This Article documents a process in which a national tax administration in one jurisdiction is consciously and systematically assisting taxpayers to avoid taxes in other jurisdictions. The aiding tax administration collects a small amount of tax from the aided taxpayers. This Article identifies an intentional “beggar thy neighbor” behavior, aimed at attracting revenue generated by successful investments in other jurisdictions, without attracting actual investments. The result is a distorted competitive environment in which revenue is denied from jurisdictions the infrastructure and workforce of which support economically productive activity. This Article proposes that the focus should be on curtailing certain rogue practices adopted by national tax administrations.
We Have a Consensus on Fraud on the Market — And It’s Wrong
James Cameron Spindler
Recent scholarship contends that the fraud on the market securities class action has neither deterrent nor compensatory effect and should be cut back or even abandoned entirely. This scholarship largely focuses on two critiques: circularity and diversification. This paper demonstrates economically that, despite widespread acceptance, none of the principal claims of these critiques are correct. In particular: fraud on the market does indeed compensate defrauded purchasers despite circularity (under certain conditions, perfectly); and diversified investors do have expected losses from fraud and have incentives to undertake deadweight precaution costs. Further, the fraud on the market remedy can deter such wasteful precaution costs.
This Article examines the prevalent use of ephemeral, self-destructing messaging applications in publicly traded companies, and whether such use violates existing securities regulations, corporate preservation duties, and fiduciary obligations. Seemingly, the business judgment rule immunizes officers and directors from liability resulting from the use of transitory media, prohibiting shareholder-plaintiffs from successfully maintaining lawsuits and necessitating regulatory intervention. Regulatory intervention is needed to ensure the board, external auditors, and the trading public may assess the extent to which such media jeopardizes the company’s finances, risk posture, and cybersecurity, and provide plaintiffs with a viable avenue of redress.
The Article defines a new category of socially important non-financial institutions (SINFIs) and proposes a method for their ex-ante identification. SINFIs are corporations exclusively providing an essential social function, and the Article offers guidelines for defining essential industries and essential social functions. The case for bailouts of socially important non-financial institutions is discussed. Liquidity distress for a SINFI is unlikely to be resolved efficiently through bankruptcy, as the risk of an operating default for the socially important institution imposes an immediate crisis of confidence. The provision of service by a socially important institution imposes positive externalities on the general public. This renders two of the main features of bankruptcy, debtor-in-possession rules and the ability to sell assets free and clear of all liens, sub-optimally efficient. Public finance is likely to be required as SINFIs are too important to fail.
When the IRS Prefers Not to: Why Disparate Regulatory Approaches to Similar Derivative Transactions Hurts Tax Law
Leon Dalezman and Philip Lenertz
June 3, 2017
This Article examines decisions made by the Internal Revenue Service on whether to promulgate regulations pursuant to three different but related provisions of the Internal Revenue Code: sections 1259, 1260, and 871(m). This Article concludes that when there is a statutory imperative to regulate, the use of softer methods—methods other than issuing new regulations, such as creating listed transactions—has a negative effect on tax law, slowing its evolution. This Article argues that having clear regulatory lines is better than a regime where legitimate tax planners are faced with uncertainty and where enforcement against egregious abuse is less than forthcoming.
Trading in Substitute Securities: Liability Under Rule 10b-5
May 16, 2017
A trade in a substitute security occurs when a trader with inside information, typically an employee, trades—not in the securities of the company that is the subject and source of the information—but in the securities of another company whose stock would be affected if such inside information were to become public. The main academic literature on this topic is Ian Ayres and Joe Bankman’s article, Substitutes for Insider Trading. This Article builds on that work by providing a more in-depth analysis of liability for insider trading on substitute securities under Rule 10b-5. In contrast to Ayres and Bankman, this Article concludes that trading in substitute securities is presumptively illegal under the misappropriation theory pursuant to Rule 10b-5.
Stuck with Steckman: Why Item 303 Cannot be a Surrogate for Section 11
Aaron Jedidiah Benjamin
May 2, 2017
Item 303 of SEC Regulation S-K requires companies to disclose "known trends and uncertainties" in certain public filings. Item 303 provides no private right of action. However, Steckman v. Hart Brewing Co. held that an Item 303 violation automatically states a claim under section 11 of the 33 Act, short-circuiting any separate consideration under the statute. This Article examines the Steckman decision and contends that it was wrongly decided. Given that (i) an Item 303 violation cannot sufficiently establish Basic materiality, and (ii) Basic materiality is required under section 11, it follows that an Item 303 violation cannot be sufficient to state a claim under section 11.
Age Before Equity? Federal Regulatory Agency Disgorgement Actions and the Statute of Limitations
Michael Columbo and Allison Davis
April 4, 2017
At what point may a person rest assured that the government will not confiscate her money due to a past alleged regulatory infraction? In Kokesh v. SEC, the Supreme Court is poised to resolve a three-way split among the federal circuit courts of appeals over whether the statute of limitations in 28 U.S.C. § 2462 applies to federal regulatory actions seeking disgorgement of a person’s funds for long-past alleged regulatory infractions. The Supreme Court should reverse the Tenth Circuit’s decision and hold that the statute of limitations categorically applies to actions seeking confiscation of funds for past regulatory infractions, regardless of whether the government seeks the funds through forfeiture or disgorgement.