This Article addresses a remarkable blind spot in American law: the failure to apply the well-established principles of secured credit to prevent inefficiency, confusion, and fraud in the manipulation of the webs of subsidiaries within corporate groups. In particular, “asset partitioning” has been a fashionable subject in which the central problem of non-transparency has been often mentioned, but little addressed. This Article offers a concept for a new system of corporate disclosure for the benefit of creditors and other stakeholders. It would require disclosure of corporate structures and allocations of assets among affiliates to the extent the affiliates are to be treated as independent legal entities. Enforcement would follow the secured creditor model: the failure to follow the rules would lead to disregard of corporate independence. Modern secured credit law is subject to many criticisms, but the emerging versions of credit security transparency found around the world have increased both efficiency and fairness in commercial transactions. Its example suggests the basis for reforms to achieve an analogous result for the extension of credit to groups of corporations, especially in international finance where partitioning is often used in lieu of secured financing. The long-term objective is to create a body of scholarship examining this problem and to propose a regime of corporate responsibility and transparency to correct it.
{"title":"Transparency in Corporate Groups","authors":"J. L. Westbrook","doi":"10.2139/SSRN.3287378","DOIUrl":"https://doi.org/10.2139/SSRN.3287378","url":null,"abstract":"This Article addresses a remarkable blind spot in American law: the failure to apply the well-established principles of secured credit to prevent inefficiency, confusion, and fraud in the manipulation of the webs of subsidiaries within corporate groups. In particular, “asset partitioning” has been a fashionable subject in which the central problem of non-transparency has been often mentioned, but little addressed. This Article offers a concept for a new system of corporate disclosure for the benefit of creditors and other stakeholders. It would require disclosure of corporate structures and allocations of assets among affiliates to the extent the affiliates are to be treated as independent legal entities. Enforcement would follow the secured creditor model: the failure to follow the rules would lead to disregard of corporate independence. \u0000 \u0000Modern secured credit law is subject to many criticisms, but the emerging versions of credit security transparency found around the world have increased both efficiency and fairness in commercial transactions. Its example suggests the basis for reforms to achieve an analogous result for the extension of credit to groups of corporations, especially in international finance where partitioning is often used in lieu of secured financing. The long-term objective is to create a body of scholarship examining this problem and to propose a regime of corporate responsibility and transparency to correct it.","PeriodicalId":283277,"journal":{"name":"The Brooklyn Journal of Corporate, Financial and Commercial Law","volume":"309 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122698845","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}
Arbitration has been the predominant form of dispute resolution in the securities industry since the 1980s. Virtually all brokerage firms include pre-dispute arbitration agreements (PDAAs) in their retail customer contracts, and have successfully fought off challenges to their validity. Additionally, the industry has long mandated that firms submit to arbitration at the demand of a customer, even in the absence of a PDAA. More recently, however, brokerage firms have been arguing that forum selection clauses in their agreements with sophisticated customers (such as institutional investors and issuers) supersede firms’ duty to arbitrate under FINRA Rule 12200. The Courts of Appeal currently are split on the question of whether, under general principles of contract interpretation, FINRA member firms can circumvent their duty to arbitrate by inserting forum selection clauses in their customer agreements.Most of these courts have not addressed the argument that the anti-waiver provision of the Securities Exchange Act of 1934 (§ 29(a)) bars securities firms from forcing customers to waive their right to arbitrate disputes. The Supreme Court long ago interpreted § 29(a) to apply to waivers of substantive rights arising under the Exchange Act. Is the right to arbitrate in the FINRA forum, which is heavily regulated by the SEC to promote investor protection, a right that cannot be waived? This paper will explore the interaction between the anti-waiver provision of the Exchange Act, and the right of a customer to demand a particular dispute resolution process. This paper argues that investors’ long-standing right to choose arbitration in the securities industry is a right that brokerage firms cannot force their customers to waive.
{"title":"The Customer's Non-Waivable Right to Choose Arbitration in the Securities Industry","authors":"Jill I. Gross","doi":"10.2139/SSRN.2728972","DOIUrl":"https://doi.org/10.2139/SSRN.2728972","url":null,"abstract":"Arbitration has been the predominant form of dispute resolution in the securities industry since the 1980s. Virtually all brokerage firms include pre-dispute arbitration agreements (PDAAs) in their retail customer contracts, and have successfully fought off challenges to their validity. Additionally, the industry has long mandated that firms submit to arbitration at the demand of a customer, even in the absence of a PDAA. More recently, however, brokerage firms have been arguing that forum selection clauses in their agreements with sophisticated customers (such as institutional investors and issuers) supersede firms’ duty to arbitrate under FINRA Rule 12200. The Courts of Appeal currently are split on the question of whether, under general principles of contract interpretation, FINRA member firms can circumvent their duty to arbitrate by inserting forum selection clauses in their customer agreements.Most of these courts have not addressed the argument that the anti-waiver provision of the Securities Exchange Act of 1934 (§ 29(a)) bars securities firms from forcing customers to waive their right to arbitrate disputes. The Supreme Court long ago interpreted § 29(a) to apply to waivers of substantive rights arising under the Exchange Act. Is the right to arbitrate in the FINRA forum, which is heavily regulated by the SEC to promote investor protection, a right that cannot be waived? This paper will explore the interaction between the anti-waiver provision of the Exchange Act, and the right of a customer to demand a particular dispute resolution process. This paper argues that investors’ long-standing right to choose arbitration in the securities industry is a right that brokerage firms cannot force their customers to waive.","PeriodicalId":283277,"journal":{"name":"The Brooklyn Journal of Corporate, Financial and Commercial Law","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128642364","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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