On 21 September 2018, the Central Bank of Nigeria (CBN) revoked the banking licence of Skye Bank Plc on the ground that it was significantly undercapitalised. The CBN also claimed that Skye Bank’s shareholders were unable to recapitalise the bank. CBN’s first regulatory intervention in Skye Bank was on 4 July 2016 when the CBN replaced some board members and injected N350 billion into the bank.
Polaris Bank Ltd (a bridge bank) has been established to take over the assets and liabilities of Skye Bank. The CBN and the Nigerian Deposit Insurance Corporation (NDIC) have turned over Polaris Bank to the Asset Management Corporation of Nigeria (AMCON). AMCON has injected N786 billion into Polaris Bank and is expected to source for a credible investor.
This write-up examines Skye Bank’s resolution and key issues arising therefrom such as the special insolvency regime for banks, the bridge bank approach, bail-outs and bail-ins, the too-big-to-fail principle and moral hazard, and the treatment of Skye Bank’s shareholders.
2018年9月21日，尼日利亚中央银行(CBN)撤销了Skye Bank Plc的银行执照，理由是该银行资本严重不足。CBN还声称，天空银行的股东无法对该银行进行资本重组。CBN对Skye银行的首次监管干预是在2016年7月4日，当时CBN取代了一些董事会成员，并向该银行注入了3500亿挪威克朗。北极星银行有限公司(一家过桥银行)已经成立，接管天空银行的资产和负债。CBN和尼日利亚存款保险公司(NDIC)将北极星银行移交给尼日利亚资产管理公司(AMCON)。AMCON已向北极星银行注资7,860亿挪威克朗，并有望找到可靠的投资者。这篇文章探讨了天空银行的解决方案和由此产生的关键问题，如银行特别破产制度、过桥银行方法、纾困和纾困、“大而不能倒”原则和道德风险，以及天空银行股东的待遇。
{"title":"An Appraisal of the Central Bank of Nigeria’s Approach to Resolution of Skye Bank Plc","authors":"Dr Kubi Udofia","doi":"10.2139/ssrn.3291361","DOIUrl":"https://doi.org/10.2139/ssrn.3291361","url":null,"abstract":"On 21 September 2018, the Central Bank of Nigeria (CBN) revoked the banking licence of Skye Bank Plc on the ground that it was significantly undercapitalised. The CBN also claimed that Skye Bank’s shareholders were unable to recapitalise the bank. CBN’s first regulatory intervention in Skye Bank was on 4 July 2016 when the CBN replaced some board members and injected N350 billion into the bank.<br><br>Polaris Bank Ltd (a bridge bank) has been established to take over the assets and liabilities of Skye Bank. The CBN and the Nigerian Deposit Insurance Corporation (NDIC) have turned over Polaris Bank to the Asset Management Corporation of Nigeria (AMCON). AMCON has injected N786 billion into Polaris Bank and is expected to source for a credible investor.<br><br>This write-up examines Skye Bank’s resolution and key issues arising therefrom such as the special insolvency regime for banks, the bridge bank approach, bail-outs and bail-ins, the too-big-to-fail principle and moral hazard, and the treatment of Skye Bank’s shareholders.<br><br>","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"73 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115086699","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 history of futures regulations reveals four features in determining whether a futures contract can succeed: (a) a contract must have a convincing economic rationale; (b) it is helpful if contracts are viewed as being in the national interest; (c) competition requires regulatory parity among exchanges; and (d) markets can survive even draconian interventions so long as they are short-term.
{"title":"Additional Aspects of Whether Futures Contracts Succeed","authors":"H. Till","doi":"10.2139/ssrn.3285581","DOIUrl":"https://doi.org/10.2139/ssrn.3285581","url":null,"abstract":"The history of futures regulations reveals four features in determining whether a futures contract can succeed: (a) a contract must have a convincing economic rationale; (b) it is helpful if contracts are viewed as being in the national interest; (c) competition requires regulatory parity among exchanges; and (d) markets can survive even draconian interventions so long as they are short-term.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122754279","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}
When are banks fiduciaries of their customers and clients? This question is of more than theoretical interest given the organizational structure of modern financial institutions and the broad-ranging functions they perform. In this chapter of the Oxford Handbook of Fiduciary Law, I canvass fiduciary principles in banking law. I consider when fiduciary duties exist and what they require, the range of remedies available for breach, and the various techniques banks use to exclude or modify fiduciary duties. One puzzling feature of the legal landscape is that clients bring actions less often than banks’ size and conduct might suggest, which contributes to legal uncertainty. Fiduciary law nevertheless constrains banks’ activities: courts have cast banks as fiduciaries in all of the major commercial and investment banking functions, including making loans and accepting deposits, advising on merger and acquisition (M&A) transactions, and underwriting securities offerings, although banks face greater risk in some areas than others. Banks have responded by disclaiming fiduciary duties and using information barriers/Chinese walls, and yet recent judicial decisions refuse to accept these measures as automatically effective for avoiding fiduciary liability. Courts insist that they, rather than the parties themselves, determine whether fiduciary duties exist and what they require. The law thus diverges from some theoretical accounts of fiduciary doctrine, posing challenges for banks and new questions for scholars.
{"title":"Fiduciary Principles in Banking Law","authors":"Andrew F. Tuch","doi":"10.2139/SSRN.3211548","DOIUrl":"https://doi.org/10.2139/SSRN.3211548","url":null,"abstract":"When are banks fiduciaries of their customers and clients? This question is of more than theoretical interest given the organizational structure of modern financial institutions and the broad-ranging functions they perform. In this chapter of the Oxford Handbook of Fiduciary Law, I canvass fiduciary principles in banking law. I consider when fiduciary duties exist and what they require, the range of remedies available for breach, and the various techniques banks use to exclude or modify fiduciary duties. One puzzling feature of the legal landscape is that clients bring actions less often than banks’ size and conduct might suggest, which contributes to legal uncertainty. Fiduciary law nevertheless constrains banks’ activities: courts have cast banks as fiduciaries in all of the major commercial and investment banking functions, including making loans and accepting deposits, advising on merger and acquisition (M&A) transactions, and underwriting securities offerings, although banks face greater risk in some areas than others. Banks have responded by disclaiming fiduciary duties and using information barriers/Chinese walls, and yet recent judicial decisions refuse to accept these measures as automatically effective for avoiding fiduciary liability. Courts insist that they, rather than the parties themselves, determine whether fiduciary duties exist and what they require. The law thus diverges from some theoretical accounts of fiduciary doctrine, posing challenges for banks and new questions for scholars.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130882366","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}
Data summarized in the opening of this article document that inside trading is a growth industry. And, as deals get ever bigger, the growth curve becomes steeper as more the data confirms intuition that the more who know about a good thing the more who will seek to harvest its benefits. Even though insider trading appears to have thrived during the fifty years after Texas Gulf Sulphur, we gather in this symposium to celebrate the decision. But why? As developed below, the Second Circuit’s landmark decision gave way to the Supreme Court’s erection of a fiduciary framework that this article reasons is unhelpful. Little remains of Texas Gulf Sulphur. This article seeks to explain why the decision remains important. It counsels that insight to why and how to regulate insider trading lies in closely considering Texas Gulf Sulphur, whose rich facts but opaque reasoning in combination enable it to endure as a guidepost by which to locate at least two mutually supportive rationales, developed here, for regulating insider trading.
{"title":"Seeking an Objective for Regulating Insider Trading Through Texas Gulf Sulphur","authors":"James D. Cox","doi":"10.2139/SSRN.3194542","DOIUrl":"https://doi.org/10.2139/SSRN.3194542","url":null,"abstract":"Data summarized in the opening of this article document that inside trading is a growth industry. And, as deals get ever bigger, the growth curve becomes steeper as more the data confirms intuition that the more who know about a good thing the more who will seek to harvest its benefits. Even though insider trading appears to have thrived during the fifty years after Texas Gulf Sulphur, we gather in this symposium to celebrate the decision. But why? As developed below, the Second Circuit’s landmark decision gave way to the Supreme Court’s erection of a fiduciary framework that this article reasons is unhelpful. Little remains of Texas Gulf Sulphur. This article seeks to explain why the decision remains important. It counsels that insight to why and how to regulate insider trading lies in closely considering Texas Gulf Sulphur, whose rich facts but opaque reasoning in combination enable it to endure as a guidepost by which to locate at least two mutually supportive rationales, developed here, for regulating insider trading.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127537929","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 popularity of daily fantasy sports contests has risen exponentially as daily fantasy sports providers have raised hundreds of millions of dollars in seed funding from major sport industry and media stakeholders. Amongst this industry rise, concerns over whether the industry’s consumer protection mechanisms are stringent enough have arisen. In response, individual states executed varied approaches to regulating the industry within their borders. Some have imposed complete bans, while few allow the industry to widely operate and others have imposed significant regulations. States’ responses to the daily fantasy sports industry are akin to state legislators’ regulation of the securities industry in the 20th century. This paper analyzes state and federal regulations imposed on the securities industry in the 20th century to provide an argument as to why federal regulation of the daily fantasy sports industry is necessary.
{"title":"21st Century Stock Market: A Regulatory Model for Daily Fantasy Sports","authors":"Alicia Jessop","doi":"10.18060/22330","DOIUrl":"https://doi.org/10.18060/22330","url":null,"abstract":"The popularity of daily fantasy sports contests has risen exponentially as daily fantasy sports providers have raised hundreds of millions of dollars in seed funding from major sport industry and media stakeholders. Amongst this industry rise, concerns over whether the industry’s consumer protection mechanisms are stringent enough have arisen. In response, individual states executed varied approaches to regulating the industry within their borders. Some have imposed complete bans, while few allow the industry to widely operate and others have imposed significant regulations. States’ responses to the daily fantasy sports industry are akin to state legislators’ regulation of the securities industry in the 20th century. This paper analyzes state and federal regulations imposed on the securities industry in the 20th century to provide an argument as to why federal regulation of the daily fantasy sports industry is necessary.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"57 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130113763","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}
Over the past two decades, the regulatory landscape for non-GAAP reporting has evolved significantly. Despite a temporary decline in the frequency of non-GAAP reporting following Regulation G, the incidence of non-GAAP disclosure has continued to increase steadily, leading to a current all-time high in reporting activity. This proliferation of non-GAAP disclosure has captured the attention of standard setters and regulators in recent years. This paper provides an academic perspective on policy implications for both regulation and standard setting. We contend that current Compliance and Disclosure Interpretations (C&DIs) of the SEC staff may perhaps have gone too far in restricting certain types of non-GAAP disclosures. As a result, we advocate a slight relaxation of the current enforcement of Regulation G. We agree with FASB proposals for greater disaggregation in the income statement to allow for more transparency in non-GAAP reporting. Finally, we believe the PCAOB should consider requiring auditors to take a more direct role with respect to non-GAAP disclosures.
{"title":"Policy Implications of Research on Non-GAAP Reporting","authors":"Dirk E. Black, Theodore E. Christensen","doi":"10.2139/ssrn.3160778","DOIUrl":"https://doi.org/10.2139/ssrn.3160778","url":null,"abstract":"Over the past two decades, the regulatory landscape for non-GAAP reporting has evolved significantly. Despite a temporary decline in the frequency of non-GAAP reporting following Regulation G, the incidence of non-GAAP disclosure has continued to increase steadily, leading to a current all-time high in reporting activity. This proliferation of non-GAAP disclosure has captured the attention of standard setters and regulators in recent years. This paper provides an academic perspective on policy implications for both regulation and standard setting. We contend that current Compliance and Disclosure Interpretations (C&DIs) of the SEC staff may perhaps have gone too far in restricting certain types of non-GAAP disclosures. As a result, we advocate a slight relaxation of the current enforcement of Regulation G. We agree with FASB proposals for greater disaggregation in the income statement to allow for more transparency in non-GAAP reporting. Finally, we believe the PCAOB should consider requiring auditors to take a more direct role with respect to non-GAAP disclosures.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124984848","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 Brokaw Act is proposed legislation aimed, in the words of one of its sponsors, at “financial abuses being carried out by activist hedge funds who promote short-term gains at the expense of long-term growth[.]” The Act is named for a small town in Wisconsin that, according to the Act’s sponsors, was decimated by the actions of a hedge fund activist in shutting down the local paper mill with a loss of hundreds of jobs. The Brokaw Act represents the first attempt at federal legislation aimed at restricting hedge fund activism.We first look into what happened in Brokaw, Wisconsin. The facts do not bear out the lawmakers’ claims. Hedge fund activists played essentially no role in the closure of the Brokaw mill. To the contrary, the paper company’s incumbent management closed the mill – just the latest in a series of management’s mill closures – amid an industry-wide decline that made the mill uneconomic to keep open.We then consider two claims of hedge fund activism’s opponents that appear to motivate the Brokaw Act. The first claim – that hedge fund activists typically use the ten-day disclosure period of Rule 13d-1 to accumulate positions significantly in excess of 5% – has been the subject of empirical study and appears to be incorrect. The second claim – that hedge fund activists often form a “wolf pack” in the pre-disclosure period to act collectively against a target – is also without support from empirical evidence. Neither claim appears to warrant legislative action.Finally, we consider two additional parts of the Brokaw Act. The first would expand the concept of beneficial ownership to include certain derivatives linked to the value of equity securities, while the second would require increased disclosure of short positions in the stock of public companies. Neither activity plays an important role in hedge fund activism, and both require additional study before the passage of any legislation.
{"title":"Failed Anti-Activist Legislation: The Curious Case of the Brokaw Act","authors":"Alon Brav, J. B. Heaton, Jonathan Zandberg","doi":"10.2139/SSRN.2860167","DOIUrl":"https://doi.org/10.2139/SSRN.2860167","url":null,"abstract":"The Brokaw Act is proposed legislation aimed, in the words of one of its sponsors, at “financial abuses being carried out by activist hedge funds who promote short-term gains at the expense of long-term growth[.]” The Act is named for a small town in Wisconsin that, according to the Act’s sponsors, was decimated by the actions of a hedge fund activist in shutting down the local paper mill with a loss of hundreds of jobs. The Brokaw Act represents the first attempt at federal legislation aimed at restricting hedge fund activism.We first look into what happened in Brokaw, Wisconsin. The facts do not bear out the lawmakers’ claims. Hedge fund activists played essentially no role in the closure of the Brokaw mill. To the contrary, the paper company’s incumbent management closed the mill – just the latest in a series of management’s mill closures – amid an industry-wide decline that made the mill uneconomic to keep open.We then consider two claims of hedge fund activism’s opponents that appear to motivate the Brokaw Act. The first claim – that hedge fund activists typically use the ten-day disclosure period of Rule 13d-1 to accumulate positions significantly in excess of 5% – has been the subject of empirical study and appears to be incorrect. The second claim – that hedge fund activists often form a “wolf pack” in the pre-disclosure period to act collectively against a target – is also without support from empirical evidence. Neither claim appears to warrant legislative action.Finally, we consider two additional parts of the Brokaw Act. The first would expand the concept of beneficial ownership to include certain derivatives linked to the value of equity securities, while the second would require increased disclosure of short positions in the stock of public companies. Neither activity plays an important role in hedge fund activism, and both require additional study before the passage of any legislation.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117331316","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}
Would New York's BitLicense apply to all forms of initial coin offerings, whether issued as protocol tokens, investment tokens, or utility tokens? After discussing the background, regulatory framework, and application of the BitLicense, I conclude that based on the letter of the law, every Person who sells blockchain-based tokens in an ICO, where New York residents are capable of purchasing tokens, are likely regulated by the law. This will probably be true whether the tokens issued serve an investment or utility purpose, but that distinction could make a difference in the future if the regulation’s intended application is relied on in industry guidance or through the New York Department of Financial Services enforcement actions.
{"title":"Application of the New York BitLicense to Initial Coin Offerings","authors":"Benjamin Baker","doi":"10.2139/SSRN.3319540","DOIUrl":"https://doi.org/10.2139/SSRN.3319540","url":null,"abstract":"Would New York's BitLicense apply to all forms of initial coin offerings, whether issued as protocol tokens, investment tokens, or utility tokens? After discussing the background, regulatory framework, and application of the BitLicense, I conclude that based on the letter of the law, every Person who sells blockchain-based tokens in an ICO, where New York residents are capable of purchasing tokens, are likely regulated by the law. This will probably be true whether the tokens issued serve an investment or utility purpose, but that distinction could make a difference in the future if the regulation’s intended application is relied on in industry guidance or through the New York Department of Financial Services enforcement actions.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125766218","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}
Analyses of mutual fund fees have differed over whether fees are responsive to the forces of competition. Some academic and legal scholars argue that because mutual fund markets possess some of the indicia of competitive markets, fees must approximate marginal costs and thus cannot be excessive. Others argue that structural anomalies in mutual fund governance allow fund managers to overcharge mutual fund investors. This paper resolves the disagreement. It presents compelling evidence that investment management fees, a major component of total fees are immune to the forces of competition. This is accomplished with a combination of financial and legal analysis. We survey the universe of mutual fund assets and fees over time. We find that between 2005 and 2015 total expense ratios declined; principally because investors allocated an increased proportion of their funds to passively managed open end and exchange traded funds. However, over the same period assets on actively managed open end funds more than doubled while investment management fees, also known as advisory fees increased slightly. This outcome is inexplicable in economic terms but consistent with the legal environment the investment management industry operates in. Indeed, we show how the industry has shaped the environment. The genesis of the fee anomaly is the 1970 Amendment to the Investment Company Act of 1940. Studies by the Wharton School and the SEC showed investment management fees higher than fees subject to competitive forces. The Commission recommended that advisory fees should be "reasonable." and enforceable in court. The investment management industry pushed back against this recommendation and successfully killed the Commission's proposal, following which Congress, the Commission, and the industry crafted a "compromise." that made investment advisers fiduciaries with respect to fees and gave investors private cause of action. As evidenced by the inelasticity of management fees, the purported solution to the problem was ineffective. We show how Congress signaled its endorsement of the status quo and how the courts have interpreted the Congressional signal: cases up to and including the recent Supreme Court decision in Jones v. Harris have been uniformly negative for plaintiffs. No plaintiff has ever received an award under the 36(b) statute. As a result of the industry-favoring political and judicial environment, investors in actively managed mutual funds are overcharged by about $30 billion per year. The investment management firms who sponsor and brand actively managed mutual funds earn monopoly profits and excess returns for their owners.
{"title":"Some Clarity on Mutual Fund Fees","authors":"Stewart L. Brown, S. Pomerantz","doi":"10.2139/SSRN.3050589","DOIUrl":"https://doi.org/10.2139/SSRN.3050589","url":null,"abstract":"Analyses of mutual fund fees have differed over whether fees are responsive to the forces of competition. Some academic and legal scholars argue that because mutual fund markets possess some of the indicia of competitive markets, fees must approximate marginal costs and thus cannot be excessive. Others argue that structural anomalies in mutual fund governance allow fund managers to overcharge mutual fund investors. This paper resolves the disagreement. It presents compelling evidence that investment management fees, a major component of total fees are immune to the forces of competition. This is accomplished with a combination of financial and legal analysis. \u0000We survey the universe of mutual fund assets and fees over time. We find that between 2005 and 2015 total expense ratios declined; principally because investors allocated an increased proportion of their funds to passively managed open end and exchange traded funds. However, over the same period assets on actively managed open end funds more than doubled while investment management fees, also known as advisory fees increased slightly. This outcome is inexplicable in economic terms but consistent with the legal environment the investment management industry operates in. Indeed, we show how the industry has shaped the environment. \u0000The genesis of the fee anomaly is the 1970 Amendment to the Investment Company Act of 1940. Studies by the Wharton School and the SEC showed investment management fees higher than fees subject to competitive forces. The Commission recommended that advisory fees should be \"reasonable.\" and enforceable in court. The investment management industry pushed back against this recommendation and successfully killed the Commission's proposal, following which Congress, the Commission, and the industry crafted a \"compromise.\" that made investment advisers fiduciaries with respect to fees and gave investors private cause of action. \u0000As evidenced by the inelasticity of management fees, the purported solution to the problem was ineffective. We show how Congress signaled its endorsement of the status quo and how the courts have interpreted the Congressional signal: cases up to and including the recent Supreme Court decision in Jones v. Harris have been uniformly negative for plaintiffs. No plaintiff has ever received an award under the 36(b) statute. \u0000As a result of the industry-favoring political and judicial environment, investors in actively managed mutual funds are overcharged by about $30 billion per year. The investment management firms who sponsor and brand actively managed mutual funds earn monopoly profits and excess returns for their owners.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121629616","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}
What if the Supreme Court issued an opinion and no one cared? No one cared who won or lost. No one cared how the question presented was resolved. The prevailing party wouldn’t gain a cent from its victory and the losing party wouldn’t suffer one whit from its loss. Leidos, Inc. v. Indiana Public Retirement System, now pending before the Supreme Court, could be just that sort of case. Leidos asks whether a “pure omission,” an omission that does not render an affirmative statement false or misleading, is actionable under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. With so much affirmative mandatory and voluntary disclosure in the public domain it is trivially easy for plaintiffs to allege that material omissions create half-truths that are fully actionable under established precedent. Half-truths expose defendants to liability identical to that arising from corresponding pure omission claims, and it makes no meaningful difference whether pure omissions are actionable as omissions or as half-truths. Leidos itself proves the point: there, a single omission causes an affirmative statement to become misleading and is also alleged as a “pure omission.” Leidos will be remanded to resolve the half-truth claim and, on remand, the probability that Leidos will be dismissed, and the amount for which Leidos settles if not dismissed, will not be materially affected by the Supreme Court’s decision. This is not to suggest that certiorari has been improvidently granted. There is virtue in semantic consistency. A clear opinion describing the scope of liability, if any, for pure omissions will contribute to judicial efficiency by eliminating complex briefing over rhetorical distinctions that don’t move the liability needle. As for the doctrinal question presented, the better interpretation of the law is that the relevant text, history, and precedent do not support Rule 10b-5 liability for pure omissions. A decision to the contrary would create substantial tension with Supreme Court precedent and generate unnecessary confusion over the application of the most important civil liability provision of the federal securities laws. The article also examines the potential for pure omission liability arising from the Sarbanes-Oxley Section 906 certification and concludes that neither the Commission nor private parties are likely to prevail on such a claim.
{"title":"Ask Me No Questions and I Will Tell You No Lies: The Insignificance of Leidos before the United States Supreme Court","authors":"J. Grundfest","doi":"10.2139/SSRN.3043990","DOIUrl":"https://doi.org/10.2139/SSRN.3043990","url":null,"abstract":"What if the Supreme Court issued an opinion and no one cared? No one cared who won or lost. No one cared how the question presented was resolved. The prevailing party wouldn’t gain a cent from its victory and the losing party wouldn’t suffer one whit from its loss. Leidos, Inc. v. Indiana Public Retirement System, now pending before the Supreme Court, could be just that sort of case. \u0000Leidos asks whether a “pure omission,” an omission that does not render an affirmative statement false or misleading, is actionable under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. With so much affirmative mandatory and voluntary disclosure in the public domain it is trivially easy for plaintiffs to allege that material omissions create half-truths that are fully actionable under established precedent. Half-truths expose defendants to liability identical to that arising from corresponding pure omission claims, and it makes no meaningful difference whether pure omissions are actionable as omissions or as half-truths. Leidos itself proves the point: there, a single omission causes an affirmative statement to become misleading and is also alleged as a “pure omission.” Leidos will be remanded to resolve the half-truth claim and, on remand, the probability that Leidos will be dismissed, and the amount for which Leidos settles if not dismissed, will not be materially affected by the Supreme Court’s decision. \u0000This is not to suggest that certiorari has been improvidently granted. There is virtue in semantic consistency. A clear opinion describing the scope of liability, if any, for pure omissions will contribute to judicial efficiency by eliminating complex briefing over rhetorical distinctions that don’t move the liability needle. \u0000As for the doctrinal question presented, the better interpretation of the law is that the relevant text, history, and precedent do not support Rule 10b-5 liability for pure omissions. A decision to the contrary would create substantial tension with Supreme Court precedent and generate unnecessary confusion over the application of the most important civil liability provision of the federal securities laws. The article also examines the potential for pure omission liability arising from the Sarbanes-Oxley Section 906 certification and concludes that neither the Commission nor private parties are likely to prevail on such a claim.","PeriodicalId":431402,"journal":{"name":"LSN: Securities Law: U.S. (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127810856","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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