Archive for the ‘Securities’ Category
Vanderbilt Law Review En Banc – Roundtable: The JOBS Act and SEC Rulemaking
posted by Vanderbilt Law Review
Vanderbilt Law Review En Banc is pleased to present our Spring 2013 Roundtable, which considers the SEC’s rulemaking authority under the JOBS Act of April 2012.
Practicing securities attorney Douglas Ellenoff, and Professors Usha Rodrigues and Andrew Schwartz each consider the public policy rationales of the JOBS Act, its legislative history, congressional intent, and practical considerations in order to offer some friendly advice to new Chairman Mary Jo White and the Commission.
Mr. Ellenoff and Prof. Schwartz focus on the rules required or allowed relating to crowdfunding under Title III of the Act, while Prof. Rodrigues examines the lifting of the ban on solicitation and advertising of securities offered to accredited investors under Title II. We hope you find this Roundtable informative and engaging.
Roundtable Essays
Making Crowdfunding CREDIBLE
Douglas S. Ellenoff · 66 Vand. L. Rev. En Banc 19 (2013)
In Search of Safe Harbor: Suggestions for the New Rule 506(c)
Usha Rodrigues · 66 Vand. L. Rev. En Banc 29 (2013)
Keep It Light, Chairman White: SEC Rulemaking Under the CROWDFUND Act
Andrew A. Schwartz · 66 Vand. L. Rev. En Banc 43 (2013)
May 10, 2013 at 9:41 pm
Posted in: Law Rev (Vanderbilt), Securities, Securities Regulation
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Call for Papers: National Business Law Scholars Conference
posted by Lawrence Cunningham
I am delighted to pass along the following notice from the organizers of the National Business Law Scholars Conference. I’m also honored to report that they have asked me to deliver the keynote at this year’s conference, and I look forward to doing so.
Deadline Extended to May 31
We have recei
ved an enthusiastic response to the Call for Papers for the National Business Law Scholars Conference, scheduled for June 12-13, at The Ohio State University School of Law. We will have additional openings for anyone who would like to make a presentation but has not yet responded. Thus, we have extended the deadline to MAY 31st. See the Call for Papers, re-posted below with the extended deadline date, for details on how to submit:
National Business Law Scholars Conference: Call-for-Papers
The National Business Law Scholars Conference (NBLSC) will be held on Wednesday, June 12th and Thursday, June 13th at The Ohio State University Michael E. Moritz College of Law in Columbus, Ohio. This is the fourth annual meeting of the NBLSC, a conference which annually draws together dozens of legal scholars from across the United States and around the world. We welcome all on-topic submissions and will attempt to provide the opportunity for everyone to actively participate. Junior scholars and those considering entering the legal academy are especially encouraged to participate.
To submit a presentation, email Professor Eric C. Chaffee at echaffee1@udayton.edu with an abstract or paper by MAY 31, 2013. Please title the email “NBLSC Submission – {Name}”. If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance”. Please specify in your email whether you are willing to serve as a commentator or moderator. A conference schedule will be circulated in late May.
Conference Organizers:
Barbara Black (University of Cincinnati)
Eric C. Chaffee (University of Dayton)
Steven M. Davidoff (The Ohio State University)
April 17, 2013 at 9:56 am
Posted in: Accounting, Administrative Announcements, Conferences, Corporate Finance, Corporate Law, Securities, Securities Regulation
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Theseus’s Paradox – Form and Substance in Evolving Capital Markets
posted by Charles Whitehead
Living in Beijing underscores the importance of change and adaptation. There is a noticeable drop in the amount of processed sugar in foods, reflecting local (and healthier) tastes. Virtually every restaurant delivers, including McDonald’s (which raises the question, if you’re going to order delivery, why McDonald’s?). And, most particularly, I recently joined the thousands of Chinese students and pensioners who weave in-and-around traffic on electric battery-powered mopeds. It is a great way to get around the city (even if some of the pensioners have a tendency to cut you off).
The same focus on change arises in the capital markets. A person who owns or sells a security is presumed to own or sell the financial risk of that security. By selling shares, for example, the costs and benefits of those shares—the rise or fall in share price—are understood to run with the instruments being sold. Changes in the capital markets, however, have begun to call that presumption into question. Increasingly, market participants can use new trading methods to sell instruments to one person, but transfer their financial risk to someone else. The result is greater complexity and new challenges to regulation and the regulators.
To what extent should the securities laws adjust to reflect those changes? The answer largely turns on the question of “identity.” Moving from modern-day Chinato to ancient Greece, the Greek historian Plutarch identified the question in his story of Theseus, the mythical king of Athens. For many, Theseus is known for slaying the Minotaur, a half-man, half-bull monster that devoured children sent to Cretein tribute to King Minos. According to Plutarch, after Theseus returned to Greece, his boat remained in Athensharbor for centuries as a memorial to his bravery.
April 17, 2013 at 7:47 am
Posted in: Corporate Finance, International & Comparative Law, Legal Theory, Securities
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Stanford Law Review, 64.6 (2012)
posted by Stanford Law Review
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Volume 64 • Issue 6 • June 2012 |
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Articles Does Shareholder Proxy Access Damage Share Value in Small Publicly Traded Companies? Notes The American Jury: Book Review |
July 3, 2012 at 5:57 pm
Posted in: Book Reviews, Constitutional Law, Corporate Law, Courts, Current Events, Immigration, Intellectual Property, Law Rev (Stanford), Law Rev Contents, LGBT, Politics, Securities
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Call for Papers: Dodd-Frank
posted by Lawrence Cunningham
Call for Papers:
Financial Institutions and Consumer Financial Services Section
AALS Annual Meeting – January 2012
Rubber Hits Road: Implementing Dodd-Frank amid Reform Fatigue
This program will take place one and a half years after the Dodd-Frank Act was signed into law. The law left many of the details of financial reform to be filled in by regulators, raising the risk of capture. Some of the most important rule makings have begun in earnest; others have stalled as reform fatigue sets in. Meanwhile, reform efforts in Europe and international regulatory initiatives remain works-in-progress.
What lessons can we draw from the implementation of Dodd-Frank so far? What have been the greatest achievements and the greatest disappointments as the legislative process has given way to the administrative? What devils have lain hidden in the details of the Federal Register? What aspects of reform have been largely forgotten? What does the path of financial reform say about legislative and regulatory process? What lessons can be drawn from the reform efforts in Europe and elsewhere? Does the focus on regulating institutions detract from a focus on regulating financial instruments, markets or economic functions and risks?
More ominously, is the crisis truly over? Are we at grave risk of fighting the last war? Has reform missed the mark altogether? This meeting is part of a project to engage the legal academy in sustained theoretical and policy contributions to financial regulation. It also presents an opportunity to look at specific rulemakings in detail, as well as to address larger questions about the course of reform after laws are made.
Call for papers:
Law teachers and other scholars are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Junior faculty members are particularly encouraged to submit manuscripts or abstracts. A review committee consisting of Section officers will select one or more papers or proposals and will invite the author(s) of each selected submission to present their work at the program session in Washington, D.C. in January 2012.
Abstracts should be comprehensive enough to allow the review committee to meaningfully evaluate the aims and likely content of papers they propose. Please send manuscripts or abstracts to the Program Chair (Erik Gerding, University of Colorado) at profgerding@gmail.com no later than August 30, 2010. Please place the name and contact information of authors only on the cover page of submissions.
Please forward this Call for Papers to anyone who might be interested.
June 15, 2011 at 7:54 am
Posted in: Administrative Announcements, Conferences, Corporate Finance, Corporate Law, Current Events, Securities, Securities Regulation
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Making fair funds fairer
posted by Kaimipono D. Wenger
The PENNumbra website (online companion to the Pennsylvania Law Review) is spotlighting a recent article by Adam Zimmerman and David Jaros which proposes building class-action-like protection into the high-profile criminal restitution actions that have dominated the news in recent years. In The Criminal Class Action, Zimmerman and Jaros examine cases such as Bernie Madoff, noting that,
The past decade has witnessed the rise of new, massive settlements forged not out of civil litigation but on the periphery of the criminal justice system. Since 2003, prosecutors have demanded that defendants in a variety of high-profile corporate scandals set up multimillion-dollar restitution funds for victims to settle criminal charges. Yet few rules exist for the prosecutors who create and distribute these complex settlements.
May 25, 2011 at 5:17 pm
Posted in: Criminal Law, Securities, Tort Law
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Targeting Odious Top Pay Contracts
posted by Lawrence Cunningham
Cross-posted at Harvard Law School’s Corporate Governance blog, this summarizes in some detail my new paper on applying simple contract principles to police odioius executive pay contracts:
Executive pay has skyrocketed in recent decades, in absolute terms and compared to average wages. The area of largest growth has been in stock-based components, including stock options, often tending to focus on the short-term, with associated risks we’ve seen. A vigorous academic debate has run for more than a decade, becoming a popular political discussion amid the financial crisis exposing arcane debate to public scrutiny.
Growth could be laudable, explained as creating proper incentives to align manager interests with shareholder interests and to promote optimal risk taking. In this view, if there is a problem, it is narrow and limited. Critics are skeptical whether this story holds up. They worry that managerial power has strengthened to enable top executives to control setting their own compensation. In this view, the problem is pervasive and warrants a comprehensive response—and proposals abound.
I come down in the middle. There are problems in at least an important number of cases, and current proposals to redress them are unlikely to work. So I seek a new approach—contract unconscionability—to police extreme cases. The proposal must surmount some hurdles but isn’t as radical as it sounds.
A good way to summarize the debate highlights a three-pronged theory that promotes much of prevailing executive compensation, especially stock-based components, and contrasts it with limits on each prong.
First: in optimal contracting theory, boards design manager contracts to minimize agency costs. But when managers dominate the process, the managerial power thesis suggests this ideal may not be met.
Second: with efficient stock markets, stock price is a good proxy for the shareholder interest and a mirror of managerial performance. But stock price can differ from business value for sustained periods, fogging both.
Third: stock-based pay could align managerial incentives with shareholder interests if designed right and markets work well. But otherwise they create perverse effects. Read the rest of this post »
April 13, 2011 at 12:09 pm
Posted in: Contract Law & Beyond, Corporate Finance, Corporate Law, Securities, Securities Regulation
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GW’s Junior Scholars Finalists
posted by Lawrence Cunningham
Thanks to my colleague, Lisa Fairfax, GW has finalized the program for this year’s Junior Faculty Business and Financial Law Workshop and Prize (detailed here). Of the more than 100 papers submitted, the following dozen presenters were chosen. [Commentators appear in brackets; I've shortened some paper titles.]
The workshop will take place at GW on April 1 and 2, 2011. We are delighted by the submissions, congratulate those chosen, and stress that making the selections was difficult because of the volume of amazing papers. We encourage everyone interested to attend and look forward to the weekend.
Adam Leviton (Georgetown), In Defense of Bailouts [George Geis (Virginia) & Art Wilmarth (GW)]
Jodie Kirshner (Cambridge), A Transatlantic Perspective on Regional Dynamics and Societa Eurpoea [Francesca Bignami (GW) & Theresa Gabaldon (GW)]
Alan White (Valparaiso), Welfare Economics and Regulation of Small-Loan Credit: Lessons from Microlending in Developing Nations [Michael Pagano (Villanova) & Lawrence Mitchell (GW)]
Nicola Sharpe (Illinois), Corporate Board Performance and Organizational Strategy [Deborah Demott (Duke) & Michael Abramowicz (GW)]
Julie Hill (Houston), The Rise of Ad Hoc Bank Capital Requirements [Anna Gelpern (American) & John Buchman (E*Trade Bank & GW Adjunct)]
Michael Simkovic (Seton Hall), The Effects of Ownership and Stock Liquidity on the Timing of Repurchase Transactions [Richard Booth (Villanova) & Henry Butler (Mason)]
Michelle Harner (Maryland), Activist Distressed Debtors [Donna Nagy (Indiana Bloomington) & Lisa Fairfax (GW)]
Saule Omarova (UNC), The Federal Reserve Board’s Use of Exemptive Power [Patricia McCoy (Connecticut) & Arthur Wilmarth (GW)]
Heather Hughes (American), Suburban Sprawl, Finance Law and Environmental Harm [Scott Kieff (GW) & Lawrence Cunningham (GW)]
Robert Jackson (Columbia), Private Equity and Executive Compensation [Norman Veasey (Weil Gotshal) & William Bratton (Penn)]
Brian Quinn (BC), Putting Your Money Where Your Mouth Is: Post Closing Price Adjustments in Merger Agreements? [Gordon Smith (BYU) & John Pollack (Schulte Roth)]
Mehrsa Baradaran (BYU), Reconsidering Wal-Mart’s Bank [Heidi Schooner (Catholic) & Renee Jones (BC)]
This is one of many events sponsored by GW’s Center for Law, Economics and Finance.
February 28, 2011 at 8:53 pm
Posted in: Corporate Finance, Corporate Law, Law School, Law School (Hiring & Laterals), Law School (Law Reviews), Law School (Scholarship), Law School (Teaching), Law Talk, Securities, Securities Regulation
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Hockett on the Financial Crisis
posted by Frank Pasquale
There is a growing consensus that our mortgage markets are fundamentally broken. In a recent article in The American Prospect, Robert Kuttner surveys a number of leading legal academics’ prescriptions for the foreclosure crisis:
Katherine Porter, a law professor at the University of Iowa and an expert in mortgage servicing, recently testified to the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) that according to lawyers for both home-owners and banks, “a very large number (perhaps virtually all) securitized loans made in the boom period in the mid-2000s contain serious paperwork flaws, did not meet underwriting or other requirements of the trust, and have not been serviced properly as to default and foreclosure.” . . . .
One remedy, proposed by professor Adam Levitin of the Georgetown Law Center, would create a new chapter of the bankruptcy code and allow a home-owner to come before a bankruptcy judge and get the mortgage reduced to the present value of the home. The process would also clear the title. Another proposal, by professor Howell Jackson of Harvard Law School, would use government’s power of eminent domain to take securitized mortgages, compensate the holder at the securities’ (much reduced) fair market value, and use the savings to turn the paper back into whole mortgages with steep reductions in interest and principal. This would also allow millions of people to keep their home and help stem the broad decline in housing values.
I think each of these ideas is valuable. I’d also like to see them complement a broad set of proposals articulated by Robert Hockett in a recent piece in the Washington University Law Review. Hockett’s proposals are worth quoting at length, since he keenly grasps the historical dimensions of this crisis:
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December 23, 2010 at 11:22 am
Posted in: Financial Institutions, Property Law, Securities, Securities Regulation, Uncategorized
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Cuomo Sues E&Y: Auditing Profession At Risk
posted by Lawrence Cunningham
Ernst & Young, one of the Big-4 auditing firms left in the world, faces a grave lawsuit filed a couple of hours ago by New York’s Andrew Cuomo, the incoming governor’s last major act as state attorney general. The lawsuit is based on fraudulent accounting committed by Lehman Brothers, the failed investment bank, that E&Y either overlooked or condoned, as I explained last March.
The AG seeks unspecified damages the audit failure caused, certainly running to the hundreds of millions and easily reaching into the billions. Given that E&Y does not have external insurance to cover such losses, but self-insures, the lawsuit could put the firm’s survival at risk. Even so, settlement talks, going off-and-on since March, failed, suggesting that the firm is banking on being exonerated. That is quite a gamble.
As I told the New York Times and readers of this blog in March, if the case impairs E&Y’s viability as a going concern, a corporate financial reporting crisis should be expected. It would be acute compared to the modest scramble that corporate America faced after government prosecutors a decade ago drove from the profession the Big-5 firm, Arthur Andersen, auditor of Enron Corp. Then, 1/5 of companies needed to find a new auditor and most were able to count on one of the remaining four with little trouble.
Today, 1/4 of public companies would be obliged to find a replacement auditor; thanks to rules stated in the federal response to Enron, the Sarbanes-Oxley Act of 2002, about 1/3 of those would be unable to engage any of the 3 remaining firms because of conflicts of interest (those other firms provide internal control or tax advisory services making them ineligible to render financial audits). Amid such a crisis, and with only 3 available firms, the existing structure of the auditing profession would be unsustainable.
It would be reassuring if the Securities and Exchange Commission could tell the nation that is has foreseen this contingency and developed plans for addressing it, as urged last March and in 2006. Alas, I am not sure that it is prepared to do either.
December 21, 2010 at 2:57 pm
Posted in: Accounting, Current Events, Securities, Securities Regulation
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Finance Sector as Ultimate Risk Manager?
posted by Frank Pasquale
David A. Moss’s When All Else Fails: Government as the Ultimate Risk Manager should be a vital guide to our future. Moss describes programs ranging from social security to bankruptcy as backstops of support for all classes. As volatility in prices, employment levels, and wages climbs, we should be exploring new “automatic stabilizers” to guarantee every family a “social minimum.” Instead, we appear to be privatizing and financializing risk via opaque institutions whose only mandate is to increase their own profits.
Consider, for instance, this vignette from Louise Story’s excellent reporting on derivatives trading:
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December 16, 2010 at 11:03 am
Posted in: Economic Analysis of Law, Financial Institutions, Politics, Securities, Securities Regulation, Uncategorized
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Closed-Circuit Economics
posted by Frank Pasquale
The economy has now reached a “new normal” of soaring profits and stalled employment. Why aren’t stock market gains, bank bonuses, and rising CEO pay translating into more jobs for American workers?
Firms could be buying more labor-saving technology or speeding up production. They may also be investing overseas. Brazil, India, and China have more growth potential than the US. As Keynes stated, “Owing to [a developed economy's] accumulation of capital already being larger . . . the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate.” While American securities markets have long been reputed to be far more transparent and law-governed than “developing” markets, the gap may not seem so great nowadays. This will be a painful transition for the U.S., all the more so due to our repeated failure to follow stabilizing models of industrial policy. But it is an overdue “rebalancing” of global economic flows.
More troubling is the possibility that buying power is being segregated by the very wealthy into closed circuits of spending and investment (among themselves). Inequality has now become so extreme that it’s difficult to imagine how, say, America’s Fortunate 400 could spend their money. Consider this analysis of Sandy Weill’s recent purchase of a $31 million estate:
Although the value of most housing in Sonoma County, in the heart of the wine country, is down 30 to 50 percent, Weill was willing to pay close to the asking price for his new property. And why not? As the San Francisco Chronicle quoted one Coldwell Banker real estate agent, the sale “is not an indicator of an emerging real estate recovery, but rather the ability of the world’s wealthiest individuals to buy what they desire.”
In a transaction like Weill’s, some real estate agent(s) probably made a good commission. But the home’s former owner may just use that $31 million to buy a Damien Hirst work. Or stocks. Or gold. The possibilities are limitless, of course, but as the top 5% of earners now account for 35% of consumer spending (and a far higher proportion of investing), we might learn something from modeling ideal-typical economic decisions of the very wealthy.
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November 26, 2010 at 11:26 am
Posted in: Economic Analysis of Law, Law and Inequality, Securities
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Treasury’s Prime Directive: Protect the Banks
posted by Frank Pasquale
Adam Levitin has been one of the most courageous and compelling commentators on the financial crisis. So it’s not much of a surprise to see this report on his latest testimony before the Senate Banking Committee:
First off, he lamented the fact that we have been holding hearings like this since 2007. “Every year we have another set of hearings, and you can add 2 million foreclosures” to the bottom line. Nothing gets fixed, despite all kinds of documented evidence that the banks and servicers have committed fraud. Levitin’s position is that the servicers should be banned from the loan modification business entirely, because they don’t have any interest in it except as a profit-maximization scheme, and they have massive conflicts of interest that cut against doing right by the borrowers (and even the investors for whom they work).
Levitin said that we don’t have the full data sets from the servicers, or any comprehensive data to see whether there is a full-on crisis of unclear title and improper mortgage assignment. In other words, we don’t quite know the full extent of the problem. Levitin said, essentially, “The federal regulators don’t want to get info from servicers, because then they’d have to do something about it.” They don’t want to recognize the scope of the problem because it would require them to act. And Levitin in particular singled out the Treasury Department. “The prime directive coming out of Treasury is ‘protect the banks’ and don’t force them to recognize their losses.”
While I’m sure the FCIC will issue a nuanced report on the web of causes behind the foreclosure crisis, Levitin sees the spider. It looks like courts are beginning to identify it, too. As Kate Berry reported in the American Banker,
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November 20, 2010 at 1:50 pm
Posted in: Bankruptcy, Corporate Finance, Economic Analysis of Law, Securities, Uncategorized
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Flaming the Victims
posted by Jonathan Lipson
Two recent items have me wondering about overinvesting in victim claims: (1) Christine Hurt’s new article on the implications of the Madoff scandal, Evil has a new name, and (2) Janet Tavakoli’s claim (if the link doesn’t work, this is also squibbed in the margin) that financial institutions caused the mortgage mess, the “biggest fraud in history.” Both tell important—and perhaps accurate—stories about massive frauds that certainly produced victims. But both overlook an obvious point: Not all victims are created equal. As Pogo said, “we’ve seen the enemy, and he is us.”
Pogo victim dance
When Madoff first hit, I heard two interesting things from (reasonably) reliable sources which complicate the victim calculus. First, one person who claimed to know a number of Madoff investors, said that many believed that Madoff was able to guarantee outsized returns because of his access to inside information. This, of course, is a kind of securities fraud. So, my friend said, “everyone knew Madoff was committing fraud—they just thought it was a different fraud.” You have to wonder how innocent investors were if, as Hurt reports, they were sworn to secrecy when they gave him their money.
I realize I will likely be flamed by holocaust survivors for insensitivity to their losses. To the extent they were innocent, of course, I have nothing but sympathy for them. The point, however, is that, as Madoff’s bankruptcy trustee is learning, there is little moral clarity in some of these claims.
November 7, 2010 at 11:18 am
Tags: Bankruptcy, credit crisis, pogo, rule of law, securities fraud
Posted in: Corporate Law, Corruption, Securities
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Where Have You Gone, Hernando de Soto?
posted by Frank Pasquale
Remember Randy “Duke” Cunningham’s “bribe list” pricing—”$50,000 for every $1 million in appropriated funds he would obtain?” There are now allegations that certain firms offered to “fabricat[e] documents out of whole cloth” to lubricate the foreclosure machine. For a mere $95, one could “recreate entire collateral file,” which is all “the documents the trustee (or the custodian as an agent of the trustee) needs to have pursuant to its obligations under the pooling and servicing agreement on behalf of the mortgage backed security holder [including] the original of the note (the borrower IOU), copies of the mortgage (the lien on the property), the securitization agreement, and title insurance.” Yves Smith draws some interesting implications:
Amar Bhide, in a 1994 Harvard Business Review article, said the US capital markets were the deepest and most liquid in major part because they were recognized around the world as being the fairest and best policed. As remarkable as it may seem now, his statement was seem as an obvious truth back then. In a mere decade, we managed to allow a “free markets” ideology on steroids to gut investor and borrower protection. The result is a train wreck in US residential mortgage securities, the biggest asset class in the world. The problems are too widespread for the authorities to pretend they don’t exist, and there is no obvious way to put this Humpty Dumpty back together.
Smith’s global perspective reminds me of two items. I once heard that, in the wake of Bush v. Gore, a representative of the OAS began a meeting by saying something along the lines of: “We are now to hear from a fragile democracy, one that has suffered severe strains but which looks capable of attaining legitimate procedures for governance. Would the United States representative please come to the dais?” And policymakers who prescribe the titling work of Hernando de Soto for Latin America might want to apply it a bit more carefully at home.
October 3, 2010 at 5:56 pm
Posted in: Contract Law & Beyond, Property Law, Securities, Securities Regulation, Uncategorized
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On the Colloquy: The Credit Crisis, Refusal-to-Deal, Procreation & the Constitution, and Open Records vs. Death-Related Privacy Rights
posted by Northwestern University Law Review
This summer started off with a three part series from Professor Olufunmilayo B. Arewa looking at the credit crisis and possible changes that would focus on averting future market failures, rather than continuing to create regulations that only address past ones. Part I of Prof. Arewa’s looks at the failure of risk management within the financial industry. Part II analyzes the regulatory failures that contributed to the credit crisis as well as potential reforms. Part III concludes by addressing recent legislation and whether it will actually help solve these very real problems.
Next, Professors Alan Devlin and Michael Jacobs take on an issue at the “heart of a highly divisive, international debate over the proper application of antitrust laws” – what should be done when a dominant firm refuses to share its intellectual property, even at monopoly prices.
Professor Carter Dillard then discussed the circumstances in which it may be morally permissible, and possibly even legally permissible, for a state to intervene and prohibit procreation.
Rounding out the summer was Professor Clay Calvert’s article looking at journalists’ use of open record laws and death-related privacy rights. Calvert questions whether journalists have a responsibility beyond simply reporting dying words and graphic images. He concludes that, at the very least, journalists should listen to the impact their reporting has on surviving family members.
September 5, 2010 at 1:15 pm
Tags: Antitrust, Constitutional Law, copyright, discrimination, financial crisis, free speech, Intellectual Property, Privacy, trademark
Posted in: Antitrust, Bioethics, Civil Rights, Constitutional Law, Corporate Finance, First Amendment, Intellectual Property, Privacy, Securities, Securities Regulation
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Goldman’s $550 Million SEC Settlement
posted by Lawrence Cunningham
The SEC announced this afternoon that Goldman Sachs agreed to settle, for $550 million, the civil lawsuit against it alleging materially misleading disclosures in circulars for some mortgage-backed securities it hawked. As I wrote on this blog, in a post of April 19 called SEC v. Goldman as a Simple Case, the case was simple.
In a bruising Consent to a Final Judgment in the federal case against it, Goldman acknowledges the point I made that makes the case simple. Its marketing circular said the reference portfolio was “selected by” the independent firm, ACA Management LLC, when in fact Paulson & Co. Inc., an interested party, played a role in that selection.
Within 30 days, Goldman must pay investors it misled by the marketing materials: $150 million to Deutsche Bank and $100 million to the Royal Bank of Scotland (known as ABN AMRO Bank when it bought Goldman’s securities). It must pay another $300 million to the SEC.
The SEC’s press release headlined that this amount set a ”record” for the agency and is non-trivial even for a firm of Goldman’s size. Its enforcement chief, Bob Khuzami, boasted that “half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC.”
July 15, 2010 at 5:59 pm
Posted in: Corporate Finance, Current Events, Securities, Securities Regulation
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Here Comes FinReg
posted by Frank Pasquale
Via Ezra Klein’s Wonkbook (definitely one of my favorite morning emails), a variety of takes on what’s in the financial reform bill:
1. From Deloitte’s 12-page summary:
Because the new U.S. law is complex, it can be helpful to remind ourselves that its underlying purpose is relatively simple and has two powerful strands: 1. ‘De-risk’ the financial system by constraining individual organizations’ risk-taking activities and capturing a broader set of organizations’, including the so-called “shadow” banking system, in the regulatory net 2. Enhance consumer protections. . . .For example, the need for “arm’s-length” swap desk affiliates combined with the move from over- the-counter to exchange trading for derivatives, tighter constraints on leverage and risk-taking, and higher liquidity requirements imply lower profit margins in future from those activities.
Some estimates I’ve seen have estimated the profit margins might be around 15% lower.
2. Simon Johnson on the Kanjorski Amendment as a “new kind of antitrust:”
Effective size caps on banks were imposed by the banking reforms of the 1930’s, and there was an effort to maintain such restrictions in the Riegle-Neal Act of 1994. But all of these limitations fell by the wayside during the wholesale deregulation of the past 15 years. Now, however, a new form of antitrust arrives – in the form of the Kanjorski Amendment, whose language was embedded in the Dodd-Frank bill. Once the bill becomes law, federal regulators will have the right and the responsibility to limit the scope of big banks and, as necessary, break them up when they pose a “grave risk” to financial stability.
July 15, 2010 at 9:42 am
Posted in: Antitrust, Consumer Protection Law, Corporate Finance, Corruption, Current Events, Economic Analysis of Law, Securities, Securities Regulation
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Tricks of the Traders
posted by Frank Pasquale
Loans and securities are not merely products. While progressive forces can win some political battles by deploying the product metaphor, it obscures more than it illuminates. Consider the practice of “high-frequency trading.”
Matt Krantz discusses the ways in which automation in the finance sector can leave ordinary investors high and dry:
Not only are the markets completely computerized, more than half of the market’s volume is churned by computers programmed to spot certain patterns in trading. These machines see stocks not as securities used by companies to raise money, but rather, symbols, numbers and bits that are traded, swapped and exchanged.
And now, traders say, humans are responding to machines rather than the other way around. Increasingly, too, the machines are reacting to each other, trying to second-guess what their next moves might be on how to take advantage of an edge that might be gone in milliseconds.
As Keynes might have predicted, we have “reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.” The machines are perhaps devoted to “practice the fourth, fifth and higher degrees.” But there’s a twist: part of the investment game now appears to be a falsification of (or at least fake-outs via) data on such opinions:
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July 11, 2010 at 7:22 pm
Posted in: Corporate Finance, Current Events, Cyberlaw, Economic Analysis of Law, Securities, Technology
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Recommended Reading: The Buyout of America
posted by Frank Pasquale
As lawmakers squabble over the “carried interest” tax rate, it’s nice to find a big picture overview of some of the economic activity they’re discussing. I recently read Josh Kosman’s book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, and I highly recommend it to our readers. Kosman painstakingly describes the byzantine financial maneuvers behind marquee private equity firms which bought “more than three thousand American companies from 2000-2008.” He describes in detail how they resist transparency (164) and “hurt their businesses competitively, limit their growth, cut jobs without reinvesting the savings, and generate mediocre returns” (195). The recipe for high earnings is simple: the firms “get large fees up front and are largely divorced from their results if their transactions fail” (195).
Like Kwak and Johnson’s account in 13 Bankers, Kosman offers a political economy account of private equity’s favored treatment by government. As he notes,
[F]our of the past eight Treasury Secretaries joined the PE industry . . . . and they have significant influence in Washington. President Bill Clinton, and both President Bushes, have also advised PE firms or worked for their companies. . . . KKR retained former Democratic House majority leader Richard Gephardt as a lobbyist and hired former RNC chairman Kenneth Mehlman as head of global public affairs. (196)
June 17, 2010 at 11:10 am
Posted in: Book Reviews, Corporate Finance, Current Events, Economic Analysis of Law, Law and Inequality, Politics, Securities, Uncategorized
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