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Abstract:
The term market timing was little known outside the arcane world of mutual funds until state attorneys general from across the country popularized it. The term's innocuous-sounding ring assumed a more pernicious note when the mysterious ways of mutual funds became more transparent. In its pernicious sense, market timing denominates mutual fund insiders using the inscrutable structures of mutual funds to provide benefits selectively to favored participants at the expense of less favored participants.

Mutual fund shares are not like common stocks; investments made using these vehicles are unlike those made through traditional securities markets. While the peculiar features of mutual funds were manifested in the contemporary environment, these peculiarities are inherent in the very structure of mutual funds. Regulatory efforts dating to the 1940s recognize these realities and regulatory reforms of the early 2000s struggle to respond in much the way earlier reforms did.

The wide range of reforms that have been adopted and proposed may overlook this reality, however. By correcting this oversight, and unveiling the historical and contemporary landscape, this Article provides more realistic appraisals for increasing the integrity of the mutual fund investment vehicle. Chief among these is a deeper point: critical to sustaining the mutual fund as an important institution in the financial system is a renewed appreciation of concepts of trust and professionalism.

mutual funds, market timing, regulation, external regulation, market reform

Abstract:
The subject is about the common law under stress of change. The common law has continuously confronted stressful change. Internet conflicts raise the same value issues with which we are familiar. The Internet environment poses unusual pressures on the common law system. It is a system that transcends boundaries and time as we never had before. By reducing significantly the cost of receiving and disseminating information the Internet has shifted benefits, costs, and disadvantages. The Internet touches almost all areas of life. To those who suggest that the common law has lost its vitality, Internet jurisprudence offers a powerful rebuttal. United States courts have demonstrated the viability and strength of the common law. Internet issues have also highlighted the common law's limitations, shown in part by the legislative initiatives in this area.

The questions are: First, are we witnessing the emergence of the "Law of the Internet" or "Cyberlaw?" I believe that we are not. But there are few exceptions, such as issues concerning domain names.. Second, how do the courts address Internet issues? I suggest that usually there is nothing new in their approach. They resort to precedents, and use somewhat different choices of analogies. Courts may err in how they view the Internet. While the technical aspects of the system - the code and protocols - are identical in all respects, the impact of the Internet on various aspects of our lives may differ greatly. A code-based rule may bring unacceptable consequences that must later be corrected. The paper contains a number of stories to illustrate these propositions.

Third, are there cases demonstrating the common law's limitation? I believe there are. These limitations appear, for example, in cases concerning domain names and trademarks. Fourth, under what conditions will Congress overrule the courts' decisions? Congress initiates legislation for a number of reasons. Among these reasons are the courts' decisions that have strayed away from the policies that power constituencies have agreed upon. Nonetheless, judicial decisions play a role in the legislation. They help narrow the issues that Congress will address and sometimes help to set the congressional agendas.

The sum and substance of this paper is in praise of common law and its interaction with legislation as an overall system of "muddling through." Law is evolving piecemeal, addressing particular conflicts, not always uniformly nor predictably. Specificity with respect to select issues. Generality to show overall direction and guide interpretations. This kind of lawmaking is for the risk-averse -- of which I am one. Piecemeal solutions reduce the risk of mistakes and the cost of correcting mistakes when they occur-as they are bound to occur. The price: higher learning costs and fewer clear, bright-line and predictable laws.

Common Law, Cyberspace, Internet, Law of the Internet, Cyberlaw, Code-based Rule, Congress and the Courts

Abstract:
The Article deals with trusting (reasonable belief in facts and promises) focusing mainly on business and finance relationships. A simple and familiar method is used for evaluating net benefits from trusting, by listing benefits (reduced verification and monitoring costs), cost (establishing relationships, lost opportunities) and risk of trusting relationships, covering both individuals and systems. The article outlines the strategies for reducing the costs and risks from trusting (markets and self-protections mechanisms), highlighting the cost and risk reduction by impersonal trusting in institutions (financial intermediaries and the financial system). Such impersonal trusting, however, must be strongly backed by law and law enforcement, and shape market norms. The Article expresses great concern at recent legal literature that preaches contract as the overall legal model subsuming fiduciary law, intercorporate relationships, and relationship to investors in business trusts and clients of other money managers. The Article compares the contract model (individualism, self-protection, minimal government interference and "on your guard" attitude of non-trusting) to fiduciary and statutory regulation models (dependence, reliance and greater trusting). The article suggests that in the current environment, where trusting in the financial system and emerging electronic commerce is crucial, the time has come to put contract where it should belong and balance it well against a trusting legal models.

Abstract:
The author maintained elsewhere that "the laws governing cross-border securitization are developed first by decentralized lawmaking "markets," and then absorbed by centralized lawmaking of communities, large intermediaries, and corporations." This paper explores the process by which cross-border securitization law becomes standardized and the law applicable to it becomes uniform. How can decentralized "markets" produce laws that are even approximately uniform?

The lawmaking of cross-border securitization has been analogized to lex Merchantoria, the law created by merchants in their dealings, and the rules created by their institutions. However, unlike the merchants and their institutions, the parties to cross-border securitization, are not organized or repeat players. They do not structure the transactions or the rules under which they operate. Rather, they express their needs, which are then addressed in the transaction documents. The transactional documents are prepared by the lawyers with the consent of the actors. Some of the innovative structures on which the success of the transactions may depend are created by lawyers and other professionals, such as investment bankers. Unlike other contract documents to which the parties rarely resort, the documents of cross-border securitization provide guidelines to which the parties refer more often. Therefore, a more accurate name and description of cross-border securitization lawmaking is lex Juris.

The paper examines the reasons for the emergence of lawyer-made law (LML) in the United States and in civil law countries. It explains the differences between the usual LML and lex Juris governing cross-border securitization, emphasizing its breadth, its scope and its far-reaching coverage. It also addresses the question of how this type of law creation can be, and is, standardized, in a decentralized, contract-driven market.

The paper suggests that lex Juris belongs to a growing group of cross-border contract-based legal systems; for example, the laws of the Internet. Lex Juris may be the forerunner of laws governing global activities, which, by their very nature, escape tight controls of domestic laws. But these activities still require laws to regulate the relationships among interacting actors and those who affect them, and to maintain a peaceful co-existence with applicable domestic laws.

Abstract:
This comment focuses on the relationship between investors' trust and government market regulation. The costs of regulation may be a barrier to issuers; however, when market prices rise, government regulation relaxes, and when prices fall, regulation becomes stricter. Regulated financial institutions benefit from regulation, by offering issuers and investors government support in their efforts to gain investors' trust and for other reasons. Regulation may be less meaningful to investors during rising markets and more meaningful after a crash because investors use prices as a surrogate for market integrity. Investors do not have appeared to have fled the markets in the last thirty years as they did in the 1930s, possibly because some have been locked into investments for tax benefits, and some have fled the equity markets for banks. Thus, investors do not react to falling prices as they did in the past. If investors' trust wanes, a change to a corporate culture of honesty may restore it.

investor trust, markets, securities regulation

Abstract:
The Internet transcends boundaries and time, reduces and shifts the cost of receiving and disseminating information. It poses unusual pressures of change on the common law. Internet jurisprudence demonstrates the vitality of the common law, yet highlighted its limitations. The Article describes how the common law addresses Internet issues and the relationship of judicial cases and congressional actions. The Article praises common law system of "muddling through," evolving piecemeal, addressing particular conflicts, not always uniformly nor predictably. This is lawmaking for the risk-averse, reducing the risk and cost of correcting big mistakes. The price: higher learning costs and fewer clear, bright-line and predictable laws. It is worth it.

Abstract:
This paper explains why weaknesses do not fully undermine great law schools. The paper is not about how to rank law schools, or how to climb the ranking ladder. It is not about short-term tactics or even about long-term strategy to achieve these objectives. It is about understanding the phenomenon, which should precede plans to achieve any of these objectives. Rather than define great law schools or what makes them great the Essay lists examples of great law schools, drawn from a fairly broad consensus, and discusses their salient features.

I conclude that only one feature distinguishes great law schools from the rest of the crowd. These schools devote all their resources to preparing students for, and placing students in, leadership positions in this country and the world. I also list other factors that may help schools become or remain great, but they are not essential. Next I make some suggestions, seeking to stir ideas and perhaps break some molds. This is the main purpose of this paper.

Abstract:
Sarbanes-Oxley Act offers an opportunity to reward truthful corporations and their management, offering them a competitive advantage, and relieving them from some the Act's provisions. Corporate culture plays an important role in a corporation's honest behavior. One size does not fit all in matters of corporate culture. Sarbanes-Oxley Act provisions that impose on all corporations the same internal controls and governance rules impose unnecessary costs on corporations, requiring honest corporations to change one good habit for another. The article suggests that relief from some of the internal controls rules imposed in the Sarbanes-Oxley Act might be an effective way for rewarding corporations for their honest behavior rather than punishing them.

Sarbanes-Oxley, corporate culture

Abstract:
This Essay represents a version of a chapter in my forth coming book "Trust and Honesty, America's Business Culture at a Crossroad." In designing legal protection from breach of trust and deception lawyers and judges have not only used this branch of economics as an information source but also adopted its objectives in substitution of the law's objectives. The first issue in this Essay relates to the ways in which legal economics simplifies the world. This is the reasons for its attraction and rejection. The second issue in this Essay relates to the autonomy of the law. It raises a concern that the soul and mind of the law are lost in the jargon and approaches of this special form of "imperial economics." It suggests that the place of economics in law is the same as any other discipline. Economic objectives have a modest place in law just as the objectives of other disciplines have not.

Abstract:
ICANN has had difficulties in gaining legitimacy. Causes include: (1) its unclear and disputed objectives and powers; (2) disputes over the identity of its beneficiaries and its nonrepresentative governance structure; and (3) its recent proposal to eliminate elected at-large directors.

ICANN faces a number of problems relating to its weak accountability and oversight. These include: (1) controversies over its objectives and powers; (2) failure to classify decisions as policy or operational; (3) failure to disclose conflicts of interest; (4) lack of feedback to its constituencies; (5) conflicts among its board members and stakeholders; (6) lack of representation of individual and small business Internet users; (7) lack of a review board for its policy decisions; (8) lack of third-party enforcement mechanisms, such as accountants and lawyers; (9) the reluctance of competitors to claim ICANN's power; and (10) inadequate enforcement by government entities and international organizations.

Accountability and oversight are used to attain legitimacy. Because entrusted power is discretionary in various degrees, and its results are not always easily evaluated, tests must be used to distinguish between policy and operational decisions. There are limitations on entrusted powers, such as conflicts of interest.

There are three categories of mechanisms to accountability and legitimacy. The first includes methods of communications, oversight and controls, such as transparency and disclosure, self-limiting rules, and formal planning. The second category includes institutional structures and outside relationships, including hierarchical and internal control mechanisms, election mechanisms, the right to sue under the law, market enforcers, and competitors. The third category includes private and public sector organizations such as government entities and international and technical organizations.

ICANN, internet, corporate governance

Abstract:
This paper is about the power of The Internet Corporation for Names and Numbers (ICANN). It examines how this power was created, augmented, strengthened, and reigned in. ICANN poses a puzzle. It is essentially an unregulated and undemocratic monopoly. Yet, ICANN's exercise of power has been fairly contained. Since ICANN is a monopoly, what prevents it from taking a far more high-handed and extensive ruling posture?

Even though at first blush my analogy is counterintuitive, I analogize ICANN to a managing lawmakers of market infrastructures, such as the New York Stock Exchange, while recognizing their differences. Unlike the Exchange, ICANN has close affinity to a political unit as well.

The emergence of ICANN, its staying power, and the limitations on the exercise of its power, can be partly explained by an analogy to the economic theory of "contestable markets." The theory deals with price. I equate price to power. High prices denote a high level of power. Low prices denote a lower level of power. In essence the theory suggests that under certain conditions a monopolist would charge low prices as if it operated in a competitive market. That is because higher prices will bring less efficient competitors into the market until prices fall and they will exit. This theory highlights a special "balance of power" and its restraining effect. I believe that a similar idea helps understand ICANN's environment

The paper notes that ICANN exercises "power in default." All the strong constituents seem to have agreed not to claim exclusive control over the Internet infrastructure. The paper discusses the bases for ICANN's continuous power: its constitutional documents, and contracts, which have become part of its constitution, and its role as mediator among Internet large stakeholders. ICANN has augmented its power by a stable and able management, and arguably maintained and strengthened its following by doing its share to support the stability of the Internet.

ICANN's rising power is demonstrated by the controversies concerning the country code Top Level Domain names (ccTLDs).

The paper concludes that ICANN's power is still being shaped. It could emerge along a market model, as a central catalyst for consensus building among parties with different interests. Alternatively, ICANN could also move towards a more regulatory model of consensus-based decision making. These decisions may then constitute precedents and mature into rules. Or ICANN can combine the two models to form a more structured market and more flexible regulatory body. The market model is likely to make experiment in the development of more than one root easier than the regulatory model. As the telephone experience has shown, the time may come for a multi-root cooperative Internet structure. Or we may face a technology that is today a mere twinkle in someone's eye.

Abstract:
In In re Walt Disney Co. Derivative Litigation the Delaware court exonerated the defendants for their handling of the Ovitz Affair, and yet condemned them. It is a classic example of how a court of law can make law without making law. By an obiter dictum, the Chancellor established the facts of the case and footnoted the sources much like a treatise or a casebook, recounted the general principles of the law, used strong words to describe the defendants' behavior, delved into the moral and business judgment of the defendants, and assisted the market in judging and enforcing its best practices. The Disney decision is a political masterpiece. (1) It pleases management because it sets a legal standard that is admittedly lower than the market "best practices" standard and issues a judgment for the defendants. As to the duty of care, the court elevates market morals above legal morals. (2) It pleases the Delaware Bar and perhaps members of other bars, as well as the shareholders' advocates, because it lowers the standard of demand requirement and opens the door to class actions. Hence it does not reduce the number of cases against management. (3) It discloses and documents aspects of internal management, including the personalities and behavior of the actors, thus inviting critics, public opinion and the media to supervise management and influence management's business judgment. It maintains the courts' "hands off" approach and low standard of negligence in evaluating the business judgment of management and board of directors. (4) It allows the courts to establish the facts and offer their opinion without serious threat of being overruled by higher courts or the legislature. (5) The decision shifts the burden of chastising management in cases such as Disney to the market and the media. All in 120 pages. The issue is whether this is a good way to go about resolving situations such as Disney. I conclude that it is. Unlike criminal cases, in which the Court of Public Opinion may prejudice the jury, the Court of Public Opinion is more suitable than the Court of Law to judge excesses by corporate directors and management so long as those do not amount to violations of trust and honesty (the duty of loyalty).

corporation, corporate governance, jurisprudence

Abstract:
Open any newspaper and you are likely to find stories of financial scandals, frauds and questionable ethical behavior in the business and professional worlds. The latest and lasting scandals in corporate America touched the highest level of corporate management and professional firms raising the question of whether business leaders are being taught the value of trust and honesty. Yet the very fabric of our economic prosperity and social stability are woven with trust and honesty. Distrust and dishonesty are not new. However, we appear to be at a tipping point where we run the risk of a culture that accepts and justifies corporate abuse of trust and dishonesty. The consequences include higher costs, slower growth and less freedom.

The goal of these course materials is to help students and seasoned practitioners recognize the ease with which trust and honesty can be lost, understand the impact of the business environment and social culture on trust and honesty, and explore measures to reinforce and, if necessary, restore trust and honesty in the business world. These course materials are founded on Trust and Honesty, American's Business Culture at a Crossroad (Frankel, 2006). The centerpiece of each module in this book is a case study drawn from actual business experience. Assigned readings from Trust and Honesty provide context for each teaching module. The case study assessments and discussions are used to highlight and illustrate the issues in more specific and practical terms. They demonstrate the complexity and indeterminacy of the issues. Role plays are provided with each module to provide the students with opportunities to test their ideas, simulate real life situations, manage tradeoffs and build consensus with their peers.

financial scandals, frauds, questionable ethical behavior, corporate abuse of trust, course materials on trust and honesty in American business

Abstract:
Broker dealers and investment advisers form the lifeline of the financial markets. While in the past their functions were separate, and their regulation differed, throughout the years their functions were allowed to merge but their regulation remained separate. Advisers are their clients’ fiduciaries. Brokers are not, with some exceptions. It is recognized that the law has to change, and the question is how. In this Article I argue for imposing the fiduciary duty of loyalty and limiting conflict of interest all financial intermediaries, including broker dealers, and suggest a process for establishing the details of the law that should apply to them. Section One of the Article outlines the principles on which fiduciary law is based. Section Two offers a short overview of the past and current practice of broker dealers. Section Three highlights the fiduciary aspects of broker dealers and the risks posed to their clients from their conflicts of interest Section Four proposes changes in the current law and a process to achieve future changes. The law should impose principles; the financial intermediaries should seek the specificity.

fiduciary aspects of broker dealers, financial markets, Ponzi schemes, Bernard Madoff, fiduciary law, proposed changes to fiduciary law

Abstract:
Much has been written about theory and practice in the law, and the tension between practitioners and theorists. Judges do not cite theoretical articles often; they rarely "apply" theories to particular cases. These arguments are not revisited. Instead the Essay explores the working and interaction of theory and practice, practitioners and theorists.

The Essay starts with a story about solving a legal issue using our intellectual tools - theory, practice, and their progenies: experience and "gut." Next the Essay elaborates on the nature of theory, practice, experience and "gut." The third part of the Essay discusses theories that are helpful to practitioners and those that are less helpful. The Essay concludes that practitioners theorize, and theorists practice. They use these intellectual tools differently because the goals and orientations of theorists and practitioners, and the constraints under which they act, differ. Theory, practice, experience and "gut" help us think, remember, decide and create. They complement each other like the two sides of the same coin: distinct but inseparable.

Abstract:
This Essay proposes changing future government examinations of market intermediaries and focusing on bubbles and crashes as the main dangers to the financial system and the economy. Prior substantive regulation has an undesirable effect on innovations and freedom of the markets. Regulating after a crash (when the "horse has left the barn") is undesirable and ineffective. Therefore, the Essay proposes tighter and closer examinations somewhat different from the current ones: (1) Examine more frequently when market prices rise (not when the have fallen); (2) Examine entities that are too large to fail; those that are highly leveraged; those whose shares-prices rise steadily with little or no fluctuation; and entities that have obtained exemptions from regulation. (3) Examiners should search for violations of the law (and the spirit of the law), but not economic or financial rationalizations. (4) Examiners should be experts, highly paid and incentivized to remain in government employ. Expert information about the markets will hopefully reduce the impact of bubbles and inevitable crashes and the loss of investors trust that decimates the financial system.

financial regulation, markets, examination, bubbles and crashes

Abstract:
This Essay reviews three periods of investment company regulation by the Securities and Exchange Commission. It focuses on the period of 1975 to 2000 in which the Commission granted exemptions on conditions, thus deregulating and reregulating, case by case and finally codifying the exemptions in an exemptive rule. The Essay analyses this form of rule-making and compares it to prosecution, settlements, and initial rule-making that typifies the recent years. The Essay concludes that the common law method of legislation, especially when it involves a "bargain" between the regulators and law-abiding regulated institutions who wish to innovate, is likely to lead to optimal rules, provided the conditions (re-regulation) are rigorously enforced.

Abstract:
This Essay addresses corporate law's Default Rules, which allow corporations to waive their directors' liability for damages for breach of their fiduciary duty of care. Most large corporations have adopted such a waiver. This Essay distinguishes Private Contracts from Public Contracts. Public Contracts include legislation, referendums, and votes on specific outcomes, such as union members' votes on the contracts that their representatives agreed upon with management. This Essay shows that the courts view corporations and corporate articles as Public Contracts. In some Public Contracts gap-filling rules limit the scope of the Public Contracts to the information that the voters received before they voted. In waiver cases, however, the courts do not limit the scope of the waivers to the information that the voting shareholders received before they voted for the waivers. The Essay suggests that courts should follow Public Contract gap-filling rules and interpret the waivers as limited to the circumstances in which the voters voted, and the information they received before the voting.

Abstract:
A fundamental issue has been raised recently in connection with the status of "independent accountants." The issue involves a new breed of few very large accounting firms. These firms are engaged in global commerce and finance, and cater to an important segment of multinational corporations.

These mammoth accounting firms raise a familiar question in a new context. On the one hand, the size and diversity of the firms meet the needs of large multinational clients and offer efficiency benefits. On the other hand, these benefits expose the firms to increased possible conflicts of interest and endanger the firms' gatekeeping functions as auditors. Therefore, the applicability of the independence rules to, and the strategic structure of, these firms requires rethinking and an adjustment.

Abstract:
Innovations can consist of new lenses for viewing the state of the world. Securitizing risks is such an innovation. The process of securitization has been traditionally used as a method of converting illiquid financial assets into liquid marketable assets. In the process, functions are unbundled, and the risks of investors in these assets can be reduced by diversification and other means.

However, the same process of securitization can be used to transfer risks, whether represented by financial assets or attached to them. By this method risks can be stripped and transferred, creating a derivative security representing the amount and type of risk that investors in the markets are ready to underwrite (for a price). Until recently, risk transfer was considered the sole domain of institutional intermediaries, especially insurance companies. No longer. This function is becoming a joint domain of institutions and the markets.

Abstract:
Rarely has a change in the environment affected society as dramatically as the Internet. It has transformed the way we retain, transfer, and exchange information. At minimal cost, the Internet offers us far more information at a faster pace than ever before. It enables us to interact around the globe with more people than at any time in the past. When such dramatic environmental changes occur, drastic changes in the law often follow. 1 The Internet affects the environment in which securities markets operate, and the laws that govern them. 2 The use of the Internet has already begun to change the way information about securities is disseminated and the way in which securities are traded, 3 two activities that are regulated by the securities laws. 4 When the environment changes drastically, the gap between law in action and law on the book, between practice and theory, tends to widen. This Article is aimed at bridging this gap. Should the securities laws be adapted to the use of the Internet? If so, how? What path of inquiry should be taken to answer the questions and how should we think about adapting law to a changing environment of actors and actions subject to law? The main purpose of the Article is to begin this inquiry.

Abstract:
The Article suggests that many problems posed by securitization stem from the transformation of loans, viewed as contracts, into securities, viewed as personal property. Noting that because both contract and property protective legislation supports the "small guys" against the "big guys," regardless of whether they are borrowers (from banks) or lenders (to large issuers), the legislation creates a conflict between small borrowers and small investors. The Article discusses specific problems that these differences and conflicts raise in securitization, which commodifies personal relations, and the legal solutions that may give the upper hand to creditors, or debtors, or leave the resolutions of the issues to the markets.

Abstract:
Professor Frankel?s essay speculates on the long term implications of the SEC?s new N-1A disclosure form, plain English rule and profile disclosure document for investment companies. The essay also speculates on future trends in SEC enforcement actions and predicts a continued and stronger use of the kinds informal enforcement actions described in her essay.

Abstract:
The comment criticizes as wrong a number of fundamental doctrinal and policy assertions in this Article: A trust is not a contract nor combined agency and contract. The results of re-categorizing trust in this fashion are far reaching, and harmful; and the utility of trust is not protecting trust assets from claims of creditors but creating efficient mechanisms for asset management.

Abstract:
The Article discusses two puzzles posed by cross-border securitization.

First, why do the innovators in this area "give away" their creations through publications and other means rather than attempt to extract licensing fees by registering copyrights, patents, and trade names? The Article shows that innovators benefit from "giving away" their innovations through fees of the first clients or future clients to a greater extent than through licensing fees. Second, how can securitization markets develop under fragmented and unpredictable laws? The Article argues that cross-border securitization is flourishing under a "law merchant," which is later incorporated into domestic laws. In fact, innovations and standardization of law are developing in tandem and the same professionals that innovate are those that work on standardization of the law. The Article concludes that cross-border securitization serves as a case study of legal change from the bottom up, rather than from the top down.