Securities Law Prof Blog

Bernanke on Mortgage Finance

Chairman Ben S. Bernanke, Federal Reserve Board, spoke today at the UC Berkeley/UCLA Symposium: The Mortgage Meltdown, the Economy, and Public Policy, on The Future of Mortgage Finance in the United States.  His conclusion:

Regardless of the organizational form, we must strive to design a housing financing system that ensures the successful funding and securitization of mortgages during times of financial stress but that does not create institutions that pose systemic risks to our financial markets and the economy.  Government likely has a role to play in supporting mortgage securitization, at least during periods of high financial stress.  But once government guarantees are involved, the problems of systemic risks and contingent taxpayer involvement must be dealt with clearly and credibly.  Achieving the appropriate balance among these design challenges will be difficult, but it nevertheless must be high on the policy agenda for financial reform.   

Lazard Capital Markets Settles SEC Charges Involving Gifts to Fidelity

The SEC settled charges that Lazard Capital Markets LLC failed to supervise three employees who collectively spent more than $600,000 while improperly entertaining traders at Fidelity Investments in an effort to generate brokerage business. The SEC also charged the three employees and a supervisor for their roles in securities laws violations by Fidelity traders.  Earlier this year, the SEC charged Fidelity and current and former executives and employees for improperly accepting lavish gifts provided by brokers. Among those charged were former Fidelity equity trader Thomas H. Bruderman.

The Commission’s orders issued today found that former head of Lazard Capital Markets’ U.S. sales and trading department David L. Tashjian and former registered representatives Robert A. Ward and W. Daniel Williams facilitated Bruderman’s violations of the securities laws by taking him on trips to such destinations as Europe, the Bahamas, the Caribbean, Florida, and Napa Valley, Calif., often by private plane, and paying for his meals and lodging at high-end restaurants and hotels. According to the orders, Bruderman also was provided with race car driving lessons, adult entertainment and expensive wine, and approximately $50,000 was contributed toward his elaborate bachelor party in Miami.

The Commission also found that Tashjian and Louis Gregory Rice, former head of Lazard Capital Markets’ U.S. equity sales and trading desk, failed to supervise Ward and Williams during their misconduct.

The Commission’s order against Lazard Capital Markets found that the firm failed to supervise Tashjian, Ward, and Williams and detect or prevent their aiding and abetting violations of Section 17(e)(1) of the Investment Company Act. Lazard Capital Markets consented to the order without admitting or denying the findings, agreeing to be censured and pay disgorgement of $1,817,629 plus prejudgment interest of $429,379.04, and a penalty of $600,000.

Tashjian, Rice, Ward, and Williams also settled the SEC’s charges without admitting or denying the allegations. Tashjian, Ward, and Williams were ordered to cease from committing or causing any further violations will pay penalties of $75,000, $50,000 and $25,000, respectively, and will be suspended from associating with a broker, dealer or investment company for nine months, six months and three months, respectively.

For his supervisory lapses, Rice was ordered to pay a $60,000 penalty and be suspended for a period of six months from associating in a supervisory capacity with any broker or dealer.

SEC Settles Allegations of $30 Million Ponzi Scheme in Florida

The SEC filed a civil injunctive action in the United States District Court for the Southern District of Florida against Andres L. Pimstein, The Bottom Line of South Florida, Inc. ("Bottom Line") and Summit Trading LLC ("Summit") alleging they conducted a $30 million Ponzi scheme.  According to the complaint, from at least 2005 to April 2008, the defendants offered and sold more than $30 million of securities to at least 80 investors in at least five states, purportedly to fund an export business that Pimstein and his agents operated through Bottom Line and Summit. According to the complaint, Pimstein and his agents told investors that Bottom Line and Summit would use the proceeds from their investments to buy iPods and other personal electronics from vendors in the United States for resale to Ripley Corp., S.A., a Chilean company that operates one of the largest department store chains in South America. The complaint further alleges that Pimstein and his agents claimed Bottom Line and Summit had a competitive edge over other electronics suppliers because Pimstein was the cousin of Ripley's chief executive officer and had previously worked for Ripley.

The complaint alleges that, contrary to defendants' representations, they purchased very few electronics with investor funds and did not re-sell any electronics to Ripley. Instead, defendants operated a large Ponzi scheme by using newly invested funds to make principal and interest payments to existing investors. The defendants also paid commissions to the agents who solicited investors on the defendants' behalf. In addition, Pimstein used investor funds to pay his personal expenses. According to the complaint, in April 2008, the defendants' Ponzi scheme collapsed when the interest and principal Bottom Line and Summit were obligated to pay investors substantially exceeded the amount of new funds Pimstein and his agents were able to raise from investors. The complaint alleges that Pimstein subsequently confessed to local police that that he had operated a Ponzi scheme and admitted that Ripley never purchased any electronics from the defendants.

In its complaint, the Commission seeks permanent injunctions, disgorgement plus prejudgment interest and civil penalties against the defendants. Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, Pimstein, Bottom Line and Summit consented to the entry of a judgment permanently enjoining them from violating the above-mentioned provisions of the federal securities laws. The judgment also orders the defendants to pay disgorgement plus prejudgment interest and civil money penalties, the amounts of which will be determined by the Court at a later date.  The United States Attorney's Office for the Southern District of Florida conducted a parallel investigation of this matter. Simultaneous with the Commission's announcement of this action, the United States Attorneys Office announced the filing of criminal charges against Pimstein alleging mail and wire fraud. The SEC also acknowledges the assistance of the Miami Beach Office of the Federal Bureau of Investigation and the Superintendencia de Valores y Seguros of Chile (SVS) with this investigation.

SEC Amends Rules to Require Electronic Filing of Applications under Investment Company Act

The SEC adopted several amendments to its rules regarding the EDGAR system. As amended, the rules make mandatory the electronic submission on EDGAR of applications for orders under any section of the Investment Company Act of 1940 (“Investment Company Act”) as well as Regulation E filings of small business investment companies and business development companies. In addition, the electronic filing rules are amended to make the temporary hardship exemption unavailable for submission of applications under the Investment Company Act. Finally, Rule 0-2 under the Investment Company Ac is amended to eliminate the requirement that certain documents accompanying an application be notarized and the requirement that applicants submit a draft notice as an exhibit to an application.

NYAG Cuomo Seeks Information from Banks on Bonus Pools

New York Attorney General Andrew Cuomo sent letters to the nine banks receiving federal funds seeking detailed information regarding bonus pool allocations.  The Boards are also asked to explain what mechanisms they have put in place to protect taxpayer funds.  Here is the letter sent to Citigroup. The banks are: 
Bank of America,
Bank of New York Mellon,
Citigroup,
Goldman Sachs,
J.P. Morgan Chase,
Merrill Lynch,
Morgan Stanley,
State Street, and
Wells Fargo

FINRA Fines J.P. Turner for Failures on Commissions Policy

FINRA has imposed a $250,000 fine against J.P. Turner & Company, LLC of Atlanta, GA, for failing to have an adequate supervisory system designed to ensure that its registered representatives charged customers fair and reasonable commissions on stock trades. As part of the settlement, FINRA ordered J.P. Turner to retain an independent consultant to conduct a comprehensive review of the adequacy of the firm's policies, systems, procedures, and training relating to FINRA's Fair Pricing Rule.

FINRA requires firms to implement a system and reasonable procedures to ensure that customers are fairly charged for transactions, taking into consideration all relevant factors. FINRA's mark-up policy lists seven factors for firms to consider: the type of security involved; the availability of the security in the market; the price of the security; the size of the transaction; disclosure to the customer; the pattern of the firm's mark-ups; and, the nature of the firm's business.

FINRA found that between January 2002 and March 2005, J.P. Turner's supervisory system and written procedures failed to take these factors into account and failed to provide adequate guidance to its registered representatives to determine a fair commission or mark-up on equity securities transactions.  Instead, representatives had discretion to establish the commission on such transactions, limited only by whether the price of the security was above or below $25 per share. On all equity securities transactions in which the price of the security was below $25, registered representatives were allowed to charge up to 4.5%, while they could only charge up to 3.5% if the price of the security was above $25. During the review period, 91% of the firm's equity securities transactions involved securities priced below $25 per share.

In concluding this settlement, J.P. Turner neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Treasury's Ryan Speaks at SIFMA Meeting

Acting Under Secretary for Domestic Finance Anthony Ryan spoke on October 28 at the SIFMA Annual Meeting to provide an update on the state of the capital markets and the global economy, and on Treasury's efforts to implement the Emergency Economic Stabilization Act, the EESA.  Ryan stated the obvious:

Today, we are experiencing the repercussions of this unbridled expansion and access to credit. We needed to strike a balance between strong market discipline and regulatory oversight and we have not. Investor confidence was undermined, illiquidity then compromised our credit markets, and now the housing and financial market turmoil has spilled over into the rest of the U.S. economy.

Ryan goes on to set forth the government's efforts to date and concludes:

We remain vigilant as Americans face strong headwinds in this challenging financial environment. We will focus on addressing or mitigating immediate problems while being mindful that longer term regulatory reform is critical to our continued status as the world's preeminent capital market. Our Blueprint and the PWG's reports clearly outlined some of the changes that need to be addressed. Maintaining the balance between regulatory measures and market discipline is critical to highly efficient markets. Most importantly, such a balance fosters market confidence. There is important work for all of us and I appreciate your efforts and dedication. Thank you.

Bershad Sentenced to Six Months in Prison

David Bershad, a former partner in the Milberg Weiss law firm, was sentenced to six months in prison (double what the government recommended) for his role in the firm's payment of kickbacks to clients to serve as named plaintiffs in securities suits.  WSJ, Milberg's Bershad Sentenced to Six Months in Kickback Case.

Canadian Mining Company and Stock Promoter Settle SEC Charges

On October 23, 2008, the SEC filed a civil complaint against M45 Mining Resources, Inc. (M45), a Quebec, Canada-based mining company, and Eden Miller, a California and Nevada-based stock promoter. According to the complaint, M45 violated the registration provisions of the federal securities laws, and Miller violated the registration and anti-touting provisions of the federal securities laws. M45 and Miller have agreed to settle the charges against them, without admitting or denying the Commission's allegations.

In its complaint, the Commission alleges the following: M45 files periodic reports with the Commission, and in 2007, its common stock traded on the Over the Counter Bulletin Board. In April 2007, M45 entered into a consulting agreement with I-Vest Global Corporation LLC (I-Vest), a now inactive Nevada limited liability company. Miller operated I-Vest and signed the consulting agreement on its behalf. Under the consulting agreement, I-Vest agreed to promote M45's stock and, in return, M45 agreed to issue one million "free trading shares" to I-Vest. On or about April 5, 2007, M45 filed a Form S-8 registration statement with the Commission which, among other things, attempted to register the offer and sale of one million shares to I-Vest. Shortly after receiving the one million shares, Miller and I-Vest began promoting M45. In May 2007, Miller "profiled" M45 on I-Vest's website and touted M45 by sending out thousands of blast, unsolicited text messages to cell phone users. The touts by Miller and I-Vest failed to disclose the stock compensation paid by M45. Between May 2007 and October 2007, Miller liquidated the one million shares of M45 stock. Miller retained half the proceeds and transferred the other half to an associate that referred him the M45 business.

M45 and Miller consented to judgments that permanently enjoin them from future violations of these provisions of the federal securities laws, and Miller has also agreed to pay disgorgement of $129,630 plus prejudgment interest of $7,162.

SEC Announces Mark-to-Market Accounting Panelists

The SEC announced the expected panelists for its October 29 roundtable concerning mark-to-market accounting.  The panel discussions will focus on:

Usefulness of mark-to-market accounting to investors and regulators.
Potential market behavior effects from mark-to-market accounting.
The usefulness of mark-to-market accounting to investors and regulators.
Whether aspects of current accounting standards can be improved, and how?

Scheduled panelists include investors, issuers, auditors, and others with experience in mark-to-market accounting by financial institutions:

9:10 a.m. — Panel One:
Ray Ball, University of Chicago
Vincent Colman, PricewaterhouseCoopers LLP
Scott Evans, TIAA-CREF
William Isaacs, former Chairman, FDIC
Richard Murray, SwissRe
Aubrey Patterson, Bancorp South
Damon Silvers, AFL-CIO
11:10 a.m. — Panel Two:
Randy Ferrell, Fauquier Bankshares, Inc.
Patrick Finnegan, CFA Institute
Bradley Hunkler, Western Southern Life
Lisa Lindsley, CtW Investment Group
Cindy Ma, Houlihan Lokey Howard & Zukin
Chuck Maimbourg, Key Bank
Richard Ramsden, Goldman Sachs
Russell Wieman, Grant Thornton LLP
In addition, the following individuals are scheduled to participate in both panel discussions as observers:

Daniel Goelzer, Public Company Accounting Oversight Board
Charles Holm, Federal Reserve Board
Kristen Jaconi, U.S. Department of the Treasury
Thomas Jones, International Accounting Standards Board
Thomas Linsmeier, Financial Accounting Standards Board

Three Firms Settle ARS Charges with FINRA

FINRA announced that it has reached agreements in principle with City National Securities (CNS), of Beverly Hills, CA, BNY Mellon Capital Markets, LLC of New York and Harris Investor Services, Inc. of Chicago, to settle charges relating to the sale of Auction Rate Securities (ARS). CNS, BNY Mellon and Harris have agreed to offer to repurchase at par ARS that were purchased by individual investors and some institutions between May 31, 2006, and Feb. 28, 2008. A total of more than $60 million of ARS are eligible for repurchase. The firms have also agreed to make whole individual investors who sold ARS below par after Feb. 28, 2008. CNS will pay a fine of $315,000, while BNY Mellon will pay a fine of $250,000 and Harris is being fined $150,000.

The firms also agreed to the appointment of an independent, non-industry arbitrator to resolve investor claims for any consequential damages.

In addition to individual investors, those eligible for ARS repurchase and/or payments for ARS sold below par include non-profit charitable organizations and religious corporations or entities. Trusts, corporate trusts, corporations, pension plans, educational institutions, incorporated non-profit organizations, limited liability companies, limited partnerships, non-public companies, partnerships, personal holding companies and unincorporated associations that made individual ARS purchases and whose account value did not exceed $10 million will also be eligible.

Each firm has agreed to provide notice to its eligible customers promptly. Repurchases must begin no later than 30 days after the settlement is approved and must be completed no later than 60 days after settlement approval. Beginning six months after settlement approval, each firm has also agreed to make its best efforts to provide liquidity to all other investors who purchased during the same time period but who were not eligible for the initial repurchase. Those best efforts may include offers to repurchase ARS and/or offers of low- or no-interest loans.

FINRA's investigation has found evidence that each firm sold ARS using advertising, marketing materials or other internal communications with its sales force that were not fair and balanced and therefore did not provide a sound basis for investors to evaluate the benefits and risks of purchasing ARS. FINRA's investigation also found evidence that each firm failed to establish and maintain a supervisory system reasonably designed to achieve compliance with the securities laws and FINRA rules with respect to the marketing and sale of ARS.

In the forthcoming formal settlement documents, the firms will neither admit nor deny the charges, but will consent to the entry of FINRA's findings.

Cox Testifies on Lessons from Credit Crisis

Testimony Concerning the Role of Federal Regulators: Lessons from the Credit Crisis for the Future of Regulation, by Chairman Christopher Cox, Before the Committee on Oversight and Government Reform
United States House of Representatives, October 23, 2008:

First, I think every regulator wishes that he or she would have been able to predict before March of this year what we have recently seen not just in investment banks and commercial banks but the broader economy: the meltdown of the entire U.S. mortgage market, which was the fundamental cause of this crisis.... But none of the investment banks, commercial banks, or their regulators in the U.S. or around the world in March 2008 used a risk scenario based on a total meltdown of the mortgage market. It clearly would have been prescient for the SEC to have done so.

Second, I would have wanted to question every one of the assumptions behind the Consolidated Supervised Entities program for investment bank holding companies....

Third, both as SEC Chairman and as a Member of Congress, knowing what I know now, I would have wanted to work even more energetically with all of you to close the most dangerous regulatory gaps. I would have urged Congress to repeal the swaps loophole in the 2000 Commodity Futures Modernization Act....

Fourth, I would have worked even more aggressively than I have over the last two years for legislation requiring stronger disclosure to investors in municipal securities....

The lesson in this for legislators is threefold.

First, eliminate the current regulatory gap in which there is no statutory regulator for investment bank holding companies....

Second, recognize each agency's core competencies. The mission of the SEC is investor protection, the maintenance of fair and orderly markets, and the facilitation of capital formation. In strengthening the role of the SEC, build on these traditional strengths — law enforcement, public company disclosure, accounting and auditing, and the regulation of exchanges, broker-dealers, investment advisers, and other securities entities and products. The vitally important function of securities regulation is best executed by specialists with decades of tradition and experience.

Third, ensure that securities regulation and enforcement remain fiercely independent....

Former Peregrine President Settles Accounting Fraud Charges

On October 20, 2008, the United States District Court (S.D.Cal.) approved the SEC's settlement with former Peregrine Systems, Inc. (“Peregrine”) president Gary L. Lenz. The Commission’s action, filed in 2004, charged Lenz with, among other things, securities fraud, in connection with his participation in a revenue inflation scheme with other senior officers of Peregrine, a San Diego software company that has since been acquired by Hewlett-Packard Company. To settle the Commission’s case, Lenz agreed to pay a $110,000 civil penalty and to be barred from serving as an officer or director of any public company.

In January 2008, Lenz entered a guilty plea in a related criminal case and pleaded guilty to one count of making materially false statements to the FBI. Lenz was sentenced to three years probation, a $5,000 fine and 200 hours of community service.

SEC Releases Info on FY08 Enforcement Efforts

On Oct. 22 the SEC issued a press release to announce that the second-highest number of enforcement actions in agency history took place in fiscal year 2008.  In addition, the SEC also returned more than $1 billion to harmed investors through Fair Fund distributions.

According to the release, the agency brought 671 enforcement actions during the just-completed fiscal year, with the number of insider trading and market manipulation cases up more than 25 percent and 45 percent respectively over the previous year.

The release also notes that the SEC has more than 50 ongoing investigations relating to the subprime market and that the Division of Enforcement also reached preliminary settlements in principle with six of the largest firms in the auction rate securities market. These settlements, which are subject to final approval by the Commission, would be the largest in the history of the SEC and would return more than $50 billion to investors.

Additional data on the SEC’s FY 2008 enforcement results will be available as part of the agency’s Performance and Accountability Report, which is scheduled to be published in mid-November.

Harris on Shareholder Campaigns

The Shareholder Right to Campaign, by Lee A. Harris, University of Memphis - Cecil C. Humphreys School of Law, was recently posted on SSRN.  Here is the abstract:

Shareholder-led campaigns to install new leadership at U.S. firms occur too rarely and, when they do occur, are led by the same, boring cast of characters too often. The funding rules for contested corporate elections are highly tilted toward the "incumbents" (i.e., firm directors) and against "challengers" (i.e., campaigns launched by shareholders). Additionally, the rules promote excessive and profligate spending, with no real check or good estimate of reasonable levels of expenditures. This Article presents empirical evidence that the lop-sided nature of the rules reduces the number of contested corporate elections overall, particularly those that, but for the rules, would originate from average shareholders.

Meanwhile thoughtful solutions to reinvigorate shareholders' ability to participate in firm affairs through corporate elections have come from all corners, from prominent corporate law scholars to Delaware judges to investor-activists to the SEC, the main regulatory authority for corporate entities. As will be shown in this Article, however, all these previous proposals overlook a ready exemplar for how to conduct elections when costs of campaigning are high, voters dispersed widely, and incumbents have a natural, built-in advantage: the public finance system for presidential candidates. In fact, the thirty-year old Presidential Campaign Fund, a system of public funding for eligible presidential candidates, has been an arguable success. This public fund has raised nearly $2 billion dollars for campaign expenditures, won approval from millions of taxpayers, and provided funds for almost all major candidates (with only a handful of notable exceptions). The system of public financing for presidential campaigns provides a remarkably sturdy roadmap for changing the system of contested corporate elections. That is, our public campaign system creates a baseline set of principles that may resolve several of the prickliest questions in contested corporate elections.

Lund on Aronson

Rethinking Aronson, by Andrew Lund, Pace University School of Law, was recently posted on SSRN.  Here is the abstract:

Shareholders who wish to sue derivatively for breach of directors' fiduciary duties face significant obstacles. Chief among these is the requirement that they demand that the corporation's board pursue the action, unless such demand would be futile. The general test in Delaware for demand futility was set forth almost twenty-five years ago in Aronson v. Lewis. The second prong of that test asks whether the board decision underlying the complaint was the subject of a "valid business judgment." When Aronson was decided, this question served as a satisfactory proxy for the principle motivating the demand futility exception - the need to restrain board authority where the board is expected to be unable to make an impartial decision. If the original decision was not the product of a valid business judgment, directors would likely face personal liability from the derivative suit.

Conley & Williams on CSR

The Corporate Social Responsibility Movement as an Ethnographic Problem, by John M. Conley, University of North Carolina at Chapel Hill - School of Law, and Cynthia A. Williams, University of Illinois at Urbana-Champaign - College of Law ; Osgoode Hall Law School, York University, was recently posted on SSRN.  Here is the abstract:

Over the past decade, the business world has devoted an extraordinary amount of attention to the concept of "corporate social responsibility." CSR derives from the idea that the responsibility of a corporation extends beyond the traditional Anglo-American objective of providing maximal financial returns to its shareholders. Instead, CSR proponents have argued, the legitimate concerns of a corporation should include such broader objectives as sustainable growth, equitable employment practices, and long-term social and environmental well-being. CSR is now the focus of a well-defined and energetic movement that has manifested itself in a variety of ways. It is, in the anthropologist Sally Engle Merry's phrasing, a global reform movement that represents a "corner" of globalization itself. The sociologist Ronen Shamir has characterized CSR as a "field of action" shaped by the interplay between popular pressure on corporations and the latter's response to that pressure. The field is the site of a contest between "those players who associate the term 'responsibility' with an ever-increasing set of moral duties" and "corporations and a host of other players who tend to associate the concept of CSR with a voluntary and altruistic spirit and insist, at best, on self-regulatory schemes". In this paper we report on an ongoing project in which we endeavor to treat the CSR movement as a "deterritorialized" ethnographic site. We are investigating the meaning of CSR to people in corporations and their various stakeholders, examining the ways in which CSR is practiced, and assessing the potential impact, within a company and beyond, of a firm's undertaking CSR initiatives. It is difficult to observe people "doing" CSR in a physical sense; there is no ready equivalent to a kula voyage. Nonetheless, through participant observation of public CSR events, interviews with many kinds of CSR protagonists, and discourse analysis of CSR texts, we are developing a picture of the complex culture of CSR.

Grzebielski on Martha Stewart

Why Martha Stewart Did Not Violate Rule 10b-5: On Tipping, Piggybacking, Front-Running and the Fiduciary Duties of Securities Brokers, by Raymond Grzebielski, DePaul University - College of Law, was recently posted on SSRN.  Here is the abstract:

Martha Stewart settled insider trading charges brought by the Securities and Exchange Commission for her trading in ImClone stock. The article argues that, in fact, Martha Stewart engaged in no illegal insider trading when she sold her ImClone stock after her broker told her that an ImClone insider was trying to sell all of his significant ImClone holdings.

The article provides the Supreme Court's interpretation of the law of insider trading. There is no proof that Martha Stewart was aware of specific nonpublic ImClone information. Nor should her knowledge of an ImClone insider's sale order be sufficient to impute such knowledge to her. Consequently, she did not violate rule 10b-5 for trading as a tippee of nonpublic corporate information.

Martha Stewart also did not violate prohibitions on insider trading by participating in a breach of fiduciary duty by her broker. The broker's disclosure of the order to Martha Stewart may have violated some state law fiduciary duty. But a fiduciary duty only tangentially related to the insider trading should not give rise to a federal securities law violation. Nor should the employer's policies on confidentiality give rise to a breach of fiduciary duty since the broker was actually furthering his employer's financial interest.

Loewenstein on Good Faith

The Diverging Meaning of Good Faith, by Mark Loewenstein, University of Colorado Law School, was recently posted on SSRN.  Here is the abstract:

This article explores the meaning of "good faith" in the context of corporations and unincorporated entities. The courts, particularly in Delaware, have developed two different approaches. In the corporate arena, the courts are fashioning a notion of good faith that seems to require an examination of director motivations. In the unincorporated arena, good faith has a meaning grounded in contract law. These are two different concepts and reflect the fundamental differences between corporations and unincorporated entities, with the former based on fiduciary duties and the latter on contract. There are, however, indications that this "divergence" is starting to disappear, and this article discusses that trend as well.

Schwarcz on the Subprime Financial Crisis

Understanding the 'Subprime' Financial Crisis, by Steven L. Schwarcz, Duke University - School of Law, was recently posted on SSRN.  Here is the abstract:

This short and accessible paper, based on a keynote speech for a law review symposium, addresses how and why the financial crisis occurred and what should be done to avoid future crises. Among other things, the paper explains why neither the making of subprime mortgages nor the originate-and-distribute model pursuant to which these mortgages were monetized was per se evil; why the governmental regulatory structure failed to deter the crisis; and why the governmental bailout plan under the Emergency Economic Stabilization Act is critically needed and where it may be deficient. The paper also explains the difficulties in valuing mortgage-backed securities and in locating the ultimate holders of risk under credit default swaps and the relationship between financial market breakdown and counterparty risk.