Rolling Back the Repo Safe Harbors
Edward R. Morrison, Mark J. Roe, and Christopher S. Sontchi, 69(4): 1015-1048 (August 2014)
Recent decades have seen substantial expansion in exemptions from the Bankruptcy Code’s normal operation for repurchase agreements. These repos, which are equivalent to very short-term (often one-day) secured loans, are exempt from core bankruptcy rules such as the automatic stay that enjoins debt collection, rules against prebankruptcy fraudulent transfers, and rules against eve-of-bankruptcy preferential payment to favored creditors over other creditors. While these exemptions can be justified for United States Treasury securities and similarly liquid obligations backed by the full faith and credit of the United States government, they are not justified for mortgage-backed securities and other securities that could prove illiquid or unable to fetch their expected long-run value in a panic. The exemptions from baseline bankruptcy rules facilitate this kind of panic selling and, according to many expert observers, characterized and exacerbated the financial crisis of 2007–2009. The exemptions from normal bankruptcy rules should be limited to United States Treasury and similar liquid securities, as they once were. The more recent expansion of these exemptions to mortgage-backed securities should be reversed.
SEC Administrative Proceedings: Backlash and Reform
Alexander I. Platt, 71(1): 1-52 (Winter 2015/2016)
The Securities and Exchange Commission’s aggressive prosecution of securities violations inside administrative proceedings (APs) has generated backlash. Key stakeholders are now attacking the agency’s enforcement program as illegitimate and a growing number of respondents charged in APs have launched broad constitutional challenges. Though these suits target deeply entrenched features of administrative adjudication, they have already begun to prove successful, and threaten significant transformations to the SEC and beyond.
Historically, the SEC’s enforcement architecture embodied respect for the principle that, holding all else equal, procedures ought to be commensurate with the stakes of the adjudication. After Dodd-Frank, the agency abandoned this principle. The backlash is, at least in part, attributable to and justified by this reversal.
The SEC should have done after Dodd-Frank what it had done after previous expansions of its administrative penalty powers: reestablish the equilibrium between penalties and procedures by revising its rules of practice that govern APs. The SEC’s recently proposed amendments to these rules are too little, too late. A bolder approach is required.
Disclosure Reform—The SEC Is Riding Off in Two Directions at Once
Roberta S. Karmel, 71(3): 731-834 (Summer 2016)
The U.S. Securities and Exchange Commission (“SEC”) is being buffeted by diametrically opposing forces with regard to disclosure policy rulemaking. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the SEC to pass rules to compel public companies to make disclosures about conflict minerals, mine safety, and certain payments to foreign governments, all for the purpose of advancing societal goals. Proponents of sustainability metrics have been urging the SEC to adopt standards relating to environmental and other similar matters, and a petition on disclosure of corporate contributions and lobbying expenses by public companies would involve the SEC in another political quagmire. Yet, forces that would deregulate disclosure mandates are also pressuring the SEC, and the JOBS Act of 2012 included some such deregulatory measures. Also, the SEC has embarked on its own initiative for streamlining disclosure obligations. This article discusses these conflicting disclosure initiatives and some of the current academic papers and theories with regard to SEC disclosure policy. I suggest a few possible ways for the SEC to move forward, including scaled and tiered disclosure.