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Last week, I had the pleasure of being part of the Second Annual Searle Center Conference on Federalism and Energy in the United States.  (I had the good fortune to be part of the first one, too.)  The conference covered a wide range of energy issues from electricity transmission siting to hydraulic fracturing to natural gas markets.  One paper/presentation struck me as particularly interesting for markets generally (I am told an update version will be available soon at the same site: “The Evolution of the Market for Wholesale Power” by Daniel F. Spulber, Kellogg School of Management, Elinor Hobbs Distinguished Professor of International Business and Professor of Management Strategy & R. Andrew Butters, Kellogg School of Management, Northwestern University.

Here is the conclusion: 

A national market for wholesale electric power in the US has emerged following industry restructuring in 2000. Tests for correlation and Granger Causality between trading hubs support the presence of a national market. Going beyond pairwise analysis, we introduce an array of multivariate techniques capable of addressing the national market hypothesis, including the common trend test. Although there is strong evidence of integration between the series, the analysis suggests a division between the eastern and western parts of the

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A quick review of the top 10 Papers for Corporate, Securities & Finance Law eJournals on SSRN for the period of September 18, 2013 to November 17, 2013 (here), led me to Utpal Bhattacharya’s paper “Insider Trading Controversies: A Literature Review.”  Here is the abstract:

Using the artifice of a hypothetical trial, this paper presents the case for and against insider trading. Both sides in the trial produce as evidence the salient points made in more than 100 years of literature on insider trading. The early days of the trial focus on the issues raised in the law literature like fiduciary responsibility, the misappropriation theory and the fairness and integrity of markets, but the trial soon focuses on issues like Pareto-optimality, efficient contracting, market efficiency, and predictability raised in the financial economics literature. Open issues are brought up. A jury finally hands out its verdict.

“Man grows used to everything, the scoundrel!” 
― Fyodor Dostoyevsky, Crime and Punishment

This week two articles caught my eye.  The New York Times’ Room for Debate feature presented conflicting views on the need to “prosecute executives for Wall Street crime.” My former colleague at UMKC Law School, Bill Black, has been a vocal critic of the Obama administration’s failure to prosecute executives for their actions during the most recent financial crisis, and recommended bolstering regulators to build cases that they can win. Professor Ellen Podgor argued that the laws have overcriminalized behavior in a business context, and that the “line between criminal activities and acceptable business judgments can be fuzzy.” She cited the thousands of criminal statutes and regulations and compared them to what she deems to be overbroad statutes such as RICO, mail and wire fraud, and penalties for making false statements. She worried about the potential for prosecutors to abuse their powers when individuals may not understand when they are breaking the law.

Charles Ferguson, director of the film “Inside Job,” likened the activity of some major financial executives to that of mobsters and argued that they have actually done more damage to the…

We live in a world where most working individuals have some retirement savings invested in the stock market.  The stock market funds, in part, college educations, and serve as the primary wealth accumulator for post-baby boom generations.  My parents—an elementary school teacher and a furniture salesman—lived in Midwestern frugality and invested their savings from the mid-80’s until 2006 when they pulled out of the market.  They retired early, comfortably (so I believe), and largely because of consistent gains in the stock market over a 30 year period.  The question is whether this story is repeatable as a viable outcome for working investors now. 

The Wall Street Journal ran a story on Monday “Stocks Regain Appeal” documenting the number of dollars flowing into markets from retail investors as well as the anecdotal confidence of investors.  The WSJ reports that:

“U.S. stock mutual funds have attracted more cash this year than they have in any year since 2004, according to fund-tracker Lipper. Investors have sent $76 billion into U.S. stock funds in 2013. From 2006 through 2012, they withdrew $451 billion.” 

This seems indisputably good right?  Maybe.  The real question for me is why is more money flowing into the…

The Economist has an interesting piece on how “[a] mutation in the way companies are financed and managed will change the distribution of the wealth they create.”  You can read the entire article here.  A brief excerpt follows.

The new popularity of the [Master Limited Partnership] is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works…. Collectively, distorporations such as the MLPs have a valuation on American markets in excess of $1 trillion. They represent 9% of the number of listed companies and in 2012 they paid out 10% of the dividends; but they took in 28% of the equity raised…. [The] beneficiaries, though, are a select class. Quirks in various investment and tax laws block or limit investing in pass-through structures by ordinary mutual funds, including the benchmark broad index funds, and by many institutions. The result is confusion and the exclusion of a large swathe of Americans from owning the companies hungriest for the capital the markets can provide, and thus from getting the best returns on offer….

Another booming pass-through structure is that of the “business development company” (BDC). These firms raise public equity and…

In 2011, I met with members of the SEC and Congressional staffers as part of a coalition of business people and lawyers raising concerns about the proposed Dodd-Frank whistleblower provision. Ten days after leaving my compliance officer position and prior to joining academia, I testified before a Congressional committee about the potential unintended consequences of the law. The so-called “bounty-hunter” law establishes that whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act are eligible for ten to thirty percent of the amount of the recovery in any action in which the SEC levies sanctions in excess of $1 million dollars. The legislation also contains an anti-retaliation clause that expands the reach of Sarbanes-Oxley. Congress enacted the legislation to respond to the Bernard Madoff scandal. The SEC recently awarded $14 million dollars to one whistleblower. To learn more about the program, click here.

I argued, among other things, that the legislation assumed that all companies operate at the lowest levels of ethical behavior and instead provided incentives to bypass existing compliance programs when there are effective incentive structures within the existing Federal Sentencing Guidelines for Organizations.  Although they…

I have a new article, Retirement Revolution: Unmitigated Risks in the Defined Contribution Society, which describes citizen shareholders–individual investors who enter the stock market through defined contribution plans–and examines the overlapping corporate and ERISA laws that govern their investments. 

If I haven’t lost you with the mention of ERISA, here’s an excerpt from the article:

A revolution in the retirement landscape over the last several decades shifted the predominant savings vehicle from traditional pensions (a defined benefit plan) to self-directed accounts like the 401(k) (a defined contribution plan) and has drastically changed how people invest in the stock market and why. The prevalence of self-directed, defined contribution plans has created our defined contribution society and a new class of investors — the citizen shareholders — who enter private securities market through self-directed retirement plans, invest for long-term savings goals and are predominantly indirect shareholders. With 90 million Americans invested in mutual funds, and nearly 75 million who do so through defined contribution plans, citizen shareholders are the fastest growing group of investors. Yet, citizen shareholders have the least protections despite conventional wisdom that corporate law and ERISA protections safeguard both these investors and their investments. As explained in an

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Jennifer Taub has published a new book, “Other People’s
Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made
Home Mortgages a Thrilling Business.” 
Here is an excerpt from the Yale University Press description:

Focusing new light on the similarities between the savings
and loan debacle of the 1980s and the financial crisis in 2008, Taub reveals
that in both cases the same reckless banks, operating under different names,
received government bailouts, while the same lax regulators overlooked fraud
and abuse. Furthermore, in 2013 the situation is essentially unchanged. The
author asserts that the 2008 crisis was not just similar to the S&L
scandal, it was a severe relapse of the same underlying disease. And despite modest
regulatory reforms, the disease remains uncured: top banks remain too big to
manage, too big to regulate, and too big to fail.

UPDATE: The book will be in bookstores in May, but can be
pre-ordered now.

Bill Black takes down claims of a “victory for the
government in its aggressive effort to hold banks accountable for their role in
the housing crisis.”  (HT: naked
capitalism.)  The full piece is available here, and
I highly recommend you go read the whole thing. 
What follows is a brief excerpt:

The author of the most brilliantly comedic statement ever
written about the crisis is Landon Thomas, Jr…. 
Everything worth reading is in the first sentence, and it should trigger
belly laughs nationwide. “Bank of America, one of the nation’s largest banks,
was found liable on Wednesday of having sold defective mortgages, a jury
decision that will be seen as a victory for the government in its aggressive
effort to hold banks accountable for their role in the housing crisis.” … Yes,
we have not seen such an aggressive effort since Captain Renault told Rick in
the movie Casablanca that he was “shocked” to discover that there was gambling
going on (just before being handed his gambling “winnings” which were really a
bribe)…. The jurors found that BoA (through its officers) committed an orgy of
fraud in order to enrich those

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CEOs and executives just can’t get a break in the news
lately.  A jury found both former Countrywide
executive Rebecca Mairone and Bank of America liable for fraud for
Countrywide’s “Hustle” loans in 2007 and 2008 (see
here). Martha Stewart has had to renegotiate her merchandising agreement
with JC Penney to avoid hearing what a judge will say about that side deal in
the lawsuit brought against her by Macy’s, with whom she purportedly had an
exclusive merchandising deal (see
here).  JP Morgan Chase is in talks
to pay $13 billion to settle with the Department of Justice over various
compliance-related failures, but the company still faces billions in claims
from angry shareholders. The company isn’t out of the woods yet in terms of potential
criminal liability (see
here). CEO Jamie Dimon isn’t personally accused of any wrongdoing, and in
fact has been instrumental in achieving the proposed settlements. But in the
past he has faced questions from institutional shareholders about his dual
roles as chair of the board and CEO. Those questions may come up again in the
2014 proxy season.

The Bank of America verdict and the recent JP Morgan Chase
settlement may herald a…