{"id":11499,"date":"2010-09-13T10:06:43","date_gmt":"2010-09-13T15:06:43","guid":{"rendered":"http:\/\/law.marquette.edu\/facultyblog\/?p=11499"},"modified":"2010-09-13T10:06:43","modified_gmt":"2010-09-13T15:06:43","slug":"will-financial-regulation-make-us-safe-part-ii","status":"publish","type":"post","link":"https:\/\/law.marquette.edu\/facultyblog\/2010\/09\/will-financial-regulation-make-us-safe-part-ii\/","title":{"rendered":"Will Financial Regulation Make Us Safe? (Part II)"},"content":{"rendered":"

\"\"<\/a>This is the second post on this topic.\u00a0 Good to see you back for more!\u00a0\u00a0Based on all of the notes that I received following my first post<\/a>, the readership levels of this site are much higher than I expected.\u00a0 Thanks for all of the kind feedback and responses.<\/p>\n

I think that some of my former colleagues over at Stark Investments are thinking that they created a blogging monster (while at Stark I maintained a blog and I bet that some are thinking that I have taken things to a new extreme\u2026.).\u00a0 While on that topic, I did want to mention a couple of tidbits about Stark Investments (it seems that some folks are still interested in what I have to say on the topic).<\/p>\n

The original founders of Stark \u2013 Brian Stark and Mike Roth \u2013 were true pioneers in the hedge fund industry and played an important role in the evolution of this space and in paving the way for all those that followed into the business (including myself).\u00a0 At its core, the hedge fund business (or “alternatives business” as it is commonly referred to) is based on the goal of providing absolute returns in an uncorrelated fashion (providing more attractive risk-adjusted returns than can be found from other investment techniques and strategies).\u00a0 As they say about sports and hitting a baseball, achieving these objectives is one of the hardest things to do in any profession.\u00a0 In any event, Brian and Mike have been doing this as long as anyone in the business.\u00a0\u00a0 I had a great 10 years working for the two of them and I learned much from both of their styles.<\/p>\n

\u00a0Ok, enough of that stuff.\u00a0 Let\u2019s talk about financial regulation.\u00a0 The last major overhaul of the regulatory structure of our financial markets, not surprisingly, occurred following the Great Depression.\u00a0 The regulatory reaction to the stock market crash was the adoption of two cornerstone pieces of legislation which still provide the backbone of our regulatory structure — the Securities Act of 1933 (the “’33 Act”) and the Securities Exchange Act of 1934 (the \u201c34 Act\u201d). The 33 Act, administered by the then newly created Securities & Exchange Commission (the \u201cSEC\u201d<\/a>), provides for the registration of the initial distribution of most securities and the 34 Act imposes ongoing reporting and disclosure requirements.<\/p>\n

\u00a0The policy behind the Acts was that disclosure of material facts and overall transparency in the activities of the securities exchanges would provide confidence in the markets and in the companies issuing securities.\u00a0 Increased transparency, in turn, would promote much-needed liquidity which makes the markets function in an orderly fashion (the pre-Depression markets were characterized by insider dealing and a significant laissez-faire attitude towards regulation).\u00a0 This “sunlight theory of regulation” is based on the assumption that if investors are given all of the necessary information they will make wise investment decisions. Commentators have characterized the ’33 Act as follows (these quotes, some of my personnel favorites, can also be found on the State of Wisconsin Department of Financial Institutions website<\/a>):<\/p>\n