L. Rev. 579 (2017).
Austin J. Green, Note, (Beyond) Family Ties: Remote Tippees in a Post-Salman Era, 85 Fordham L. Rev. 2769 (2017).
Jon Jordan, BNY Mellon and Qualcomm: A Recent Focus on Improper Hiring Practices in Violation of the Foreign Corrupt Practices Act, 63 Loy. L. Rev. 1 (2017).
Leonardo Labriola, Note, Paying Too Dearly for a Whistle: Properly Protecting Internal Whistleblowers, 85 Fordham L. Rev. 2839 (2017).
Usha R. Rodrigues, Dictation and Delegation in Securities Regulation, 92 Ind. L.J. 435 (2017).
Hon. Leo E. Strine Jr., Who Bleeds When the Wolves Bite?: A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System, 126 Yale L.J. 1870 (2017).
Thursday, July 13, 2017