Prerequisite: Business Organizations
Strongly Recommended as a prerequisite or co-requisite: Securities Regulation
Over the past 25 years, public participation in the securities markets has increased dramatically. Almost
50 percent of American households own stock, either directly or through retirement plans.
Notwithstanding the Madoff Ponzi scheme and the recent market downturn, public participation has not
waned much. And depending on the success of efforts to restructure the retirement plan system, those
numbers may increase. Mutual funds are one kind of pooled investment vehicle more formally known as
"investment companies." They have been an increasingly popular vehicle for investing in stocks and
other securities in the United States and abroad. There are approximately 8,000 different funds in the
United States and the total amount of assets held by U.S. funds remains over $9 trillion. Mutual funds
typically are established and advised by investment advisers, which may be large public companies with
their own shareholders or small private organizations with few employees. Both investment companies
and investment advisers are extensively regulated.
This is advanced course in securities regulation. We will focus on the legal structure of investment
companies, restrictions on their operation, and the relationships between investment advisers and the
investment companies they advise. We will address questions such as what is a mutual fund under
applicable federal law? How are mutual funds organized and governed under both federal and state laws?
What are the legal requirements for a fund's purchase of stocks or other assets? What conflicts of
interests are posed by the funds and their advisers? What disclosures must funds make and what are the
other duties and obligations of funds and their advisers? What is the legal status of unregistered funds,
such as hedge funds? We also will consider business issues that motivate mutual funds and their advisers.
How do funds distribute and sell their shares? What are the business reasons for different marketing
strategies? What has been the regulatory response to different marketing channels? Finally, we will look
at public policy issues concerning mutual fund regulation. How does the SEC regulate the industry? To
what extent can the market itself provide appropriate protections? What is the role of self-regulation by
industry associations? What factors govern the appropriate mix of regulatory forces?