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Abstract:
The 2006 FIFA World Cup was a disappointing display of soccer, comprising forgettable athletic contests that turned most critically on the administration of justice. Referees, more than athletes, emerged as the central protagonists in each game by providing the most dramatic plot twist - either by handing out red cards, which they did at a record pace, or awarding penalty kicks, which provided the winning goal in almost ten percent of the tournament's games. For much of the viewing public, the footballers' performances were even more deplorable, as players constantly flopped to the ground at minor or nonexistent contact and thrashed about in apparent agony.

Of course, the power of the referees and the acting of the players are closely intertwined, as any system of human order that bestows sweeping authority on its magistrates invites perjury. This article explores the cynical state of World Cup soccer and examines a number of proposals to reduce the game-changing power of referees and the melodramatic chicanery it inspires. If the array of referees' punishments and rewards can be adjusted, we might be able to increase players' incentives to play a more beautiful game in future World Cup tournaments.

governance, incentive, punishment, reward, football, soccer, World Cup, FIFA, red card, yellow card, sin bin, law and economics, cricket, hurling, basketball, rugby

Abstract:
One of the most dynamic and complex new investment vehicles on the market today is the exchange-traded fund (ETF), a security that provides the diversification of a mutual fund but trades on a securities exchange like a stock. In just fifteen years, the number of ETFs has proliferated to well over 600, attracting more than half a trillion dollars in investment. The majority of that expansion has occurred in just the past two years, largely as a consequence of recent difficulties in the mutual fund industry. With ETF sponsors aggressively seeking to create novel kinds of ETFs and to add ETFs to retirement account menus, these funds are projected to continue growing at a pace far faster than hedge funds and mutual funds in the coming years.

Yet, for all this extraordinary growth, legal scholars have virtually ignored ETFs. This article seeks to establish a descriptive and conceptual framework for the scholarly discussion of these funds as they gain ever-greater prominence, for good or for ill, in the coming years. In exploring the structure, advantages, and shortcomings of ETFs, this article argues that ETFs are a positive market response to the shortcomings of mutual funds.

ETFs use a novel pricing mechanism that harnesses the utility of arbitrage to provide investors with accuracy, efficiency, tax advantages, and a range of investment choices, while insulating investors from many of the structural problems associated with mutual funds. Despite these advan-tages, critics decry their brokerage fees and vulnerability to harmful short-term trading. This article argues that the mutual fund industry and its recent spate of dramatic scandals contributed to the emergence of ETFs and concludes that mutual funds offer vivid warnings of the conflicts of interest that may come to afflict the ETF industry as it continues to grow.

Delaware, Journal, Corporate, Law, ETF, investment vehicle, exchange traded fund, investing

Abstract:
Amici curiae law professors filed this brief to urge the Court to grant the petition for certiorari and to clarify the proper scope of the fiduciary duty under Section 36(b) of the Investment Company Act that investment advisers owe to mutual fund shareholders with respect to the compensation that advisers receive. The brief addresses the Seventh Circuit's decision to disavow the long-established Gartenberg precedent and to hold, instead, that so long as an adviser make[s] full disclosure and play[s] no tricks, a plaintiff cannot prevail in a Section 36(b) action. Amici argue that the Seventh Circuit's decision creates a circuit split, elides a critical provision from the statutory text, and engages in a superficial market analysis.

Section 36(b), Investment Company Act, fiduciary duty, mutual fund, compensation, Barbara Baker Aldave, William Birdthistle, James Cox, Jill Fisch, Jesse Fried, Jeffrey Gordon, Donald Langevoort, Charles Murdock, Donna Nagy, Alan Palmiter, William Sjostrom, Ahmed Taha, Randall Thomas, Manning Warren

Abstract:
Next Term, in Jones v. Harris, the Supreme Court will be called upon to resolve philosophical divergences on a massive, critical, yet academically slighted subject: the dysfunctional system through which almost one hundred million Americans attempt to save more than ten trillion dollars for their retirement. When this case was in the Seventh Circuit, two of the foremost theorists of law and economics, Chief Judge Frank Easterbrook and Judge Richard Posner, disagreed vociferously on competing analyses of the investment industry. The Supreme Court’s ruling will not only resolve the intricate fiduciary and doctrinal issues of this dispute but also have profound implications upon several major theoretical debates in contemporary American jurisprudence: the clash of classical versus behavioral economics; the judicial capacity to evaluate increasingly sophisticated econometric analyses of financial systems; and the determination of the legal constraints - if any - upon executive compensation decisions.

In this Article, I advance a positive account of the economic and legal context of this dispute and then argue normatively for a behavioral approach to its resolution. Because of the unique structure and history of the personal investment industry in the United States, the architecture of this segment of the economy is singularly bereft of beneficial market forces and thus vulnerable to significant fiduciary distortions. The ultimate judicial resolution of this dispute should take full account of the behavioral constraints upon individual investors and their advisors to avoid nullifying a federal statute and to impose discipline in a vital segment of the U.S. economy.

mutual fund, gartenberg, section 36(b), fiduciary duty, jones, harris, jones v. harris, behavioral economics, governance, investment, savings, retirement, excessive, fees

Abstract:
The nature of private equity investing has changed significantly as two dynamics have evolved in recent years: portfolio companies have begun to experience serious financial distress, and general partners have started to diversify and desegregate their investment strategies. Both developments have led private equity shops - once exclusively interested in acquiring equity positions through leveraged buyouts - to invest in other tranches of the investment spectrum, most particularly public debt. By investing now in both private equity and public debt of the same issuer, general partners are generating a host of new conflicts of interest between themselves and their limited partners, between multiple general partners in the same consortia, and between private investors and public shareholders.

In this essay, we identify and explore these various new tensions that have begun to arise in the private equity industry. We then propose and examine an array of possible ways to eliminate or alleviate those conflicts, exploring the regulatory, fiduciary, and pragmatic strengths and weaknesses of each approach. General partners can seek investor unanimity or consent for follow-on investments, but certain tax and practical barriers complicate that approach. Alternatively, they can opt for a range of architectural prophylaxes to protect against conflicts. These add costs on everyone, however, and, experience in related fields shows, they do not work. Investors, for their part, can attempt to diversify their own investment holdings to counterbalance risk, but this still leaves some vulnerable to opportunistic fund managers, and may increase costs for all investors as well. We propose a less costly and more efficient solution: advisers and investors should work together to create a vibrant secondary market for private equity interests to create a salutary exit option, which would in turn discipline the investment behavior of fund managers in this turbulent new investing environment.

Abstract:
The allegations of malfeasance in the investment management industry - market timing, late trading, revenue sharing, and several others - involve a broad range of mutual fund operations. This Article seeks to explain the common source of these irregularities by focusing upon a trait they share: the practice of investment advisers' capitalizing upon their managerial influence to increase assets under management in order to generate greater fees from those assets.

This Article extends theories of executive compensation into the context of investment management to understand the extraction of rents by mutual fund advisers. Investment advisers, as collective groups of portfolio managers, interact with the boards of trustees of mutual funds in ways analogous to the dealings of business executives with corporate boards of directors. In this setting, the managerial power hypothesis of executive compensation provides a useful paradigm for understanding distortions in arm's-length bargaining between investment advisers and fund boards, as well as limitations of the market's ability to ensure optimal contracting between those parties.

mutual fund, investment adviser, investment management, executive compensation, optimal contracting, managerial power, Bebchuk, fund, corporate governance, board of trustees, board

Abstract:
Amici curiae law professors filed this brief to urge the Seventh Circuit to grant the plaintiffs' petition for rehearing en banc to clarify the proper scope of the fiduciary duty under ERISA in the context of investment funds. The brief argues that members of the Seventh Circuit have taken conflicting positions on the central issue regarding whether the market for mutual fund fees is competitive, that this case presents an excellent opportunity to reconcile its doctrine in this area, and that the panel's decision to expand the Section 404(c) exemption to the fiduciary duty eviscerates an essential element in the security of retirement savings plans.

Mutual fund, advisory fees, ERISA, fiduciary duty, Jones, Harris, compensation, 404(c), William Birdthistle, James Cox, Tamar Frankel, Paul Secunda, Peter Stris

Abstract:
Amici curiae law professors filed this brief to urge the Court to reverse the Seventh Circuit and to apply a fiduciary standard under Section 36(b) of the Investment Company Act with modest scope but forceful effect to counterbalance the structural and behavioral vulnerabilities preventing market forces alone from imposing competitive discipline upon mutual fund advisory fees. The brief addresses the Seventh Circuit's decision to disavow the long-established Gartenberg precedent and to hold, instead, that so long as an adviser make[s] full disclosure and play[s] no tricks, a plaintiff cannot prevail in a Section 36(b) action. Amici argue that the Seventh Circuit's decision disregards Section 36(b)'s legislation, legislative history, and judicial precedent. With a greater appreciation for the unique structure and operation of mutual funds, the Supreme Court should emphasize comparisons between retail and institutional fees in the Section 36(b) fiduciary duty.

Amici: Barbara Bader Aldave, William Birdthistle, Barbara Black, Douglas Branson, James Cox, Steven Davidoff, Lisa Fairfax, James Fanto, Jesse Fried, Theresa Gabaldon, Joan MacLeod Heminway, Donald Langevoort, David Millon, Lawrence Mitchell, Charles Murdock, Donna Nagy, Elizabeth Nowicki, Alan Palmiter, Frank Partnoy, Margaret V. Sachs, William Sjostrom, Marc Steinberg, Ahmed Taha, Steven Thel, Randall Thomas, Manning Warren

Section 36(b), Investment Company Act, fiduciary duty, mutual fund, compensation, Gartenberg, Supreme Court