Cary Martin Shelby (DePaul) Presents “Closing the Hedge Fund Loophole: The SEC as the Primary Regulator of Systemic Risk” at Boston College Law School

Professor Cary Martin Shelby (DePaul) is presenting “Closing the Hedge Fund Loophole: The SEC as the Primary Regulator of Systemic Risk” at BC Law School’s Regulation and Markets Workshop today.  The abstract:

The 2008 financial crisis sparked a flurry of regulatory activity and enforcement in an attempt to reign in activity by banks, but other institutions have also been identified as potentially threatening to the stability of the financial markets. In particular, several empirical studies have revealed that systemic risk can be created and transmitted by hedge funds. In response to the risk created by hedge funds, Congress granted the Financial Stability Oversight Council (“FSOC”) authority under the Dodd-Frank Act of 2010 to designate hedge funds as Systemically Important Financial Institutions (“SIFIs”). Such a designation would automatically result in stringent capital constraints and limitations on liquidity risk on these non-bank institutions. Yet in over six years since FSOC has been granted this authority, it has failed to identify even one hedge fund as a SIFI. In the face of massive resistance and deregulatory initiatives introduced under the Trump administration, it is highly unlikely to do so in the near future. The inability of FSOC to regulate systemically harmful funds is particularly troubling because several post-financial crisis studies have revealed that systemic risk can still be created and transmitted by hedge funds. Given FSOC’s inability to close this hedge fund loophole, this Article argues that Congress should explore appointing the SEC as the primary regulator of hedge funds because: (1) hedge funds can still pose a systemic threat to the economy; (2) the transparency framework inherent in the federal securities laws can supply a more effective means for mitigating systemic risk than the prudential framework currently mandated for SIFIs; and (3) appointing the SEC in this regard would reduce the fragmentation of the current regulatory structure which has been extended and complicated by the creation of FSOC. Although the federal securities laws are typically used to promote investor protection, this Article posits that enhancing transparency to hedge fund counterparties and investors can decrease systemic risk by empowering such market participants to better protect themselves against risk. Enhancing protection in this manner could in-turn weed out systemically harmful funds from the marketplace, without imposing the severe capital constraints that would be mandated under FSOC’s model.

If you’re an academic in the Boston area and would like to join us, please send me an email.

 

Some Initial Thoughts on the Paradise Papers Leak

Shu-Yi Oei

Another data leak broke on Sunday, November 5, while I was on a plane home from Bergen, Norway. Coincidentally, Diane Ring and I were in Bergen presenting our Leak-Driven Law paper at a tax conference organized by Max Planck Institute for Tax Law and Public Finance, Norwegian Centre for Taxation, and Notre Dame University.

This new “Paradise Papers” leak involves a set of 13.4 million records from 1950 to 2016.

From the ICIJ’s website:

“The new files come from two offshore services firms as well as from 19 corporate registries maintained by governments in jurisdictions that serve as waystations in the global shadow economy. The leaks were obtained by German newspaper Süddeutsche Zeitung and shared with the International Consortium of Investigative Journalists and a network of more than 380 journalists in 67 countries.”

The two offshore services firms in question are the offshore law firm Appleby and Asiaciti Trust, an offshore specialist headquartered in Singapore. Over 7 million of the records came from Appleby and affiliates.

Diane and I argued in Leak-Driven Law that (1) the high-salience and shocking nature of tax and other leaks and (2) the interventions of the press and other actors in processing, framing, and generating publicity about these leaks are important features that can affect how legal responses and reactions occur in the aftermath of a leak. We’ll be keeping track of how events unfold in the aftermath of this latest leak and how it fits or doesn’t fit with the observations in our paper:

Some initial notes and reactions:

This was at Least in Part a Cyber Hack.

Most of the news coverage I’m seeing is focused on the content on the leak, but it’s worth noting that at least with respect to Appleby, this new leak was in part a result of a cyberattack on Appleby that happened last year. I haven’t seen anything to suggest that this was a data theft by an insider (e.g., employee) turned whistleblower. In its response to the leak, Appleby defended itself and noted the challenges of cyber-crime for individuals and businesses.

The Appleby Hack Occurred in 2016.

Continue reading “Some Initial Thoughts on the Paradise Papers Leak”

Some Tax Reform Links and Tweets over at #BLPB

Ann Lipton at Business Law Profs Blog has assembled a nice collection of links to news commentary and tweets about the House tax bill.

Many of the links Ann has assembled look at the industry and deal-specific impacts of the tax bill…For example, potential effects on LBOs, sports stadium financing, future of stock options, higher education, and homebuilders.  A nice complement to the more ubiquitous analyses of revenue effects, scoring, and distributional estimates we’re seeing on the tax prof/economists side. This information about who is likely to feel what effects gives us some insights into how the politics/political economy of this tax reform is likely to unfold going forward. Well worth a click.

Rory Van Loo Presents “Making Innovation More Competitive: The Case of FinTech” at Boston College Law School

Shu Yi Oei

Boston College Law School’s Regulation and Markets workshop series continues today. Professor Rory Van Loo (BU Law) will present “Making Innovation More Competitive: The Case of FinTech.”

Abstract:

This Article examines recent financial technology (“fintech”) developments to diagnose the federal regulatory architecture surrounding innovation. Startups offer artificially intelligent financial assistants, touchless payments, and other potentially game-changing products for individuals. Yet unlike more lightly regulated industries such as retail goods, in consumer finance barriers to entry have insulated the largest businesses from competition. Regulatory insulation helps explain why too big to fail banks have become bigger, U.S. innovation has lagged that of foreign countries, and consumers pay higher prices.

Taking an institutional lens to this problem reveals an overlooked shortcoming in financial regulation: The organizational design of the administrative agencies responsible for enforcing competition. The current framework was built in the wake of financial instability and consumer protection crises, and its organizational design reflects those priorities. Competition enforcement for consumer finance is spread across five entities, including the Department of Justice and the Federal Reserve, each of which focuses on other industries or missions. In particular, agencies whose primary goal is to prevent banks from failing have insufficient incentive to ensure those same banks face competition. As a result, no regulator is optimally structured either to develop licenses suitable for startups or to address banks’ anticompetitive conduct.

The stakes of getting innovation competition right are increasing. Effective competition enforcement could enable new entrants to reduce the size of the largest banks—providing a partial market solution to taxpayer bailouts and to a major economic stability threat. It would also force U.S. banks to prepare for an increasingly borderless financial world in which virtual currencies bypass regulators. Inept competition enforcement could bring opposite results. As Google, Microsoft, and Facebook have shown, technology firms tend to capture higher market shares than those in other industries, often well over 60 percent. If a large bank were to attain similar shares, it could destabilize the financial system. Reallocating competition authority to a motivated financial agency would better position regulators to safeguard the future of finance.

If you’re an academic in the Boston area, please feel free to join us. You can send me email for more information.

Saule Omarova (Cornell) presents “Private Wealth and Public Goods: A Case for a National Investment Authority” At Boston College Law School

Shu Yi Oei

UPDATE 9/19/17: I blogged more about Omarova & Hockett’s National Investment Authority suggestion over on Taxprof Blog. You can read the post here.


Today, Boston College Law School welcomes Professor Saule Omarova (Cornell) as the first presenter in our inaugural Regulation and Markets Workshop Series. The paper (with Robert Hockett, also of Cornell) is entitled “Private Wealth and Public Goods: A Case for a National Investment Authority.” It’s available on SSRN.

Here’s the abstract:

The American Presidential election of 2016 was won under the rhetorical banner of returning America to its past productive glory. Any such undertaking presents an extraordinary challenge, demanding a correspondingly extraordinary institutional response. This Article proposes precisely such a response. It designs and advocates a new public instrumentality – a National Investment Authority (“NIA”) – charged with the critical task of devising and implementing a comprehensive long-term development strategy for the United States.

Patterned in part after the New Deal-era Reconstruction Finance Corporation, in part after modern sovereign wealth funds, and in part after private equity and venture capital firms, the NIA is an inherently hybrid, public-private entity that combines the unique strengths of public instrumentalities – their vast scale, lengthy investment horizons, and explicit backing by the public’s full faith and credit – with the micro-informational advantages of private market actors. By creatively adapting familiar tools of financial and legal engineering, the NIA overcomes obstacles that ordinarily impede or discourage private investment in critically necessary and even transformative public infrastructure goods. By channeling presently speculative private capital back into the real-economy, moreover, the NIA plays an important role in enhancing the resilience and stability of the U.S. and global financial systems.

The Article makes original contributions not only to contemporary policy debates over how to revive America’s productive prowess and bring its financial system back into the service of the real economy, but also to current theoretical understandings of “public goods” and how to provide them. It offers a more complete and coherent account of such goods as solutions to collective action problems that pervade decentralized markets, hence as goods that can be supplied only through exercises of collective agency. The NIA proposal advanced in the Article operationalizes this theoretical insight by elaborating a specific institutional form that such collective agency can take.

The paper is really interesting and I have many swirling thoughts. I’ll say more after the workshop.

 

Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall

Shu Yi Oei

I’m happy to announce that we have a couple of workshop series happening at BC Law School this academic year. I’m really quite excited about these. Because what’s life without a workshop?

Tax Policy Workshops & Roundtable…

Boston College Law School has run a Tax Policy Workshop Series since 2007. This fall, we continue in that tradition, with speakers Daniel Hemel (Chicago), Ruth Mason (UVA), Zachary Liscow (Yale), and Lily Batchelder (NYU) presenting papers.

BC Law and Tulane Law are also hosting a joint BC-Tulane Tax Roundtable on March 23, 2018. More info about that coming soon.

…and a New Regulation and Markets Workshop Series!

In addition, here’s something a bit fun: Some BC Law colleagues and I have started a new workshop series, focusing on Regulation, Markets, and Business. This multidisciplinary workshop series focuses on the study of regulatory approaches to markets and business. It investigates how such economic regulation should be designed in order to balance the interests of various constituencies. It also explores how traditional approaches to regulation compare, contrast, and intersect with emerging methodologies.

We’ll feature presentations by invited legal scholars of their works-in-progress. The hope is to create opportunities for scholars working on issues of economic regulation to discuss and present their research in a forum of academics working in related intellectual spaces. The workshop is offered to Boston College JD and LLM students as a 1-credit seminar.

Here’s the 2017-18 slate:

FALL 2017

September 12, 2017 – Saule Omarova (Cornell): “Private Wealth and Public Goods: A Case for a National Investment Authority”

September 26, 2017 – Rory Van Loo (Boston University): “Consumer Law as Tax Alternative”

Tuesday, October 17, 2017 – William Birdthistle (Chicago-Kent):  “Free Funds: Retirement Saving as Public Infrastructure”

Tuesday, November 14, 2017 – Cary Martin Shelby (DePaul): “The Role of Competition in the Regulation of Investment Funds”

Tuesday, November 28, 2017, 12:15 pm – Lily Batchelder (NYU), co-sponsored with Tax Policy Workshop: “The Shaky Case for a Business Cash-Flow Tax”

Continue reading “Something Old, Something New: Two Workshop Series @ Boston College Law School this Fall”

So about that Robot Tax…

Shu-Yi Oei

I came across a couple of news stories recently about how South Korea is introducing the world’s first robot tax. But based on the press reports, it sounds like the so-called robot tax is actually just a reduction of the tax deductions available to businesses that invest in productivity-boosting automation. The news sources themselves concede that this “robot tax” not exactly a tax on robots but rather a tax benefit reduction for automation investment.

Talk of a “robot tax” has landed at the forefront of tax news since Bill Gates mentioned it in a Quartz interview back in February of 2017. But of course, scholarship about robots (not to mention robots themselves) has been around for quite a bit longer. There’s even a “We-Robot” robotics law and policy conference that’s been going on since 2012, which I keep meaning to crash, but then there’s always something else going on.

A lot of what seems to be driving the tax conversation is the fear that robots are taking over jobs, though there’s some uncertainty about the extent to which robots are to blame.

Personally, I’ve been having a hard time squaring the newly ascendant tax conversation about the robot tax with the broader legal scholarship on robots. In some of the news and other commentary discussing Robotaxation, my reaction has been something to the effect of “I’m not sure that word means what you think it means.” Turns out, there is something of an existing conversation about what constitutes a robot in the first place—see, for example, Richards and Smart (2013) for a nice discussion of some of the definitional issues. See also this “What is a Robot?” piece in The Atlantic. In defining “robot,” it might matter how a robot moves in the physical world, what kind of quasi-independent agency it seems to exercise (autonomous vs. semi-autonomous), how humans interact with it, and even what sorts of emotions it triggers in us mere humans. We might understand some automated machines to be robots but others to just be automated equipment. And these distinctions make sense, from the viewpoint of areas like tort law, privacy law, the law of principals and agents, and the more general regulation of robots (and of artificial intelligence as a subcategory of robots).

But in some of the tax discussions about robots that I’ve seen on the interwebs, it’s quite clear that the authors don’t necessarily mean Robot when they say Robot. Continue reading “So about that Robot Tax…”

Villanova Seeks to Hire Assistant/Associate/Full Professor of Law and Federal Tax Clinic Director

And here’s another hiring announcement:

Villanova University Charles Widger School of Law seeks an outstanding lawyer-educator to direct and teach its nationally regarded Federal Tax Clinic. The Clinic represents low-income taxpayers in controversies with the IRS. The Director oversees students working in teams on examinations, administrative appeals, collection matters, and cases before the United States Tax Court, Federal District Courts and Appeals, as well as on comments projects relating to guidance issued by the IRS or Treasury.

The Director will be either a full-time continuing non-tenure track (governed by ABA Standard 405 ( c ) ), tenure-track, or tenured member of the faculty, depending on the qualifications and aspirations of the successful candidate.

Minimum Qualifications:

• A Juris Doctor degree is required.
• Pennsylvania bar membership (or an ability to waive into the Pennsylvania bar) is required.
• Outstanding clinical teaching ability is required.
• Expertise in federal tax law is required.
• Outstanding scholarly potential is required for candidates seeking a tenure-track position. A demonstrated record of outstanding scholarship is required for candidates seeking a tenured position.

Preferred Qualifications:

• Five years of legal experience is strongly preferred, as is experience working on behalf of low-income taxpayers.
• Prior clinical teaching experience is advantageous, but not essential.

What My Noisy New Hobby is Teaching Me about Tax

Shu Yi Oei

While Sam was out there visiting the National Parks, I went and acquired a noisy new hobby.

drums

So far, I’ve only had two drum lessons but am completely hooked. What took me so long to pick up the drums? If you love music, get a kick out of repetitive motion, and enjoy making a big noise, I highly recommend it.

Learning the drum set is a matter of first impression for me. [FN1] So the actual noise making aside, it’s given me an unexpected midsummer opportunity to revisit what it feels like to learn a new skill for the first time, which of course makes me think about the fundamentals of teaching and writing in tax.

Here are some newbie observations:

  1. Assembling the Drum Set

I went out and bought a cheap drum set so I could practice at home. What really surprised me was the amount I learnt about the drums simply by virtue of assembling the drum set. Things I know now that I didn’t know before:

  • That restaurant in New Orleans called the High Hat? Turns out it probably isn’t named after an actual hat.
  • Who knew you had to tune the drums? It’s almost as if it’s a musical instrument or something.
  • The crash cymbal and high hat sit much lower to the ground than I had ever imagined.
  • You can actually turn the snares on a snare drum on and off. Did I know that? Nope.

The experience of assembling my own drum set was so useful that it got me thinking about how one might get one’s tax students to do the equivalent of assembling a drum set. Continue reading “What My Noisy New Hobby is Teaching Me about Tax”

We Hear What We Want to Hear

Shu-Yi Oei

I’ve been preoccupied by country music these past few days. For this, I blame my Tulane colleague, Sally Richardson, who recently wrote this post on Property Law Profs Blog. In it, Sally makes the following observation:

Last week, my good friend, brilliant colleague, and property law scholar extraordinaire, Jim Gordley (Tulane), told me that he had been on a road trip and listened to a good deal of country music.  In the course of listening to a series of country songs, Jim decided that country music was about two things:  love and breaking the law.  Being from the south and having listened to my fair share of country music, I have to admit that Jim is right.  Just listen to Friends in Low PlacesAchy-Breaky HeartBefore He CheatsFolsom Prison Blues, and Ol’ Red and you can see for yourself.  Sure, there are some other songs about dogs and beer, but those are really in the minority.  Most country music is about love and the law.

Sally also shares some really genius lyrics coined by Jim, which include:

I assign and convey to you
That unencumbered heart
With one restrictive covenant
That we shall never part,
And this condition subsequent
That if you let it break,
Then I in my discretion
May reenter and retake.

Reminds me a bit of the Conway Twitty tax case—both the Tax Court’s Ode and the IRS AOD in response!

Of course, as a matter of substance, I think Jim and Sally are dead wrong. Love and breaking the law…pshaw! Aside from some notable lines such as the one about Ilsa the acrobat falling in love with Horatio the Human Cannonball, country music is, in fact, all about economic security, lending and financing, foreclosure, bailouts, and tax.

Let me explain:

Caveat: I have an immense soft spot for country music. Some days I have half a mind to move to Nashville and try to earn a living as a country music songwriter. (I’m only very slightly kidding about that.) However, I do not actually know anything about country music. And obviously, country music has a bazillion subgenres is about lots of other things as well (as this article describes), including the painful, painful process of creating legal scholarship.

Continue reading “We Hear What We Want to Hear”