Whither State Securities Enforcement?

Susan Antilla of Bloomberg news published a recent column  revisiting the question of the continued viability of state securities regulators’ enforcement authority.  I spoke to Susan about my research  on the issue and I am quoted in the article. 

At risk in current frenzy for financial regulatory reform may be the authority of state securities regulators to police securities fraud.   Securities firms unsuccessfully pursued legislation to limit the enforcement power of states, back in 1994, but the issue remains on the reform agenda.  The preemption of state regulatory authority across a range of areas is a significant theme of the recommendations in the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure.

Bailout-palooza

The federal goverment’s proposal for a bailout of the financial industry sounded somewhat familiar to me.  I remembered that I had blogged about a similar proposal about a year ago on Conglomerate.

Robert Kuttner of the Boston Globe was advancing a plan to create a federal agency to buy up troubled mortgages and renegotiate them so that those who could afford it would be able to stay in their homes. The proposal was modeled on the New Deal’s Home Owners Loan Corporation. I thought it was a proposal that merited attention. Many of Conglomerate’s commenters thought otherwise, and condemned the idea as a bailout of greedy, irresponsible homeowners and/or investors.

Without commenting on the merits of the specific proposal that Kuttner advanced (I am sure it had some flaws), I cannot help but think that we could have forestalled the current crisis if government leaders had come together to address the problems when they surfaced at the consumer end.

What a Difference a Year Makes

One year ago discussions surrounding corporate law policy were driven by the Sarbanes-Oxley ‘backlash.”  The Paulson Committee and others were warning about how excessive regulation and litigation would lead to the ruin of Wall Street.  Turns out that Wall Street was eminently capable of ruining itself.

Now politicians on both side of the aisle are pushing the need for more regulation, and railing against greed, excessive salaries and golden parachutes.  Seems we are all populists now (at least for the next 50 days).  It will be interesting to see if the current crisis leads to a short term flurry of reforms of the type that followed the 2001 accounting scandals or to a more rigorous rethinking of how we regulate financial markets and corporate governance.  Let’s hope for the latter.

Own to Rent?: A Proposal to Ease the Mortgage Crisis

Dean Baker has posted a piece in the The Economists Voice on a different approach to addressing the sub-prime mortgage crisis.  Baker proposes a “rent to own” program where certain homeowners at risk of foreclosure would shift from owners to renters.  In this program some sub-prime borrowers could stay in their homes, but lenders would assume ownership of the property.  The borrower-turned-renter would pay fair market rent to the mortgage holder.  Baker states the plan could help protect millions of homeowners facing the prospect of losing their home.  These homeowners could stay in their home so long as they could afford to pay the rent. Tamar Frankel, the securitization guru, mentioned a similar proposal to me recently.  I found it intriguing, and Baker’s piece is the first I have seen that outlines how such a proposal might work. 

Why Do Judges Write Law Review Articles?

Here is a question I have been pondering for a while: Why do Delaware judges write so many law review articles? For example, I have sitting on my desk a stack of 14 articles by Norman Veasey former Chief Justice of the Delaware Supreme Court.  On closer examination, most of these are speeches rather than articles.  But still the question remains why do the judges write these pieces and why do the law reviews publish them?

The question arises as part of my research into the mechanisms for crafting corporate law in the U.S.  Because Delaware judges play a central role in the process, it seems important to determine how they play their role, what motivates them, and to whom they are accountable. 

Many scholars have noted the prolific nature of Delaware’s judiciary.  Professors Marcel Kahan and Ed Rock counted 22 recent articles published by Delaware judges. Professor Lawrence Hamermesh has published a helpful chart as an appendix to his Columbia Law Review article, The Policy Foundations of Corporate Law. Yet nobody seems to have persuasively explained this phenomenon.  Presumably judicial opinions provide judges with an adequate forum to explain and justify their decisions.  Why then would judges feel compelled to supplement their legal opinions with further explanations, elaborations or justifications in the academic literature?  More importantly are these extra-judicial exhortations helpful, harmless or insidious?

One purpose of these articles and speeches could be to provide guidance to corporate managers, attorneys and commentators as to the substance and meaning of Delaware corporate law.  Thus judges are supplementing their law-making role, moving beyond ex-post assessment of corporate conduct to ex-ante guidance for practitioners and their clients.  Such motivation can be viewed as positive, but also potentially  problematic.  The message may be lost in translation and, because judges cannot be bound by these extra-judicial comments, advice gleaned from their comments may be of dubious value.

Another view is that the constant commentary has a political purpose: to shore up the legitimacy of the state’s role in setting corporate policy.  On this view, Delaware judges not only seek to explain their approach to corporate controversies, but promote their own superior abilities to act as arbiters in these disputes.  Certainly, many articles by Delaware jurists fit this mold.  If this is the motivation, we might want to take the message conveyed with a grain of salt.  If part of the motivation for the articles and speeches is preserving the state’s (and the judges’) sphere of influence, then readers and scholars should consider such when evaluating the arguments the judges present.   

 Cross-posted at Conglomerate.

Guest Appearance

In addition to blogging here, I will be guest blogging at Conglomerate  for the next two weeks.  Look for posts on Sarbanes-Oxley, judging and other interesting topics in corporate governance.

oPtion$ Book Club in Progress

Tune in to PrawfsBlawg today for a book club discussion of oPtion$, the secret life of steve jobs.  I am joining host Matt Bodie, Michael Dorff, Darian Ibrahim and David Zaring for a discussion of this funny parody of Steve Jobs.  A number of posts are up and the real fake steve jobs (Forbes editor Dan Lyons) will be commenting at the end of the day.

Access Denied

The Associated Press reports that the SEC has approved the new proxy rules denying shareholders access to the management proxy for the nomination of corporate directors.  The so-called no-access rule was adopted by a 3-1 vote, with Annette Nazareth, the sole remaining Democratic Commissioner voting against it. Here is the New York Times story: S.E.C Allows Firms to Deny Investors Access to Ballots.

My guess is that the struggle over proxy access will continue for some time.  Some shareholder groups threatened litigation if the proposed rule was adopted.  In addition, Congressional Democrats are opposed to the rule adopted, and are likely to be perturbed that the SEC acted without a full complement of Commissioners.  Despite their dismay, it seems unlikely that Democrats in Congress will muster the initiative to legislatively overrule the Commission

“oPtion$” — the Book Club

Tune in next week to PrawfsBlawg for a lively discussion of the new satiric novel oPtion$, by Fake Steve Jobs (aka Forbes reporter, Dan Lyons). 

I will be joining Matt Bodie of PrawfsBlawg who is hosting the book club on Tuesday December 4.  Also posting will be law professors David Zaring, Darian Ibrahim, and Michael Dorff.  Dan Lyons, the real Fake Steve Jobs will respond and answer questions to wrap up the discussion.  Here is the announcement: PrawfsBlawg: Book Club on “oPtion$” by Fake Steve Jobs.

For now, I will only say that oPtion$ is a fun read.  It is a satirical account of Steve Jobs’s excellent adventures as Apple comes under federal investigation for its stock option backdating practices.  It also has a nice shiny cover, a tribute to the  iPod.

New Commissioners Proposed for the SEC

BNA is reporting that Senate Majority Leader Harry Reid has sent forward the names of two individuals to be considered as Democratic representatives to the Securities and Exchange Commission.  According to the report, Reid has proposed Atlanta lawyer, Luis Aguilar and FINRA official, Elisse Walter to serve as new members of the Commission.  The Commission has been down one Commissioner since August when Democrat Roel Campos resigned.  Democrat Ann Nazareth has also announced her resignation, but continues to serve as a Commissioner.  By law, no more than three Commissioners can be members of the same political party.  The resignations, when effective, would leave the Commission with three Republican Commissioners and no Democrats.

The current vacancies on the Commission are a sore spot between Chairman Christopher Cox and the SEC’s Congressional overseeers, as Cox maintains that the Commission will move forward on controversial proxy access proposals despite the absence of a full complement of Commissioners.  Congressional leaders on the other hand have urged Cox to postpone action on proxy access until the existing and prospective vacancies are filled.

Here is the BNA story (subscription required): Securities Regulation & Law Rpt – FINRA Official, Atlanta Lawyer Said Dems Picks for Slots on SEC