Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, July 24, 2019

Travis on Insider Trading and Cryptocurrencies

Hannibal Travis has posted Common Law and Statutory Remedies for Insider Trading in Cryptocurrencies on SSRN with the following abstract:

Recent empirical work has shown that the issuers of digital tokens may possess non-public information about the true prospects of their token, including information that contradicts their white papers or other public statements. In addition, there are numerous stories of pump-and-schemes and nondisclosure of founders' potential diversion of initial coin offering (ICO) assets to personal use or waste. An environment is emerging in which regulators may insist on prior registration and enforcement of norms against insider trading and other abuses.

This discussion paper analyzes whether common law doctrines short of onerous registration requirements or long criminal sentences could adequately deter or at least remedy the wrongful insider trading of cryptocurrencies. In the 1970s and 1980s, a number of scholars criticized insider trading law as diminishing the incentive to investigate market prices and their underlying fundamentals or to generate actionable narratives of how markets act or will act in the future. The profits of the insider who trades on non-public information could be viewed as a bounty, like that earned by those who trade on analyzed public information; without a high enough bounty, the danger or opportunity signal discovered by the insider will not be conveyed to the market via the price mechanism. The ICO and AppCoin registration debates are analogous to cases in which the courts cabined insider trading law to preserve a space for arm's-length trading advantages or adopted narrowing constructions of other laws for purposes of notice, historical fidelity, or efficiency. In those cases, the courts leave fraud victims to the substantial penalties and generous civil remedies for wrongs not relating exclusively to securities. This may be a better outcome for buyers and sellers of tokens that unlock expressive content on mobile or other computer applications, or access rights to network resources.

July 24, 2019 | Permalink | Comments (0)

Kim & Kim on Insider Trading

Sehwa Kim and Seil Kim have posted Fragmented Securities Regulation: Neglected Insider Trading in Stand-Alone Banks on SSRN with the following abstract:

We examine whether regulatory fragmentation, by separating disclosure venues, affects stock price efficiency. Publicly traded stand-alone banks submit mandatory filings to bank regulators via FDICconnect rather than to SEC EDGAR. We find that the short-run market reaction to insider-trading filings on FDICconnect is almost non-existent and significantly smaller than for these filings on SEC EDGAR. However, the differences in returns disappear in the long run, suggesting that the short-run difference is not driven by difference in the information content of the filings. Our study shows that regulatory fragmentation significantly affects stock price efficiency.

July 24, 2019 | Permalink | Comments (0)

Gordon on Non-GAAP Financial Metrics

Michael Gordon has posted Issues with Public Disclosure of Non-GAAP Financial Metrics on SSRN with the following abstract:

The use of non-Generally Accepted Accounting Principles (non-GAAP) metrics by firms has increased dramatically in recent years. However, the regulatory structure for ensuring these metrics do not cross the line from appropriate discretion by managers to misleading investors has not kept pace. The last major pronouncement from the SEC addressing the disclosure of non- GAAP metrics was several years ago and has only been supplemented with unofficial clarifications to deal with highly technical aspects of securities laws. This paper examines the widespread usage of non-GAAP metrics and why the current lack of regulation with regards to disclosure of these data in unofficial settings, such as social media, is a problem that regulators need to address for protection of the investing public.


July 24, 2019 | Permalink | Comments (0)

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Stavros Gadinis & Amelia Miazad, The Hidden Power of Compliance, 103 Minn. L. Rev. 2135 (2019).

Sean Kelly, Note, SEC v. Creditors: Why SEC Civil Enforcement Practice Demonstrates the Need for a Reprioritization of Securities Fraud Claims in Bankruptcy, 92 St. John's L. Rev. 915 (2018).

Patricia H. Lee, Crowdfunding Capital in the Age of Blockchain-Based Tokens, 92 St. John's L. Rev. 833 (2018).

Victoria L. Schwartz, The Celebrity Stock Market, 52 UC Davis L. Rev. 2033 (2019).

July 24, 2019 | Permalink | Comments (0)

Monday, July 22, 2019

Call for Papers: 2020 AALS Annual Meeting - Section on Employee Benefits & Executive Compensation

The AALS Section on Employee Benefits and Executive Compensation is pleased to announce a Call for Papers for the section panel for the 2020 AALS Annual Meeting. The Employee Benefits and Executive Compensation section panel is scheduled from 3:30-5:15 p.m., January 2, 2020. The panel is graciously co-sponsored by the Sections on Aging and the Law, Employment Discrimination, Labor Relations and Employment Law, and Poverty Law.

The topic for this year’s Employee Benefits and Executive Compensation panel is:

The Road to Wellbeing: Navigating the Potholes to Lifetime Financial Security

Panel Description: Although traditional employer-provided retirement and health benefits provide a significant safety net during employment and beyond, many in the U.S. struggle to achieve a state of long-term financial and health stability. This panel brings together experts from diverse perspectives to address obstacles and possible solutions in the pursuit of individual wellbeing over time.

We welcome legal scholarship on any topic related to the panel topic, including employer-provided benefits, retirement security, Social Security, income disparity and poverty, and topics related to individual financial/investment advice and investor protections.

Eligibility: Full-time faculty of AALS member schools or non-member fee-paid schools (determined as of the submission deadline) are eligible to submit papers. For co-authored papers, both authors must satisfy the eligibility criteria.

Submission details and due dates: Please submit abstracts (250-1000 words) by September 15, 2019, in Microsoft Word format, by e-mail to Susan Cancelosi, Only one abstract may be submitted by any potential speaker. The subject line should read “2020 AALS Employee Benefits section CFP submission”. Final papers are due by November 30, 2019. Scholarship may be at any stage of the publication process, from work-in-progress to completed article; however, if an article has already been published, the publication date may not be before 2018.

By submitting an abstract for consideration, you agree to attend and present at the 2020 AALS Annual Meeting Employee Benefits and Executive Compensation section panel on January 2, 2020, 3:30-5:15 p.m., should your paper be selected for presentation.

Abstracts will be reviewed by members of the Executive Committee of the Section on Employee Benefits and Executive Compensation. Anyone selected to present will be notified by e-mail by September 26, 2019. All presenters, including anyone selected to present through this Call for Papers, are responsible for paying their own AALS annual meeting registration fee, hotel and travel expenses.

Any questions should be directed to Section Chair Susan Cancelosi,

July 22, 2019 | Permalink | Comments (0)

Sunday, July 21, 2019

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Caitlin M. Ajax & Diane Strauss, Corporate Sustainability Disclosures in American Case Law: Purposeful or Mere "Puffery?", 45 Ecology L.Q. 703 (2018).

John C. Coffee, Robert J. Jackson Jr., Joshua Mitts & Robert E. Bishop, Activist Directors and Agency Costs: What Happens When an Activist Director Goes on the Board?, 104 Cornell L. Rev. 381 (2019).

Carter D. Gage, Note, Removing a Splinter by Amputating the Limb: How the SEC Misses the Mark (Again) on Executive Compensation with the Pay Ratio Disclosure Rule, 63 St. Louis U. L.J. 161 (2018).

Brent J. Horton, Spotify's Direct Listing: Is It a Recipe for Gatekeeper Failure?, 72 SMU L. Rev. 177 (2019).

Dorothy S. Lund, Nonvoting Shares and Efficient Corporate Governance, 71 Stan. L. Rev. 687 (2019).

July 21, 2019 | Permalink | Comments (0)

Monday, July 15, 2019

Gerding on Securitization

Erik F. Gerding has posted Testimony of Erik F. Gerding Before the U.S. House of Representatives Subcommittee on Consumer Protection and Financial Institutions on 'Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending' on SSRN with the following abstract:

Risk is building in the leveraged loan and collateralized loan obligation (“CLO”) markets. These two markets are connected: leveraged loans are being repackaged into CLOs just as mortgages and mortgage-backed securities were used to create collateralized debt obligations (“CDOs”), the financial products at the heart of the financial crisis 11 years ago.

There are important differences but also troubling parallels between the leveraged loan/CLO markets and the earlier mortgage/CDO markets.

One alarming similarity is the decline in leveraged loan underwriting standards: the market is now dominated by “covenant-lite loans.” Covenant-lite loans permit greater leverage by borrowers and remove an early warning system for lenders.

Purchases of CLOs by banks and other regulated financial institutions made in order to game crucial regulatory capital requirements (“regulatory capital arbitrage”) remain a significant concern
Like mortgages and CDOs, leveraged loans and CLOs form a pipeline or system. Disruptions at either end of the system can cause financial havoc on the other end and then ricochet back. This is akin to a coiled spring or “crisis accordion.”

Losses or disruptions in the leveraged loan/CLO markets, even if they do not approach the levels of mortgages/CDOs in the global financial crisis could still be significant, e.g., amplifying a recession. We should be humble about our ability to predict the upper bound of financial market disruptions or crises.

Some tranches of CLO securities appear not to trade actively. Many CLO securities trade on opaque markets lacking transparent prices. A lack of trading of CLO securities undermines the economic rationale of these securities, as well as their safety and favorable regulatory treatment. A lack of transparent prices means that neither the marketplace nor regulators can rely on prices to police risk-taking in the CLO market.

Regulators must monitor and analyze data on leveraged loans and CLO markets. The OFR needs cooperation from other financial regulators in assessing risk in these markets. Lack of data sharing among financial regulators remains a crucial weakness. The OFR needs an independent source of funding. Regulators need minimum standards in their examinations with respect to assessing bank exposure to leveraged loans.
I also recommend:

- Stress testing of financial markets, not just individual institutions;
- Requiring financial regulators to conduct war games to prepare for market disruptions;
- Underscoring that the burden is on financial institutions to prove that leveraged loans and CLOs are safe rather than on regulators to prove that they are unsafe.

If data gathering reveals significant systemic risk in leveraged lending/CLO markets, regulators should use a mix of tools, including limiting bank investments in CLOs, enhanced and countercyclical capital requirements, and the Volcker Rule “covered funds” provisions.

July 15, 2019 | Permalink | Comments (0)

Gubler on Insider Trading

Zachary James Gubler has posted Insider Trading As Fraud on SSRN with the following abstract:

Federal insider-trading law consists, for the most part, of federal common law rooted in a statutory regime that prohibits fraud in connection with the purchase or sale of securities. Commentators have long lamented this fact, viewing the law’s grounding in an anti-fraud statute as a quirk of history with little to recommend it. After all, what does fraud have to do with insider trading?

A lot, it turns out. In this article, I develop a theory explaining and defending the fraud-based nature of federal insider trading law. Specifically, I argue that Rule 10b-5, the anti-fraud rule in question, should be understood as altering the common law rule barring parties from contracting for fraud liability. As contract scholars have shown, this common law rule prevents contracting parties from effectively deterring certain hard-to-detect breaches of which insider trading is but one example. Rule 10b-5, I argue, reverses the common law rule, allowing contracting parties to contract for fraud liability and the accompanying extra-compensatory damages for insider trading.

The implications of this new theory of insider trading law are significant. First, this theory helps us explain the law as it’s been received, something that competing theories simply can’t do. Second, it implies that insider trading liability under Rule 10b-5 should not be limited to fiduciaries but should include trading by at least some non-fiduciaries as well. Third, this theory provides courts with a tractable way of determining the scope of Rule 10b-5 – they must ask whether the trader and the information source are likely to have contracted for insider trading liability under Rule 10b-5, an inquiry that turns in part on the availability of alternatives to fraud liability for deterring insider trading. Fourth, and finally, the contractual fraud theory of insider trading law implies that, interpreting these implicit contracts over information, the SEC can cast a broader liability net than courts. Consequently, this theory explains not just the Supreme Court’s insider trading jurisprudence but also rules promulgated by the SEC, like rule 10b5-2, which are thought to go beyond the limits of the Court’s interpretation of the statute. This theory implies that the SEC is well within its authority to adopt Rule 10b5-2, a proposition that has been called into question by some federal courts.

July 15, 2019 | Permalink | Comments (0)

Podgor on Cryptocurrencies

Ellen S. Podgor has posted Cryptocurrencies and Securities Fraud: In Need of Legal Guidance on SSRN with the following abstract:

The specificity of statutes is important when the statute provides for criminal penalties. This Essay examines a cryptocurrency fraud prosecution, looking at the issue of whether cryptocurrency is included in securities fraud statutes. It also looks at proposed legislation that would omit cryptocurrency as a security, but then calls for enhanced regulation and tax relief. Additional clarification is needed to ascertain whether cryptocurrency fraud can be prosecuted under current securities fraud statutes. This Essay questions such prosecutions when the location of key definitions rest within agency regulations. Although specificity may not be needed to account for every imaginable type of fraud, when it comes to cryptocurrencies, Congress needs to provide more direction.

July 15, 2019 | Permalink | Comments (0)

Friday, July 12, 2019

Roiter on ETFs

Eric D. Roiter has posted Exchange-Traded Funds: Neither Fish Nor Fowl on SSRN with the following abstract:

This article first explains the design of ETFs, traces their growth, and reviews trading and investment strategies. The article next examines the regulatory framework within which ETFs must be made to fit, the record of exemptive relief granted by the SEC, and the agency’s protracted efforts to adopt rules for ETFs.

July 12, 2019 | Permalink | Comments (0)

Klausner, Hegland, LeVine & Leonard on Section 11 Litigation

Michael Klausner, Jason Hegland, Carin LeVine, and Sarah Leonard have posted State Section 11 Litigation in the Post-Cyan Environment on SSRN with the following abstract:

In Cyan, Inc. v. Beaver County Employees Retirement Fund, decided roughly a year ago, the Supreme Court interpreted the Securities Litigation Uniform Standards Act of 1998 (SLUSA) to allow state courts to hear cases under Section 11 of the Securities Act. The result has been a dramatic increase in the filing of Section 11 cases in state court, for which there is often a parallel case brought in federal court against the same defendant based on the same allegations. To understand the practical implications of Cyan, we analyze data on Section 11 cases filed since 2011, a point at which several circuits had ruled that Section 11 cases could be brought in state court. Our key findings are the following: state courts have dismissed Section 11 cases at less than half the rate of federal courts; when parallel cases are filed in state and federal court against the same defendant, settlements occurred over 80% of the time; even if a federal case is dismissed, a parallel state case will often settle.

July 12, 2019 | Permalink | Comments (0)

Horton on Direct Listing

Brent J. Horton has posted Spotify's Direct Listing: Is it a Recipe for Gatekeeper Failure? on SSRN with the following abstract:

On April 3, 2018, Spotify Technology S.A. — a music streaming company valued in excess of $20 billion — went public by direct listing on the New York Stock Exchange (NYSE). A direct listing is distinguishable from the more traditional initial public offering (IPO) in a number of ways, but the most important for purposes of this Article is that it foregoes the traditional underwriter.

First, this Article explains direct listings, why a company would choose to go public by direct listing, and the mechanics of a direct listing. Second, this Article explains that a direct listing — with its reliance on a financial advisor to shepherd the transaction to completion (as opposed to the underwriter-shepherded IPO) — is a danger to investors. In a traditional IPO, underwriters are incentivized to act as gatekeepers. Underwriters allow worthy companies to enter the public exchanges, and, conversely, exclude unworthy companies.

Financial advisors to a direct listing do not have the same incentives to act as gatekeepers. Financial advisors do not market or sell shares in a direct listing, and as such, are less likely to be held reputationally responsible for a flop. Neither do financial advisors face Securities Act liability, which would make them think twice before thrusting a troubled company on potential investors. The fact that financial advisors are less likely to be effective gatekeepers is an important finding. Several tech unicorns are likely to go public soon — they will attract billions of dollars of investors’ money — and are considering doing so by direct listing (Airbnb, Pinterest, and Uber are the prime candidates).

Finally, this Article assumes that direct listings are here to stay. As such, this Article presents for discussion some ideas for making direct listings safer for investors. The first, is to align the profitability of the financial advisor with the profitability of the company that is direct listing (deferred fees tied to long-term company performance is one possibility). Or second, financial advisors could be required to “opt in” to liability under Section 11 of the Securities Act of 1933.

July 12, 2019 | Permalink | Comments (0)

New Securities Law Articles in Print

The following law review articles relating to securities regulation are now available in paper format:

Steven A. Bank & George S. Georgiev, Securities Disclosure as Soundbite: The Case of CEO Pay Ratios, 60 B.C. L. Rev. 1123 (2019).

Paul H. Edelman, Wei Jiang & Randall S. Thomas, Will Tenure Voting Give Corporate Managers Lifetime Tenure?, 97 Tex. L. Rev. 991 (2019).

Nicole G. Iannarone, Rethinking Automated Investment Adviser Disclosure, 50 U. Tol. L. Rev. 433 (2019).

Andrea L. Seidt, Noula Zaharis & Charles Jarrett, Paying Attention to that Man Behind the Curtain: State Securities Regulators’ Early Conversations with Robo-Advisers, 50 U. Tol. L. Rev. 501 (2019).

July 12, 2019 | Permalink | Comments (0)

Tuesday, July 9, 2019

Passador & Riganti on Disclosure

Maria Lucia Passador and Federico Riganti have posted Less is More in the Age of Information Overload: The Paradigm Shift from a Shareholder- To a Stakeholder-Oriented Market on SSRN with the following abstract:

This paper aims to examine the innovations introduced by Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 and its transposition measures in Italy (considering the Legislative Decree No. 254 of 30 December 2016, and the recent regulation by the national Supervisory Authority) and in other European countries, as part of a wider research work on non-financial information statements (“NFSs”) and listed companies operating within the European markets. It is designed to verify the effectiveness of the tools offered, with the intent of developing a system which can (i) combine, also through the NFSs, long-term profitability, social justice, and environmental protection, and thus (ii) prevent risks to sustainability and (iii) increase the confidence of investors and consumers.

The article is structured in several parts, striving to examining the European regulation, focusing on the NFS comparative and Italian scenario, by offering a descriptive and empirical analysis of the matter, as well as offering some systemic conclusions, in particular with reference to social interest and to the most suitable way to disclose such information.

Ultimately, the paper is intended to provide the reader with a critical overview of the current non-financial information framework, as it applies at European and at Member State level. Nevertheless, in a forward-looking sense, this piece seeks to understand whether, and how, the issue of non-financial statements can actually (i) modify the actual corporate dialectic within companies required to disclose non-financial information; (ii) improve the accountability of such companies, as well as from the point of view of corporate social responsibility (“CSR”); and (iii) involve investors, primarily institutional ones, in the “life” of those companies which are subject to the NFS regime.

July 9, 2019 | Permalink | Comments (0)

Spiegeleer & Schoutens on Green Bonds

Jan De Spiegeleer and Wim Schoutens have posted Sustainable Capital Instruments and Their Role in Prudential Policy: Reverse Green Bonds on SSRN with the following abstract:

In this paper we introduce a new variant on the more traditional green climate bond. Green bonds are standard corporate bonds created to finance environmentally beneficial projects. The concept of a Reverse Green Bond is very similar to contingent convertibles (CoCos) issued by financial institutions since 2009. Reverse Green bonds are hence different compared to the traditional vanilla Green Bonds and offer a higher yield. Investors in this asset class carry the extra risk to miss out on a coupon payment or even forgo the complete face-value of the bond if the issuer misses a pre-agreed climate trigger. For Reverse Green Bonds, such a coupon cancellation would not constitute a default-event. Hitting the climate trigger has also a consequence for the issuer. The skipped coupon or missing face value of the issue will be paid out into a climate fund by the issuer of the Reverse Green Bond. In this paper, we work out a valuation model for these securities and elaborate on their role in prudential policy.


July 9, 2019 | Permalink | Comments (0)

Goncalves, Kräussl & Levin on Financial Market "Speed Bumps"

Jorge Goncalves, Roman Kräussl and Vladimir Levin have posted Do 'Speed Bumps' Prevent Accidents in Financial Markets? on SSRN with the following abstract:

Is it true that speed bumps level the playing field, make financial markets more stable and reduce negative externalities of high frequency trading (HFT) firms? We examine how the implementation of a particular speed bump - Midpoint Extended Life order (M-ELO) on Nasdaq impacted financial markets stability in terms of occurrences of mini-flash crashes in individual securities. We use high frequency order book message data around the implementation date and apply difference-in-differences analysis to estimate the average treatment effect of the speed bump on market stability and liquidity provision. The results suggest that the introduction of the M-ELO decreases the average number of crashes on Nasdaq compared to other exchanges by 4.7%. Liquidity provision by HFT firms also improves. These findings imply that technology-based solutions by exchanges are feasible alternatives to regulatory intervention towards safer markets.

July 9, 2019 | Permalink | Comments (0)

Knüpfer, Rantapuska & Sarvimäki on Portfolio Choice

Samuli Knüpfer, Elias Henrikki Rantapuska and Matti Sarvimäki have posted Why Does Portfolio Choice Correlate Across Generations on SSRN with the following abstract: 

We find that investors tend to hold the same securities as their parents. Instrumental variables that exploit social networks and a natural experiment based on mergers allow us to attribute the security-choice correlation to social influence within families. This influence runs not only from parents to children, but also in the opposite direction. Security holdings correlate more when family members are more likely to communicate and when they are more susceptible to social influence. The identical security holdings that social influence generates largely explain why risk-return profiles of household portfolios correlate across generations.

July 9, 2019 | Permalink | Comments (0)

Monday, July 8, 2019

Park on Insider Trading

Tai Park has posted Newman/Martoma: The Insider Trading Law's Impasse and the Promise of Congressional Action on SSRN with the following abstract:

The prohibition against insider trading is a judge-made law that has evolved for over 50 years, and reached a critical impasse in two recent decisions in the Second Circuit Court of Appeals: United States v. Newman and United States v. Martoma. Judges of the Second Circuit sharply divided over what conduct constitutes improper trading on material nonpublic information, leaving the law in profound disarray. At bottom, the disagreement stems from a decades-old split within the judiciary about how to ensure a fair securities marketplace while enabling institutional analysts to probe for corporate information in furtherance of efficient market valuation of securities. In 1983, the Supreme Court in SEC v. Dirks sought to strike a balance between these two interests by holding that trading on material nonpublic information is not illegal unless the information was disclosed in exchange for a personal benefit. But the effort to balance two competing economic and moral interests should never have been the province of the judiciary, nor did its formulation ever win uniform consensus among the judges. After decades of struggle, the Newman/Martoma impasse is the consequence. Congress appears finally poised to pass a law of insider trading that would break the deadlock, but the bill under consideration apparently ignores the market efficiency interests that undergirded the personal benefit element of insider trading. The Article suggests that before passing any law, Congress must undertake an empirical review of the impact that the insider trading bill would have on an efficient market to ensure that the final law is not only clear but good for the health of the capital markets.

July 8, 2019 | Permalink | Comments (0)

Mulholland, Barker, Williams & Eccles on Climate Risk

Ellie Mulholland, Sarah Barker, Cynthia A. Williams and Robert G. Eccles have posted Climate Change and Directors' Duties: Closing the Gap Between Legal Obligation and Enforcement Practice on SSRN with the following abstract:

Until relatively recently, climate change was the purview of corporate social responsibility departments, to the extent it was considered at all. Siloed from finance teams, senior management and the board, it was seen as a non-financial, ethical and purely environmental matter. A public position on climate was beneficial for reputational purposes only, with conventional wisdom that climate change could not affect the financial bottom line, let alone lead to circumstances sufficient to impose personal liabilities on directors or senior management.

Yet this is no longer the case. Having reached global consensus in the Paris Agreement to keep the increase in global average temperature to ‘well below’ 2°C and to pursue efforts to limit it to 1.5°C, the world’s governments and private sector leaders are taking steps to deliver the required mitigation and adaptation measures. Advances in our understanding of the potential catastrophic impacts of climate change were brought to the fore in 2018 with the special report on the impacts of global warming of 1.5°C by the Intergovernmental Panel on Climate Change.

In light of these and other developments, it is now widely understood that the impacts of climate change pose foreseeable, and often material, risks to the financial performance and prospects of companies. Some of the most devastating of these impacts will be felt beyond mainstream investment and business time horizons. The extent of these impacts on future generations are dependent on the near-term actions of our current generation, which we have little incentive to fix, making climate change a ‘tragedy of the horizon’. Yet many of the risks will arise within mainstream planning and investment horizons and are already materialising today: 2017 had the highest ever costs from global weather disasters, with almost two-thirds of the US$320 billion loss uninsured. Climate change is beginning to visibly disrupt business models across a range of sectors and geographies.

This paper outlines why climate change is now a core corporate governance issue. Directors now need to add a base level of climate competency to their governance skill set, as is necessary to guide their companies through the physical impacts of climate change and the transition to the net-zero emissions economy set out in the goals of the Paris Agreement. And for most, if not all, directors climate competence is not optional; governance failures and misleading disclosures relating to climate change may be actionable against individuals and companies. Focusing on key common law jurisdictions, this paper shows that existing corporate and securities laws are conceptually capable of being applied to failures to govern and disclose climate risk. While there is generally a gap between the law on the books and its enforcement against directors, this paper argues that the climate change litigation gap is likely to close in the relatively near future. This has led to the development of a number of tools to assist boards and their committees to navigate the new governance and disclosure expectations and to take up the opportunities created by climate disruption on business.


July 8, 2019 | Permalink | Comments (0)

Gurrea-Martínez on Dual-Class Shares

Aurelio Gurrea-Martínez has posted Theory, Evidence, and Policy on Dual-Class Shares: A Country-Specific Response to a Global Debate on SSRN with the following abstract:

Dual-class shares have become one of the most controversial issues in today´s capital markets and corporate governance debates around the world. Namely, it is not clear whether companies should be allowed to go public with dual-class shares and, if so, which restrictions (if any) should be imposed. Three primary regulatory models have been adopted to deal with dual-class shares: (i) prohibitions, existing in countries like the United Kingdom, Germany, Spain, Colombia, or Argentina; (ii) the permissive model adopted in several jurisdictions, including Canada, Sweden, the Netherlands, and particularly the United States; and (iii) the restrictive approach recently implemented in Hong Kong and Singapore. This paper argues that, despite the global nature of this debate, regulators should be careful when analysing foreign studies and approaches, since the optimal regulatory model to deal with dual-class shares will depend on a variety of local factors. Namely, it will be argued that, in countries with sophisticated markets and regulators, strong legal protection to minority investors, and low private benefits of control, regulators should allow companies going public with dual-class shares with no restrictions or minor regulatory intervention (e.g., event-based sunset clauses). By contrast, in countries without sophisticated markets and regulators, high private benefits of control, and weak legal protection to minority investors, dual-class shares should be prohibited or subject to higher restrictions (e.g., time-based sunset clauses and stringent corporate governance rules). Intermediate solutions should be adopted for countries with mixed features. Therefore, the key question to be addressed from a policy perspective is not whether companies should be allowed to go public with dual-class shares, as many authors and regulators seem to be discussing, but whether dual-class class shares should be allowed and, if so, under which conditions, taking into account the particular features of a country.

July 8, 2019 | Permalink | Comments (0)