Implications of Mutual and Private Fund Convergence

originally published on:

Wulf Kaal

Mutual funds are becoming more like hedge funds as a matter of investment strategy while hedge funds are becoming more like mutual funds as a matter of the regulatory framework. The growth of the private fund industry and the proliferation of retail alternative funds in combination with the fundamental regulatory reform of the private fund industry through the Dodd-Frank Act and the JOBS Act make the convergence of mutual and private funds possible. Such convergence has large implications for the evolution of the private fund industry and the growth of the retail alternative fund market.

For most of their history, mutual funds and private funds have operated in different market and regulatory structures. The two asset classes employ different investment strategies, serve largely different classes of investors and have therefore traditionally occupied distinct segments of the investment market. Mutual funds serve mostly retail and institutional investors. They offer risk mitigation by way of diversification, a limited array of investments and strategies, instant liquidity, and daily valuation. They have traditionally been allowed to advertise. Mutual funds and investment advisers to mutual funds are required to register with the SEC and provide regular disclosures including funds’ holdings. By contrast, private investment fund investments have traditionally have been limited to accredited high net worth and institutional investors. Investors in private funds need to be able to fend for themselves, and they are subject to more rigorous verification procedures and contractual requirements. Private investment fund advisers employ a near unlimited array of investments and strategies, and they are subject to redemption restrictions. Unlike mutual fund advisers, private fund advisers are able to avoid registration with the SEC, provided they comply with certain safe harbors under the securities laws. Until 2014, private investment fund advisers could not advertise. Unlike mutual funds, private funds are typically organized as Delaware LLCs or LPs, and they are not subject to an SEC or other requirement that the fund, for example (among many others): has to have an independent board; provide daily valuation of fund positions/holdings; provide daily liquidity to investors; report holdings publicly and to investors on a regular basis; adhere to ’33 Act and ’34 Act disclosure/filing/trading/purchase + sale (etc.) requirements; use transfer agents and underwriters; comply with Subchapter M of the IRC; or refrain from engaging in certain kinds of transactions that encourage undue leverage. Moreover, the size of the investment in trading and operational technology and in experienced portfolio management, trading, reporting, operational, risk management, and other staffing incurred by a mutual fund adviser is materially larger than what a private fund manager must expend to operate its business.

The growth of the private fund industry and the proliferation of retail alternative funds enable the convergence of private and mutual funds. Investment advisers are adjusting their operations to satisfy retail investor demand for alternative investments. Changing demands by institutional investors also had a remarkable impact on the alternative investment industry. The growth of the alternative investment industry reached $2 trillion in assets under management (AUM) by the end of 2013. Since 2005, the alternative investment industry grew twice as fast as the traditional mutual funds industry. Between 2013 and 2015, the private fund industry grew by 26%, increasing from just over 2 trillion dollars AUM in 2013 to 2.7 trillion dollars AUM through 2015.

Retail alternative investments have become increasingly popular over the past twenty years and have become an integral part of institutional investor portfolios. Retail alternative funds, including hedged mutual funds and synthetic hedge funds, combine the structure of a traditional mutual fund (with the attractive liquidity and daily valuation features) with the higher returns and risk mitigation associated with private funds. Their portfolio diversification and comparatively high risk-adjusted returns have made retail alternative investments increasingly popular. Investments in retail alternatives have more than doubled since 2008 and represent over $550 billion in assets. The number of funds offering investors alternative strategies has grown from 181 in 2007 to 402 in 2014.

Retail investors are a core factor for the proliferation of the retail alternative fund market. Starting in the early 2000s, retail investors, traditionally excluded from private fund investments, gained access to hedge-fund-like investments through exchange traded funds (ETFs) and ever more sophisticated publicly available at-home trading tools. Alternative funds offered retail investors access to private fund strategies and higher returns than mutual funds while paying mutual fund fees, thus increasing demand by retail investors. Because of investment managers’ recognition of retail investors’ demand for alternative funds, retail investors gained increasing access to a broader array of alternative investment strategies, further increasing demand for alternative investments. Retail investors are driving the overall demand in the alternative investment sector, seeking more than just the prospect of significant performance but also risk-adjusted and consistent returns that are not correlated to the market.

Regulatory reform also enables convergence of the two industries. The Dodd-Frank Act and JOBS Act streamlined core legal requirements for the private fund industry, aligning them more closely with those applicable to the mutual fund industry and helping the private fund industry transition from a secretive industry to a more open industry supported by a more widely-recognized and influential group of investment managers. More specifically, the registration and disclosure requirements for private investment fund advisers under the Dodd-Frank Act in combination with the removal of advertising restrictions for private fund advisers under the JOBS Act and the equal treatment of mutual and private funds for FSOC’s SIFI designation in effect assimilated legal requirements applicable to mutual and private funds.

The registration and disclosure requirements for private fund advisers under the Dodd-Frank Act illustrate a core point of convergence of the legal regimes applicable to mutual and private funds. While the registration and disclosure requirements for private fund advisers under the Dodd-Frank Act are significantly less onerous than the registration regime applicable to mutual funds, several core overlaps of the two registration regimes illustrate the convergence of mutual and private funds. For the first time in the history of the private fund industry, the Dodd-Frank Act required most advisers to private funds to register with the SEC. By eliminating previous registration exemptions and requiring investment advisers with AUM of more than $150 million to register with the SEC, the Dodd-Frank Act mandated SEC registration and reporting of information that was hitherto considered proprietary and private.

The JOBS Act authorized the SEC to remove a key legal distinction between mutual and private fund – their formerly unequal treatment for purposes of advertising. Before the SEC amended Rule 506 (c) of Regulation D, mutual funds advertised broadly across multiple forms of media while private fund advisers were prohibited from advertising. After more than six decades of private offerings with a ban on general solicitation and general advertising (GSGA) that applied when companies or funds made private securities offerings under Rule 506 of Regulation D, the SEC’s new Rule 506(c), for the first time in the history of the private fund industry, allowed GSGA in a Regulation D offering. The Rule was finalized and published in the Federal Register on June 24, 2013, and became effective on September 23, 2013.

Some legal requirements are only nominally identical for private and mutual funds but in their application largely different. An investment adviser to a registered mutual fund is subject to the same Investment Advisers Act obligations as an investment adviser to a private fund. However, because of the nature of their respective businesses such obligations are far more onerous for mutual fund managers. Similarly, best execution obligations are similar but practically different for private and mutual fund advisers. Whereas the mutual fund manager is exposed to much higher regulatory and litigation risks, the private fund manager incurs minimal time and expense obligations in fulfilling best execution obligations. The registered mutual fund manager has to be able to report daily on the fund’s operating costs and expenses, including trading-related expenses, and therefore invests significantly in – and operates – technology-based systems to collect and track trading-related expense information with a high degree of precision.  By contrast, a private fund manager trying to satisfy best execution obligations does not have to create the same technology-based system, but can elect to periodically and manually review its internal trade processes and select a reasonable sample of trade data for review.

The convergence of mutual and private funds affects the evolution of the private fund industry, making it a more widely recognized industry that is part of mainstream of finance. Convergence of private and mutual funds impacts the market position, recognition, and overall evolution of the private fund industry. While policy makers and commentators have traditionally excluded the private fund industry from mainstream finance (the high profitability of the private fund industry in combination with its penchant for secrecy alienated politicians and regularly triggered calls for increased oversight) the convergence of mutual and private funds helps the private fund industry transition from an industry operating at the fringes of finance to be recognized as part of mainstream finance. Unprecedented changes in the rules and regulations pertaining to the private fund industry under Title IV of the Dodd-Frank Act and the JOBS Act allow increased oversight of the industry and contribute to the increasing recognition of the private fund industry as a fully regulated asset class. These changes established the private fund industry not only in the eyes of investors but also in the eyes of the SEC. Epitomizing the increasing recognition of the private fund industry and its important role in capital formation, in 2013 SEC chairwoman Mary Jo White declared, “Private funds, including hedge funds, play a critical role in capital formation, and are influential participants in the capital markets”.

Convergence of mutual and private funds has a positive effect on the growth of the retail alternative fund market. Merging the regulatory requirements applicable to mutual funds with the formerly more distinct rules applicable to private funds creates incentives for private investment managers to set up retail alternative funds. A higher supply of retail alternative funds, in turn, is likely to further increase investor demand for retail alternative funds. A higher demand for retail alternative funds, in turn, precipitates more sustainable market-driven convergence of the mutual and private fund industries.

The regulatory overhaul of the private fund industry under the Dodd-Frank Act and the JOBS Act creates incentives that support and reinforce convergence. The mandatory investment adviser registration provisions under the Dodd-Frank Act incentivize investment advisers to set up retail alternative funds. Prior to the enactment of the Dodd-Frank Act, the registration of a private fund was a significant disincentive for investment managers to enter into the mutual fund sector. Registered private fund advisers have incentives to also manage mutual funds or set up retail alternative funds because the regulatory burden is minimally higher in comparison with preregistration legal requirements. Moreover, the tightening of accredited investor provisions under the Dodd-Frank Act increases investor demand for retail alternative funds. Investors who no longer qualify for retail alternative fund investments under Dodd-Frank qualified investor standards are likely to seek out hybrid funds. Moreover, limitations to bank investments in the private fund industry, mandated by the Dodd-Frank Act, incentivize retail alternative fund investments for banks. Banks have traditionally been one of the largest investor groups in the private fund industry. Finally, the JOBS Act also creates incentives for investment advisers to set up retail alternative funds. Investment advisers to private funds have better incentives to set up retail alternative funds that allow them to offer features that are attractive to retail investors rather than to advertise under the uncertain new regime (Rule 506(c)) in an effort to attract a now smaller pool of qualified investors that are willing to invest in their private funds.

Given these implications of convergence, it seems possible that the mutual fund industry of the future could be subjected to more risk than the historical averages suggested in the past.  Although mutual funds have historically used little leverage or leverage-creating derivatives and presented little risk, the increasing demand for alternative strategies creates incentives for mutual fund managers to seek ways to simulate leverage. While private and mutual fund convergence is unlikely to cause drastic immediate repercussions for market participants, long-term implications and peripheral effects merit continued monitoring.

The preceding post comes to us from Wulf Kaal, Associate Professor at the University of St. Thomas School of Law.  The post is based on the his bookchapter: Confluence of Private and Mutual Funds, in Elgar Handbook on Mutual Funds (2016), SSRN, which is available here.

The Eighth Annual Roundtable Discussion on Investment Funds

Boston University School of Law Friday, December 4, 2015

Revised Program

Arrive at Boston University School of Law
765 Commonwealth Avenue, Boston, Massachusetts 02215

Welcome Luncheon, Opening Remarks & Keynote Address

Welcome: Tamar Frankel, Professor of Law & Michaels Faculty Research Scholar Boston University School of Law

Introduction: William Birdthistle, Professor of Law Chicago-Kent College of Law

Keynote: Daisy Maxey, Reporter The Wall Street Journal

Discussion Session I

Journalism: How Does and Should the Media Cover Topics Critical to Investors?

Moderator: Jennifer Taub, Vermont Law School Break

Discussion Session II

Regulation: What Will Be the Effect of the Department of Labor’s Fiduciary Rule?

Moderator: Patricia McCoy, Boston College Law School Break

Discussion Session III

Litigation: What Lawsuits Are Having the Greatest Impact upon the Fund Industry?

Moderator: James Fanto, Brooklyn Law School Break

Discussion Session IV

Future Developments: High Frequency Trading & Alternative Mutual Funds

Moderator: Erik Sirri, Babson College Closing Remarks



Journalism: How Does and Should the Media Cover Topics Critical to Investors?

Moderator: Jennifer Taub, Vermont Law School


  • Why doesn’t investor education appear to work?
  • Is the problem financial literacy, sufficient will, or both?
  • What are the value, if any, of SEC and FINRA investor alerts

    Regulation: What Will Be the Effect of the Department of Labor’s Fiduciary Rule?

    Moderator: Patricia McCoy, Boston College Law School

  • What will happen to the rule in the hands of the Congress?
  • How will a final rule affect the advisory and fund industry?

    Litigation: What Lawsuits Are Having the Greatest Impact upon the Fund Industry?

    Moderator: James Fanto, Brooklyn Law School

  • Wayne County Employees’ Retirement System v. FMI
  • $57 million settlement in 401(k) suit versus Boeing.
  • What are the additional effects of enforcement actions?

    Future Developments: High-Frequency Trading & Alternative Mutual Funds

    Moderator: Erik Sirri, Babson College

  • What are the problems and opportunities of high-frequency trading on investment funds, particularly retail mutual funds?
  • Almost 1/3rd of all inflows into mutual funds in 2013 were into alternative mutual funds. What are the heightened risks and disclosure requirements associated with these funds?




Ian Ayres – William K. Townsend Professor of Law Yale Law School

William A. Birdthistle – Professor of Law & Freehling Scholar Chicago-Kent College of Law

Jay G. Baris – Partner Morrison & Foerster

Mercer E. Bullard – Professor of Law University of Mississippi School of Law (former Assistant Chief Counsel, SEC Division of Investment Management)

Kenneth E. Burdon – Associate Skadden, Arps, Slate, Meagher & Flom LLP

Norm Champ – Lecturer on Law Harvard Law School (former Director, SEC Division of Investment Management)

Hse-Yu (Iris) Chiu – Reader University College London Faculty of Laws

John C. Coates, IV – John F. Cogan, Jr. Prof. of Law & Econ. Harvard Law School

Quinn Curtis – Associate Professor of Law University of Virginia School of Law

Elisabeth D. de Fontenay – Associate Professor of Law Duke Law School


Dorothy M. Donohue – Deputy General Counsel Investment Company Institute

James Fanto – Gerald Baylin Professor of Law Brooklyn Law School

Tamar Frankel – Michaels Faculty Research Scholar & Professor of Law Boston University School of Law

Pamela Harrahan – Senior Visiting Fellow University of New South Wales Faculty of Law

Howell E. Jackson – James S. Reid, Jr. Professor of Law Harvard Law School

Lyman P.Q. Johnson – Robert O. Bentley Professor of Law Washington & Lee University School of Law,  LeJeune Distinguished Chair in Law & Professor University of St. Thomas School of Law

Wulf A. Kaal –  Associate Professor & Director of the Private Investment Fund Institute University of St. Thomas School of Law

J.B. Kittredge – General Counsel Grantham, Mayo & Van Otterloo LLC

H. Norman Knuckle – Attorney-Adviser Boston Regional Office
U.S. Securities and Exchange Commission

Anita K. Krug – D. Wayne & Anne Gittinger Professor of Law University of Washington School of Law


Arthur B. Laby – Professor Rutgers School of Law – Camden (former SEC Assistant General Counsel)

John M. Loder – Partner & Co-Head, Investment Management Ropes & Gray LLP

Daisy Maxey – Reporter The Wall Street Journal

Patricia A. McCoy – Liberty Mutual Ins. Professor of Law Boston College Law School

John D. Morley – Associate Professor of Law Yale Law School

Robert A. Robertson – Partner Dechert LLP

Eric D. Roiter – Lecturer in Law Boston University School of Law (former SEC Assistant General Counsel)

Peter M. Rosenblum – Partner Foley Hoag LLP


Charles V. Senatore – Head of Global Corporate Compliance Fidelity Investments (former Director, SEC Southeast Reg. Office)

Natalya Shnitser –  David & Pamela Donohue Assistant Professor of Law Boston College Law School

Erik R. Sirri – Professor of Finance Babson College (former Director, SEC Division of Trading & Markets)

Jennifer S. Taub – Professor of Law Vermont Law School

Anne Tucker – Associate Professor of Law Georgia State University College of Law

Dirk Zetzsche – Propter Homines Chair for Banking & Securities Law Universität Liechtenstein


Private fund Performance After the Dodd-Frank Act – Evidence from 2010 to 2015

Originally blogged on Columbia Blue Sky Blog:

Does the Dodd-Frank Act lower the earnings of the private fund industry? For much of its history, the private fund industry has viewed private fund adviser registration and the disclosure of proprietary information as a threat to its profitability. Title IV of the Dodd-Frank Act introduced the most significant regulatory change in the history of the private fund industry in the United States – requiring mandatory registration for private fund managers with over $150 million in assets under management and increasing the disclosure requirements pertaining to confidential and proprietary information. Implemented under Title IV, the controversial disclosure obligations in Form PF require private fund adviser to report risk metrics, counterparties and credit exposure, strategies and products used by the investment adviser and its funds, performance and changes in performance, financing information, the percentage of equity and debt, trading practices, the amount of AUM, valuation policies, side letters, the use of leverage, and other information deemed necessary and appropriate to avoid systemic risk.

Evidence exists that mandatory private fund adviser registration under the Dodd-Frank Act affects the cost structure of the industry. However, the registration and increased compliance requirements under the Dodd-Frank Act increase the cost structure of private funds only marginally. Registration and disclosure requirements under the Dodd-Frank Act do not seem to affect the returns of private funds. Rather, compliance costs associated with the Dodd-Frank Act appear to affect mostly the profitability of private fund advisors’ investment management companies.

In a new study, Barbara Luppi, Sandra Paterlini and I assess the impact of Title IV on private fund performance. We use data from the Morningstar Private Fund Database, Inc. on monthly private fund earnings (measured in US dollars) reported by about 7,000 private funds and more than 3,700 private fund advisers. The data set contains information on individual private fund advisers and their managed funds (SEC identification number, name of the private fund, inception date, domicile) including monthly reported assets under management and monthly reported earnings. Due to missing data and the presence of outliers, we extract a sample of 887 private funds that report all the monthly earnings data and monthly AUM in each period from January 2010 to August 2014.

Our findings support the private fund industry’s claims that increased supervision and disclosure mandated in the Dodd-Frank Act have a negative effect on private fund earnings. A discontinuity exists at the threshold value of $150 million AUM, above which private fund adviser registration under the Dodd-Frank Act becomes mandatory. While the relevant estimates are not significant and the discontinuity is not persistent and dissipates in the subsequent months after the registration effective date for private fund advisers, our results do support the private fund industry’s claims that increased supervision and disclosure via the Dodd-Frank Act affects its profitability.

Several theories could help explain a negative effect of the Dodd-Frank Act on private fund earnings. First, we do not see higher compliance cost, identified by Kaal as the primary effect of private fund managers registration under the Dodd-Frank Act, as a contributing factor. Kaal shows that higher initial compliance cost usually would have been incurred once, when managers and their compliance officers learn how to prepare and file the required information. For each subsequent reporting period, the compliance costs are substantially reduced. We also reject the claim of the private fund industry that lower earnings could result from taking managers’ time away from their core management duties because they had to address heightened legal and disclosure requirements under the Dodd-Frank Act. Kaal shows that compliance and legal functions are largely separated from management and would generally not burden management.

Lack of data does not allow us to evaluate several theoretical explanations for a negative effect of Dodd-Frank registration and reporting requirements on private fund adviser earnings. While it seems theoretically possible that fund managers changed strategy and positions or otherwise changed the management of their funds after consultation with their legal and compliance officers about the requirements imposed by the Dodd-Frank Act and SEC implementation rules, due to lack of data, we cannot evaluate a possible feedback effect between compliance reporting and the fund managers’ strategy, its positions, and diversification. If perceived or actual biases in the Dodd-Frank Act regime, communicated by legal experts, did not directly affect managers’ investing behavior, it seems possible, yet again untestable, that managers, without direct input from legal experts, desired to appear less risky or avoid additional regulatory scrutiny and changed their managerial conduct accordingly, remedying pre-Dodd-Frank Act concerns about their strategies and corresponding positions in markets. We also cannot examine if managers who could have been employing questionable practices addressed perceived issues with portfolios or strategies in light of enhanced reporting obligations in the aftermath of the Dodd-Frank Act.

Our data does allow us to evaluate the impact of strategies and the level of activity of fund managers on our results. Anecdotal evidence suggests that managers could have changed the portfolio composition post Dodd-Frank because of concerns about SEC supervision related to particular strategies and corresponding positions. We examine a possible bias within Dodd-Frank mandated registration and disclosures and possible targeting of certain strategies and positions by adjusting our research design to include an evaluation of strategies employed by the private fund managers in our sample. Recent industry publications and academic literature have shown that the performance of actively traded funds lags behind far less active management styles and strategies.  By identifying strategies in our dataset that are more prone to active trading, we examine the performance of actively-traded private funds and the possible impact on our results.

We do not claim that we sufficiently evaluated all relevant theoretical explanations for our findings. Because of lacking or insufficient data, several possible theoretical explanations for a negative effect of Dodd-Frank on private fund performance cannot currently be examined. Further evaluation of the research questions examined in this study may be possible in the future as more data becomes available.

The preceding post comes to us from Wulf Kaal, Associate Professor at the University of St. Thomas School of Law. It is based on a recent study done by Wulf Kaal, Barbara Luppi, Università degli studi di Modena e Reggio Emilia – Faculty of Business and Economics, and Sandra Paterlini, Professor at EBS Business School and Chair of Financial Econometrics and Asset Management, which is entitled “Did the Dodd-Frank Act Impact Private Fund Performance ? – Evidence from 2010-2015” and is available here.

What Drives Dodd-Frank Act Compliance Cost for Private Funds?

CLS Blue Sky Blog

Are Dodd-Frank Act compliance costs forcing smaller private investment fund advisers out of the market?  Several policy makers have suggested that Dodd-Frank Act compliance costs affect smaller firms more than larger firms and many financial studies have shown that an inverse relationship exists between the size of a regulated firm and the per-unit cost of compliance. If the administrative and compliance costs created by Title IV of the Dodd-Frank Act should disproportionally affect smaller private fund advisers, it is conceivable that over time smaller fund advisers could get forced out of the market or merge with other funds. Private fund advisers who are contemplating a startup may not enter the market. A disproportionate effect of Title IV of the Dodd-Frank Act on startup private funds and smaller advisers could create barriers to market entry and precipitate a trend toward consolidation among smaller private fund advisers. A surplus of larger private fund advisers with correspondingly…

View original post 481 more words

Stock Price Response to Non- and Deferred Prosecution Agreements

Reblogged from CLS Blue Sky Blog

CLS Blue Sky Blog

In response to perceived corporate governance shortcomings in major U.S. corporations, the U.S. Department of Justice, starting in 2002, substantially increased the execution of non- and deferred prosecution agreements (N/DPAs). High profile N/DPAs and plea agreements executed in 2012 and 2014 suggest that the DOJ – not judges or the legislature – through its targeting of certain industries, is effectuating large-scale corporate governance changes. The companies subject to NDPAs are among the largest domestically and worldwide, including Johnson & Johnson, KPMG, HSBC, JPMorgan Chase, Deutsche Bank, ABN Amro Bank, Barclays Bank, Credit Suisse, Fannie Mae, Freddie Mac, General Reinsurance, Lloyds TSB, Metropolitan Life Insurance, UBS, and Wells Fargo. The collective market capitalization of U.S. financial corporations that are subject to NDPAs exceeds $690 billion and exceeds over $20 trillion in assets under management.

The controversy surrounding N/DPAs is bitter and well defined. Because historically corporate governance fell under state law…

View original post 896 more words

Book Project Presentation – “Dynamic Regulation” – Tilburg University Netherlands – June 22-23rd, 2015

Hosted By Prof. Erik P.M. Vermeulen – Professor of Business and Financial Law at Tilburg University and Tilburg Law and Economics Center (TILEC) in the Netherlands.

Below are abstracts and SSRN links of my prior 4 articles on “Dynamic Regulation”:

Evolution of Law: Dynamic Regulation in a New Institutional Economics Framework

Festschrift in Honor of Christian Kirchner, 2013


The literature on New Institutional Economics (NIE) evaluates the relationship between public and private rulemaking in the evolution of law. This paper introduces the concept of dynamic regulation as an optimization process for the learning experience in the NIE framework. Dynamic regulation describes intra- and inter-jurisdictional feedback effects between different public rulemakers and between private and public rulemakers. Dynamic elements in the rulemaking process may increase the availability of relevant information for rulemaking and may improve institutional design.

Dynamic Regulation of the Financial Services Industry

Wake Forest Law Review, 2014


Governance adjustments via stable rules in reaction to financial crises are inevitably followed by relaxation, revision, and retraction. The economic conditions and the corresponding requirements for optimal and stable rules are constantly evolving, suggesting that a different set of rules could be optimal. Despite the risk of future crises, anticipation of future developments and preemption of possible future crises do not play a significant role in the regulatory framework and academic literature. Dynamic elements in financial regulation as a supplemental optimization process for rulemaking could help facilitate rulemaking when it is most needed – ex-ante before crises – to curtail the effects of crises and suboptimal regulatory outcomes – ex-post after crises. By including dynamic elements, the regulatory sine curve of financial regulation could be optimized in relation to the phase-shifted first derivative (cosine curve) that describes common elements of financial crises. Dynamic regulation could help dampen the degree of volatility of both the cosine curve and the regulatory sine curve by creating an anticipatory regulatory response to financial crises.

Dynamic Regulation via Governmental Contracts

Liber Amicorum Peter Nobel, 2014


Dynamic elements can be included in the rulemaking process through intra- and inter-jurisdictional feedback effects that improve the availability and quality of information for rulemaking. Key features associated with governmental contracts, such as the corporate wrongdoers’ self-reporting, preemptive remedial measures instituted by the entity to avoid corporate criminal indictment, and the government’s investigation of specific corporate wrongdoing, facilitate multilevel feedback effects that increase the availability and quality of information for rulemaking. Governmental contracts can thus integrate dynamic elements in rulemaking.

The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance: Evidence from 1993-2013

Wulf A. Kaal

University of St. Thomas, Minnesota – School of Law; European Corporate Governance Institute (ECGI)

Timothy Lacine

University of St. Thomas (Minnesota)

The Business Lawyer , Vol. 70, 2014


Non- and Deferred Prosecution Agreements (N/DPAs) are controversial because prosecutors, not judges or the legislature, are changing the governance of leading public corporations and entire industries. To analyze N/DPAs’ corporate governance implications and provide policy makers with guidance, the authors code all publicly available N/DPAs (N=271) from 1993 to 2013, identifying 215 governance categories and subcategories. The authors find evidence that the execution of N/DPAs is associated with significant corporate governance changes. The study categorizes mandated corporate governance changes for entities that executed an N/DPA as follows: (1) Business Changes, (2) Board Changes, (3) Senior Management, (4) Monitoring, (5) Cooperation, (6) Compliance Program, and (7) Waiver of Rights. The authors supplement the analysis of governance changes in these categories with a more in depth evaluation of the respective subcategories of governance changes. The authors also code and analyze preemptive remedial measures, designed by corporations to preempt the execution of an N/DPA or corporate criminal indictment. The paper evaluates the implications of the empirical evidence for boards, management, and legal practitioners.

AALS Section on Securities Regulation – Call for Papers – 2016 AALS Annual Meeting

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

January 6-10, 2016 New York, NY

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 travel expenses. NOTE FURTHER, AALS has announced reduced registration fees for junior faculty for the 2016 conference.

PAPER SUBMISSION PROCEDURE: Up to four papers may be selected from this call for papers. There is no formal requirement as to the form or length of proposals. However, more complete drafts will be given priority over abstracts, and presenters are expected to have a draft for commentators two weeks prior to the beginning of the AALS conference.

Papers will be selected by the Section’s Executive Committee in a double-blind review. Please submit only anonymous papers by redacting from the submission the author’s name and any references to the identity of the author. The title of the email submission should read: “Submission – 2016 AALS Section on Securities Regulation.”

Please email submissions to the Section Chair Christine Hurt at: on or before August 21, 2015.


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