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Showing papers in "Fordham Journal of Corporate & Financial Law in 2003"


Journal Article
Jens Dammann1
TL;DR: In the U.S., corporate internal affairs are governed by the law of the state of incorporation as discussed by the authors, whereas in Germany, the internal matters of a corporation are governed according to the laws of the country in which its headquarters is located.
Abstract: INTRODUCTION Despite some dissenting voices,2 most U.S. scholars agree that the maximization of shareholder wealth is by far the most important goal of U.S. corporate law.3 The same cannot be said with regard to German corporate objectives.4 While scholars have recently noted a global trend towards the maximization of shareholder wealth as the primary goal of corporate law,5 German corporate law continues to attach considerable importance to the interests of other stakeholders.6 Most importantly, German corporate law is designed to serve the interests of employees as well as those of shareholders.7 Under German codetermination law, employees are represented on the boards of corporations, thereby participating in their management.8 This difference between U.S. and German corporate law is closely connected to the countries' respective conflicts of law rules. In the U.S., corporate internal affairs are governed by the law of the state of incorporation.9 Consequently, a corporation can select the corporate law it finds most desirable simply by incorporating in the corresponding state.10 Some scholars have expressed doubt as to whether this system actually serves to maximize shareholder wealth, arguing that the U.S. system allows managers to pick corporate law rules that benefit them, rather than the corporation, at the expense of shareholders.11 These scholars identify a "race to the bottom" phenomenon as states, eager to collect incorporation fees, pass ever more management-friendly rules in an effort to attract corporations.12 Others have criticized this "race to the bottom" theory on the ground that it does not account for the influence of capital markets: Managers have a strong incentive to make a corporation's shares attractive to shareholders, lest capital markets punish the corporation and, by extension, its managers." Regardless of the theories that have developed with regard to this topic,14 one thing has never been in dispute: The state of incorporation doctrine, if applied without exception, does not allow state legislatures to impose rules that would allow workers to benefit at the expense of shareholders. Even if some states adopted such rules, corporations would easily avoid them by reincorporating elsewhere.15 Unlike the U.S., most states in the European Community,16 including Germany, have traditionally adhered to what is known as the "real seat doctrine"17 According to this doctrine, the internal matters of a corporation are governed by the law of the country in which its headquarters is located.18 Thus, a corporation cannot choose the more attractive corporate law of another member state unless it is also willing to move its headquarters.19 Since headquarter relocation costs will usually outweigh the advantages of a more attractive corporate law, corporations usually have no choice but to accept the corporate law of the state where their headquarters are located.20 It is for this reason that Germany has been able to develop its codetermination laws, which allow workers to participate in the management of corporations.21 While shareholders and managers tend to resent codetermination, the real seat doctrine does not allow them to easily avoid the relevant laws by reincorporating elsewhere. Due to recent developments in the law of the European Community, namely the decision of the European Court of Justice ("Court") in Centros Ltd. v. Erhvervs-og Selskabsstyrelsen,22 it is unlikely that the real seat rule will continue to persist in the European Community. It is not surprising that Centros has provoked an avalanche of publications.23 What is surprising, however, is that scholars have all but ignored what may be the single most relevant question in the wake of Centros: Will Germany be able to keep its codetermination laws, thereby ensuring that German corporate law focuses on the interests of workers as well as shareholders?24 The most extensive discussion of the question, in an article by Horst Hammen ("Hammen"), does not exceed three pages. …

15 citations


Journal Article
TL;DR: The USA Patriot Act (USATA) as mentioned in this paper was one of the most prominent anti-money laundering laws in American history, and has been used to thwart organized crime and future terrorist activity.
Abstract: "Bad laws are the worst sort of tyranny." -Edmund Burke INTRODUCTION On October 26, 2001, President Bush signed into law the USA Patriot Act1 ("Act"), which was drafted as a consequence of the attacks on the World Trade Center and the Pentagon only six weeks earlier.2 The Act is divided into ten sections with perhaps the most noteworthy provisions being Title II, "Enhanced Surveillance Procedures"; Title III, "International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001"; Title IV, "Protecting the Border" -dealing with immigration issues; and Title VIII, "Strengthening the Criminal Laws Against Terrorism".3 This Note focuses on the Act's Title III anti-money laundering provisions, its impact on financial institutions, and its potential for thwarting organized crime and future terrorist activity. The Act was rammed through Congress with "only one public hearing and little debate,"4 and was one of the "swiftest-moving bills in federal history."5 It was approved 356-66 by the House of Representatives and 98-1 by the Senate.6 Some of the more important provisions of the Act are as follows: * Expanded federal ability to conduct electronic surveillance and nationwide search warrants. That includes roving wiretaps that allow tapping conversations of an individual no matter what phone he or she uses. And it includes wide latitude to screen computers, including e-mail messages and e-mail address books. * FBI access to private records "to protect against international terrorism." * Detention for as long as a week of immigrants suspected of terrorism or of supporting terrorism without their being legally charged with a crime or immigration violations. The new law also permits deportation of foreigners who raise money for terrorist groups. * A requirement that banks find the sources of money in some large private accounts and that foreign banks detail suspect transactions. * In an effort to appease civil libertarians, the law has a sunset provision-its major provisions expire in 2004 unless extended-and a provision that the justice Department prepare reports on how it is affecting civil liberties.7 Despite the overwhelming support the Act received from Congress, it has already come under harsh criticism by liberals and conservatives alike for unleashing unprecedented powers on government authorities that in some cases have been challenged as unconstitutional.8 The balance between national security and civil liberties has been debated for years, and it seems to have resumed prominence in the conscience of many constitutional scholars.9 To date, the Act has primarily been analyzed and challenged on constitutional grounds for its electronic surveillance provisions'" and its rules with respect to immigrants.11 Perhaps due to the outcry over the civil liberties ramifications of Titles II and IV, the Act's Title III overhaul of U.S. money laundering legislation appears to have been somewhat overlooked. Title III is known formally as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 ("IMLA Act").12 It will have a significant impact on the way financial institutions do business, and it will similarly affect many businesses not traditionally regarded as "financial institutions."13 Banks have long been involved with the federal government in the fight against money laundering through such measures as the filing of currency transaction reports ("CTRs") and suspicious activity reports ("SARs").14 The IMLA Act not only expands the duties of banks in reporting high-risk activities, it also substantially raises the stakes for non-compliance with federal money laundering legislation and increases the scope of businesses now required to participate in anti-money laundering efforts.13 Part I of this Note provides an overview of the crime of money laundering and summarizes some of the important provisions of the IMLA Act. …

10 citations


Journal Article
TL;DR: In this article, the authors examine trends in European corporate governance, which shape the context wherein recent hostile takeover attempts have occurred, and make three contentions about recent European hostile takeovers.
Abstract: The internationalization of capital markets and the decreasing importance of national political boundaries have brought individual domestic economies closer together. With this development, investors from foreign countries increasingly exert their influence on national firms. On the bright side, companies find funds from new and unexpected sources. On the dark side, national companies often lose control to actors in other countries. In this context corporations must begin to learn how foreign corporate shareholders invest and exert their influence. European corporate governance has steadily taken on Anglo-American characteristics. Hostile takeovers exemplify these trends. Traditionally, European corporate boards; did not have to fend off unwarranted bids by a shareholder seeking to purchase or control a corporation. In recent years, however, large established European corporations like Vodafone ArTouch, Mannesmann, Banque National de Paris ("BNP"), Paribas, Societe Generale ("SG"), Telecom Italia, Olivetti, Gucci, Louis Vuitton Moet Hennessey ("LVMH"), Iberpistas, Acesa, FAG, Electricite de France, Fiat, and Montedison have become entangled in hostile takeovers resembling the corporate battles of the United States. Responding to these trends, the European Union ("EU") has attempted to harmonize the corporate laws of its member states. For over twelve years, the EU has attempted to ratify and implement the Thirteenth Directive, whose main purpose is to standardize the rules for corporate takeovers in the EU. This Article examines trends in European corporate governance, which shape the context wherein recent hostile takeover attempts have occurred.1 Specifically, the Article examines shareholder activism, corporate structure in Europe, and the EU's attempts to regulate takeovers.2 This Article analyzes the recent takeover experiences involving: (1) LVMH's 1999-2001 bid for Gucci, with Pinault-Printemps-Redoute (PPR) serving as Gucci's white knight; and (2) BNP's 1999 dual-bid for Paribas and SG. Aside from Gucci, which is incorporated in the Netherlands, all these firms are incorporated in France. LVMH and Gucci are both luxury goods firms, and PPR is a commercial retail group. BNP, Paribas, and SG are all financial institutions. The Article considers two central questions: (1) why have recent European hostile takeovers been so prolonged and antagonistic?; and (2) how have the EU and national governments responded to these takeover attempts? This Article makes three contentions about recent European hostile takeovers. First, the recent takeovers have been prolonged and antagonistic because corporate boards have little experience with hostile bidders. Second, traditional corporate methods of resolving disputes through conciliation fail with respect to hostile bids. Third, attempts by the EU to regulate takeovers will fail to be implemented in the foreseeable future because of political issues.3 Marked by concentrated stockownership and exclusive ranks of executives, traditional European corporate culture resolves its disputes with conciliatory methods such as interlocking boards, meetings, and cross-shareholding arrangements. These methods cannot resolve shareholder-board disputes, however, when there is an unsolicited bid for a corporation. Regarding government response to these hostile bids, this Article argues that state intervention may serve as the only way to resolve shareholder-board disputes and that due to inexperience in resolving these types of disputes, judicial systems in the European courts may fall victim to endless litigation.4 When a dispute arises between a shareholder-acquirer and the board of a target corporation, there has been a tradition of government intervention to resolve such corporate disputes. There is little European jurisprudence on minority shareholder rights or corporate duties in hostile bids. The LVMH-Gucci and BNP-Paribas-SG experiences illustrate that governments must decide between a bidder's rights as a shareholder and a corporate board's efforts to resist the corporate raider's bid. …

8 citations


Journal Article
TL;DR: O'Hagan's critics have argued that the decision suffers from numerous flaws, including misconstruing the relevant statute, misreading the Supreme Court's own precedents, lacking a coherent doctrinal basis for prohibiting insider trading, leaving too many unanswered questions, and creating illogical loopholes in the regulatory scheme; and extending the reach of federal securities laws too far as mentioned in this paper.
Abstract: INTRODUCTION The extent that insider trading should be regulated under the antifraud provisions of the federal securities laws, although not the most urgent issue facing the securities markets in light of the corporate accounting scandals that came to light in 2001-2002 and the passage of the landmark Sarbanes-Oxley Act,2 remains important.3 The proper scope of insider trading regulation also remains controversial, notwithstanding the Supreme Court's 1997 decision in United States v. O'Hagan,4 which upheld the validity of the misappropriation theory of insider trading. Under that theory, "a person commits fraud 'in connection with' a securities transaction, and thereby violates [section] 10(b) [of the Securities Exchange Act of 1934] and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information."5 From the perspective of law enforcement, O'Hagan was a major victory that settled key issues with respect to enforcing anti-fraud insider trading prohibitions.6 Several commentators also expressed support for the decision.7 However, this trickle of published support for the O'Hagan decision has been swamped by a flood of critical articles.8 Critics have argued that the decision suffers from numerous flaws, including: misconstruing the relevant statute9; misreading the Supreme Court's own precedents10; lacking a coherent doctrinal basis for prohibiting insider trading11; leaving too many unanswered questions12; creating illogical loopholes in the regulatory scheme; and extending the reach of federal securities laws too far13. Some representative statements from this body of criticism illustrate the lack of admiration for the decision. One author wrote that the Supreme Court "ducked, misunderstood, or mishandled virtually every issue presented by the case."14 Another stated that the O'Hagan decision worked a "vast, unwitting, and wholly unwarranted expansion of Rule 10b-5";15 while yet another held the view that the misappropriation theory is "foolish in enforcement and absurd in private actions . . . [and] underestimates the problems with the Court's acceptance of the theory."16 I do not share this assessment of O'Hagan. The Supreme Court's adoption of the misappropriation theory is consistent with the statute and relevant precedent, rests on a reasonable policy foundation, does not leave open too many unanswered questions or create significant loopholes in the regulatory scheme, and does not extend the reach of the federal securities laws too far. In sum, O'Hagan's critics have overstated their case. The purpose of this comment is to restore balance to the commentary on O'Hagan. Part 1 of this Comment presents a brief overview of the development of the misappropriation theory of insider trading prior to O'Hagan; Part 2 summarizes the O'Hagan litigation; Part 3 responds to a number of arguments advanced by O'Hagan's critics, focusing on three themes: the alleged lack of a coherent doctrine supporting the misappropriation theory; the questions left open by the decision, and the asserted loopholes created by the Court.17 I. HISTORY OF THE MISAPPROPRIATION THEORY OF INSIDER TRADING PRIOR TO O'HAGAN "Theories" of insider trading exist because insider trading is not expressly prohibited in the securities statutes, except in the limited context of section 16(b) of the Exchange Act.18 Section 16(b), which is not an antifraud provision, generally requires corporate officers, directors, and 10% owners to give back to the corporation any profits made (or losses avoided) on trading in that company's securities within any six-month period.19 Proof that the person trading engaged in deception or was aware of any material non-public information is not required.20 The argument has been made, but never accepted by any court, that section 16 should be the exclusive means of addressing insider trading.21 Two theories have been used to prosecute insider trading under section 10(b) and Rule 10b-5: the classical or traditional theory, and the misappropriation theory. …

8 citations


Journal Article
TL;DR: In this paper, the authors make some recommendations for the scope of extraterritorial subject-matter jurisdiction by suggesting modified and narrowed effects and conduct tests, and they also affirm the proposition that Congress should grapple with the issue and provide the judiciary with clear guidance as to the proper reach of the anti-fraud provisions.
Abstract: Despite the usual presumption for the territorial application of securities laws, U.S. courts have applied domestic antifraud provisions extraterritorially to transactions in other countries, justifying its actions as necessary to protect U.S. investors and the integrity of U.S. markets. The current approaches of U.S. courts, however, have some problematic features. The scope of federal jurisdiction is inconsistent and expansive, and this results in conflicts with other countries and the potential for redundant and unnecessarily costly systems of overlapping regulations. Because courts are not well suited to analyze the various delicate issues related to the application of antifraud rules, this Article affirms the proposition that Congress should grapple with the issue of extraterritoriality and provide the judiciary with clear guidance as to the proper reach of the anti-fraud provisions. Moreover, believing that the current effects and conduct tests of the courts give us practical approaches to decide the reasonable scope of extraterritoriality, this Article makes some recommendations for the scope of extraterritorial subject-matter jurisdiction by suggesting modified and narrowed effects and conduct tests. INTRODUCTION As securities markets have become increasingly globalized in recent years, the growth of transactions in cross-border securities raises an issue of the regulation of transnational securities fraud. Although surging capital across jurisdictional boundaries seems to suggest that national borders are artificial constructs, this circumstance does not comport with regulatory reality. It is an internationally recognized principle that the power to prescribe and enforce securities laws is territorial,1 and most modern securities markets are regulated on a national basis.2 The securities regulations of most countries, in fact, reach only some transactions and not others, and the same may be said of U.S. securities laws.3 Viewed differently, however, securities laws are hardly territorial at all because no country formulates the content of its securities laws without considering the practices of its sister countries and the extraterritorial effects of their laws.4 In regard to the limits of a nation's power to unilaterally regulate conduct that occurs outside of its borders, there is general agreement that laws may have some extraterritorial reach.5 Enforcement of U.S. securities laws against securities fraud produces special problems when persons alleged to have violated the laws are foreign or when securities transactions that are allegedly tainted with fraud are foreign in nature.6 While the U.S. Securities and Exchange Commission (the "SEC" or "Commission") has taken a number of steps to define the scope of disclosure requirements with respect to foreign companies and conduct that occurs primarily abroad,7 the extraterritorial reach of the antifraud provisions remains a matter for the courts to resolve.8 Despite the usual presumption for the territorial application of securities laws,9 U.S. courts have applied domestic antifraud provisions extraterritorially to transactions in other countries, justifying its actions as necessary to protect U.S. investors and the integrity of U.S. markets.10 The current approaches of U.S. courts, however, have some problematic features. The scope of federal jurisdiction is inconsistent and expansive, and this results in conflicts with other countries and the potential for redundant and unnecessarily costly systems of overlapping regulations. Given the possibility of being sued based on the extraterritorial application of U.S. antifraud provisions, participants in cross-border transactions need an identifiable standard to guide their actions. Based on these problematic features of the current extraterritorial subject-matter jurisdiction, this Article reassesses the current approaches of U.S. courts and seeks to determine what U.S. policy should be toward the regulation of cross-border securities fraud. …

7 citations


Journal Article
Abstract: INTRODUCTION For numerous business and legal reasons, business entities, both large and small, are developing complex document retention policies1 in order to protect themselves and their bottom line.2 While these policies may have both economic and legal benefits, a poorly developed or mismanaged policy may lead to violations of or eliminate protection from the obstruction of justice laws of the United States, particularly 18 U.S.C. sections 1503, 1505, 1512, and the newly enacted sections 1519 and 1520, legislating the procedure for destruction of documents.3 Such was the case for Arthur Andersen LLP ("Andersen"), formerly one of the Big Five4 accounting firms of the United States, after the firm was indicted on March 14, 2002, and subsequently convicted on June 15, 2002,5 on one count of obstruction of justice for destroying documents related to the firm's work for the Enron Corporation ("Enron").6 Wrongful destruction of documents can lead to penalties in both civil and criminal cases. In civil litigation, document destructioncan lead to an adverse inference before the jury as a penalty for spoliation.7 In the criminal context, and pertinent for the present discussion, destroying documents can lead to a charge of obstruction of justice.8 Penalties in both the civil and criminal contexts can have harsh effects on the party who destroys documents: losing a jury trial because of the adverse inference or being fined and imprisoned as a criminal punishment. Corporate senior management must deal with many questions regarding whether the company may destroy documents, when the corporation is allowed to destroy the documents and how the destruction should occur. To avoid legal problems resulting from the destruction of documents, a document retention policy must be routinely followed and diligently maintained.9 All employees must know what to do with their documents and how to eliminate unnecessary documents. Likewise, all supervisors must clearly state and remind their employees of how the policy works. These techniques will ensure that a properly designed policy will be consistently applied. In Andersen's case, the accounting firm's document retention policy states that their employees are only required to retain final work papers supporting client audits and should destroy drafts, notes and memos.10 If litigation is anticipated, however, all documents related to such litigation are to be retained.11 Possible factors leading to the obstruction charge against the firm include the fact that the firm's employees did not adhere to this policy correctly, this policy's ambiguity or the employees simply chose to ignore it.12 Part I of this Article will discuss document retention policies and how they are established. Part II of this Article will present an overview of the three older federal obstruction of justice laws that are applicable to document destruction-sections 1503, 1505 and 1512(13)-and the two new obstruction laws that were drafted to combat document destruction itself.14 Part III will focus on Andersen's document retention policy and the firm's trouble due to the Enron bankruptcy. Part IV will analyze the competing purposes of document retention policies and federal obstruction of justice laws. Finally, this Article will conclude that document retention policies are necessary for business purposes and can be reconciled with the federal laws as long as the policy is clear, consistently applied, well maintained and suspended when the potential for litigation or a federal investigation arises. I. DOCUMENT RETENTION POLICIES Companies, firms, and partnerships produce a multitude of documents during their ordinary course of business. It is impossible to keep all of these documents because of space limitations and storage costs.15 Therefore in an effort to manage their paperwork and to deal with excess and unnecessary documents, companies have turned to document retention policies. …

6 citations


Journal Article
TL;DR: The third annual A.A. Sommer, Jr. Corporate Securities & Financial Law Lecture as mentioned in this paper was held at Fordham Law School in 2010, with the theme "A.A., A.X.
Abstract: WELCOMING REMARKS DEAN TREANOR: Good evening, everyone. My name is Bill Treanor. I am the Dean of Fordham Law School, and I would like to welcome you. This is, as you know, the Third Annual A.A. Sommer, Jr. Corporate Securities & Financial Law Lecture. I can tell you, as the Dean of the Law School for four months, I am very aware of what a busy place this is and that this lecture hall is in use virtually every night. But tonight's event stands out. Tonight's event is a moment of great distinction, and I, like the rest of you, am very excited to be here tonight. Our lecturer is, of course, Harvey Goldschmid, Commissioner of the Securities and Exchange Commission ("SEC"), and it is a real privilege to have Commissioner Goldschmid speak to us tonight. He is a giant in legal academia. He is an award-winning law professor. At the SEC he is at the very heart of the securities world, and it is a privilege for us to have him here tonight. I would like to acknowledge the law firm of Morgan, Lewis & Bockius ("Morgan Lewis") for its role in tonight's events. The firm has been extraordinarily helpful to the Law School. Through its support, we have started a Corporate Securities and Financial Law Center that is now really taking off under the directorship of Professor Jill Fisch. It is one of the most exciting developments at the Law School in my tenure as a faculty member and now as Dean, and I am grateful to the firm for its support, and I am particularly grateful for its generosity in supporting the lecture. This again is our third annual A.A. Sommer, Jr. Lecture. It has become in a very short period of time one of the most central contributions to the academic world that the Law School makes. It is a tribute to A.A. Sommer, Jr., who was a giant in the field of securities law. As Commissioner Goldschmid was saying to me earlier tonight, this lecture series is really a very fitting tribute to him. Tonight we are joined by Mr. Sommer's widow, Starr Sommer, and his daughter, Susie Futter. We are delighted that you are here tonight, and we are delighted that we could pay tribute to A.A. Sommer, Jr. I am now going to turn matters over to one of our most distinguished alumni, John F.X. Peloso, Fordham class of 1960 and also one of the great resources of our Corporate Center. Through his energy and commitment, it has really taken off, and he is also one of the great stars of our adjunct faculty. We appreciate here at the Law School his loyalty, his commitment, and his vision. The Corporate Center, I think, is going to become a major player in the world of corporate law and the world of securities law. It is going to be and has become a real brain trust. So thank you, John, for helping make it possible. John is currently Senior Counsel in the New York office of Morgan Lewis. He is a renowned trial lawyer whose career has been dedicated to the many aspects of securities litigation. Following graduation from our Law School, where he was managing editor of the Fordham Law Review, he served as law clerk to Judge McGowan of the U.S. District Court for the Southern District of New York. From 1961 to 1965 he served as an Assistant U.S. Attorney in the Southern District of New York, and from 1970 to 1975 he was chief trial counsel for the New York Regional Office of the Securities and Exchange Commission. He has been a leader of the organized bar, holding important positions in the Business Law and Litigation Sections of the American Bar Association. He is presently on the panel of arbitrators for the New York Stock Exchange, the National Association of Securities Dealers, and is a distinguished neutral of the CPR Institute for Dispute Resolution. As I said, John Peloso is currently Senior Counsel at Morgan Lewis, and he was originally brought to the firm by A.A. Sommer, Jr. So it is very appropriate that I now turn matters over to him. PROFESSOR PELOSO: Thank you, Dean Treanor. …

6 citations


Journal Article
TL;DR: In the landmark decision of SEC v. Texas Gulf Sulphur Co as discussed by the authors, the United States Court of Appeals for the Second Circuit found that an elemental fraud had been committed when corporate insiders profited from securities transactions at the expense of an unwary and uninformed public.
Abstract: "We have always known that heedless self-interest was bad morals; we know now that it is bad economics." I. INTRODUCTION In the landmark decision of SEC v. Texas Gulf Sulphur Co.,2 the United States Court of Appeals for the Second Circuit found that an elemental fraud had been committed when corporate insiders3 profited from securities transactions at the expense of an unwary and uninformed public.4 The court noted that trading by corporate insiders on the basis of material non-public information frustrated "the justifiable expectation of the securities marketplace that all investors trading on impersonal exchanges have relatively equal access to material information."5 But is this expectation realistic? Certainly not all traders in the impersonal marketplace have the same ability, background, knowledge or sophistication in business and financial matters, nor do they have the same access to material corporate information.6 The ordinary day trader cannot call the chief financial officer of a major public company and chat with her about the affairs of the business, as can the securities analyst for a major brokerage house.7 Some traders have large, well-paid, sophisticated and talented staffs to study and investigate the intricacies of various businesses and industries.8 Some traders are more insightful, more skillful, and frankly better investors than others.9 Inequality among investors is a basic reality of the marketplace. To attract and keep investors over the long term, however, securities markets must be perceived as taking place on a level playing field, with rules (securities laws) and referees (the Securities and Exchange Commission ("SEC")) to keep the game fair.10 To support this objective, securities laws have evolved to address the uneasy tension between marketplace confidence and the legitimate needs of corporate insiders to purchase and sell their company's securities.11 The reality is that corporate insiders will almost always have better insight into the affairs of their employers than will the average investor.12 Thus, the mere possession of material non-public information is not, in and of itself, a bar to trading.13 All learning on the bedrock law of insider trading flows from this principle. II. HISTORICAL PERSPECTIVE Insider trading has not always been limited by law. Prior to the New Deal reform legislation of the 1930s, specifically the Securities Act of 1933(14) ("Securities Act") and the Securities Exchange Act of 1934(15) ("Exchange Act"), legal prohibitions against trading by corporate insiders were either non-existent, covered by state securities laws, or founded on common law theories of fraud.16 Trading on United States securities markets, which dates from the earliest days of the republic, was an open, unregulated affair.17 As trading was predominantly limited to select groups of merchant and investment bankers, regulation was largely self imposed.18 The development of the impersonal securities market began gradually, but it is clear that it dates at least from the period after the Civil War.19 The growth of railroads and the large industrial enterprises of the industrial revolution necessitated obtaining capital from greater segments of the general population than just the big city investment and merchant bankers.20 Thus, by the turn of the twentieth century, securities markets had grown, largely unregulated by any statutory or administrative oversight.21 Just as a downhill skier gains speed, the pace of trading grew faster as greater numbers of investors, fueled by an increasing prosperity, flocked to the securities markets.22 By the 1920s "playing the market" had become a national obsession.23 As the obsession turned into the nightmare of the stock market crash of 1929, and the country slid from prosperity through recession to economic depression, some perspectives began to emerge from the debacle. One such perspective that endures to this day is that if confidence and trust are to be restored to the securities markets, the investing public must correctly perceive that the securities markets are indeed a level playing field, and that investors privy to information not available to the investing public will not use that information to gain an advantage. …

5 citations


Journal Article
TL;DR: The lack of "really useful and unambiguous authority applicable to concrete problems of executive power as they actually present themselves" is certain this paper, but some gaps and uncertainties still remain.
Abstract: INTRODUCTION Certain aspects of the Executive Branch of the United States of America's ability to freeze the assets of foreigners have been established through International Treaties and U.S. laws but some gaps and uncertainties remain. Executive Branch actions that effectively take the property of U.S. citizens are not constitutionally pure from the perspective of limiting citizens' rights.1 Many questions exist, but the lack of "really useful and unambiguous authority applicable to concrete problems of executive power as they actually present themselves" is certain.2 On September 11, 2001 ("Sept. 11"), the world witnessed destruction3 wrought by people who for years have been relatively unhindered in pursuit of their terrorist goals.4 The members of Al Qaeda who committed this atrocity attended schools in the West, gathered information, acquired plane tickets, and trained in camps outfitted with the tools of war.5 All of this plotting, planning, and execution required funding.6 Many speculate that Osama Bin Laden ("Bin Laden") provided the seed capital to begin the Al Qaeda terrorist enterprise.7 Indeed, without Bin Laden, the Taliban regime may have been temporary.8 Bin Laden established a corporation in the mid-1990s comprised of shell companies, whose diverse holdings included a currency trading firm, an import-export company, a gem dealing business, a construction firm, and a commodities trading firm.9 As the terrorist enterprise spread, it received additional financial backing and the corporation diversified its revenue streams.10 Both legitimate charities and charitable-front groups in cities around the world collected dollars to funnel back to the enterprise.11 Al Qaeda's shell company achieved results beyond any insider's wildest dreams. Even the CEO, Bin Laden, was amazed at the devastation four aircraft could produce.12 Perhaps many investors were happily surprised while others were shocked by the developments. Whatever the case, it became time for an involuntary bankruptcy and a quick winding down of operations.13 On September 23, 2001, the U.S. Government announced its efforts, in conjunction with other nations, to freeze assets in brokerage and bank accounts around the world which were believed to be sustaining terrorist groups and operations.14 The unimpeded flow of currency into U.S. financial markets is vital for capital formation, efficient market operation, and investor confidence.15 The vibrant U.S. economy is dependent on both businesses regularly tapping into, and individuals investing in, the U.S. markets today for returns tomorrow.16 The appearance of arbitrary law enforcement, coupled with ambiguous adjudication of controversies, spurs investor fear and uncertainty.17 The possibility for abuse of the terrorist asset freezing laws or uncertainty over future executive activities may lead hesitant foreign investors to avoid investing through U.S. financial institutions in the future.18 In the past, the Executive Branch froze the assets of sovereign nations and of individual nationals of these sovereign nations for political reasons.19 Under the new counter-terrorism initiatives, there is the possibility that non-terrorists, including foreigners and U.S. citizens, may become targets of asset freezing. Fortunately for the U.S., investors have few capital market substitutes because nearly all countries are engaged in the current terrorist asset freeze.20 Although investors may or may not be terrorists, there remains the possibility that innocent investors may fear assets will be frozen without due process. The Executive Branch cannot operate effectively under burdensome limitations, but neither can the Executive have absolute power to freeze assets at will. "The example of such unlimited executive power that must have most impressed the forefathers was the prerogative exercised by George III, and the description of its evils in the Declaration of Independence leads me to doubt that they were creating their new Executive in his image. …

5 citations



Journal Article
TL;DR: In this paper, the potential financial risks to the consumer and account holding financial institutions from aggregation are discussed, with the conclusion that no legislative or regulatory action is necessary at this time with respect to liability issues.
Abstract: INTRODUCTION When a consumer thinks about using a financial account aggregation site, one concern is whether or not such use is safe. A related question is who has responsibility for unauthorized transactions or other fraud-related problems occurring as a result of a consumer providing his account information, usernames, and personal identification numbers ("PINS") or other access codes to the aggregation site. An additional question is, who is responsible for costs and expenses incurred by the consumer as a result of actions he takes based upon inaccurate, incomplete or obsolete information (bad account data) provided at the site. This Article explores the potential financial risks to the consumer and account holding financial institutions ("AHBanks") from aggregation. It also analyzes the current state of the law and contractual relationships relevant to such risks. It concludes that: (1) with respect to unauthorized transactions, parties other than the consumer appear to bear the ultimate liability for financial losses in most situations and parties other than the AHBank appear to bear the ultimate responsibility for financial losses in a number of situations, and (2) with respect to losses resulting from reliance upon bad account data, the consumer will probably have a more difficult time shifting losses to either the AHBank or another party. The question of whether legislative or regulatory action is necessary at this time with respect to liability issues is then addressed, with the conclusion reached that at the current stage in the evolution of aggregation services such action appears to be premature. The following framework is used in reaching these conclusions. First, the question "What is financial account aggregation?" is addressed in Part I. Part II identifies and discusses potential financial liabilities connected to aggregation, specifically those resulting from the display of inaccurate, incorrect, or incomplete information and those resulting from unauthorized transactions. Part III follows with an analysis of who has liability for unauthorized transactions, beginning with a discussion of the basic rules ("SIMPLE ANSWERS") governing liability in those simple situations where an unauthorized transaction occurs and the consumer has not used an aggregation site. After conclusions are reached for the simple situations, Part IV continues the analysis by adding one additional factor to those situations already discussed: the consumer signs up for aggregation. It analyzes whether and how the previously defined simple answers change once the existence of the consumer's relationship with an aggregation site is added to the mix. After this discussion, the author concludes that significant concerns over consumer or AHBank liability for unauthorized transactions as a consequence of the consumer arranging for aggregation are premature at this time. Consequently, Part V offers some suggestions on why such concerns exist and why the evolution of aggregation over the past couple of years should have diminished those concerns. This Article concludes that at this stage in the evolution of aggregation services, legislative/regulatory action with respect to liability issues is premature and recommends that no such action be taken at this time. It points out that where theoretical problems are "solved" by new legislation/regulations before problems actually develop, the solutions may be unnecessary or result in unanticipated negative consequences. It recommends that (1) the financial services industry be allowed to exercise its judgment in developing the aggregation product under the existing regulatory framework and (2) regulators continue to monitor business practices and developments in connection with the aggregation product and take regulatory action only if the need is actually demonstrated. I. WHAT IS FINANCIAL ACCOUNT AGGREGATION? In order to answer the questions identified above, one must understand what aggregation is and who the participants are. …

Journal Article
TL;DR: In the early 1990s, Long-Term Capital Management and its partners, considered geniuses on Wall Street, suffered their downfall when interest rates took a turn for the worst and the company that seemed foolproof faced financial disaster as discussed by the authors.
Abstract: NOTES INTRODUCTION In recent years, a recurring trend has emerged in the United States financial markets: following a period of seemingly unprecedented market prosperity, a select group of perceived heroes has been transformed almost overnight from being celebrated trendsetters into reviled scapegoats.1 In the 1980s Michael Milken was the revolutionary junk bond king.2 Milken was an innovator,3 but faced his demise with his infamous cohort Ivan Boesky after being jailed for using insider information.4 Thereafter, in the early 1990s, Long-Term Capital Management and its partners, considered geniuses on Wall Street, suffered their downfall when interest rates took a turn for the worst and the company that seemed foolproof faced financial disaster.5 Today there is a new breed of evil genius on Wall Street, the financial analyst. Financial analysts are so called because the demise of both the Internet stocks and Enron came with little or no warning from these "experts." The result being that the integrity of "name" financial analysts was undermined in the eyes of the public,6 which in turn made Congress take action by initiating investigations into Wall Street's financial analysts.7 In an attempt to mitigate damages the industry responded with self-regulation.8 Broker-dealers instituted internal procedures that placed restrictions on analysts whom they employ, and the Securities Industry Association ("SIA") published a guide for analysts and broker-dealers alike.9 However, after the Internet bust left many asking questions,10 the colossal collapse of Enron, when again analysts failed to recognize problems, provoked the industry regulators to take action. In February 2002, the Self Regulatory Organizations ("SROs")11 entered the fray,12 making regulatory rule proposals to the Securities and Exchange Commission ("SEC"). The National Association of Securities Dealers ("NASD") proposed a new rule, 2711, and the New York Stock Exchange ("NYSE") proposed amendments to its Rule 472 (Communications with the Public).13 To put some realism into the severity of the situation, , more than ten articles relating to the SRO proposals appeared in the Wall Street Journal alone in the month following the publication of the proposals.14 Moreover, shareholders have brought suits against analysts, which until now have been dismissed.15 The culmination of the backlash occurred on April 9, 2002, when Eliot Spitzer, the attorney general for New York State, won a court order, "forcing Merrill Lynch & Co. to overhaul its research [procedures] . . . ."16 Spitzer's inquiry has already moved beyond Merrill Lynch.17 This Note will respond to the SROs' proposed rules. Part I will review the traditional role of securities analysts. Part II will provide a review of the many conflicts these analysts face. Part III will provide a review of the new rules and their attempt to address each of the conflicts analysts face. Finally, Part IV will analyze these proposed rules, for better or worse. I. THE TRADITIONAL ROLE OF THE SECURITIES ANALYST Generally, a financial analyst is a "person in a brokerage house, bank trust department, or mutual fund group who studies a number of companies and makes buy or sell recommendations on the securities of particular companies and industry groups."18 Basically, analysts review public information in order to make buy or sell recommendations.19 An analyst will also "actively seek out bits and pieces of corporate information not generally known to the market for the express purpose of analyzing that information . . . ."20 More specifically, the analyst will review financial information, and gather both qualitative and quantitative information.21 An analyst will collect earnings data, information about federal actions, interest rates and social and economic trends.22 Analysts must review this information for current and future expectations, compare it to the industry and then make future predictions while balancing these predictions against future risks like market risk or cyclical factors. …

Journal Article
TL;DR: Corporate lawyers are becoming attractive targets of accountability, in addition to accountants and business advisors, when a business runs afoul of the law as discussed by the authors, and the new mandate of corporate lawyers in light of recent corporate scandals and the enactment of the Sarbanes-Oxley Act has been discussed.
Abstract: "Until we see a CEO and general counsel march off together-for a long, uncomfortable and no-country club sentence-capitalism is at risk, because people are losing confidence." INTRODUCTION In just a brief period of time, a growing list of accounting scandals have shaken public and investor faith in corporate America, while simultaneously triggering the nose-dive of the stock market.1 In light of the string of recent corporate financial crisis events that have transpired, the collapse of the Enron Corporation, the overstatement of WorldCom's earnings by over $3.8 billion,2 and its subsequent corporate meltdown, one question remains lingering: where were the corporate lawyers? Lawyers, publicly perceived as having "deep pockets," are becoming attractive targets of accountability, in addition to accountants and business advisors, when a business runs afoul of the law.3 This Note will discuss the new mandate of corporate lawyers in light of recent corporate scandals and the enactment of the Sarbanes-Oxley Act ("Sarbanes-Oxley").4 Part I will highlight the general public dissatisfaction with the legal profession as a result of corporate lawyer involvement with, and lack of disclosure of ongoing unethical corporate behavior. Part II will compare the traditional understanding of the American corporate lawyer's role as that of the governing class, with those scholars who have made significant contributions to the field of business ethics, including Tom Dunfee, Tom Donaldson and Tim Fort. Part III will discuss the enactment of Sarbanes-Oxley as a Congressional mechanism of expanding the scope of corporate lawyer liability when corporate lawyers fail to disclose a corporate client's unethical conduct. Part IV will discuss the newly mandated role of the corporate lawyer in light of Sarbanes-Oxley, and how Congress is beginning to redefine such role to comport with traditional American governing class notions and ideologies of business ethics. The conclusion will highlight that as a result of the enactment of Sarbanes-Oxley, there will become an inevitable resurfacing of the tension between the corporate lawyer's role as defender of common good and communal values, as evidenced by the traditional understandings of governing class and business ethics, and the presently accepted role of the corporate lawyer as that of hired-gun. I. CORPORATE LAWYER INVOLVEMENT IN RECENT CORPORATE SCANDALS The amount of negative publicity surrounding the role corporate lawyers played in the Enron debacle has fueled public distrust with the corporate legal profession.5 Highly publicized transaction work of blue chip law firms, such as Vinson & Elkins and Kirkland & Ellis, has forced the issue of a corporate lawyer's duty to disclose corporate wrongdoing into the spotlight.6 From 1997 through 2001, Vinson & Elkins handled transactions involving off-balance sheet Enron partnerships that are now the focus of the dispute surrounding Enron's collapse.7 Kirkland & Ellis did not represent Enron, but the firm faces lawsuits from shareholders and investors who allege that these off-sheet partnerships consisted of sham transactions and parties created to conceal Enron debt.8 While the public has a long-term documented distrust of the legal profession,9 the fallout of recent corporate entities has made, quite predictably, the public, particularly the government, more willing to hold corporate lawyers accountable for failing to disclose material information implicating corporate agents of corporate wrongdoing.10 Against this backdrop of public hostility towards lawyers, there exists a body of ethical codes, promulgated primarily to maintain public confidence in the legal profession.11 The underlying goals of these codes it to instill a mechanism of self-regulation, far removed from federal government policing, whereby disciplinary measures are instilled to ensure that the public is protected from unethical practitioners. …

Journal Article
TL;DR: In 2003, the Securities and Exchange Commission (SEC) proposed two rules that required open-end and closed-end investment companies to disclose their proxy voting policies and procedures as well as actual votes cast relating to portfolio securities they hold.
Abstract: INTRODUCTION On several recent occasions, Harvey Pitt, then acting Chairman of the Securities and Exchange Commission ("SEC"), discussed the importance of proxy voting disclosure by investment advisers and mutual funds to ensure that such fiduciary obligations are performed in the best interests of their clients/shareholders1 On September 20, 2002, the SEC acted on Chairman Pitt's concerns by introducing two proposals2 One proposal required open-end and closed-end investment companies to disclose their proxy voting policies and procedures as well as actual votes cast relating to portfolio securities they hold3 The other proposal required registered investment advisers (excluding smaller advisers4) that exercise voting authority over client proxies to adopt and implement proxy voting policies that meet certain fiduciary standards and to make certain disclosures to clients concerning the advisers' proxy voting record5 On January 23, 2003, after reviewing the most comment letters in recent SEC rule-making history, the SEC approved the two proposals, with minor modifications6 Unfortunately, while providing no practical benefit to investors in their investment decision-making process, these new rules effectively impose onerous and costly obligations on funds and their advisers In addition, as pointed out by one investment management company in a letter to the SEC, [T]hese proposals are inconsistent with the concept of a mutual fund whereby individual investors pool their investments into a common vehicle and delegate investment management and administration to the fund's investment manager and corporate oversight to the fund's Board of Directors The mutual fund vehicle was not intended to be a substitute for, or operate as, a separately managed account for each investor In the latter case, the investor receives individual advice on a portfolio of securities and has beneficial ownership in each of those securities As a result, the investor also has the right to direct the voting of the proxies of each company held in that portfolio7 I BACKGROUND Federal securities laws and regulations do not currently regulate how investment advisers vote proxies on behalf of clients The sec has previously considered the issue of proxy voting disclosure on two separate occasions (in 1971 and 1978), but ultimately withdrew the proposed rules8 However, as former Chairman Pitt noted, [A]n investment adviser must exercise its responsibility to vote the shares of its clients in a manner that is consistent with the general antifraud provisions of the Investment Advisers Act of 1940, as well as its fiduciary duties under federal and state law to act in the best interests of its clients9 Despite these fiduciary standards, former Chairman Pitt, together with certain labor and socially responsible investing organizations, pressed for explicit regulation of mutual fund and investment adviser proxy voting activities10 In the Investment Company Proxy Release, the sec determined that the required disclosure of a fund's proxy voting policies and actual votes is intended to enable "shareholders to monitor their funds' involvement in the governance activities of portfolio companies" which, in turn, will encourage funds to become more engaged in portfolio company governance activities11 The sec's expectation is that increased shareholder activity with respect to mutual funds can have a potential "dramatic impact on shareholder value" and the value of capital market investors at large12 However, except for citing statistics which demonstrate the growth and widespread popularity of mutual funds13, the sec failed to set forth specific facts supporting these assertions Strikingly, the sec did not proffer any evidence that funds and investment advisers vote in a manner that undermines the value of a portfolio company On the contrary, fund advisers have every reason to vote in a manner that will enhance the value of portfolio companies …


Journal Article
TL;DR: In this paper, the authors address the opportunities and risks General Counsel will face if Multidisciplinary Partnerships (MDPs) enter the U.S. marketplace and provide recommendations for how General Counsel should prepare for the possibility of MDPs.
Abstract: INTRODUCTION This Article is not about whether or not Multidisciplinary Partnerships (MDPs)1 should be introduced into the United States marketplace, nor is it concerned with predicting if MDPs will actually be introduced into the United States. Instead, this Article addresses what could or should happen to the role of General Counsel if MDPs are introduced into the United States. Will the role of General Counsel be affected? What ought the role of General Counsel be? How should General Counsel prepare for the introduction of MDPs? In sum, this Article addresses the opportunities and risks General Counsel will face if MDPs enter the U.S. marketplace and provides recommendations for how General Counsel should prepare for the possibility of MDPs. Is asking "what could happen if" a useless exercise? It did not seem so when I was doing this research back in April 2001. At that time, it appeared to many professionals that MDPs were inevitable. An "MDP phenomenon" was already pervasive in the United States despite the fact that the Bar had not sanctioned MDPs.2 Moreover, the U.S. marketplace was feeling pressure from other countries and undergoing changes that indicated U.S. law firms and Professional Service Firms (PSFs) would not be competitive if MDPs were not formed.3 A great deal has changed, however, in the past eighteen months. Now, after the collapse of Enron and WorldCom, the movement towards MDPs is less intense and more questionable.4 The collapse of Enron, however, does not make the questions this Article addresses moot. In fact, it is disasters like Enron, WorldCom, and even the terrorist attacks of September 11 that prove that we should prepare for possibilities and what-ifs. The corporate world, in response to Enron, is doing just that by passing laws (e.g., the Sarbanes-Oxley Act), forming task forces on Corporate Responsibility, and urging companies to adopt a variety of "best practices" in corporate governance.5 No one wants to be caught off-guard again. Hence the topic of this Article: General Counsel should prepare for the possible introduction of MDPs6 so that they can protect and enhance their role within the companies that they work. I began this project in the spring of 2001 with the following three theories: Theory #1: Companies that hire MDPs could benefit from having an MDP Quarterback, a point-person to manage service projects by MDPs and guard against the risks they pose such as conflicts of interest, lack of lawyer independence, breach of client confidentiality, damage to the legal profession's reputation, and the unauthorized practice of law. Theory #2: General Counsel are uniquely positioned to take on the MDP Quarterback role. Theory #3: If General Counsel do not seize the opportunity to expand their role and influence, the introduction of MDPs could jeopardize General Counsel's control over and influence on the legal and business work they perform for their clients. To test my theories, I began by researching what other scholars had written on the topic of MDPs and General Counsel. Given the importance of General Counsel within the legal profession and the attention drawn to the MDP topic back in spring 2001, I was surprised to find very little written on the subject of my Article.7 Specifically, I found only five sources that even remotely addressed the subject of how the introduction of MDPs into the United States may affect the General Counsel's role.8 Therefore, I reviewed sources that addressed the two topics separately and then I gathered primary research. I conducted eighteen personal telephone interviews (averaging about one hour in length) with twelve General Counsel, one Associate General Counsel, one Vice President of Legal,9 three Professional Service Firm Managers,10 and one Chief Financial Officer.11 The sample is small,12 and therefore anecdotal. As other scholars have claimed in the past about similar sample sizes and methods, however, this research still "provides a useful start for an analysis"13 of the effect MDPs could and should have on the role of General Counsel. …

Journal Article
TL;DR: In this paper, the authors discuss the conflict between the goals of bankruptcy law and the problems of consumer privacy present in e-commerce, which does not generally exist in brick and mortar businesses.
Abstract: INTRODUCTION Between the Internet bubble burst1 and the current economic recession,2 corporate bankruptcy filings are increasing.3 Sales of substantially all of the assets of companies that have opted to close their doors or exit a particular line of business are also increasing." Of course, the creditors of these companies are desperate to maximize their recoveries.3 None of this is particularly surprising. However, a new problem has arisen in the cases of e-commerce companies seeking to liquidate their assets -their privacy promises to users could prevent the sale of customer lists compiled by the now floundering Internet companies. The sale of customer lists is not a new method to increase the capital available to failing companies.6 However, the nature of the contact between consumer and retailer has changed with the advent of e-commerce.7 Moreover, the manner in which customer lists were compiled in the past and the way they are compiled by Internet companies today differs greatly.8 The terms under which such information is collected has also changed.9 Because of these changes in the interactions between buyers and sellers, all customer lists are not treated equally when a company chooses to sell its assets due to bankruptcy or failure.10 This Note further explores this conflict. Part I provides an overview of the goals of bankruptcy law and presents the relevant statutes, in both the brick and mortar and Internet business contexts. The section concludes that the goals of bankruptcy law favor the sale of customer lists. Part II defines the term customer list, discusses the use and sale of customer lists for both traditional brick and mortar businesses" and Internet retailers, explains the current legal protections available to e-commerce customers, and considers policy concerns about data privacy and Internet commerce. Part II concludes that there exists a clear conflict between the treatment of customer lists for brick and mortar businesses and e-commerce businesses. Part III discusses the conflict between the goals of bankruptcy law and the problems of consumer privacy present in e-commerce, which does not generally exist in brick and mortar businesses. Specifically, the discussion focuses on the seminal Toysmart case and its consequences on other Internet businesses and concludes that while the Toysmart case has caused many Internet retailers to change their policies, the problem has not been permanently resolved. No one has addressed the differing outcomes possible between brick and mortar and Internet sales. Part IV provides a discussion of currently proposed and pending legislation in the area of e-commerce privacy. This section concludes that while the bills under consideration may resolve the privacy issues of Internet business customers, they will not resolve the fact that different outcomes occur in the e-commerce and brick and mortar retail businesses. This Note concludes that the treatment of customer lists in bankruptcies and acquisitions differs greatly. Additionally, the differing outcomes in the sale of customer lists in different types of bankruptcy have not been considered by courts, legislators, or even the Federal Trade Commission ("FTC"). Furthermore, this final section proposes that greater public awareness is needed by consumers, many of whom do not realize that their information is subject to divesture even when they conduct business with traditional brick and mortar businesses. As a result, any pending legislation should aim for a consistent outcome in bankruptcy proceedings and ideally should protect the privacy rights of all consumers, both Internet and traditional. I. THE IMPLICATIONS OF BANKRUPTCY When the Internet bubble burst, many e-commerce businesses went out of business, merged with other companies, or declared bankruptcy.12 For many of these companies, one of their most valuable assets was their customer list.13 Other valuable intangible assets included domain names,14 licensed technology,15 and human capital. …

Journal Article
TL;DR: The International Symposium on Risk Management and Derivatives as discussed by the authors addressed the critical issues of corporate governance and responsibility, including accounting, corporate governance, and public relations, which have always been fundamental to the world of business and the world beyond.
Abstract: PROFESSOR RECHTSCHAFFEN: We are very honored to have Secretary Peterson here. I am particularly honored to have Dean Treanor with us today, the Dean of my Law School, the Dean of the Law School where I went, the Dean of the Law School where I teach. he is going to introduce the rest of the program on corporate governance, including the panel with secretary Peterson and Governor Bies's keynote address. With that, I turn it over to the Dean of the Fordham University School of Law, Dean William Treanor. DEAN TREANOR: Thanks very much, Professor Rechtschaffen. Welcome, on behalf of the entire Law School community. I am here to welcome you to the International Symposium on Risk Management and Derivatives, which addresses the critical issues of corporate governance and responsibility. I would like to thank all the distinguished panelists that we have today. If you look at the program brochure, it is a remarkable group. It is a congregation of people who are outstanding leaders in the field. I would also like to extend a special welcome to the Symposium's keynote speaker, Governor Susan Schmidt Bies of the Federal Reserve System. Thank you very much for coming. And I would like to recognize the chairs of the Symposium's various panels: Professor Steven Raymar of the Fordham School of Business-thank you for chairing a panel, Professor Raymar; the Honorable Peter Peterson, Chair of the Blackstone Group and Chair of the Federal Reserve Bank of New York, who will be presiding over this panel; and Howard Rubenstein, President of Rubenstein Associates, Inc. In addition, I would like to thank Professor Carl Felsenfeld of our faculty, who directs the Fordham Institute on Law and Financial Services; Professor Jill Fisch, who directs the Fordham Center for Corporate, Securities, and Financial Law; and especially Professor Alan Rechtschaffen, who is the Symposium Chair and a member of our adjunct faculty. He originally envisioned the need for a conference like this seven years ago and has worked tirelessly since then to make this vision a reality. The topics addressed by our distinguished panelists include accounting, corporate governance, and public relations, areas which have always been fundamental to the world of business and the world beyond. Today, as we all know, these topics are more important than ever, as the securities industry tries to bolster investor confidence in a system that has recently been under siege from without and from within. The issues which our panelists address today are equally important both to the financial industry and to the average citizen. Never before in our nation's history have so many members of the public been so invested in capital markets, and perhaps not since the Great Depression have so many individuals lost as much trust in the ability of the corporate and financial world to keep its own house in order. The dialogue that is presented today is an important step in addressing the critical issues that will continue to challenge the business community in the days and years to come. Again, I thank all of you for sharing your time and your talent on these issues of national significance, and I wish you a very successful Symposium. Now I would like to introduce the panel on corporate governance issues. The Panel Chair is the Honorable Peter Peterson, who is one of the best-known and most influential leaders in the business community of our time. In addition to currently serving as Chair of the Federal Reserve Bank of New York, he is also Chair of the Blackstone Group, a private investment firm, which he co-founded in 1985, and a Director of Sirius Satellite Radio. Mr. Peterson served as Chairman and CEO of Lehman Brothers from 1973-1977, and after the merger with Kuhn, Loeb served as Chairman and CEO of Lehman Brothers, Kuhn, Loeb until 1984. Mr. Peterson is currently Chair of the Council on Foreign Relations and he is Founding Chairman of the Institute for International Economics. …


Journal Article
TL;DR: Felsenfeld and Fisch as discussed by the authors discussed the problem of finding a balance between proper law and morality in the context of derivatives and risk management at the Law School of the University of New York.
Abstract: SYMPOSIUM WELCOMING REMARKS* PROF FELSENFELD: I am Carl Felsenfeld, a professor of law here at the Law School and Director of the Institute on Law and Financial Services, one of your co-hosts for this occasion The other co-host is the recently established Center for Corporate, Securities, and Financial Law, which we expect will take a dominant place here at the Law School for corporate, financial, and business functions It is already producing a number of functions, and you will, I am sure, be hearing about them The Director of that institute is Professor Jill Fisch, who is one of the panelists Our program this morning is focused on corporate governance, although the general subject is derivatives and risk management This program is in fact the fifth event we have held generally and loosely related to derivatives and risk management We felt that the proper focus today should be on corporate governance because of the prime position that corporate governance has in all our thoughts now I do not think this Symposium could have been better timed We are all concerned, we are all thoughtful, we are all speculative We are in an "in between" kind of position as to what is the problem Is it a pervasive problem? Is it a problem of a few people? Is it a problem of corporate management in general? Is it a problem of lead management of lead corporations? Is it a problem that pervades the whole infrastructure of corporate management, corporate directors, corporate stockholders, banks, regulators? We have not scoped the problem We have not given it definition It is through institutes of this sort and discussions of this sort that we will arrive toward a definition of where the problem is and what we should do to solve it I had lunch last week with one of the senior bank regulators in the United States I do not think I will mention his name, although there was no confidentiality in our discussion He said to me, "The laws of banks have gotten so complex in the last few years-with the Gramm-Leach-Bliley law,1 the Patriot Act,2 the Sarbanes-Oxley Act,3 all of these things-there are so many laws, there are so many regulations It is now virtually possible to accomplish whatever you want, as long as you get a smart enough lawyer, well attuned to the regulations that he can knit them one against the other and can probably arrive at any conclusion he wants, while advising his corporate client that this is in compliance with law "Well," he said, "it is no longer enough that a legal solution be in compliance with law It is no longer enough that, at least what we used to teach at law school-the law-is honored It is more important that one steps back at the end of the day, at the conclusion of the search, and say, 'What I have done is right; what I have done is moral; what I have done is proper I can stand up and defend what I have done as an effort that is consistent with the goals of the United States' This is the most important thing" And it starts one wondering: should we go back to the beginning, should we go back to 1789, take a giant eraser and erase all these regulations that fill the library? I am sure that is not good enough We have got to find some balance between proper law-what is the percentage that bank capital should be; what is the amount that may be loaned to an individual-and put it together with the morality that that also rules We have here at Fordham a strong program in corporate ethics We have devoted several of our professors almost exclusively to corporate ethics This is the kind of problem that they are working through: How do we find this mix between law and morality, and how do we come out? Once again, this Institute is part of the continuing goal to find that resolution I am reminded of Frank Baum, the great author who wrote all the Oz books He said there was only one law in the Land of Oz, and that law was "behave yourself …

Journal Article
TL;DR: The role of the compliance director is a product of the securities laws passed by Congress in the early 1930s and the rules promulgated by the Securities and Exchange Commission ("SEC" or "Commission") as mentioned in this paper.
Abstract: INTRODUCTION The current economic environment is ripe with dissatisfaction. Investors are disappointed with the performance of the stock exchanges and are skeptical of the advice offered by brokers and their associates.1 The bankruptcy of Enron and the subsequently revealed accounting scandals have exacerbated the apprehension and distaste investors currently feel for management.2 These scandals have focused not only the attention of investors but also that of regulatory agencies on firms' compliance with regulations. The attention is sure to result in increased litigation and investigation in both the private and public sectors regarding compliance supervisory systems implemented by the various corporations.3 Among the targets will almost certainly be the legal compliance director of the broker-dealer firm, to whom the firm usually delegates the responsibility of investigating and preventing violations. The role of the compliance director is a product of the securities laws passed by Congress in the early 1930s5 and the rules promulgated by the securities and Exchange Commission ("SEC" or "Commission"). Congress inserted provisions in the securities laws that required broker-dealers to supervise their subordinates.6 Specifically, [sec] 15 of the Securities Exchange Act of 1934 ("1934 Act") permitted the sanctioning of a broker-dealer who inadequately supervised the firm's employees.7 Section 15 of the 1934 Act also permitted sanctions against authorized agents of broker-dealers for the agents' failure to supervise.8 Congress included these provisions to initiate in-firm mechanisms ensuring the compliance of brokerages with the securities laws.9 In fulfilling this mandate, brokerages have created departments dedicated to analyzing the securities laws and investigating the internal workings of the brokers' offices to assess whether the employees and procedures comply with the securities laws.10 As the importance of these departments increase in the wake of accounting and reporting scandals, the directors of such departments shoulder a greater burden. This increased burden and responsibility seems to place them at greater risk for SEC enforcement actions and private litigation. This Note discusses the requirements of the supervisory mandate of the federal securities regulations and the liability imposed on brokerage compliance directors through the courts and the administrative process. In addition, this Note addresses some contradictions and concerns apparent in the multiple roles often assumed by compliance directors. Part I discusses the current regulatory scheme regarding supervisory structures elaborated by the SEC. Part II discusses the sanctions the SEC can impose on those who breach their duty to supervise. Part III sets forth particular considerations relevant when an attorney or other professional is serving as the compliance director or compliance department staff member. Finally, Part IV attempts to distill a satisfactory supervisory structure from the SEC cases that will allow the brokerages and the compliance director to avoid liability. I. SUPERVISORY REQUIREMENTS UNDER THE secURITIES LAWS AND ADMINISTRATIVE CASELAW Broker-dealer firms often attempt to satisfy their regulatory duty of supervision by creating compliance departments." The departments are staffed with individuals who analyze the supervisory structure of the firm, investigate alleged violations by employees, and draft recommendations on the path the firm should follow to comply with the federally imposed mandates.12 The compliance department is sometimes staffed with attorneys, accountants, or other professionals,13 which brings up additional considerations that will be addressed later in this Note. Compliance directors and department staff are often included in administrative proceedings before the SEC because of their role in ensuring compliance with the securities laws.14 In most cases, the Division of Enforcement ("Division"), the body that acts as prosecutor in SEC administrative actions, alleges that the compliance officer or director failed to adequately supervise the firm's employees. …