Saturday, March 12, 2016
Friday, March 11, 2016
Cathy Hwang & Benjamin P. Edwards have posted The Value of Uncertainty on SSRN with the following abstract:
In recent years, federal courts have heard, without clear subject matter jurisdiction, contract disputes involving billions of dollars worth of securitized financial instruments (SFIs). These SFI disputes are litigated in federal court under the federal interpleader statute, which specifies that a federal court has subject matter jurisdiction over these cases only when parties deposit the disputed amount with the court. SFI litigants have ignored this requirement, so courts have, at best, uncertain jurisdiction over these cases. Why have no parties raised the jurisdictional defect, even though some would stand to gain from raising it? This Essay advances game theoretical explanations for litigants’ puzzling silence in these major post-financial crisis cases, and argues that parties may strategically value litigating in federal court under jurisdictional uncertainty over other alternatives.
Stanislav Dolgopolov has posted Wholesaling Best Execution: How Entangled Are Off-Exchange Market Makers? on SSRN with the following abstract:
This Article examines the reach of the duty of best execution to and potential breaches of this duty by off-exchange market makers in the context of the evolving business model of these market participants and the current market structure crisis. Several key areas, such as routing practices, order handling functionalities, and the usage of private data feeds, are analyzed.
The following law review articles relating to securities regulation are now available in paper format:
Blair Bowman, Note, A Comparative Analysis of Crowdfunding Regulation in the United States and Italy, 33 Wis. Int'l L.J. 318 (2015).
Gregory DiCiancia, Note, Limiting Frivolous Shareholder Lawsuits via Fee-Shifting Bylaws: A Call for Delaware to Overturn and Revise Its Fee-Shifting Bylaw Statute, 56 B.C. L. Rev. 1537 (2015).
Johannes W. Fedderke & Marco Ventoruzzo, Do Conservative Justices Favor Wall Street? Ideology and the Supreme Court's Securities Regulation Decisions, 67 Fla. L. Rev. 1211 (2015).
Merritt B. Fox, Lawrence R. Glosten & Gabriel V. Rauterberg, The New Stock Market: Sense and Nonsense, 65 Duke L.J. 191 (2015).
Joseph Grusman, Note, Gaming Corporations Gamble with the FCPA, 6 UNLV Gaming L.J. 117 (2015).
Stephen J. Kozey, Note. The Hague Securities Convention: An Opportunity to Take the UCC Global, 46 Geo. J. Int'l L. 1213 (2015).
Jerry W. Markham, High-Speed Trading on Stock and Commodity Markets--From Courier Pigeons to Computers, 52 San Diego L. Rev. 555 (2015).
Leah Neupert, Comment, A Court's Guide on How to Gut Precedent by Relying on It: Halliburton II's Puzzling Effect on Securities-Fraud Class Actions, 76 La. L. Rev. 225 (2015).
Abram Olchyk, Comment, A Spoof of Justice: Double Jeopardy Implications for Convictions of Both Spoofing and Commodities Fraud for the Same Transaction, 65 Am. U. L. Rev. 239 (2015).
Samuel D. Posnick, Note, A Merry-Go-Round of Metal and Manipulation: Toward a New Framework for Commodity Exchange Self-Regulation, 100 Minn. L. Rev. 441 (2015).
Cary Martin Shelby, Privileged Access to Financial Innovation, 47 Loy. U. Chi. L.J. 315 (2015).
David Solomon & Eugene Soltes, What Are We Meeting For? The Consequences of Private Meetings with Investors, 58 J.L. & Econ. 325 (2015).
Bernard Tsepelman, Note, A Safe Harbor for Communicating or Trading on Material Nonpublic Information Obtained through "Replicable" Methods or Strategies: Proposed SEC Rule 10b5-SH, 37 Cardozo L. Rev. 353 (2015).
Sunday, February 14, 2016
The following law review articles relating to securities regulation are now available in paper format:
Lynn A. Baker, Michael A. Perino & Charles Silver, Is the Price Right? An Empirical Study of Fee-Setting in Securities Class Actions, 115 Colum. L. Rev. 1371 (2015).
David R. Hague, Expanding the Ponzi Scheme Presumption, 64 DePaul L. Rev. 867 (2015).
McKay S. Harline, Comment, Can We Make Them Obey? U.S. Reporting Companies, Their Foreign Suppliers, and the Conflict Minerals Disclosure Requirements of Dodd-Frank, 35 Nw. J. Int'l L. & Bus. 439 (2015).
Ann M. Lipton, Slouching Towards Monell: The Disappearance of Vicarious Liability Under Section 10(b), 92 Wash. U. L. Rev. 1261 (2015).
Ann M. Olazabal & Patricia S. Abril, Recklessness as a State of Mind in 10(b) Cases: The Civil-Criminal Dialectic, 18 N.Y.U. J. Legis. & Pub. Pol'y 305 (2015).
Urska Velikonja, Waiving Disqualification: When do Securities Violators Receive a Reprieve?, 103 Cal. L. Rev. 1081 (2015).
Friday, January 29, 2016
The following law review articles relating to securities regulation are now available in paper format:
Weiling Chou, Note, Restoring Integrity in American Businesses: A Broad Interpretation of the Foreign Corrupt Practices Act, 60 Wayne L. Rev. 283 (2014).
Meredith R. Conway, Money, Money, Money; It's a Rich Man's World: Making the Corporate Tax Fair, 17 U. Pa. J. Bus. L. 1181 (2015).
George W. Dent, Jr., A Defense of Proxy Advisors, 2014 Mich. St. L. Rev. 1287.
Asaf Eckstein, Great Expectations: The Peril of an Expectations Gap in Proxy Advisory Firm Regulation, 40 Del. J. Corp. L. 77 (2015).
Sharon Hannes, Super Hedge Fund, 40 Del. J. Corp. L. 163 (2015).
Suren Gomtsian, The Governance of Publicly Traded Limited Liability Companies, 40 Del. J. Corp. L. 207 (2015).
Tara E. Levens, Comment, Too Fast, Too Frequent? High-Frequency Trading and Securities Class Actions, 82 U. Chi. L. Rev. 1511 (2015).
Jeremy R. McClane, The Sum of Its Parts: The Lawyer-Client Relationship in Initial Public Offerings, 84 Fordham L. Rev. 131 (2015).
Galit A. Sarfaty, Shining Light on Global Supply Chains, 56 Harv. Int'l L.J. 419 (2015).
Jeremy Schara, Note, Knowledge is salvation: informing investors by regulating disclosures to safeguard best execution, 43 Hofstra L. Rev. 1231 (2015).
Symposium--Transnational Securities and Regulatory Litigation in the Aftermath of Morrison v. Australia National Bank. Introduction by Franklin A. Gevurtz; articles by Katherine Florey, Kenneth S. Gallant, Xandra E. Kramer and Bart Krans, 27 Pac. McGeorge Global Bus. & Dev. L.J. 173-301 (2014).
The securities regulatory authorities in Manitoba, Ontario, Québec, New Brunswick and Nova Scotia have adopted in final form Multilateral Instrument 45-108, which governs crowdfunding in those jurisdictions. The Canadian Securities Administrators's Notice of Publication is available here. The Notice states in part:
As securities regulators, we have the responsibility to examine whether securities law contributes to the efficient functioning of our capital markets, while maintaining adequate investor protection. This includes assessing whether the securities regulatory framework remains responsive and relevant in a dynamic environment that is being shaped by advances in technology and a broad array of demographic, cultural and economic forces.The internet and social media have enabled start-ups and technology companies that foster innovation to reach out to a large number of investors, including retail investors (the crowd), to raise capital.
Selling securities over the internet to a large number of investors, sometimes referred to as "crowdfunding", has emerged as a new way for some businesses, particularly start-ups and small and medium-sized enterprises (SMEs), to access capital that would not have otherwise been accessible. "Crowdfunding" is an umbrella term used to capture many forms of capital and fund raising, that in this context, we mean raising capital from members of the public through the distribution/sale of securities. Crowdfunding may enable issuers to raise capital more effectively and at a lower cost while also providing investors with greater access to investment opportunities. The 45-108 crowdfunding regime is intended to leverage the use of the internet and social media to facilitate capital formation primarily for start-ups and SMEs that foster innovation and to provide new investment opportunities for investors. At the same time, we believe the 45-108 crowdfunding regime maintains an appropriate level of investor protection and regulatory oversight to be responsive both to global market developments in this area and to our mandate to provide protection to investors.
The 45-108 crowdfunding regime will enable start-ups and SMEs in their early-stages of development to raise capital online from a large number of investors through a single registered funding portal. A limit on the total amount that can be raised will be imposed on issuers and investors will be subject to investment limits as a means of limiting their exposure to a highly risky investment. The registration of the funding portal is a key investor protection measure as registration addresses, among other things, potential integrity concerns that may apply to funding portals and the persons operating them, as well as potential concerns relating to conflicts of interest and self-dealing.
We believe the introduction of the 45-108 crowdfunding regime is a significant step in enhancing capital raising alternatives in Canada, particularly for start-ups and SMEs. The introduction of the 45-108 crowdfunding regime in the participating jurisdictions will allow start-ups and SMEs to benefit from greater access to capital from investors that was previously limited.
The SEC Actions Blog has compiled This Week In Securities Litigation (Week ending January 29, 2016).
Saturday, January 23, 2016
Wulf A. Kaal and Dale A. Oesterle have posted The History of Hedge Fund Regulation in the United States on SSRN with the following abstract:
The hedge fund industry in the United States evolved from a niche market participant in the early 1950s to a major industry operating in international financial markets. Hedge funds in the United States were originally privately-held, privately-managed investment funds, unregistered and exempt from federal securities regulation. With increasing investor demand and significant growth of the hedge fund industry came a tectonic shift in the regulatory framework applicable to the industry. The book chapter summarizes the regulatory evolution of the hedge fund industry.
Andrew A. Schwartz has posted The Digital Shareholder on SSRN with the following abstract:
Crowdfunding, a new Internet-based securities market, was recently authorized by federal and state law in order to create a vibrant, diverse, and inclusive system of entrepreneurial finance. But will people really send their money to strangers on the Internet in exchange for unregistered securities in speculative startups? Many are doubtful, but this Article looks to first principles and finds reason for optimism.
Well-established theory teaches that all forms of startup finance must confront and overcome three fundamental challenges: uncertainty, information asymmetry, and agency costs. This Article systematically examines this “trio of problems” and potential solutions in the context of crowdfunding. It begins by considering whether known solutions used in traditional forms of entrepreneurial finance — venture capital, angel investing, and public companies — can be borrowed by crowdfunding. Unfortunately, these methods, especially the most powerful among them, will not translate well to crowdfunding.
Finding traditional solutions inert, this Article presents five novel solutions that respond directly to crowdfunding’s distinctive digital context: (1) wisdom of the crowd; (2) crowdsourced investment analysis; (3) online reputation; (4) securities-based compensation; and (5) digital monitoring. Collectively, these solutions provide a sound basis for crowdfunding to overcome the three fundamental challenges and fulfill its compelling vision.
Sunday, January 17, 2016
Jeffrey E. Alberts, & Bertrand Fry, Is Bitcoin a Security?, 21 B.U. J. Sci. & Tech. L. 1 (2015).
John P. Anderson, What's the Harm in Issuer-Licensed Insider Trading?, 69 U. Miami L. Rev. 795 (2015).
Alicia J. Davis, The Institutional Appetite for "Quack Corporate Governance," 2015 Colum. Bus. L. Rev. 1.
James A. Fanto, Surveillant and Counselor: A Reorientation in Compliance for Broker-Dealers, 2014 BYU L. Rev. 1121.
Zachary J. Gubler, Making Experimental Rules Work, 67 Admin. L. Rev. 551 (2015).
Nadelle Grossman, The Sixth Commissioner, 49 Ga. L. Rev. 693 (2015).
Kevin Haeberle, Stock-Market Law and the Accuracy of Public Companies' Stock Prices, 2015 Colum. Bus. L. Rev. 121.
Leo Katz, The Problem with Consenting to Insider Trading, 69 U. Miami L. Rev. 827 (2015).
Christopher Takeshi Napier, Note, Resurrecting Rule 14a-11: A Renewed Call for Federal Proxy Access Reform, Justifications and Suggested Revisions, 67 Rutgers U. L. Rev. 843 (2015).
Tyler A. O'Reilly, Reconstructing Short Selling Regulatory Regimes, 59 Wayne L. Rev. 53 (2013).
Frank Pasquale, Law's Acceleration of Finance: Redefining the Problem of High-Frequency Trading, 36 Cardozo L. Rev. 2085 (2015).
Gerald Paulovich, Note, Do "Say-on-Pay" Votes Say Anything about Director Fiduciary Duties?, 59 Wayne L. Rev. 875 (2013).
Usha R. Rodrigues, The Once and Future Irrelevancy of Section 12(g), 2015 U. Ill. L. Rev. 1529.
Luke N. Roniger, Note, Regulatory Dissent and Judicial Review, 2015 Colum. Bus. L. Rev. 390.
Daniel Schwarcz, A Critical Take on Group Regulation of Insurers in the United States, 5 UC Irvine L. Rev. 537 (2015).
J. Kelly Strader, (Re)conceptualizing Insider Trading: United States v. Newman and the Intent to Defraud, 80 Brook. L. Rev. 1419 (2015).
Sonila Themeli, Comment, FCPA Enforcement and the Need for Judicial Intervention, 56 S. Tex. L. Rev. 387 (2014).
Stephen Coleman Tily, Note, National Security Whistleblowing vs. Dodd-Frank Whistleblowing: Finding a Balance and a Mechanism to Encourage National Security Whistleblowers, 80 Brook. L. Rev. 1191 (2015).
William K.S. Wang, The Importance of "The Law of Conservation of Securities": A reply to John P. Anderson's "What's the Harm in Issuer-Licensed Insider Trading?", 69 U. Miami L. Rev. 811 (2015).
Yesha Yadav, Clearinghouses and Regulation by Proxy, 43 Ga. J. Int'l & Comp. L. 161 (2014).
Monday, December 21, 2015
NASAA has published its annual list of top investor threats. This year's list includes:
1. Unregistered products/unlicensed salesmen: The offer of securities by an individual without a valid securities license should be a red alert for investors. Con artists also try to bypass stringent state registration requirements to pitch unregistered investments with a promise of “limited or no risk” and high returns.
2. Promissory Notes: In an environment of low interest rates, the promise of high-interest-bearing promissory notes may be tempting to investors, especially seniors and others living on a fixed income. Promissory notes generally are used by companies to raise capital. Legitimate promissory notes are marketed almost exclusively to sophisticated or corporate investors with the resources to research thoroughly the companies issuing the notes and to determine whether the issuers have the capacity to pay the promised interest and principal. Most promissory notes must be registered as securities with the SEC and the states in which they are sold. Average investors should be cautious about offers of promissory notes with a duration of nine months or less, which in some circumstances do not require registration. Short-term notes that appear to be exempt from securities registration have been the source of most – but not all – of the fraudulent activity involving promissory notes identified by regulators.
3. Oil/Gas Investments: Many oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices. Fraudulent oil and gas deals frequently are structured with the limited partnership (or other legal entity) in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states. As a result, there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Such a structure also makes it difficult for authorities and victims to identify and expose the fraud.
4. Real Estate-related Investments: Troublesome real estate-related investments identified by securities regulators included non-traded real estate investment trusts (REITs), timeshare resales, and brokered mortgage notes. These types of products often carry higher risk. For example, non-traded REITs are sold directly to investors and are not traded on exchanges (as are conventional REITs). Non-traded REITS can be risky and have limited liquidity, which may make them unsuitable for certain investors.
5. Ponzi Schemes: The premise is simple: pay early investors with money raised from later investors. The only people certain to make money are the promoters who set the Ponzi in motion.
The statement begins:
Post the 2008 financial crisis, traditional credit providers have become increasingly constrained in their ability to make loans available for worthy investment projects, particularly with respect to small and medium enterprises. Policy makers and regulators have sought ways to encourage investment in small firms and start-ups. One of these ways has been through the use of crowdfunding, which seeks to leverage technology, inter alia, to provide an alternative channel for capital raising. However, when developing or investing in crowdfunding, IOSCO believes it is important for regulators and policy makers to balance the need for supporting economic growth and recovery with that of protecting investors.
Rajeev R. Bhattacharya & Stephen J. O'Brien, Arbitrage Risk and Market Efficiency--Applications to Securities Class Actions, 55 Santa Clara L. Rev. 643 (2015).
Ryan Jones, Comment, The Fight Over Home Court: An Analysis of the SEC's Increased Use of Administrative Proceedings, 68 SMU L. Rev. 507 (2015).
Michael A. Perino, A Scandalous Perversion of Trust: Modern Lessons from the Early History of Congressional Insider Trading, 67 Rutgers U. L. Rev. 335 (2015).
Sam Thypin-Bermeo, Comment, The S.E.C. and the Damsel in Distress: A Contextual Analysis of the Duty of Best Execution, 27 Yale J.L. & Feminism 169 (2015).
Wednesday, December 16, 2015
Martijn Cremers and Quinn Curtis have posted Do Mutual Fund Investors Get What They Pay For? The Legal Consequences of Closet Index Funds on SSRN with the following abstract:
Actively managed mutual funds sell the potential to beat the market by picking stocks that are expected to outperform passive benchmarks like the S&P 500. Funds that are marketed as active vary substantially in the degree to which their portfolio holdings actually differ from the holdings of passive index funds. A purportedly active fund with a portfolio that substantially overlaps with the market is known as a closet index fund. Since closet index funds charge considerably higher fees than true index funds but provide a substantially similar portfolio, they tend to be poor investment choices. This article presents empirical evidence on closet index funds, showing that more than 10% of U.S. mutual fund assets are currently invested in closet index funds and that high cost closet index funds substantially underperform their benchmarks. We argue that persistent closet indexing implicates a number of legal issues, including possible liability for fund advisors under the Securities Act and the Investment Company Act. We conclude by discussing potential adjustments to mutual fund disclosures that could help investors identify closet index funds.
Mike Koehler has posted The Uncomfortable Truths and Double Standards of Bribery Enforcement on SSRN with the following abstract:
In recent years, Foreign Corrupt Practices Act (FCPA) enforcement has become a top priority for the U.S. government, and government enforcement officials have stated that "we in the United States are in a unique position to spread the gospel of anti-corruption" and that FCPA enforcement ensures not only that the United States "is on the right side of history, but also that it has a hand in advancing that history."
However, the FCPA is not the only statute in the federal criminal code concerning bribery. Rather, the FCPA was modeled in large part after the U.S. domestic bribery statute, and when speaking of its FCPA enforcement program, the government has recognized that it "could not be effective abroad if we did not lead by example here at home." Indeed, the policy reasons motivating Congress to enact the FCPA — that corporate payments were subverting the democratic process, undermining the integrity and stability of government, and eroding public confidence in basic institutions — apply with equal force to domestic bribery.
Against this backdrop, this Article explores through various case studies and examples whether the United State’s crusade against bribery suffers from uncomfortable truths and double standards. Through these case studies and examples, readers can decide for themselves whether the U.S. government "practices what it preaches" when it comes to the enforcement of bribery laws and whether the United States is indeed "in a unique position to spread the gospel of anti-corruption."
Joseph Grundfest has posted Fair or Foul? SEC Administrative Proceedings and Prospects for Reform Through Removal Legislation on SSRN with the following abstract:
The Securities and Exchange Commission has announced its intention to increase its reliance on administrative proceedings and to reduce the frequency with which it litigates in federal court. The Commission has also clearly signaled its intent to call for Chevron deference to its rulings in administrative proceedings. These developments have triggered a firestorm of controversy. Critics challenge the fairness of the agency's administrative process. They also warn of the adverse implications of excessive reliance on the agency's interpretations of the federal securities laws to the exclusion of interpretations by the federal courts.
This article addresses the possibility of removal legislation as a potential response to the Commission's initiative. It emphasizes a form of removal designed not to eliminate the administrative process, but to protect respondent rights in a manner that provides the Commission with a powerful incentive to reform its internal procedures. The proposal is also sensitive to the potential burdens that would be imposed on already crowed federal dockets. The proposed legislation would identify a category of cases that would not be removable because they raise matters that are well suited to administrative adjudication and need not clutter the federal courts' dockets. Late filing claims and allegations of violations of the Commission's net capital rules might fall in this category. A second category of cases would give rise to removal as of right because they likely implicate matters that would benefit from resolution in proceedings subject to the full panoply of rights available in federal court. Insider trading cases and allegations of bribery in violation of the Foreign Corrupt Practices Act might fall in this second category. Respondents in all other cases would have the right to petition a federal district court for an order of removal in a process modeled on Federal Rule of Procedure 23(f). In considering this petition for discretionary removal, the court could consider a range of factors including the adequacy of the Commission's procedures given the complexity of the allegations and the implications of the prosecution for respondents' businesses and careers. The discretionary nature of the review is designed to incentivize the Commission to reform its internal processes in an effort to prevent the grant of the discretionary petition in a larger percentage of proceedings.
Umakanth Varottil has posted The Nature of the Market for Corporate Control in India on SSRN with the following abstract:
Given its deep and liquid stock markets, India presents a favourable environment for public takeovers. In order to develop and regulate takeover activity, India’s securities regulator the Securities and Exchange Board of India (SEBI) has enacted specific regulations. While at a broad level these regulations appear to attribute their origins to the United Kingdom (UK) and other countries that have adopted the UK model or its variants, I argue in this paper that takeover regulation in India bears fundamental differences and unique characteristics that have necessitated special treatment.
Due to the prevalence of concentrated shareholdings in Indian companies, the incidence of hostile takeovers has been negligible. While SEBI’s takeover regulations do not confer much power to the target’s board to set up takeover defences, the nature of concentration of shareholdings and other factors offer sufficient protection to incumbent shareholders and managements against corporate raiders. Hence, substantial attention in India is focused on the mandatory bid rule (MBR), which operates to grant equality of treatment to minority shareholders by conferring them an exit option in case of a change in control. India’s takeover regulations are arguably stringent in implementing the MBR. This impedes value-enhancing takeovers unless they are effected with the concurrence of the controlling shareholders, who could potentially block them.
Added to this, India’s takeover regulations confer benefits on incumbents that would impede a market for corporate control in the conventional sense. For example, promoters can take advantage of creeping acquisition limits, and also certain exemptions from the MBR when they enhance their positions in the company. Hence, while the takeover regulation overtly appears designed to engender a market for corporate control, its operation coupled with the corporate structure and culture in India attenuate the possibility of takeovers.
Relying upon the political economy of takeover regulation, and more specifically the interest group theory, my goal in this paper is to demonstrate the influence of promoters in shaping India’s takeover regulation. I seek to do so both analytically and empirically. While the Indian markets have witnessed a constant stream of takeovers, they are almost entirely organized changes of control in a friendly manner that trigger the MBR. Voluntary, unsolicited offers that are common in the more developed markets are miniscule in number in India.