Archive for the ‘ Competitiveness of US Capital Markets ’ Category

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

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.

Keywords: Non Prosecution Agreement, Deferred Prosecution Agreement, Panel Data, Corporate Governance

JEL Classification: G3, K14, K22

http://blogs.law.harvard.edu/corpgov/2014/09/23/the-effect-of-deferred-and-non-prosecution-agreements-on-corporate-governance/

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Conference Announcement: Beyond Crises-Driven Regulation – Initiatives for Sustainable Financial Regulation

University of St. Thomas, Minnesota School of Law
University of St. Thomas Law Journal Spring Symposium: Beyond Crisis-Driven Regulation - Initiatives for Sustainable Financial Regulation

University of St. Thomas Law Journal Spring Symposium

Friday, April 11, 2014, Minneapolis, MN

co-sponsored by the Holloran Center for Ethical Leadership in the Professions

7 hours CLE pending approval – REGISTER NOW

SPEAKERS

Steven L. Schwarcz, keynote
Duke University School of Law

Roberta Romano
Yale Law School

Erik F. Gerding

University of Colorado
Law School

Kimberly D. Krawiec

Duke University
School of Law

Patricia A. McCoy

UConn
School of Law

Richard W. Painter

University of Minnesota
Law School

Douglas M. Branson

University of Pittsburgh
School of Law

M. Todd Henderson

University of Chicago
Law School

Claire A. Hill

University of Minnesota
Law School

Paul Vaaler

University of Minnesota
Carlson School of Management

Kristin N. Johnson

Seton Hall Law

Jennifer S. Taub

Vermont Law School

 

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Wulf Kaal
Associate ProfessorUniversity of St. Thomas School of Law
1000 LaSalle Avenue
Minneapolis, MN 55403
wulfkaal@stthomas.edu
http://www.stthomas.edu/law/lawjournal

New Hedge Fund Data on SEC Form PF – Presentation at Investment Fund Roundtable

Investment Fund Roundtable program 1 2014

Investment Funds

A Roundtable Discussion

Brooklyn Law School

Friday, January 31, 2014

Discussion Agenda

Session I:      Fiduciaries: Harmonizing the Standard of Conduct for Financial Intermediaries

Moderator: Deborah A. DeMott, Duke University School of Law

  • Is there and ought there be a common standard of conduct for financial intermediaries toward retail investors?
  • What are the SEC, the Department of Labor (regarding ERISA fiduciaries), and the Municipal Securities Rulemaking Board doing on this question?
  • What are the implications of these standards on revenue sharing and other costs?

Session II:    Enforcement: SEC Enforcements and Settlements for Funds, Trustees & Advisers

Moderator: Jill E. Fisch, University of Pennsylvania Law School

  • What has been the effect of Judge Jed Rakoff’s rejection of the SEC settlement with Citigroup?
  • What sorts of conditions on settlement might fund advisers and trustees expect to see in future?
  • On what topics will the SEC focus its enforcement efforts in future?

Session III:   Compliance: SAC & The Rising Role of Compliance in Private Funds

Moderator: Eric D. Roiter, Boston University School of Law

  • What enhancements are funds, especially private funds, making in their compliance efforts with, e.g., Title IV of Dodd-Frank, FSOC, Form PF, and Rule 506(c) under the JOBS Act?
  • What will be the effect of compliance as a defense to supervisory liability in cases such as SAC?
  • What effect, if any, would the creation of a self-regulatory organization for investment advisers have?

Session IV:   Market Developments: Challenges from Changes in Market Structure & Technology

Moderator: James D. Cox, Duke University School of Law

  • How effective and suitable are Target-Date Funds for retirees?
  • What are the challenges facing fund advisers and directors from algorithmic and high-frequency trading?
  • How problematic are the technological issues that generate trading errors, such as those affecting Knight Capital, Goldman, et al.?

Roundtable Participants

Hilary J. Allen

Assistant Professor of Law

Loyola University New Orleans

College of Law

(visiting Brooklyn Law School)

Diane E. Ambler

Partner

K&L Gates

Lee Augsburger

Chief Ethics & Compliance Officer

Prudential Financial, Inc.

William A. Birdthistle

Associate Professor of Law

& Freehling Scholar

Chicago-Kent College of Law

Mercer E. Bullard

Associate Professor of Law

University of Mississippi School of Law

(former Assistant Chief Counsel, SEC Division of Investment Management)

James D. Cox

Brainerd Currie Professor of Law

Duke University School of Law

Quinn Curtis

Associate Professor of Law

University of Virginia School of Law

Deborah A. DeMott

David F. Cavers Professor of Law

Duke University School of Law

Lisa M. Fairfax

Leroy Sorenson Merrifield Research

Professor of Law

George Washington University Law School

Jill E. Fisch

Perry Golkin Professor of Law

University of Pennsylvania Law School

James Fanto

Professor of Law & Co-Director for the

  Study of Business Law & Regulation

Brooklyn Law School

Tamar Frankel

Michaels Faculty Research Scholar 

  Professor of Law

Boston University School of Law

Erik Gerding

Associate Professor of Law

University of Colorado Law School

Jeffrey N. Gordon

Richard Paul Richman Professor of Law

Columbia Law School

M. Todd Henderson

Professor of Law

  & Aaron Director Teaching Scholar

University of Chicago Law School

Kathryn Judge

Associate Professor of Law

Columbia Law School

Wulf A. Kaal

Associate Professor

University of St. Thomas School of aw

J.B. Kittredge

General Counsel

Grantham, Mayo & Van Otterloo LLC

H. Norman Knickle

Attorney-Adviser

Boston Regional Office

U.S. Securities and Exchange Commission

Anita K. Krug

Assistant Professor of Law

University of Washington School of Law

Arthur B. Laby

Associate Professor

Rutgers School of Law – Camden

(former SEC Assistant General Counsel)

Simon M. Lorne

Vice Chairman & Chief Legal Officer

Millennium Partners L.P.

Martin E. Lybecker

Partner

Perkins Coie LLP

(former Associate Director, SEC Division of

Investment Management)

Patricia A. McCoy

Connecticut Mutual Professor of Law

University of Connecticut School of Law

John D. Morley

Associate Professor of Law

Yale Law School

Alan Palmiter

Howard L. Oleck Professor of Business Law

Wake Forest University School of Law

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

Natalya Shnitser

Associate Research Scholar in Law

Yale Law School

Erik R. Sirri

Professor of Finance

Babson College

(former SEC Director, Trading

& Markets)

Jennifer S. Taub

Associate Professor of Law

Vermont Law School

W. Danforth Townley

Attorney Fellow, SEC Div. of Investment Management

Dirk Zetzsche

Propter Homines Chair for Banking

  & Securities Law

Universität Liechtenstein

 

Presenting on “Dynamic Regulation” at Canadian Law & Economics Association in Toronto

Presentations at the Canadian Law and Economics Association annual meeting  on September 28, 2013 in Toronto.

Dynamic Regulation of the Financial Services Industry

Wulf A. Kaal

University of St. Thomas, Minnesota – School of Law

2013

Wake Forest Law Review, 2014, Forthcoming
U of St. Thomas (Minnesota) Legal Studies Research Paper No. 13-24

Abstract: 

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.

Number of Pages in PDF File: 31

Keywords: dynamic regulation, new institutional economics, financial regulation, regulation of financial industries, financial crises

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


Wulf A. Kaal


University of St. Thomas, Minnesota – School of Law

2013

Festschrift in Honor of Christian Kirchner, 2014, Forthcoming
U of St. Thomas (Minnesota) Legal Studies Research Paper No. 13-17

Abstract: 

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.

Number of Pages in PDF File: 19

Keywords: new institutional economic, evolution of law, dynamic regulation, rulemaking

Accepted Paper Series 

The Hedge Fund Industry after the Lift of the Ban on General Solicitation

The SEC yesterday approved final rules implementing one of the most important changes to securities regulation and offering practices in decades, as mandated by Congress in the Jumpstart Our Business Startups (“JOBS”) Act: to lift the ban on general solicitation or advertising in offerings to accredited investors that are exempt from registration under Rule 506 of Regulation D under the Securities Act of 1933. The implications of this rule change for the private fund industry could be substantial. However, readers who are expecting to see Beyoncé laud XYZ fund’s risk-adjusted returns in TV-ads, on busses etc. are likely to be disappointed. Private funds are still bound by an existing ban on using celebrity endorsements and other gimmicks to sell financial products.

Although the SEC lifted the ban on general solicitation, it appears to desire a counterbalancing of possible effects in the private fund industry. The SEC approved for publication a series of proposed rules to enhance its ability to monitor offerings in the aftermath of these unprecedented rule changes. The proposed amendments to the private offering rules are designed to reduce the risk of fraud and would require issuers to notify the SEC fifteen days before any offering and provide information on the use of proceeds and the type of general solicitation used.

It will take some time until private fund advisers and their attorneys understand exactly how the combination of new rules works, and it will be interesting to see if the enhanced anti fraud requirements will indeed discourage private fund managers from using general solicitations. Given this significant discontinuity, it will be fun to evaluate the effects of the new sets of rules.

Continue reading

The Return of CDOs – Do We Need Dynamic Elements in Financial Regulation?

Despite the role of collateralized debt obligations (CDOs) in the financial crisis of 2007-08, CDOs and other high risk investment products may soon be available again and are likely to proliferate.  The WSJ reports that  J.P. Morgan Chase and Morgan Stanley bankers are assembling synthetic CDOs to satisfy demand for structured products by investors who seek high returns amid low interest rates. This development is not a surprise.  Wall Street will continue to create new, increasingly complex, and riskier financial instruments to capitalize on market demand for such products.

Stable and presumptively optimal rules cannot keep pace with market developments and financial innovation. 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 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.

The concept of dynamic financial regulation describes the study of financial regulatory phenomena in relation to preceding and succeeding events.  Rulemaking is no longer a mere reactive process based only on preceding events and driven by the collective action problem of rulemaking. Rather, rulemaking in a dynamic framework increasingly utilizes institution specific and decentralized information reflecting preceding events and attempting to anticipate succeeding future contingencies.

Rulemaking with dynamic elements increases the adaptive capabilities of financial regulation through the increasing use of institution specific information. This may include information on the functioning of financial institutions and financial products. Information pertaining to how financial institutions, or decision makers in financial institutions, actually act and how they are expected to react to unforeseen contingencies can help incorporate dynamic elements into financial regulation.

Dynamic elements in financial regulation could help support regulators in their efforts to continually adapt to new market environments, financial innovation, and to the given regulatory environment. Dynamic elements in financial regulation may also support regulators in anticipating changes and adapt stable rules accordingly.

To improve quality and sustainability of legal rules, dynamic regulation may facilitate experimentation with different combinations of stable and dynamic elements in rulemaking. Experimentation with different combinations of regulatory approaches can be effective when several different approaches can be tried simultaneously. A mixture of market solutions, private ordering, and mandatory rules could help increase adaptive capabilities of rulemaking.  These dynamic changes in rulemaking could help create a governance mechanism that is constantly adapting to the given market environment, financial innovation, and the given regulatory environment.

Dynamic regulation is not just a theoretical concept. Several governance mechanisms with dynamic elements combined with existing stable and presumptively optimal rules could become part of a dynamic optimization and supplementation process for rulemaking.  Institution specific rules could be facilitated through the increasing use of institution specific information and private ordering. Contingent Capital Securities, Corporate Integrity Agreements, and Deferred Prosecution Agreements are among the governance mechanisms that can provide institutions specific information for financial rulemaking.

The return of the CDO market and the proliferation of high risk structured products could justify considering dynamic elements in financial regulation.

For more details see:

Evolution of Law: Dynamic Regulation in a New Institutional Economics Framework – Festschrift in Honor of Christian Kirchner

Dynamic Regulation of the Financial Services Industry – Wake Forest Law Review 

Venture Backed IPOs and the Competitiveness of US Capital Markets

The competitiveness of US capital markets can be impacted by IPO trends and listings of US companies and non-US companies on non US stock exchanges. Corporate Governance in the United States can influence listing decisions by management. A recent report from Wilson Sonsini (http://entrepreneur.typepad.com/files/ipo-survey-2012_web.pdf) on venture-backed IPOs has several interesting findings:

  • 98% of these companies had adopted a code of business conduct.
  • 94%  of the companies are incorporated in Delaware
  • Over 80% of the companies implemented a classified board in connection with the IPO.
  • More companies separated the chairman and CEO roles than combined them.
  • Venture capitalists who had invested in the companies are often represented on board committees (counting the VCs as independent,” despite their share ownership).
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