The modern financial system is plagued by misaligned incentives that allow some firms to extract distributive profits, and direct wealth transfers in their favor, without producing anything of value, or improving society with enhanced employment or socially useful innovation. Many modern financial products and activities serve no underlying economic or productive purpose. The system is creating market intermediaries of astounding size, power, profitability, and economic and regulatory policy influence. Some financial firms expressly profit from heightened interconnection and complexity, while others benefit directly from increased volatility. Yet we all bear the costs of this evolved financial system when it unravels due to its interconnectedness with the real economy, and our increased reliance on markets. This article advocates for a financial system that is de-financialized, de-complexified, more transparent, and better orientated to productive ends in a way that benefits all of society, not just the firms who reap asymmetrical payoffs in a complex system, intermediate capital, create financial products, or run the plumbing in a system that ultimately serves them best. This article gives support to Hyman Minsky’s “money manager capitalism” hypothesis by showing how the financial system has evolved since the 2008 crisis because of misaligned incentives. In support of this contention the article profiles numerous post-crisis trends and events in financial markets where misaligned incentives emerge, including moral hazard in debt origination, how some financial firms benefit from volatility; the real winners of the Game Stop “meme stock” saga; problems from price dislocations in credit exchange traded funds (ETFs) during the coronavirus pandemic crash; conflicts in the construction and composition of indices; market disruption from volatility-linked exchange traded products (ETPs); misaligned incentives in special purpose acquisition companies (SPACs) and evolved private equity (PE) business models; fragilities in pension administration; environmental, social, governance (ESG) opacity and greenwashing in investment funds; and governance conflicts from economic and proxy voting power of mega-asset managers.
{"title":"Misaligned Incentives in Markets: Envisioning Finance That Benefits All of Society","authors":"Ryan Clements","doi":"10.2139/SSRN.3802178","DOIUrl":"https://doi.org/10.2139/SSRN.3802178","url":null,"abstract":"The modern financial system is plagued by misaligned incentives that allow some firms to extract distributive profits, and direct wealth transfers in their favor, without producing anything of value, or improving society with enhanced employment or socially useful innovation. Many modern financial products and activities serve no underlying economic or productive purpose. The system is creating market intermediaries of astounding size, power, profitability, and economic and regulatory policy influence. Some financial firms expressly profit from heightened interconnection and complexity, while others benefit directly from increased volatility. Yet we all bear the costs of this evolved financial system when it unravels due to its interconnectedness with the real economy, and our increased reliance on markets. This article advocates for a financial system that is de-financialized, de-complexified, more transparent, and better orientated to productive ends in a way that benefits all of society, not just the firms who reap asymmetrical payoffs in a complex system, intermediate capital, create financial products, or run the plumbing in a system that ultimately serves them best. \u0000 \u0000This article gives support to Hyman Minsky’s “money manager capitalism” hypothesis by showing how the financial system has evolved since the 2008 crisis because of misaligned incentives. In support of this contention the article profiles numerous post-crisis trends and events in financial markets where misaligned incentives emerge, including moral hazard in debt origination, how some financial firms benefit from volatility; the real winners of the Game Stop “meme stock” saga; problems from price dislocations in credit exchange traded funds (ETFs) during the coronavirus pandemic crash; conflicts in the construction and composition of indices; market disruption from volatility-linked exchange traded products (ETPs); misaligned incentives in special purpose acquisition companies (SPACs) and evolved private equity (PE) business models; fragilities in pension administration; environmental, social, governance (ESG) opacity and greenwashing in investment funds; and governance conflicts from economic and proxy voting power of mega-asset managers.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"133 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91247471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.
{"title":"Enforcement Against the Biggest Banks","authors":"David T. Zaring","doi":"10.2139/ssrn.3678439","DOIUrl":"https://doi.org/10.2139/ssrn.3678439","url":null,"abstract":"\u0000 Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"7 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-08-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84746962","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The past few years have seen enormous change in US financial market regulation, with the specifics of some of the most radical changes, in the securities area, yet to be decided. This chapter explores US regulation of the insurance, banking, securities and futures trading sectors, and seeks to present this regulation in the broader context of US public law and politics, particularly as these factors affect recent developments.
{"title":"Perspectives on U.S. Financial Regulation","authors":"J. Ohnesorge","doi":"10.2139/ssrn.3480815","DOIUrl":"https://doi.org/10.2139/ssrn.3480815","url":null,"abstract":"The past few years have seen enormous change in US financial market regulation, with the specifics of some of the most radical changes, in the securities area, yet to be decided. This chapter explores US regulation of the insurance, banking, securities and futures trading sectors, and seeks to present this regulation in the broader context of US public law and politics, particularly as these factors affect recent developments.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-11-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78675419","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the common approach reached between Commodities Future Trading Commission (CFTC) and the European Commission (EC) on derivatives regulation. The paper reviews issues resolved and explores the issues that remain which are leading to fragmentation of the $553tn global derivatives market. While many differences have been resolved, it would have been better for the markets had both the European Union [EU] and United States [US] adopted a collaborative approach when reforming derivatives after the Financial Crisis (2008). This decision of the EU and US to proceed separately and draw up their own respective versions of the over the counter [OTC] derivatives regulatory landscape was a misstep which affected the efficient operation of capital markets. The question now is whether co-operation between US and EU regulators can survive the disruption posed by Brexit and the Trump Administration and the new directions the UK and US might take in terms of derivatives regulation.
The long-term effect that Brexit may have on the regulation of derivatives will depend on the new post-Brexit relationship that the UK and the EU agree upon. It is essential that the smooth functioning of the international derivatives trading market and the critical role that London plays as the global centre for Euro denominated clearing must continue without regard to whether a political agreement can be reached on the withdrawal of the UK from the EU. A discussion as to the post-Brexit role that the City of London should play in respect of Euro denominated clearing and the services the City performs for EU clearing members and trading venues needs to be had to give the EU the assurance it requires to have oversight over central counterparties (CCPs) operating in third countries (such as post-Brexit UK) that perform systematically important functions for EU clearing members and trading venues.
In the US, if the Trump Administration can reform current CFTC regulation to reduce the extraterritorial impact that current US swaps trading rules have on non-US market participants, this could be beneficial to reduce the fragmentation that is occurring in the global swaps trading pool. It is encouraging to see CFTC Chairman Giancarlo propose implementing a two-tier system that would separate foreign jurisdictions into those that are “comparable” and those that are “non-comparable” in order to afford comparable jurisdictions greater control over their own regulatory matters so long as such matters do not pose a risk to the US financial system. However, such a reform will require Congress to act and they will look to what the EU is doing in respect of its European Market Infrastructure Regulation on derivatives, central counterparties and trade repositories (EMIR 2.2) reforms before committing the CFTC to reducing the control it asserts on non-US market participants. The role of European Security and Markets Authority (ESMA) and its plans to introduce EMIR 2.2
{"title":"Transatlantic Extraterritoriality and the Regulation of Derivatives: The Need for an Integrated Approach between Washington and Brussels, the Uncertainties of BREXIT and New Directions in the US","authors":"S. Weinstein","doi":"10.2139/ssrn.3285814","DOIUrl":"https://doi.org/10.2139/ssrn.3285814","url":null,"abstract":"This paper examines the common approach reached between Commodities Future Trading Commission (CFTC) and the European Commission (EC) on derivatives regulation. The paper reviews issues resolved and explores the issues that remain which are leading to fragmentation of the $553tn global derivatives market. While many differences have been resolved, it would have been better for the markets had both the European Union [EU] and United States [US] adopted a collaborative approach when reforming derivatives after the Financial Crisis (2008). This decision of the EU and US to proceed separately and draw up their own respective versions of the over the counter [OTC] derivatives regulatory landscape was a misstep which affected the efficient operation of capital markets. The question now is whether co-operation between US and EU regulators can survive the disruption posed by Brexit and the Trump Administration and the new directions the UK and US might take in terms of derivatives regulation.<br><br>The long-term effect that Brexit may have on the regulation of derivatives will depend on the new post-Brexit relationship that the UK and the EU agree upon. It is essential that the smooth functioning of the international derivatives trading market and the critical role that London plays as the global centre for Euro denominated clearing must continue without regard to whether a political agreement can be reached on the withdrawal of the UK from the EU. A discussion as to the post-Brexit role that the City of London should play in respect of Euro denominated clearing and the services the City performs for EU clearing members and trading venues needs to be had to give the EU the assurance it requires to have oversight over central counterparties (CCPs) operating in third countries (such as post-Brexit UK) that perform systematically important functions for EU clearing members and trading venues.<br><br>In the US, if the Trump Administration can reform current CFTC regulation to reduce the extraterritorial impact that current US swaps trading rules have on non-US market participants, this could be beneficial to reduce the fragmentation that is occurring in the global swaps trading pool. It is encouraging to see CFTC Chairman Giancarlo propose implementing a two-tier system that would separate foreign jurisdictions into those that are “comparable” and those that are “non-comparable” in order to afford comparable jurisdictions greater control over their own regulatory matters so long as such matters do not pose a risk to the US financial system. However, such a reform will require Congress to act and they will look to what the EU is doing in respect of its European Market Infrastructure Regulation on derivatives, central counterparties and trade repositories (EMIR 2.2) reforms before committing the CFTC to reducing the control it asserts on non-US market participants. The role of European Security and Markets Authority (ESMA) and its plans to introduce EMIR 2.2 ","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"100 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75556170","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The Securities and Exchange Commission requires that investment management funds submit proxy votes for all companies in which they own shares. Due to the vast number of stocks held by the typical institutional investor, hedge fund, or mutual fund, most of these investors draw on the research of a proxy advisory firm, which provides them a modicum of guidance in their task and allows them to focus on managing their portfolio. But while their clients want to maximize returns for their investors, the objectives of proxy advisory firms may not be completely aligned. The opacity with which they operate makes it difficult for investment management companies – and indeed individual shareholders – to discern the truth. Proxies have become increasingly contentious in recent years as political activists have leveraged shareholder proposals, determined to pursue their political goals in a variety of ways that circumvent legislation or regulatory activities. Proxy advisors, in turn, have themselves become more political in their support of these shareholder proposals. Accordingly, these activities have been receiving closer scrutiny – especially from Congress, which is currently debating legislation to increase transparency at proxy advisory firms. The SEC has also declared its concern with political activism in proxy voting and may pursue further action in this area as well.
{"title":"Corporate Governance Oversight and Proxy Advisory Firms","authors":"Ike Brannon, Jared Whitley","doi":"10.2139/SSRN.3224511","DOIUrl":"https://doi.org/10.2139/SSRN.3224511","url":null,"abstract":"The Securities and Exchange Commission requires that investment management funds submit proxy votes for all companies in which they own shares. Due to the vast number of stocks held by the typical institutional investor, hedge fund, or mutual fund, most of these investors draw on the research of a proxy advisory firm, which provides them a modicum of guidance in their task and allows them to focus on managing their portfolio. But while their clients want to maximize returns for their investors, the objectives of proxy advisory firms may not be completely aligned. The opacity with which they operate makes it difficult for investment management companies – and indeed individual shareholders – to discern the truth. Proxies have become increasingly contentious in recent years as political activists have leveraged shareholder proposals, determined to pursue their political goals in a variety of ways that circumvent legislation or regulatory activities. Proxy advisors, in turn, have themselves become more political in their support of these shareholder proposals. Accordingly, these activities have been receiving closer scrutiny – especially from Congress, which is currently debating legislation to increase transparency at proxy advisory firms. The SEC has also declared its concern with political activism in proxy voting and may pursue further action in this area as well.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"126 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-08-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87710934","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This discussion paper considers the implications of declaring cryptocurrencies as securities, in light of the recent SEC ruling that Bitcoin and Ethereum are not securities but smaller, recent ICOs are. Its discussion suggests that, the policy implications notwithstanding, the SEC ruling is sensible and important in striking a balance in the cryptocurrency space between innovation and accountability.
{"title":"Are Cryptocurrencies Securities?","authors":"Usman W. Chohan","doi":"10.2139/ssrn.3199692","DOIUrl":"https://doi.org/10.2139/ssrn.3199692","url":null,"abstract":"This discussion paper considers the implications of declaring cryptocurrencies as securities, in light of the recent SEC ruling that Bitcoin and Ethereum are not securities but smaller, recent ICOs are. Its discussion suggests that, the policy implications notwithstanding, the SEC ruling is sensible and important in striking a balance in the cryptocurrency space between innovation and accountability.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"6 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74672360","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-03-31DOI: 10.7551/mitpress/11080.003.0007
Jeffrey N. Gordon, Kathryn Judge
EU policy-makers have focused on the creation of a “Capital Market Union” to advance the economic vitality of the EU in the aftermath of the Global Financial Crisis of 2007-09 and the Eurozone crisis of 2011-13. The hope is that EU-wide capital markets will help remedy the limitations in the EU’s pattern of bank-centered finance, which, despite the launch of the Banking Union, remains tied to Member States. Capital market development will provide alternative channels for finance, which will facilitate greater resiliency, more economic integration within the EU, and more choices for savers and firms. This chapter uses the origins of the US capital market union to explore how law can advance the creation of a CMU. The chapter shows the importance of expanding the focal lens beyond investor protection to reveal the full array of ways that the legal choices of repression, substitution, and facilitation shape the private funding of economic activity. Central to the US story was a mismatch between growing enterprises and a stunted banking system. Political choices led to a banking system populated primarily by small local banks that were ill suited to provide financing in the amounts, or with the risk, needed to fund the railroads and the follow-on industrial film expansion. The bond market stepped in, creating national and international channels for debt and then equity finance. Depression-era legal enactments strengthened these markets, through a strong disclosure regime, a powerful market regulator and enforcer (the SEC), and, through the separation of commercial and investment banking (“Glass-Steagall”), the creation of a set of private actors, investment banks, with strong incentives to develop ever more robust capital markets. These developments also helped deter states from interfering excessively in the issuance of debt or equity securities, a core challenge for any capital market union. In arguing for a richer understanding of “financial structure law,” the chapter makes some EU-specific suggestions. These focus on facilitating the growth of EU-wide asset managers, which can engage in credit intermediation similar to banks but with lower systemic risk. In marshalling individuals’ retirement savings, the asset managers can provide a funding supply side to CMU.
{"title":"The Origins of a Capital Market Union in the United States","authors":"Jeffrey N. Gordon, Kathryn Judge","doi":"10.7551/mitpress/11080.003.0007","DOIUrl":"https://doi.org/10.7551/mitpress/11080.003.0007","url":null,"abstract":"EU policy-makers have focused on the creation of a “Capital Market Union” to advance the economic vitality of the EU in the aftermath of the Global Financial Crisis of 2007-09 and the Eurozone crisis of 2011-13. The hope is that EU-wide capital markets will help remedy the limitations in the EU’s pattern of bank-centered finance, which, despite the launch of the Banking Union, remains tied to Member States. Capital market development will provide alternative channels for finance, which will facilitate greater resiliency, more economic integration within the EU, and more choices for savers and firms. This chapter uses the origins of the US capital market union to explore how law can advance the creation of a CMU. The chapter shows the importance of expanding the focal lens beyond investor protection to reveal the full array of ways that the legal choices of repression, substitution, and facilitation shape the private funding of economic activity. \u0000Central to the US story was a mismatch between growing enterprises and a stunted banking system. Political choices led to a banking system populated primarily by small local banks that were ill suited to provide financing in the amounts, or with the risk, needed to fund the railroads and the follow-on industrial film expansion. The bond market stepped in, creating national and international channels for debt and then equity finance. Depression-era legal enactments strengthened these markets, through a strong disclosure regime, a powerful market regulator and enforcer (the SEC), and, through the separation of commercial and investment banking (“Glass-Steagall”), the creation of a set of private actors, investment banks, with strong incentives to develop ever more robust capital markets. These developments also helped deter states from interfering excessively in the issuance of debt or equity securities, a core challenge for any capital market union. \u0000In arguing for a richer understanding of “financial structure law,” the chapter makes some EU-specific suggestions. These focus on facilitating the growth of EU-wide asset managers, which can engage in credit intermediation similar to banks but with lower systemic risk. In marshalling individuals’ retirement savings, the asset managers can provide a funding supply side to CMU.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"51 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87390093","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We assess the impact of the Sarbanes-Oxley Act (SOX) on discretionary accruals (DA) and real earnings management (REM) activities around CEO turnovers. Improved corporate governance post-SOX can either deter earnings management (the deterrence effect) or pressure CEOs to inflate earnings when facing imminent turnover risks (the pressure effect). We find a strong deterrence effect for new CEOs, while the pressure effect dominates the deterrence effect for outgoing CEOs. Pre-SOX firms with new CEOs manage earnings downward through both DA and REM and the effect is more pronounced in weakly governed firms. Post-SOX both types of earnings baths diminished. By contrast, post-SOX firms engage in more aggressive upward earnings management prior to CEO turnovers and the evidence is stronger prior to performance-induced CEO turnovers. The compulsory compliance with the 2003 NYSE and NASDAQ listing rule on audit committee independence is associated with a reduction in new-CEO REM baths.
{"title":"The Impact of SOX on Earnings Management Activities around CEO Turnovers","authors":"P. Geertsema, D. Lont, Helen Lu","doi":"10.2139/ssrn.3301800","DOIUrl":"https://doi.org/10.2139/ssrn.3301800","url":null,"abstract":"We assess the impact of the Sarbanes-Oxley Act (SOX) on discretionary accruals (DA) and real earnings management (REM) activities around CEO turnovers. Improved corporate governance post-SOX can either deter earnings management (the deterrence effect) or pressure CEOs to inflate earnings when facing imminent turnover risks (the pressure effect). We find a strong deterrence effect for new CEOs, while the pressure effect dominates the deterrence effect for outgoing CEOs. Pre-SOX firms with new CEOs manage earnings downward through both DA and REM and the effect is more pronounced in weakly governed firms. Post-SOX both types of earnings baths diminished. By contrast, post-SOX firms engage in more aggressive upward earnings management prior to CEO turnovers and the evidence is stronger prior to performance-induced CEO turnovers. The compulsory compliance with the 2003 NYSE and NASDAQ listing rule on audit committee independence is associated with a reduction in new-CEO REM baths.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82602990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In a world full of new technology, the risk of fraud is constantly increasing. In the securities industry, this risk existed long before the use of technology. Congress enacted the Securities Act of 1933 to combat the risk of fraud and misrepresentation in the sale of securities. By requiring full disclosure, investors have the opportunity to make informed decisions prior to investing. However, Distributed Autonomous Organizations (“DAOs”), through the use of blockchains and smart-contracts, engage in the sale of securities without fully disclosing the risks or complying with the registration requirements of the Securities Act of 1933. Compliance with the burdensome requirements of registration, however, would destroy this new technology and method of conducting business. To avoid this set-back, Congress must amend the registration requirements to provide an exemption for DAOs. This exemption, although reducing current registration burdens, must still require DAOs to disclose certain information, thereby ensuring investors are informed prior to investing. Furthermore, due to the unique nature of the blockchain, smart-contract, and DAOs, Congress must impose a fiduciary duty on the creators of DAOs to ensure compliance with the disclosure requirements. Further, Congress should consider the allowance of burden-shifting following the initial crowdsale.
{"title":"Ethereum and the SEC: Why Most Distributed Autonomous Organizations are Subject to the Registration Requirements of the Securities Act of 1933 and a Proposal for New Regulation","authors":"Tiffany L. Minks","doi":"10.37419/LR.V5.I2.5","DOIUrl":"https://doi.org/10.37419/LR.V5.I2.5","url":null,"abstract":"In a world full of new technology, the risk of fraud is constantly increasing. In the securities industry, this risk existed long before the use of technology. Congress enacted the Securities Act of 1933 to combat the risk of fraud and misrepresentation in the sale of securities. By requiring full disclosure, investors have the opportunity to make informed decisions prior to investing. However, Distributed Autonomous Organizations (“DAOs”), through the use of blockchains and smart-contracts, engage in the sale of securities without fully disclosing the risks or complying with the registration requirements of the Securities Act of 1933. Compliance with the burdensome requirements of registration, however, would destroy this new technology and method of conducting business. To avoid this set-back, Congress must amend the registration requirements to provide an exemption for DAOs. This exemption, although reducing current registration burdens, must still require DAOs to disclose certain information, thereby ensuring investors are informed prior to investing. Furthermore, due to the unique nature of the blockchain, smart-contract, and DAOs, Congress must impose a fiduciary duty on the creators of DAOs to ensure compliance with the disclosure requirements. Further, Congress should consider the allowance of burden-shifting following the initial crowdsale.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"9 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91315406","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Both equity and non-equity crowdfunding has proven to be a productive method of capital formation for start-ups. The equity crowdfunding provisions of The Jumpstart Our Business Startups Act (the “JOBS” Act) offer perhaps the most promising development to facilitate capital formation by Entrepreneurs since the Great Depression. The JOBS Act became law during April 2012, and established a regulatory foundation enabling startups and small businesses to access new capital using crowdfunding. Title III of the JOBS Act, known by the acronym THE “CROWDFUND” ACT (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act) creates an exception under which the U.S. securities laws are amended to allow equity crowdfunding campaigns to be easily employed to raise capital through the offer and sale of securities to the public. These crowdfunding-related provisions “include investment restrictions and new compliance requirements for both small businesses seeking to obtain funds through crowdfunding and the portals that will connect entrepreneurs and investors.” Through this Act, Congress intended to lower regulatory barriers in order to give small companies and startups a larger pool of investors from which to raise capital. Crowdfunding is an important contemporary and rich topic that has implications in entrepreneurship, finance, business law, marketing and has application across multiple industries and categories of human endeavor. This brief article presents: a history of crowdfunding; illustrates success by entrepreneurs in cinema, music, technology, and video games; discusses the development and impact of KickStarter, Indiegogo, and other crowdfunding platforms; explores the tension between U.S. securities laws and the potential for equity crowdfunding; looks at Congressional intent and what, if anything, needs to change at this point to enable equity crowdfunding to achieve and optimize its intended purpose, now that SEC proposed rules have been issued. This article hopefully helps to fill the gap in the literature regarding the effectiveness of the JOBS Act and will prove of benefit to both practitioners and scholars.
股权众筹和非股权众筹都被证明是初创企业有效的资本形成方式。《Jumpstart Our Business Startups Act》(简称“JOBS”法案)的股权众筹条款可能是自大萧条以来最有希望促进企业家资本形成的发展。《就业法案》于2012年4月成为法律，并建立了一个监管基础，使初创企业和小企业能够通过众筹获得新的资金。JOBS法案的第三章，简称“CROWDFUND”法案(即在线集资，同时阻止欺诈和不道德的保密法案)创造了一个例外，根据该法案，美国证券法进行了修订，允许股权众筹活动通过向公众发行和出售证券来轻松筹集资金。这些与众筹相关的条款“包括对寻求通过众筹获得资金的小企业以及连接企业家和投资者的门户网站的投资限制和新的合规要求。”通过这项法案，国会打算降低监管障碍，以便为小公司和初创公司提供更多的投资者来筹集资金。众筹是一个重要而丰富的当代话题，涉及创业、金融、商业法、市场营销，并在多个行业和人类努力的类别中得到应用。本文简要介绍:众筹的历史;举例说明企业家在电影、音乐、科技和电子游戏领域的成功;讨论了KickStarter、Indiegogo和其他众筹平台的发展和影响;探讨了美国证券法与股权众筹潜力之间的紧张关系;看看国会的意图，如果有的话，在这一点上需要改变什么，以使股权众筹实现并优化其预期目的，现在SEC提议的规则已经发布。本文希望有助于填补关于JOBS法案有效性的文献空白，并将证明对从业者和学者都有好处。
{"title":"Start-Up Finance: The Roar of the Crowdfunding","authors":"L. Trautman","doi":"10.2139/SSRN.3049955","DOIUrl":"https://doi.org/10.2139/SSRN.3049955","url":null,"abstract":"Both equity and non-equity crowdfunding has proven to be a productive method of capital formation for start-ups. The equity crowdfunding provisions of The Jumpstart Our Business Startups Act (the “JOBS” Act) offer perhaps the most promising development to facilitate capital formation by Entrepreneurs since the Great Depression. The JOBS Act became law during April 2012, and established a regulatory foundation enabling startups and small businesses to access new capital using crowdfunding. Title III of the JOBS Act, known by the acronym THE “CROWDFUND” ACT (Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act) creates an exception under which the U.S. securities laws are amended to allow equity crowdfunding campaigns to be easily employed to raise capital through the offer and sale of securities to the public. These crowdfunding-related provisions “include investment restrictions and new compliance requirements for both small businesses seeking to obtain funds through crowdfunding and the portals that will connect entrepreneurs and investors.” Through this Act, Congress intended to lower regulatory barriers in order to give small companies and startups a larger pool of investors from which to raise capital. \u0000 \u0000Crowdfunding is an important contemporary and rich topic that has implications in entrepreneurship, finance, business law, marketing and has application across multiple industries and categories of human endeavor. This brief article presents: a history of crowdfunding; illustrates success by entrepreneurs in cinema, music, technology, and video games; discusses the development and impact of KickStarter, Indiegogo, and other crowdfunding platforms; explores the tension between U.S. securities laws and the potential for equity crowdfunding; looks at Congressional intent and what, if anything, needs to change at this point to enable equity crowdfunding to achieve and optimize its intended purpose, now that SEC proposed rules have been issued. This article hopefully helps to fill the gap in the literature regarding the effectiveness of the JOBS Act and will prove of benefit to both practitioners and scholars.","PeriodicalId":10000,"journal":{"name":"CGN: Securities Regulation (Sub-Topic)","volume":"3 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-10-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87556224","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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