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This Article examines strategic disclosure behavior in the context of merger announcements. Merger transactions are frequent targets of litigation, including both fiduciary duty class actions and statutory appraisal actions. In either type of litigation, the fair value of the target company as a going concern is at least a part of the measure of damages. In recent years, courts have increasingly looked to market evidence of valuation—including the trading price of the target company’s stock prior to the announcement of the merger. This gives managers an incentive to minimize this trading price by strategically timing disclosures such that negative news is released prior to announcement of a merger while positive news is released simultaneously with or following a merger announcement. In many ways, the disclosure incentives managers face in the merger context mirror those they face in the securities fraud context. For years, securities fraud plaintiffs have typically been required to prove loss causation by using an event study to show a market decline upon corrective disclosure—a practice enshrined by the United States Supreme Court in Dura Pharmaceuticals, Inc. v. Broudo. Managers can make this task more difficult by bundling corrective disclosures with other potentially material news. Combining the corrective disclosure with additional bad news can make it impossible to determine what portion of any resulting price drop to ascribe to the corrective disclosure. Combining the disclosure with offsetting good news can reduce or eliminate the price reaction altogether. These types of strategic disclosure behaviors have important implications for the design of federal disclosure rules and judicial doctrine. To the extent that courts and regulators ascribe legal significance to the market’s reaction to information contained in corporate disclosures, those disclosures should be required to be made in a way that results in an informative market reaction. As such, this Arti

The role of social responsibility in corporate governance has been the subject of debate for nearly ninety years. That debate has been reframed over the decades. Several recent events have resulted in increased focus on corporate social responsibility, especially with respect to publicly held corporations. This Article explores the law’s two different paths for impacting social responsibility. The current iteration of the corporate responsibility movement has implications for both state law chartering of corporations and federal securities regulation. This Article analyzes the ways in which stated purpose clauses in a corporation’s articles of incorporation may be useful in addressing social responsibility and other corporate mission issues. This includes a brief discussion of benefit corporation statutes, followed by a discussion of how better use of stated purpose clauses may be a meaningful proxy for opting into benefit corporation statutes. This Article also traces developments in the securities laws’ approach to corporate social responsibility, including recommending the adoption of a safe harbor rule to encourage corporations to make disclosures relating to social responsibility.

Cybersecurity is one of the gravest threats facing public companies, the markets, and the economy at large today. Because of this pressing threat, the SEC has increased its attention to cybersecurity. In 2018 interpretive guidance, consistent with the mandatory disclosure regime established by federal securities regulation, the SEC stipulated that public companies have a duty to disclose those cybersecurity risks and incidents that are material to investors. The 2018 guidance added little, however, and instead parroted earlier guidance from the SEC’s Division of Corporation Finance. Moreover, the SEC itself has been plagued by cybersecurity problems. This Note asserts that to regulate cybersecurity effectively, the SEC must both strengthen its own cybersecurity and further expand upon, rather than simply repeat, the obligation of public companies to disclose cybersecurity risks and incidents.

Publicly traded life science companies must navigate two overlapping regulatory agencies with distinct disclosure policies. The Food & Drug Administration (FDA) has a policy of under-disclosure to incentivize drug development while the Securities and Exchange Commission (SEC) encourages over-disclosure to avoid securities fraud. The FDA’s far-reaching and complex regulations, coupled with its acquiescence to confidentiality, obfuscates a life science company’s obligations under SEC regulation; as a result, life science companies are an attractive target for securities litigation. This Note explores the interplay between FDA and SEC regulations to pinpoint the source of the disproportionately high rate of securities litigation. It identifies two possible causes, one calling for drastic reforms and the other requiring a modest solution in comparison. It subsequently recommends the FDA release broad guidance on good disclosure practices in an attempt to reduce litigation for life science companies before more radical reforms are required.

This Article analyzes the history, design, and effectiveness of the highly controversial CEO pay ratio disclosure rule, which went into effect in 2018. Based on a regulatory mandate contained in the Dodd-Frank Act of 2010, the rule requires public companies to disclose the ratio between CEO pay and median worker pay as part of their annual filings with the Securities and Exchange Commission (SEC). The seven-year rulemaking process was politically contentious and generated a level of public engagement that was virtually unprecedented in the long history of the SEC disclosure regime. The SEC sought to minimize compliance costs by providing firms with maximum methodological flexibility, expressly foregoing any effort to ensure data comparability across firms. The sizable pay gaps highlighted by the newly reported pay ratios attracted extensive attention from the media and various non-corporate constituencies, fueling public outrage, motivating new proposed legislation, and reinforcing concerns over pay inequity and economic inequality. At the same time, the pay ratio’s role in investor decisionmaking remains uncertain. We suggest that the pay ratio disclosure rule represents a unique approach to disclosure, which we term disclosure-as-soundbite. This approach is characterized by (1) high public salience—the pay ratio is superficially intuitive and resonates with the public to an extent much greater than other disclosure, and (2) low informational integrity—the pay ratio is a relative outlier in terms of certain baseline characteristics of disclosure, meaning that the information is lacking in accuracy, difficult to interpret, and incomplete. We find that in its current formulation, the rule is ineffectual and potentially counterproductive when viewed as a means of generating useful and reliable information for investors, or influencing firm behavior on matters of worker and executive compensation. The pay ratio is more successful in fomenting or contributing to public

Kent Greenfield’s Corporations Are People Too (And They Should Act Like It) reclaims the legal theory of corporate personhood from the conservative right and champions it for the progressive left. Greenfield argues that corporate personhood, properly construed, can further progressive goals by limiting certain corporate powers, increasing corporate accountability, and enabling corporate management to govern in the interests of all stakeholders. Greenfield advances a progressive account of corporate personhood and elaborates its implementation in constitutional law and in corporate law. This symposium response extends Greenfield’s conception of corporate person-hood to related questions in securities law and tort law. This is a first step in-tended to advance a legal reform project that further translates corporate personhood into a coherent doctrine that reaches across U.S. law.

On April 20, 2018, in Varjabedian v. Emulex Corp., the United States Court of Appeals for the Ninth Circuit held that Section 14(e) of the Securities Exchange Act of 1934 requires only a showing of negligence, not scienter, to establish a violation. The Ninth Circuit derived that requirement from the fact that Section 14(e) resembles Section 17(a)(2) of the Securities Act of 1933. In reaching this conclusion, the Ninth Circuit split with all the other courts to consider this question. The Second, Third, Fifth, Sixth, and Eleventh Circuits had previously held that Section 14(e) shares more similarities with Rule 10b-5, itself promulgated under Section 10(b) of the Exchange Act. Under that line of reasoning, because Rule 10b-5 actions have a scienter requirement, so too do Section 14(e) actions. This Comment argues that the majority view, that Section 14(e) more closely resembles Rule 10b-5 and thus requires a showing of scienter, not mere negligence, is correct.

On March 29, 2016, in Indiana Public Retirement Systems v. SAIC, Inc., the United States Court of Appeals for the Second Circuit reaffirmed its earlier conclusion that a violation of the duty to disclose imposed on publicly traded companies by Item 303 of Regulation S-K can constitute a violation of Section 10(b) of the Securities Exchange Act of 1934. In so doing, the Second Circuit directly conflicted with a decision from the United States Court of Appeals for the Ninth Circuit, Cohen v. NVIDIA Corp. (In re NVIDIA Corp. Securities Litigation), despite the fact that both courts relied upon the Third Circuit’s Oran v. Stafford opinion in reaching their decisions. This Comment argues that a violation of Item 303 can constitute a violation of Section 10(b), and, further, that the Second Circuit adopted the correct approach because it faithfully construed the underlying regulation and statute, correctly followed earlier jurisprudence, and furthered, not frustrated, the principal goals of the federal securities laws.

Growing concerns in Europe about international investment regimes and investor-state dispute settlement systems pushed the European Union into pursuing the creation of an investment court system and a multilateral investment court. The European Union started this reform through the Comprehensive Economic Trade Agreement, the Vietnam-EU Free Trade Agreement, and by direct persuasion of other countries to start negotiations at the United Nations Commission on International Trade Law. Visible reasons for the change include concerns over the perception of a lack of transparency, coherence, and arbitrators’ partiality, all of which diminish the legitimacy of the multilateral investment court. Other reasons might be laid on the budgetary risks of more than 213 claims against EU countries. To address these legitimacy concerns, the EU wants to replace traditional party-appointed arbitrators with a two-tiered investment tribunal system comprised by a roster of members selected by the state parties on the treaty. This Essay argues that the creation of the multilateral investment court needs to follow democratic principles in order to be legitimate. History has shown us that the EU has abused its power in the past when implementing resolution systems. Foregoing negotiation, comment by member nations, and implementing a tribunal at its own behest has shown this. The EU multilateral investment court proposal has legitimacy deficiencies because the EU has relied on its power to impose its views so far, i.e. its proposal was not previously negotiated multilaterally amongst other member nations. It is thus possible that the appointment of the future judges to this court will likely be subject to the political constraints and veto that the International Court of Justice or World Trade Organization appointments suffer today. This could leave small economies at a disadvantage because they might be subject to permanent, politically biased judges. A superior solution would be to adopt b

Investment arbitration has come increasingly under fire because of its design flaws. There is an emerging consensus that investment treaty arbitration not only falls short of ensuring a sufficient degree of transparency of arbitral proceedings and impartiality of arbitrators, but also that its institutional architecture is unjustifiably asymmetric, entrusting foreign investors with significant rights while no protection is afforded to the host states’ constituencies. In response to these criticisms, several states have attempted in recent years to reform the rules governing investor-state arbitration. A perusal of recently concluded international investment agreements, however, reveals that the reform efforts so far have focused on the first two shortcomings. Very little, instead, has been done with regard to the asymmetric character of the system. This Essay seeks to specifically address this flaw, by placing the rights of investment-affected people on par with those of investors. To do this, we seek to display the viable alternatives to the currently predominant—and flawed—model of investment dispute settlement. We start by outlining the features of the investor-state dispute settlement system that lie at the root of the system’s legitimacy crisis. In particular, relying on a burgeoning body of scholarship, we expose the inadequacy of private order dispute settlement mechanisms in dealing with mainly public law disputes. Bearing this in mind, we contend that future reform efforts should reckon with the rights and interests of the individuals and groups of individuals who are likely to be affected by the investment operations. In other words, States can only remove the asymmetric character of the system by endowing this category of individuals with substantive and procedural rights. We also argue that international investment agreements should go beyond their traditional protective function by aiming to keep investors’ conduct in check. We opine that such agreement

Third-party funding of international investment arbitration is on the rise. Through TPF funders will cover the legal fees of investors filing claims under investment treaties in exchange for a portion of the arbitral award. Proponents of third-party funding claim that it provides access to justice for parties that normally would not have the funds to arbitrate against state actors. Given that the international investment law that governs these claims is unbalanced, and that funding only flows towards investor-claimants, and at the expense of states and their taxpayers, allowing third-party funding in investment arbitration risks creating unjustifiable wealth transfers from the citizens of target states for the benefit of speculators. Reform is needed to prevent the deleterious effects of third-party funding on developing and newly-industrialized states and on the investment law regime itself.

The current dominant system for resolving international investment disputes is the Investor-State Dispute Settlement system or, more precisely, the Investor-State Arbitration system (ISA). The ISA system has proved to be an effective avenue for remedy for foreign investors whose investments are wrongfully impaired by host states. However, the system is not accessible to Host State Citizens (HSCs) whose interests may be harmed by investors. Wronged HSCs can seek redress in domestic fora only. The domestic fora in many jurisdictions leave many wronged HSCs without remedy, a problem that has long been acknowledged. This Essay proposes a solution. It proposes that access to remedy for wronged HSCs can be operationalized within the existing arbitration system (or integrated into a future international investment court system that may eventuate). This can be achieved by expanding the current ISA system to be a more inclusive system that allows all affected persons—investors and non-investors—whose interests are adversely affected to seek remedy. The proposed system, termed Investment Related Dispute Settlement, would allow for: (1) traditional ISA proceedings, in which investors may initiate proceedings against host states; (2) HSG-Investor Arbitration, in which host state governments may initiate proceedings against investors; and (3) HSCs-Investor Arbitration, in which HSCs may initiate arbitral proceedings against investors.

Recent initiatives for investment reform demonstrated by the 2016 United Nations Conference on Trade and Development and 2018 World Investment Reports have raised key issues for sustainable development in the context of investment in natural resources and energy. Where there has been increasing convergence between trade and environmental norms as trade regimes confront domestic regulatory measures for environmental protection and climate change mitigation, similarly investment regimes also have had to address such domestic measures but with little progress towards normative convergence. At the same time, there’s an increasing skepticism for the traditional models of globalization of the 1990s and more recognition of the need for economic models that foster sustainability and local stability. This Article will analyze four primary areas in which investment law intersects with environmental and climate change policies. Drawing from lessons learned in the trade context, it will examine the following areas in which investment law will need to better address domestic policies: (1) regulation, especially those in the form of direct and indirect taxes; (2) subsidies; (3) labeling schemes; and (4) local content requirements. These will be discussed against the backdrop of today’s changing landscape regarding popular attitudes towards globalization and the right to regulate. The Article will conclude with a discussion of the challenges ahead for investment in natural resources and energy, especially in Latin America where some governments are changing the constitutional framework in which nature should be managed.

Questions of how best to understand offshore financial centers (“OFCs”)—countries that have low or zero tax rates, strong banking secrecy regulation, and easy-to-form legal entities—and what, if anything, the international community should do about them remain fixed on the agenda of national and international discourse. This Essay seeks to provide a new theoretical perspective on tax havens and applies this perspective to the cross-border legal regimes that govern international investment. This new analytical framework sees offshore financial centers as countries that are victims of the “resource curse,” as that term is described in economic development literature. Often physically small, isolated islands with scant natural resources, OFCs lack any true commodity to exchange in the global marketplace. As a result, OFCs have transformed their legal systems into a resource, “selling” their favorable laws to businesses and individuals in exchange for corporate registration costs and money management fees as a means of gaining revenue for the state and its inhabitants. Applying this framework to international investment law yields new insights into why countries enter into bilateral investment treaties and how the true social costs of international investment should be understood.

Calibrating or (re)calibrating investment law and arbitration—depending on whether the exercise takes place for the first or a subsequent time—is different from rebalancing investment law and arbitration. A balancing exercise denotes a situation in which different elements are equal or in the correct proportions to maintain a sort of equilibrium. This Essay argues that investment law and arbitration are not necessarily about creating a situation in which all “elements” are in balance and that (re)calibrating is an interesting starting point for a discussion about the contemporary regime of investment law and arbitration, and especially to explore, understand, or visualize the current and future developments in the field. The central questions in this Essay include determining what the standards are and who sets them. This Essay examines (re)calibration and looks at the process from the vantage point of the standards which are used for such (re)calibration and evaluates how the standards have evolved substantially over the years and how new treaties—in an exercise of (re)calibration—are in fact following or adapting to these new standards.

Third-party funding (TPF) is a relatively new phenomenon in the field of international investment arbitration. TPF takes place when a non-party to a dispute provides funding to one of the parties (usually the claimant) in return for a percentage of the amount recovered. International investment arbitration is a unique context, however, because investor-states dispute settlement puts States always in the role of respondent and private investors in the role of claimants. Despite this apparent imbalance, TPF proponents argue, among other things, that it provides much needed access to justice for poorer clients and adds value to the system by providing a more disinterested evaluation of legal arguments. Those claims do not stand up to the facts as we have them, however. There have been several efforts to regulate TPF, including mandatory disclosure rules (applied only to the identity of the funder) and more expansive discretionary disclosure. These efforts do not go far enough. Instead, we need mandatory expansive disclosure of the identity of the funder and key terms of the funding agreement. This will provide scaffolding to the international investment arbitration system by avoiding conflicts of interest, aligning with institutional interests in transparency, and providing data for ongoing empirical research.

Transcription of a panel discussion.

The increasing inclusion of exceptions in newly concluded investment treaties, together with the divergent manner in which tribunals and annulment committees have approached these provisions, suggests that a greater understanding of their role and purpose is needed. In particular, the question whether exceptions operate as permissions or as defenses is a crucial but unaddressed issue that has significant implications for both litigation and practice and, in turn, implications for the stability of the regime. This Essay argues that as a starting point, exceptions should be understood as permissions that limit the scope of the substantive treaty obligations, and not as defenses invoked to justify prima facie unlawful conduct. Understanding exceptions as permissions has several advantages, including the avoidance of double-counting a government’s motivation for its conduct or, more problematically, failing to take regulatory purpose into account when determining whether a government has complied with the treaty’s substantive obligations. Understanding exceptions as permissions also sends signals to adjudicators in relation to issues such as the appropriate standard of review. The Essay also explores the desirability of including exceptions in treaties in light of recent innovations that clarify the substantive content of investment obligations. Although the uncertain analytic character of existing exceptions risks constraining rather than preserving regulatory space, they may be an important failsafe in light of current institutional arrangements for investor-state dispute settlement, which effectively preclude review for error of law. The Essay concludes that the relationship between standards of investment protection and exceptions needs further consideration, and suggests that governments negotiating investment treaties ought to more holistically consider the aims of the regime and the role of exceptions therein.

In light of the increase in investor-state disputes brought by foreign investors under the arbitration clauses contained in international investment agreements (“IIAs”), treaty negotiators have started to develop safeguards in recent IIAs in an attempt to mitigate the impact of these agreements on their regulatory powers. General exception clauses modeled on Article XX of the General Agreement on Tariffs and Trade are part of these new treaty provisions. General exceptions clauses are, in their current form, a source of uncertainty rather than coherence. Recent arbitration cases have shed light on the unworkable enforceability requirements contained in general exceptions clauses, preventing, in most cases, these clauses from being successfully implemented. While narrowing the scope of the standards of protection contained in IIAs may be a more effective path to improve the balance between protection of foreign investors’ rights and outcomes that promote good governance and sustainable development, general exception clauses may nonetheless justify in very specific circumstances conduct that would otherwise represent a violation of the applicable IIA, in spite of the many interpretive issues contained therein.

Global Administrative Law is an academic project that attempts to describe the emergence of a regulatory space beyond the state and to prescribe solutions to the problems it diagnoses through certain normative principles like participation, transparency, reasoned decision-making, judicial review, accountability, proportionality, and legitimate expectations. In the case of investment treaty arbitration, the principles advanced by Global Administrative Law are akin to the constitutive elements of the fair and equitable treatment that international arbitral tribunals have identified in investor-state disputes. As classified by international law scholars, these constitutive elements of fair and equitable treatment include due process, arbitrariness, non-discrimination, vigilance, legitimate expectations, stability and predictability, transparency, good faith, and proportionality. Incidentally, some of these principles have found conventional support in state practice. This Essay answers the question of whether this dogmatic similarity is a mere coincidence or proof of the influence exerted by the tenets of Global Administrative Law over the way the fair and equitable treatment clause has been construed. For that purpose, it briefly explains Global Administrative Law, its approach to investment treaty arbitration, and the fair and equitable treatment standard of international investment law.

Climate change poses serious threats to human society. Climate change is already affecting our environment and thus, many aspects of human and economic activity. Among the challenges ahead, governments will need to more actively adopt regulatory policies given the international obligations in this area, such as the Paris Agreement, as well as promote green private investment as a means toward unlocking sustainable growth. How can international investment law be adapted and modernized to respond to these challenges? In this Essay, we summarize a comprehensive set of innovations that could be included in International Investment Agreements to address international obligations regarding climate change. Our discussion, based on a Green Treaty Model, first stresses the role of balanced obligations for investors and host countries, and then focuses on dispute settlement. We conclude by explaining how the current process of reform under the auspices of the United Nations Commission on International Trade Law can be used for a more ambitious transformation of international investment; a transformation in which investment treaties can act as catalysts for green foreign direct investment necessary to reverse the momentum for climate change already built into the atmosphere.

This Article examines SEC enforcement policies and seeks to find the optimum approach to enforcement against foreign private issuers. My previous empirical study of securities class actions against foreign firms identified a number of crucial developments that mainly occurred after Morrison v. National Australia Bank. In Morrison, the Supreme Court sought to limit the extraterritorial reach of the antifraud provisions of the U.S. securities laws. The Court has scaled down the exposure of foreign issuers to securities liability risk, particularly in class-action litigation. If the Supreme Court in Morrison has created a risky enforcement lacuna on the side of private class actions against foreign corporations, how should the SEC adjust its enforcement strategy? To answer this question, this Article presents an empirical survey of SEC enforcement actions against foreign issuers between 2005 and 2016. The results suggest that the SEC consistently pursues a lenient enforcement approach in this area. This low-key policy is the Commission’s dominant strategy. The Article also discusses post-Morrison doctrinal developments, market trends, and red flags potentially indicative of an increased risk of fraud. Although the traditional low-key enforcement policy may attract some foreign “lemons” in the post-Morrison environment, the SEC should not depart from its dominant strategy and engage in more enforcement actions. Instead, the warning signs identified in this paper call for better preventive monitoring. The Article suggests a number of low-cost fraud prevention policies, including promoting cooperation with foreign firms, using new data analysis programs, and galvanizing market “gatekeepers.” Through implementing the mechanisms suggested in this Article, the SEC may reach a more efficient level of deterrence without ramping up enforcement and increasing the costs of foreign firms seeking to access American capital markets.

Derivatives are complex financial instruments that derive their value from an underlying asset. Used and valued by commercial and financial institutions, derivatives are booming. Indeed, the growing $600 trillion derivative market dwarfs the $67 trillion stock market. Yet, the magnification effect of derivative leverage on losses has well-documented ties to the 2008 Financial Crisis when AIG, Lehman Brothers, and other financial institutions found themselves indebted on hundreds of billions of dollars in derivative transactions. Since the crisis, investment companies and funds constrained by the Investment Company Act to protect unsophisticated and vulnerable investors have increased their use of derivatives. In response to a dearth of regulation of investment company use of derivatives, the SEC introduced Proposed Rule 18f-4 in 2015. The proposed rule would control risky derivative use through mandating portfolio limitations, asset segregation requirements, the establishment of Derivative Risk Management Programs, and additional recordkeeping requirements. The current wind in government, however, blows against such a rule. This Note argues that Proposed Rule 18f-4 should not be abandoned but rather implemented to prevent hazardous derivative use by investment companies. The rule, if implemented, should allow for the beneficial and vital use of hedging in its calculation of fund risk exposure and use expected shortfall instead of Value at Risk in making such a calculation. These augmentations to the rule would allow investment companies to benefit from derivatives and still follow the Investment Company Act’s goal of protecting unsophisticated investors.

Cities and counties are failing. Unfunded liabilities for retirees’ healthcare benefits aggregate to more than $1 trillion. Pension systems are underfunded by as much as $4.4 trillion. Many local government capital structures ensure rising costs and declining revenues, the precursors to service-delivery insolvency. These governments are experiencing the Red Queen phenomenon. They have tried a dizzying number of remedies, but their dire situation persists unchanged. State legislatures have failed to respond. More specifically, many states have refused to implement meaningful debt restructuring mechanisms for local governments. They argue that giving cities and counties the power to potentially impair bond obligations will lead to a doomsday scenario: credit markets will respond by dramatically raising interest rates on new municipal and state bond issuances. This argument—which we term the “paralysis justification”—has been employed widely to support state inaction. The paralysis justification, however, is anecdotal and untested. This Article attempts to fill a significant gap in the literature by reporting the results of an unprecedented empirical study. Our study aggregated data for every fixed-rate general obligation, municipal bond issued in the United States from January 1, 2004 to December 31, 2014. It included over eight hundred thousand issuances in total. By employing multivariate regression analysis, we conclude that the paralysis justification is a false narrative. Municipalities located in states that offer meaningful debt restructuring options enjoy the lowest borrowing costs, all other things equal. This Article removes one of the largest obstacles to financial relief for many cities and counties. We hope to encourage recalcitrant state legislatures to enact the structural changes their local governments need desperately.

On October 30, 2015, the Securities and Exchange Commission voted to implement the Jumpstart Our Business Startups (“JOBS”) Act’s exemption for crowdfunded securities, which became effective on May 16, 2016. Crowdfunding technology allows any entrepreneur with an Internet connection the opportunity to pitch an idea to a community of investors, which could revolutionize the market for early-stage startup financing. That market has largely adhered to a status quo in which the strength of an entrepreneur’s network is nearly as important as his or her idea—a dynamic that is especially difficult for female and minority entrepreneurs who have been largely excluded from traditional sources of early-stage funding. Crowdfunding may offer a solution. The JOBS Act, however, caps the amount that an entrepreneur can raise with the crowdfunding exemption at $1 million annually. Given how much capital it takes to launch a successful startup, this cap could prevent crowdfunding from truly benefitting entrepreneurs. This Note examines the startup financing landscape, crowdfunding’s revolutionary potential, and securities regulation laws. Further, this Note argues that Congress should raise the cap on the JOBS Act’s crowdfunding exemption to $5 million annually so that entrepreneurs relying on it can more likely compete with their peers who have easier access to traditional startup financing.

The 2008 financial crisis sparked a flurry of regulatory activity and enforcement in an attempt to reign in activity by banks, but other institutions have also been identified as potentially threatening to the stability of the financial markets. In particular, several empirical studies have revealed that systemic risk can be created and transmitted by hedge funds. In response to the risk created by hedge funds, Congress granted the Financial Stability Oversight Council (“FSOC”) authority under the Dodd-Frank Act of 2010 to designate hedge funds as Systemically Important Financial Institutions (“SIFIs”). Such a designation would automatically result in stringent capital constraints and limitations on liquidity risk on these non-bank institutions. Yet in over six years since FSOC has been granted this authority, it has failed to identify even one hedge fund as a SIFI. In the face of massive resistance and deregulatory initiatives introduced under the Trump administration, it is highly unlikely to do so in the near future. The inability of FSOC to regulate systemically harmful funds is particularly troubling because several post-financial crisis studies have revealed that systemic risk can still be created and transmitted by hedge funds. Given FSOC’s inability to close this hedge fund loophole, this Article argues that Congress should explore appointing the SEC as the primary regulator of hedge funds because: (1) hedge funds can still pose a systemic threat to the economy; (2) the transparency framework inherent in the federal securities laws can supply a more effective means for mitigating systemic risk than the prudential framework currently mandated for SIFIs; and (3) appointing the SEC in this regard would reduce the fragmentation of the current regulatory structure which has been extended and complicated by the creation of FSOC. Although the federal securities laws are typically used to promote investor protection, this Article posits that enhancing transparency t

Keynote address from the "Reforming International Investment Law: Opportunities, Challenges, Paradigms" conference at Boston College Law School. Speakers Chair: Prof. Sebastian Lopez Escarcena, Pontifical Catholic University of Chile Keynote Speaker: Eric de Brabandere, "Recalibrating international investment law - The Communicating Vessels of Investment Protection and Investor Obligations"

A panel discussion from the "Reforming International Investment Law: Opportunities, Challenges, Paradigms" conference at Boston College Law School. This panel was also a public comment session for the ICCA/Queen Mary Task Force on Third Party Funding in International Arbitration. Speakers Chair: Prof. Frank J. Garcia William Park (Co-Chair, ICCA/Queen Mary's 3rd Party Funding Project) Narghis Torres, Esq. (Founder & CEO, LexFinance) Leo Gargne, Fellow, Law & Justice in the Americas Program (Sorbonne) Rachel Thrasher, Research Fellow, Pardee Center, Boston University

On July 6, 2015, the U.S. Court of Appeals for the Ninth Circuit, in United States v. Salman, declined to adopt the novel definition of the personal-benefit element for insider trading, as articulated by the U.S. Court of Appeals for the Second Circuit in United States v. Newman in December 2014. In so doing, the court’s decision presented the first significant resistance to the longevity of the Newman court’s apparent holding that the personal-benefit element requires proof of a pecuniary exchange in all instances. This Comment argues that the court in Salman correctly declined to extend the Newman personal-benefit definition beyond its facts, that the two cases are reconcilable, and together illustrate the difference between “friends” and family for the purposes of establishing tipper-tippee, insider-trading liability.

The current controversy in corporate law concerns whether firms can discourage litigation by shifting its cost to shareholders. But corporate law courts have long engaged in fee-shifting—from shareholder plaintiffs to the corporation—under the “corporate benefit” doctrine. This Article examines fee-shifting in share-holder litigation, arguing that current practices are unsound from the perspective of both doctrine and public policy. Unfortunately, the fee-shifting bylaws recently enacted in response to the problem of excessive shareholder litigation fare no better. The Article therefore offers a different approach to fee-shifting, articulating three specific reforms of the corporate benefit doctrine to quell the current crisis in shareholder litigation.

On February 10, 2014, in SEC v. Teo, the U.S. Court of Appeals for the Third Circuit held that, in an action for disgorgement of profits under the Securities Exchange Act of 1934, the Securities Exchange Commission (SEC) does not have the burden of proving proximate cause. The court reasoned that the SEC must only prove but-for causation between alleged wrongdoing and ill-gotten profits. This Comment argues that, going forward, the Third Circuit should reject Teo and apply a proximate cause standard, especially regarding proceeds. Should the Supreme Court reach the issue in the future, it should similarly reject the Third Circuit’s reasoning in Teo. Courts should require the SEC to show a proximate link between the alleged securities violation and the profits to be disgorged in order to avoid turning the remedy into an impermissible penalty.

Shareholder lawsuits have become an epidemic, with lawsuits being filed after almost every merger or acquisition, costing corporations and shareholders billions of dollars. With little substantive and successful reform measures at the federal and state level, corporations have begun to take matters into their own hands, including adopting corporate bylaws to deter these lawsuits. This Note examines the Delaware Supreme Court’s controversial decision in 2014, ATP Tour, Inc. v. Deutscher Tennis Bund, in which the court approved the adoption of fee-shifting bylaws by corporations. It further examines the Delaware State Legislature’s subsequent prohibition of fee-shifting provisions and explores the possibility that ambiguity in the legislation may allow fee-shifting bylaws in securities class action lawsuits. This Note argues that corporations should be statutorily allowed to adopt fee-shifting bylaws subject to shareholder approval and a maximum relief standard. With minimal chance that the Delaware legislature will immediately overturn its legislation, it argues alternatively that the Delaware courts should narrowly interpret the current statute so as not to not apply to securities class action lawsuits.

Paying a dividend, repurchasing shares, underpricing an initial public offering, pledging collateral, and borrowing using short-term, instead of long-term debt, are all forms of corporate communications. They are “corporate signals” that tell investors certain things about a company’s operations and current financial position, and about the managers’ confidence in its future performance. This Article provides the first comprehensive analysis of the relationship between corporate signals and securities fraud. The incentive to communicate using corporate signals has increased in recent years, a phenomenon that, I argue, is due to the growing complexity of public corporations, and, importantly, to a number of changes in federal securities laws aimed at better deterring fraud and making companies more transparent. The Article makes three major contributions. First, it identifies this deep connection between the use of corporate signals (both truthful and deceptive) and recent changes in securities laws. Second, it identifies significant social costs associated with corporate signaling, which commentators and policymakers have over-looked: signals can encourage stock bubbles, create costly “signaling races,” and lead to the loss of information about companies and industries. Third, it provides a normative account of how a lawmaker could design antifraud provisions under the securities laws in order to reduce total fraud, instead of simply rechanneling deceptive practices from the realm of written and oral statements to that of deceptive corporate signals.

When the Securities and Exchange Commission initiates court action against a public company for violation of federal securities laws, it often proposes a court-enforced settlement between the parties known as a “consent judgment.” Nearly all SEC consent judgment proposals contain a “no-admit” clause, whereby the defendant explicitly refuses to confess to the allegations asserted in the SEC’s complaint. Although “no-admit” consent judgments avoid the costs and uncertainties associated with prolonged litigation, they might not be effective in deterring future misconduct, and they could conceal the full truth about the defendant’s wrongdoing. In the wake of the 2008 financial crisis, courts have increasingly questioned whether the SEC’s “no-admit” consent judgment proposals adequately promote the public interest. Despite the courts’ concerns, however, the SEC—and not the courts—is in the best position to assess whether its consent judgment proposals promote the public interest and to implement suitable changes. Accordingly, to ensure that consent judgment proposals do in fact promote the public interest, the SEC should reevaluate its current settlement practices and make appropriate adjustments.

Structural features of the class action securities litigation system have allowed plaintiffs’ attorneys to extort settlements from risk-averse corporations. The Private Securities Litigation Reform Act (“PSLRA”) of 1995 attempted to address these structural failings by implementing wideranging reforms. Perhaps most significantly, the PSLRA created a safe harbor provision to immunize the type of statements typically used as ammunition in these frivolous litigations—forward-looking statements. The plain language of the safe harbor provision renders inactionable statements that are not made with actual knowledge of their falsity, or are accompanied by meaningful cautionary language. Although many courts have read this provision literally and thus determined that a forwardlooking statement is immunized if it meets either of these two prongs, a minority of courts have looked beyond the plain language and determined that a statement is only immunized if it meets both prongs of the provision. This Note argues that the text, legislative history, and conceptual framework of the safe harbor provision necessitate a literal reading of its text: “or” means “or.” Additionally, it counters the chief criticism of such an approach, specifically that a literal reading produces absurd or internally inconsistent results.

During the 1980s, "blank check" companies were prominent vehicles for fraud and abuse in the penny stock market. These companies largely disappeared as a result of regulatory backlash in the 1990s, but a new type of company with a similar structure has taken their place in the securities market: the Special Purpose Acquisition Company ("SPAC"). Much like their blank check predecessors, SPACs have no operations; they merely issue securities with the intent of using the proceeds for merging with or acquiring another company. Although SPACs have enjoyed increased prominence in the market, regulators continue to view them with considerable skepticism. In addition to promulgating regulations forcing SPACs to disclose more information to potential investors, the Securities and Exchange Commission deliberately moves slowly in processing SPAC deals, with the hope of curbing the pace of SPAC offerings. This Note argues that continuing to treat SPACs similarly to the blank check companies of the 1980s is a misguided strategy because the characteristics of the two, once one looks beyond their basic structure, differ significantly. This Note also emphasizes that SPACs may be the only method of raising capital for smaller emerging companies. It thus concludes that any efforts to thwart the SPAC structure itself reflect an erroneous attempt to protect investors, at the expense of allowing this latest Wall Street innovation to facilitate capital formation.

This Article advocates regulatory reforms designed to carve a new path to equity capital and share liquidity for private companies. Specifically, the reforms would allow private companies to seek sophisticated investors through general solicitation and would foster the development of a liquid "sophisticated- investors only" ("SIO") market for private company shares. The reforms are grounded in the fundamental principle of U.S. securities laws that sophisticated investors can lend for themselves" and therefore require considerably fewer legal safeguards. As a result, the reforms would enhance capital formation by reducing regulatory burdens without compromising investor protection. The Article details the reforms and explains how they can be implemented under existing federal securities laws. It then considers the possibilities for new SIO markets if the reforms are adopted and theorizes about how the resulting securities regulatory void for SIO companies would be filled.

Under the classical theory of insider trading, tipper/tippee liability may arise only when the tipper makes the relevant disclosure to obtain a personal benefit. Courts are divided, however, as to whether this personal benefit requirement applies to the misappropriation theory of insider trading. This Note argues that because the personal benefit requirement is severely flawed, courts should not impose it in misappropriation cases. Instead, courts adjudicating isappropriation cases should require that (1) the tipper was at least reckless as to whether he or she would either benefit personally or harm the information source by tipping, and (2) the tipper was at least reckless as to whether someone in the line of tippees would use the information to trade. This standard should be subject only to the tipper's defense that the disclosure was made in a good faith attempt to prevent criminal activity reasonably certain to cause substantial physical or financial harm to others.

These articles evaluate using financial statement insurance (FSI) to reduce the frequency and magnitude of audit failure. The FSI concept was pioneered by Josh Ronen, NYU Accounting Professor, who has modeled its economic aspects. My paper examines FSI's efficacy from policy and legal perspectives. I conclude that while the model is not perfect, it promises considerable advantages over the current model. While some of the existing system's imperfections are sustained or reappear in different guises, none of the existing imperfections appears to be aggravated and the rest likely are mitigated significantly. So I prescribe a framework to permit companies, on an experimental-basis and with investor approval, to use FSI as an optional alternative to financial statement auditing backed by auditor liability.

This Note examines the international implications of the Sarbanes-Oxley Act of 2002 (SOX). First, it identifies the relevant provisions of SOX and its impact on securities regulation generally. Second, it discusses how SOX impacts foreign companies that list securities on U.S. exchanges. Third, it analyzes how SOX is different from other U.S. securities regulations and discusses the consequences of its extraterritorial application.

Congress enacted the Private Securities Litigation Reform Act in 1995, in an effort to stop frivolous securities fraud suits. Key to the effort was the imposition of a heightened pleading standard requiring plaintiffs to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." There has been considerable controversy regarding whether Congress codified the "motive and opportunity" prong of the pleading standard historically used by the United States Court of Appeals for the Second Circuit. This Note argues that Congress intended to halt use of the motive and opportunity test in favor of a heightened and uniform pleading standard.

Developing a system of securities regulation in the European Union has been a difficult task. Currently, markets are regulated at the national level and are guided by certain minimum standards established by EU Directives. The Investment Services Directive, enacted in 1996, was heralded as the final piece of legislation required to complete a unified market for securities. This Note discusses the ISD's failure to result in a fully integrated market and concludes that EU markets need supervision by a centralized regulatory body to allow them to become fully integrated.