Monday, September 2, 2019
Stanislav Dolgopolov has posted The Doctrinal Quandary of Manipulative Practices in Securities Markets: Artificial Pricing, Price Discovery, and Liquidity Provision on SSRN with the following abstract:
This Article sketches a frame of analysis for the doctrinal quandary of manipulative practices in securities markets, drawing on the historical origins of the concept of market manipulation and the realities of the modern electronic marketplace. The essence of market manipulation is maintained to be in artificial pricing based on market activity, as opposed to other indicia of “artificiality,” and this definitional approach is compared and contrasted to the process of price discovery and liquidity provision. The Article addresses several key themes relevant for today’s securities markets, such as the phenomenon of exploratory trading, market making and the role played by market makers, the doctrine of open market manipulation, spoofing / layering and disruptive trading, and the implications of the market structure crisis.
The following law review articles relating to securities regulation are now available in paper format:
Stewart L. Brown, Mutual Fund Advisory Fees: An Objective Fiduciary Standard, 21 U. Pa. J. Bus. L. 477 (2019).
Daniel P. Guernsey Jr., Note, Requiring Broker-Dealers to Disclose Conflicts of Interest: A Solution Protecting and Empowering Investors, 73 U. Miami L. Rev. 1029 (2019).
Robert T. Miller, Rule 10b-5 and Business Combination Transactions, 21 U. Pa. J. Bus. L. 533 (2019).
Benjamin J. Nickerson, Comment, The Underlying Underwriter: An Analysis of the Spotify Direct Listing, 86 U. Chi. L. Rev. 985 (2019).
Spencer J. Nord, Student Article, Blockchain Plumbing: A Potential Solution for Shareholder Voting, 21 U. Pa. J. Bus. L. 706 (2019).
Hari M. Osofsky, et al., Energy Re-Investment, 94 Ind. L.J. 595 (2019).
Ryan W. Sypniewski, Comment, The Truth Hurts: Applying the Criminal Provisions of Federal Securities Fraud Regulation to Exxon's Concealment of Climate Change Concerns, 28 Widener Commw. L. Rev. 223 (2019).
Ethan Yale, Mutual Fund Tax Overhang, 38 Va. Tax Rev. 397 (2019).
Symposium: Blockchain and the Law, Articles by Deborah Ginsberg, Thomas Lee Hazen & Omri Marian, 20 N.C. J.L. & Tech. 471 (2019).
Wednesday, August 21, 2019
The following law review articles relating to securities regulation are now available in paper format:
Joseph Gonyeau, Note, Reinventing the WHEEL: How Securitization Can Bolster the Market for Residential Energy Efficiency Loans, 43 Wm. & Mary Envtl. L. & Pol'y Rev. 639 (2019).
Andrew K. Jennings, Firm Value and Intracorporate Arbitration, 38 Rev. Litig. 1 (2018).
Alina Veneziano, Studying the Hegemony of the Extraterritoriality of U.S. Securities Laws: What It Means for Foreign Investors, Foreign Markets, and Efforts at Harmonization, 17 Geo. J.L. & Pub. Pol'y 343 (2019).
Tuesday, August 13, 2019
Call-for-Papers: AALS Section of Securities Regulation's Emerging Voices in Securities Regulation Panel
Call for Papers
AALS Section on Securities Regulation—2020 AALS Annual Meeting
Emerging Voices in Securities Regulation
January 2-5, 2020
The AALS Securities Regulation section invites proposals for its "Emerging Voices in Securities Regulation” works-in-progress workshop at the 2020 AALS Annual Meeting. The workshop will bring together junior and senior securities regulation scholars for the purpose of giving junior scholars feedback on their scholarship and helping them prepare their work for the spring law review submission cycle. A junior scholar is any untenured full-time faculty member as of January 2, 2020.
FORMAT: The program will involve multiple simultaneous roundtables, with one junior scholar, one or two senior scholars, and interested observers at each table. Junior scholars’ presentations of their drafts will be followed by oral comments from senior scholars and further discussion, as time permits.
SUBMISSION PROCEDURE: Junior scholars who are interested in participating in the program should send an abstract (or longer summary) or draft-in-progress to Professor Eric C. Chaffee, Chair of the AALS Securities Regulation Section, at Eric.Chaffee@utoledo.edu, on or before September 16, 2019. The cover email should state the junior scholar’s institution, tenure status, number of years in his or her current position, and any previous positions in academia. The subject line of the email should read: “Submission—Sec Reg WIP Program.”
Junior scholars whose papers are selected for the program will need to submit their presentation drafts to Professor Chaffee by December 13, 2019, in order that the assigned commenters will have sufficient time to read the drafts prior to the Annual Meeting.
ELIGIBILITY: Junior scholars at AALS member law schools are eligible to submit proposals. Pursuant to AALS rules, faculty at fee-paid law schools, foreign faculty, adjunct and visiting faculty (without a full-time position at an AALS member law school), graduate students, fellows, and non-law school faculty are not eligible to submit. Please note that all presenters at the program are responsible for paying their own annual meeting registration fees and travel expenses.
Tuesday, August 6, 2019
The following law review articles relating to securities regulation are now available in paper format:
Ernest Edward Badway, Joshua Horn & Christie McGuinness, Why Does the SEC Hate Lawyers and Will the Bitterness Ever Go Away: A Review of the Reasons for the Current State of This Relationship and a Proposed Path Forward, 13 Brook. J. Corp. Fin. & Com. L. 313 (2019).
Chelsea A. Bollman, Note, Self-Interest Rightly Understood: The Case Against Attorneys Receiving the SEC Whistleblower Bounty, 33 Notre Dame J.L. Ethics & Pub. Pol'y 291 (2019).
Tash Bottum, Note, Material Breach, Material Disclosure, 103 Minn. L. Rev. 2095 (2019).
Orlando Cosme Jr., Comment, Regulating High-Frequency Trading: The Case for Criminal Liability, 109 J. Crim. L. & Criminology 365 (2019).
Carol Goforth, Securities Treatment of Tokenized Offerings Under U.S. Law, 46 Pepp. L. Rev. 405 (2019).
John T. Holden & Ryan M. Rodenberg, Modern Day Bucket Shops? Fantasy Sports and Illegal Exchanges, 6 Tex. A&M L. Rev 619 (2019).
Charles W. Mooney Jr., Global Standards for Securities Holding Infrastructures: A Soft Law/FinTech Model for Reform, 40 Mich. J. Int'l L. 531 (2019).
Michael J. O'Connor, Overreaching Its Mandate? Considering the SEC's Authority to Regulate Cryptocurrency Exchanges, 11 Drexel L. Rev. 539 (2019).
Doris Toyou, Protection of Private Equity Investors under the Dodd-Frank Act, 37 J.L. & Com. 115 (2019).
Wednesday, July 24, 2019
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.
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.
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.
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).
Monday, July 22, 2019
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, email@example.com. 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, firstname.lastname@example.org.
Sunday, July 21, 2019
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).
Monday, July 15, 2019
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.
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.
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.
Friday, July 12, 2019
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.
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.
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.
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).
Tuesday, July 9, 2019
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.
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.