Securities Regulation

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SEC Commissioner Kara M. Stein provided remarks at the Brookings Institute’s 75th Anniversary of the Investment Company Act on Monday, June 15th.  Now if that isn’t an exciting introduction to a post, I just don’t know what is.  She addressed a topic that is of great interest to me and a focus of my research:  retail/retirement investors.  I tend to call them Citizen Shareholders in my writing, and it is sentiment shared by Commissioner Stein:

“By retail investor, I mean the everyday citizen or household that is investing – not institutional investors or pension funds.  Eighty-nine percent of mutual fund assets are attributable to retail investors.” (emphasis added).

In her remarks she detailed several troubling aspects of the mutual fund industry–a primary investment source for retail investors– liquidity, leverage and disclosure.  She also highlighted future SEC rule making initiatives related to these issues.   For example, the Commission recently proposed new rules to enhance data reported to the Commission by registered funds. The proposed rule is available  here (Download SEC proposed disclosure rules) and received comments can be tracked on the SEC’s website here.

Noting that a major function of the 1940 Investment Act was transparency and…

Courtesy of AALS Section on Securities Regulation Chair Christine Hurt:

Call for Papers

AALS Section on Securities Regulation – 2016 AALS Annual Meeting

January 6-10, 2016 New York, NY

The AALS Section on Securities Regulation invites papers for its program on “The Future of Securities Regulation: Innovation, Regulation and Enforcement.”

TOPIC DESCRIPTION: This panel discussion will explore the current trends and future implications in the securities regulation field including transactional and financial innovation, the regulation of investment funds, the intersection of the First Amendment and securities law, the debate over fee-shifting bylaws, the ever-expanding transactional exemptions including under Regulation D, and judicial interpretations of insider trading laws. The Executive Committee welcomes papers (theoretical, doctrinal, policy-oriented, empirical) on both the transactional and litigation sides of securities law and practice.

ELIGIBILITY: Full-time faculty members of AALS member law schools are eligible to submit papers. 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 faculty members presenting at the program are responsible for paying their own annual meeting registration fee and…

I was reading an article on securities crowdfunding in China and came across this description of Chinese practice:

Generally, in China, equity-based crowdfunding capital-seekers rely on the strength of experienced, leading investors to advise “follow-up” investors in locating investment projects. Leading investors are usually professionals with rich experience in private offerings and label themselves as holding innovative techniques in investment strategies and possessing sound insights. On the contrary, follow-up investors usually do not have even basic financial skills, but they do ordinarily control certain financial resources for investment. When a leading investor selects a target investment project through an equity-based crowdfunding platform, the leading investor usually invests personal funds into the project. Crowdfunding capital- seekers then take advantage of the leading investor’s funds to market the project to follow-up investors.

(This is from a recent article by Tianlong Hu and Dong Yang, The People’s Funding of China: Legal Developments of Equity Crowdfunding-Progress, Proposals, and Prospects, 83 U. CIN. L. REV. 445 (2014).)

This is not unique to China. Private offerings to accredited investors in the United States often follow a similar path. Smaller investors are more likely to commit once a well-known, sophisticated investor has made a commitment. But…

CRN: #46  Corporate and Securities Law in Society

 LSA 2015 Schedule

 

THURSDAY, MAY 28

 

 

2:45 PM – 4:30 PM

3319—Roundtable: Shareholders, Stewardship & Accountability

Room: Mercer 

 

  
 

FRIDAY, MAY 29

 

 

9:30 AM – 11:15 AM

3321—Corporations and Their Constituencies: Employees, Customers, Creditors, and the Public

Room: Adams

1:30 PM – 3:15 PM

3322—Banking, Securities, and Beyond: Evaluating Financial Regulation in Varied Contexts

Room: Adams

3:30 PM – 5:15 PM

3325—Business Decisionmaking and Business Law: Exploring Implications for Constituencies and Communities

Room: Adams 

5:30 PM – 7:15 PM

3326—New Insights on Law and Regulation’s Evolution and Efficacy

Room: Adams

SATURDAY, MAY 30

 

 

 

8:15 AM – 10:00 AM

3320—Ownership and Control: New Considerations on Litigation, Governance Structures, and Shareholder Activism

Room: Adams

I haven’t met Hollywood producer Edward Zwick, who brought the movie and the concept of Blood Diamonds to the world’s attention, but I have had the honor of meeting with medical rock star, and Nobel Prize nominee Dr. Denis Mukwege. Both Zwick and Mukwege had joined numerous NGOs in advocating for a mandatory conflict minerals law in the EU. I met the doctor when I visited Democratic Republic of Congo in 2011 on a fact finding trip for a nonprofit that focuses on maternal and infant health and mortality. Since Mukwege works with mass rape victims, my colleague and I were delighted to have dinner with him to discuss the nonprofit. I also wanted to get his reaction to the Dodd-Frank conflict minerals regulation, which was not yet in effect. I don’t remember him having as strong an opinion on the law as he does now, but I do remember that he adamantly wanted the US to do something to stop the bloodshed that he saw first hand every day.

The success of the Dodd-Frank law is debatable in terms of stemming the mass rape, use of child slaves, and violence against innocent civilians. Indeed, earlier this month…

Some of you may recall that I blogged last summer about a SEALS (Southeastern Association of Law Schools) discussion group on “publicness.”  That post can be found here.  My contribution to the discussion group was part of a paper that then was a work-in-process for the University of Cincinnati Law Review that I earlier had blogged about here.

That paper now has been released in electronic and hard-copy format.  I just uploaded the final version to SSRN.  The abstract for the paper reads as follows:

Conceptions of publicness and privateness have been central to U.S. federal securities regulation since its inception. The regulatory boundary between public offerings and private placement transactions is a basic building block among the varied legal aspects of corporate finance. Along the same lines, the distinction between public companies and private companies is fundamental to U.S. federal securities regulation.

The CROWDFUND Act, Title III of the JOBS Act, adds a new exemption from registration to the the Securities Act of 1933. In the process, the CROWDFUND Act also creates a new type of financial intermediary regulated under the Securities Exchange Act of 1934 and amends the 1934 Act in other ways. Important among…

Last week, I looked lovingly at a picture of a Starbucks old-fashioned grilled cheese sandwich. It had 580 calories. I thought about getting the sandwich and then reconsidered and made another more “virtuous” choice. These calorie disclosures, while annoying, are effective for people like me. I see the disclosure, make a choice (sometimes the “wrong” one), and move on.

Regular readers of this blog know that I spend a lot of time thinking about human rights from a corporate governance perspective. I thought about that uneaten sandwich as I consulted with a client last week about the California Transparency in Supply Chains Act. The law went into effect in 2012 and requires retailers, sellers, and manufacturers that exceed $100 million in global revenue that do business in California to publicly disclose the degree to which they verify, audit, and certify their direct suppliers as it relates to human trafficking and slavery. Companies must also disclose whether or not they maintain internal accountability standards, and provide training on the issue in their direct supply chains. The disclosure must appear prominently on a company’s website, but apparently many companies, undeterred by the threat of injunctive action by the state Attorney…

Last year, I blogged about a Fourth Circuit case, Prousalis v. Moore, which held that the Janus Capital definition of “maker” in Rule 10b-5 did not apply in criminal cases. For those who are interested, a short article on wrote on that topic, “Make” Means “Make”: Rejecting the Fourth Circuit’s Two-Headed Interpretation of Janus Capital, is now available on SSRN.

The paper is to be included in a symposium honoring the late Alan Bromberg, an outstanding securities scholar, as well as a mentor and friend.

In some European countries, bank interest rates have dropped below zero. (See here and here.) That’s right; it actually costs you to put your money in the bank. You put $1,000 in a savings account and the bank promises to pay you, say, $999, in a year.

I came of age in the Gerald Ford/Jimmy Carter years, when annual inflation rates were in the double digits. Whip Inflation Now!  (Yes, children, I’m ancient.) I find it almost unbelievable that nominal interest rate (and bond yields) could drop below zero.

That hasn’t happened in the United States (yet), but what if it did? Set aside the huge macroeconomic issues, and let’s focus on a topic of greater interest to the readers of this blog—the effect on federal securities law, particularly the core notion of what constitutes a security.

The most important case in defining the scope of federal securities law is probably SEC v. W.J. Howey Co., 328 U.S. 293 (1946).  Howey says that an investment is an investment contract, and therefore a security, if people invest money in a common enterprise with an expectation of profits coming from the efforts of others.

The “expectation of profits” part…