A Free Pass for Foreign Firms? an Assessment of SEC and Private Enforcement against Foreign Issuers
Shnitser, Natalya, The Yale Law Journal
NOTE CONTENTS INTRODUCTION I. THE U.S. CAPITAL MARKETS AND THE CROSSLISTING PHENOMENON A. An Overview B. The Bonding Hypothesis C. Crosslisting: Procedural and Substantive Requirements 1. How Foreign Issuers Become Subject to U.S. Securities Laws 2. Exceptions and Exemptions for Foreign Issuers 3. Substantive Requirements for Foreign Private Issuers Registered with the SEC 4. Impact of Sarbanes-Oxley II. PUBLIC ENFORCEMENT AGAINST FOREIGN ISSUERS A. Scholarship on Public Enforcement B. SEC Enforcement: Previous Empirical Findings C. SEC Enforcement Against Foreign Issuers: Theoretical Expectations III. DATA AND EMPIRICAL METHODOLOGY A. Part 1: Search for Enforcement Actions Against Companies on the SEC's Lists of International Registered and Reporting Issuers B. Part 2: In-Depth Review of SEC Enforcement for Issuer Reporting and Disclosure Violations IV. EMPIRICAL RESULTS A. General Enforcement Trends B. Issuer Reporting and Disclosure Enforcement: A Comparison of Enforcement Rates C. Delinquent Issuer Enforcement: A Comparison of Enforcement Rates D. FCPA Enforcement Trends V. PRIVATE ENFORCEMENT AGAINST FOREIGN ISSUERS A. Class Action Trends in the United States B. Class Action Trends Abroad CONCLUSION APPENDIX
In both the scholarly work of the last decade and in recent policymaker reports, (1) the competitiveness of U.S. financial markets has been evaluated in part by their ability to attract foreign companies to raise capital in the United States by listing or crosslisting on U.S. exchanges. (2) While policymakers have advocated reforms to make U.S. markets more attractive to foreign firms, scholars have sought to understand exactly what draws foreign issuers to crosslist in the United States and how such companies--and their investors--are affected by the decision to sell securities in the United States. The dominant academic explanation of crosslisting has emphasized the "bonding" effect of listing on U.S. markets. (3) Building on the law and finance literature, the proponents of the bonding hypothesis have focused on the effect of legal origins, rules, and institutions on crosslisting patterns. (4) They have posited that companies from countries with weaker legal regimes and capital markets list their shares in the United States to rent a stronger securities law and enforcement regime and "leapfrog local impediments." (5) By submitting to the disclosure requirements and public enforcement powers of the Securities Exchange Commission (SEC), as well as to the private enforcement powers of shareholders, foreign companies have been able to credibly subject themselves to the stricter legal and regulatory requirements available in the United States, and in return, to enjoy higher market valuations and lower costs of capital.
In much of this research, however, enforcement of the securities laws--an important premise of the argument--has been "relegated to status as a given." (6) Scholars have focused on comparing the substantive doctrinal differences between various legal and regulatory regimes, but little attention has been devoted to determining whether the securities laws analyzed by scholars are being enforced or whether the nominally powerful regulators are doing their jobs. (7) Although recent scholarship has begun to examine the role of enforcement, with the exception of recent research by Kate Litvak, (8) much of the work has focused on aggregate enforcement trends or country-to-country comparisons of general enforcement patterns. (9) Since little attention has been devoted to studying enforcement patterns for crosslisted firms, the impact of the enforcement of securities laws on the crosslisting phenomenon remains poorly understood.
It may be true that on paper, U. …