Securities Law
Overtaking Mutual Funds: The Hidden Rise and Risk of Collective Investment Trusts
The retirement security of American workers is increasingly linked to the collective investment trust (CIT), a century-old bank product whose dramatic growth has been largely overlooked. As CITs replace mutual funds in retirement plans, this Essay explores the trade-offs associated with CITs as investment funds and as institutional investors.
On “Confetti Regulation”: The Wrong Way to Regulate Gamified Investing
Robinhood and similar investment apps bear a disturbing resemblance to video slot machines. This kind of “gamified” product design drives investors to lose money by overtrading. But if regulators try to cure the problem by de-gamifying the software, they will pick a First Amendment fight that securities law cannot afford.
A Cooperative Federalism Approach to Shareholder Arbitration
Arbitration has begun to take a new form: mandatory arbitration provisions built into corporate charters and bylaws. The debate about the merits of arbitration is well worn, but its application to shareholder claims opens the door to a different set of responses. This Essay provides one, explaining why the overlapping authority of federal and state actors in this field makes cooperative federalism is a natural fit for addressing these issues.
Unlocking the Potential of Art Investment Vehicles
Fine art is increasingly not only purchased for aesthetic pleasure, but also as a financial asset, expanding the art investment market. However, the structure of art investment means that access to the market is restricted. This Comment offers solutions to democratize and leverage the potential of the art investment market.
Hedge Fund Activism, Short-Termism, and a New Paradigm of Corporate Governance
Chief Justice Strine’s important article, Who Bleeds When the Wolves Bite?, brings a much-needed perspective to the modern corporate governance debate. Chief Justice Strine looks at the corporate governance world through the lens of what he calls the “human investors,” i.e., the ordinary individuals who are the ultimate beneficiaries of the mutual funds, pension funds, and other aggregators of investment capital that control a sizable portion of today’s public company equity securities. As the Feature emphasizes, human investors have an overriding interest in the long-term health of business enterprises, both as equity and debt investors and as wage earners. Through their lens, Chief Justice Strine raises a number of significant issues. These include the disconnect between the money managers focused on short-term performance and the long-term horizons of the human investors whose funds they manage, as well as the opportunism of activist hedge funds that seek to make quick profits through financial engineering rather than long-term investment. He also focuses on the growing evidence that equity gains realized by financial engineering pushed by activist hedge funds, to the extent those gains exist, are likely the result of diverting value from debt holders, workers or other constituencies. Short-term pressures that suppress investment in research and development, productive assets and future business opportunities are hurting our corporations and our broader economy. Chief Justice Strine is right to raise these issues, and addressing them is vital.
Their Bark Is Bigger Than Their Bite: An Essay on Who Bleeds When the Wolves Bite
Delaware Chief Justice Leo Strine is of the view that America is in terrible shape. Specifically, he identifies deep problems in the fabric of American society, which include “growing income inequality, inflated executive pay, job losses, [and] wage stagnation.” Having noted these problems, Strine lays a portion of the blame at the feet of activist hedge funds and the apparently misguided pension plans and university endowments that invest in such hedge funds. In this Essay, I articulate Strine’s worldview and argue that while his Feature in this issue of the Yale Law Journal is ostensibly about hedge fund activists, his real complaint is with modernity itself. Hedge funds are merely piling on. Accordingly, his proposed solutions, which focus largely on disclosure and reporting requirements, are misplaced in the current debate.
Securities Settlements in the Shadows
The Dodd-Frank Act authorized the Securities and Exchange Commission (“SEC”) to bring almost any enforcement action in an administrative proceeding. Before Dodd-Frank, the SEC could secure civil fines against registered broker-dealers and investment advisers in administrative proceedings, but had to sue in court non-registered firms and individuals, including public companies and executives charged with accounting fraud, or traders charged with insider trading violations. After the Dodd-Frank amendment, save for a few remedies that can only be obtained in court, the SEC can choose the forum in which it prosecutes enforcement actions.
The Rise of Bank Prosecutions
Before 2008, prosecutions of banks had been quite rare in the federal courts, and the criminal liability of banks and bankers was not a topic that received much public or scholarly attention. In the wake of the last financial crisis, however, critics have begun to ask whether prosecutors adequately held banks and bankers accountable for their crimes. Senator Jeff Merkley complained: “[A]fter the financial crisis, the [Justice] Department appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted.” Federal judge Jed Rakoff and many others asked why prosecutors brought, with one or two low-level exceptions, no prosecutions of bankers in the wake of the 2007-2008 financial crisis and whether they were too quick to settle corporate cases by merely compelling fines and “window-dressing” compliance reforms. The response from the Department of Justice (DOJ) to criticism of its approach towards corporate and financial prosecutions has ranged from stern denial that it had been remiss—as when Attorney General Eric Holder announced in a video message in 2014 that “[t]here is no such thing as too big to jail” and that no financial institution “should be considered immune from prosecution”—to reform in the face of acknowledged lack of public confidence in its approach—as when the DOJ in 2015 adopted policies designed to make corporate prosecutions more effective.
Returning to Common-Law Principles of Insider Trading After United States v. Newman
Recoupment Under Dodd-Frank: Punishing Financial Executives and Perpetuating “Too Big To Fail”
122 Yale L.J. 507 (2012).
The Casualty of Investor Protection in Times of Economic Crisis
118 Yale L.J. 1545 (2009).