Three Ages of Bankruptcy
Mark J. Roe
The shifts, rises, and falls among decision-making systems have previously been explained by successful evolution in bankruptcy thinking, by the happenstance of the interests and views of lawyers that designed bankruptcy changes, and by the interests of those who influenced decision-makers. Here I argue that these broad changes also stem from baseline market capacities, which shifted greatly over the past century; I build the case for shifts underlying market conditions being a major explanation for the shifts in decision-making modes. Keeping these three alternative decision-making types clearly in mind leads to better understanding of what bankruptcy can and cannot do and facilitates stronger policy decisions today here and in the world’s differing bankruptcy systems, as some tasks are best left to the market, others are best handled by the courts, and still others can be left to the inside parties to resolve.
This Article fills a current void in the corporate scholarship by analyzing whether two particular kinds of outside agents—credit rating agencies and proxy advisory firms—should be given skin in the game. The “skin” would be a financial incentive tied to the success of the agent’s service: rating agencies would be paid with the debt instruments they rate, and proxy advisors with share-based payment. The analysis is heavily based on principal-agent literature. The Article then applies theoretical insights derived from that literature and analyzes whether skin in the game would likely be beneficial with regard to proxy advisory firms and credit rating agencies. It concludes that the skin in the game approach would likely be beneficial when dealing with rating agencies, but should be employed cautiously when dealing with proxy advisory firms.
Rather than completely eliminating the SEC Whistleblower Program created by Section 922 of that Act, I propose a legislative solution to the split in the Federal Circuit Courts of Appeals regarding the scope of the program’s anti-retaliation protections. I begin by highlighting the imprecision of the concepts and terminology of whistleblowing. Then, after closely considering the history of the SEC whistleblower program and the split between the circuits, I discuss the underlying policy basis for the program and corporations’ objections to it. Finally, I propose that—in furtherance of both the policy basis for Dodd-Frank and in light of corporate concerns—lawmakers should amend 15 U.S.C. § 78u-6(h) to clearly protect individuals who disclose securities law violations within their corporations.
The Remaking of Wall Street
Andrew F. Tuch
This Article critically examines the transformation of the financial services industry during and since the financial crisis of 2007–2009. First, this Article argues that private equity firms now mirror investment banks in their mix of activities; ethos of entrepreneurialism, innovation, and risk-taking; role as “shadow banks”; and overall power and influence. These similarities might suggest that private equity firms pose financial risks similar to those caused by their now-defunct predecessors. But, this Article suggests that private equity firms, as currently structured, are more financially stable and pose less systemic risk to the global economy. Importantly, however, this Article cautions that ongoing changes in private equity firms’ broker-dealer activities raise systemic concerns that require active regulatory monitoring. The Article also identifies systemic and financial stability concerns arising from the funds that these firms manage, particularly their hedge and credit funds, about which little detailed information is publicly available.
Blurring the Edges of Corporate Law: Insider Trading and the Martoma Decision
Azfer A. Khan
June 1, 2018
In its recent decision, the Second Circuit in United States v. Martoma overturned key aspects of its decision in United States v. Newman. Justifying this departure based on the Supreme Court’s ruling in Salman v. United States, the majority in Martoma held that there is no requirement to prove a meaningfully close personal relationship in order to find liability for insider trading under Rule 10b-5. While Martoma ostensibly changed the test for tippee liability, this Article argues that the substantive outcome for most insider trading cases is likely to remain unaffected. However, because Martoma expanded the scope of tippee liability, more claims can now get into court. This expansion should be resisted under the traditional Santa Fe doctrine because it threatens to blur the distinction between corporate law and securities law. This Article first provides a quick roadmap to insider trading law, then dives into an analysis of Martoma and the decisions immediately preceding it, and concludes by offering perspectives on what the likely impact of the decision will be.
Sidestepping the Rat Holes: Investment Risk and Securities Laws
Thomas M. Selman
April 21, 2018
This Article presents a novel understanding of the purpose of federal securities laws as the management of investment risk. Those laws should be treated as a whole. When two rules, even under different statutes, address the same risk, they should be applied concomitantly. For example, broker-dealer regulation under the Securities Exchange Act of 1934 might justify relaxation of prospectus delivery requirements in the Securities Act of 1933.
Governments worldwide are increasingly recognizing that assisting the development of start-ups and small to medium enterprises may be critical to fostering job creation and economic growth. As such, there is a concerted effort to rework securities regulation to encourage the funding of these businesses through innovative approaches such as crowdfunding. There are a number of over-the-counter, venture and small company markets trying to bridge that gap. However, such markets present significant regulatory challenges. This Article considers these regulatory challenges and explores how regulators can work to improve the integrity of these markets as a way of encouraging their development.
The buzz around blockchain is getting ever louder. Increased legislative response is perhaps the clearest signal yet that blockchain technology may be more than a passing fad. Several jurisdictions in the United States have amended their state laws to explicitly legitimize the use of blockchain technology in both commerce and corporate governance. With a focus on Delaware’s embrace of blockchain technology, this Article examines the potential role of distributed ledgers in corporate governance and capital market transactions. The Article then considers the solutions such technology offers, as well as some barriers its advocates might face in pursuing its wide-scale adoption.
The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up
January 2, 2018
This Article considers the preliminary results of an ongoing effort to discourage appraisal litigation. Since the August 2016 reforms to the Delaware appraisal statute, Chancery has issued a slew of at-or-below merger price appraisal opinions in cases such as Clearwire and PetSmart, while simultaneously reiterating the principles of Corwin. The result—as one would expect when costs are raised and benefits are reduced—has been that fewer deals are being challenged via appraisal. The evidence points to a substantial transfer of value from target shareholders to selling CEOs, who have adapted to an environment rendered more permissive by the weakening of the shareholder litigation “check” that had formerly restrained such behavior.