China and the Rise of Law-Proof Insiders

Jesse M. Fried and Ehud Kamar

Alibaba, the e-commerce giant that completed a record-setting IPO in the United States in 2014 and reached a peak value of more than $800 billion in 2020, is one of hundreds of China-based firms whose listing in the United States—rather than in China— makes their controlling insiders essentially law-proof: the non-Chinese corporate and securities laws governing these firms are unenforceable because the firms’ insiders, records, and assets are in China. The fact that a foreign firm can minimize legal constraints by listing in the United States rather than in its home country casts doubt on the claim that foreign firms list in the United States to bond insiders to its tough securities law. Indeed, for China-based firms, listing in the United States but not in China insulates insiders from any securities law. Ironically, U.S. securities law not only allows these firms to list in the United States, but also allows them to disclose less than domestic firms. This uneven treatment favors foreign entrepreneurs and likely harms U.S. investors. Recent U.S. efforts to address the risks posed by China-based firms leave the fundamental problem of lawproof insiders unsolved. We suggest ways to better protect investors and, more generally, argue that enforceability is key to corporate governance.

U.S. International Tax Policy and Corporate America

Christopher H. Hanna and Cody A. Wilson

Given the Republican-controlled House and narrow Democratic majority in the Senate, the Biden Administration has found itself in the perilous situation of needing to raise tax revenue while retaining the support of moderate Democrats. President Biden has proposed raising revenue by bringing the United States closer to a worldwide no deferral system and raising the corporate tax rate from 21 percent to 28 percent. These changes are unlikely to become law. Together, they simply do not have the support of moderate Democrats, Republicans, and, especially, Corporate America. This Article aims to resolve the Biden Administration’s conundrum by proposing a worldwide no deferral system with a corporate tax rate in the mid to high teens.

The Irrelevance of Delaware Corporate Law

Robert J. Rhee

Delaware corporation law is dominant in America. If the effects of efficient rules are incorporated as information by an efficient capital market, the preferred choice of Delaware could evince the market’s deliberate selection of better laws. Superior law as a product of state competition is the central argument for corporate law federalism. Despite the spirited debate on the race to the bottom or the top, a recognition of a “Delaware premium” to firm value is scant. This Article conducts a longitudinal study of valuations. It analyzes the market values and stock prices of public Fortune 500 companies over the five-year period from 2015 to 2019. About one-third of public Fortune 500 companies are chartered in other states, including some of America’s largest, most important companies. This Article conclusively shows that Delaware corporations are not valued more than those chartered in other states. There is no actionable Delaware premium. The conclusion here is counterintuitive, given the dominant orthodoxy and broad commitment to the Delaware brand by academics and elite corporate lawyers.

How Fatal Ambiguity Undermines Effective Insider Trading Reform

Kevin R. Douglas

Lawmakers are building momentum towards codifying our insider trading laws to clarify which kind of trading is illegal. In May 2021, the United States House of Representatives passed the Insider Trading Prohibition Act for the second time in two years. In January 2020, a Securities and Exchange Commission-sponsored Task Force on insider trading released a report containing proposed legislation. Both the House Bill and the Task Force proposal would prohibit trading while in possession of “wrongfully obtained” information and prohibit trades that involve a “wrongful use” of information. This Article explains why the concept of “wrongful” trading is too ambiguous to improve insider trading law and explores the requirements of effective legislative reform. Further, this Article demonstrates that the confusion in insider trading law is neither caused by a tension between fairness and efficiency nor by a tension between investor protection and the public interest.