New Releases by Frank Partnoy

This book is an engaging and accessible text for a Business Associations or Corporations law course. The clear narrative that students love now includes full chapters on agency and partnership for professors who cover those concepts, as well as updated materials on environmental, social, and governance issues and on shareholder activism. The book uses explanatory and thought-provoking breakout boxes, as well as points for discussion, to prepare students for lively classroom conversation.

This article considers a hypothetical corporate decision that will generate $5 million of profit today but result in the loss of one human life in ten years. This example is not abstract; corporations in a range of businesses engage in decisions and oversight that affect risk to human life: autonomous cars and airbags, pharmaceuticals and medical devices, and many categories of consumer products. Historically, social policy has responded to corporations that kill primarily through regulation and tort liability. I ask whether corporate law and governance might also address these issues. If corporations really are “people,” how should we think about them when they kill? The article assesses the literatures on the value of human life and relevant discount rates, and considers proposals to incentivize directors and officers to consider more explicitly the risks their corporations pose to human life.

Scholars and regulators g ...

This article was my contribution to the Symposium Professor Hillary Sale at Iowa organized to celebrate Robert C. Clark''s treatise, Corporate Law. This abstract is taken from the review essay of the Symposium by Professors Ronald Gilson and Reinier Kraakman, 31 Iowa J. Corp. L. at 606, and is an advertisement for the entire Symposium issue. In any event, Gilson and Kraakman summarize the article better than I could. Frank Partnoy''s contribution to this Symposium adopts a different tact to questioning the dominant ideology of shareholder primacy in corporate law. Rather than proposing someone other the shareholders to whom, in the eyes of the law, the board owes allegiance, Partnoy questions the internal coherence of the claim that corporate law should follow shareholder interests. The essential point of Partnoy''s paper is that the capital structure of a typical modern corporation is likely to contain several ticket-holders with equity-like claims on the firm''s cash flows. In any given conflict-of-interest scenario, forcing the board to favor the nominal shareholders over another class of the firm''s residual claimants may have perverse consequences. Instead, lining up with Jill Fisch, Partnoy concludes that the board should maximize the economic value of the firm, regardless of how cash flows are ultimately distributed to the firm''s security holders.

Notwithstanding the focus on hedge fund activism, fundamental questions remain. How much does hedge fund activism really matter? What has academic study contributed to the understanding of hedge fund activism? And what, if anything, does research on hedge fund activism illuminate about the viability of regulation in the area? This chapter for the Research Handbook on Shareholder Power (edited by Randall Thomas and Jennifer Hill) addresses these questions from three perspectives. First, it assesses the historical development of scholarship on hedge fund activism, from the first attempts to define “hedge funds” and “activists,” and to gather data about both. Second, it examines and critiques one of the “hot issues” that has emerged from the debate about hedge fund activism - the potential separation of voting and economic interests - and offers a new way of conceptualizing that issue, derived in part from tax regulation. Third, it compares regulatory approaches to hedge fund activism in the U.S. with approaches elsewhere. It closes with a discussion of one recent and controversial incident of hedge fund activism in Canada, involving shares of the Telus Corporation, and examines the role of academic research in assessing that incident.

From the bestselling author of F.I.A.S.C.O., a riveting chronicle of the rise of dangerous financial instruments and the growing crisis in American business One by one, major corporations such as Enron, Global Crossing, and Worldcom imploded all around us, prey to a greed-driven culture and dubious or illegal corporate finance and accounting. In a compelling and disturbing narrative, Frank Partnoy''s Infectious Greed brings to bear all of his skills and experience as a securities attorney, financial analyst, law professor, and bestselling author to tell the story of the rise of the trading instruments and corporate financial structures that imperil the economic health of the country. Starting in the mid-1980s with the introduction of the first proto-derivatives, and taking us through such high-profile disasters as Barings Bank and Long Term Capital Management, Partnoy traces a seamless progression to today''s dangerous manipulations. He documents how each new level of financial risk and complexity obscured the sickness of the company in question, and required ever more ingenious deceptions. It''s an alarming story, but Partnoy offers a clear vision of how we can step back from the precipice.

The United States economy is struggling to recover from its worst economic downturn since the Great Depression. After several huge doses of conventional macroeconomic stimulus - deficit-spending and monetary stimulus - policymakers are understandably eager to find innovative no-cost ways of sustaining growth both in the short and long runs. In response to this challenge, the Kauffman Foundation convened a number of America''s leading legal scholars and social scientists during the summer of 2010 to present and discuss their ideas for changing legal rules and policies to promote innovation and accelerate U.S. economic growth. This meeting led to the publication of Rules for Growth: Promoting Innovation and Growth Through Legal Reform, a comprehensive and groundbreaking volume of essays prescribing a new set of growth-promoting policies for policymakers, legal scholars, economists, and business men and women. Some of the top Rules include: • Reforming U.S. immigration laws so that more high-skilled immigrants can launch businesses in the United States. • Improving university technology licensing practices so university-generated innovation is more quickly and efficiently commercialized. • Moving away from taxes on income that penalize risk-taking, innovation, and employment while shifting toward a more consumption-based tax system that encourages saving that funds investment. In addition, the research tax credit should be redesigned and made permanent. • Overhauling local zoning rules to facilitate the formation of innovative companies. • Urging judges to take a more expansive view of flexible business contracts that are increasingly used by innovative firms. • Urging antitrust enforcers and courts to define markets more in global terms to reflect contemporary realities, resist antitrust enforcement from countries with less sound antitrust regimes, and prohibit industry trade protection and subsidies. • Reforming the intellectual property system to allow for a post-grant opposition process and address the large patent application backlog by allowing applicants to pay for more rapid patent reviews. • Authorizing corporate entities to form digitally and use software as a means for setting out agreements and bylaws governing corporate activities. The collective essays in the book propose a new way of thinking about the legal system that should be of interest to policymakers and academic scholars alike. Moreover, the ideas presented here, if embodied in law, would augment a sustained increase in U.S. economic growth, improving living standards for U.S. residents and for many in the rest of the world.

This article adds two important variables to the rules-principles debate: timing and source. In other words, the topic is the when and where of the application of both rules and principles. The goal is to ask, both generally and in the context of financial market regulation, how scholarly discussion of legal rules and principles law might benefit from a more transparent analysis of temporal and legal source variables. With respect to financial regulation, the article provides a framework for understanding and assessing the shift from ex ante to ex post and from principles to rules. It concludes that regulators and policy makers might benefit from considering the advantages of moving away from ex ante regulation in the direction of ex post adjudication.

This chapter of the forthcoming Oxford Handbook of Financial Regulation considers, in broad historical perspective and also with respect to the global financial crisis, why financial systems are crisis-prone and the relationship between financial crises and regulation. It begins with an overview of financial crises generally, and then considers both the historical and potential future role of regulation in financial crises. It discusses various theories of the roots of financial crises (cognitive error, moral hazard, information asymmetry, agency costs, trust, and complications of measurement and specification), as well as relevant policy measures (governance reforms, bank capital requirements, capital controls, and the role of the lender of last resort).

Ivar Kreuger (1880 – 1932) war die zentrale Figur des europäischen Zündwarenmonopols, ein genialer Geschäftsmann seiner Zeit. Faszinierend ist in erster Linie sein Erfindungsreichtum, mit dem er komplexe Finanzinstrumente entwickelte, um seine Transaktionen undurchsichtig zu machen. Nach seinem Selbstmord und dem Zusammenbruch seines Imperiums kamen immer mehr betrügerische Einzelheiten ans Licht. Sie führten schließlich zu den Wertpapiergesetzen von 1933 und 1934 in den USA, die u. a. Finanzderivate streng regulierten. Frank Partnoy hat diesen spannenden Stoff akribisch recherchiert und großartig nach-erzählt. Sein Buch zeichnet ein genaues Bild der schillernden Figur Ivar Kreuger und seiner dubiosen Methoden als Finanzgenie. Partnoy liefert ein Lehrstück aus der Vergangenheit mit klaren Bezügen zu vielen Fällen und Vorgängen der neuzeitlichen Finanzbranche: Bernie Madoff. Bernie Ebbers. Lehman. Flowtex.

Presents information from scientific studies and interviews with experts in several fields that suggests that delaying responses when making a decision can improve the decision quality, even in situations where time is in short supply.

In this paper, we begin by documenting the successes and failures of institutional shareholder activism in recent years in section I. We find that overall institutional activism has been of marginal importance at targeted firms. We then move on in section II to contrast institutional investor activism with the much more aggressive recent activism of the hedge fund managers. This discussion leads us to define the costs and benefits of hedge fund activism for each of the four major broad types of strategies that these funds have pursued: information asymmetry and convergence trades; capital structure motivated trades; merger and risk arbitrage; and most controversially, governance and strategy. This analysis shows that while there are benefits derived from hedge fund activism there are clear costs as well.Governance and strategy activism emerges as the most important force affecting corporate governance. We assemble some empirical evidence about the extent of this activism, including a list of the most active hedge funds with the number of significant equity positions they took in 2005. Additionally, for the period 1999 to 2005, we document the enormous upswing in hedge fund 13D filings in target companies revealing positions in excess of five percent. By examining a sample of these filings, we find that they overwhelmingly state that the hedge fund''s purpose is to engage in activist behavior. While much more analysis remains to be done, the evidence we present in this paper points to the importance of hedge fund activism as a new force that is causing rapid corporate governance changes.

The story opens with the purchase of a 9mm Browning at a small Paris gun shop by a man named Ivar Kreuger. The next morning, the world''s leading bankers nervously waited to ask Ivar about some forged Italian bonds. Hours later, his dead body was discovered and the largest financial empire of the era collapsed. This book traces Ivar''s meteoric rise from the obscurity of provincial Sweden, to become a construction mogul and then a global business oligarch. Ivar acquired match monopolies throughout the world and usurped J. P. Morgan to become the leading lender to foreign governments. His financial innovations resonate today. A self made media figure, he discovered and promoted Greta Garbo but also advised politicians, including President Hoover. Was he a financial genius or merely a schemer? Did he really stage his own suicide? This book brings back to life one of the greatest swindlers of all times.

A Businessweek Bestseller "You fail to read F.I.A.S.C.O. at your peril." —Los Angeles Times F.I.A.S.C.O. is the best-selling account of Frank Partnoy''s education in the jungle of high finance from 1993 to 1995. It follows the young Morgan Stanley salesman as he learns to navigate a marketplace where billions of dollars are made and lost in the creation and trading of derivatives, a type of security that almost nobody fully understands. Seen in relief against the financial meltdown of 2008, F.I.A.S.C.O. appears ever more prescient, and in a new epilogue written for this edition, Partnoy connects his story to the central role derivatives played in that crisis.

Softbound - New, softbound print book.

Historien om den excentriske og karismatiske finansmand og tændstikfabrikant, svenskeren Ivar Kreuger, fra fødslen 1880 til selvmordet i Paris 1932. I 1930 fremstillede hans fabrikker tre fjerdedele af alle tændstikker i verden. Kreugerkrakket i 1932 udløste en global krise, hvor millioner mistede deres opsparing og job

In this behind-the-scenes look at one of the world''s top Wall Street investment firms, Partnoy recounts his experience during the annual drunken skeet-shooting competition where he and his colleagues sharpen the killer instincts they''re encouraged to use against competitors, clients, and each other.

Materials reflect changing trends and new judicial developments. Each chapter includes a problem that focuses on class discussion. Many of the problems place students in the role of corporate planners, rather than litigators, and allow instructors to highlight the real-world impact of doctrinal uncertainty as concerns the scope of the director''s duty of care. The organization of the book also reflects the growing importance, doctrinally and structurally, of the business judgment rule. The early business judgment rule discussion facilitates discussion at later stages of how the rule affects the choice of organizational form and creates a need for more elaborate governance mechanisms in close corporations. Extensive notes provide students with necessary background information.

This article contributes to the new governance literature by analyzing how private parties profit from standards. Scholars previously have focused on what I call first-order profits from the right to extract rent directly from the ownership or application of standards. But some parties also make second-order indirect profits by engaging in some new enterprise not directly related to the value of the relevant standard. For example, an accounting firm can offer consulting services based on its reputation as a standard bearer. Second-order profits are most substantial for strong-form standards, which arise when the government designates a private entity as standard setter and assigns it the task of enforcement and regulation. This article suggests that the question of whether such privatization is beneficial depends not only on first-order rents, but also on second-order costs and benefits. It considers two examples from the financial markets: over-the-counter derivatives and credit rating agencies.

This article attempts to fill a few of the gaps in current scholarship about gatekeepers, and sets forth a proposal for a modified strict liability regime that would avoid many of the problems and costs associated with the current due diligence-based approaches. Under the proposed regime, gatekeepers (investment banking, accounting, and law firms) would be strictly liable for any securities fraud damages paid by the issuer pursuant to a settlement or judgment. Gatekeepers would not have any due diligence-based defenses for securities fraud. Instead, gatekeepers would be permitted to limit their liability by agreeing to and disclosing a percentage limitation on the scope of their liability for the issuer''s damages.For example, a gatekeeper for an issue might agree ex ante to be strictly liable for 10 percent of the issuer''s liability related to the issuance, measured by the present value of any payment by the issuer pursuant to a settlement or judgment. A particular gatekeeper''s liability would be limited to the issuer''s liability related to that gatekeeper''s role (e.g., counsel for the issuer or the underwriters generally would not be liable for material misstatements or omissions in audited financial statements). The percentage for each gatekeeper could range based on competitive bargaining and market forces, with a minimum limit (e.g., the amount of the gatekeeper''s fee, or perhaps a fixed amount of 1 to 5 percent) set by law. This modified strict liability proposal is intended to solve two important and parallel problems in securities regulation. The first problem is the rapidly increasing and substantial costs related to the role of gatekeepers in securities fraud, including both the costs of behavior designed to capture the benefit of due diligence-based defenses and - more importantly - the costs of resolving disputes about gatekeeper behavior. The second problem is that the value of gatekeeper certification is declining at the same time costs are increasing. The article gathers evidence to demonstrate these two problems, and shows how a strict liability regime might ameliorate them. Throughout this discussion, the article challenges the assumption that gatekeepers act as reputational intermediaries.

This article proposes a regime in which contracting parties would select menus of synthetic (hypothetical) cases published by private associations who then would commit to adjudicate future disputes between the parties based on those cases. The first half of the article analyzes common law and its regulatory alternatives and explains the advantages of synthetic common law relative to each alternative. The second half of the article analyzes how a synthetic common law regime could reduce uncertainty and unfairness in the market for financial derivatives.A synthetic common law regime could eliminate many of the problems associated with the current regulatory alternatives of common law, statutory law, private law, and private arbitration. Because synthetic common law would be based on ex ante findings by the parties, it more likely would reflect societal practice and parties'' expectations than does common law, which is based on ex post findings by a judge or jury. Because parties could incorporate synthetic common law cases at very low cost, the regime would not suffer from the depletion of relevant precedents, as real common law has. Because synthetic common law would be based on broadly ranging menus of cases, it would avoid the inflexibility of statute-based regimes. Because synthetic common law would rely on analogical reasoning by private judges based on cases specified ex ante, it would avoid certain intractable problems associated with private contract provisions, including the difficulty of specifying contingencies of rapidly evolving practices. Because synthetic common law would be administered privately it would generate the benefits of existing private dispute resolution regimes, but because synthetic common law would provide to parties a list of cases to govern any dispute, it would avoid the uncertainty and secrecy associated with private arbitration.Synthetic common law is an alternative regime to consider for legal scholars writing in the area of institutional competence and public choice. A public choice analysis need not compare only a legislature captured by special interests to a sluggish and ill-equipped judiciary. In certain areas of practice ? especially those with rapidly evolving technologies (e.g., finance, telecommunications, intellectual property, computer law, the Internet, and perhaps commercial or corporate law) ? synthetic common law may be a reasonable middle road.

This article considers efforts to regulate (and to prevent the regulation of) the $100 trillion-plus global market for financial derivatives. It divides the universe of derivatives regulation into four categories of rule making - statutory, judicial, private, and arbitral - and proposes changes within each category.

Credit ratings pose an interesting paradox. On one hand, rating agencies have great market influence and even greater market capitalization. On the other hand, numerous studies suggest credit ratings are of limited informational value. This paradox - continuing prosperity of credit rating agencies in the face of declining informational value of ratings - has generated extensive debate among commentators. In this article, I expand on and update a claim I made in 1999 (some have dubbed it a quot;complaintquot;) that regulatory dependence on credit ratings explains the paradox. Numerous legal rules and regulations depend substantively on credit ratings, and particularly on the credit ratings of a small number of Nationally Recognized Statistical Ratings Organizations (NRSROs). Moreover, the barriers to entering the NRSRO market are prohibitive. The result is that credit ratings issued by NRSROs are valuable to financial market participants even if their informational content is no greater than that of public information already reflected in the market.In particular, I analyze how these arguments apply to The New Basle Capital Accord, issued for comment on May 31, 2001. I argue that this accord is flawed to the extent it incorporates risk weights that depend on credit ratings, and recommend risk weights based on credit spreads.In addition, I respond to the argument some scholars have made that rating agencies should not and do not engage in reputation-depleting activity because of the risk of civil liability. In fact, the available evidence indicates that rating agencies'' expected civil liability is very low; rating agencies have not paid substantial damage awards in such litigation and by federal statute are immune from certain types of liability.

In this paper, I demonstrate the inefficiency of the current and historical patent terms, conduct simulations of an economic model of optimal patent length, and recommend some changes in patent policy based on these findings. First, I sketch the evolution of the current twenty-year patent term and its lack of responsiveness to changes in various financial variables. Unlike patent breadth, patent length has been fixed by legislatures for extended periods of time, even during recent years, when the 1998 State Street decision and it progeny have dramatically expanded patent breadth. Second, I conduct a series of simulations based on a dynamic model of the optimal patent term in order to analyze explicitly the effects of changes in certain financial variables (e.g., interest rates and the structure of patent-related cashflows). I find that the optimal patent term is highly sensitive to changes in the term structure of interest rates and to changes in the timing of cash outflows and inflows related to patents. For example, I find that under certain assumptions a one percent shift in interest rates results in an approximately one-year shift in the optimal patent term. Finally, I propose several alternative regimes under which the patent term could be made to vary in length based on interest rates or other financial variables.