Recent Submissions

  • Disclosure’s Limits

    Rodrigues, Usha; Stegemoller, Michael (2022)
    The U.S. Securities and Exchange Committee’s (SEC) proposed reforms of how it regulates special purpose acquisition companies (SPACs) lean heavily on the most familiar tool in its arsenal: disclosure. The proposed rules ask for more disclosure, and more standardized disclosure, on a variety of fronts. While as researchers we generally support more disclosure, unfortunately, we are deeply skeptical of the benefits disclosure alone can provide in this particular case to retail investors—the audience to which these reforms are directed. SPACs as currently structured feature a species of empty voting, where a shareholder’s voting interest is decoupled from her economic interest. Because of this fundamental disconnect, which is anathema to corporate law, our research indicates that disclosure-based reforms will be of limited utility in protecting investors.
  • Economic Substance in SPAC Regulation

    Halbhuber, Harald (2022)
    This Essay lays out an economic substance approach to regulating special purpose acquisition companies (SPACs) as sales of stock for cash. The approach presented here charts an alternative to the SEC’s recent rule proposal that better reflects the economic reality of SPAC transactions and is more firmly grounded in the structure of our existing securities laws. While the SEC’s approach does address certain gaps in the current rules, its primary drawback is that it still treats SPAC mergers as a special type of business combination that requires its own regulatory regime. We already have a regime for sales of stock to the public for cash. The SEC should adopt rules that simply apply this regime to the stock sale for cash that, in economic substance, occurs in SPAC mergers. Merging with a SPAC has become a popular alternative to an initial public offering (IPO) as a path for going public. Data has consistently shown that public investors often fare poorly in SPAC mergers, compared to the “sponsors” controlling SPACs, who frequently realize outsized gains. One recent study found that SPAC merger investments made by the public underperformed the market by close to 60% at the median after twelve months while SPAC sponsors earned median market-adjusted returns of almost 200% over the same period.
  • Net Cash Per Share: The Key to Disclosing SPAC Dilution

    Klausner, Michael; Ohlrogge, Michael; Halbhuber, Harald (2022)
    The Securities and Exchange Commission (SEC) has recently proposed regulations that would address a wide range of issues governing special purpose acquisition companies (SPACs).1 Central among these issues is the disclosure of a SPAC’s dilution and dissipation of cash as of the time of its merger, a topic two of us have addressed in an earlier article.2 The SEC’s concern (and ours) is that when a SPAC exchanges its equity for that of a target company, the value of the SPAC's equity is not what it appears to be, and not what it is stated to be in its merger agreement. First, the SPAC’s equity is spread among claimants that paid no cash into the SPAC. Second, much of the cash that was paid into the SPAC at the time of its IPO will have been paid out to various advisors by the time of the merger. As the SEC proposal recognizes, SPAC proxy statements fail to disclose how little net cash each SPAC share represents, and hence how much net cash will be exchanged for shares in the merger target.
  • How SPACs Made Old Things Old Again

    Morley, John (2022)
    When the SPAC boom began in the summer of 2020, a common way to explain the phenomenon was to say that SPACs were something new. SPACs raised $83 billion in 20201—nearly double the total raised in the previous ten years—and another $97 billion in just the first three months of 2021.2 They spread so rapidly that the public had little way of making sense of them other than to think that they represented a novel innovation, a kind of contagion for which American finance had no previous immunity. The SPAC boom started at almost the exact moment the American public began locking down against COVID-19—starting a process of viral replication in the financial markets to mirror the one happening in cities. But like COVID, SPACs were not altogether new—they evolved from creatures that came before. And like a real virus, SPACs are now living through a cycle of spread, response, and equilibrium that has also played out for its evolutionary ancestors. The essays in this online symposium take stock of some aspects of this cycle and offer suggestions for how to deal with it. As the legal scholar and former SEC official Henry Hu has argued, the cycles of novelty and innovation in finance are actually quite old.3 What pass as “innovations” are often just modifications that merely liberate existing practices from regulation by pulling them out of their regulatory categories. These innovations grow in popularity and then eventually produce the same problems the old regulations were designed to address, until the new innovations invite new regulations and new skepticism. By repeating many of the failures and successes of other innovations that came before, SPACs are taking this old cycle and making it old again.
  • A Better Guard for the Henhouse: Should Creditors’ Committees Control Estate Litigation?

    Ellis, Justin; Yeh, Ryan (Yale Journal on Regulation Online Bulletin, 2022)
    In October 2021, Senator Elizabeth Warren and several cosponsors introduced a revised version of the Stop Wall Street Looting Act. First introduced in 2019, the proposed legislation targets a range of perceived abuses by private equity firms ranging from the carried interest tax “loophole” to the lack of risk-retention requirements for securitized debt. Among several new proposals to stop the “looting” of portfolio companies is one of particular interest to bankruptcy practitioners: giving unsecured creditors’ committees the exclusive right to bring or settle certain lawsuits in bankruptcy.
  • The Non-Consequentialist Uses of Economic Analysis: A Comment on Dagan and Kreitner, Economic Analysis in Law

    Kornhauser, Lewis A. (2021-01-01)
    Dagan and Kreitner have offered a rich and elegantly written discussion of the normative uses of economic analysis of law. For Dagan and Kreitner, a scholar uses economic analysis normatively either when she evaluates a legal rule or institution or when she makes policy recommendations. These two normative uses of economic analysis are closely related but distinct. Evaluation often starts from some ideal theory while policy design is clearly non-ideal. Moreover, in policy design, questions of institutional competence and capacity play a central role that they do not have in straightforward evaluation. I do not, however, pursue these distinctions here.Evaluative approaches divide into two classes: consequentialist and non-consequentialist. Dagan and Kreitner discuss the role of economic analysis in both classes. The role of economic analysis in consequentialist evaluation and design flows naturally from economic methodology. Any consequentialist evaluation or policy design requires a theory of how individuals, both private citizens and public officials, behave in response to legal rules. Economic analysis of law offers the most clearly elaborated and developed theory of such behavior. In addition, the structure of the theory provides a natural way to make welfarist evaluations as the theory explains behavior in terms of the preferences of the agents.
  • Applying International Human Rights Law for Use by Facebook

    Lwin, Michael (2020-01-01)
    n recent years, social media platforms have been beset with hate speech, misinformation, disinformation, incitement of violence, and other content that cause real-world harm. Social media companies, focusing solely on profit-maximization and user-engagement, have been largely asleep at the wheel during outbreaks of violence in countries such as Myanmar, Sri Lanka, New Zealand, and India–events all linked in some way to online content. When social media companies began trying to reduce harmful content, they made tweaks: incremental, non-transparent, and often inconsistent changes to their moderation rules. To build a more effective and consistent system, some international lawyers have suggested that social media companies adopt international human rights law (IHRL)–especially the International Covenant for Civil and Political Rights (ICCPR)–as a unified source for content moderation rules. How-ever, IHRL was written and ratified for use by states, not private companies. Moreover, IHRL emerged long before the Internet and social media were widespread. IHRL must therefore be interpreted and adapted for this new purpose. As a first step towards honing and refining its application, this article proposes a framework for the use of IHRL by social media companies.
  • Killing Innovation?: Antitrust Implications of Killer Acquisitions

    Madl, Amy C. (2020-01-01)
    Killer instinct is a key business asset. Firms live and die by their strategic choices, and the desire to outcompete rivals colors most business decisions. While many firms strive to win market share on their merits, economists have recently identified an anti-competitive practice—killer acquisition—that enables incumbents to maintain market share by burying,rather than beating, rival technologies. In these acquisitions, firms buy competitors to prevent market cannibalization, preserving profits at a price that is right for both the acquirer and the target.
  • The Sustainable Corporate Governance Initiative in Europe

    Roe, Mark; Spamann, Holger; Fried, Jesse; Wang, Charles (2021-01-01)
    In July 2020, the European Commission published the “Study on directors’ duties and sustainable corporate governance” by Ernst & Young (EY). The Report purports to find evidence of debilitating short-termism in EU corporate governance and recommends many changes to support sustainable corporate governance. In this paper, we point out deep flaws in the Report’s evidence and analysis. We recently submitted the content of this paper in response to the European Commission’s call for feedback. Parallel issues have arisen in American discourse, although none has reached the incipient lawmaking level that it has in Europe
  • ESG Investing Under ERISA

    Sharfman, Bernard S. (2020-01-01)
    The Department of Labor (“DOL”), through its administration of ERISA,has a critical role to play in the regulation of private“employee pension benefit plans.”Most importantly, the DOL is tasked with enforcing the fiduciary duties of ERISA plan managers (trustees who retain investment and voting authority or “investment managers”who receive such authority through delegation by the trustees).Under ERISA, plan managers owe the strictest duties of loyalty and care to their participants and beneficiaries. They are to be constantly guided by the fiduciary prin-ciples of acting solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing financial benefits to them.
  • Regulation and Innovation: Approaching Market Failure from Both Sides

    Lev - Aretz, Yafit; Strandburg, Katherine J. (2020-01-01)
    Regulation is often claimed to be the enemy of socially desirable in-novation because of factors including innovation’s unpredictability and regulation’s compliance costs. In this essay, we bring two intellectual property scholars’ perspectives to bear on the question of regulation’s impact on innovation. We offer a novel, yet intuitive, analytical frame-work that takes both market demand failures, and failures of supplier appropriability into account. Traditionally, regulation seeks to mitigate market failures that create deviations between the demand portfolio perceived by suppliers and the socially optimal demand portfolio. Studies of the interplay between regulation and innovation have mostly taken this perspective, considering the impact of various regulatory transaction and compliance costs on innovation. Intellectual property law and competition law target a different sort of problem, where markets fail to supply products and services at competitive prices or to undertake innovative activities because of supplier appropriability issues.
  • But Facebook’s Not a Country: How to Interpret Human Rights Law for Social Media Companies

    Benesch, Susan (2020-01-01)
    Private social media companies regulate much more speech than any government does, and their platforms are being used to bring about serious harm. Yet companies govern largely on their own, and in secret. To correct this, advocates have proposed that companies follow international human-rights law. That law–by far the world’s best-known rules for governing speech–could improve regulation itself, and would al-so allow for better transparency and oversight on behalf of billions of people who use social media. This paper argues that for this to work, the law must first be interpreted to clarify how (and whether) each of its provisions are suited to this new purpose. For example, the law provides that speech may be restricted to protect national security, as one of only five permissible bases for limiting speech. Governments, for which international law was writ-ten, may regulate on that basis, but not private companies which have no national security to protect.To fill some of the gap, the paper explains and interprets the most relevant provisions of international human-rights law–Articles 19 and 20 of the International Covenant on Civil and Political Rights, which pertain to freedom of expression–for use by social media companies, in novel de-tail.
  • Section 706 of the Administrative Procedure Act Does Not Call for Universal Injunctions or Other Universal Remedies

    Harrison, John (2020-01-01)
    In Trump v. Pennsylvania,1the Supreme Court faces the question whether the Administrative Procedure Act’s provision governing scope of judicial review instructs courts to give universal injunctions—injunctions telling the government not to apply a challenged agency action to anyone, not just the plaintiff. That provision, section 706 of title 5 of the United States Code, does not direct courts to give universal remedies. It does not address remedies at all. When it says that the reviewing court shall “hold unlawful and set aside” agency action that fails the tests it sets out, section 706 means that courts are not to follow the agency ac-tion in deciding the case.2The APA addresses remedies, not in section 706, but in section 703. Section 703in turn points to the remedies law as-sociated with the forms of proceeding for judicial review that it identifies.